This study guide, designed in collaboration with the Institute for Sound Public Policy (IFSPP), is intended to give junior and mid-level staffers and policymakers a starting point with which to explore the history and policy related to the American semiconductor industry workforce, how it was established, how U.S. semiconductor companies disinvested in their workforce, and solutions for how the United States can lead again by training and retaining Americans.
Semiconductors: A Primer
Semiconductors, or computer chips, are the essential components for today’s modern electronics, from computers and cars to phones and U.S. defense systems.
The guide is sourced from a policy report produced by the IFSPP, drawing from original in-house and available research conducted at universities such as Rutgers University, University of California, Berkeley (UC Berkeley), University of California, Los Angeles (UCLA), Carnegie Mellon University, and Tufts University.
By the end of this Study Guide, you’ll be able to answer the following:
How did the U.S. semiconductor industry rise to global dominance? What policies and practices supported American workforce development during that period?
What major employer decisions, government policies, and labor market shifts contributed to the U.S. semiconductor industry’s decline in domestic workforce investment after the 1990s?
How did changes in immigration policy, offshoring, and corporate financial practices affect American engineers and national innovation capacity?
Why did the industry shift away from training and retaining American workers, and what were the consequences for engineering wages, employment, and education?
What policy solutions and hiring reforms could help rebuild a robust, competitive U.S. semiconductor workforce today?
Summary This detailed research report from the IFSPP, along with prior research, demonstrates that during the 2000s and 2010s, U.S. firms increased engineering jobs overseas while abandoning efforts to recruit, train, and retain experienced American engineers. This workforce disinvestment has cost the U.S. its industry dominance and jeopardized the nation’s ability to innovate in semiconductors.
Why read? The report provides the arguments for how the U.S. semiconductor industry disinvested in its American workforce and how it can be brought back with federal policy solutions, including cutting unnecessary labor subsidies. Although the following guide is based heavily off the report, the full report has all the relevant references and is a more in-depth dive into the history, data, and solutions necessary for understanding the U.S. semiconductor workforce.
Study Questions
How did the United States fall behind in semiconductors?
What were the policy actions of U.S. semiconductor firms and the U.S. government?
How can U.S. semiconductor companies achieve their domestic workforce needs?
Section II: Rise of the U.S. Semiconductor Industry
The U.S. semiconductor industry emerged in the 1950s, when multiple American semiconductor firms formed and grew into what would become Silicon Valley.
In the following decades, companies such as Intel led the way for the United States in creating and designing leading-edge semiconductors. The semiconductor industry was an American-born and bred industry.
First, watch the clip above from American Moment’s podcast with expert Joshua Steinman. Then, read the bullet points below for a summary of the following academic article, read the full piece, and answer the provided study questions.
Summary Sevilla interviewed seventeen hiring managers at different Silicon Valley semiconductor firms, nine American semiconductor production workers, three labor organizers, and three engineers.
Based on his interviews with hiring managers and engineers, he determined that most firms, when faced with an economic downturn, typically postponed layoffs, reduced hiring, abstained from using temporary workers, and continued to provide workers access to training opportunities.
Why read? This is the most comprehensive dissertation on employment practices in the U.S. semiconductor industry, from the industry’s beginnings in the 1950s to 1990.
Sevilla provides information on how semiconductor companies recruited workers by raising wages and put extensive effort into recruiting and retaining American workers.
Study Questions What did U.S. semiconductor companies do to attract American workers in the past? What is the value of interviewing workers about their experience?
The U.S. government helped spur the growth of the U.S. semiconductor industry with defense spending in the 1950s.
Additionally, the G.I. Bill helped support the educational opportunities of returning World War II and Korean War American veterans (returning Black World War II and Korean War veterans did face education exclusion from public colleges, including accredited engineering programs, in the South).
Private firms also provided tuition reimbursement and back-to-school opportunities for American veterans.
Those veteran-turned engineers (400,000 by 1955) went on to become engineers in the U.S. semiconductor industry (engineers in the electrical equipment industry grew from 41,000 in 1950 to 149,000 by 1970) for decades and generations to come (Source: Bureau of Labor Statistics).
