ENGAGE research identifies tightest markets for technology professionals and a new supply/demand framework

About the ENGAGE Research series: At ENGAGE, we study the impact of dynamic markets on company’s talent retention and on professionals’ voluntary turnover. From time to time, we share some of our research results in this article series. In previous research we examined tenure data across professions and industries, the supply/demand impact on tenure of professionals with in-demand skills. and the impact of industry and company talent retention risk assessment. 

In this research article, we focus on analyzing one of the hottest markets: Technology Professionals.  We also propose a new framework for better understanding of the real supply of professionals. The new model relies on analyzing who is likely to change jobs instead of the traditional models of relying on a estimates of the total pool size.

In addition to ENGAGE’s large set of aggregated data covering industries, companies, professionals, and market dynamics, we partnered with Greenwich HR to analyze the demand side of the market leveraging their real-time aggregation and analysis of job postings.

1. The tightest markets for technology jobs.

California and New York traditionally had the tightest markets as defined by the ratio of supply of technology professionals to open jobs requiring these specialized skills. Our analysis showed that in the first quarter of 2018, Virginia had the tightest market followed by Maryland, Massachusetts, and Georgia.  Even Florida was tighter than both California and New York in the same period.

2. There is a clear relationship between supply of in-demand skills and job tenure.

We have shown in previous research that professionals with less common skills that are also in high demand tend to have lower median tenure. This makes sense—due to the relative scarcity of their skills in the market, these workers have more opportunities, making them more likely to job-hop on their own volition. The scarcity of their skills also makes them more likely to be targeted in passive recruiting efforts, since the supply of quality unemployed candidates with those skills is likely to be low.

More precisely, our research revealed that median tenure for people with a given skill increases by almost one month as the supply of that skill increases one percentage point. For example, four years and almost four months is the median tenure for a skill when about 2 percent of people have that skill, but as the amount of competition in that area increases to 10 percent of people, median tenure goes up to about four years and 11 months.

If demand for uncommon skills is high, then we can expect quite low tenure—as well as high salaries for those jobs.

3. Measurable relationship between supply/demand ratio and salaries.

Unlike the larger labor market current trends, our research revealed a direct relationship between supply/demand ratio and salaries. For every 10% change in the supply/demand ratio, the base salaries being offered increased by average of $1,645. 

Measurable relationship between supply/demand ratio and salaries

 

Interestingly, the larger labor market has been defying this basic economic principle for a while.  While we are in one of the tightest labor markets in over two decades, the average wages haven’t increased as one would expect. Productivity was also stagnant.

The latest employment reports show that we now have more open jobs than there are unemployed workers. It is very likely that the average wages are going to increase which will hopefully lure in more participation.  Other medium to long term impacts of the current situation will likely include:

  • more focus on improving productivity

  • more serious consideration for leveraging automation/AI where possible

  • potential serious debate on immigration policy for people with in-demand skills

This brings us to the second part of this analysis where we are introducing a new framework for measuring supply/demand.

The traditional supply/demand models measure “Total Labor Pool”

Let’s start by recalling some Econ 101 basic principles on supply/demand analytics:

The traditional supply/demand models measure

- The demand for labor slopes down as the labor gets more expensive. This demand is generally derived from the eventual demand of the product that this class of labor produces; the productivity of this class of labor; profitability of their product; and availability of substitutes.  

- The supply of labor slopes up as wages increase. “Wages” traditionally covered total monetary comp including benefits, holidays, etc. plus some basic phycological benefits and the “utility” value of work.

- Equilibrium occurs at the point of “market clearing wage”

- There are lots of studies on the impact of skills gap, migration, automation, taxes, and other factors on the movement along the axis and how these factors create a new equilibrium point.

With traditional tools, analysts only had access to data that measured the total supply of labor in a certain class. That is, everyone with a certain skill or who performs a certain function in a geographical area of focus.

Proposed “Availability Based” Supply/Demand Analysis

The major drawback in the traditional approach is that it doesn’t adequately account for how likely it is for this pool of professional to be interested in changing jobs.  Understanding the segment of professionals that is likely to be interested in changing jobs allows us to measure the relative difficulty of attracting a certain class in a certain area.
With technologies like ENGAGE, this analysis is now possible.

 

Instead of the “total supply of workers”, we are really measuring only those that we have a chance of engaging in a job change discussion. This changes the traditional X-axis to measure only professionals who are likely to change jobs in the near future.
The chart below shows the 10 top states based on supply of IT Professionals (total pool) and the percent of technology professionals who ENGAGE predicts to be likely open to new opportunities (real time prediction). For example, although California has the most supply, Texas has higher percent of professionals who are predicted to engage in job change discussion.   

Proposed Availability Based Supply/Demand Analysis

Takeaway for Employers and Analysts

Companies use strategic workforce planning to forecast current and future staffing needs using a variety of techniques, but the end goal is to limit exposure to surpluses or shortages in labor. Managers need to be able to approximate the level of future demand for the business' goods and services and compare that to the supply of professionals to produce these goods and services.

The accuracy of the analysis and forecasting can be significantly improved by moving from measuring total supply of professionals to leveraging new technologies that can measure truly available professionals (those likely to change jobs).  

In Econ 102 terms, this approach to the analysis is analogous to moving from simply measuring nominal wages or GDP to the significantly more meaningful measure of real wages or GDP.
 

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Are you interested in learning more about how ENGAGE uses AI to help with talent mapping, proactive recruiting, and labor market analysis?

Contact us at hello@engagetalent.com or (855) 435-6566.

 

Tags: News ENGAGE Research Artificial Intelligence recruiting predictive
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