What’s Next After the Big Wave of Lay-offs in the IT Industry in 2023?

The IT industry has experienced a surge in layoffs in 2023, affecting all ranges of companies, from startups to the “FAANG” brands. This is a significant shift, given the industry's remarkable YoY growth in recent decades. Is this a sign of a recession? Is AI already replacing humans? Is it a periodic staff adjustment? Or is the industry undergoing a transformation? Let's put things in context for a moment.

The Slowdown after the Surge

We must first consider the circumstances of the last few years. The onset of the pandemic meant a surge in demand for digitalization and overwhelming growth in investment in software platforms and IT services. Vendors hired aggressively in these years in order to deliver bulging pipelines of projects, which often had high complexity and short execution deadlines. In the post-pandemic era, there is still a need for digitalization. But there is now a clear significant slowdown in demand and even a recession in terms of project volumes.

The Evolution of the IT Labor Market

The emergence of a well-funded startup ecosystem has disrupted the IT workforce. To compete with tech giants and attract a large number of highly-skilled resources, startups have increased wages, which has contributed to a chaotic evolution of labor costs in the industry. This created challenges for most employers, both financially and organizationally.

Both startups and well-established vendors fought hard to recruit senior and experienced specialists. In this particular context, the stringent eligibility criteria for open positions rendered them inaccessible to recently qualified individuals. Hence, the market suffered in the long run because the emergence of new seniors was difficult due to the lack of juniors gaining experience.

This overheating in the labour market has also led to “title inflation”, with many companies promoting some of their personnel too quickly in order to boost retention. This is not a new phenomenon, but it can come back to bite employers pretty quickly as soon as the market bubble bursts.

External Constraints

Current economic uncertainty (rising inflation, supply chain shortages) is contributing to the cautious spending behavior of IT companies, which are not immune to market fluctuations. Large-scale initiatives are also being deferred or broken up into smaller initiatives, with only the most critical components being contracted out.

Tech's Impact on Tech Workers

In response to these dynamics, R&D departments within IT companies have been tasked with developing innovative solutions to streamline operations, for both internal and external customers. Paradoxically, programmers have developed solutions that have reduced the total cost, while decreasing the number of developers needed for each project. Generative AI (GenAI) is being tested and harnessed as a way to automate and even improve human work in several fields, including software development. While GenAI is still limited to low-added value tasks, it has demonstrated its potential to improve efficiency and productivity when implemented correctly. The concept of augmented working, when employees will be assisted in their tasks by AI, enhancing their productivity, will gain ground in the years ahead.

Tech Workers in Flux: Adapting to the Ever-Changing Landscape of Technology

Despite concerns about job displacement, the IT industry's labor demand is expected to remain strong, particularly in emerging and high-growth technical areas. Technology is constantly evolving, and certain jobs become obsolete periodically, but at the same time, it opens doors for new ones. However, when we talk about the current job market turmoil, we also have to take into consideration the effect of the health and economic crisis, which has made its impact more widespread. With an eye towards the future, an early strategy regarding the human resource structure broken down over the next few years is essential to prevent the boom-and-bust, recruitment-to-layoffs loops, which ultimately affect the reputation of even the most stable businesses. Which are the most critical skills required for the next 5-10 years, and which jobs are most at risk of automation or deprecation? Taking a longer-term view will help to break the cycle.