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BusinessJuly 22, 2021

Why huge salaries are a bandaid solution to New Zealand’s tech worker shortage

Image: Tina Tiller
Image: Tina Tiller

A dearth of tech workers is forcing companies to pay outrageous wages to attract talent. But it may be hindering New Zealand’s goal of becoming an industry world leader.

If you don’t work in the tech sector, chances are you’ve asked yourself why. It’s evidently never been a better time to be a tech or digital expert. With New Zealand’s borders closed and Covid-19 accelerating an already rampant global digitisation trend, desperate companies are prepared to pay extravagant wages to compete for a small number of candidates.

Nowhere was this increased desirability of tech skills illuminated better than in the report of how an Australian tech company is offering university students $200,000 salaries to lure them across the Tasman.

For the lucky students or graduates who got the jobs, this astronomical package is a great return and recognition for the value of their nascent skills, and ought to be celebrated. The seller’s market means candidates can shop around, motivating New Zealand companies to up their game and pay more to fill their roles.

But the problem, argue some in the tech sector, is that without changing immigration rules or training more New Zealanders, the talent shortage and the resulting inflation is doing more harm than good.

NZTech, a tech sector advocacy group, recently conducted a survey to examine the sentiment of New Zealand businesses. It found that between the 271 firms that responded, there were 2,153 open roles and 66% of those were paying more than twice the medium wage – more than $112,000.

At the same time, however, the survey also found that 41% of firms were unable to take on new work and 29% unable to complete the work already underway and unable to meet client expectations.

According to NZTech CEO Graeme Muller, this has a detrimental impact on New Zealand’s tech development at a time when the government is investing $44m in digital transformation for small businesses.

“Right now, there’s not enough talent to do the work that is currently available. What we’ve got is demand well outstripping supply,” says Muller. “Digitisation is not getting done in government agencies, in DHBs, in large corporations, and for our global firms which are based in New Zealand, they are having to shift their work into their offshore offices.”

And while the increase in salaries is arguably a well-deserved outcome for highly skilled New Zealanders, Muller says the cost in many cases is being passed onto the client, who is then less willing to commission the work.

It’s similar to the argument that understaffed restaurants make about paying New Zealanders better wages in order to attract them into the industry. Such pay hikes would increase the cost of meals, they say, and the patron would then be dissuaded from dining out. Whether or not this would actually happen en masse is hard to say. The key difference with the tech sector is that much of the work is perceived to be critical to New Zealand’s digital infrastructure and productivity, and puts us at an extreme disadvantage if delayed.

According to Gina Hills, CFO of Orion Health – a company that has seen huge growth in the past year – the tech worker shortage is creating an aggressive poaching cycle, whereby a small number of experts are simply moving around from company to company, rather than the industry growing as a whole. The demand for digital work is pushing the larger companies that have offshore offices to contract the work to overseas employees, therefore depriving New Zealand of valuable productivity and tax revenue. Orion Health is looking to hire more than 150 new software developers and engineers, and Hills would like these to be employed in New Zealand. But she says the shortage may mean they will need to be employed in overseas offices.

As for the smaller companies that don’t have an overseas presence, the worker shortage means they can’t accept work and may be priced out of the market.

“It’s a time when we could really put New Zealand out there. It’s a time when tech is booming. And it’s a real shame that it’s stifled by the lack of resources,” Hills says. “Our next big company may never get a chance to properly get started. I really feel for small startups.”

Orion Health CFO Gina Hills (Photo: Supplied)

So where exactly is the shortage coming from? At face value it appears that the border restrictions are the main culprit. According to NZTech’s Muller, between 4,000 and 5,000 tech professionals immigrated to New Zealand in the five years leading up to 2020. Covid-19 has all but cut off that flow. To bring in a worker from overseas now, companies can apply for the ‘other critical worker’ visa pathway, which requires them to pay the fee and explain why they can’t hire a local. However, Muller says very few applications have been successful and the overburdened MIQ system makes it very hard for workers to bring their families with them. The immigration criteria may in fact be influencing the wage inflation: as of 17 July the income criteria for a critical worker moved up to $112K– or twice the median New Zealand salary.

“In most cases the only option for the employer is to try to prove the individual has unique experience or technical/specialist skills that are not readily obtainable in New Zealand,” says Muller. However, this assessment is largely subjective and the outcome can be inconsistent. According to the results of the recent TechNZ survey, sometimes Immigration NZ accepts an application on the basis that it involves technical skills that are not readily obtainable in New Zealand, whereas in another application the exact same role is denied.

NZTech CEO Graeme Muller (Photo: Supplied)

In such cases, Muller says Immigration NZ appear to be sending a standard response: “the information provided with your expression of interest does not demonstrate that your employee has unique experience and technical or specialist skills that are not readily obtainable in New Zealand.

However, all this doesn’t explain why there aren’t enough New Zealand workers to fill the roles. According to Muller, this has to do with a much more complex fault within our education system which existed before Covid. “We’ve done quite a bit of research as part of the Industry Transformation Plan, which looks at the full pipeline,” Muller says. “We looked at what we can do in a primary schools, secondary schools, universities, and then what’s happening in the sector itself.

“We found there were problems at each point in the pipeline. There was a lack of positive perception about these roles, and a declining number of students interested in them, and a declining number of them doing degrees and coming out the other side.”

A collaboration between the industry and the government, the transformation plan is aiming to fix the problems in the pipeline. Muller says it’s not about relying on heavy immigration (once the borders reopen), nor is it about just training more university students or up-skilling current tech staff. Rather, it’s a combination of all three.

“It’s about changing the courses to micro credentials or earn-while-you-learn courses, and creating more connection between industries and jobs and the education system; looking for new cohorts to come through, providing apprenticeships, providing active programmes to support internships. And then going back [to the schools] and raising the awareness with decent, targeted marketing, particularly to cohorts like Māori and Pasifika women.”

Perhaps most importantly, he says it’s about raising the awareness of the value of these jobs, and the industry as a whole, which is poised to grow from $9.4b in exports in 2019 to $30b in 2030.

Greg Denton, the founder of tech startup recruitment platform Matchstiq, agrees the tech conversation in New Zealand has a long way to progress. Having returned from working in the UK and the US, he noticed that New Zealanders’ awareness of tech jobs as viable careers was far behind other countries, which is why he started Matchstiq in the first place.

“There isn’t a real culture around startups or tech as the place most young people are thinking about when they’re leaving high school or coming out of university. So I think there’s a real visibility challenge of what those career opportunities and pathways look like.

“That’s part of the work we’re doing with Matchstiq – enabling people to learn from other people, and find out what it’s really like working in this industry and how they got into it, and why they love it, the different places it can lead so that people can actually start to get inspired and excited about it.”

As a recruitment hub, Matchstiq is seeing intense competition for tech workers, especially lead engineers – one of the most in demand roles. While Denton acknowledges this can be challenging for startups, especially when you throw in the competition from large corporations, he says it’s leading to more creative packages, such as offering new employees shares or part-ownership of the company.

Lead engineers and AI technicians are some of the most in-demand experts (Photo: Getty Images)

While the tech shortage is very real, especially in smaller companies, Denton says the opportunity to adapt and grow is still available, and there’s a lot to be gained from companies working collaboratively with each other and the government to find a solution.

“I hate just seeing everyone blaming everyone else for why things are a certain way in New Zealand. There’s so many different little organisations doing great things. Collectively, we can all come together a bit more and really take the opportunity by just working together.”

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