Part I



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Building a Workforce for the Information Economy Part I

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Building a Workforce for the Information Economy This page in the original is blank.

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Building a Workforce for the Information Economy 1 The IT Sector: Context and Character 1.1 THE TRAJECTORY OF INFORMATION TECHNOLOGY Few foresaw the rate of progress in information technology (IT) and the IT-producing industries over the last few decades—a brief period in which computing went from infancy to ubiquity. Digital technologies have become plentiful, inexpensive, and powerful. Through successive waves, computing advanced from stand-alone systems to batch processing, from batch processing to time-sharing, from time-sharing to personal computers, and now from personal computers to information appliances connected to the Internet. Each of these transitions enabled computing to reach an ever-widening circle of users. Microprocessors are now in machines everywhere, from supercomputers to servers, to very powerful desktop and portable computers, to consumer devices and specialized equipment of all kinds. They are embedded in automobiles, aircraft, and telephones, controlling such functions as antilock brakes, automated landing systems, and cellular call processing. While small or everyday systems capture the popular imagination, large systems power many sophisticated applications. When characterizing IT systems, large can refer to the kind of problem to be solved, and so-called high-performance systems handle complex applications with large numbers of computations or store huge amounts of information. Large can also refer to the number of connections among devices and smaller systems, and thanks to the Internet, computer-based networking is increasingly large-scale, integrating products and applications from dif-

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Building a Workforce for the Information Economy ferent vendors and organizations. The prospect of a connected planet has become compelling, driving public and private IT investment around the globe. Advances to date are only the beginning, because their impact cumulates and compounds. As a result, the IT industries and everything they touch are in the process of profound and ongoing change. IT has gone from a niche sector, touching relatively few people (compared to the telephone, automobile, and broadcast industries), to one that feeds every aspect of business and society. No longer just a set of tools aimed at business and technical users, IT has started to reach larger and larger numbers of people, promising to bring all kinds of information and applications into homes and social interactions as well as businesses, governments, universities, and other institutions. It is changing how institutions operate and deal with constituents from employees to customers, and it is changing how people deal with each other, whether at work or at home. These phenomena provide an important foundation for understanding the issues surrounding the IT workforce. 1.2 AS GOES IT, SO GOES THE IT WORKFORCE The IT workforce is both a result and an enabler of IT, the family of technologies associated with computing, communications, and related information handling. The history of IT1 is brief enough that many are familiar with IT-related occupations that grew and then declined, notably computer operators and data-entry workers—occupations made obsolete by advances in the ease and extent of use of computers sketched above. These, however, are occupations relating to IT use—a large and diverse set of occupations becoming pervasive in the labor force but outside the scope of this report. Here is addressed “IT work,” which (as explained in Chapter 2) makes possible the growing variety of IT uses. IT work begins with the production of the essential components of IT and extends into the art of combining those components into more elaborate systems and applications—the steps that help people to realize the potential of the technologies. Put simply, there are three categories of IT components,2 which may be used independently or, increasingly, in combinations realized as a 1   For an overview of that history, which is concentrated in the second half of the 20th century, see Computer Science and Telecommunications Board, National Research Council. 1999. Funding a Revolution: Government Support for Computing Research. Washington, D.C.: National Academy Press. 2   This report uses the term “components” broadly to cover the three categories described, rather than narrowly, as is sometimes the case, to refer only to hardware.

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Building a Workforce for the Information Economy burgeoning variety of applications—office productivity enhancements, electronic commerce, entertainment, enterprise management, travel reservation systems, supply-chain management, distance learning, tele-medicine, data mining and knowledge management, military command and control, electronic government, and so on.3 First, IT includes hardware, from the semiconductor components ( “chips”) that provide basic processing, memory, and other functions to the larger devices (such as computers of various sizes, the routers that move Internet traffic, or personal digital assistants) that house such components. The vaunted rapid rate of change in IT is most evident in hardware, where numerous components and larger devices have become commodities or mass-market products, as predicted by Moore's law, which projects a doubling of chip capacity about every 18 months. 4 Hardware production, per se, is manufacturing and as such involves a wide range of occupations and benefits from the kinds of productivity improvements that can be realized in manufacturing.5 It begins with design and development, which are highly skilled professional and technical activities. IT hardware increasingly involves complementary software development—there is software used in the design of complex hardware, and there is software encoded directly in certain components, adding to their sophistication and capability. IT hardware has become an ingredient of a widening array of (non-IT) products, where it is said to be “embedded.” Many of these products are highly specialized (e.g., automobiles, industrial machinery, kitchen appliances). Second, IT includes the software that makes the hardware do useful things. Because so much IT hardware (notably “computers,” per se, but also their components) is general-purpose, because so many new kinds of devices incorporate IT hardware, and because, as a result of the first two factors, innovation in generating new applications through software is abounding, software has increasing importance within IT. The past 50 years have seen growing diversity in software, which has been 3   Applications are routinely described in a variety of trade and business publications (e.g., Computerworld, InformationWeek, PC Magazine, Harvard Business Review, Forbes) and increasingly touted in the mass media as well. 4   “Moore's law” characterizes how the number of transistors on a chip—a metric of a chip's capability—has been growing for the past couple of decades by a factor of two every 18 months, a rate expected to continue for at least another decade. See the Intel Web site at <http ://www.intel.com/intel/museum/25anniv/hof/moore.htm>. 5   Manufacturing productivity—output per unit of labor—has been increasing with growth in the use of specialized equipment or automation, and manufacturing productivity can also grow with changes in how production processes are organized and how resources are used.

