Why is there a recession in IT jobs?

So pretty incredible story came out recently about the IT and software engineering market. Basically, the unemployment rate in IT now, it went from 3.9% in December 2024 to 5.7% this past month. And you compare that to the overall jobless rate in the United States of about 4%, that means you're 50% more likely to be unemployed if you're in IT than if you're not. And there's another scary statistic. The number of software engineering jobs, it actually shrunk in 2023, and that's the first time it's done that after 20 years of straight increases. And for those of you like me that are a bit older, you remember like the early 2010s, Obama and everybody was saying learn to code was the future. And like we were told this was a sure path that everybody could learn to code or learn to get good at tech. And it was a path to the American dream. But now suddenly software is not eating the world like it did before and stuff has changed. So what the heck has happened? What is going on with the IT market? What is the impact on us as small business owners and entrepreneurs? And what does the future look like for tech in general? That's what this video's about. Hi, my name's Michael. If you're new here, I do this channel and I talk about and explain the world of business for people like me who are entrepreneurs and on the path to be entrepreneurs. So been doing it for 30 years, been a CEO, hired hundreds of people, started some companies, shut down some companies, and learned a lot in between. And I use this channel to teach people a lot of the stuff I've learned and share stories from the world of business and translate those into things and lessons we can put in practice. If you wanna get into that kind of stuff, please subscribe. We'd love to have you and see more of the content we're producing. It's— at least I'm having fun making it. So to explain how we got here, let's go back in history a little bit. Computer programming, well, it's always been an in-demand profession. Computers were like a significant source of productivity across everything, right? If you could hire and bring in like tech folks to bring in technology to your company, you could just get a lot more efficient in terms of taking care of your customers. It's always been a great way of building value. And since stamping out more computers every in some factory was easier than making new programmers, which are human beings after all. It was the demand for programmers grew year after year, often exceeding the supply. And it was common for developers to earn 2 to 2.5 times the average wages in the US, well into the 6 figures. It was a great career. And over time, dating all the way back to the 1980s, software developer productivity has grown year by year as well. While there's no good measurement of programming labor productivity, it's arguable that every year people writing programs for computers were getting more done per hour. And this is primarily due to the evolving ecosystem of tools and packages, including resources like the internet. And if the internet frankly existed back when I graduated from college back in the '90s, I might have been a professional programmer rather than a failed programmer. And today is radically different if you're trying to build an application or program a computer versus the 1960s. I mean, heck, back then, like, you bought a big machine from IBM, it took up an entire room, and you had to like use little punch cards with holes in it to try to talk that computer into doing anything. And it's radically even different from 30 years later when I was a young programmer and working in tech, when you had to put everything on little floppy disks. Now you talk to some kid, they— I mean, who grew up in the age of the internet, they don't even know what a floppy disk is. So at the beginning of this video, I talked about how we've been through an almost 20-year boom in the IT market. And believe it or not, what actually started all this was the Great Recession of 2007 and 2008. At that time, for those of you old enough to remember it, unemployment hit nearly 10% by the year 2009. And the government and industry, well, they looked up and they had a problem. We had 73 million young millennials, the second biggest generation in history in the United States, coming into the workforce. And we had a US economy where manufacturing was leaving or at best not growing in terms of producing jobs. And we had a bunch of these young millennials were getting pushed towards college. And ideally we need to figure out a way to employ them when they were leaving with, well, white collar skills and not blue collar skills. And the Great Recession caused a ton of layoffs. So more people were entering the workforce. And so We looked up and we said, as a country, what should we do to ensure gainful, meaningful employment for all of these people? We got a ton of them and suddenly not a lot of jobs for them. So the solution was the learn to code movement. The government led the way, and especially the Obama administration. If you Google that time, you'll find national addresses from President Obama. The world appeared ready for, well, basically transforming our society to a bunch of coders. And in fact, in 2015, the Obama administration reported that there were 600,000 unfilled STEM jobs across the United States. And unlike the typical dirty job, these jobs that