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JobStats - August 2002 - bumping along the bottom (really this time I hope): 09 Aug 2002

09 Aug 2002

A review of the year so far

2001 was a very bad year for the IT job market and 2002 shows no signs of being much better. The slump in adverts has continued, not at last year's catastrophic rate but steadily with each month lower than the last. There are now fewer jobs advertised than at any time since JobStats started collecting the figures nearly three years ago.

The spectacular growth we saw in 2000 was caused by several factors: projects starting that had been delayed because of Y2K fears, the stock market boom making it easier for firms to raise cash for projects and most importantly the dot-com boom. This led to a near doubling of demand for IT staff. When reality struck and it became clear that most of the dot-com firms would never make the money people were hoping for (or any money at all in some cases) the demand for IT staff started to fall. The uncertainty following September 11th accellerated the fall.

What to expect in the next half year

There are none of the factors I mentioned above to lift the market. On the contrary, a recent report by Goldman Sachs on IT spending in the US shows that over half the respondends expect to underspend their budgets and only a quarter expect normal IT spending growth to resume next year.

In light of all this I don't think we're going to see any marked improvement. So are things going to get worse? With the summer holidays on us the demand will be depressed simply because decision makers are enjoying their two weeks of sun. This summer effect has been masked for the past two years firstly by dramatic growth and then by an equally dramatic fall but now it could be hiding a levelling off in the current decline. There are no reasons I can think of for any further falls in demand right now. But if the USA invades Iraq next year you can expect higher oil prices and that would depress the general economy.

Contracting outlook

Within this general decline there are some brighter points though. Rates have generally held up. Contract rates are down from the peak 18 months ago and are still declining but permanent salaries are rising or holding steady. This means that the premium for contractors is shrinking. The cash rewards for contracting have been around twice those for permanent positions they are now about 50 percent more. Going contracting used to be a 'no-brainer', it's not so obvious any more. At the same time though the proportion of contract jobs has gone back up to a quarter of all jobs having fallen to under a fifth six months ago (at the peak nearly a third of all adverts were for contracts).

Are contract rates going to go up anytime soon. I wouldn't bet any money on that happening for the next 12 months at least. As I say above I don't think that the demand is going to go up much anytime soon. On the supply side there is a large number of contractors looking for work. A couple of recent surveys of IT contractors have both painted a very bleak picture of the current employment status. NamesFacesPlaces (a contractor reunion site) quotes 50 percent of contractors as being 'between contracts' and ContractorUK quotes 28 percent. Both give a figure of 10 percent of contractors who don't expect to be renewed.

Skills shortages and fast-track visas

When I first left home I faced a skills shortage. I needed a live-in housekeeper who would make my bed, do my washing and cook my meals for me. The trouble was that I couldn't afford to pay anyone to do this for me. Where's the problem you ask? There are millions of people in the world who would have been willing to do this at a price I could have afforded even as a student. The reason (of course) was that I was not allowed to undercut the pay of domestic servants in the UK by employing foreign staff.

The same issues arise when you look at the skills shortages in the IT sector. The skills shortage is really a money shortage. I can find just about any skill you care to name if I can pay enough. At some point the economic return on employing the person doesn't cover the cost and the shortage disappears. Instead of allowing the pay of IT staff to rise the government has chosen to allow people in from overseas. This might conceivably have been justified in 2000 but to continue with this in the current market conditions is madness. If the government wants to manipulate the market it needs to be much more swift in its reactions. According to ContractorUK the fast-track visa scheme has issued 20,000 visas in the past two years. The fast-track visa scheme is now just displacing UK nationals, this was not the intention of the policy; it should be dropped or at least all IT skills should be removed from the list of applicable skills.


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