How developers getting more expensive is silently killing innovation

It is hardly a big secret that it is hard to find good developers. And that salaries for these developers have steadily been increasing over the past years. Faster than other salaries, as well. This is just how the market works, so what’s the big deal about it?

The big shortage

In our whitepaper about the IT Shortage we give a lot of background on the ever growing shortage of developers and solutions. But let’s focus on just the main issue at hand: the shortage itself. Most people I talk to only experience developer salaries going up and the fact that it is hard to find developers on the labor market. A very interesting number however, is the actual absolute shortage.

Last year the number of software engineering students graduating in the US was 50.000. Universities have been estimated to be able to educate 8 times that amount by 2020, meaning 400.000 software engineering students graduate that year. So far, so good.

The problem becomes apparent when we look at the amount of job openings in the labor market for software engineers. In 2016 the number of job openings was 223.000 in the US. Gartner estimates that this number will grow up to 1.400.000 in 2020. In other words, last year 23% of job openings could be covered by graduate students, in 2020 still only 28% of job openings can be covered by graduate students.

That’s hardly an improvement. In the chart below I have plotted these numbers so you can easily see the problem.

Because the most detailed data was available for the US, I have used that data. However, similar numbers are found in almost every other developed country around the world.

The source of the demand

The increase in demand for software developers can be attributed to growth in many sectors that require software. The biggest growth is in the demand for custom software. In 2011 the world-wide demand for custom software was USD 43 billion. This grew with 33% per year to a whopping USD 136 billion in 2015.

This growth is expected to continue due to globalization forcing ever more companies to distinguish themselves from ever more competitors. One way to do this, is with custom built software that implements their unique business processes.

Below is a chart that shows this growth from 2011 through 2015.

Stagnating innovation

The combination of higher demand versus ever increasing developer salaries is a toxic one. Ultimately it means that only the richest of companies can afford to hire enough developers to keep their competitors at bay.

These front-runners can easily expand their lead, leading to more revenue. This revenue can then be used to pay developers even more, making sure they don’t go to the competitor. Companies that cannot cope with the increases in developer costs, will be sentenced to mere mediocrity.

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