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Peter Pilgrim :: Java Champion :: Digital Developer Architect

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Contractor Rates Don’t Track With Inflation

30 June 2014 2 comments

5 minutes

1074

Contractor rates have not been tracking inflation in the United Kingdom for the past decade from 2004 to 2014.
I found some information from the IT Jobs Watch site to back this claim.

Source data: IT Jobs Watch site on Java

People complain about contractors being expensive, but we have to take care of our means. We don’t paid on sick days, holidays or attendances to training or conferences. We must handle our own business accounts or delegate that to an umbrella company, add in paying for professional insurances and, if we are truly competent and lucky enough, pensions and life insurance. It all adds up and yet since 2004 contracting rates have actually remained constant relatively.

Inflation Rate

The UK Consumer Price Index (CPI) is the standard way the government looks at the cost of living and despite the economic turmoil is still on the increase over the past years from 2004 to 2014. Contractors have been squeezed too, and so when an investment bank makes a claim that you must cut your rate by 10% and then six month comes back and says we need another 10%, then I find this untenable. Actually it is quite patronising to all of us: digital workers. Why are permanent staff not having their salaries also reduced by the same margins? The bankers have ran off with the all of the money.

I did some quick calculations on the CPI data on inflation rates. I essentially took the average inflation rate per calendar year and graphed it between 2004 and 2014. Here is the graph:


Data Source: Rate Inflation bounds between 2004 to 2014

I calculated the contract rates as if they did track with average inflation rate from 2004 to 2014 with a Google Spreadsheet. Here is the resultant data.

							
	Year	Daily Contract Rate (GBP)					
		350	400	450	500	550	600
1.33%	2004	354.64	405.30	455.96	506.63	557.29	607.95
2.03%	2005	361.82	413.51	465.20	516.88	568.57	620.26
2.33%	2006	370.26	423.16	476.05	528.94	581.84	634.73
2.32%	2007	378.84	432.96	487.08	541.20	595.32	649.44
3.61%	2008	392.51	448.58	504.65	560.73	616.80	672.87
2.15%	2009	400.95	458.23	515.50	572.78	630.06	687.34
3.27%	2010	414.05	473.19	532.34	591.49	650.64	709.79
4.48%	2011	432.61	494.41	556.21	618.01	679.81	741.61
2.83%	2012	444.83	508.38	571.92	635.47	699.02	762.57
2.57%	2013	456.25	521.43	586.60	651.78	716.96	782.14
1.70%	2014	464.00	530.29	596.58	662.86	729.15	795.43

The first column is the average inflation rate for the calendar year. The remaining columns are simple compounds from the starting rate as the header column. For example the left hand cell is essential £354.64 = 1.33 * 350 per day, then you just rinse for the row and reuse the last rate and then repeat.

So even the underpaid Java contractor earning £350 per day in 2004 should actually be now taking home a net gross day rate of £464 per day. As contractors in 2014 this figure should completely astonish us all, because it is more than the this year’s average daily rate of £425 per day according to IT Jobs Watch site.

Stand up for your rights. Don’t give up the fight.

Something is wrong here? IT developers are being underpaid for the value of their work. If we take away the effects of the wider economy that universally causes salary freezes and rates stagnation for other industries and sectors, we still should have seen an increase of contractor rates, but the data is quite catastrophic and clear. It says for the entire decade of 2004 to 2014 we have stopped earning more money. Why is this so? I reckon the reason is that we are pathetic, weak and lazy. The fact is that we don’t respect our digital rights and clearly unless we demand them or have more respect for our profession; and tell other people in our industry that we should be earning more money that this erosion is set to continue for the foreseeable future.

What about banking? Am I safe?

I should also point out permanent salaries have alway gone through a similar run. If you are in the investment banking arena, still, then ask yourself a question, when did you last, as a regular staff member outside of traders, get a cash bonus at the end of the year? Bonuses are now stagnated and if you are fortunate to work in bank, there are paid into your bank account over three to five years. The experience now is certainly not like how it was in the millennium years when you could get up to 40% of your annual salary as a direct bonus for working on the critical Y2K or the Monetary Union of Europe EMU projects.

Oh yes, the average length of permanent job in IT is between two and three years when people get itchy feet and move on the next, granted people tend to be scared to jump ship in times like these of economic stress. Regardless of the retention figure, conceptually, the lines are blurring between contracting and renewing with the same client; and working permanently for a couple of years; and it should be clear that there really is no visible light between the two, we should stand together as one, and demand our digital rights and values of pay for the work we do.

PS: File this one also under #ITMustChange2014.

Addendum : Friday, 4th July 2014

In the original post, I realised that I had not covered the permanent side. The following illustration shows the Salary job trend from IT Job Watch for the period 2004 to 2014:

What do you visually notice immediately from this area chart? The salary bands are more constrained than those of contractors. The second thing that I noticed is that the average salary has barely risen still at the lower than CPI. In fact, the salaries on average has remained safe, risk averse and almost concerns. This is a good for the permanent person, who just does enough and treading the waters of the politics, the office and the role, surviving the restructuring etcetera, etcetera. It’s all very good. According to the data, it appears there is upper limit of developers cracking the £80K mark. That appears to be glass ceiling, which is certainly false for small subset of fortunate City of London investment banking roles, and I suspect, certainly wrong in the time before the economic downturn (2004 to 2008).

In the final analysis, for the prospective clients and disappointingly for the contractor state of the art that there are wild swings between the La creme de la creme and the uncle Bob-a-Job developers in comparison to the permanent chart. Not all contractors are the same, there are those who will undercut and go for the lower contractor rate and that may be acceptable to business, but in the long run, as a client it is worth remembering the old adage, “You get what you pay for”, which is less technical debt usually, better informed architectural decisions and sustainable software that you will be happy with in the future. If a client does continue with the papering over the cracks philosophy, then the eventually the levee will break.

+PP+

2 Comments

  1. This is a very interesting post. Bad news for contractors and unfortunately this is not likely to change.

    Comment by Roberto Cortez — 04 July 2014 @ 5:55 pm

  2. And so the conclusion is this is the end of contracting, because it is not sustainable, as the cost of living is going to increase therefore there is no incentive to take the risk. It also spells doom for permanent people, because the salaries on average are not keeping with the CPI and therefore inflation. My conclusion drawn from the facts here is that we should potentially look for another job other than developing software, because rewards in the long run are not worth the effort.

    Comment by Peter Pilgrim — 04 July 2014 @ 7:05 pm

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