National Data | “STEM Shortage” Shouters Suppress Salient Statistics

Not so long ago “STEM” was an obscure acronym. Today everyone in official Washington seems obsessed with the (alleged) shortage of American STEM—“science, technology, engineering, and mathematics”—workers, a shortage that, we are told, could destroy what is left of U.S. economic competitiveness.

That this problem exists is one of the few things Republicans and Democrats seem to agree on. A bipartisan consensus also extends to the remedy: more foreign workers. The STEM Act, proposed by congressional Republicans late last year, would have shifted visas currently allocated to the diversity lottery to a new class of green card for foreign students with degrees in science, technology, engineering, or math. In 2011, there were 286,066 foreign STEM students in the U.S.—83% of them from Asia. [As STEM Act Vote Nears, Some Experts Dispute High Tech Worker Shortage, By Soni Sangha, Fox News Latino, November 28, 2012]

The bill did not pass, but the President furthered the cause by ordering Homeland Security to allow STEM students to stay in the U.S. an additional 17 months. All this on top of Mr. Obama’s executive order, issued shortly before the election, forbidding DHS from deporting illegal aliens who came here as children.

There’s something wrong with this picture. When a commodity is in short supply, its price rises, thereby increasing supply, reducing demand, and eventually eliminating the shortage. We’ve see this in oil, where sharply higher prices triggered development of new U.S. fields, reduced consumption, and turned the U.S. from a net importer to one of the world’s largest oil exporters.

Workers with STEM degrees do earn more than those in other occupations, and have enjoyed higher earnings growth. From a distance that seems to signal a shortage.

But the big bucks occur only when STEM workers exit science and technology occupations for managerial and professional jobs elsewhere. The rate of out-migration is huge: For every 100 students who graduate with STEM degrees only 42 are doing STEM work 10 years down the line.

A STEM degree today confers what liberal arts degrees did in earlier years: entree to higher-paying occupations like architecture, business, finance and medicine. This transition is great for these upwardly mobile individuals, but a problem for workers who got their degree because, well, they really wanted to do STEM work.

STEM employers claim there simply aren’t enough of these dedicated souls in the U.S. For years they have lobbied—successfully—to bring more foreign STEM workers here on “temporary” H-1b visas.

And this foreign influx has kept wages stagnant. From 2000 to 2011, according to the Economic Policy Institute, the average real hourly wage for workers with at least a bachelor`s degree in computer and math occupations rose less than 0.5% per year from 2000 to 2011.(In 2012 dollars, their average wage went from $37.27 in 2000 to $39.24 in 2011.) This is nowhere near the gains you would see if a real shortage existed

Microsoft employs more H-1bs than any other American company. In 2012, the company published a report [PDF] warning of a potentially catastrophic mismatch: only about 40,000 Americans graduating annually with bachelor’s degrees in computer science versus a projected 120,000 unfilled job openings in computing occupations every year from now to 2020. The report urged Congress to expand temporary H-1b visas (currently capped at 85,000 per year) by 20,000 per year, and to make 20,000 previously unused permanent immigrant visas (green cards) available to foreign students in STEM fields. [See STEM labor shortages? Microsoft report distorts reality about computing occupations, By Daniel Costa,  Economic Policy Institute,  November 19, 2012]

Microsoft’s statistical sleight of hand starts when it anoints computer science grads as the only group capable of filling computer industry jobs. Less than half of all workers in computer occupations have such degrees. A recent analysis of data in the National Science Foundation’s National Survey of College Graduates by Professor Norman Matloff (UC Davis) reports that “only 40.2% of those with Software Engineer, Programmer, or Computer Scientist titles came to the profession from a CS degree.” [Immigration and the Tech Industry: As a Labor Shortage Remedy, for Innovation, or for Cost Savings? PDF]

And this data ignores workers with less than a bachelor’s degree. As Matloff notes, iconic STEM industry figures such as Bill Gates, Larry Ellison, and Mark Zuckerberg do not have a college degree in any field.

It’s quite true that fewer U.S. students are going into computer science. The number of bachelor’s degrees awarded in computer science fell from 59,488 in 2004 to 37,994 in 2009, according to National Science Foundation data. But this is a symptom, not a cause, of Microsoft’s problem. PC sales have slowed for more than a decade, collapsing by double digits in the past 12 months. The current unemployment rate for recent computer science graduates (7.4%) is nearly four-times the 2.0% rate they experienced during the boom years.

Facing those rates, even the most dedicated STEM students will avoid computer science.

Yielding to Microsoft’s request for another 20,000 H-1b visas would push unemployment rates still higher.

And that may be exactly what the company wants. If the PC market is dead, and Microsoft is out of ideas as to how to revive it, higher profits might best be achieved by reducing personnel costs. Replacing native-born computer science grads with cheaper foreigners could be a key part of Microsoft’s business model.

Not all industries have jumped on the H-1b gravy train. Oil and natural gas exploration is running full bore in the U.S. As a result, average starting salaries for bachelor-level petroleum engineers doubled from $43,674 in 1997 to an astronomical $86,220 in 2010.

As salaries increased, so did the number of students attracted to the field. A recent study  of the market for petroleum engineers reports that the number of BS degrees awarded in this field went from roughly 250 in 2002 to almost 700 in 2009.

FLASH: higher prices trigger higher supplies!

OK, that’s no surprise. What is surprising, given the conventional Inside-The-Beltway wisdom, is the source of the supply: native-born Americans.

“A key claim is that the U.S. S&E workforce is dependent on foreign students and workers because it is not possible to find sufficient domestic supply. However, when we examine the domestic increase in petroleum engineering graduates we find that, interestingly, it is not just the overall supply of petroleum engineering graduates from college that appears to be responsive to demand and wages, but it is the domestic supply (U.S. citizens and permanent residents) in particular that supplies the increased pool of graduates. As wages increase and job demand in the U.S. increases, there is a shift in the relative share of domestic and foreign students in the graduating pool; the percentage of foreign petroleum engineering graduates in the U.S. on student visas, the highest of any of the engineering fields at the bachelor’s level, declines as the domestic supply increases…

At the Bachelor’s level, the number and percent of graduates who are on student visas dropped to the lowest proportion of total graduates in the past fifteen years….The increased demand was largely satisfied by American students.” [Dynamics of Engineering Labor Markets: Petroleum Engineering and Responsive Supply, Presented At “U.S. Engineering In The Global Economy”, September 26-27, 2011, PDF]

When the job market is allowed to function freely, ordinary Americans are better off.

Why, then, does Washington prefer corporate welfare?

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.