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Building a Workforce for the Information Economy associated with a widening circle of people who can produce software. Software is far from homogeneous: it ranges from the highly specialized software that composes the tools used by people writing (other) software applications or that drives high-reliability applications such as avionics or integrated management systems to software for a video game, which may or may not be sophisticated, and software for office applications, which may also vary in sophistication. Software can be bought “off the shelf” as a mass-market product, commissioned for custom development as a service product, or bought as a specialty product that may be further customized and adapted—or it may be written directly by the people who want it. Users who develop their own software may be either skilled in doing so or do-it-yourself dabblers. Third, IT includes communications networks, which may be small or large in scale, private or public in access and use, and supportive of not only data communication but also communication of voice, images, video, and their combinations—which, thanks to digitization and packet switching, are realized as a kind of data communication. Networks involve equipment (hardware), software, and services. Typically, network hardware producers also produce specialized software (or motivate independent software production aimed at their products). Networking businesses are service firms that own and/or operate hardware and software for customer applications, which range from communications, per se, to ancillary access to information resources and support for specialized communications needs. Customers for network systems have tended to be organizations, but a new market in household networks is growing; customers for network services have always included organizations, households, and individuals. IT experts envision a steady flow of innovation that will continue to change what we see as common applications of IT, making it hard to describe the technologies in enduring terms. Although prediction can be perilous, an obvious trend is the rise of networked information systems, which is fundamental to the 1990s and now 2000s explosion in uses of IT and the spread of those uses to more and more individuals, households, and different kinds of organizations.6 Commercialization of the Internet catalyzed this trend, which builds on decades of experiments and experience with data networks. Network capacity is growing through both optical (fiber-cabled) and wireless tech- 6   As context to innovation, new circumstances—notably the splitting up of the old Bell System in telephony in 1984, the commercialization of the Internet backbone in 1995, and the Telecommunications Act of 1996—combined with falling cost and increased ease of use to stimulate demand and supply for networking and other IT.

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Building a Workforce for the Information Economy nology, supporting more and faster communications plus mobility; the dream is to be able to communicate anything, anytime, anywhere. A related trend is “digital convergence,” a term often used to characterize how IT can support many kinds of media and activity. Digital convergence lies behind the use of cable modems for Internet access, distribution of music and videos over the Internet, Web access from cellular telephones, and so on —people with access to suitable technology are already becoming as comfortable with exchanging still and moving pictures and sound as with exchanging text and data over networks. New applications take advantage not only of increasing communications bandwidth but also of steady improvements in processing and memory or storage; the shape of an application depends on how all of these factors are traded off, depending on their relative cost. New applications are also likely to be smart (i.e., involving machine-to-machine interactions). The use of software agents to gather and compare information on the Web is but an indicator of what may be possible. Falling relative costs, increasing capabilities, and constant experimentation argue for more and more IT products and IT use. That expectation is reinforced by prospects for improved ease of use, for example through input technologies such as speech recognition and touch-sensing or gesture that will open IT to people and circumstances that do not tolerate today's typical keyboard and mouse. Another will be progressive embedding of computing and communications capability, signaled by today's proliferation of consumer options (phones, information appliances, alternative Web-access devices, set-top boxes and other TV-attached devices, network-attached embedded devices in conventional household appliances, and so on) and the expectation of a wider variety of sensor technologies for monitoring everything from household-member health to facilities security. Related to these is the spread of wireless communications technology, already at high levels in many countries and evolving to support more data (including Internet and Web) applications,7 and growth in in-home computer networks linking multiple devices to each other and the Internet. Finally, although large systems remain important in many contexts (notably the support of far-flung organizations, or the interactions of groups of organizations and individuals), the hallmark of contemporary IT is that it is on a personal scale—from small, personal, and increasingly 7   See, for example, Broadview International LLC. 1999. The Wireless Web: The Coming Communications Revolution. New York: Broadview International LLC. For an overview of mobile and wireless technologies, see Computer Science and Telecommunications Board, National Research Council. 1997. The Evolution of Untethered Communications. Washington, D.C.: National Academy Press.

