IT Staffing Report: Jan. 15, 2015

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IT Staffing Growth Assessment sheds light on supply and demand factors

On the whole, 2014 was a solid year for the IT staffing industry, in which we estimate the US market grew approximately 7 percent to reach a new all-time high of $25.9 billion. We project a similar rate of growth in 2015, which would represent the sixth consecutive year of expansion for the segment. Our recently released IT Staffing Growth Assessment report explores the manifold forces that underlie the segment’s performance.

Robust growth in total IT employment fueled the increased demand for IT staffing services. From 1999 through 2013, overall IT employment in the US jumped more than 41 percent, compared to just 5.5 percent for total nonfarm employment. The driving force behind this wave has been the secular trend of rising dependence upon computers and related electronics for both business and personal applications, as it requires ever-increasing numbers of programmers and technicians to install and maintain these systems.

The chart below depicts indexed US sales of computers for the 20 year period through 2012, during which 2009 was the only year to show an annual decline in volume sold, coinciding with the Great Recession.

The next chart shows a corollary metric, the number of global internet users, which has nearly tripled over the past 10 years.

This rapid rise in demand for skilled IT workers resulted in a fairly tight labor market. The median unemployment rate for the US Bureau of Labor Statistics’ category “computer and mathematical occupations” over the four quarters through 3Q14 was 2.9 percent — less than half the overall unemployment rate during that period. Moreover, unemployment was below 2.0 percent for the occupations of computer systems analysts, computer network architects and database administrators. Low unemployment rates for specific occupations indicate labor shortages, which are typically positive for staffing demand, but they also imply a difficult recruiting environment.

One incremental source of IT workers, inexperienced though they may be, is new graduates in computer science. The charts below show the number of bachelor’s and masters degrees awarded in computer science each year from 1968 to 2013. After reaching new highs in 2004, levels for each bottomed between 2008 and 2009, and have increased in each subsequent year. Awards for master’s degrees are now at an all‐time high.

The Computing Research Association’s annual Taulbee Survey reports a range of data points on higher education in computing disciplines. The most recent edition indicated the number of undergraduate students that declared a computing major increased for the sixth consecutive year in 2013. Among US computer science departments that participated in the survey in both 2012 and 2013, the aggregate increase was 13.7 percent. Based on the typical period of about three years for a newly declared major to graduate, we expect the volume of bachelor degrees awarded in computer science to continue to rise through at least 2016.

Unfortunately, the constraints on the supply of more experienced IT workers are not so elastic. The H-1B visa program allows US employers to engage foreign citizens in occupations that require highly specialized knowledge, such as those in science and technology. Under the current system, there is a fixed cap of 85,000 new H‐1B visas per year, of which 20,000 are reserved for holders of master’s degrees and above. In years when the number of petitions exceeds the cap, visas under the program are issued on a lottery basis, as has been the case in each of the last two fiscal years (FY). As shown in the table below, for the first time since 2008, petitions for FY2014 reached the cap within the first week of the filing period (the filing period must be open at least one week by regulation). The same happened for FY2015, with 39 percent more petitions received as compared to those for FY2014.

Other programs that can be leveraged to gain work authorization for non‐US citizens include L‐1 (enables a US employer to transfer an employee with specialized knowledge from a foreign to a domestic work location) and F‐1 Optional Practical Training (for non‐citizen graduates of US universities). The US also issues 140,000 employment‐based green cards annually. Less than half of those, however, go to the principal workers, with the remainder issued to their dependents. Though the recent executive actions on immigration and change in political control of the US Senate have fueled speculation that changes to the H‐1B and/or employment green card systems could be proposed in 2015, it must be acknowledged that similar speculation has swirled in previous years and not come to pass.

On net, the factors we elucidate here imply a fairly constructive environment for IT staffing firms as we enter 2015, lending credence to our forecast of healthy growth. The competition to attract the best and brightest talent among a supply of skilled workers is sure to remain fierce, however, favoring the more nimble and innovative.

Corporate members can access the IT Staffing Growth Assessment here.