What the U.S. Economic Downturn Means for U.S. Firms Hiring in LatAm

I still remember the pre-pandemic days when sending a well-crafted job pitch to a senior software engineer from my home country of Peru, or any other country in Latin America, meant getting an immediate response. 

Paying in U.S. Dollars and offering a senior engineer in LatAm the opportunity to have a direct employment opportunity with a U.S. company meant the candidate rushed to apply and interview as soon as possible. 

Things have really changed for all of us monitoring the LatAm talent market over the last two years. 

We all know the pandemic was the primary catalyst, forcing thousands of companies to go remote. But, besides Covid, the dramatic increase in salaries was spurred by a variety of things that kept feeding the market’s competitiveness until just a few months ago. 

VC investment was frothy. Startups secured rounds of funds with large visions and lots to build. The economy was pumping. Stocks were keeping their upward momentum. New crypto funds one-upped each other, seeing who could flex the highest investment rounds. Inflation rates were small news bits compared to the headlines dedicated to the Depp-Heard “saga”. An extremely tight talent market meant companies, filled with cash, were jumping over each other to offer senior tech talent in the U.S. and LatAm more and more money. 

Throughout the last twenty-four months, salaries for English-speaking tech talent in LatAm (especially for developers) have increased by 50% to 100%. Based on our research at TECLA, candidates are receiving anywhere from 10-15 offers from recruiters every month. 

Some say weekly. 

Others say they’ve stopped counting altogether. 

North American companies have trampled each other, offering better perks, salary, benefits, and equity to LatAm talent. This drove talent availability in LatAm to an all-time low and attrition rates to an all-time high. 

Companies looking for significant cost savings frequently ask, almost pleading: “When will this stop? Is there an end in sight to the wage increases we are seeing for engineering talent in LatAm?”. 

Fast-forward to today, changes are taking place. We’re still in a tight market for developers and talent at large. But with so many global economic pressures, questions are starting to emerge. 

What’s next? What does the next chapter for the nascent but growing relationship between U.S. tech companies and LatAm tech talent hold, and where do salaries go from here? 

First, let’s look at which global economic pressures (especially those affecting the U.S.) could have an impact. 

Market Forces Affecting the LatAm (and Global) Tech Talent Market 

Public Markets 

The stock market has had its worst semester in over five decades, with the S&P shedding about 21% of its value and the tech-focused NASDAQ faring significantly worse. This has been terrible news for tech companies, and VCs who rely on big IPOs and high valuations to keep their backers happy. 

Result: 🔻🔻🔻Not as many large tech IPOs → Downward pressure on salaries 

VC Funding 

Although reports have surfaced that it is late-stage deal-making that has been most affected and that early-stage companies can still raise money at a decent rate, VC funding has cooled considerably across the board. Investors are also telling their portfolio companies to be leaner than ever and to cut expenses wherever possible. 

Result: 🔻🔻🔻Less funding → Less competition → Downward pressure on salaries 

Tech Layoffs 

Coinbase, Spotify, and even Tesla, have all carried out layoffs and implemented hiring freezes. This results in newly available talent in the U.S., which could mean lower demand for LatAm talent. At the very least, higher supply means that U.S. tech salaries should cool off and that means LatAm tech salaries would follow suit. 

Result: 🔻More talent availability → Downward pressure on salaries

High Inflation 

Historically, high inflation has always meant higher wages. As the cost of living (goods and services) goes up, there is some pressure for companies to also increase salaries at least to meet inflation levels. Although this hasn’t historically always been true, technical profiles tend to have a bit more leverage than non-tech employees. 

Result: ⏫Higher costs of goods and services → Minor upward pressure on salaries *assuming the Fed can control inflation relatively quickly 

War in Ukraine 

Throughout the past months, the conflict in Ukraine has made tech and engineering hiring managers in the U.S. implement a diversification strategy in an attempt to decrease their reliance on Eastern Europe. Many companies have already picked LatAm as a top destination. Many more are still coming. 

Result: ⏫⏫ Impacted Capacity in Eastern Europe → More companies come to LatAm → More competition → Upward pressure on salaries 

Looming Recession 

If the U.S. economy does end up heading into a recession, most consumers and companies will focus on cost savings. How will this affect salaries for developers, designers, and QA testers in LatAm? 

Result: ❓❓❓

Overall, we can see a mix of downward and upward pressure on salaries in Latin America across the board. Perhaps with a tad more emphasis on the “downward”. 

But there’s a significant and unpredictable wildcard regarding the “Looming Recession” that could make LatAm tech salaries not cool off but heat up in a new, more equitable way.

As more and more companies in the U.S. focus on cutting costs because of the economic downturn and decline in the NASDAQ, more of them will be unable to pay exorbitantly high tech and engineering salaries. They will be, more than ever, looking to find ways to procure engineering talent at lower costs

Although this might put some upward pressure on LatAm salaries for senior profiles, stagnant U.S. engineering salaries will mean that there will not be much room (margin) for senior profiles to go up. If salaries go up much more for senior profiles in LatAm, U.S. companies will prefer to hire in the U.S., because historically U.S. and LatAm salaries have always needed to maintain a decent considerable spread (or arbitrage) for LatAm still to be considered a cost-savings strategy for U.S. companies. 

This means there will be more opportunities than ever for mid-level and even junior profiles in LatAm who have the necessary English levels to work for U.S. companies while maintaining a healthy spread of savings for these firms. 

This is where I see the most significant trend in the LatAm tech talent market. Larger, more established companies will be looking to put together teams and will create more opportunities in the middle of the seniority scale in LatAm. They will be potentially ditching traditional agencies, which also add cost through high markups, and looking to recruit their own teams and implement their own operations with personnel that can provide the highest degree of arbitrage. 

2023 and 2024 will be the years we see the highest number of enterprises build operations in Latin America for tech talent, creating the highest level of access we’ve ever seen in the region to work with U.S. companies. There is no doubt that this shift will result in a much more equitable distribution of high-income opportunities, with jobs no longer being limited exclusively to the most senior English-speaking candidates. It will increase the number of people working in the $3,000 to $5,000 per month range. A massive step up compared to what local LatAm companies are on average paying today. 

Pitching opportunities to senior engineers in LatAm and having a high percentage reply eagerly might be a thing of the past, but there’s an upcoming layer of mid-level and junior talent ready to take advantage of these opportunities.

TECLA: connecting the best talent in Latin America with the best tech companies in the world.  We just hit 47,000 developers in our network!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

You May Also Like