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Building a Workforce for the Information Economy portable devices to software that a user can modify to meet individual preferences and needs and services that a provider can tailor to different customers. Just as ordinary individuals, rather than telephone operators, set up most telephone calls, conduct many of their own banking needs through automated teller machines or PCs, and pay for the gasoline they pump through computerized systems connected to a data network, people can expect to set up more and more activities and many aspects of the IT that they use directly. Empowering end users adds to the complexity of the systems they use—and adds to the challenge faced by the IT workers that produce and support them. Against this backdrop, IT workers are those individuals who create and provide IT capacity—the people who develop and enable the use of the IT hardware, software, networks, systems, and services. Their work may fashion the components described above or integrate them into more complex systems and applications, work often done under the rubric of systems integration or consulting. A more detailed discussion of IT workers and IT work is contained in Chapter 2. This report concentrates on those IT workers associated with software rather than hardware, because they pose the greatest labor market challenges within the larger population of IT workers. They are found in the production of all three of the categories of IT products, they dominate employment in systems integration and consulting (a $150 billion business in 20008), and they may be employed in industries of any classification in the economy. They perform work associated with service production, even if they are employed in a firm or industry focused on goods production. 1.3 WHY HAS INFORMATION TECHNOLOGY CAPTURED SO MUCH ATTENTION? IT captures attention because it is so dynamic and versatile, because so many people use it, and because its importance to the economy has grown. The economic impact of IT is broad: it begins with the group of industries that produce it and extends to the rest of the economy. The result is growing public and public policy attention. 8   See Palma, Michael J. 1999. “Forecast Analysis: 1999 Preliminary Worldwide IT Services Market Forecast.” Dataquest Consulting and System Integration North America Program, June 14. Dataquest defines a larger set of professional services (including education and training, operational services, help desk management, transaction processing, and more) that totals closer to $340 billion.

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Building a Workforce for the Information Economy 1.3.1 Flourishing of the IT Sector The production and delivery of IT goods and services have become the substance of a major economic sector, what this report terms “the IT sector.” It includes industries that are significant contributors to the nation's economic performance, both directly and through their sales to other industries that use their output; that contribution was particularly striking in the second half of the 1990s (even as compared to the earlier 1990s). For example, the Department of Commerce estimates that the IT producing industries (a broad set of hardware, software, and communications goods and services industries) contributed on average almost one-third of total real economic growth between 1995 and 1999 because of industry growth and falling prices, despite producing under 10 percent of total economic output.9 In that period, output of communications services grew at an annual average of 7 percent, computer and communications hardware at an annual average of 9 percent, and prepackaged software and computer services at an annual average of 17 percent (nominal dollars).10 Given the negligible revenue of start-ups in their early phases, these statistics underscore the economic importance today of established IT firms. The general perception of rapid rates of growth contributes to a sense of urgency that characterizes IT-sector industries. In these markets, being first to market is a common objective, and even where it is not, executives talk about competitive pressures and the need to generate and produce new products (wholly new or new versions) quickly.11 This impatience clearly influences perceptions about the labor market, as is discussed in Chapter 2, because product innovation (and marketing success) depends on talent (people), and because these businesses depend on software, whose development is labor-intensive. At the same time, the driver of IT sector growth is demand for IT in other sectors—and a result of that demand is growth in IT worker employment in those sectors, which together constitute the majority of the economy. 9   See U.S. Department of Commerce, Economics and Statistics Administration. 2000. Digital Economy 2000. Washington, D.C., June. Also, note that market researchers who follow the IT sector consistently forecast significant growth in these industries, but the methodology of these projections is hard to validate. Federal sources document their assumptions and methodology in detail. 10   This is measured using the concept of “gross product originating,” the industry contribution to the gross domestic product of the nation net of its purchases of intermediate products from other industries. 11   Perhaps the epitome of these sentiments is in the oft-cited quasi-autobiographical book by the chairman of the board of Intel Corporation, Andy Grove, called Only the Paranoid Survive (New York: Bantam Doubleday Dell, 1996).

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Building a Workforce for the Information Economy The IT sector looks to the world for its resources, beginning with people. It has defined its markets internationally since its early years. Firms owned and headquartered in the United States recognized overseas market potential early on; such IT pioneers as IBM (née International Business Machines) not only began to export early in their histories but also established overseas facilities and employment beginning in the late-middle of the 20th century as part of building a global presence. Chapter 5 describes various reasons why IT companies might locate operations overseas. Although the 1980s were marked by concerns about international competition in IT hardware, associated largely with shifts of some commodity hardware production (specifically dynamic random-access memory chips) to Asia, U.S. IT firms have always been world market leaders, especially in software, services, and hardware design and development.12 Part of the strategy of U.S.-owned firms for growing and sustaining market share worldwide has been to locate operations in different countries as well as the United States, where “operations” range from marketing and sales to product design and development and R&D, the latter kinds of activity often conducted in collaboration with U.S.-based activities. Multinational operations imply multinational labor forces. These circumstances complicate the concept of a U.S. firm, and even though specific sets of operations may be labeled geographically (e.g., IBM Europe), simple observation shows a global orientation in the ways that executives talk about their businesses. Intel, for example, spells out its annual revenues by global region (North America, Asia-Pacific, Europe, and Japan).13 Moreover, cross-border trade among parent and affiliate units is a significant component of IT trade.14 The fact that there are many countries with lower penetration of IT than the United States only adds to the appeal of those markets to IT industries, as the steady attempt by numerous IT firms to develop presence and ventures in the People's Republic of China demonstrates. 12   See Computer Science and Telecommunications Board, National Research Council. 1990. Keeping the U.S. Computer Industry Competitive: Defining the Agenda. Washington, D.C.: National Academy Press. Also, Computer Science and Telecommunications Board. 1992. Keeping the U.S. Computer Industry Competitive: Systems Integration. Washington, D.C.: National Academy Press. 13   See Intel's annual report. The 1999 version is available online at <http://www.intel.com/intel/annual99/index2.htm>. 14   Foreign operations play a significant enough role that, given how economic statistics are calculated, they contribute to aggregate trade deficits in IT. In some markets, such as prepackaged software, there are trade surpluses. See Department of Commerce, 2000, Digital Economy, Chapter 6.

