Forrester has just published our forecast for US tech employment and compensation (see “2019 US Tech Talent Market Outlook”). It has some foreboding news for CIOs and for tech vendors: Tech talent will be harder to find and more expensive over the next two years.

The good news is that the supply of tech workers has largely kept up with demand — annual wage growth for tech workers has generally hovered between 2.0% and 2.5% since 2015. But the current data available for 2018 suggests that wage growth is starting to accelerate. This acceleration poses a special threat to CIOs, who could find themselves paying premiums for certain tech roles in high demand.

Here’s a summary of our forecast for the US tech labor market over the next two years:

  • Tech employment growth will slow to 1.7% in 2019 before recovering to 2.4% in 2020. The growth of tech employment, as estimated by the Bureau of Labor Statistics’ (BLS) Occupational Employment Statistics (OES), has grown by rates slightly above 2% over the past two years. We expect that 2019 tech employment growth will slow to 1.7% as economic and political uncertainties prompt businesses to be cautious in expanding their tech workforce. Growth will recover a 2.4% rate in 2020 as recession fears start to retreat. (BLS’s OES data for 2018 will not become available until March or April of 2019, but we have made projections based on other BLS data.)
  • Tech wage growth will accelerate to 3.3% by 2020. Tech wages will rise by 3.1% in 2019 and accelerate to 3.3% in 2020 as employees benefit from a relatively fixed supply of workers in the face of strong demand. Software and hardware companies that need leading-edge talent will face the most pressure and should expect average wage growth closer to 3.8% by 2020.
  • The share of tech workers employed by tech service providers will continue to grow. End user companies employ 59% of all US tech workers. Telecom, cloud platform, consulting, or outsourcing service providers employ about one-third of all tech workers in the US, compared with 8% employed by software and hardware companies. We expect service providers’ share of tech employment to continue to expand over the next two years, with their tech workforce growing at rates of 1.9% in 2019 and 2.7% in 2020, slightly faster than the total tech employment growth.

With this backdrop, CIOs will need to pay attention to their talent strategy over the next two years. The best defense against a tough labor market is increasing the skills of existing workers. It’s cheaper and more reliable than stealing talent from a competitor and ensures that both current and prospective employees see their firm as a place where they can learn and grow.