Building a Workforce for the Information Economy (2001) / Chapter Skim
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The IT Sector: Context and Character
The IT Sector: Context and Character
Pages 21-43
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Part I
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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 collars) .' ° Given the negligible revenue of start-ups in their early phases, these statistics underscore the economic importance today of established IT firms.
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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.
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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.
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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.
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Typically, network hardware producers also produce specialized software (or motivate independent software production aimed at their products)
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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.
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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 )
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contributed on average almost onethird 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) .l° Given the negligible revenue of start-ups in their early phases, these statistics underscore the economic importance today of established IT firms.
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to Asia, U.S. IT firms have always been world market leaders, especially in software, services, and hardware design and development.l2 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 wad U.S.-based activities.
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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.~5 A result is the rise of dominant players for various IT products (although dominance may be long- or short-lived)
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Because of high R&D spending, high-technology industries tend to have comparatively high levels of employment for science and engineering and technical personnel and, more generally, an association with demand for high-level skills.l8 Public and public-policy interest in the economics of high technology emerged in the 1980s, when its cachet, potential for high-skill employment, and other potential economic benefits such as innovation led to its being targeted for local and regional economic devel16During the late 1980s, third-party data processing and time-sharing service businesses declined as companies developed internal processing capabilities and became less dependent on centralized mainframe computing systems. 17See Rausch, Lawrence M
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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.
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. There are other key industrial organization differences: for example, the nascent biotechnology industry has strong connections to the much larger pharmaceutical industry.
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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 billionth 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.
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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)
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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 mat we are on me 1 hreshold of a change mat cannot yet be measured. Broad-scale economic shifts imply broad-scale social change.
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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 l990s 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.
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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 l990s but many IT-related policy concerns are being pursued more or less separately by more and more governmental organizations.
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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 ITproducing industries grew 2.4 percent annually compared with the 1.7 percent annual rate of growth for all private industries.
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The easing of a tight labor market is needed to prevent the loss of opportunities for IT and ITintensive 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.
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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.
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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.
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