Engineer welfare
Greg Mankiw points out that President Obama wants to hugely increase government spending on research and development while Obama advisor Austan Goolsbee has published a paper arguing that government R&D spending doesn't accomplish as much as people think. From Goolsbee's abstract:
The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the government funds R&D, a significant fraction of the increased spending goes directly into higher wages. Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers.
Fortunately, elsewhere on his blog Mankiw provides the solution to an inelastic R&D worker supply: more H-1B visas.
Comments
The starting salary for computer science majors at the four year degree level declined by about 15% (adjusted for inflation) between 2001 and 2007. This resulted in an enrollment drop of greater than 50%. This implies that the long run supply elasticity for computer science is greater than 4. Goolsbee must be looking at only short run elasticity.
What's been happening is that young people are shifting away from fields that are being molested with the H-1B visa program.
Posted by: Richard A. | April 28, 2009 4:55 PM
US students are very responsive to the perceived job market in the field.
http://www.kermitrose.com/jgoEduStats.html
http://www.kermitrose.com/jgoIndustries.html
Further, studies going back for decades consistently show that it only takes a 2-6 weeks to learn a new programming language; a couple months to be productive on and up to 18 months to master a new software design paradigm, programming language and development environment. That sounds extremely elastic, to me.
http://www.kermitrose.com/econSummaryAnalysis.html#Media
http://www.kermitrose.com/econ02USAreBest.html
"'Newly hired American university graduates 'become productive within 30 days or so. If you hire a graduate of an Indian university, it takes between 3 and 6 months for them to become productive.'"
http://www.kermitrose.com/econ200801.html#20080104
Besides, the USA now has a huge pool of bright, able, knowledgeable and willing STEM workers who are unemployed, under-employed/mal-employed in other fields.
Posted by: jgo | April 29, 2009 12:08 AM
The solution to an "inelastic R&D worker supply" is to stop flooding the market with cheap labor. If salaries are allowed to rise, or at least keep up with inflation, more Americans will enroll in technical fields. Also, many IT workers who have been driven out their chosen profession may decide to re-enter the field.
In addition, if any of this R&D spending goes to companies like IBM, Sun, Hewlettt Packard, or Microsoft, previous little of it will end up in the hands of American STEM workers.
Posted by: Mike | May 2, 2009 6:19 PM