International trade is divided into two types of transac-
tions: cross-border sales and sales by affiliates. Cross-bor-
der transactions are sales between a buyer residing in one
country and a seller in another country. For example, a U.S.
manufacturer whose business is located entirely in the United
States might have computer programming performed by an
Indian company in India.

Sales by affiliates occur when a company of one country
establishes a plant or other work site in another country—for
example, when a Toyota factory in the United States sells
cars to Americans or when Exxon extracts oil in foreign wa-
ters. Because sales by affiliates typically involve the use of
local labor and materials, their economic impact on the two
countries affected is not the same as in cross-border transac-
tions, assuming that all other factors are unchanged. For ex-
ample, when a Japanese make of automobile is assembled in
the United States, its sale here is more advantageous to the
U.S. economy than when the product is assembled in Japan,
all other factors being equal.

Although imports of computer services have grown rap-
idly, exports have increased far more. Trends in trade bal-
ances in both cross-border transactions and affiliated sales
of computer services have been highly favorable. (See table
2.) The U.S. trade surplus in cross-border transactions of
computer services increased by $1.2 billion from 1986 to
1994, and the Nation’s surplus in affiliated sales increased
by $6.1 billion from 1987 to 1993.

In cross-border transactions of industrial engineering,
the U.S. surplus increased by about $100 million from
1986 to 1994 as a result of fairly flat imports and growing
exports. Trends in cross-border trade of construction, non-
industrial engineering, architectural, and mining services,
taken together, also show flat imports and growing ex-
ports. (Figures for nonindustrial engineering alone are not
available.) The U.S. trade surplus in nonindustrial engi-
neering and related services increased by about $2 billion
from 1986 to 1994. The trade surplus in affiliated sales of
engineering, however, was reduced by approximately
$220 million from 1987 to 1993, to a balance of $2.1 bil-
lion, as sales by affiliates of foreign companies to U.S.
parties increased more than sales by affiliates of U.S. com-
panies to foreign parties. (See table 3.)

But future trends in U.S. trade balances may not resemble
the trends of the recent past. The latest data are still too
early to reflect much effect of the two major trade
agreements of late 1994: the North American Free Trade
Agreement (NAFTA) and changes to the General
Agreement on Tariffs and Trade (cart). Both agreements
reduce barriers to international trade and may well
change the trends in imports, exports, or both. The net
effects on U.S. trade balances in the software and
engineering industries are unknown at this time.

ey U.S. international trade In computer services and

U.S. computer services Industry output, 1986-94
{In milions of dottars)
international trade in computer services
Grom border Afflicted soles us.
services
Year ToU.S. | 1o foreign
persons by| persons by| Industry
Imports | Exports | affiliates | affiliates | Output
otforeign | of US.
companies| companies!
$32 $985 — | $3847 | $49,064
74 649 736 5,028 | 56,144
107 1,198 1,004 5012 | 67.978
46 978 1,589 5613 | 77,419
44 1,031 1,907 7,741 86,045
16 1,738 1,720 9,782 91,483
141 4,902 2224 | 12,091 | 100,901
304 2,306 2,431 | 12,867 | 105,626
386 2,546 - - 114,893
Note: Dash indicates data not available.
‘Source: Bureau of Economic Analysis, U.S. Department of Commerce.

Reduced defense spending

Cuts in U.S. defense spending in recognition of the end of the
cold war began in 1987. Since then, defense-related indus-
tries (manufacturing industries that derived at least half of
their business from defense contracts in 1987) have lost vast
numbers of jobs. The cutbacks also have affected defense-re-
lated purchases of engineering and computer services: from
1987 to 1993, as defense industries trimmed employment,
their purchases of computer services decelerated greatly, to
less than one-tenth the previous rate of growth, and purchases
of engineering declined slightly, in contrast to the previous
strong upward trend.” Similarly, direct purchases of com-
puter and engineering services by the Pentagon declined
slightly from 1987 to 1993, after showing tremendous growth
from the mid-seventies to the mid-eighties.

