Uncertain Demand and Supply Responses

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1 Uncertain Demand and Supply Responses OECD Workshop 21 April 2005 Paris Michael S. Teitelbaum Alfred P. Sloan Foundation, New York

2 Common concern among OECD governments Projections of increased demand Evidence of declining student interest Result: looming shortage forecasts Response: mostly to enhance supply Incentives for domestic students Increase foreign students & professionals

3 S & E: Odd Labor Markets Govts dominate both supply & demand Shocks, booms & busts (increasing?) Supply driver=research funds not labor demand Large personal investments (oppor. costs) But elastic international supply, at low wages? Education v. lengthy = long lags, oscillations

4 Many Shocks, Govt-induced (US) Post Sputnik: +80% in R&D NIH funds, : $13.6 to $27.3 billion BioShield 2003: $5.6 billion Nanotech Initiative: $2.4 billion Defense procurement budget fluctuations Concerns about shortages of scientists and engineers resurfaced many times in the ensuing decades [after Sputnik]. OECD 2004

5 Many Shocks: Private sector Y2K boom (ended ) Biotech boom 1990s, since waned Telecomm boom, now bust IT bubble late 1990s, bust from 2001 Booms financed first by venture capital Then, irrational exuberance

6 Humility! The Future: Very Hazy Forecasting record poor, for good reasons Govt S & E budgets: unpredictable Private markets: speculative booms/busts Circularity: EU s projected demand increase determined by public policy Policy: increase R&D to 3% of GDP = +700,000 additional researchers needed Q: How was 3% chosen? Will it happen? No one can forecast offshore outsourcing

8 US: Shortage/Shortfall Claims A commonplace for over 2 decades Looming Shortfalls, often = shortages Led by NSF leadership, late 80s Echoes: universities, industry lobbyists Critiqued by NSF s own experts (internal) By early 90s?--surpluses = Congressional investigation

9 Credibility..seriously damaged The credibility of the [National Science] Foundation is seriously damaged when it is so careless about its own product. Rep. Howard Wolpe, Chair, Subcommittee on Investigations and Oversight, House Committee on Science, Space, and Technology, Hearing of April 8, 1992

10 Shouting Fire? the NSF Director s shortfall prediction, delivered up in the context of growing concerns about our nation s competitive standing, was the equivalent to shouting Fire in a crowded theater Today we will hear that number was based on very tenuous data and analysis In short, a mistake was made, let s figure out how to avoid similar mistakes and then move on. Rep. Sherwood Boehlert, now Chairman House Science Committee--hearing of April 8, 1992

11 Advice Unheeded New shortage reports from IT employers 1997: 190,000 IT jobs claimed unfillable 1998: 346,000 IT shortfall 2000: 843,000 IT shortfall Proposed solution: triple number temporary visas ( H-1B ), from 65K to 195K/year

12 Lobbying Campaign Mounted Led by immigration lawyers Financed by high-tech companies (Intel, Microsoft, Sun) Supported by industry association (NAM) Success in 2000 H-1B visas tripled for 2001, 2002, 2003

13 But Very Bad Timing 2001: collapse of high-tech bubble Computer occ s unemployment low in : 2% (rounded) 2001: 4% 2002: 5% 2003: 6% 2004: 4% 2005: 4% (Q1) All professions (Q1) = 2%; All Workers = 5% Sharp declines: undergraduate enrollment

14 Déjà vu, all over again?. The Science and Engineering Workforce: Realizing America s Potential (released November 19, 2003) Analyses of current trends [in the US science and engineering workforce] indicate serious problems lie ahead that may threaten our long-term prosperity and national security.

