The IT recruitment market – a six month health check

21 June 2016

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Doesn’t time fly…

Strictly speaking it’s not quite six months since the start of 2016, but with the EU Referendum putting a lot of things on hold in June it’s fairly safe to say that the first five months trends tell us most of what we need to know about the year thus far.

In that period a lot has been happening, so where do I start?  The first, and in many respects the most important, thing to state at the outset is that when we look at the IT recruitment market as a whole it’s still very healthy.  Don’t lose that thought, even allowing for the number of caveats that follow.

Permanent placements are growing, but the rate of growth is slowing. That slowdown in the number of roles available tends to push people towards contracting, of which more below… One of the main reasons for this slowdown in growth is the degree of uncertainty caused by the looming EU Referendum.  Elections and referendums do create concern and uncertainty for businesses and we’ve had a stack of them in the last few years.  Since May 2014 we’ve had: the EU parliament election; the Scottish Referendum; the UK General Election; the Scottish Government election; and now the EU Referendum, with Scottish local elections coming next in May 2017 (they were supposed to have been in May 2016 but have been held over to avoid a clash with the Scottish Government election!).  That’s a lot of uncertainty over a long period of time.

There’s not much we can do about this state of affairs, but get on with it.  So, with that in mind, let’s cut to the chase…the big change year-on-year is the relationship between the contractor and perm markets, with the former increasing in importance substantially. 

Previously, historically even, it was the big businesses  - the likes of the banks and insurance companies – which hired a lot of contractors.  Now, SME’s are getting in on the act.  The differential between contractors’ rates and permanent staff rates is narrowing, with the latter increasing while the former are narrowing to meet them. This makes it an easier decision for any company to hire a contractor and thus creates an upward spiral of activity that becomes self-reinforcing – relatively cheaper IT contractors, without the associated add-on costs, supplanting full-time employees. The Markit survey from May shows that perm candidate numbers are continuing to drop, with the report noting, “The pace of contraction in permanent candidate availability across the UK as a whole was fractionally faster than in Scotland, though it also eased to its slowest since February.”  This applies in IT more than the white-collar sector as a whole.  Put simply, people are sticking in jobs and not moving as much as previously.

We see the market (and Markit!) stats reflected in our own business. It’s quite significant really; there are some trends developing here from employers, looking for a greater level of flexibility (which is reflected in the rise in the number of contractors we’re placing, while on the other side, contractors are looking for that same flexibility and work-life balance, all of which means there is a real match here. What we are seeing here is the employment market working as it should: people and companies taking rational decisions, based on supply and demand.

When we look at salaries, we see a continuation of the long-term trend of increases, reflecting the fact that IT is consistently the highest earning skill set (see below, data from APSCo).  We also see in our business the aforementioned narrowing of the gap between perm and contractor/temp employees’ salaries and we don’t see any sign of rates of pay stopping their continual upwards creep.  Given that staff costs are the biggest component of any firm’s costs, it’s an expensive industry but these same high costs are a reflection of its importance to the economy at large.
 

ASCo salary information illustration

From a recruiter’s perspective, all the above means that we’re seeing a huge increase in the passive candidate market and a corresponding decrease in the number of active candidates. I’d go as far as to say that the ratio is now almost 90% passive and 10% active. This, of course, means that firms like Be-IT have to work much harder to find, winkle out and engage with these candidates and then show them the potential that still exists – in spades – in the many jobs still requiring to be filled.

When we look at the data from our own business, we can see that there is a 45% increase in the number of roles we’ve handled this year compared to the corresponding period in 2015.  The number of CVs passing through our consultancy from Be-IT to customers shows a 9% increase, while we’ve seen a 32% increase in the number of interviews clients are undertaking. Customers are keen – sometimes desperate – to hire, but the drop in candidate availability, described above, means, in effect, that every CV we receive is likely to result in that person getting an interview. I’d like to think that it’s just my colleagues at Be-IT being good at their jobs (which they are), but I know that we’re reflecting the overall picture in the industry.

Some more stats: Be-IT has seen a 10% increase in the number of contracted placements in the first five months of 2016 and a 24% increase in perm placements in the same period. Our extension rate with contractors is 60% higher from Jan-May ’16 compared to the previous year.

As a result, what I think we’re seeing is that the dynamic of demand from customers has altered significantly year on year, creating a veritable sea-change in hirers’ mentality which in turn offers increasing security for contractors.

More specifically, we see continuing demand for software skills, plus an uplift in project management, programme management, business analysis, analysis generally and in security and data. It’s a busy, sometimes frantic (but good) time to be a recruiter.

Finally (and I know you’ve been longing to see that word), let’s look at the macro-economic picture.  As a nation, we’re now sitting with record employment levels in the UK. Yet in the last year, employment in Scotland has shifted, from better than the UK average to below it. The ONS reports that “the employment rate (in Scotland) is now 73.2% - below the UK average of 74.2%.” and, as the BBC, amongst many others, points out this is largely due to the problems in the oil and gas industry. Recent reports of the total number of job losses reaching 120,000 people by the end of this year tell us that this is only going to get worse, but within that cloud there is a sliver lining.  There are lots of men and women with proven IT skills and relevant industrial experience who can be matched to the jobs available.  The outcome of the EU Referendum will be important here, because, in my opinion, if we stay in then we’re likely to see medium-term stability creating further growth and an increasing leverage of contractors in second half of year, whereas if we come out it will create a period of yet more uncertainty and as I said at the outset, that’s the one thing businesses do not like.  Add in the fact that there are some adverse indicators from the global economy and it’s difficult to know where we’re heading.  Or, as ASCo’s Chief Exec, Ann Swain, said recently, “Demand for talent and placements remain ahead of 2015 levels but the rate of growth has eased suggesting that uncertainty around a possible Brexit and stronger economic headwinds are now having an impact on the UK’s professional jobs market.” In any event, it promises to be an exciting next six months!

Gareth Biggerstaff, MD, Be-IT Resourcing.

P.S.  If you are reading this after the referendum result has been declared, we’ll just have to wait and see what transpires…


 

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