Interindustry shifts in personnel

Aside from the issue of overall demand for programming and
engineering, the question of just where and by whom the work
is performed is crucial to the number of jobs in software and
engineering firms. Severe deceleration occurred in the com-
puter services industry partly because companies outside of
computer services hired many more computer professionals
as their own employees. As a result, by 1993, businesses had
less need for contractual computer services than they would
otherwise have had. While the number of computer engineers,
computer scientists, and systems analysts in the computer
services industry increased by 13 percent from 1990 to 1993,

Monthly Labor Review August 1996 41



Computers and Software and Engineering

Employment in computer services (sic 737) and

In engineering and architectural services (sic 871)
[in thousands]
Employment
Year Engineering and
Computer services | chitectural services
108.7 339.3
195 3723
1346 304.7
143.0 362.3
150.4 386.9
188.6 424.0
223.8 4728
2708 515.0
304.3 544.9
338.8 571.9
3648 5722
4158 575.6
TAA 625.0
5415 656.4
588.1 681.4
628.6 705.7
673.3 730.4
7363 703
79 786.3
797.0 750.1
835.5 742.4
892.8 7874
958.6 7783
1,080.4 ata
‘Source: Current Employment Statistics Program, Bureau of Labor
Statistics.

and architectural services gained 4.6 percent from 1994 to
1995, increasing much faster than in any earlier year of the
nineties and slightly faster than during the eighties. In early

Footnotes

1996, however, each industry returned to a slower rate of an-
nual growth, 10.3 percent for computer services and 3.7 per-
cent for engineering.

Without more up-to-date related data, trying to explain
the latest rates of growth in the same terms as for earlier
years would be speculative. It is well known, however,
that the introduction of Windows®95, the extremely popu-
lar Microsoft operating system, in mid-1995 involved not
only the completion of the package itself, but also an abun-
dance of modifications to applications, in order to make
them compatible with the new operating system or to make
them more efficient when used with it. In the first three
quarters of 1995, software applications sales in North
America accelerated greatly, increasing 23 percent over
the first three quarters of 1994; in earlier years of the nine-
ties, annual increases ranged from 6 percent to 14 percent.
From the first three quarters of 1994 to the first three quar-
ters of 1995, Windows applications increased in sales by
47 percent as sales of pos applications and Macintosh soft-
ware dropped. In terms of the function of applications, as
opposed to the operating system under which they oper-
ate, entertainment (up 73 percent) and personal informa-
tion management (electronic personal appointment sched-
ules, address books, and the like, up 75 percent) were the
strongest categories.” Considering the equally dramatic
decline in software sales in the fourth quarter of 1995—
down 9 percent from the fourth quarter of 1994 and a fac-
tor in the relatively small 12-percent increase from 1994
as a whole to 1995—it is uncertain that rising software
sales will continue to accelerate hiring. o

"R.A. Ellis, At the Crossroads: Crisis and Opportunity for American
Breioeer in the 1990's, special edition of the Engineering Workforce Bulle-

tin (Washington, pc, American Association of Engineering Societies, Inc.),
January 1994,

2 Ibid.
Ibid. p. 3.

“ Standard Industrial Classification Manual (Washington, pc, Executive
Office of the President, Office of Management and Budget, 1987), p. 401.
+ Engineering services (Standard Industrial Classification (sic 8711) is
the largest component of the broader industry classification called engineer-
ing and architectural services (sic 871), which also includes architectural
services (sic 8712) and surveying services (sic 8713). Engineering firms (sic
8711) have 78 percent of the employment in engineering and architectural
services (sic 871). From 1988 to 1994, engineering firms contributed all of
the change in employment in engineering and architectural services. These
facts are important because far more quantitative information exists for engi-
neering and architectural services than for engineering services alone. Be-
cause engineering services contains most of the employment and about all of
the volatility of engineering and architectural services, itis likely that data per-
‘taining to the latter primarily reflect developments in engineering serv-ices alone.
In later sections, data for engineering and architectural services will often be

44 Monthly Labor Review August 1996

cited, because more specific data pertaining solely to engineering services are
not available,

© Standard Industrial Classification Manual, pp. 365-67. The computer
services industry is classified as sic 737.

