IT Job Wages Are No Longer 'Exceptional'

Wage growth in IT jobs has moderated following the dot-com boom, according to new research by Ruiqing Sam Cao and Shane Greenstein.

Over the past few decades, information technology jobs worked their way into the popular imagination as among the most stable, fast-rising, and lucrative ways to make a living, bolstered in the 1990s by the dot-com boom. What astronauts were in the 1960s, rock star programmers were early this century.

The reality, it turns out, is a bit different when it comes to IT wages, according to new research. In all but the largest cities, wage growth in IT jobs has become relatively moderate following the dot-com boom, coming to resemble wage patterns seen in the broader STEM (science, technology, engineering, and mathematics) labor market trends. And in geographic regions where competition is fiercest for IT talent, superstar performers do not earn the same high premium they once did over their average-performing peers.

In short, IT wages, while still high relative to many other occupations, have lost their “exceptional” luster. IT wage premiums today have more to do with where a job is practiced than with rewarding specific skills.

“While it is a popular hypothesis that returns to IT skills are exceptionally high in the recent decade, which might lead us to imagine that IT wage premium should at least partially explain rising wage inequality in the United States—a widely documented fact—we find evidence to the contrary,” the authors write.

The paper, Digital Labor Market Inequality and the Decline of IT Exceptionalism, was written by Harvard Business School's Ruiqing Sam Cao, a post-doctoral researcher, and Shane Greenstein, the Martin Marshall Professor of Business Administration.

The dawn of digital careers

Beginning with the invention of the personal computer in the 1980s, IT wages commanded a premium over other STEM salaries. This trend continued with the expansion of the internet, especially in high-tech clusters—geographic regions where skilled worker wages increased faster than in the rest of the country.

To chart the rise and fall of IT salaries, the researchers examined 142 of the largest urban areas in the US between 2000 and 2018, a time of rapid change in IT including two economic recessions. Smaller cities and rural areas were excluded because of missing data for at least one year during this time period.

Using data from the Bureau of Labor Statistics, Greenstein and Cao parsed both the broad difference in IT wages for the lowest paying jobs in the profession as a whole (computer support specialists) and the highest (computer research scientists), comparing them with patterns in other STEM professions like chemist.

While salaries in five places—Silicon Valley, San Francisco, Seattle, Washington DC and New York—climbed amid competition for talent, IT workers in the rest of the country didn’t get the same bump, according to the research.

“We thought we could look at the same thing in different places—how it changed over time—and compare those changes to see whether the regional inequality that showed up was due to IT,” says Greenstein, who also co-chairs Harvard Business School’s Digital Initiative.

“I was really surprised. It doesn't look like the same market persisted over time. It really looks like wage movements in other skilled labor markets and IT moved closer together, and across most of the country,” Greenstein says.

Forces at work

Two distinct and competing forces changed IT wages starting around the year 2000, Cao and Greenstein found.

“On the one hand, the advantage of tech hubs and urban metropolises, especially the combination of dense population and vigorous innovation, increasingly leads to higher IT wages, making some regions more attractive to skilled talent,” they write. “On the other hand, wage spread narrowed within such advantaged areas, moving the top decile of IT wages into convergence with other STEM occupations.”

For example, the highest-paying IT job category examined by the authors, that of a research scientist, paid between $140,000 and $170,000 per year in the Bay Area, 45 percent more than in a typical region with median IT wages, such as Indianapolis.

Contrast those salaries with biochemists, another STEM occupation category. Biochemists earn about the same wage in the Bay Area as in Indianapolis on average.

Meanwhile, the ranking of big urban hubs by IT salaries shifts from year to year, although not much at the top. San Francisco is the highest or second highest location for IT wages in most years. Other high wage areas are Silicon Valley, Seattle, New York City, and Washington DC. Indianapolis ranked 81 in 2012, 58 in 2006, and 95 in 2000. Among the lowest ranked in 2018, Little Rock, Arkansas was number 128 in 2012, 122 in 2006, and 129 in 2000.

Yet in the highest-paying markets like San Francisco, researchers found a wide disparity among IT jobs themselves. A computer and information research scientist’s wage in 2018 was 90 percent higher than a computer support specialist, the IT occupation with the lowest median wage.

If there are exceptions to the pattern, Greenstein says, they are likely at the very high end of IT salaries, or jobs above the 90th percentile of salaries, where the researchers said data wasn’t available to dig deeper.

“Digital wage inequality widened almost entirely due to rising local premiums in a few urban metropolises, where wage spreads became narrower than elsewhere,” the researchers wrote.

Superstars aren’t super paid

According to the paper, “Contrary to what most superstar models would predict, the top-earning IT workers were not disproportionately compensated in the leading cities. In the areas with thriving IT labor markets, all IT workers, and not just the top earners, benefited from the local wage premium.”

Wages likely are higher in those five cities compared with the rest of the nation because of a higher concentration of college-educated workers and competition for talent is fierce, the researchers point out. Whether further education, such as a master's degree, would help IT professionals boost salaries both in the top competitive areas and outside them needs further study, Greenstein says.

Another factor to be studied is already starting to reshape the wage landscape for IT workers: COVID-19. According to a recent Wall Street Journal article, IT workers in the San Francisco Bay Area who take advantage of employers’ work-from-anywhere practices and decide to move to less costly areas are paying a price, literally. According to the report, “In some cases, changes can include cutting salaries by 15% or more depending on where someone moves” outside of Silicon Valley.

Implications for organizations

When evaluating wage levels, corporate compensation experts and managers may want to consider that IT wages are trending toward other STEM professions in most parts of the country.

“One of the implications for managers is that the IT market is not as idiosyncratic or unique as we once thought. You look for the same sort of reasoning you would have used for other skilled labor markets and staff,” Greenstein says. “There are HR people who are used to this. When you get into the rare parts of the STEM labor market, think ‘How rare are they? How many openings are there?’”

The findings also have implications for economic policies. “Our results also suggest that a range of regional growth policies to recruit IT producers, which have been commonly pursued over the last few decades, have not paid off with higher local wages,” according to the study. A more effective campaign would be to encourage development of STEM-based skills more generally.

For professionals or new college graduates looking at IT for high-paying jobs, Greenstein advises concentrating not on a specific programming language or skill, but the ability to learn new skills. And fast.

“I always tell undergrads that what you're learning is how to learn a set of skills that will have to change over time as demands change,” Greenstein says. “You should expect a dynamic market and a changing set of demands.”