Tech Sector Still Feeling Economic Crunch

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Despite the United States' increasing reliance on computers for everyday personal and business activities, the tech sector is still feeling the economic squeeze, and is hoping the economic package proposed by President Bush (search ) gives it a much-needed shot in the arm.

A recovery in the much beleaguered tech sector this year will most likely continue to be a "jobless" one, according to a study released Monday by the Information Technology Association of America (search ).

Demand for information-technology workers nationwide has reached a historic low of only 493,000 positions over the next 12 months -- down from 1.6 million at the beginning of 2000 and less than one-half the predicted 1.1 million positions needed at the start of 2002, according to the study.

But the good news is, the sector seems to have hit bottom and is slowly working its way up.

"The sense is for most companies it's bottomed out and we do see a few bright spots here and there, but I don't expect to see any dramatic good news in the short term" of the next 6-12 months, ITAA President Harris Miller told

"I think it's at least steady as she goes, which is better than it was a year or two ago."

The United States currently has about 10.3 million tech workers, but hiring and firing amounted to less than a 1 percent growth during the first quarter of this year.

One disturbing trend is that more companies are moving positions overseas to save money.

About 12 percent of IT companies have opened up shop abroad; 22 percent of large companies have moved also. And 67 percent of companies with foreign worker bees say those jobs are programming or software engineering slots. Midwestern and western companies are the most likely to send jobs overseas.

In the current state of the U.S. economy, the industry has claimed that such cost-cutting measures are needed to stay afloat.

"In most cases, it's a cost competitiveness issue," Miller said.

The trend is a departure from the first 50 years of the computer industry, when the United States didn't have much tech competition so work could stay here even though other countries' labor costs were lower.

But India and other countries such as the Philippines, central Europe, Russia and South Africa "have been working very hard to develop a highly skilled IT workforce," Miller added, "and they have succeeded in other areas."

Miller said Congress does have a role in helping to prevent companies from sending jobs overseas while U.S. workers are hurting at home.

"What Congress has to do is help get the economy jumpstarted," Miller said. "If the economy were stronger, I don't think people would be inciting the offshore competition quite as much."

Much of the tech industry has been cheerleading for President Bush's $726 billion economic package as a way to pull the industry out of its doldrums. The White House says it would be satisfied with the $550 billion sum that the House passed rather than the smaller $350 billion number being bandied about in the Senate.

In a move aimed at showing support for the sector, Bush spoke Friday on the issue in tech hotbed Silicon Valley (search ).

Bush's plan to accelerate the depreciation of high-tech goods and eliminating the double taxation of dividends will help, tech industry analysts say. The administration has proposed improvements in productivity within the federal government, which means more technology sales. Plus, tax cuts and credits will spur growth of capital and improve investment.

Industry group AeA on Friday voiced support for an economic plan proposed by Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee. Thomas's panel will consider the bill Tuesday and expects the House to debate it Friday.

That plan would tax dividends like capital gains and reduce the capital gains tax. It cuts the taxes of individuals and small businesses to give more money to consumers and investors.

Income tax rates scheduled to decrease would start dropping retroactively from Jan. 1, 2003. The child tax credit would increase from $600 per child to $1,000 for three years. Married couples would also get a larger standard deduction for three years. Fewer people would be hit by the alternative minimum tax.

Small businesses would be able to deduct up to $75,000 of their expenses for three years, and businesses also could depreciate up to 50 percent of their assets.

"As proposed, it will have the potential to provide real economic stimulus to the U.S. economy, and particularly the high-tech sector," said AeA President William Archey.

A second study released Monday by ITAA found that racial minorities and women made few inroads into high-tech jobs between 1996 and 2002.

Women in IT fell from 41 percent to 34.9 percent, while the percentage of blacks fell from 9.1 percent to 8.2 percent. The bulk of the decline, however, came from administrative rather than engineering positions.

"While our findings are not encouraging, we only need to look at the pipeline of qualified applicants for high-tech positions for an explanation," Miller said.

"Until our education system produces more qualified candidates, these percentages of IT workers are not likely to improve significantly."