Inflation and cost of living increases are putting a strain on technology industry workers and reshaping where tech companies are focusing their workforce — including recruiting them in growing tech hubs such as Phoenix — according to a study published by Hired.
While inflation cooled to 3% in June, inflation-adjusted salaries for tech workers saw their largest year-over-year decline since 2018, the study found.
Rising costs have prompted growth in smaller, but growing tech markets, such as Phoenix. The study considered Phoenix as one of the markets where the cost of living is low, being about a third less than in San Francisco, which was used in the report as a baseline.
Smaller markets are on average offering larger salaries when adjusting for cost-of-living expenses. Markets such as Houston, Atlanta, Philadelphia and Phoenix are offering tech workers more than $40,000 in adjusted salary versus San Francisco.
In Phoenix, tech job candidates are offered salaries on average of $140,000, Hired found. Similar candidates in San Francisco would have to be offered $218,000 to have the same spending power relative to the cost of living there. But in fact, candidates in San Francisco are being offered on average salaries of $178,000.
With money going so much further in smaller markets, a combined 40% of employers surveyed said their company either definitely or probably hired in smaller markets to reduce compensation costs.
The average U.S. tech worker, including local and remote positions, still makes $158,000 — more than twice the average knowledge worker, based on data from the U.S. Department of Labor.
An adjusted salary for office-based workers, whose normal salaries average $156,000, translates to $129,000, 9% lower than last year.
Employee compensation expectations remain flat
Despite the decline in the real value of salaries, employee compensation expectations have remained relatively flat since 2021.
"While many workers recognize the salary increases with new roles aren’t what they were in 2022, they know their expenses have risen,” said Josh Brenner, CEO of Hired. “They’re trying to advocate for themselves while not pricing themselves out of contention for a role."
The average salary sought during the second quarter of 2023 was $146,000, down from $147,000 during the first quarter of 2021.
Design, project management and engineering management positions in the U.S. have seen minimal salary increases over the past 18 months, while salaries have declined for developers, software engineers, data analysts and quality assurance positions.
Engineers with specialized skills in artificial intelligence, security, data and machine learning were the most in demand, according to Hired's study.
Experience has also factored into how salaries have been impacted. Through the first half of 2023, positions with 10-15 years of experience reduced salaries by 1.5% while more junior positions decreased by as much as 4.8%.
Hired’s study was based on propriety data and surveys of more than 1,300 tech workers and 200 companies.