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Building a Workforce for the Information Economy At least as important for considering the growth of the IT workforce is that the composition of the IT sector has changed over time and will continue to change. In the middle of the 20th century, for example, telecommunications was less overtly linked to computing and was treated as a sector in its own right (as it still is, for some purposes), while the computer and software industries (and related service industries) were smaller, albeit interrelated. The growth in independent (i.e., separate from hardware-producing firms) software producers was an important part of the late-20th-century growth in the software industry. Independent software products, in turn, fed demand for more hardware, although the identity and market share of hardware producers changed significantly over the past 50 years—firms have exited, entered, and adapted IT production. Growth has been concentrated in specific kinds of IT products because of what some analysts call network effects. 15 A result is the rise of dominant players for various IT products (although dominance may be long- or short-lived), which may lead other players to focus on compatible or complementary products. By the late 1990s, growth in individual IT-producing industries and digital convergence blurred old industry boundaries. Recent years have witnessed alliances, mergers, and acquisitions among firms that produce different kinds of content and those that run network-based services for delivering that content to customers—changes in industrial organization that further cloud the picture of who does what work, where. At the same time, new companies have emerged with service offerings leveraging the Internet as a delivery channel—the so-called dot-coms. The dot-coms seem to dominate mass-media discussions of IT, but they are not necessarily in IT industries (for example, they are often in retail trade of various kinds and increasingly in wholesale trade—these are the business-to-consumer and business-to-business electronic commerce ventures); they are sometimes bought out by IT companies; and as mid-2000 news reports suggest, they are experiments that may well fail. The typical dot-com is small, and so is its employment capacity; it is common to read about dotcoms employing 5 to 20 people as well as those that grow closer to 100. By contrast, larger IT firms, including dominant and other players, hire comparatively large numbers of people (measured in the hundreds or thousands—for example, Intel's total employment, only some of which is IT workers, exceeds 70,000 people) and display more elaborate occupational mixes. Chapter 2 comments on the distribution of IT work by firm size. 15   With network effects there is a relationship between what individuals choose to use and a tendency to gravitate toward standard choices, which reduce learning costs and facilitate interoperability. See, for example, Katz, Michael L., and Carl Shapiro. 1994. “Systems Competition and Network Effects,” Journal of Economic Perspectives 8(2): 93-115.

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Building a Workforce for the Information Economy activity and for monitoring by such organizations as the National Science Foundation and the Organization for Economic Cooperation and Development. Biotechnology, which is more science- and scientist-based, may provide the greatest contrast to IT within the high-technology arena, and accordingly Appendix A outlines contrasts between IT and biotechnology. Biotechnology involves the commercial use of living organisms or biological techniques developed through basic research. Products include drugs (such as antibiotics, insulin, and interferon), diagnostics, insecticides, genetically modified plants, and techniques for waste recycling. Such products cut across many fields, including health care, agriculture, industry, and environmental biotechnology. Box 1.1 provides a short list of seminal events for biotechnology. Though biotechnology has a history of thousands of years, the modern biotechnology industry is smaller than the IT industry. Value is created through the development of information (e.g., information about gene structure and function) and products (e.g., gene-defined drugs, genetically BOX 1.1 A Short History of Events Central to the Development of Biotechnology 1953: James Watson and Francis Crick published their paper describing the double helix structure of DNA, marking the beginning of the modern era of genetics. 1970: University of California at San Francisco scientist Herbert Boyer identified restriction nucleases, opening the way for gene cloning. 1973: Stanley Cohen and Herbert Boyer perfected genetic engineering techniques to isolate DNA and reproduce the new DNA in bacteria. 1975: Walter Gilbert and Allan Maxam of Harvard University, and Fred Sanger of Cambridge University, separately developed two different techniques for sequencing DNA. 1976: Robert Swanson, a venture capitalist in Silicon Valley, and Herbert Boyer teamed up to form Genentech, Inc., with the goal of cloning human insulin. 1982: Human insulin became the first recombinant DNA drug approved by the Food and Drug Administration. Genentech had previously licensed the human insulin technology to Eli Lilly. 1985: Genentech became the first biotechnology company to launch its own biopharmaceutical product—a growth hormone for children. 1995: The first complete genome sequence was identified (for Hemophilus influenzae). 2000: A “rough draft” of the human genome was announced.