7 Information on industry sales to other industries, government, and con-
sumers is from input-output tables of the Office of Employment Projections,
Bureau of Labor Statistics.

* Ellis, Ar the Crossroads, p. 13.

* “India Industry: Educated, Cheap Labour Draws Western Software,
RaD,” HU Viewswire, May 1, 1995.

Ellis, At the Crossroads, p. 9.

4 Poid., p. 10.

2 Ibid., pp. 10-11.

+3 «Multifunction workstations boost engineering productivity,” Machine
Design, Oct. 25, 1984, p. 12.

TM David Stamps, “case: Cranking out productivity,” Datamation, July 1,
1987, p. $5.

'S At the Crossroads, p. 10.

*S Stamps, “case: Cranking out productivity,” pp. 55ff.



Computers and Software and Engineering

does improve the productivity of software developers if it is
used well. The consistency with which case tools are used
among members of teams and the degree of integration be-
tween case and other software used in a project are report-
edly key to the effective use of case.”

More recently, various forms of artificial intelligence (a1)
have become prominent in software design and engineering.
Like all other types of computer systems, ai depends initially
on exact, explicit instructions to the computer; but at least
some types of ar can generate their own rules for drawing
conclusions and can improve their performance with experi-
ence. According to Business Week, “at is alive and well in
thousands of applications in commerce, industry, and the pro-
fessions. More than 70% of America’s top 500 companies
are using it.””' ar has been used in. engineering problems, as
well as in the software industry.”

Greater automation, of course, should result in increased
labor productivity, which in turn should reduce the need for
workers to produce a certain level of output. But the study of
productivity in service-sector industries involves difficult
questions.

The productivity issue

Quantifying labor productivity changes, arising from com-
puterization or any other factor, is difficult at best in many
service-producing industries. The issue of whether there has
been an improvement in the quality of the product or service,
and if so, how to measure the dollar value of the improvement
is perhaps the most serious problem. If productivity measures
are to be comparable over time, dollar output figures used to
estimate production should be adjusted for both changes in
Prevailing prices of the product and any improvements in the
quality of the product. But the dollar value of some improve-
ments is difficult or impossible to determine. The user-friend-
liness of software applications is a good example of a clearly
improving quality that can be difficult to quantify in dollars. In
regard to engineering, the value of plans produced by engi-
neering firms increases with the quality of the products pro-
duced from those plans to the extent that improvements in those
products result from better engineering. Price adjustments for
engineering services, then, should reflect such increasing value
whenever it exists. Unfortunately, however, improvements in
products include qualities that are hard to quantify in economic
terms, such as the improved sound of a modem stereo system.
Because of this quantification problem, the Bis Office of Pro-
ductivity and Technology does not publish any labor produc-
tivity rates for either the software industry or the engineering
industry?

Despite the absence of quantitative proof, it is believed
that vast increases have occurred in the quality of software and
engineering. The improvements are believed to have resulted

40 Monthly Labor Review August 1996

in large gains in the value of software and engineering prod-
ucts and, consequently, greater productivity among software
producers and engineers. Perhaps the most striking improve-
ment in software in recent years has been its increased user-
friendliness. Aside from making the use of software more
pleasurable (a result whose dollar value is especially diffi-
cult to determine), user-friendliness, by reducing the time
spent learning to use an application and by moderating the
need for assistance from experts, results in greater efficiency
on the part of workers in industries buying the software.
Similarly, improvements in engineering result in superior
manufactured products. For example, the tremendous in-
creases in the efficiency and capability of today’s desktop
computers, as opposed to those of 5 or 10 years ago, reflect
improved hardware design.

Although the trends in productivity in the two industries
probably would be highly favorable if improvements in qual-
ity were reflected in some economic measure, certain prob-
Jems that have caused inefficiencies in the workplaces of the
industries have been identified; and some of these problems
are increasing. CASE tools are not used by all software devel-
opers. Says one authority, “The case against case simply may
be that we haven’t given it a decent chance or time frame to
succeed.”* Undocumented or poorly documented code takes
time to be understood when software is being replaced. “Sim-
ply figuring out what existing code, often poorly documented,
is supposed to do”*5 can take up as much as 40 percent of a
programmer's time “in the case model for software develop-
ment and maintenance.”* A lack of compatibility among in-
creasingly numerous software products and programmers’
expenditures of time in learning to use them are perhaps the
most serious problems affecting labor productivity in soft-
ware. These problems tend to increase as more and more soft-
ware tools are produced.