Part Two: Hiring and Training American Workers
Companies recruited engineers across the country, from large and small, public and private, for-profit and non-profit.
Sevilla notes that semiconductor firms recruited engineers via multiple strategies and methods, including “unsolicited resumes, trade journals advertising, job fairs, open houses, alumni and engineering databases, recruitment agencies, and employee referral networks.”
Companies had extensive in-house training programs for recent college graduates and existing employees.
Companies also, according to Sevilla, sent their engineers back to school to obtain graduate degrees, with 100% reimbursement, to further their engineering skills and education.
Part Three: Retaining American Workers
Semiconductor companies also retained their workers by offering them lifetime employment policies and good working environments.
Sevilla notes that in past industry recessions in the 20th century, semiconductor companies avoided layoffs as much as possible, implementing shortened work weeks and holiday shutdowns during production downturns, while protecting, fighting, and hoarding over white-collar engineers.
Section III: Fall of the U.S. Semiconductor Industry
Summary So, what happened after the 1990s? The U.S. semiconductor industry focused on globalizing its production and workforce around the world through supporting policies such as permanent normal trade relations with China.
The industry failed to fully invest in U.S. productive capacity (and instead engaged in stock buybacks) or its experienced workforce (by means of layoffs and offshoring).
The 1990 Immigration Act created a guest worker program called the H-1B visa program, which created a visa category primarily for college-educated computer software and engineering workers.
Firms were able to exploit the program to displace American workers in favor of cheaper and more compliant foreign guest workers.
The H-1B visa program coupled with STEM Optional Practical Training (OPT), which handed out three-year work permits to new international college students who graduated with STEM degrees, loosened the labor market and allowed firms to not invest in their existing engineers or put the effort into recruiting additional American workers.
Investment Abroad
Key Point As a result of these policy changes, companies looked for cheaper labor and capital abroad, building new and less costly workforces from scratch overseas. Meanwhile, here at home, firms disinvested in experienced American workers by changing employment practices.
U.S. semiconductor companies outsourced manufacturing and production jobs to third-party chip manufacturers, mainly Taiwan Semiconductor Manufacturing Company (TSMC).
They also offshored jobs and made production investments in Asia from the ground up.
Between 2001 and 2021, Intel’s non-U.S. workforce doubled compared to the U.S., which grew by 2%. Out of the 35,000 net new jobs Intel grew, only 1,000 went to the United States.
U.S. semiconductor companies staunchly defended outsourcing and offshoring jobs while ignoring long-term consequences. Manufacturing outsourcing led to job losses for Americans and a reduction in semiconductor manufacturing capacity, impacting both national security and innovation.
Chart Summary Jobs fell by the same percentage in the U.S. and non-U.S. between 2000 and 2003, following the dot-com recession. However, between 2003 and 2020, U.S. semiconductor companies created five times as many jobs outside the United States as in the U.S. (140,000 compared with 28,000).
Offshoring White-Collar Engineering Jobs Brown and Linden found that U.S. semiconductor companies offshored semiconductor engineering jobs in the 2000s, causing the U.S. share of engineers to fall from 87% to 57% between 1997 and 2007. Offshoring produced a vicious cycle where American workers were used as a conduit to transfer knowledge to workers overseas and later discarded.
Conclusion U.S. semiconductor companies recovered by utilizing cheap labor at foreign affiliates, while the U.S. workforce stagnated.
Section IV: U.S. Disinvestment
Overview Along with investing abroad, American firms and the U.S. government shifted away from long-term basic research in favor of short-term research purposed for commercializable products. Firms disinvested through stock buybacks, and the U.S. government shifted away from industrial policy and towards science policy.
Part One: Stock Buybacks
Firms conducted short-term stock buybacks instead of using those funds for long-term productive investment.
For instance, Intel committed to $152 billion in buybacks between 1990 and 2024.