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Building a Workforce for the Information Economy based tools for diagnosis, gene-modified plants for agricultural use, and proteins manufactured as drugs). The biotechnology industry is similar to the IT industry in a number of key dimensions. Both are leaders in scientific innovation. Both enjoy a close relationship among their industrial, academic, and government components. Advances in each industry are driven by R &D (e.g., cloning in biotechnology, object-oriented programming in IT), though the biotechnology industry spends a greater proportion of its revenues on R&D than does the IT industry. Both are entrepreneurially driven, with great importance attached to the availability of venture capital at the front end of the process and the hope for substantial market capitalization after a firm's initial public offering. And both industries place a very high premium on speed—IT in its concern over “time to market” and biotechnology in its concern to be “first to invent” and “first to patent,” as well as with time to market. There are also key differences. Compared to IT product development, product development in biotechnology is more risky, more costly, and generally more time-consuming. Unlike the IT industry, the biotechnology industry is highly regulated, for example, through the Food and Drug Administration for drugs, foods, cosmetics, diagnostics, medical devices, and animal and human food additives, and through the U.S. Department of Agriculture for animal vaccines, plant pesticides and derivatives, and transgenic plants and animals. While biotechnology spans the development of products with very short life cycles (e.g., genomics information that currently is passed from business to business, rather than business to consumer) and products with long life cycles (e.g., gene therapy), product times-to-market can be much longer (several years), and bringing a product to market successfully can cost up to $50 million. But, since the success rate of bringing products to market has averaged about 10 percent or so, every successful product on the market can represent an investment of around $500 million. The capital investment needed to pursue biotechnology (especially in the initial stages) is much higher than for much of the IT industry (chip fabrication aside). Finally, biotechnology has a much longer history of protecting its innovative efforts by creating barriers to entry (proprietary relationships, especially with the pharmaceutical industry, and patents) than does the IT industry (although the IT industry is rapidly adopting patents to protect its innovations as well). There are other key industrial organization differences: for example, the nascent biotechnology industry has strong connections to the much larger pharmaceutical industry. The pharmaceutical industry plays a role similar to that of the venture capitalists in the IT industry—it provides capital in return for access to new drug technologies. (This is not to say

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Building a Workforce for the Information Economy that venture capital funds do not play a role in the biotechnology industry—just that the biotechnology industry does not rely solely on such funds.) Increasingly, biotechnology is becoming an enabling technology for both pharmaceutical and agricultural companies large and small. 1.3.3 Enabler of Broad Economic Change The economic impacts of IT, like its uses, are pervasive. As one indicator, the Department of Commerce reports that current-dollar industry spending on IT hardware and software was 46 percent of all equipment spending in 1999, totaling $407 billion.19 Although media attention to the impact of the Internet can focus on dot-coms and the IT sector, the greater impact of IT may be in its transforming effects on more traditional businesses, which continue to produce the majority of national economic output. Not only has IT been a factor in the growth of various industries and in the economy as a whole, but it has contributed as well to changes in the nature and mix of activities undertaken by firms, through that process altering the nature and organization of industries.20 Information can be found, created, processed, communicated, and used in so many ways that it is hard to limit what is possible, although what will show up in the economy, and when, will depend on what people are willing to buy and use. The 1980s and early 1990s saw much trial and error with IT among individuals and organizations. The late 1990s, which seem to shape today's perceptions, built on that experience base, while in 2000 uncertainties, constraining some of the dot-com enthusiasm, underscore that demand for IT and the products it enables remains at least as important as innovation in how IT may be used. Today, the impact of IT is summarized in the phrase “the new economy.” This is the latest version of a metamorphosis previously characterized as the knowledge economy and before that as the information economy. Whatever the character of the economy should be called, it builds on decades of change that were first evident in the mid-1900s, when computers were scarce. At that time, the seeds of a shift from manufacturing to services were evident, a shift that accelerated with the 19   Department of Commerce, 2000, Digital Economy 2000. 20   See Oliner, Stephen D., and Daniel E. Sichel. 2000. “The Resurgence of Growth in the 1990s: Is Information Technology the Answer?” Washington, D.C.: Federal Reserve Board, February. Available online at <http://www.federalreserve.gov>. See also Computer Science and Telecommunications Board, National Research Council. 1993. Information Technology in the Service Society: A Twenty-First Century Lever. Washington, D.C.: National Academy Press.

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Building a Workforce for the Information Economy gradual growth and diffusion in use of computers and communications technologies. Computers facilitated growth in services because they not only fueled IT-based services (e.g., telecommunications, systems integration) but also combined with communications to fuel growth in service-type activities based on information collection, processing, and use within goods-producing industries. 21 Innovations in IT and its applications revolve around better or more effective use of more and more information. This characterization applies as much to the contributions of IT to automotive and aerospace manufacturing or agriculture as to new “edutainment” businesses, proliferating online information and trading services, and other efforts often aggregated as electronic commerce.22 E-commerce and other manifestations of the new economy can be seen in many mainstream firms and industries, both in interactions with consumers and, increasingly, other businesses. E-commerce is achieved through infrastructure providers (the companies that provide the Internet services and related systems and/or their underlying facilities), integrators (which combine physical infrastructure with operating and applications capabilities), and a variety of applications providers, which may be free-standing or part of an existing business; who does what to make a given e-commerce application possible cannot always be predicted. The applications may include so-called portals, which aggregate access to different kinds of information and activity; auctions and exchanges; content publishing; supply-chain management and distribution; wholesale and 21   See Computer Science and Telecommunications Board, 1993, Information Technology in the Service Society. As that report discussed, growth in IT use was associated with growth in service activity, but service industry productivity lagged, in part because of the difficulties of learning how best to use the technologies and in part because of the time needed to work through concurrent shifts in industrial organization. See also Wolfe, Edward N. 1996. The Growth of Information Workers in the U.S. Economy, 1955-1990: The Role of Technological Change, Computerization, and Structural Change. New York: C.V. Starr Center, New York University. 22 E-commerce impacts are often described in sweeping terms. For example, one market research report asserts that “eBusiness is remaking the business world by: Redefining virtually every business process and function. Changing conventional concepts and rules about strategic alliances, outsourcing, competition, industry specialization, and customer relationships. Creating a wealth of information about customers, enabling businesses to anticipate and satisfy individual needs (one-to-one marketing). Blurring the lines between industries (convergence). Challenging every business to reinvent itself and move to a “clicks and bricks” model. See Ross, Eric M., and Adam C. Liebhoff. 1999. eBusiness Innovators: Navigating the Digital Economy. New York: CIBC World Markets, Equity Research, December, p. 4.

