posted 22nd March 2024
2023 might seem, at first glance, like an alarming sign for the tech market - the year began with a number of the biggest tech giants making global headcount cuts, followed by a downward trend in IT vacancies - and, it would seem, salaries. Across the UK for instance, salary growth in the sector has stagnated. Pay increased just 3% in 2023 - below the national average of 3.5% and a significant decrease from the 7% seen in 2022. In the US, the average tech salary went down - from $111,348 to $111,193 - far below the 2.3% increase seen in 2022.
Beyond salaries, trends show that companies are also cutting back on the amount of equity offered in compensation packages. The 2023 Annual Equity report from Carta, a platform that aggregates data from thousands of privately owned businesses across the US, shows that the average amount of equity new employees receive in the startup industry has shrunk by over a third. This has been driven by AI technology and a pullback in capital funding, pushing founders towards much smaller team sizes. In fact, the Carta report shows that the startup market has moved away from its historic rapid growth and for the first time in years, departures in the sector outpace new hires.
Pay increased just 3% in 2023 - below the national average of 3.5%
But was this compensation shift truly unexpected? Just two years earlier in 2021, the tech sector saw unprecedented growth in both salaries and tech jobs - CompTIA reported an increase of 260,000 positions across the United States.
Whilst the COVID-19 pandemic irreversibly damaged several industries, tech companies conversely were experiencing an unexpected cash boom and subsequently used those funds to engage in aggressive hiring practices. The coinciding high growth of remote working and remote hiring opened up the recruitment field wider than it had ever been before. The war over talent inflated salaries across the market, with larger firms perhaps over-investing in hiring new talent - some even hiring specialists not due to a business need, but instead to simply prevent them from being hired by rivals.
But of course, as the old saying goes, what goes up... must come down.
A Reset, Not a Red Flag
The extraordinary set of circumstances that drove tech hiring practices in 2021 has since dissipated, leaving behind a more sustainable hiring landscape. According to CompTIA, over 211,000 jobs were eliminated from tech in 2023 - crucially, less than the 260,000 increase in 2021. Now in 2024, we're seeing those same tech giants that initiated mass layoffs in Q1 of 2023 rehiring once more.
Beyond this, the Dice Tech Salary Trends data shows a diversification of talent hubs. In the US, major tech hubs such as Silicon Valley felt the salary stagnation the most, but emerging hubs such as San Antonio, Philadelphia and Orlando experienced notable salary growth. The soaring cost of living in major cities and continued freedoms afforded by remote working have led to workers fleeing to lower-cost areas - and are finding local career opportunities, which has, in turn, bolstered these up-and-coming tech hubs nationwide.
In the UK, likewise, London experienced much more salary stagnation than the country average, with both workers and companies starting to seek opportunities in other, more inexpensive regions of the country.
Rather than being an isolated period of instability, 2023 could more accurately be described as the latest period of volatility in the oft-volatile history of modern tech.
Over 211,000 jobs were eliminated from tech in 2023 - less than the 260,000 increase in 2021.
According to the Bureau of Labor Statistics, the shift in employment levels between 2022 - 2023 is in fact markedly less dramatic than previous crises such as the 2008 - 2010 financial crisis and of course, the beginning of the COVID-19 pandemic in 2020.
So, should we be concerned?
Not really. The most recent market shift is, in context, what could be described as a modest decline in compensation - and whilst any decline is less ideal than an increase, it should be viewed as a natural recalibration, rather than a cause for concern.
The Difference Engine is a recruitment and executive search firm specialising in technology, operating globally.
