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OS/400 Edition
Volume 12, Number 10 -- March 10, 2003

Layoffs, Experience Help Lift Average Salaries at OS/400 Shops

by Timothy Prickett Morgan

If there is one thing that no one wants--including OS/400 shop salary watcher Nate Viall & Associates--it is to create a false impression of the salary increases that managers and programmers at AS/400 and iSeries shops should expect this year. Viall's most recent salary survey shows that increases are significantly higher in the United States than one might expect, given the state of the economy. There are reasons for that, which he explained to me last week.

But before we get into the explanations, let's examine what the current salary levels look like. On the broadest possible measure (across all geographies and titles in the United States at OS/400 shops), salaries for managers are up 5.4 percent, to $85,400 from $81,000 twelve months ago. Technical staff salaries--including those for analysts, programmers, support techs, and administrators--are up 4.4 percent from a year ago, rising to $58,900 from $56,400. This is against the backdrop of a bad economy and a cost-of-living (as measured by the U.S. Consumer Price Index, which is growing at about 2 percent annually). Most companies don't give raises for fun, so something must be going on here. And indeed it is. Don't get too excited, though. You may not be getting as big a raise as the averages imply. But if Viall's polling numbers are any indication, you're going to do better than inflation, as OS/400 shops have been doing for years.

One of the main things going on here is that consultancies that write software for OS/400 servers running at other companies on an outsourcing basis (which represent about half of Viall's polling data) have been laying off their least-experienced coders and managers, who, not coincidentally, are also generally the lowest paid among their peers. The same kind of downsizing of programming and management staff is occurring at midsized and large OS/400 shops. There isn't the same level of layoffs that we all saw back in the early 1990s, when OS/400 salaries actually dropped, but there are enough layoffs to affect the aggregate salary pool. When you run the averages, it looks like people are getting paid more, when what has really happened is that the same people are being paid the same but there are fewer people in the average. Here's an example. Say you have five programmers getting paid $60,000 and five programmers getting paid $40,000. That's a total of $500,000 in salary across 10 people, or an average salary of $50,000. Fire two of the lowest-paid programmers, and keep all the salaries the same. The total salary pool is $420,000, but because there are only eight programmers, the average salary rises to $52,500, an increase of 5 percent. But nobody is getting paid any more money. (Isn't math fun?)

None of this is to say that people are not being given raises. They are. They just are not as big as one might think. Moreover, these numbers suggest that layoffs are not as deep as they were in the early 1990s; otherwise, the so-called layoff lift factor might be even higher than it is. What OS/400 shop managers are telling Viall is that they plan to give employees raises of anywhere from 3 to 5 percent in 2003, which implies that the layoff lift factor might be 1 or 2 percent of the average salary increases behind Viall's (and anyone else's) numbers. What is generally true of the OS/400 market--that layoffs are contributing to average salary increases--is true of all server markets. What that means for OS/400 shops is that their salary growth will probably exceed the index by one point in 2003, and maybe in some cases by two points. This is not great, but it's not a kick in the teeth, either.

Another interesting trend is the aging of the OS/400-shop skills base. The average programmer's experience level at OS/400 shops in the States, according to Viall, has skyrocketed to 15 years. Managers now average over 20 years. Over the past three years, it was around 13 years of experience, and throughout the 1990s it was about 11.5 years. More experienced programmers cost more money, which is why companies are giving raises that are slightly better than the index, but they seem to be financing this salary growth while cutting their overall IT budgets by simply not hiring junior programmers. Back in 1998, when the world was gearing up for the Y2K crisis and the dot-com boom was pushing IT projects, the number of entry- and junior-level programmers reached a peak in the OS/400 market. Viall says that the level of hiring for entry- and junior-level programmers in 2003 is about 15 percent--you heard that right, about one-seventh the level the market was sustaining in 1998. Companies are not hiring newbie OS/400 programmers, and the ones they are hiring are getting paid less. This disturbing trend started 18 months ago, and it shows no sign of a reversal. Junior programmers with three years or less experience were down 1.3 percent to $37,100 (that's a shaving of $500 bucks a year). Junior programmers without a four-year degree saw a 1.9 percent decline, and those with four-year degrees saw a 1 percent decline. Considering that the number of newbie hires is small and that the pool of employed junior programmers is very likely much larger in the OS/400 market, for the salaries of new hires are pulling down the overall averages, these newbie hires must be getting paid a lot less than $500 or $1,000 off last year's average salaries.

Two other related and similarly disturbing trends are now beginning to affect salaries in the iSeries and AS/400 market. The first has been the injection of foreign employees with H1-B visas into the IT pool in the United States, which has put downward pressure on salaries for all IT engineers, programmers, and project managers since the practice really took off in the 1990s. While people with H1-B visas no doubt like and deserve decent paying work, the truth is that these employees do not get paid what indigenous IT staff does. This is the main reason why the IT industry has lobbied so much to extend the H1-B program and to increase the numbers even though the pool of out-of-work programmers in the United States has increased dramatically since the dot-com bubble burst. No one will come out and admit this. The official party line is to quote what I consider bogus open position statistics in the IT industry, then pretend that these numbers are not relevant to the H1-B issue. What is at issue is corporate profits. Companies large and small--but mostly large--want to benefit from cheap labor and have those IT specialists located at their facilities. An H1-B visa is the perfect way to hire a programmer from outside the country on the cheap and relocate him to the United States under terms that make him--how do we say this?--much more complacent than a citizen programmer. If you are on H1-B status and you get fired, you get deported. If you are a citizen and you get fired, you get unemployment insurance.

But, of course, big corporations have a way of getting themselves into a win-win situation, one that both Viall and I have been watching with interest, and you should, too. Can you name a big IT player that hasn't opened up a software lab in India or China lately? I can't. It looks to me like the IT industry is going to outsource a whole bunch of work on the cheap to foreign countries. And if you don't think this affects OS/400 shops, you're wrong. Viall says that one of his big clients in the Midwest put out a bid for a regular-sized IT project with a heavy amount of programming on the iSeries. The initial bid from a U.S. systems integrator came in at $1.5 million, but after some haggling the company managed to work that down to $1 million. Then the company brought in an outsourcing and services provider from India that said it could do the job for $750,000, and it got the job. This was a bit more of a hassle, to be sure, because of time zones, language barriers, and cultural barriers. But that was half the cost of the opening bid. Now consider this: Programmers in China are gearing up to try to undercut the propeller heads in India. Whether we like it or not, we're all going to feel this downward pressure, and the question now is when does it start showing up in the OS/400 salary survey data?

If you want to get the latest full salary report and a free salary analysis, go to Individual state or geographic salary reports, which range in size from 8 to 70 pages, are available from Nate Viall & Associates, with prices starting at $24 apiece.

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Layoffs, Experience Help Lift Average Salaries at OS/400 Shops

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Timothy Prickett Morgan

Managing Editor
Shannon Pastore

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Joe Hertvik
Kevin Vandever
Shannon O'Donnell
Victor Rozek
Hesh Wiener
Alex Woodie

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