In its 2012 IT Salary Report, Computer Economics projects that despite the worst of the economic recession having ostensibly past, IT salaries in 2012 will still fail to show marked improvement. Despite a net increase in dollars, most raises for IT professionals will fall short of inflation, meaning that the actual spending power of a typical IT paycheck will be less in 2012 than in 2011. The report also forecasts stagnant hiring. Although the employment picture for IT is not dismal, it shows few bright spots differentiating it from employment in the broader economy.
IT Salary Raises in 2012: Congress Already Spent Them
Computer Economics’ IT Salary Report for 2012—a sample of which is available for free—provides forecasts of IT salaries, hiring and employee turnover data on the basis of data obtained from its annual fourth-quarter survey of over 130 IT organizations in the U.S., as well as from other sources such as the Bureau of Labor Statistics. According to the report, the median typical IT professional will see a 2.8% pay raise in 2012—a far from stunning number, but movement in the right direction nonetheless. The downside of this increase, however, is that it fails to keep pace with inflation.
The report notes that “in real terms, IT wages are not keeping pace with inflation. Food and energy costs drove a 3.4% rise in the Consumer Price Index for the 12-month period through November 2011, which is substantially higher than the 2.8% pay raise that IT organizations are budgeting for the typical IT worker in 2012.” In other words, a profligate U.S. Congress spent these modest pay raises into oblivion by way of the inflation tax. (As Congress borrows and/or prints money to engage in deficit spending, the number of dollars in circulation increases. And if you follow basic economics, more supply depresses relative value, meaning the dollar loses spending power relative to goods such as food, gasoline and computer equipment.) Effectively, then, the average IT worker will see a salary cut as the price of goods increases faster than salaries.
At the low end, salary increases for the 25th percentile of typical IT employees will be at 1.8%, and for the 75th percentile, 3.0%, according to the report. Although the low end shows a significantly smaller percentage increase, it is an improvement over the previous year’s lack of a substantial increase in that range, showing some indications of a recovering market.
Although companies are budgeting for these pay raises, the economic situation remains unstable, and these forecasts may fall short of reality in the event of even a modest shift in conditions. For instance, the Eurozone continues to show signs of trouble as countries like Greece move toward default, and other western nations—particularly the U.S.—appear to be on a similar path. A default on the U.S. national debt seems inevitable (paying off $15 trillion, particularly in light of constant demands to increase the debt limit by trillions at a time, has become practically impossible), and although such a default probably won’t occur in 2012, it is not out of the question. Such events could trigger greater financial uncertainty, potentially leading to a repeat of the 2008–2009 recession. Additionally, ongoing instability in the Middle East, along with a seemingly inevitable war with Iran, could further exacerbate the situation.
Moderate Hiring, Growing Turnover
With the onset of the recession and the major hit to employment, more IT workers stayed with their jobs rather than risking starting a new job elsewhere. According to the Computer Economics report, the median turnover rate before the 2008 recession was typically around 5%. In 2009, the rate was 3%, falling to a low of 2% in 2010 before rebounding to 4% in 2011. Computer Economics forecasts the turnover rate to return to the pre-recession level of 5% in 2012, reflecting in part the stagnation in real salaries as employees seek higher pay for their experience.
The hiring outlook for 2012 is somewhat mixed, with 41% of IT organizations expecting to see no change in headcount, whereas 42% expect some increase. This leaves only 17% planning to cut staff. Overall, employment is generally steady, with the vast majority of companies (83%) either adding staff or remaining the same—but less than half of IT organizations will add staff. According to the report, “While employment among IT service and solution providers has been relatively strong, IT organizations are cautious about expanding headcount. Rising productivity and outsourcing will continue to restrain hiring, even if business conditions improve.”
In the face of ever-growing demand for IT services, this lack of more extensive hiring means that current employees will face greater workloads, potentially fueling more turnover. The reluctance of companies to increase their staffs to handle this demand could either be a result of becoming gun-shy in the wake of the recession or of economic conditions not being on the fast track to recovery, as some observers would suggest. Some combination of these factors is likely the culprit.
Another factor weighing on hiring is the cost of employment. Many incorrectly equate salary and cost of employment—the actual cost of employment for a company is typically much larger. Depending on the situation, actual employment costs for a company can be in the range of two to three times the salary, by some estimates. In addition to fighting inflation, which effectively depresses salaries (regardless of whether the number of dollars changes), employees are hampered by increases in the cost of benefits. Although they may not see the skyrocketing cost of health insurance, for instance, companies do. The employee may receive the same benefit value from year to year, but the cost to the company is tending to increase. This situation makes salary increases less likely as companies struggle to simply keep pace with rising employment expenses.
Conclusions
The Computer Economics report paints a mediocre picture of IT employment in 2012. Although salaries will rise, their effective spending power will diminish in the wake of inflation. Employment costs for companies will rise as benefits become more expensive, leading to an unimpressive hiring picture. In turn, these conditions, along with the perception of a more normal market, will lead to a pre-recession turnover rate as employees seek greater compensation and a less burdensome workload. But even this modest picture could be upset by the still-brewing economic situation in the Eurozone and the ongoing unrest in the Middle East. Balancing these concerns, however, is steadily increasing demand for IT services, which necessitates that companies budget for this market to support their businesses.
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About Jeff Clark
Jeff Clark is editor for the Data Center Journal. He holds a bachelor’s degree in physics from the University of Richmond as well as master’s and doctorate degrees in electrical engineering from Virginia Tech.