Because engineering projects often entail software devel-
opment, the same problems are likely to affect projects in the
engineering industry. Furthermore, the transition from weap-
ons development to peacetime technology entails some reori-
entation among engineers and may cause a temporary reduc-
tion in their efficiency.

International trade

U.S. media have shown a great deal of concern about foreign
competition threatening our sophisticated service industries,
including engineering and software.” As previously noted,
modern communications technologies facilitate engineering
or programming being performed continents away from the
site of installation. So far, import and export data show that
the United States has had a rapidly growing trade surplus in
computer services. Trends in engineering and related services
also are, in general, highly favorable.



Computers and Software and Engineering

members of those occupations working in all industries in-
creased by 35 percent, so that the computer services
industry’s share of experts was reduced.

In addition, increasing computer expertise among workers in
general may soften the need for outside computer help. In
1984, 23 percent of U.S. jobholders used computers at work;
in 1993, 43 percent did.” The development of more user-
friendly software may have contributed much toward this
change.

Unlike the case of interindustry shifts among employees
with computer expertise, the occupational redistribution of
engineers does not explain the deceleration of the engineer-
ing industry. In fact, the industry distribution of engineers
follows the opposite pattern: engineers have become more
concentrated in engineering firms, as opposed to other indus-
tries. From 1990 to 1993, as engineering companies gained
7,200 engineers, all industries lost a net 122,000. Businesses
outside the engineering services industry evidently now con-
tract out a greater portion of their engineering, to the benefit
of engineering firms. Manufacturing lost 79,000 engineering
positions, more than half the total loss, largely because of
reduced defense spending and corporate downsizing for pur-
poses of reducing costs.

Both computer services and engineering services are sub-
ject to competition from help supply companies, such as
“temp” agencies. Help supply companies pay and perform
administrative services for employees who are sent to work
at client companies. The growth of help suppliers, arguably

at the expense of permanent jobs, has been a persistent issue
in the media. The number of engineers and computer scien-
tists on the payrolls of help supply firms increased from 1989
to 1994. But even in 1994, the number of professionals sup-
plied by these firms who competed with engineers and com-
puter scientists in engineering and computer service compa-
nies was relatively slight. In 1994, computer professionals
provided by help-supply agencies amounted to less than one-
half of 1 percent of the employment of the computer services
industry. Similarly, that same year, engineers provided by
help-supply firms represented less than one-half of 1 percent
of the employment of the engineering industry.”

(CHANGES IN EMPLOYMENT in computer and engineering services
are the net result of all the influences that have been discussed
in this article, plus general economic conditions. Although
growth in the number of jobs has continued in both indus-
tries, it has slowed considerably since about 1990. (See chart
1 and table 4.) The latest recession partially explains the de-
celeration, but the recession cannot explain all of the reduc-
tion in growth in the most recent years. Even in 1993 and
1994, well after the recession, both industries grew at a rate
considerably below that of earlier years. The slowdown pre-
vailed despite the fact that growth in all nonfarm jobs has
been fairly strong in the last few years. The following tabula-
tion, which shows the annual percent growth in employment
in all nonfarm jobs and in computer and engineering services,
makes the point:>!

U.S, international trade in engineering and associated industries, 1986-94

On millions of dottars)
Sales
Affiliated sales of
Cross-border transactions engineering and
crchtioctural services Total output of
v
Construction,
Year noninauti Tous. To foreign bale a
industrics engines! persons by Persons by establishments
‘engineering architectural, cffiiates cffiictes
‘and mining of foreign of US.
services companies companies
Imports | Exports Imports Exports
$75 $08 $301 $750 - $2,414 $53,283
103 304 163 688 ¢) 2,969 58,340
133 278 307 790 1,279 21923 62,582
53 219 443 939 11918 3,456 71544
74 473 170 867 2.447 4,651 75,222
30 363 315 1478 2.685 5,470 75,386
12 212 281 1,935 3,567 5,561 78,220
142 286 336 2,388 3,881 5827 82,529
103 235 298 2,704 =- — =
Nore: Dash indicates data not available.
Source: Bureau of Economic Analysis, U.S. Department of Commerce.

