EE Supply and Demand the shortage vs. supply myth

by Frank Lord, April/May 1998 issue of IEEE Potentials
Volume 17, Supplement

When I entered college after the war, engineering students were told that it was unlikely that the entire class would be able to find jobs upon graduation. The Korean War as well as the "Cold War" changed that so supply matched the new demand level quite nicely.

The seventies brought reductions in the space effort and a winding down of the Vietnam conflict. Both factors helped reduce the demand for engineers to the point that many lost their jobs. (This situation was sever enough that our members though that our Institute should be taking an active role in correcting the conditions.) It took several years, but supply and demand eventually regained a reasonable balance. As usual, it was the individual engineers who took a beating through career changes and early retirements.

This hiatus was followed with a period of technological growth in chips, computers and software. Products for both civilian and military sectors improved continuously as engineers met new challenges. Although engineers continued to add new skills through experience and study, salary structures remained static in real terms. Involuntary spearations continuously indicated oversupply. Consequently, it was surprising in the late eighties when a major federal agency started promulgating misinformation about the engineering shortage. A two-day conference, "Engineers and America's Future: Shortage or Surplus?," was held in Washington, DC in 1991. It was concluded that there was neither a present nor projected shortage. Why would a major government agency that had no supporting data generate false information? Self interest. This agency was administering federal government grants for graduate study. If there was not shortage of engineers, there would be fewer grants and less need for administrators.

In view of the forgoing, it was surprising when the Information Technology Assosciation of America (ITAA) report last year announced a "crisis" in their industry due to a labor shortage. This was contended in the face of market factors that include: static salary structure; massive layoffs in the industry, major management turmoil and student judgement that the computer science field is reasonable attractive. (Entreis are up from the recession-induced downturn of the early nineties.) The ITA report was merely a collection of pronouncements made without any substantial backup.

As IEEE Fellow Robert Rivers points out regarding employment market forces:

"There is much publicity given to shortages of engineers. From an economics point of view, there can be no such thing as a shortage in the long run in a market economy. A market economy will adjust the price ountil such time as the supply is called out from a shortage or the suply shiftsfrom those that do bnot want to pay the price to those that do want to pay the price. Employing organizaitons that cry shortage are really saying something different. They are saying that they do not want to pay the price that others are willing to pay or that workers are willing to work in order to obtain benefits of their services. Shortage statements show ignorance of labor market economics or expose attempts to manupulate others to make a lower cost supply available. Allocation of labor in a centrally planned economy does result in real shortage and surplus conditions du to inevitable planning errors. Our economy, however, is thankfully not a centrally planned one"

"Overspecification is a technique use to guaruntee the obtaining of shortage evidence... Lower than market salary offers are guarunteed to produce evidence of shortages. Further evidence of the absence of any long term deficiencies in supply is shown by 30 years of data on the real wages of engineers. From 1965 to 1995, the has been a decrease in real wages"

"In summary, the word "shortage" is a marketing term used to avoid bidding in the marketplace for the available supply of presently empleyed engineers. It is also used to convice prospectice students of a high level of opportunities."

Keep in mind as we observe overly detailed job specifications in emplyment ads, what the industry uses to a great extent are, in their own parlance, grunts. The Year 2000 problem needs mostly grunts. There is nothing wrong with grunts. Mostnew graduates go through that stage and learn a great deal. However, there is something wrong with an industry that claims they cannot find and retain such people. have the affected companies in this industry tried increasing the salary levels to attract the workers they need?

In the late seventies, the petroleum industry faced a potential shortage of engineers because of the need to increase exploration and production in view of world conditions. As an industry, they raised their salary levels by 15 percent. They have maintained that relative level ever since. Problem solved.

There are some outsanding managements in the Information Technology Industry, but there aer lso those that have not matured. This is normal in a fast growing industry. However, those companies that cannot make it without expensive (to the public) manipulation should be allowed to fall by the wayside. it's the free market way.

About the Author