IT job market - back from the abyss, but watch for lasting structural changes

The latest US employment statistics show an economy slowly climbing out of the crater created after policies to slow the exponential spread of the coronavirus locked down society and froze the economy in the spring. While the number of employed workers (note: not the unemployment rate) is 7.6% higher than its April low, it's still 7.2% lower than the level in January, which translates to more than 11 million people still out of work.

IT workers, namely those employed in IT occupations, regardless of the industry, have fared better. According to an analysis by CompTIA, IT suffered a delayed reaction to the crisis, with employment peaking in June, before falling 8.3% over the past two months. That leaves IT employment 2.1% and more than 100,000 jobs below its level in January and the unemployment rate at a nine-year high.  

Fortunately for displaced workers, CompTIA estimates that there are about 230,000 IT job postings. Thus, based on the June peak, there is an average of 2.2 unemployed IT professionals for every opening. That's somewhat better than the most recent Bureau of Labor Statistics (BLS) JOLTS survey finding 3 unemployed for every opening, but as everyone who has filled out a job application knows, there's often a sizeable mismatch between what employers want and potential employees can provide. Indeed, the mismatch isn't limited to job skills, but industry experience and job location; and the COVID crisis significantly changed all three factors of the jobs landscape.

COVID and the great compression

I have frequently noted that the coronavirus's economic and societal disruption has undermined previously established norms and accelerated nascent business and technological trends, specifically:

• Enterprise adoption of cloud services to both supplement and replace privately-owned and operated infrastructure and applications.
• Use of videoconference services for business, education and socializing in lieu of in-person meetings, classes and remote events.
• Business reliance on digital processes, data collection and analysis, what analysts like to call digital transformation (DX).
• A concomitant increase in automation technology to boost productivity, reduce operating costs and increase flexibility to respond to rapidly changing, unexpected and unpredictable events.

These trends have reverberated through financial markets as investors and speculators seek to capitalize on the rapid changes in what one trenchant analysis labels COVID Price Compression. Cullen Roche sees such compression as a type of market inefficiency born of events that dramatically shorten projected time horizons for various trends. He writes (emphasis added):

I would argue that COVID has created a price compression in technology. That is, many of the long-term trends that we're seeing (work from home, video calls, etc.) are examples of things that will become more and more widely adopted. But COVID forced us all to adopt these things in a highly compressed period. And the market has fully reflected that adoption. … To be clear, this is different from the tech bubble in that most of the firms seeing the price appreciation are earning real profits.

The shifting jobs landscape

The compression of technology adoption also shortens the time before some IT jobs become irrelevant and the timeline for acquiring new skills, whether by hiring companies or aspiring tech workers. Such changes are visible in labor statistics and job availability on various online hiring sites.

The BLS Occupational Outlook Handbook has 10-year estimates of job growth for various job categories and specialties. It projects the Computer and IT segment to continue producing jobs faster than the market writ large, however, looking inside the projections shows the relative strength of various specialties as follows:

The BLS estimates confirm trends that have evident to anyone watching the business of IT, namely the increasing emphasis on service innovation, software development and, more recently, data security. In the tight post-pandemic economy, organizations fund these activities via operational savings from automation and cloud services that significantly improve efficiency, cut overhead and reduce headcount. For example, when CIOs were asked about how the pandemic has influenced their priorities, they cited improving operational efficiency and cybersecurity as top initiatives. Another focus, transforming business processes, is more ambiguous but certainly includes migrating operations to the cloud. CEOs asked a similar question emphasized the same themes, but added a need to reduce or rationalize IT spending. 

As automated workflows and cloud computing eliminate the need for as many system administrators, support specialists and DBAs, it frees up money to increase design work on new digital services and additional software development, QA and cybersecurity.

As coronavirus business disruptions dragged on through the summer, it made business executives even more cautious, hardening their resolve to control non-variable expenses like CapEx and personnel. The CEO of Janco Associates summarized the IT job environment this way:

Spending for IT products and services has all but stopped as companies reevaluate the state of the economy globally as new waves of selected shutdowns occur. With more companies adopting WFH to address “social distancing” and  avoiding in-office contacts, fewer companies are taking an aggressive approach to any additional spending for IT products and services.

He adds that future hiring will focus on IT staff, not management overhead or consultants. 

However, business disruption didn't mean business suspension. As operations shifted online and employees worked from home, businesses turned to service providers like AWS, Microsoft, Google Cloud and Zoom Video to supply services and applications traditionally operated by internal IT. Indeed, this shift of substitutional services like email, file sharing, collaboration systems, databases and virtual infrastructure is likely the primary reason for the sub-par growth estimates in IT job categories like system and network administration, support and DBA. It's not because these job functions are vanishing, but because the cloud operators are far more efficient at doing them. 

AWS has about 50-60,000 employees to run a $40+ billion business with 175 services on millions of servers in dozens of data centers. With 31% operating margins, it implies that AWS generates almost $0.25 million in operating income per employee. Not bad for something other companies consider 'IT overhead.' As such, many of the IT jobs that enterprises won't fill are going to cloud operators. For example, AWS currently has about 9,500 job openings, while Google Cloud has 600. Sadly for enterprise data center employees displaced by IT "cost rationalization," the nature of operational work means that most of these jobs won't benefit from the WFH trend breaking down geographic barriers for software developers, IT support personnel and cloud architects.

My take

The pandemic's ramifications on business and technology practices and trends will echo for years to come. Given their effect on people's livelihood and self-esteem, some of the most significant and painful consequences are those in IT job market where skills and positions that once seemed secure — or at least secure enough to provide a buffer that allowed the acquisition of new skills and the graceful transition to a new role — are suddenly in less demand. Although the IT job market has suffered far less than other areas and is already recovering, the statistics belie subterranean shifts that are inexorably altering people's employability and career paths.