Financial Crisis Impacts Job Market

A regular topic over the past few months here has been brain drain, i.e. smart people leaving Washington, DC and heading to the bay area.  I just read a post over on Jimmy Gardner’s East Coast Blogging website that asks a question along the same lines.  He points to a post by Tom Foremski on ZDNet titled ‘Go West young IT worker!’ referencing John Soule’s phrase “Go West Young Man.”  Tom cites a post by Daya Baran from mid September that points out that with “three less buyers of technology from the financial sector…vendors that rely on the financial services sector will see demand dry up.  Daya goes on to note that HP and eBay have already announced layoffs this week and speculates that others including Oracle, SUN Microsystems and Salesforce might too.  He points to the fact that this may put downward pressure on wages.

I guess what I want to point out here is that these are all WEST COAST COMPANIES.  One thing that Jimmmy, Tom and Daya are missing here is that California has the third highest unemployment rate in the Country right now.  Not only does this support Dana’s suggestion that there will be downward pressure on wages, but it will make it harder for people to find jobs out West.  Even Google is talking about cuts in their workforce.  Interestingly, note California’s unemployment compensation fund may run out of funds in Q1 2009.  Jimmy does point out that DC has a lot of government contractor companies here like the one he works for.  These are companies that will not be impacted in the short term by the ripples being sent out from Wall Street and Washington state (WAMU).  At least not until the combined effects of the bailout and reduced revenue from corporate taxes start to magnify. 

There will be some anomalies.  Companies will merge, make acquisitions and go bust.  The compaies that are most likely to go bust are ones that a) are in the financial sector, b) aren’t that big in the first place and c) were probably headed in that direction already.  As this happens the software engineering talent shortage might just become a little less of a shortage and that is by no means a bad thing. 

One other subject that was covered that I find interesting is a potential decrease in offshoring.  Tom speculates that current economic conditions might give rise to a reduction in offshoring.  I agree in part, but think that there is more to it than that.  Before the reduction in offshoring starts we are going to see a HUGE surplus of H1B workers who get cut by financial firms.  I haven’t confirmed this yet, but I suspect that this is going to result in two things happening.  The first will be that a lot of third party staffing firms will be hit hard as their consultant revenue evaporates before their eyes.  The second will be that a lot of these consultants will have to return to their countries of Origin.  Not just to Southeast Asia, but also to Latin America, Eastern Europe and Asia proper.  These consultants will bring their ties and experience along with more buying power than they had before back with them.  As a result there will be more of a push for offshoring than ever before.  And more importantly, as companies look for ways to cut their costs they will increasinly look to offshore firms as low cost alternatives to domestic efforts.  The end result might just be a net increase in offshoring.  This too would put downward pressure on software engineer wages.

Given all of this, the smart people will should stay put.