42 Monthly Labor Review August 1996



" Ibid. p. 55.

1 Ronald J. Norman and Jay F. Nanameker, Jr., “case productivity per-
ceptions of software engineering professionals,” Communications of the ACM,
September 1989, p. 1102ff.

” Howard Mozeico, “ case integration boosts engineering productivity,”
Computer Design, Jan. 1, 1990, p. 82.

® John Pallato, “Study relates success of Case tools,” Pc Week, Jan. 9,
1989, pp. 43ff. See also Norman and Nanamaker, “case productivity percep-
tions,” pp. 1102ff.

Otis Port, “Computers that Think Are Almost Here,” Business Week,
July 17, 1995, pp. 68ff.

Ibid.

® The Bureau is, however, developing a Producer Price Index for engi-
nocring services (sic 8711).

TM Merle P. Martin, “The case against case,” Journal of Systems Manage-
ment, January 1995, p. 54.

® Tom Williams, “case tools prove worth in boosting productivity,” Com-
puter Design, January 1992, pp. 51ff.

% Tbid.; see also Michael J. Major, “The unresolved case: case prom-
ises great productivity, but users still are awaiting the evidence,” MIDRANGE
Systems, Apr. 28, 1992, pp. 25ff.

® For example, see Pete Engardio, Rob Hof, Elisabeth Malkin, Neil
Gross, and Karen Lowry Miller, “High-tech jobs all over the map,” Busi-

ness Week Special 1994 Bonus Issue: 21st Century Capitalism, Nov. 18,
1994, pp. 112-19.

% The values of purchases by the defense-related industries and by the De-
partment of Defense are om LS input-output tables from the Office of Em-
ployment Projections. The defense-related industries are those which, at the
peak of the cold war (1987), sold at least half their output to the Department of
Defense. These industries include ordnance and ammunition (sic 348), sero-
space manufacturing (sics 372 and 376), ship and boat building and repairing
(Sic 373), and search and navigation equipment (sic 381).

® Robert Kominski, Computer Use in the United States: 1984 (Bureau of
the Census, 1988), p. 5. See also the unpublished Bureau of the Census PrL-22
table 7, “Uses of computer at work, by sex and intermediate industry,” for 1993.

% Industry Wage Survey: Help Supply Services (Bureau of Labor Statis-
tics, October 1989), p. 8. See also Occupational Compensation Sur-
vey: Temporary Help Supply Services, United States and Selected Metro-
politan Areas (November 1994), p. 2.

TM Employment estimates in this article are from the BLS Current Employ-

iment Statistics (CS) survey of establishments, unless otherwise noted. The

program produces estimates of employees on all nonfarm payrolls, ex-

cept in private households, besed on a monly survey of about 260,000 werk

sites. Data from the survey appear in the Bureau's monthly periodical, Em-

ployment and Earnings,

TM Figures are from press releases of the Software Publishers Association,

i DC, and are for the United States and Canada combined; data on
USS. sales alone are not provided.

Monthly Labor Review August 1996 45



Computers and Software and Engineering

The software and engineering industries:
threatened by technological change?

Since 1990, job growth has slowed

in the engineering and software industries;
many factors contributed to the slowdown,

including reduced defense spending

and more automated processes achieved
through highly sophisticated software

cludes the makers of computer software,

Willam C, Goodman T he computer services industry, which in-

and the engineering industry, which de-
signs a vast range of physical products, are simi-
Jar in that both partake of the important role of
originating and changing technology. Therefore,
jobs in the two industries depend, to a great ex-
tent, on technological progress. Ironically, tech-
nology also may reduce the number of careers
in these industries, as advanced computer tools
decrease the amount of labor required to design
a product, be it largely intellectual (as in the case
of a software application) or physical (as in the
case of a new weapon, a household appliance,
or an office product). A variety of advanced
computer tools are already widely used in the
two industries and in some cases drastically re-
duce the requirements for labor. Jobs in the two
industries, then, depend on technological prog-
ress for their existence, yet are vulnerable to
technologically enhanced efficiency.'

