The IT Talent Shortage and Economic Headwinds

Making Sense of the Countervailing Trends and Their Impact on Technology Staffing 

Despite the darkening economic storm clouds on the horizon, there are plenty of reasons for the technology staffing industry to be optimistic about 2023. Speaking to an audience of 400+ technology staffing and solution firms’ executives and other stakeholders, Mark Roberts, CEO of TechServe Alliance, emphasized that the biggest challenge facing the technology staffing industry is not a lack of demand, but it is insufficient supply of qualified professionals.

Our industry had an extraordinary two years in 2021 and 2022, according to Roberts.

“While we think we won’t see that kind of growth in 2023, we are projecting 5%-7% growth for IT staffing and 3%-5% growth for engineering staffing. This is still strong growth compared to other sectors of the economy,” Roberts said.

Projecting solid growth may come as a surprise to many at a time when the economy is experiencing significant headwinds with record-high levels of inflation, declining consumer and business confidence, and the expectation of a recession. However, despite these macroeconomic forces, the demand for technology professionals remains strong. While layoffs from high-profile technology companies are in the headlines, companies in many industries are still actively looking to fill IT and engineering positions. How can we reconcile those countervailing forces?

Macroeconomic Trends 

In a recent TechServe webinar, Roberts and Janesky took a closer look at the macroeconomic and labor market trends affecting the industry. During the webinar, Janesky pointed out that the extreme fiscal and monetary policy response to the pandemic “sowed uncertainty by warping the definition of a recession.” At this point, there are two things that have the greatest potential to send the economy into recession, he says. One is if ‘the Fed [does not take] the brakes off of rising interest rates.’ The other is the talk of the recession itself, leading to what Janesky calls a self-fulfilling recession.

If there is a recession, any softening in IT employment will be followed by a sharp increase in demand following the pullback, Janesky predicted.

Labor Market Trends 

The employment market continues to be very strong, with an overall unemployment rate for the third quarter of 3.6%. IT unemployment stands at 2.3% and engineering is even lower at 1.4%. Roberts noted that economists generally consider 4% as full employment. He encouraged technology staffing leaders to share this type of data with clients. “Educate clients that if they want to succeed in the war for the talent they can’t take too long in making hiring decisions or offer pay rates that are too low,” he recommended.

After recovering from the pandemic-induced downturn, IT employment has effectively been flat. Roberts emphasized that this isn’t a demand issue, it’s a supply problem. One recent analysis determined there were 800,000 open jobs in IT and most candidates on the market continue to have multiple job offers.

This data aligns with the 2022 IT trends Study conducted by the Society for Information Management (SIM), the leading association of CIOs, CTOs, and IT leaders. Highlights of the SIM study include:

  • IT talent shortage and retention is a top concern of CIOs
  • 83% of CIOs report a year-over-year increase in their IT budget
  • 6.5% was the average salary increase in 2022 (versus 4.7% in 2021)
  • At 8.9%, the turnover rate is the highest since 2015

How are Technology Staffing Firms Doing?

In the midst of this environment, IT and engineering staffing firms continue to deliver strong results. While we don’t yet have benchmarking data for 2022, executives are widely reporting it was an excellent year. This follows a phenomenal year in 2021 when the average firm grew 18.6% with increasing gross margins and historic levels of profitability.

On the M&A front, valuations remain strong. The TechServe Alliance M&A Marketplace continues to maintain a robust pipeline of buyers and sellers. With three transactions closed, multiple sellers currently in the pipeline, and a pool of over 80 buyers, TechServe anticipates 2023 will remain active for transactions involving IT & engineering staffing firms.

Summing up the Complex 

While the future is uncertain, both IT and engineering staffing have a record of outperforming the economy. With strong demand in the face of a limited supply of IT talent, we fully expect to see solid growth in technology staffing through 2023.

Roberts and Janesky will provide an update on the latest data and insights on Feb. 9, 2023, Members can sign up for their latest State of the Industry Webinar here.

This will close in 0 seconds

This will close in 0 seconds


This will close in 0 seconds