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Simple Economics: Supply & Demand Forecast an IT Wage Correction in 2024

“If you want a guaranteed job, get into technology.”

That’s what I was told in 2007 when deciding what to major in at the University of Washington. Upon graduating, I saw the firsthand demand for IT talent as a technical recruiter at Insight Global in the Pacific Northwest, a well-established technology hub only growing larger with the emergence of Amazon and resurgence of Microsoft. These companies, along with a slew of companies migrating north, quickly earned the city the nickname of “Cloud City”—and not for the cumulus skies.

Throughout the 2010s, the US saw consistent growth in technology wages. Every skillset from Help Desk to UX Designer, and Scrum Master to Application Architect saw year-over-year wage increases exceed national averages. American innovation manufactured demand for high paying jobs and higher paying jobs in emerging technologies (cloud computing, AI, data engineering).

Then COVID hit.

With any recession, labor markets expect a widespread correction. After a 10-year bull market, many sectors were ready for correction. One would expect house prices to drop. Furniture goes on sale. Outlet bargain stores surge as does the price of gold and Wal-Mart stock. But that didn’t happen. The 2020 recession proved to be one of the quickest recoveries in American history. The combination of supply chain shortages, government stimulus, and uncertain offshore labor markets quickly caused demand to rebound, supply to shrink, and labor markets to explode.

In the technology labor market, wages rose by 20% year over year in the last three years. Remote jobs in Cheyenne, Wyoming, were paying the same as the same job in San Francisco.

The response to inflation from the Federal Reserve was the fastest acceleration of interest rates in U.S. history. And despite its stubbornness, inflation has started to approach target levels.

What’s followed has been wage corrections in the commodities, housing, auto, and energy markets. It makes sense that an IT labor market correction will follow.

In the last six months, we’ve seen the demand for IT labor drop, and the supply of labor rise. The process of finding new careers and job hopping that was The Great Resignation—adding to wage growth in the process—has come to a halt.

It’s simple supply-and-demand economics that the IT wage bubble could pop in 2024. This will affect what candidates expect with wages and the price that hiring managers can get talent. Let’s dig into specific factors causing this.


Graph showcasing IT salaries from 2019 to 2023.
Wages have started to normalize in IT across our business, too, and that trend could continue across the general IT industry in 2024.

Why an IT Wage Correction Could Happen in 2024

1. Abnormal COVID Tech Demand Normalizing

One large contributor to the IT wage markets rising so quickly year-over-year since 2020 has been the demand for technology in the workplace. Companies’ digital transformation plans jumped 10 years ahead of schedule so employees could collaborate from remote environments. Every skillset from broadband technician to video engineers spiked in demand, and wages for those roles followed. Companies didn’t have much of a choice but to pay those wages. They needed these roles to keep the company afloat.

However, as companies have more established remote work practices and post-COVID collaboration habits, demand for those jobs are plummeting. Job openings for collaboration engineering and other application development roles have decreased 25% in the last six months alone.

Impact: IT labor demand is down.

2. Interest Rate Impacts on IT Capital Investments

IT projects—and the talent needed to fulfill them—are commonly funded by capital investment. In simple terms, companies can chalk them up as projects that don’t hit their bottom line. They’re often viewed as one-time investments meant to pay future dividends. That said, even CapEx projects need cash. And while cash and debt have come cheap the better part of 15 years, it’s not cheap now.

The run-up of interest rates has corporate leaders unable to leverage debt to easily fund technology projects until interest rates drop, causing less projects to be green-lit and less hires to be required.

Impact: IT labor demand keeps dropping.

3. IT Unemployment > Nationwide Unemployment

IT unemployment is currently hovering at or above the national average.

When IT labor markets are booming, it’s regular to see IT unemployment rates well below the national unemployment average. This happened from February 2022 to July 2023—representative of the hiring boom that occurred during the pandemic. But over the last five months, IT unemployment has hovered at or above the national average. The Information industry spiked in January 2024 with a 5.5% unemployment rate for the month—the highest since July 2021.

This is all reflective of layoffs across tech combined with a slowdown in tech hiring by large companies.

Impact: This means more job seekers in IT. Labor supply, up.

4. Remote Work Normalization + Return of Globalization

COVID had some interesting impacts on the reliability of a global IT workforce.

During the pandemic, offshore technology services providers struggled with the reliability of workers. Some countries had stricter in-person policies while also having less developed remote and hybrid work infrastructures. This caused large firms to move many of their technology workers back onshore.

As the U.S. became accustomed to remote work, it looked for cost savings by hiring more tech workers in cheaper markets like Boise, Idaho and Tulsa, Oklahoma. But population migration (a lot of people moved to smaller cities and more rural environments during COVID) and excessive demand quickly diminished those cost savings. But at the same time, however, technology leaders built the muscle of remote team management. They learned how to manage teams across the country.

With technology service economies like India, Mexico, and Eastern Europe becoming more reliable over the last year, combined with the normalization of hiring and managing remote teams, the labor pool has greatly expanded to low-cost markets.

Impact: This latest trend has also increased labor supply and drove down labor costs.

5. Return to the Office

Return-to-Office (RTO) policies are now commonplace as companies grapple with their employee habits and the culture they wanted to create (or recreate) moving forward.

In 2023, many large companies like Microsoft, Amazon, and Meta have shifted their RTO policies requiring many new IT jobs to have some level of onsite presence. At minimum, companies are shifting to a model of net new hires being onsite as the default. The Wall Street Journal reported that remote workers are 35% more likely to be laid off, too.

With less fully remote jobs, and a disproportionate number of workers still in remote environments, remote job seekers will have to lower their asking prices.

Impact: Remote labor supply is up now, but remote labor demand is down. That drives down the cost of remote labor.

Takeaways

There are a lot of combining factors that go into a potential IT wage bubble bursting.

From the labor side, supply is up. Companies are getting more comfortable with international teams again. IT unemployment has risen above normal levels.

But at the same time, demand for labor is down. Many IT initiatives from the last five years are now in place. Companies need fewer full-time workers to build those processes and platforms. And even if companies wanted to move forward with innovation, it’s expensive to borrow the money to hire the talent to fulfill these projects. Many companies are electing to move forward with the employees they have, or they’re hiring at a much smaller scale than they did over the previous five years.

So, it comes down to simple economics. Supply of labor is up. Demand for labor is down. That causes the price for that labor to drop. And in IT, wages for workers will likely fall in 2024—affecting candidate asking prices and hiring managers’ access to talent.

Connect with Lawrence Dearth on LinkedIn.