At least one additional consequence of tech-
nological progress is highly relevant to job
growth or loss in the two industries: advances in
communications technologies, including links
between computers, now make it much more
practical to have programming or engineering
performed overseas; as a result, both foreign
competition for the business of U.S. clients and
sales of U.S. services abroad have increased.

Certain social and political changes also have
a considerable impact on the number of jobs in
the two industries. For example, during the cold
war, the development of advanced weapons con-
tributed strongly to increasing demand for engi-
neering and computer services.” With the end of
the war, advanced weaponry became less of an
influence on demand. Recently, corporate
downsizing has been a major influence on the
number of jobs in the two industries, but not in
the way one might think initially, as a later sec-
tion will explain.

Since 1972, the combined number of jobs
in the engineering and computer services in-
dustries has increased by more than 300 per-
cent, to about 1.9 million. Jobs in engineering
and architectural services (primarily engineer-
ing) increased by about 140 percent, to a level
of 800,000. Jobs in computer services in-
creased to about 10 times their number in
1972, reaching 1.0 million in 1995. But trends
during the period of more than two decades
have not been steady, with a severe slowdown
in growth occurring in recent years.

This article describes the nature of the two
industries in some detail, explains the major
developments that affect employment in the
industries, and examines the impact of those
developments on the number of jobs in engi-
neering and computer service firms.

Monthly Labor Review August 1996 37



Engineering and
All nonfarm — Computer —_ architectural
jobs services services
10 ng 40
27 92 43
11 54 2
2.0 69 20
31 14 28

Still, in 1994, the computer services industry grew in em-
ployment at more than twice the rate of the nonfarm sector as
a whole.

Many of the factors discussed in this article cannot in
fact explain the slowing of employment growth in the
computer services and engineering industries, because
those particular factors either influence employment in
the direction of acceleration or have effects that cannot
readily be determined. In the last few years, the U.S. trade
surplus in computer serv-ices has expanded greatly, fol-
lowing a slight drop in the late eighties, so that interna-
tional trade in computer services has been an influence in
the direction of acceleration in U.S. employment. Affili-
ated transactions in engineering and architecture also have
shifted in the Nation’s favor in the last few years, after a
trade surplus in this category dropped from 1987 to 1989.
In cross-border transactions of construction, nonindustrial

engineering, architectural, and mining services, the U.S.
trade surplus quadrupled from 1989 to 1993, after increas-
ing only minimally from 1986 to 1989.

Greater efficiency of labor through the use of constantly
improving computer tools may explain much of the slow-
down in hiring in the two industries, but the lack of good
measures of productivity in the industries means that there
is currently no way to quantify the effects of increasingly
sophisticated automation on the need for workers. The
factors that remain as clearly having contributed to the
slowdown include the recession, which explains some of
the deceleration in 1990 and 1991 only; greater in-house
computer expertise in businesses in general, lessening the
demand for outside computer services; more user-friendly
computer applications that reduce the need for outside
expertise; a deterioration in the U.S. trade surplus in cross-
border transactions of industrial engineering (see table 3);
and reduced defense spending.

Estimates of employment in 1995 show renewed strength
in both industries. Because other, related data for 1995 gener-
ally are not currently available, these most recent employ-
ment trends cannot yet be analyzed in the same way as earlier
employment changes. In 1995, jobs in computer services in-
creased by 12.7 percent from 1994, a sharp upward break
from the trend of the preceding years. Jobs in engineering

| Chart Employment change in engineering and computer services, 1979-94

Percent
change

100

L Computer
services

1979-84

1984-89

Engineering and
architectural services

1989-94

Monthly Labor Review August 1996 43



Computers and Software and Engineering

What the industries produce

Engineering services exhibit great variety. Engineering firms
may design ships, boats, machines of any kind (including
machine tools used in factories to produce other products),
advanced weapons, public works such as bridges or public
utilities, petroleum extraction systems, airplanes, or any of
the components of such products.* The engineering industry
derives income, employment, and growth from a broad range
of services for a broad range of clients.* Table 1 indicates the
distribution of the industry’s sales among the various types of
clients.