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Building a Workforce for the Information Economy retail sales; and a variety of other online services. 23 Some business analysts have begun to argue that e-commerce is a step on the way to more comprehensive application of IT: “e-business ”24 (sometimes written eBusiness). As the list of included players and activities for e-commerce (or e-business) grows, it is clear that IT work is only part of the work being generated. E-commerce may add to existing products and product-distribution channels—and therefore employment—or replace them, but it is a mistake to see e-commerce as the exclusive province of new businesses. Instead, it is part of the transformation of the economy as a whole that is associated with contemporary IT. This can be seen in the efforts of such mainstream companies as GE to incorporate the Web into all of its businesses, as well as the struggles of the publishers of the Encyclopedia Britannica to respond to the abundance of information available online. And because that transformation is so pervasive, it is harder to understand, measure, and describe than if it were limited in scope. For example, e-commerce raises questions about the extent of disintermediation and the number of viable specific trading exchanges that can actually be sustained in different industries;25 the more diffuse concept of e-business raises questions about the broad impact of greater and deeper interconnection among businesses (and other organizations). Answers will affect the shape and size of many industries and firms—and therefore their employment prospects. These answers are very hard to predict at a time when, for example, online retail was estimated to be about 1 percent of retail sales in 199926 —IT industry executives and business analysts argue that we are on the threshold of a change that cannot yet be measured. Broad-scale economic shifts imply broad-scale social change. Some of that change is evident in the workforce at large. The proliferation of IT as a tool in a wide range of jobs implies a concern about relevant skills—and about the ability of people whose skills are subject to lower levels of demand to adopt new skills involving the use of IT —that is beyond the 23   See, for example, William Blair & Company. 1999. Business-to-Business Internet Research. Chicago: William Blair & Company LLC. Also, Redmond, Roger W., and Linda M. Courtney. 2000. Enterprise Applications Converge with the Web. Minneapolis: Goldsmith-Agio-Helms, June. 24   See, for example, Truog, David, et al. 2000. eBusiness Networks. Cambridge, Mass.: Forrester Research, April. 25   See, for example, Banc of America Securities. 2000. B2B E-Commerce: Technology Industry Overview. San Francisco: Banc of America Securities LLC, January 3. 26   See Redmond, Roger W., and Linda M. Courtney. 2000. E-Commerce in the New Millennium. Minneapolis: Goldsmith-Agio-Helms, May, p. 8. These analysts go on to say that online retail will be dwarfed by e-business (including business-to-business interactions).

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Building a Workforce for the Information Economy scope of this report but has been covered in others. 27 Some of it is evident in the incorporation of IT into noneconomic activity—social interactions (most obvious today in such applications as e-mail or online chat), entertainment (e.g., online games, online music and video, Web sites for various hobbies), and civic or political exchange (e.g., list-serv distribution of newsletters and focused Web sites). The spread of broadband access to the Internet from homes will increase the capability for systems to be always on, which is expected to increase the amount of use and change the kind of use to include more automated activities (i.e., those that meet individuals ' needs without their having to engage directly with a device to make something happen). The potential for social change is less well understood (or studied) than the potential for economic change, 28 but it may itself generate new economic activity, as today's experimentation with Web businesses to support noneconomic activity suggests. Indeed, a major change beginning in the late 1990s from previous decades is the emergence of technology transfer from personal contexts to business applications rather than the other way around. 29 1.3.4 IT as a Policy Driver The emergence of IT as a major input into the economy contributes to the rise of numerous public policy concerns about IT. Some of these concerns have deep roots, such as national security, into which IT plays in many ways (for example, it is an enabler of new military strategy and tactics30) and regional economic development (for example, numerous regions seek to emulate or complement Silicon Valley). Many more popular 27   See, for example, McConnell, Sheila, et al. 1996. “The Role of Computers in Reshaping the Work Force,” Monthly Labor Review 119(8):3-56. Of course, even before broad use of computers, concern about job impacts from automation surged in the 1960s, leading to a congressional commission; in the early 1980s job displacement from computerized manufacturing automation triggered similar concerns. In both cases, economic growth led to employment growth that offset displacement numerically, although displaced individuals did not necessarily shift easily to new jobs. 28   CSTB has recommended a program of research to address the broad range of economic and social impacts of IT, anticipating the new interest of computer science research programs in addressing such impacts. See Computer Science and Telecommunications Board. 1998. Fostering Research on the Economic and Social Impacts of Information Technology. Washington, D.C.: National Academy Press. 29   See Computer Science and Telecommunications Board. 1995. Keeping the U.S. Computer and Communications Industry Competitive: Convergence of Computing, Communications, and Entertainment. Washington, D.C.: National Academy Press. 30   See, for example, Computer Science and Telecommunications Board, National Research Council. 1999. Realizing the Potential of C4I. Washington, D.C.: National Academy Press.

