When Sujal Patel considers how much money information-technology workers were earning in the late 1990s, he’s glad he didn’t start Isilon Systems Inc. until January 2001.
HIS SEATTLE COMPANY, which makes data-storage products for large providers of online content, has doubled to 43 employees since August, and Patel may hire another 25 this year. Fortunately, it’s a good time to be recruiting, he said. “The job market is definitely an employer’s market.”
Dark clouds still cover the technology economy, but the silver lining for entrepreneurs may be that the total cost of hiring software engineers and related professionals has been significantly reduced, according to Washington State Employment Security Department numbers. Moreover, the available employees are more experienced than those available a few years back.
“Startups don’t have to hire people with shallow resumés or a lack of rigorous training any more, so in that sense, it’s easier for new companies to recruit these days,” said Roberta Pauer, a labor economist with the Washington State Employment Security Department.
Now is an opportune time to start a new business because software salaries aren’t growing nearly as fast as they were a few years ago, said Doug Sayed, whose company, Applied HR Strategies Inc. of Kirkland, conducts a biannual Seattle All-Technology Salary survey.
Between the spring and fall of 2000, software salaries grew at an annual rate of about 11 percent, according to Sayed’s data. A year later, between spring 2001 and fall 2001, salaries grew only 0.8 percent.
“Salaries were soaring during the bubble,” he said. “Eleven percent may not sound like much, but it is when you compound it and take into consideration that salaries outside of IT grew at about a 5 percent clip.”
Slight upward growth has begun again, according to Sayed’s most recent survey, which showed salaries in the local tech sector grew by 2.3 percent between fall 2001 and spring 2002.
“The worst is probably over, but don’t get too excited,” Sayed said.
Applied HR’s data only tracks base salaries, and does not include bonuses or stock options. “From our perspective, looking only at base salaries then, it seems they haven’t been cut so much as they’ve stopped growing at the pace they once were,” Sayed said.
But total annual compensation in the software sector has seen significant erosion since 1999, labor economist Pauer said.
In 1999, Washington’s 55,200 technology employees made an average of $218,500, including salaries, bonuses and stock options. By last year, the average compensation for Washington’s 67,900 employees dropped to $144,900.
“Investment and hiring during the IT bubble of the late 1990s crashed in late 2000 and early 2001,” Pauer said. “That took some pressure off the labor shortage. In the spring of 2001, the bubble continued to lose air and was followed by a general economic recession, so the tech sector was sort of hit with a double whammy.”
For employers, the downward trend means labor is cheaper and the pool of talent is of a much higher quality than it was just a few years ago, Pauer said.
Isilon’s Patel said the startup hasn’t been burdened with having to come up with extraordinary compensation packages to lure talented programmers.
“There’s a much deeper and larger candidate pool to pick from,” Patel said.
On the other hand, out-of-work software engineers, especially those just out of school or with little experience, are having a tough time finding jobs, Pauer said.
Sayed said it’s difficult to know when conditions will improve for less-skilled IT workers.
“It’s still a somewhat soft market for highly skilled people, and a depressed market for low-level tech workers,” he said. The current IT salary growth rate of 2.3 percent “is just at or a little below inflation, which isn’t really anything to write home about.”
But Susannah Malarkey, executive director of the Technology Alliance, a Seattle-based organization for high-tech companies, sees encouraging news in the fact that salaries grew by 2.3 percent in Sayed’s latest survey.
“It’s a good sign because it shows that IT companies will pay more than they were previously to get quality people,” Malarkey said.
The slowdown in salary growth should be seen as an opportunity, not a problem, she said.
InsertArt(1508108)“During prolonged contractions like the one we’re experiencing now, many people go back to school and hone their skills,” Malarkey said. “We need to do a better job of getting the general population up to par in terms of IT skills. It’s an opportunity for learning institutions to figure out what kind of training is required not just now but for five to 10 years from now.”
Pauer said the current situation may just be what the Puget Sound technology sector needs.
“Now we have real, supportable demand for IT skills and I think that will continue to grow,” Pauer said. “But it won’t grow at the rate it did before. There won’t be a repeat of the irrational boom of the late 1990s.”
Copyright 2002 American City Business Journals Inc.