Variety also characterizes the computer services industry,
which includes custom computer programming for specific
clients, typically from the corporate or government sector.
The industry also includes prepackaged software companies,
which develop and mass-produce software sold in stores or
installed in computers prior to sale, for business or individual
use. Widely sold, mass-produced software ranges from
amusements for children and adolescents to high-powered
business applications. Computer integrated systems design,
which entails both selecting hardware and developing soft-
ware to make a custom system, is included as well, as are
information retrieval systems for quickly disseminating news
or specialized information (for example, the Dow-Jones News
Retrieval Service and companies such as CompuServe, which
provide public access to the Internet). Computer-related con-

sil Demand for computer services and engineering

services, by purchaser's industry, 1993
{in billions of dollars}

Purchases of—
Purchasing industry
group Computer Engineering
services

$0.4 $0.8
o 37.9
6.0 58
9.0 22
8 4
5.2 2
34.3 1.4
45.8 59
3.2 6.1

5 3,
State and local goverment 94 6
Personal consumption’... 24 0

* Final demand, as opposed to use in making a product or service.

? Includes only those government entities, such as the Postal Service,
which sell a product or service.

* Not available.

+ Approximately zero.

Source: Derived from tables provided by the Office of Employment
Projections, Bureau of Labor Statistics.

38 Monthly Labor Review August 1996

sulting, custom data-processing services, and other services
are also provided by the industry.

Technically as well as economically, the engineering and
computer services industries have much in common. When
advanced products such as military aircraft or space vehicles
are engineered, a great deal of software is generated in the
process, so that much of the activity in engineering resembles
that of custom software design. In fact, some of the same
types of highly sophisticated computer software are usable in
both industries.

Causes of change in employment

Computer services and engineering have been far from static
in recent years, in terms of both technology and economics.
Perhaps the most obvious economic development in the two
industries is their enormous, if decelerating, growth. From
1972 to 1995, employment in computer services increased by
913 percent, and employment in engineering and architec-
tural firms increased by 140 percent. (Employment in all
nonagricultural jobs increased by 59 percent during that time.)
Growth in computer and engineering services has been driven
especially by increased demand from various service-produc-
ing industries and government entitities, including defense
and government enterprises (those government organizations,
such as the Postal Service, which sell a product or service). In
recent years, many service-producing industries have under-
gone major technological changes that have increased the in-
dustries’ need for computer and engineering services. The
enormous growth of automatic teller machines is one famil-
iar example. (Information on some of the many technological
changes in service industries can be found in other articles in
this issue of the Review.)

While there is virtually no direct demand from consumers
for engineering services, demand from consumers for com-
puter services, which include individuals’ purchases of soft-
ware and household subscriptions to Internet servers, in-
creased from virtually none in 1977 to $2 billion in 1993.
Still, consumers’ purchases of computer services remained
less than 2 percent of the industry’s output through 1993.”

As previously mentioned, employment in both industries
largely depends on technological progress, yet is vulnerable
to technologically enhanced efficiency. Advanced computer
tools already in widespread use include computer-aided de-
sign (CaD), computer-aided software engineering (case), and
artificial intelligence (ar). But measuring their impact on em-
ployment in the two industries is not simple, as we will see.