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Building a Workforce for the Information Economy IT policy concerns, such as online privacy, are comparatively new, reflecting the relative recency of an IT mass market, the growing impact of IT use on people's lives, and the combination of experimentation and inexperience that characterizes many Internet-based ventures. Some of these concerns are associated with the prospects of regulation, often associated with consumer protection and avoidance of fraud or safety hazards. Some are associated with new conflicts associated with property rights as transactions and resources shift from the physical to the virtual; the policy wrangling associated with intellectual property on the Internet is emblematic.31 Some reflect differences in population groups that use IT, notably inequalities in access to the Internet that have been popularized as a “digital divide.” And some reflect the growing importance of IT to the work of the government at various levels: “e-government” and “digital government” are terms that describe how IT is transforming both intra- and intergovernment interactions and the interactions of individuals with the government. Many issues are compounded by their international flavor: the global nature of the IT sector (and many IT uses) implies trade policy, antitrust policy, and other areas where U.S. policy interests may need some reconciliation with those of other countries. In the last few years, for example, the European Union has influenced U.S. approaches to online privacy, and U.S. officials have negotiated with officials in many countries on harmonization of laws and procedures for handling computer crime. Although discussion of employment highlights immigration policy, that is just one of the international issues addressed by policymakers that may influence demand and supply for information technology workers. Because of broadening policymaking attention to IT there is a growing body of policymakers scrutinizing how IT is used and in some cases how it is made, either or both of which can have an influence on the future shape of IT industries and the supply and demand for IT goods and services. There are occasional attempts to integrate governmental attention to IT policy concerns—for example, a variety of intragovernmental working groups and congressional hearings have addressed e-commerce and the digital economy beginning in the late 1990s—but many IT-related policy concerns are being pursued more or less separately by more and more governmental organizations. This situation is another part of the backdrop for policymaking relating to the IT workforce: different kinds of policy action can affect the costs of producing and/or using IT, the 31   See, for example, Computer Science and Telecommunications Board, National Research Council. 2000. The Digital Dilemma: Intellectual Property in the Information Age. Washington, D.C.: National Academy Press.

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Building a Workforce for the Information Economy nature of features that are provided, and so on, influencing the market for IT and therefore the demand for IT workers. Effects will be experienced in short and long terms, depending on the nature of the policy intervention. The full policy context, of course, extends beyond those policies aimed more or less directly at IT to include those aimed at the economy at large. Recent attention to the observations made by Federal Reserve Chairman Alan Greenspan, for example, links his comments about the impact of IT on the performance of the economy to the potential for macroeconomic policy (such as changes in interest rates) to affect the overall climate for investment, which would affect demand for IT and IT workers as well as other quantities.32 Although this report focuses on IT and IT workers, it is written with the recognition that IT interacts with other factors in the economy and that IT workers are counted in the context of a large, multi-occupational labor force. 1.4 WHY ASSESS IT WORKFORCE ISSUES NOW? The IT sector is a major player in U.S. labor markets, beyond what simple counts suggest. For example, the Department of Commerce reports that employment growth in IT-producing industries outpaces average employment growth.33 From 1989 to 1997, employment in IT-producing industries grew 2.4 percent annually compared with the 1.7 percent annual rate of growth for all private industries. Between 1996 and 1997, IT-producing industries experienced a 1-year increase of 7.7 percent in employment (to 4.8 million) compared with average employment growth of about 3 percent. Most of this growth has occurred in the IT software and services subsector of this category, in which employment grew at an average annual rate of 8.3 percent. The “computer services” segment of the IT sector (including the packaged software industry, applications and systems consulting, information retrieval services, and other related activities) accounts for about 27 percent of those that the Current Population Survey (see below) identifies as computer scientists, systems analysts, and computer programmers. But as important as the IT sector is for employment, IT-intensive industries are the numerically dominant users of IT talent. Apart from the IT sector, other large users of similar IT talent include manufacturing (18 percent of those employed as computer scientists, systems analysts, computer engi- 32   See, generally, <http://www.federalreserve.gov/boarddocs/speeches/2000/>. 33   Henry, David, Patricia Buckley, Gurmukh Gill, Sandra Cooke, Jess Dumagan, and Dennis Pastore. 1999. The Emerging Digital Economy II. Washington, D.C.: U.S. Department of Commerce, June. Available online at <http://www.ecommerce.gov/ede>.

