My regular readers will recall that at the end of last year, I predicted that we had hit the bottom of the IT jobs market.
Since then, the US tech layoffs have continued apace. Layoffs.fyi details that last month there were job losses at Microsoft, PayPal, Salesforce, eBay, YouTube, and Google. In the first 2 weeks of February, we saw further downsizing at Amazon, Grammarly, Okta, DocuSign, Snap and Zoom. So far there have been 35,000 tech layoffs in 2024 compared with over 250,000 across 2023.
So was I wrong? Well, no. I’m still sticking with my call.
Australia vs US Tech Sector
Let’s agree, the tech market in Australia is vastly different from that in US. Firstly, in scale. LinkedIn data* suggests there are 16.3 times more IT professionals in US than in Australia – 8.65M vs 531k. Secondly, in speed of adoption of tech, the US remains at the heart of global technology innovation and remains the first mover in most key areas of tech. Thirdly, the types of organisations that employ tech workers have a different composition in Australia.
Locally, aside from a handful of global players such as Atlassian, Canva, et al, the Australian IT jobs market is dominated by organisations from other sectors that use tech within their businesses (i.e. telco, government, financial services, etc). In the US a far higher proportion of people are employed by pure tech companies. Yes, consultancies and systems integrators occupy a similar slice of the market in both geographies however the proportion of jobs that sit within tech companies in Australia is far smaller than that of the States.
And this is important, as the continued tech job losses in the US are being driven largely by the tech sector.
The Australian Market
The slowdown in the Australian IT jobs market was caused by 3 core factors: overly exuberant hiring in 2022, interest rates increasing the cost of funding, and interest rates and inflation dampening consumer sentiment.
Over the last month, all industry leaders I have spoken with feel the inflation and interest rate genie is slowly being put back in the bottle and with a potential for lower interest rates and a tax cut in the short to medium term, they are confident of consumer sentiment slowly improving across the year. As one noted, “All the economic indicators seem to be pointing in the right direction”. Therefore, I would expect to see CFOs slowly start to loosen their purse strings and we can be cautiously optimistic that we will see a slow and steady increase in local IT job demand as the year progresses.
The US Market and the Impact of AI
The situation is more complex in the US where the tech sector is facing many challenges. They do however have one clear advantage over the Australian Market – AI.
Large swathes of the US tech sector are furiously developing AI tools – either new stand-alone products or integrating AI into their existing product offering. This has created a huge demand for skills such as GenAI.
So with an AI gold rush in full swing, why are there so many job losses? In addition to the factors affecting the local market, the US layoffs have been driven by the need to re-allocate headcount to AI initiatives away from traditional tech. The AFR recently noted that “the latest wave of lay-offs showed companies were reshuffling their resources in order to invest in new areas such as generative AI while also showing shareholders there was a continued focus on cost discipline.” As US tech companies are generally publicly listed and heavily leveraged it was vital to “show to shareholders there was a continued focus on cost discipline”. In other words, if they are going to win the AI tech war whilst maintaining their share price, they are going to have to cut hard in other areas.
AI Job Opportunities in Australia
In Australia, the AI situation is vastly different. Most of the AI in our tech ecosystems will be developed offshore.
To quantify this, I compared the demand for Generative AI in job ads in US vs Australia. On the day I wrote this there were 100 Generative AI roles on Seek out of a total of 9000 IT jobs. On US IT jobs board Dice there were almost 4000 Generative AI roles out of a total of 54000 total jobs. That is a 1% prevalence in Australia vs a 7% prevalence in USA. I’m happy to concede, it’s not the most scientific analysis, but I think it’s a compelling argument that AI is having a far smaller impact on the creation of new tech jobs in Australia.
However, it’s not all bad news. As major tech players rush to realise the benefits of AI, we will see winners and losers across the application space as some legacy players fail to effectively incorporate AI, whilst their competitor’s systems deliver significant gains in efficiency and/or effectiveness which create a competitive advantage for their customers.
Therefore, I expect a period of significant disruption and increased system churn across the ERP, CRM, and Digital space with a commensurate increase in demand locally for AI SMEs who also possess traditional skills in enterprise architecture, project management, integration, implementation, etc.
And as always is the case with new technology, the market will demand skills that have not gestated in Australia yet. For managers, now is the time to invest in training, for team members now is the time to invest some time acquiring AI expertise.
The Year Ahead
My prediction for the year ahead is based on the assumption the world avoids further geo-political catastrophes. With IT job ads numbers currently at the same volume as November and cautiously positive sentiment coming from most of my business network, I’m increasingly confident, we have hit the bottom of the market and we’re in for a solid yet unspectacular year.
*LinkedIn categorised IT professionals in the following category: Technology, Information, and Media. Obviously, media is not relevant to this analysis but other sources of accurate data are limited. Feel free to reach out to me if you have a better source of data.