Between 2001 and 2020, the 19 publicly trade Semiconductor Industry Association (SIA) firms committed $540 billion in stock buybacks.
Part Two: U.S. Science Policy
Hassan Khan explains in Scaling Moore’s Wall that in the 1990s, the U.S. government modified its policy approach by switching from industrial policy to science policy. Industrial policy in semiconductors involved Department of Defense funding long-term basic research projects.
Science policy, on the other hand, focused on fostering research and development through universities, private sector entities, and multiple government agencies, including the Defense Department, the National Science Foundation, Energy, and Commerce.
However, problems with coordination, lower levels of funding, and corporate control of the research agenda meant science policy initiatives flowed towards short-term commercializable products for firms that yielded little in long-term technological breakthroughs.
Part Three: Firing Experienced American Engineers
To cut labor costs, U.S. firms that avoided layoffs in the 20th century embraced layoffs in the 21st century which disproportionately impacted the U.S. and experienced American engineers.
Of the five top U.S. semiconductor companies in 2021, all five disproportionately cut U.S. workers.
According to reporting from The Oregonian, Intel laid off older, more experienced, and more “expensive” American workers.
Professor Chris Miller explained howTSMC bucked this trend when it replaced its CEO after receiving backlash from workers and founder Morris Chang for committing layoffs in 2009. The company then rehired workers and doubled down on investment in research and development.
In interviews, engineers spoke of layoffs and workforce reductions at U.S. firms:
“I was unemployed for ten months. I sent out hundreds of resumes… I got nibbles. Nobody had work. Afterward, I ended up going to a truck driving school. I was driving big rigs across the country”-American defense semiconductor engineer, with twenty-two years of experience and was out of work for six years, starting in 2012, and was not contributing to American national defense projects.”
“Most of the layoffs I’ve been aware of and been a part of were really shortsighted… We have to get rid of this division. Well, you just lost your number one person who knows this technology better than anyone else.” —American software and ASIC engineer
Chart Summary The top seven U.S. semiconductor companies held layoffs not just during the recession years of 2001 and 2008 but also in years when they were enacting cost reduction plans.
In 2006, for example, Intel was the only firm among the top seven conducting a workforce reduction, demonstrating it was moving ahead with cost reductions regardless of the economic outlook.
In contrast, Nvidia only had one layoff in twenty years, as the company focused on retaining its workforce. Layoffs became a more frequent and common occurrence at their domestic operations.
Part Four: Firing Experienced American Engineers
Companies disinvested in advanced American education programs. At Rochester Institute of Technology (RIT), Professor Santosh Kurinec, the chair of the microelectronics department, described how semiconductor companies “abandoned” her leading microelectronic education program in the 2000s.
During this time, the number of international students surpassed Americans in advanced semiconductor fields as well. Companies decided to focus on retaining international students rather than investigate why Americans are less likely to go to graduate school, which, according to UC Berkeley economist Clair Brown and Greg Linden in Chips and Change, “the negative graduate degree premium indicates that no financial incentives exist for domestic engineers to pursue graduate degrees.”
Pursuing such degrees means losing two years of earnings and incurring the high costs of education without a corresponding salary increase. There was no financial return for Americans to get graduate semiconductor degrees.
Part Five: Disinvesting in Existing Engineers
Despite evidence to the contrary, by the 2000s, companies claimed there was an engineering labor shortage (Brown and Linden investigated and found that high-tech engineers did not seem out of balance in either supply or demand) in order to advocate for more guest workers. Meanwhile, companies disinvested in and devalued experienced American engineers.
Companies ended lifetime employment, cut job opportunities in the U.S., stalled research and development project funding, laid off workers permanently, and froze salaries.
Chart Summary Real average salaries fell 3% from 2004 to 2017 for electronic engineers in the U.S. semiconductor industry.
Salaries for American engineers at U.S. firms that had trained and retained them in the 1980s and 1990s stagnated. By the 2000s and 2010s, their experience and expertise had been devalued.
The financial desirability of an engineering job in the industry diminished when other jobs working in computer software or finance both paid better and had more job opportunities.
