The Vicious Circle of the Cooled Tech Labor Market
* The metrics used in this article are from Argentina, but they reflect a worldwide trend that I am confident can be validated in several other countries.
In its latest annual report, the Argentine Software Industry Chamber (CESSI) highlights that employee turnover, which has been declining since 2022, reached a historic low of 21% for the sector in 2023, nearly halving the value of 2021. I understand that most people are tempted to pop the champagne, but perhaps we’re rushing the toast a bit.
When an employee leaves a company, HR analysts investigate the reasons and categorize attrition into good attrition and bad attrition. When an employee stays, do we know if they stay for the right reasons? Given the scarcity of metrics in this regard, allow me to speculate a bit and follow me in this chain of unfortunate events.
There is a widespread feeling that the tech labor market is stagnant. When we look at the numbers, they don’t look bad (4.6% growth in the last year, just above the overall private sector growth), but compared to the trend of recent years, it is a steep decline (6.7% in 2019, 7.3% in 2020, and 13.1% in 2022, following a dismal 2021 with 4%). Not to mention the doubling of the layoff rate in 2023 (from 3% to 6%). When you come from years of partying with an open bar, the vouchers for two cans of beer don’t seem so attractive. The old and familiar trick of hopping from company to company to climb in seniority, benefits, and salary seems to have come to an end.
Why is the tech labor market declining? The most obvious suspect would be the cooled economy, but the truth is there is a well-nourished gang of culprits: margins affected by inflation and rising operating costs, market valuations plummeting, and an excess of hiring during the boom times that is now coming back to bite with a vengeance. Reality is always more complex.
Whether due to cost issues (can’t add more employee benefits or raise salaries because the numbers don’t add up) or lack of incentives to do so (salaries are set based on market dynamics), companies are starting to invest less in their talent. Did those of us working in the tech industry have inflated salaries and benefits due to the untamed market of recent years? Surely, but that doesn’t negate the fact that the sudden closure of the tap will have repercussions for professionals in the sector.
To the impact of unmet expectations, we must add another characteristic of the industry: a high-pressure work environment normalized through extra hours disguised as flexibility and continuous challenge. Anyone who hasn’t heard a story of someone burnt out by this dynamic, cast the first stone. A bit of basic algebra and the sum yields a bunch of burnt-out people who don’t move to a new job because they can’t find one or because, in this context, they don’t want to take risks (remember that an active market guarantees you can move if things go wrong).
Having burnt-out (and trapped) people working is not free, and this vicious circle deepens in a decline in productivity and work quality, directly impacting costs on both sides. Thus, we end up feeding this degenerative loop with no end in sight.
Ladies and gentlemen: this doesn’t scale. The ridiculous expectations of the market need to relax, and those of us working in the sector must accept that certain situations were pure fantasy and embrace the new reality. The companies that manage to balance and take better care of their talent will be the ones to succeed at the end of all this. There will be an end; we don’t know how or when, but it will change again, like everything, especially in this sector.
This article is also available in spanish on my blog, «El círculo vicioso del mercado laboral tecnológico enfriado»
