Reducing cost is now the No. 1 IT priority for U.S. businesses, according to a recent study from Meta Group Inc. But there's not much left to cut, what with the past few years' drastic staffing reductions and contract renegotiations.

Out of a panel of 25,000 IT professionals in 34 countries that provide Meta with data on an ongoing basis, 47.6 percent said they had cut IT staff, with the majority slashing between 10 percent and 15 percent of staff.

Personnel cuts have been severe because workers are seen as expendable, according to the report's author, Howard Rubin, Meta Group executive vice president and chief strategy officer. "We found there's downward pressure on IT spending," Rubin said. "A number of companies have paid attention to fixed costs and variable costs of IT. They consider people to be variable costs. They can't throw mainframes out the window and not pay for them. But 64 percent of companies, if faced with a cut, will take out people."

But staffing cuts have now pared IT down to the bone, and further cuts will impair companies' ability to function, Rubin said. "We're projecting for 2003 that if they cut more people, they'll be putting themselves at risk," he said. "They won't be able to supply service levels or to staff help desks and call centers appropriately. We're approaching a risk zone, which will impact service and the ability of companies to grow."

Meta's figures on IT job losses over the past year back up the results of the ITAA's (Information Technology Association of America's) workforce report, released in May, which found that the 10.4 million-member U.S. IT workforce measured in 2001 had shrunk to 9.9 million workers in early 2002. That's a net loss of 528,496 workers over the course of one year. Companies hired 2.1 million IT workers, but they also let go 2.6 million IT staff.

Despite these bleak numbers, IT managers surveyed in the ITAA's report said they expected to create 1.1 million IT jobs in the coming year, 600,000 of which would go unfilled due to a supposed skill shortage. These figures outraged IT professionals, many of who believe that the ITAA's report is a thinly veiled attempt to bolster the lobbying group's arguments for raising the H-1B visa cap to bring in lower-paid foreign workers, which would in turn drive down salaries.

(The ITAA's report has since been updated to reflect the gloomier hiring picture.)

Meta surveyed member companies to see if they are, in fact, experiencing a skill shortage. Their results: 62 percent of respondents reported that they're "not at all" experiencing a skill shortage, 22 percent said they're "somewhat" experiencing a skill shortage and only 16 percent said they are indeed experiencing a shortage of skills.

Those organizations that are hiring are finding that systems and network analysts are the easiest personnel to acquire, and metrics and testing personnel are the hardest to find. The following is a list of areas of expertise, ranked according to how easily survey respondents are finding people who have the expertise: 1. systems analyst; 2. network analyst/architect; 3. Web specialist/designer; 4. systems designer/architect; 5. systems administrator; 6. development programmer; 7. database analyst; 8. documentation/training; 9. project leader; 10. support programmer; 11. business analyst; 12. QA specialist; 13. metrics/process specialist; 14. test engineer.

Another effect of IT budget cutting is that the IT work year is declining in length, with companies reluctant to pay overtime. The average number of hours IT workers spent working per year in the U.S. is now at 1,992. That's down from 2,080 in 2001, which in turn is down from 2,157 in 2000. Non-U.S. IT workers are putting in 1,843 hours per year, which has barely moved down from the average of 1,883 hours per year worked in 2001. Non-U.S. workers put in an average of 2,138 hours of work per year in 2000.

The report also found that the past year has seen a slight increase in the use of consultants and external contractors in both U.S. and non-U.S. companies. Last year, companies spent, on average, 10.5 percent of their IT budgets on external help. So far this year, 10.7 percent of IT budgets was spent on outside help. Companies are increasing their use of outsourcing for strategy, planning and systems integration. Meanwhile, they're backing away from outsourcing application development.

Here are more details on what companies are outsourcing: data centers, which 17.4 percent of respondents said they're handing off; application development, at 46.4 percent; help desks, at 10.1 percent; and maintenance work, at 17.4 percent.

For those IT workers still employed, salaries are plunging. The report found that IT compensation in the United States is down, on average, $3,000 to $10,000, depending on the position.

In spite of the fact that IT headcount has been shaved down so far, Rubin predicts that we still haven't hit bottom when it comes to layoffs. "Over the next year or two there will be layoffs totaling in the hundreds of thousands in the IT field, as people are again pressured with budget concerns," he said. "It wouldn't be surprising to see a quarter of a million technology jobs get laid off next year. We see budget pressures on organizations up to 20 percent. Companies tend to take half of that out of the workforce."

One thing that might offset permanent job loss is a move to outsourcing. "The trick is, you may cut people, which causes risk to the business and delivery, but you may end up going to systems integrators and outsourcing firms," Rubin said. "You can lay off your own people and get a contract with a provider to do the work, and you don't have to hire more people to do the work, and pay them salaries and benefits."

And because the IT workforce is glutted with talent, those outsourcers are fetching far lower salaries. Firms that were charging $110 to $150/hour three years ago are now getting $50 to $55/hour for the same work. And as U.S. salaries creep down, the move to ship IT work offshore may begin to ebb, as the gap between U.S. and non-U.S. salaries shrinks, Rubin pointed out.

But that's feeble consolation when compared with the fact that headcounts and salaries are still getting pummeled. With the situation so dire, it's no surprise that Meta's respondents, when asked if they've considered leaving IT due to the current job market, overwhelmingly -- to the tune of 62 percent -- said yes.