The End of The Great Tech Jobs Boom?
The jobs numbers announced this week were extremely robust and positive[i]. However, there is mounting evidence that the jobs market may, indeed, be slowing [ii]. The data suggests that while job postings for software developers are up by 107% since before the Covid-19 pandemic, job search company Indeed reports, that number has dropped by 10 percentage points in the past four weeks.?In addition, Although the overall labor market remains tight, some firms that lead the tech sector in hiring are warning of a tough stretch ahead for the sector as a whole.
?This article will be divided into three sections:
Summary of the recent jobs data, recent layoff announcements and why jobs data should not be the only indicator of a robust market.
In the most recent jobs data from Friday the 8th of July, non farm payrolls increased by 372,000 (ahead of the 250,000 estimate) and the unemployment rate remained at 3.6%.?However, at the same time, there has been 24,000 layoffs across the tech sector since the year began according to Crunchbase [iii].?These layoffs are not just with Cryptocurrency firms and firms effected by the decline in mortgage refinancing.?Layoffs have affected firms like Netflix, UiPath, FAST, and Peloton.?In addition, even firms like Microsoft, Snap, Amazon, Twitter and Meta have announced that they are either slowing hiring or have announced hiring freezes recently [iv].
While the jobs data was very strong, jobs data is a lagging indicator of economic performance as opposed to a forward looking one (in other words, it looks at what has happened as opposed to what could potentially happen), and the number of open positions is staggering (see Figure 1), I offer this question to candidates ‘how often are you ghosted by those open opportunities?’.?My phone bills have averaged 6,000 minutes a month for the past several months and I do have to say (anecdotally) from talking with those candidates that the amount of ‘ghosting’ is extremely high. This begs the question…are those ‘open opportunities’ actual open opportunities, or are they employers that are just ‘fishing’ to see what is available in the market?
Figure 1:?Month over Month Job Gains by Jobs Sector
While I have no verifiable data to prove that the ‘open jobs’ verses ‘real actual jobs’ number I am speaking about is inaccurate, I would recommend chatting with any candidate looking for work now and ask the question of ‘how often are you ghosted?’…the number will, more than likely, surprise you.?
Inflationary pressure and why it could negatively affect job prospects?
In addition, over the past several months, several economists including Mohamed El-Erian and Komal Sri-Kumar have been touting the possibility of stagflation during their several appearances on CNBC and Bloomberg [v] [vi].?Stagflation is the combination of high inflation, stagnant growth, and higher unemployment.?These two men, while some say, are breeding a sense of doom, should be taken seriously.?El-Erian was one of the co-founders of the largest Bond Fund firm of its time (PIMCO), cultivated an illustrious career at Allianz and is now the President of Queens College in Cambridge, England.?Sri-Kumar has led an equally illustrious as a Senior Fellow at the Milken Institute.?
It seems that a day does not go by without hearing some data point in reference to inflationary pressures in the economy.?Even if we do not reach the stagflation levels that El-Erian and Sri-Kumar mention, the inflationary pressure will, inevitably, hit EBITDA and Gross Profit numbers on company balance sheets.?It is that EBIDTA and Gross Profit numbers that provide the funds for raises, new equipment purchases, and additions to headcount. As we have seen from the likes of Walmart, Home Depot, Target and Kohl's recently, gross revenues have shown a marked increase, but the gross profit numbers disappointed [vii].?It will be important to see how broad based the gross profit and EBIDTA pressure will continue across larger industrial firms when they announce Q3 and Q4 earnings as the year progresses.
Granted, there are other ways to fund pay increases and additional headcount. Firms can borrow to cover that payroll, but – as we all know – borrowing costs have risen.?That rise in borrowing costs will further hamper the ability to add to one’s workforce and offer raises. ?In addition, there are fears that increased payrolls will further exacerbate these inflationary pressures [viii].?With average hourly earnings up 5.1% year over year, there is also fears of what economists call the ‘Wage Price Spiral’ where increased wages increase disposable income, which raises the demand for goods and causing prices to rise even further. Rising prices increase?demand for higher wages, which leads to higher production costs and further upward pressure on prices?creating a conceptual spiral.
I am seeing this ‘Wage Price Spiral’ already occurring in the tech space.?In 2019 and 2020, one could find a relatively decent Senior .net developer for approximately $120,000 to $125,000 per year.?Now, that price has risen to $140,000 to roughly $150,000 per year.?Did this increase in salary equate to a $20,000 per year increase in value??Indeed, there are some developers that were underpaid in the past, and are now being paid in parity with their value. However, this price / value parity question is one that should and needs to be discussed in a broader scope for those team members that are requesting wage increases because 'this is what the market will bear'. Many of the CIO’s, Vice Presidents of IT and Directors of IT I know have mentioned to me that this kind of wage inflation is not sustainable over the long run. I am willing to bet there are other CIO’s, VP’s and Directors reading this article that would agree with that sentiment.?Other examples of this spiral can be found across the IT landscape as well.?Inc has mentioned, recently, that tech salaries have increased 20% or more [ix]. ?
What I am advising hiring managers to do
Over the last 6-9 months, that I am encouraging hiring manager’s to be far more selective in terms of the candidates they bring on to their staff. ?This is due to the level of ‘choice’ that hiring managers have in terms of candidates.?These are examples of the searches I am currently either working on or have closed recently (see figure 3).?You will notice the roles that are being done remotely receive far more applicants than those that are either being done onsite or in a hybrid manner.?I am sharing these data points to show one key factor.?Roughly 90% of the candidates I speak with are looking for no other reason other than they would like to work remotely.?With the increase in candidates applying to remote roles, this is also an indicator that candidates may not (over the long run) end up attaining what they are seeking.
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Figure 3: Recent applicant data. Active is the number of applicants.?????????????????????????????????????
Conclusion
I may be incorrect or perhaps early in my assessment. Those who disagree with me may be absolutely correct in their point of view and assessment of the overall market. However, I do believe there will be a ‘cool down’ of the tech jobs market due to the inflationary pressures on company balance sheets.?Yes, I am shooting myself in the foot by authoring an article like this one as I get paid when people get placed. However, most of the hiring mangers I work with know that I am – above anything else – honest regarding my assessment of candidates, and the market as a whole.?
I am not saying that candidates should not move to their next best opportunity.?All I am saying is that if you have spent 6 months here and 9 months there and then just started your last role 2 months ago and are looking again, you might want to think about how that kind of tenure will look to a CIO, VP or Director when an inevitable downturn does occur.?
About Me
Tom Welke is Partner & Vice President at RSM Solutions Inc and has been recruiting technical talent for over 20 years (it was 20 in January 2022) and has been in the tech sector since the 1990s.?He primarily works with CIO’s, Vice Presidents of IT and Directors of IT with regard to hiring strategy and finding the correct fit between candidate and employer.?
[ii] https://www.wsj.com/articles/techs-red-hot-hiring-spree-shows-signs-of-cooling-11657445403?mod=Searchresults_pos2&page=1).?
[iv] https://www.wsj.com/articles/tech-layoffs-might-ease-it-hiring-woes-11655499373?mod=article_inline and https://www.wsj.com/articles/facebook-twitter-are-pulling-back-on-hiringwill-others-follow-11652452915).
[vii] https://www.cnbc.com/video/2022/05/17/walmart-earnings-miss-estimates-as-inflation-puts-pressure-on-profit-margins.html?&qsearchterm=walmart%20earnings
Software / ISV Procurement Strategist
2 年Well rounded article. Thank you!
Vice President Information Technology
2 年Thank you for sharing Tom, great perspective from the field