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Building a Workforce for the Information Economy neers, and programmers), finance and related industries (11 percent), retail and wholesale trade (7 percent), and government (9 percent). 34 Though a shortage of technical professionals has been reported in a number of fields over the last 20 years, concerns about tightness or shortage in the IT labor market appear to have emerged in the late 1990s. (“Tightness” in the labor market refers to a condition in which it is difficult for employers to find qualified workers, and is discussed in greater detail in Chapter 3.) Given that personal computers began to appear on desktops in the early 1980s, and the price/performance ratio of information technologies has been dropping steadily over this time, why would information technology labor market concerns have emerged in the late 1990s? Many developments came together in the mid-1990s, in the context of a strong economy, to generate strong growth in demand for IT and IT innovation in the mid- to late-1990s. Of special note is the transformation of the Internet from a network supporting research and education to a medium of enormous commercial and business significance. The potential of the Internet to support commercial and business ventures is largely unknown and unexplored, but the potential appears to be vast. For this reason, it is not surprising to see a high demand for IT workers who can exploit the Internet effectively. Furthermore, the Internet seems to have catalyzed a more general interest in information technology to change how businesses can seek competitive advantage. The easing of a tight labor market is needed to prevent the loss of opportunities for IT and IT-intensive firms in the United States in a globally competitive economy. Today's picture is different from that of the last National Research Council examination of the IT workforce—a modest examination that flagged qualitative concerns that persist, such as the evolution of the occupational mix, but concluded, in 1993, that at that time supply and demand for IT workers seemed more or less in balance.35 The outlook as this report is written is different, not merely because more, and more kinds, of IT are in use, but because of the corresponding economic impacts, evident as industrial growth and transformation, increasing personal use of IT, and a broad perception that IT provides critical infrastructure on which the economy depends. The committee is mindful of the tension between the economic momentum of the period in which it worked and 34   Bureau of Labor Statistics, Industry/Occupation Matrix, baseline data for 1996, as seen on the United Engineering Foundation Web site at <http://www.uefoundation.org/report1.html>. 35   Computer Science and Telecommunications Board. National Research Council. 1993. Computing Professionals: Changing Needs for the 1990s. Washington, D.C.: National Academy Press.

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Building a Workforce for the Information Economy the recognition that no boom-time is indefinite; it drew on various inputs and its own expertise to craft a report that assumes, on balance, continued growth and vitality associated with IT production and use. There are higher stakes in effective IT production and use, and there is broader distribution of those stakes among government, various industries, organizations, and the general public, than were evident in the early or mid-1990s. The proliferation of government meetings and inquiries on e-commerce, online privacy and security, the digital divide, IT-related trade and employment, proposed IT industry mergers, and other IT policy arenas is symptomatic. So, too, is the rise in lobbying and advocacy by a wide range of groups concerned about the role of IT in the economy and who benefits from it. Industry-based groups have become more numerous; more IT companies have established Washington, D.C., offices; more IT-related issue-advocacy groups have sprung up; and traditional consumer advocacy and labor groups have embraced IT policy concerns along with their other concerns. 36 Thus, IT is becoming more politicized. This factor shows up in issues that underscore a change in the image of IT: originally cast as a performance and productivity tool, it is now being scrutinized as a factor in quality of life, economic opportunity, and even the democratic process itself. The politicization of IT implies that more statements are being made about more topics by professional advocates. It is in the nature of advocacy that messages are often simplified in the interests of effective and efficient communication. That reality has been in evidence in the debates over H-1B visas, discussed in Chapter 5, which motivated the request for this report. This report is designed as an antidote to advocacy statements: it characterizes the complexity of the issues, presents numerous and sometimes conflicting sources of information and perspectives, and describes where information is adequate for making certain judgments and where it is not. It is intended to be a primer on a large, complex, and interrelated set of issues, responding to a charge from Congress (described in the preface). It presents tools for thinking about this set of issues, recognizing that answers to specific questions may arise from politics as much as from analysis. 1.5 ORGANIZATION OF THIS REPORT Part I of this report is devoted to examining the entire issue space. In this part, Chapter 1 describes in broad terms the IT sector: technological drivers, changes in the business environment, structural factors at work 36   Of course, newer efforts are often labeled as relating to the Internet, the effective mascot for the larger corpus of IT.

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Building a Workforce for the Information Economy in the IT sector, the IT sector's increasing globalization, and future trends in IT. Chapter 2 characterizes the IT workforce: the nature of IT work, who counts as an “IT worker,” what the intellectual and knowledge requirements for IT work are, how big the IT workforce is, and the IT work environment. Chapter 3 frames workforce problems in IT in context, looking at reports of difficulty in hiring and the corresponding inference of a worker shortage. It then describes the committee's view of the problem, and comments on segmentation in demand for IT workers. Finally, it makes projections to the future. Part II addresses various dimensions of relieving difficulties in hiring and related issues. Chapter 4 deals with age-related concerns as an aspect of today's tightness in the IT workforce. Chapter 5 focuses on concerns regarding the use of foreign workers in the U.S. IT workforce, a concern that reprises older and earlier debates over the appropriate role of foreigners in the labor force and their impact on the U.S. economy. Chapter 6 addresses a variety of approaches that individual companies can take to make more effective use of workers and job applicants that they already have. Chapter 7 addresses ways of expanding the number of people willing and capable of doing IT work. Focused mostly on education and training, such expansion is mainly a long-term approach to the problem of tightness in the IT workforce. Part III consists of a single chapter—Chapter 8—that is a synthesis of the entire report. Chapter 8 also provides principles for action and recommendations for the various stakeholders.