IT Employment Bucks Historical Trend

By David Bair

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There are no hard and fast rules when it comes to tracking economic cycles, but history has demonstrated, in a fairly consistent manner, that we can expect four distinct stages of employment within each cycle:

  • As the economy begins to soften, the use of consultants and temporary help is reduced or eliminated.

  • As the downward cycle continues, employers seeking ways to lower costs will start to evaluate and eliminate core positions that are not "mission-critical" to their business.

  • After a period of retrenchment, there is an up-tick in demand for temporary employees and consultants as business takes tentative steps forward while waiting for proof that the recovery will last.

  • As business gains confidence in the economic picture, core staff hiring increases while temporary and consultant hiring decreases.

    However, when it comes to what actually happens as the economy cycles through those stages, history is but a guide and predictions are little more than educated guesses -- as is evidenced by the current state of IT employment.

    At this stage of economic recovery, history tells us employers should be shedding temporary help in favor of building their internal staffs.

    But they're not.

    In fact, what we've been seeing over the past six or so months is an increase in both permanent and temporary hiring; with an increased demand by employers for temporary help that they intend to transition to permanent employees.

    The positions we're seeing as most in demand appear to be software developers and database administrators, as well as network and computer systems administrators.

    According to the U.S. Bureau of Labor Statistics, IT unemployment figures are at their lowest level since 2001, averaging 3.7% for the four quarters ending March 31, 2005 as compared to the same four-quarter period last year when unemployment hit 5.5%.

    Meanwhile, the American Staffing Association reports that U.S. staffing firms saw an increase in overall temporary and contract placements of 11% in the first quarter of 2005, breaking a record first set in 2000.

    Many CIOs to Increase Outsourcing

    There are several factors at play that may explain why IT employment is bucking historical trends. The most obvious is that CIOs are struggling to find ways to complete projects that have been delayed for several years with budgets that are only marginally higher.

    They are essentially figuring out how to accommodate business growth, an increased demand for customer and end-user support and such projects as system installations and development of web-based applications with budgets that are increasing by only about 3.9%, according to a survey by Merrill Lynch.

    According to the CIOs who responded to that survey, the largest portion of their budget was allotted for increasing internal IT staffs (43%) while another 13% was reserved for consulting and systems integration (eight%) and outsourcing (five%).

    It is interesting to note that in spite of the low allotment, 40% of the CIO respondents indicated that they expect to increase their use of outsourcing.

    Further, the Merrill Lynch analysts who conducted the survey were optimistic about IT spending based on past surveys that showed CIOs who were initially wary of budgets tended to free up more dollars as the year progressed.

    Based on that observation, analysts forecast a spending increase of about five percent later in 2005.

    Reconciling the difference between available budget and increased spending requirements points to yet another trend that is creating a unique hiring environment: caught between cost constraints and the need to innovate, CIOs are cutting fixed expenses such as personnel costs, mainframe expenses, hardware and software maintenance, and equipment leases to free up dollars for strategic projects and new technologies that offer a higher ROI and move the company forward.

    In the end, it is possible to link IT hiring to general economic cycles. However, to expect such a highly volatile industry to precisely mirror trends is shortsighted, particularly given the rapidly shifting technical, legislative and business-specific pressures that affect it.

    The challenge to CIOs is to create hiring and staffing plans that are flexible enough to accommodate the unexpected while still keeping an eye on their long-term strategies.

    David Bair is vice president, Flex for Kforce Technology Staffing, a division of Kforce Inc.. Bair can be reached at dbair@kforce.com.