were coding and IT jobs, they paid well. They were considered good desk jobs, and parents and everybody in the government would be proud to send their kids off to be a coder somewhere in a cubicle. But let's be real, the United States education system played a part in this as well. It's a big business. There's a lot of money in those institutions, and higher ed snuck in the idea that higher education, i.e., a college degree that you pay a lot of money for, is a core path to the American dream of homeownership, being well off, having a good school district nearby, 2 kids, the white picket fence, the whole thing. I linked an article below about this, about how college has helped insert itself in the idea of the American Dream. But I think as we've seen in the past 15 years, the American Dream has been actually the opposite. And while we were pushing a ton of kids to college, many of those should have gone to trade school and gotten blue-collar jobs in retrospect. So in 2016, the Obama administration proposed an extremely aggressive Computer Science for All initiative. This initiative would invest nearly $4.3 billion in states and schools to expand programming and tech curricula at all levels of education. The initiative would increase the number of computer science graduates from schools of all types, private and public. And part of this plan also was to engage the industry to help create more IT professionals. Business celebrities like Mark Zuckerberg, Bill Gates, and Mark Andreessen supported it. They raised $23 million to something called Code.org, and it might have been actually more money from a lot of these rich people to promote learn-to-code efforts across the United States. Heck, even Ashton Kutcher, Shakira, and will.i.am supported it. And coding was the future, they said, and went out and told everybody, get get into IT, that's how you achieve the American dream. And it went beyond conventional education. Entrepreneurs also started coding boot camps to augment the conventional education system. These intensive programs lasted 3 to 5 months and at the end helped people secure jobs. I did one as well here in San Antonio, and we ran the company for over 10 years. The demand for the graduates for that period of time was enormous, allowing us to place entry-level graduates in jobs relatively quickly. And when we launched our program in 2013, there were only 7 other of these short-term boot camps across the country. And by the time we had to close in 2023, that that number had grown to hundreds across the United States. So all of this pressure from the government, the media, and industry, well, it worked. The number of computer science graduates increased year over year, with more kids choosing college and tech careers. Between 2015 and 2020, the number of computer science graduates from U.S. colleges doubled, growing from 25,000 to 50,000 a year. Then, like many things that have totally changed and gone upside down in our country, the pandemic came. In 2020, and money was pumped into the economy. We saw so much stimulus money come in to try to make sure demand didn't fall off a cliff and people kept their jobs. And that money, well, it went too far. Every company was seemingly pushed to meet the demand from consumers who suddenly had dollars in their pockets ready to spend, and tech job postings went through the roof to respond as companies were basically desperate to hire. Do you have a pulse? Well, many people got hired into all kinds of roles inside of tech, but as I said before, The stimulus worked too well and it went too far. And then like many stories on this channel, when the money stopped, the music stopped, and coding has gone from a surefire path to a high-paying American dream job and become an incredibly tough profession for many to get hired. So what's happened? Well, we talked about how supply has grown, well, just by leaps and bounds by these efforts put forward by the Obama administration, government, and industry. But demand is also shrinking. First, COVID brought the offshoring trend to the mainstream. Suddenly companies started to look overseas first when hiring programmers, and now over 60% of U.S. companies have at least one function offshored, done by, well, non-American workers. For me, my friends around me begin to look at overseas developers first and foremost. They never even considered hiring U.S. talent. It was bizarre to watch. The second thing that's affecting demand is software keeps evolving and getting better. The stuff you can buy off the shelf and deploy inside of your company or, well, on your phone as a consumer, each year it's getting easier to just buy things out of the box and run it. You don't need to go hire a bunch of computer programmers to deploy it. Plus, organizations are learning how painful custom software development is. Seemingly everywhere I when people's custom software projects are broken or frustrating or they're getting fired because of them. A survey recently showed that only 29% of custom software projects are described as a success. That means 71% of them are considered not successful. Look, that's horrible and eventually word gets around that people just are scared of custom software and therefore not hiring as many programmers. Third, organizations, well, they're downsizing and retrenching and flattening. The economy slowed in 2023 and the excitement around some of the novel