Part Six: Hiring and Preferring Guest Workers
After laying off and refusing to invest in experienced American engineers, U.S. semiconductor companies disinvested further by hiring and preferring H-1B and STEM OPT guest workers. Intel was the second largest user of STEM OPT, OPT, and Curricular Practical Training (CPT) in the 2000s and 2010s. The influx of guest workers depressed wages and job opportunities for American workers.
After 1990, American semiconductor companies focused their policy attention on advocating for more guest workers. At the time they claimed there was a STEM labor shortage. However, that has now been proven to be untrue. Rather than face the external and internal issues, they followed the path of least resistance and lobbied for more foreign guest workers. The industry’s efforts proved successful with the passing of the American Competitiveness in the 21st Century Act (AC21) and the creation of STEM OPT.
As a result, the labor market loosened, diminishing the financial desirability of an engineering job in the industry and causing existing workers to leave.
Section V: Solutions
Overview The workforce shortfall (the Semiconductor Industry Association projects it needs 27,300 engineers and 67,000 workers total by 2030) can be solved if companies focus on American worker retention and recruitment policies as they have done in the past. Further, policymakers should make prioritizing American workers part of semiconductor policy and hold companies accountable for poor workforce business practices of the past that got us to where we are today.
Part One: Security Clearances and Labor Market Tightening
The first step is enacting a security clearance (jobs meant for U.S. citizens and permanent residents) for defense and leading-edge semiconductor jobs, treating this industry more like the aerospace and nuclear industries.
Tightening the labor market means reducing the supply of guest workers and existing employment-based visa programs. A tighter labor market raises the desirability and salaries of jobs within the industry. A tighter labor market for skilled professions, in engineering for example, would force firms to return to past U.S. semiconductor industry hiring and retention policies that recruited American workers and graduates.
According to Sevilla, when the labor market was tight, companies raised salaries by 33% between 1974 and 1978 to compete for entry-level electronic engineers.
Paying higher salaries, providing tuition reimbursement to American undergraduate engineering students and graduate education for career employees, as well as providing a range on-the-job training opportunities were emblematic of past strategic recruitment plans. Currently, 433,000 working-age U.S.-born engineers are either unemployed or out of the labor force in 2022, a considerable talent pool to draw from (Source: Center for Immigration Studies).
Additionally, according to U.S. Engineering in a Global Economy, half of engineers did not work in engineering between 1993 and 2013, signaling an oversupply, not a deficit of engineers.
Part Two: Driving More Student Graduates
The additional positive impact of rising salaries and increased job opportunities creates a virtuous cycle that motivates students to want to major in semiconductor-related fields and further increases the supply of skilled American workers.
The number of bachelor’s engineering graduates has doubled in the past twenty years, to 123,000 in 2022, with Americans making up 91% or more of graduates in each class. See chart below.
Part Three: Placing American Veterans and Their Families
For defense-related semiconductor jobs, American military veterans and their heirs starting from World War II have been a crucial source of engineering labor for the U.S. semiconductor industry, creating a pathway to sustained economic prosperity.
The United States should draw from G.I. Bill-trained American engineers, American veterans, and legacy military families for additional training, engineering education, and job placement in the industry to help obtain good-paying jobs and opportunities.
Summary This paper provides a real-life recent historical example of what happens in a tight engineering labor market.
The petroleum industry saw increased growth due to fracking and greater domestic production from the mid-2000s to the mid-2010s. As a result of a tight labor market, firms raised salaries for petroleum engineers to the highest of any engineering profession, driving students to major in petroleum engineering.
Study Questions How do the authors challenge claims of widespread STEM shortages in the U.S.? What evidence is provided to counter narratives promoted by industry leaders and policymakers?
Brian Dan-Ding is a research analyst at the Institute for Sound Public Policy and has researched the U.S. semiconductor industry since 2022. He has a degree in public policy and history from Rutgers University and is mentored by Rutgers University Professor Hal Salzman. He was a Fellow for American Statecraft with American Momentin 2022.
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