Rampant wage growth in the IT sector - Reasons & Consequences

Last year, many people lost their jobs due to the lockdown caused by the epidemic, and unemployment peaked globally. Many developed countries, including the United States and western European countries, were suddenly teeming with unemployed people. Civil aviation, tourism, and entertainment were few notably sectors that were affected. Since every business sector is now dependent on IT (Information technology), the IT and ITEs industries were also poorly affected.

Since March 2021 the situation has changed drastically as the demand for IT professionals has surged. Before March, the professional who received Rs. 1 million as annual remuneration now has 2-3 offers at over Rs. 2 million. Big consulting companies like Deloitte, EY, KPMG, and PwC are ramping up their human resource base. As a result, large Indian IT companies like TCS, Wipro, Infosys are also joining the race with aggressive hiring strategies. According to Indeed.com, a prominent job search company, the demand for IT professionals has increased by 400 percent.

The work visa process for North America and Europe’s major countries has almost come to a standstill since March 2020. These countries offer lakhs of Visas to Indian IT Consultants every year. Businesses are now slowly starting operations, and they urgently need IT professionals. In anticipation of potential risks and in the face of governmental restrictions, companies are recruiting Indian IT Consultants remotely with the help of their technology partners. Earlier these companies would call IT professionals onsite for work, and they had to pay a hefty fee for the same. Getting Indian professionals to work remotely has significantly reduced the overall project cost. Despite paying double or more salaries, company profits have improved due to the remote working arrangements. Companies are in a hurry to get things done and amp up business operations; hence they are making lucrative offers. The availability of multiple offers in the market is also contributing to the rise in demand for IT professionals. Suppose an IT professional got an offer with a 100% hike. When the same IT professional is negotiating with few other companies, he uses the first offer with a 100% hike for further negotiation with other companies that want to hire him. Other companies may be in urgent need and offer additional increments on the offer in hand. The IT professional only stops when they hit the zenith and offers have dried up.

Work from home has become prevalent due to the ongoing pandemic and it is proving to be a boon for IT professionals. They are out of office control and are arbitrarily trying for parallel work opportunities, either a new job or additional work. Many IT professionals are working on projects other than their job. It is unethical and illegal to work for another company when you are a full-time employee of some other company. However, it is challenging to track such activities in work from home scenario. Many companies are concerned about data security and privacy breach and want their employees to resume work from office as soon as possible. Many surveys suggest that most IT professionals prefer to work from home, and many of them will quit their jobs if they are called back to the office.

Professionals may also face many direct and indirect consequences of the pay hike which should be clearly understood. Firstly, our country has a competitive edge as we offer the best quality at a lower rate. Also, presently offered salaries are either equal or more than the wages of European professionals of Spain, Poland, Romania, Lithuania, Ukraine, etc. The result could be the lower outsourced business in the future. In the last decade, we have noticed almost the entire BPO industry shifting to the Philippines. Even big Indian BPOs established their business units in the Philippines and gradually closed or downsized their Indian operations. Indian employees’ unreasonable expectations were one of the critical reasons for the shift of the BPO industry.

The second consequence will be inequality in the economy. Salaries in IT are growing but other sectors are yet to fully recover after the pandemic. This means income inequality in IT and other sectors may increase. Hence the gap will be wider between IT and other sectors like banking, telecom, manufacturing, etc. After earning higher income, people start spending and investing aggressively, which boosts inflation. A similar economic situation was responsible for the 2008 US recession in which the income of a particular class had increased considerably. Due to increased revenue, people started investing recklessly in the real estate sector and availed loans from financial institutions. Even financial institutions created lucrative offers to lure investors. Eventually the system imploded as it became difficult to repay the installment on time.

Technology is evolving every day, and people are keen to learn technologies in demand. New EdTech companies have made learning more accessible and convenient. Many professionals are getting trained and prepared to fill the need at a competitive wage every year. However, it increases the risk for highly paid employees. There have been occasions in the past when IT companies laid off highly paid employees once the critical part of the project was delivered successfully. Even if the low paid employees have learned well, highly paid will be laid off. Usually, IT companies maintain a fair profit margin and try their best to get rid of highly paid human resources. However, once the demand is less, the other companies will not offer the same salary. As a result, unemployment is more likely to rise.

The rate of attrition in IT companies has increased drastically due to the aggressive recruitment drives. Famous IT firm Cognizant is facing the issue of higher attrition. The company’s attrition rate stood at 31 percent in the quarter ended in June. Other major companies like Infosys and TCS are also struggling with higher attrition rates. For increased salaries, IT professionals are leaving jobs quickly. They are not even bothered about fulfilling their duties and completing projects. All the companies are suffering as projects are not being completed on time. The loyalty and credibility of the professionals are becoming questionable. Rising costs and rising wage expectations from professionals could endanger the survival of small IT companies. Small companies have a lower profit margin and a lower amount of work from fixed clientele. Also, human resources are a major investment for IT companies. The sudden surge in costs and increased volatility due to attrition will affect their business growth adversely.

The positive impact of higher income is that it will improve the quality of life of IT professionals. The increased purchasing capacity will boost the economy. Of course, IT professionals are placed in an advantageous situation, and the government can also benefit from higher taxes on rising income. We must be cautious of the long-term repercussions of rampant wage growth in the IT sector. Necessary steps should also be taken to maintain the integrity and credibility of the employees.