Working Papers

Is There a Shortage of Engineering Talent in the U.S.?

High-tech companies have been issuing the “crisis warning” about engineering shortages for at least the past two decades. AMD’s and Microsoft’s warnings quoted above are only two in a long line of warnings issued by companies and government-sponsored panels.

At the same time, we saw in Crisis 4 that the price squeeze that led the U.S. industry to globalize its supply chain also led to the fear that U.S. engineers are losing jobs to lower-cost foreign engineers.

In this chapter we ask if the U.S. is facing a talent crisis by looking critically at what is happening to high-tech engineering employment and earnings in the U.S. How can the U.S. fear loss of engineering jobs while experiencing a shortage of engineers? Experts cannot agree if the U.S. is educating or granting visas to too few or too many engineers and scientists. This is partly because economists find it hard to believe a shortage exists in a labor market when real earnings are not rising across the board, as we will see is generally the case in the high-tech engineering labor market. Also the debate reflects the different positions of engineers and their employers on the proper government policies to regulate immigration and fund higher education of engineers and scientists.

Economists have generally believed that any imbalance in the engineering labor market is short lived while the market equilibrates through changes in earnings and in the supply of newly educated engineers–earnings increase (or decrease) and result in an increase (or decrease) in supply of engineers and decrease (or increase) in demand. Eventually the supply of engineers should satisfy the demand, although the transition requires time to train new engineers or to retire or relocate experienced engineers.

At the heart of the public debate is the fact that engineers and their employers represent the two sides of the marketplace: employers want low-cost hard-working engineers with state-of-the-art knowledge, and engineers want well-paid challenging jobs that provide continual skill and career development. Employers prefer a surplus of engineers in their hiring queue in order to find new hires with exactly the right state-of-the-art skills and without competition from other employers that drives up earnings. Engineers prefer a shortage of engineers, so employers are willing to (re)train their current workforce in the required skills, or the engineers have challenging job options with other employers, which tends to drive up earnings.

The U.S. government plays a powerful role in the U.S. engineering labor market and can speed up or slow down the transition towards equilibrium. Here we focus on the impact on the supply of U.S. engineers through visa regulations, which determine the number of foreign engineers and foreign students coming into the U.S. These policies can quickly increase or decrease the supply of engineers and directly affect the bargaining power of engineers and their employers. No wonder the two sides present very different arguments to the Federal Government about how many foreign engineers should be allowed to study and work in the U.S.

Our own interviews with semiconductor executives since the early 1990s indicate that companies worry about a “future shortage” even as they report being able to recruit excellent engineers. Companies also indicate that the educational requirements are increasing, and most want to hire only MS (or PhD) engineers for design and product or process development. Their worries about hiring talented engineers seem to reflect their fears that competition will push salaries up for those with graduate training, and of course the companies would prefer that the graduate premium stay low.

This chapter analyzes the U.S. labor market for semiconductor engineers—the earnings and employment opportunities over the past five years, the career paths engineers face as they age, and the returns to investing in advanced degrees. Then we look at the influence of three important forces on the demand and supply for semiconductor engineers—technological change, graduate education practices, and H-1B visa policy. In particular we explore how U.S. supply of high-tech engineers is affected by the global brain circulation and U.S. policies in higher education and immigration. We close by discussing the outlook for U.S. engineers and their companies.