technologies like virtual reality or blockchain, well, those things went away. Programming job seekers flooded the market in 2023 when layoffs happened at big companies, creating a cascade down where even entry-level jobs were getting dominated by senior-level programmers applying for them. And in 2023, about 200,000 tech workers in the United States were laid off, and that's more than twice the number that happened in 2022 and an order of magnitude more than happened in the last tech recession just after the year 2000. And these layoffs impacted many companies including Amazon, Microsoft, Meta, and Alphabet, who basically dumped a bunch of very highly qualified folks onto the market. And those people went looking for jobs, which puts pressure on the market. And in terms of my world, you had people with 7 years of experience making $140,000 at startups competing for junior roles at local highly established companies. And those jobs might pay $70,000 a year. And why would they take a big pay cut like that? Well, those experienced people with families, they wanted stability and good health insurance. But wait, there's more in terms of the demand for programmers and IT folks going down. AI is coming. Many people are saying that AI has the potential to make programmers obsolete. Are they right? Right? Well, kinda. And the one thing that never stops and never changes about technology is it doesn't stop moving. It's consistently evolving. And look, when I graduated with a computer science degree back in 1997, programming, well, it was just a lot more difficult than it is today. I realized one thing quickly. I didn't have the mind for the details required to be a professional programmer, and it certainly wasn't fun for me to stare at a screen all day. Since then, the tools that are used in the art of programming have gotten better and better. You can go look up entire code snippets online. Or you have tools that basically click a button and the shell of an application comes out. Back in my day, it was impossible to do those things. You had to hope that the local Barnes Noble bookstore had a book that was up to date on what you wanted to know, and then you had to go drop $30 to hopefully get something you could then retype into the computer and hope it would work for you. And all that makes individual programmers just so much more productive than they were just a few decades ago. And so this is how you should think about AI in terms of how it's going to affect technology. So it's a natural progression of tools getting better and making it easier to program and be productive when you're trying to tell a computer what to do as a software engineer. And the thing that was stupid and hard in the early days were punch cards and research and all that stuff. I mean, we didn't even have the internet to look up questions. So AI should be thought about as like a natural next step. People think it's gonna replace programmers and the computers are gonna program themselves. And I actually think it's the opposite. It will actually make more people into computer programmers. And the logic behind this is somewhat simple. With AI, the barrier to being a quote unquote software engineer or programmer, it changes. And look, when I came up learning how to program, you had to go learn like an arcane programming language to be able to, well, speak to your computer. And tell her what you wanted to do. Computer. Ah. Hello, computer. So the people that basically became programmers, they were kind of these high priests that understood the interiors of the computers and understood the language that it spoke. Now with AI, folks like yourself and myself, we can write programs that were more like managing someone, and you can do all that in plain English. And so when that happens, today's programmers will look a lot more like managers and executives than, well, today's coders who understand some specialized language. And more programmers in the end will mean more valuable software. Well, in theory. And we're seeing this trend already. Recently, a thinker around AI, this guy named Alberto Romero, he suggested that the differences between the performance of AI models is much less important than the difference between people's ability to use them well. And you know what that sounds like? The exact way we talk about programmers. There's this idea of 10x programmers who can produce 10 times the amount of output as a normal average programmer. They're just that good at what they do. We're seeing that same thing happen in people's ability to use AI and use it well. And so we're seeing that sophisticated user of AI, like any skilled worker, will produce much more than a novice. So ironically, people have been declaring the demise of the programming profession for decades. If you go back and look at the '80s and '90s, there were tons of magazine articles that talk about how this latest technology was going to make the programmer obsolete. And look, it's been easy for somebody looking at it from a very micro standpoint to think that tooling and infrastructure keeps getting better to the point where we don't need these people anymore to program computers. But what did we get instead? We got more and more programmers and more and more software becoming more and more important in our world year after year. And that trend will absolutely continue. What do you think? Let me know in the comments below.