When a shrinking talent pool and rising labor costs collide

| By: Jen Locklear

As the talent market shrinks and labor costs rise, many IT service providers (TSPs) are struggling to attract, hire, and retain top talent. Several factors are contributing to this current state of the IT industry, including the continued talk of recession and past poor hiring practices that have led to massive layoffs at large tech companies.

These factors aren’t in your control, but solving the hiring challenge is essential because your ability to solve customers’ technical problems starts and stops with the expertise your team can deliver. Read on for insights about the issues affecting the talent pool and labor cost in the IT industry, how we got here, and five strategic ways your organization can overcome hiring hurdles.

Why is the talent pool shrinking?

Increased job specialization

Organizations have more access to complex, automated technology than ever before—especially with the increasing prominence of software-as-a-service (SaaS) solutions. No two solutions are alike, and many companies need people with specialized knowledge and skills to fill roles that leverage these proprietary technologies. Successful candidates need a high level of education and a particular skill set, and finding that combination can be a tall order.

The result is a shortage of qualified candidates for these specialized roles, particularly in science, technology, engineering, and math (STEM). Take cybersecurity, for example; there are far more open cybersecurity roles than qualified talent, a reality that is exacerbated by the constant evolution of this high-stakes field.

An aging workforce

Experts in the IT field eventually retire, leaving openings at their organizations. But with fewer people breaking into IT than retiring, there isn’t enough skilled talent to fill those gaps, leaving companies unequipped to stay competitive consistently.

A large part of this issue can be attributed to a general lack of awareness of the lucrative and exciting IT career avenues. Even when people are interested in this field, they may not apply because they don’t have the required education, and there is minimal funding to support learning opportunities.

What’s causing rising labor costs?

Panic hires

When the talent pool for IT professionals with specialized skills started to shrink, it made many companies nervous. Large companies started hiring without a hiring strategy and at premium wages—two to three times the regular salary—to snatch up talent before it was “gone.” This continued to shrink the talent pool, and it inflated the costs of hiring, effectively blocking smaller businesses from competing for qualified talent. 

Unfortunately, this strategy has proven to be unsustainable, and companies such as Amazon, Alphabet, Microsoft, and many more have announced massive layoffs this year. Many experts believe that these poor hiring strategies directly led to the huge number of layoffs. However, the damage has been done. Departing employees will likely demand future salaries that equal or surpass their previous salaries, which drives up the overall market price for talent in an already small pool of specialized IT talent.


Because of inflation, job candidates are seeking higher wages to accommodate cost-of-living increases and the dollar’s diminishing purchasing power. To offset inflation, some employees are joining unions to secure higher wages and extra protections such as more robust benefits and guaranteed severance packages.

Ultimately, higher labor costs may mean raising your prices, which may affect customer satisfaction and retention.


5 ways to thrive in an employee’s market

With these factors in mind, let’s look at five ways you can strategically navigate these challenging economic circumstances.

1. Expand your hiring pool

Diversity, equity, and inclusion (DE&I) is a massive topic that’s changing hiring conversations. Not only is focusing on DE&I initiatives a great way to build a more welcoming workplace. It also allows you to cast a wider hiring net and build a more robust talent pipeline.

Start your search for a more diverse array of candidates by sourcing talent from non-traditional education and training programs. This can help you keep a keen eye out for underrepresented groups such as women, minorities, and disabled people. If your organization offers remote work options, you can also benefit from attracting more diverse applicants.

2. Invest in internal training programs

When your employees feel fulfilled with their work, you deepen their connection to your organization. By continually offering employees opportunities to learn new skills and keep on top of industry trends, it’s more likely they will stay with your organization and keep their specialized skills in the building.

Our partnership with CompTIA is a great example of a powerful program in action. As part of the Biden Administration’s recent Cybersecurity Apprenticeship Sprint, new IT professionals with CompTIA certifications can be partnered with IT businesses looking to hire registered apprenticeships.

3. Leverage automation opportunities

Recent advancements in workplace automation technology can help you minimize the need for specialized talent by taking over repetitive, menial, and time-consuming tasks. In IT and cybersecurity, automation can be particularly vital for quickly handling time-consuming tasks such as patching, disaster recovery, and threat detection.

Of course, automation is only meant to relieve some of the pressures of IT labor shortages. Automated systems can save time and money, but they can only perform the tasks they’re designed for. Skilled talent is always needed to oversee these systems, leverage industry knowledge, and collaboratively solve emerging IT industry challenges.

4. Improve employee utilization

Employee utilization is the process of looking at employee hours and comparing the amount of time they spend on the billable tasks that drive your business against the time they spend on more administrative tasks.

If your staff-wide utilization is ineffective, there’s a good chance your employees may be feeling burned out by repetitive tasks that don’t engage their core skills and empower their learning. This may leave your employees feeling like they need to leave for greener pastures; after all, it’s an employee’s market, so your departures won’t have a difficult time finding another role.

By auditing your internal systems and processes, you can determine which factors are impacting organization-wide utilization. You’ll get the information you need to implement measures that can boost employee productivity and morale. To calculate organizational and employee-specific billable and total hours, try a tool that makes it easy to manage organizational time usage and projects.

5. Outsource to a global talent pool

Today’s workforce is globalized and hyper-connected via the internet. This gives you more options for harnessing both experienced and emerging talent.  Often beneficial tax terms are available, and there are not accompanying domestic hiring costs such as 401k contributions and benefits.

MSPs that globally outsource with tools such as ConnectWise Incident Response Services™ get access to a dedicated team of IT technicians with worldwide coverage. By expanding your reach, you can more swiftly and dynamically handle tasks—such as support tickets, patching, and backup management—at a faster pace than with fully domestic teams.

Find more IT talent for less

ConnectWise Integrated Services connects your organization to a dedicated MSP help desk staffed by a global, on-demand task force of IT experts. We can oversee your support channels and tackle your labor-intensive networking, technical, and cybersecurity challenges as they emerge—all to help you curb high labor costs without sacrificing access to qualified IT talent.

Read more about how to overcome the IT talent shortage.