IT employment cycles hard to pin down

IT employment may be cyclical but do the cycles have any consistency? Danny Bradbury finds out what moves the jobs market.

If you look hard enough, you can see cycles in everything. Take the Magicicada septendecim, for example, a cicada with the longest life cycle of any insect. Every 17 years, it emerges from incubation underground, enjoys a randy adult life for a few weeks and then dies.

In this way, the cicada has something in common with IT: many believe the employment of IT staff also moves in cycles. Unfortunately, no one can agree on how long the cycles are - or how to predict their ebb and flow.

David Paul, commercial manager of recruitment consultancy Capita IT Resourcing, believes in the five-year cycle: "What you see is three years' growth and then two years where it flattens or drops off, and then starts to pick up again."

Not so, says Jeff Brooks, a recruitment expert who sits on the IT and telecoms committee of the Recruitment and Employment Confederation: "I see ten-year cycles, I don't necessarily see the five-year cycle," he warns, linking IT employment to the general economic pendulum, which has swung into recession twice since he entered the IT sector in 1984.

There are three broad categories of factors that affect an employment cycle, especially in a volatile industry like IT: technical, legislative and business-specific. The most significant technological development in recent times was the commercial internet, which supercharged what would probably have been a normal upswing in the late 1990s. Then another technical anomaly - the Y2K problem - sent the employment market into overdrive and bought lots of older COBOL programmers out of retirement.

Legislatively, the IT industry was hit by the IR35 tax regulations which came into effect in 2000. They imposed what many consultants felt were punitive charges on self-employed workers, causing many to swear they'd either leave the country or become permanent employees. More recently, regulations such as Sarbanes-Oxley and Basel II are generating IT projects to support an increased focus on compliance.

But it is the third category - sector-specific developments - that can really confound industry economists. Take the public sector, for example. While other sectors languished in the post-Y2K employment slump, the government was sucking up all the IT staff it could find.

Alan Rommell, head of the government division at recruitment firm Parity, says: "You've got several billion pounds worth of projects going on under the National Programme for IT." The artificial stimulus caused by this project, designed to revolutionise the health service between 2002 and 2010, shows no signs of slowing down. IT job site CWJobs just reported a 49 per cent rise in public sector recruitment of permanent IT staff between the second quarter of 2003 and 2004, and a 29 per cent rise in contractor jobs for the same period.

The mixture of legislative and sector-specific elements - such as when the finance community imposes regulations like Basel II - can help sectors buck industry trends, too. The finance sector has performed even better than the public sector, with a 40 per cent growth rate for permanent IT staff and an 84 per cent growth for contractors from 2003 to 2004.

Finance companies are starting to invest in major projects again after the big freeze, says Brooks: "The engine of growth for IT contractors has always been the finance community. When they're moving the industry is looking good and when they stop, the other sectors can't take up the slack."

Talking of slack, the manufacturing sector was the only sector to show shrinkage year-on-year, losing 32 per cent of its permanent recruitment of IT staff and 23 per cent of its contractor jobs, according to CWJobs. So while IT employment in one sector is on the up and up, it's shrinking dramatically in another. So much for consistent employment cycles.

As if all of these influencing factors weren't enough to throw recruitment cycles out of whack, 9/11 turned the industry upside down. It put IT projects on hold for months in an already depressed economy, while companies waited for conditions to settle. Spring's Pye says: "You can't plan for that. That's always on the agenda."

How are companies planning their recruitment around these uncertain conditions?

"I don't think they have done," Pye says. "They've just gone with the flow." Long-term strategies such as succession planning (grooming staff to take over when others leave) and resource pooling (putting IT specialists in a team that any department can draw on) are more difficult. They often need to be supported by workforce optimisation tools which are notoriously expensive to implement properly. Instead, individual IT contractors have been a quick fix. They can be easily used and dispensed with as a variable cost, making things more flexible for employers.