Is the 2022 Job Market Still a Candidate Market for Software Developers?

A Job Market Trend Since COVID Started

Two years ago around this time, I was contacted by many recruiters about job opportunities. Judging from the volume and the tone of their messages, I had a feeling that the job market was getting more attractive for software developers. A few months later, some Linkedin posts by recruiters confirmed my suspicions. They did not call it a candidate market, but their lamenting of picky candidates told me all I needed to know.

Change, however, is the only constant in life. Now I am sensing something different. The job market is still friendly to software developers, but the magic we experienced has waned. Just a few days ago, I saw the news of US tech companies going through a mass layoff.

I believe that the short-lived candidate market can be explained well, once we understand how it was created and why it fades away.

A Candidate Market Created by High Demand and Low Supply

When the demand for candidates is noticeably higher than the supply, it creates a candidate market. In my opinion, the candidate market from 2020 to 2022 was driven simultaneously by high demand and low supply.

On the demand side, the tech industry was encouraged to hire and expand due to the following factors:

1. Businesses raced to digitize, driving growth in web development
2. Tech stock market and crypto market was bullish, channelling more capital into the tech industry

Due to COVID many businesses had to digitize or die. This process resulted in a proliferation of new e-commerce websites, web services and internet traffic. Many technical positions were created to fulfill the needs. Many software companies flourished because of increased sales. These companies might have expanded their operation during these two years.

Also for better or worse, people have poured a lot of money into stock market AND crypto market. To give one example of how unrealistic the market expectation became, Tesla’s stock price had increased ten-fold during this period. Is Tesla suddenly ten times more effective at money making than before? Probably not. There was a lot of hype, irrationality and overoptimism.

Thanks to the inflated stock price, many public tech companies became rich on paper. They could have cashed out the gain by selling stocks. Coupled with the fact that IT service really was becoming more important than pre-COVID, it might have created an illusion that the tech industry is growing aggressively again. Some companies could be tempted to expand beyond their capacity.

On the supply side, we have heard that many people became disillusioned about work-life balance and decided to take a career break. It is possible that the work force had shrunk, at least temporarily. However, I believe this effect is not as important as the increase in demand.

A Cool Down of Candidate Market by Reversal of Supply and Demand

One can reasonably expect that the candidate market will reverse in a year or two, simply because what goes up must come down. However, my personal opinion is that a cool down or reversal will happen much more quickly, perhaps in a matter of months. This is because the strong driver for the demand will be gone, and the economic pressure will force people to come back to the work force.

I have mentioned before that the tech industry had real growth during COVID due to real increased demand for its products and services. This real growth was in tandem with stock market gain and VC investment.

I did not talk about VC investment yet. In recent years VCs became disenchanted about funding tech projects. VC funds are drying up and I don’t see they come back in droves any time soon.

The stock market has crashed recently, and crypto currency market likewise had ugly performance. There is a lot to talk about the investment behaviours in these two markets, but I hesitate to talk about them here. Without going into why the two markets crashed, I can still make a safe assumption that most tech companies will be more cautious about spending, whereas just a few months ago they had expansion plans. This will create a huge swing in the job market whose effects we have already seen in the recent layoffs.

Looking at things from the viewpoint of candidates, the recent rate hike in both US and Canada will have profound impact on financial decision making. Average home owners are under pressure to pay off their mortgage, not to mention that leveraged loaners who are paying off multiple properties. More people will be eager to return to the work force and therefore tip the supply side upward.

Because of the reversal of supply and demand, I think it is very likely that the candidate market will reverse to an employer market in the next twelve months.

A Long Term Cool Down of Job Market

The above discussion only talks about short term fluctuations caused by the pandemic, economic policy change and market performance. These fluctuations are transitional and have no long term consequences.

In the last section I want to talk about something that interests me very much, which is the long term employment outlook for software developers. I will argue that in the long term the job market for skilled developers will inevitably shrink as the tech industry matures.

There are already some telltale signs:

1. The emergence of low/no code platforms that promise to replace skilled software developer
2. Investment in machine learning to write code
3. Companies looking to replace local developers with remote (and cheaper) developers

These phenomena are the manifestation of the fundamental nature of the economic game. Companies are created to make a profit, and in today’s world they are expected to make more money than the previous year or they will not survive. Growth for growth’s sake.

To reach profit target, companies have to either generate more revenue, or cut operation costs. Generating more revenue had been the primary goal of the tech industry in the past four decades, and during that time consumerism provided enough appetite for the products.

But revenue cannot go up indefinitely. It is simply not possible. If revenue growth slows down, the companies will have to cut costs, with labour being one of the biggest cost items.

In fact, this process has already run its course for the traditional industries, where skilled workers were replace by factory workers, who were in turn replaced by machines or overseas labour. It has not happened to software industry yet because the industry is still young.

There is a great book called “Work, Consumerism and the New Poor” which explains in depths the complex relationship between working class, consumerism and the poor. The author makes strong arguments about how consumerism ultimately forces the society to abandon the poor class, and all survivors are constantly anxious of becoming obsolete.

Summary

Software developers were in higher demand during COVID due to real growth in tech industry and abnormally high expectation in the stock market.

The candidate market has cooled down in 2022 and will continue to cool down. The degree of cooling down will depend largely on economic indicators.

In the long term, companies are motivated to cut labour cost as tech industry matures.