US IT jobs market looks to be supply limited

Profile picture for user kmarko By Kurt Marko November 7, 2019
Summary:
A strong US job market overall, but how is the tech sector performing?

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Amidst a persistently strong US job market, it’s no surprise that positions in information technology and related fields are abundant, however recent data indicates that the job market writ large, in particular openings requiring technical expertise, are harder to fill which is dampening overall job growth as employers take longer to find the right fit. T

hat’s the conclusion of a  recent analysis by Janco Associates, a management and IT consulting firm whose CEO M. Victor Janulaitis said, “the rate of increase in the number of new IT positions is slowing down due to the difficulty in finding qualified candidates.”

There’s more to the story than that since the operative word is “qualified,” and while sub-sectors of the tech job market are red hot, data shows that it’s not universally so. Thus, the problem might be one of mismatched tech skills rather than a shortage. Let’s see what the data reveals.

Tech jobs - a temporary plateau?

The official source of domestic job information, the US Bureau of Labor Statistics (BLS), uses broad occupational labels to break down its data. IT jobs fall in the “information” category, however, only a few of the subgroups are relevant to IT. Within these, we see the following changes in employment levels over the past year.

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Overall, that’s a net reduction of 4,100 jobs since last October, however, if we do the math to get an overall percentage change across all three subgroups, we find that: total employment is 1.381 million, meaning that 4100 jobs are a minuscule loss of 0.3 percent. Furthermore, all of the losses were in the telecom sector where many of the cuts might have been the result in macro changes in consumer behavior such as cord-cutting and the death of landlines, and thus substitutional, since some of the losses translate to gains in the “other information services” category.

The lackluster results are confirmed by a separate tech hiring report done by CompTIA that shows an increase of 5,400, or 0.1 percent, over the last month. CompTIA’s numbers show more vigorous IT job growth for the year, however, increasing about 130,000 or 2.8%t. CompTIA’s executive VP, Tim Herbert, puts the numbers in perspective, “Despite the underwhelming jobs figures for the month, tech industry employment year-to-date 2019 is tracking ahead of the same periods in 2018 and 2017.” Indeed, by CompTIA’s measure, the unemployment rate for all IT occupations is a mere 2.2 percent. Like the BLS, CompTIA shows IT job growth being weighed down by cuts in the telecommunications sector.

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Healthy tech job environment becoming supply-limited

CompTIA found that overall US tech employment fell by 96,500 jobs in October. While they noted that monthly figures can be volatile, unfortunately CompTIA didn’t provide a 3- or 4-month moving average to better characterize the long-term trend. Equally concerning was a drop in “core technology” job posting by nearly 28,000 from September. Unfortunately, CompTIA doesn’t explain how it derives the number since it at odds with similar data from the BLS, which shows a monthly increase of 25,000 openings in the Information sector. Indeed, the closely-watched JOLTS survey, a favorite of the Federal Reserve, shows that Information” job openings as a percentage of total employment increased from 3.7 to 5.4% over the past year, even as the rate of new hires and job separations slightly declined.

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The BLS figures suggest that employers are having trouble finding suitable candidates for new jobs and are building up an inventory of unfilled positions, a conclusion also reached by Janco Associates which concludes that:

The IT job market is now at the point where the number of openings exceeds the number of individuals qualified to fill the positions.

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Microsoft echoed the skills gap theme in slides at Ignite this week that show a growing shortage of developers as the amount of custom software developed in non-technology industries such as retail, energy, finance and healthcare eats into the limited supply of skilled professionals. In slides posted by Patrick Moorhead, Microsoft cited an Indeed.com survey showing that 86% of organizations “struggle to find technical talent to build applications.”

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Janco’ s CEO Janulaitis adds further evidence of a supply-constrained tech job market:

We are now starting to interview CIOs for our January 2020 IT Salary Survey and are finding that the time to hire new employees now is moving to be closer to 3 to 4 months from the time the position is approved, and the individual is on staff.  In 2018, the time for the same process was closer to 2 to 3 months. As a result, we have reduced our forecast to just over 90K new IT jobs versus our earlier reported 100K forecast.

My take

It’s tough to bemoan a job market that’s too robust, but when the hiring process for tech positions stretches out to a quarter or more, it becomes a constraint on growth and the execution of strategic projects. The standard economic response to supply constraints is increased prices, which in this case means higher wages. However, with salaries for many hot tech fields well into six-figures, there are diminishing returns to pushing them much higher, particularly in the short term.

An easier way to add supply would be retraining the many tech workers whose skilled have atrophied or not evolved to relevant fields, whether that’s from being stuck maintaining dead-end systems, fear of trying something new and suffering in a zero-sum employee rating system or lack of initiative. Business leaders should redouble any existing training programs and actively recruit those within their organizations with solid technical backgrounds that could be adapted to address today’s IT problems.

Existing employees with exemplary work histories already have an understanding of the organizational priorities and culture and are much easier to find than an external hire. Organizations should take the risk that by investing in their people, they will be rewarded with greater loyalty and many years of productive work, not punished by ingrates job-hopping for a better offer at the earliest opportunity. There will always be some thankless opportunists, but executives might be surprised how often their show of confidence, respect and commitment will be reciprocated by employees.