Information Technology Workforce Structure and Compensation: Implications for Outsourcing

Some literature on information technology outsourcing has argued that the rise of outsourcing can be tied to IT labor market conditions. The purpose of this research is to investigate how IT workforce characteristics influence the distribution of workers between IT services (ITS) firms and non-ITS firms and the associated compensation. IT outsourcing literature points out that due to the economies of scale and scope and specialization in IT, ITS firms may have an advantage in hiring, retaining, and motivating highly skilled IT workers by providing better career opportunities and better compensation due to higher productivity. On the other hand, non-ITS firms may have to compensate IT workers better because they need to make specific investments in non-IT skills and, as a result, may have some hold up power over other employees. This study reports early results from an analysis of the U.S. Department of Labor’s Current Population (CPS) Survey from 1983-2001 and the U.S. population census for 2000. These results show that IT workers employed by ITS firms are better educated, younger, and proportionally more are male. The wage regression results show that holding other factors constant, ITS firms pay more than non-ITS firms for a given type of worker. However, there may be other factors, such as finer differentiation in worker qualification or job intensity, unobservable from our dataset that may influence the wage. Further research is suggested