The labor market in the United States is continuing to strengthen, with no indication that companies are reducing headcount despite uncertain financial markets. This is having a significant impact on demand for so-called “STEM” workers with expertise in science, technology, engineering, and math.
“Competition is already keen in such areas as Silicon Valley and the San Francisco Bay Area in California for talent,” said Dr. Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego, California. “Technology companies are offering signing bonuses and many perks to attract millennials.”
In the United States, the national employment rate is 5%, but at the close of 2015 the unemployment rate for computer and mathematical occupations was only 2.6%. This tightening —fueled in part by a STEM shortage — combined with a strong U.S. dollar, is changing the market landscape, with many large organizations stepping up to invest in training their own people. Competing jurisdictions like Mexico and Canada are also scrambling to pump out STEM talent. But though the United States and Canada are pursuing a number of active labor market policies (ALMPs), Mexico is lagging.
“ALMPs can be an effective instrument to connect workers with jobs, but Mexico is the OECD country that spends the least in this area,” said Paolo Falco, a labor market economist at the Organization for Economic Cooperation and Development (OECD). “This is particularly relevant in Mexico, where the share of youth not in employment, education, or training is among the highest in the OECD — 22.4% of the 15 to 29 population in 2014, well above the 16.5% OECD average.”
For its part, Canada’s overall STEM enrollment grew by 60% from 2008 to 2012, with about a quarter of all international students studying in STEM programs. And in the United States, H-1B visa quotas are being filled within a few days after they are opened, with the government now targeting 400,000 STEM graduates a year — up from 200,000 annually at the turn of the century.
But is that enough? Perhaps not. “Technology still represents the sector with the strongest labor demand in the US,” said Reaser. “And STEM workers represent the core of this demand, particularly the ‘E’ and the ‘M’ segments, where the education and skill gaps are most acute.”
This demand is creating imbalances in the U.S. economy, where churn is a factor, and opportunity for outsourcers, whether in nearshore or offshore environments. U.S. employers are having to find ways to compete for labor in a chronically difficult environment.
“Stock grants can be a sizable part of the compensation package, but wage inflation is on the rise in the technology sector,” said Reaser. “The escalation in pay is driving up home prices, which in turn requires higher compensation rates.”
However, an increase in STEM graduates does not translate into immediate value, as new graduates are inexperienced workers, and business and technology demands are becoming more complex. There is some good — and perhaps surprising — news here from Mexico, where IT gender barriers are slowly coming down.
“Mexico is now among the OECD countries with the highest share of women who are awarded a computer-science tertiary degree,” said Mark Keese, head of employment analysis and policy at the OECD. “This was almost 40% in 2012, compared to an OECD average of 20%.”
There is no doubt that for Mexico — as well as other nearshore jurisdictions active in outsourcing — the STEM shortage in the U.S. represents a long-term opportunity. It has now been 50 straight weeks that jobless claims in the United States have been under 300,000, a threshold that most economists consider to be indicative of a strong labor market. That’s the longest period the country has seen in over 40 years, which suggests that more high-skilled employment will continue be created in Mexico, too, where these jobs have real appeal.
“Our data show that high-skilled workers in Mexico typically have higher earnings and enjoy better working environments,” said Falco from the OECD. “As well, high-skilled workers in Mexico typically face lower insecurity than lower-skilled ones.”
Within the United States, the STEM shortage has resulted in many firms taking a strategic approach to how they source their IT projects. Lower-value, high-volume, commodity-based transactions might be done offshore in India or Southeast Asia. Development and testing might then be closer to home, in a nearshore environment in Latin America. In-house investments can then be made in the highest-value strategic IT work, where a U.S.-based company will build a strong, knowledgeable team for the long haul.
But even that is a challenge. Brad Smith, Microsoft’s president, recently told reporters on a conference call that “the country has a problem” because “the skills gap is leaving too many of these jobs unfilled.” Smith estimated that 500,000 jobs will be created in the next decade requiring computer-science skills. If the United States hits its target numbers, it might fill that gap. But even in that case, new graduates are inexperienced — which means corporate America will be forced to either invest in training or outsource to more seasoned workers.