15 Visa expansion, again 2004 Same lobbying group, with new name: CompeteAmerica 2004 law exempts from cap H-1B visas to foreign graduates of US universities Will add 20,000 additional temporary visas

16 So, a hardy Washington perennial but Shortfall claims lack rigor No credible quantitative evidence of shortages RAND, 2002 neither earnings patterns nor unemployment patterns indicate [a science and engineering] shortage in the data we were able to find. (NB: last data from boom period)

17 Overall, S&E labor markets slack with variations over time, and by field Consistent w/ tight labor markets in some specialties (especially new/growing) But, if anything, data point to surpluses RAND: Rising S & E unemployment in 1990s while the overall economy is doing well, is a strong indicator of developing surpluses of workers, not shortages. Post:boom: unemployment even higher

18 Science: Career Prospects Apparently Deteriorating Numerous reports expressing concern the attractiveness to young people of careers in life-science research is declining (Tilghman report, National Academy of Sciences, 1998) Tilghman 2003: data for 2002 appalling Concerns about creativity: Now you re supposed to wait until you re relatively senile [James Watson]

19 Young biologists: Funding prospects poorer despite rapid doubling of NIH budget: Share of NIH grants, by age Age <35 23% 4% >45 22% 60% Source: Richard Freeman, Okun Lectures, Yale, 2004

20 Postdocs: : poor career prospects Ratio Postdocs/Tenured Faculty Slots (US) Discipline % Life Sciences % Phys Sci/Math % Engineering % Source: Richard Freeman, Okun Lectures, Yale, 2004

21 Engineering Careers: Unstable Early 1990s: High-tech bust Late 1990s: High-tech boom 2001-present: High-tech bust (again ) Large-scale import via expanded visas Rising offshore outsourcing Layoffs up, mainly mid-career

22 But What About the Future? Projections of S&E demand, supply Gap? = S & E shortfall Yet workforce forecasts notoriously weak Accurate forecasts have not been produced. [National Research Council, 2000] A Call for Humility: No one can forecast S&E in 2012

23 Policy Response Misdirected: Enhance Supply via Primary/secondary education reform Information, promotional campaigns Financial incentives More role models Increase foreign students/workers

24 Demand Gets Little Attention Yet some obvious questions: Are S & E career paths increasingly unattractive? relative to alternatives? Do they represent good career choices for bright & well-informed young students? NB: Cost/benefit choices very different for students from low-income countries

25 Career Opportunities vs. Personal Investment Large investments: money and time Less for engineering, more for science Extreme case: US bio now 9-12 years Effects: Deter entry, lower completion Opportunity costs high: e.g. >$1 million discounted lifetime earnings vs. MD, MBA Even then, uncertainty if can practice

26 A career, but also a Calling The intellectual challenge of discovery The life of the mind The opportunity to contribute Happily, some fraction are called But are others voting with their feet?

27 Did high tech booms evoke Yes, some domestic supply? CS enrollments soared in late 1990s But high-tech booms proved short-lived Increased foreign workers: abort domestic market responses? Post-2001: CS enrollment down sharply

28 How assess perennial shortages? Skepticism is in order. Consider: Interests of employers Interests of higher education Interests of S & E funding agencies

29 Not malevolence No one seeking to do harm Simply pursuing interests in political sphere And shortage claims do sell We can t drop our best selling point to corporations--shortages of qualified candidates -David Peyton, Director, Technology Policy, National Association of Manufacturers, 10/28/02

30 Any real evidence of shortages/shortfalls? Credible signals to look for: rising wages? No shortening time-to-degree? No entry from non-s&e occupations? No Credible forecasts of future shortages? None seem credible beyond short-term

31 Want more domestic S&E s? Assess if S&E careers attractive relative to others available to smart students Altogether, the data..do not portray the kind of vigorous employment and earnings prospects that would be expected to draw increasing numbers of bright and informed young people into [S&E] fields. [RAND, 2002] How make careers competitive? Commensurate w/ personal investments? How make education more agile (PSM?)

32 Summary: S&E labor markets are odd, w/ complex dynamics Supply: large personal investments Demand: uncertain, w/ booms and busts Humility about forecasts Need: more agile graduate education Master s level Online provision for full time working adults But if abort adjustments = lower supply? Need objective attention, not exaggeration

33 Comments/Questions?: Michael S. Teitelbaum Alfred P. Sloan Foundation 630 Fifth Avenue New York, NY tel: : teitelbaum@sloan.org

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