Making Sense of the Explosion in Tech Talent “Research”

Recent studies have suggested that labor inflation for tech talent is only going to get worse, with demand far outstripping supply in the coming years.

But is this a reasonable assumption, given that we may be looking down the barrel of a global recession? After all, when economies slow down, companies tighten their belts, and payroll is usually the most expensive component of any business.

Here are seven things that recent research gets right (and sometimes less-than-right) about the changing world of tech talent.

Wage Inflation Remains

Accelerance’s 2023 Global Software Outsourcing Trends and Rates Guide reports that software development rates in North America and Latin America rose by over 20% in 2022. The study says that “despite high-profile tech industry layoffs and corporate budget tightening, software application sector investment is estimated to increase by 10% this year.” 

This research is detailed, reflecting the company’s vast global network, as well information from over 30 third party organizations. It hits the mark, and is consistent with what NSAM is hearing from other quarters, such as Head Resourcing in the UK, which is reporting growth in software development salaries of 10% every six months. 

That said, Chris Fusco, Senior VP of compensation at Salary.com, is likely indulging in hyperbole when he says that 2023 will be “another banner year for employees seeking salary increases.” Instead, it’s fair to say that, while wage inflation for developers may moderate, it will remain in the 10% to 20% range.

Remote Salaries on the Rise 

A recent research report from Hired, a recruiting marketplace that matches tech talent with companies around the world, found that remote salaries are outpacing local salaries. 

Tier one markets in the States may see some flattening [of salaries] at the top end, and there will be a secondary knock-on effect, with increased pressure on wages in Nearshore environments

This research built on similar findings earlier this year from California-based technology company Carta. Data from Carta also indicates that, in the US, remote hires now outpace in-state hires and that tech salaries across American cities are equalizing. 

This is a solid trend with far-reaching implications. More companies will be inclined to look outside their four walls for tech talent. Result? Tier one markets in the States may see some flattening at the top end, and there will be a secondary knock-on effect, with increased pressure on wages in Nearshore environments.

Outsourcing Growth in Double Digits

Global tech services company Commit recently made a big splash when it published a study claiming that software development outsourcing will grow 70% by 2023. The study is based on a survey of 200 senior tech leaders, who were asked for 2021, 2022 and 2023, “What percentage of your software development was and will be based on outsourcing?”. For 2021, the response was 17%; for 2022, it was 21%; and for 2023, respondents anticipated 36%. 

The jump from 21% to 36% brings us the 70% growth headline, which is an extreme outlier. Advance Market Research has a compound annual growth rate (CAGR) for software outsourcing as low as 4.9%, and DATAINTELO reports a CAGR of 7%. 

Could 70% growth happen to scale, in one year? Unlikely, if only because the remote developer market is tight, and the change management requirements too severe, to support such a dramatic shift.

Full Time Hires Take a Hit

A recent Manpower Group Employment Outlook Survey found that Ireland’s employment outlook for the technology sector in the last quarter of 2022 fell by a remarkable 25% compared to the third quarter. 

This research is credible, and supports a global phenomenon, particularly among big tech-heavy firms like Meta, Salesforce, Google, Intel, and Shopify –among others– which have announced hiring freezes or layoffs. 

Software Growth to Outpace Pre-Pandemic Levels? 

Forrester Research is predicting that software spending will grow 10.5% next year. That assessment did not consider the effects of the war in Ukraine, and a possible global recession. As such, it may be overly optimistic. 

However, even if growth is under 10%, the pressure on developer wages –which Accelerance anticipates will grow ~10% next year– should remain.

Government Data Needs a Reset

Macroeconomic predictions from the US Bureau of Labor Statistics point to a growth of 25% in the employment of software developers, quality assurance analysts and testers between 2021 and 2023.  

The Bureau also states that the current US gap of unfilled engineering positions is estimated at 918,000.  Through the balance of this decade, there will be an estimated 189,200 job openings for software engineers every year. Similarly, the Government of Canada boldly predicts that the software labor shortage will persist to 2028. 

US data [for tech labor] is now overly optimistic

Neither government anticipated the present reality, where inflation and rising interest rates threaten a recession. As a result, US data is now overly optimistic. 

Expect job creation to be less robust in 2023. However, the work itself will not go away. Positions will be filled with more flexible contract labor, much of it delivered remotely.

Pressure on Management

Commit’s study found that, when seeking to outsource IT talent, the top priority among CTOs was being able to scale fast (42%), followed by saving time when hiring good people (39%).  This makes perfect sense, as it helps provide relief in an inflationary environment. 

“During a tech recession, it’s important to do more with less,” Max Nirenberg, CRO and Managing Director for North America at Commit USA, told NSAM. “Unnecessary costs can pile up for office space, equipment, recruitment and employee retention, which can quickly lead to burning through budgets.”

Bottom Line: Keep Your Seatbelts Fastened

Sometimes, it helps to stand back from the research –some of which is sponsored by companies with related business interests– and survey the landscape. 

What do we see? Many larger companies –particularly those in IT consulting and within critical verticals like financial services– remain on the lookout for talent. American Express recently announced that it will hire 1500 software engineers in India, the US and Europe. In the Americas, demand remains strong, as can be seen from reports that IBM in Argentina is on a hiring spree.

Credible research also makes clear that the increased demand for outsourced software development will continue, as will wage inflation, though there may be some easing. In higher demand areas, such as cloud-based technologies, expect present rates of ~10% growth every six months to continue.

“Demand isn’t as red-hot as it was in the spring, but it’s still very strong”—David Jackson, CEO and Co-Founder of FullStack Labs

That said, there will be structural changes, given the increasing acceptance that any developer can work for anyone, from anywhere. In the context of the global slowdown and the ongoing shift to remote work, expect a flattening of offers –and wages– for full time employment, with more companies opting for the flexibility of using contracted, outsourced software development.

In this context, labor studies that don’t capture or value contracted remote work will continue to report on hiring and salary “freezes”, while missing the larger picture. Within this scenario, who gets hit hardest? Expect the top tier US markets such as San Francisco and New York to top out, at least for now.  

Nearshore providers will benefit from this “great restructuring,” given that businesses are becoming more comfortable with fully remote software development, wherever it is. For example, FullStack Labs, which hires developers out of 18 countries across the Americas, has hundreds of openings, and there’s no dramatic slowdown in sight.

“We haven’t seen much decrease in demand for our software development services,” David Jackson, CEO and Co-Founder of FullStack Labs, told NSAM.  “Demand isn’t as red-hot as it was in the spring, but it’s still very strong.”