Where Did All The Jobs Go?

Recoveries are measured in dollars, not in jobs. This one—and even the last recovery in 2003—will produce far fewer full-time jobs in the short run than past recoveries.

That doesn’t mean companies won’t hire great numbers of workers. But much of that will be contract labor. The trend is to not hire full timers until it’s hard to get enough qualified people to do contract work because they’ve all been snapped up by their competitors. That scenario could take several years to unfold.

For the semiconductor industry, this is the latest wrinkle in a sector that is largely built on boom-bust cycles. It took giants like Avnet and Flextronics to sort through the supply chain and make sure there weren’t huge inventory fluctuations caused by double and triple ordering. In fact, if you compare the inventory levels of the 2001 downturn with the 2007 downturn, they were much, much higher in 2001. It wasn’t inventory problems that prolonged this recession. It was a global meltdown and end user demand. Inventory has been under tight control.

Labor, however, was stacked up in 2007 the way inventory was in 2001. There was far too much infrastructure—even in places like China, where the unemployment rate rose significantly. And there simply wasn’t enough demand for goods to sustain those jobs.

From there, it looked like something out of a Quentin Tarantino movie. The axe-people went on a rampage. They’re still swinging, and they’re likely to keep swinging until they run out of people and get thrown out themselves. At that point, companies will begin rebuilding morale and insist this is a new beginning. It isn’t. And for the foreseeable future, until they get their costs under control, most companies will tap the wealth of expertise available in the market on a contract basis. It’s cheaper. You don’t have to pay benefits to contractors, and you can cut them without a severance package if there’s even the slightest blip in demand.

That works just fine when labor is plentiful and jobs are scarce. But as business picks up, the number of contractors who are up to speed on the latest technology, tools and challenges goes down. That means the longer companies wait, the more they have to invest in training when they do come on board. In addition, they also have to pay more in salaries when competition heats up.

In the semiconductor industry, companies used to rely on young graduates to fill in the ranks. They were cheaper and generally well trained. That option is disappearing, however. There will be fewer young graduates coming out of engineering schools in the future. Enrollment is down everywhere. Moreover, no matter how many H1-B visas are issued, employers in other countries are offering similar pay and benefits, when you take into account the cost of living and quality of life.

As if that wasn’t enough, the mass retirement of baby boomers is just beginning. Assuming they didn’t invest their money with Bernie Madoff, a recovery in the stock market will likely mean a recovery of their retirement income. And that will mean fewer qualified engineers across the board.

All of this will take a few years to sort itself out, of course. But by that time, companies may find themselves in a rather bad position—too few contract workers, too few full-time workers, no options for replenishing their ranks and wondering where the next competitive sideswipe will come from.

–Ed Sperling