IT Salaries and the Law of Supply and Demand

Search professionals tell me that the law of supply and demand govern IT salaries. When times are good and good talent is hard to find, IT salaries rise. When times are tough and the labor market is saturated with unemployed IT professionals competing for a handful of open positions, salaries plummet. It’s the classic buyers’ market vs. sellers’ market paradigm.  

I’m not convinced, however, that the laws of supply and demand as they relate to IT salaries are functioning in today’s employment market. Sure, IT salaries are down from a year ago because the recession has forced companies to institute pay cuts and because employers are offering lower salaries to prospective employees, according to various research, including Computerworld‘s 2009 IT Salary Survey.  

But there’s evidence that IT professionals hunting for new jobs are rejecting these lower salaries that prospective employers are offering.

“There are a lot of low compensation opportunities that candidates just can’t resign themselves to,” says Nancy Keene, a director in executive search firm Stanton Chase International’s Dallas office.

This is one reason employers are having such a hard time filling open positions: They can’t find candidates who meet all of their (dare I say, unrealistic) requirements and who’ll work for between 10 and 30 percent less than what they earned in the past.  

I laud the IT professionals who are not compromising on their value and who are rejecting insulting job offers. It takes chutzpah to slide that employment agreement back to the HR or hiring manager without signing on the dotted line, especially if you’re unemployed.

If companies can’t fill their open positions because their job offers are too low, why aren’t salaries going up? You’d think the law of supply and demand would start changing the dynamics.  

I see two reasons why compensation isn’t going up yet. One, there are probably still more job seekers who are accepting low offers than job seekers who are rejecting them. I hate to see people settle for less than what they’re worth, but in these times, I can’t blame them for doing so.

The other reason is that employers are content to wait. Their hiring budgets have yet to thaw, and employers remain anxious about the economy. In light of their uncertainty, they’re not rushing to fill positions.

“Hiring managers who’ve been getting by without that position are saying, ‘what’s another month, what’s another two months’ of waiting,” says Keene. “Now in the fourth quarter, they might just wait for the new year.”   

Here’s the irony: The longer employers wait to fill these open positions, the more likely they’ll have to pay more money in the end—and not just in terms of salaries but in terms of the time it took to recruit someone. By the time they feel confident about the economy, the rebound could be well under way, and the dynamics of the labor market could have completely shifted back to employees’ favor.

Let’s hope that happens sooner rather than later.