Aside from the double-edged influence of advancing com-
puter technology, other consequences of technological
Progress affect the number of jobs in the industries. Because
of progress in communications technologies, such as FAX and
improved telephone links, it is now more practical than ever



to have engineering or computer systems design performed
far from the site at which the product will be used, even over-
seas. Advances in communications, therefore, imply both a
greater threat of low-priced foreign competition for projects
in the United States and a larger potential market for U.S.
services. For example, as stated in an article in from EIU
Viewswire:

In the past few years India has gained a reputa-
tion as a useful offshore base for software devel-
opment. Firms such as Texas Instruments, 18M,
Motorola, Bull and Deutsche Bank all have op-
erations in Bangalore, the country’s Silicon Val-
ley. Foreign companies have recently been look-
ing to India as a base for engineering and R&D
support services as well. The main draw is the
ready availability of extremely cheap and well-
educated engineering talent”

The U.S. media have expressed much fear of foreign com-
petition; but as we will see, the relationship between imports
and exports of these services has more complex implications
than some have been led to believe.

Political and social changes have strong effects on the
trends of employment in engineering and computer services.
Reductions in U.S. defense spending in the area of advanced
weapons are relevant to the overall amount and types of de-
mand for engineering and computer services. Toward the end
of the cold war, in 1987, defense spending—especially the
development of advanced weapons—was responsible for 11
percent of the sales of engineering services and 5 percent of
the sales of computer services. The development of high-tech
weapons then declined substantially.

The reductions in U.S. defense spending resulting from the
end of the cold war may translate into greater progress in civilian
technology as technological resources become more available
for nondefense purposes. Indeed, certain Government-initiated
programs that stimulate the development of nonmilitary
technology have already begun. For example, the Department
of Commerce’s Advanced Technology Program and the
Pentagon’s Technology Reinvestment Project, the latter of
which is designed to stimulate technologies with both military
and civilian applications, fund numerous technological research
projects conducted by a large number of companies and
universities. Still, one authority comments, “These levels of
{Government] funding are not insignificant, but compared to
the military R&D pipeline in recent years, they are a mere trickle;
at best, they are seeds that will take time to grow.”"”

Corporate downsizing is another factor relevant to employ-
ment in the computer services and engineering industries."
As manufacturing companies cut back, laying off engineers
as well as other workers, engineering firms may be needed
more often to perform engineering projects that otherwise

would go to manufacturers’ own engineers. Engineers laid
off from manufacturing corporations may respond by start-
ing their own small engineering businesses, thus moving from
the goods-producing sector to the service-producing sector
and, if they hire employees, adding to employment in engi-
neering services.

Aside from the downsizing issue, the broader question of
the extent to which companies in general hire their own engi-
neers or computer professionals, as opposed to using the
services of firms specializing in these fields, is crucial to
employment in the computer services and engineering
industries. Temporary help supply services and employee-
leasing firms that provide engineers or computer experts also,
in effect, compete for work with engineering or computer
services firms. An entirely different form of competition that,
according to some sources," has already thrown vast num-
bers of engineers out of work, will be discussed next.

Computer toois

As more and more sophisticated hardware and software ease
the requirements for labor in other industries, computers are
developing impressive capabilities for use in both engineering
and software development itself. At least as early as 1984,
workstations and associated software were recognized as
valuable in engineering for improving productivity.
Software for computer-aided design/computer-aided manu-
facturing (cap/cam) has proven particularly significant in this
regard. By 1987, cap was “fulfilling its design potential by
linking the geometric shapes on a workstation screen to the
rules of engineering and physics that determine whether a
part will survive testing as a prototype.”'* According to one
authority, “Civil engineers tell us that the development of cap/
AM systems means that one skilled senior professional can
accomplish the same amount of work that used to require
teams of six to twelve degreed professionals.”">
Computer-aided software engineering, or CAsE, is usable
both in the development of software for a specific engineer-
ing project and in the development of software applications
for sale to the public. Like “cap/caM,” “case” is a generic
term rather than the name of a specific software package. CASE
software is used to automate parts of the process of making
software.'° While cask has not been able to generate perfect
code without human assistance, it does have certain limited
uses. CASE reportedly was introduced in 1987,'’ and in 1989
it was estimated that “thousands of medium and large enter-
prises . . . [were] using Case products as part of their system
building process.”!* “Upper” case products are used in the
overall design of a software package, while “lower” casE
products are used to test and debug specific pieces of code.”
The use of case has ranged from disappointing to clearly
beneficial. Studies have provided empirical evidence that casE

Monthly Labor Review August 1996 39