Technology and Engineering Job Market—Do the Laws of Supply and Demand Apply?

Every business and human resources leader knows a compensation strategy is a critically important part of both recruiting and retaining the talent needed to grow a business. The IT and engineering job market has been very tight in recent years, and 2020 talent acquisition shows few signs of becoming any easier.

The U.S. economy is strong, and while there are mixed opinions concerning what we can expect in 2020, most economists and analysts predict another good year. Although GDP is expected to slow by about 10 percent, inflation is predicted to be low, and deflation is not of concern.1 It looks like the labor market will continue to be challenging with an overall unemployment rate of about 3.5 percent, but much lower for engineering and IT fields (about 1.6 percent).

These economic indicators make sense until you attempt to understand engineering and IT salary trends. For most engineering and IT functions, salary levels are increasing by 4 to 7 percent—reasonably modest levels of increase that do not reflect the dire reports of engineering and IT labor shortages. The basic principles of supply and demand don’t seem to be working—or are they?

Let’s look at a couple of factors that help make sense of the overall engineering and IT salary growth trends the industry is experiencing.

Specialization and Changing Engineering Job Market Needs

For decades, job titles tended to be more homogenous. Today, there are huge variations within a given title, such as in the software engineering field. Although compensation and demand levels for the overall software engineering field have increased more than other engineering disciplines, overview software engineering compensation statistics do not tell the full story. Why is this?

Hired’s 2019 State of Software Engineers Report2 revealed some valuable insights relating to the increasing levels of specialization within the profession. For example, the demand for front-end software engineers grew a paltry 4 percent in 2019, and the demand for full-stack engineers only grew 7 percent. However, the demand for blockchain engineers grew 517 percent, and the demand for security engineers grew 132 percent.

From a compensation standpoint, front-end and full-stack developers are not experiencing dramatic compensation growth, but the compensation levels for high-demand specializations are growing at an aggressive rate.

While professionals in each of these areas fall under the overall categorization of software engineers, it is easy to see that not all software engineers experience equal demand in the market.. These variations create a sort of “washed out” picture when we step back and look at compensation metrics for the field as a whole.

Similar scenarios are happening within engineering fields. Salary levels for electrical engineers are growing overall, but the rates of increase are not extreme—about 4 to 6 percent. However, if you need to hire an electrical engineer with IoT engineering experience, you are looking at a very different scenario.

Geography

The competition for talent is different from market to market and specialization to specialization within a given area, like the software engineering profession. Competition for software engineering talent—and therefore competitive compensation levels—is soaring in key tech hubs like Silicon Valley, New York, Denver, and Seattle. However, there is varying demand within these markets; for example, gaming engineers are the highest-paid type of engineers in New York, while demand for natural language processing engineers is soaring in Toronto. The tech-related sector is also expanding aggressively in Chicago, adding more than 6,000 positions in 2018 and a similar number in 2019

What Are the Ramifications of These Trends?

Ultimately, we continue to venture into unknown territory. Resources such as 180 Engineering’s Guide to Midwest Engineering & Information Technology Compensation are quite helpful in providing an overall framework for the business leaders and human resources executives charged with creating talent acquisition and retention strategies. However, further insights are essential for specialized positions. Additionally, keeping up with particular trends within your specific geographic area is key.

2020 Engineering Compensation Guide

Sources:

  1. “US Economic Outlook for 2020 and Beyond,” Kimberly Amadeo, The Balance, December 19, 2019
  2. “Hired Releases Its 2019 State of Software Engineers Report,” Mehul Patel, Hired blog, February 28, 2019
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