Rising IT talent costs shadow Sweden’s skills shortage and market reforms

Increased competition for IT talent in Sweden has produced a sharp rise in salaries as small-to-medium sized enterprises (SMEs) battle against more financially robust corporations to recruit IT professionals.  

The skill shortages in Sweden, coupled with a more competitive market for talent, has pushed salaries for IT professionals with three years' working experience up by 12% to €4,000 per month since 2022. The most serious skills shortages in growth companies remains within three key areas - engineering, IT and data. 

A tech industry survey conducted by Ada Digital in June found that companies offering salaries lower than €4,000 were no longer regarded by IT professionals as competitive enough to even attract basic junior-level IT talent.  

The Stockholm-based recruiter’s Reveal re-define survey noted that IT professionals with five and more years of experience are rejecting job offers where salaries are less than €6,000 per month.  

The main collateral damage for Sweden’s SMEs is that the contracting talent pool, influenced by the continuing shortages of skills in key areas across the IT spectrum, will likely propel their payroll costs upwards in 2024 and 2025 as enterprises allocate more of their budgets to hiring IT professionals in competition with larger organisations. 

Experienced IT staff with work records of eleven years and over can expected to earn, on average, at least €5,300 to €6,200 a month in Sweden, said Sara Scheef, Ada Digital’s CEO. 

"The higher salaries for IT talent reflect a combination of experiential value addition, the current shortages of skills in the marketplace and any inflationary effects on salary expectations," Scheef said.  

SMEs struggling to attract high-calibre talent are resorting to other methods to hire IT professionals, said Scheef, including offering longer holidays and more flexible working hours.  

Weakened growth

The upward trajectory in salary expectations from IT professionals is taking place against a backdrop of weakened growth within Sweden’s economy generally. In an economy that is in the midst of a technical recession, Sweden’s employment rate stood at almost 8% in August. The unemployment register showed 225,000 males and 228,000 females of working age without full- or part-time jobs.    

Sweden’s gross domestic product (GDP) contracted 0.3% in the second quarter of 2024 compared to the second quarter of 2023. The full-year GDP growth rate is not expected to surpass 1% in 2024.  

Large companies and SMEs, despite the current weak business activity, are bracing for higher payroll costs for IT talent once projected growth returns to the Swedish economy in 2025. 

Reforms in the 2025 budget will lower income taxes and incentivise both IT talent and companies to come work and to invest in Sweden

The payroll concerns of employers are based on the potential impact of the government’s budget plan for 2025 launched on 19 September. The plan is tailored to accelerate growth and reinvigorate a sluggish economy through niche capital investment projects, including reforms to elevate Sweden’s attractiveness for foreign IT talent.   

It incorporates spending amounting to €5.3bn which will be directed at new reforms spanning tax reductions for skilled workers to specific projects to attract IT talent to Sweden.  

Moreover, the reforms aim to upskill immigrants and help them find jobs in an improving labour market. In the area of taxation, foreign IT professionals will be offered lower taxes on incomes as well as the opportunity to open tax-free investment savings accounts (ISAs). 

The brighter economic outlook forecast in 2025 will generate increased capital investments by public and private players, said Elisabeth Svantesson, Sweden’s finance minister.  

The recovery in the labour market, expected to begin in January 2025, will stimulate demand for skills across IT and engineering in particular, the minister added.   

"Our focus is on measures to build Sweden stronger economically and raise investment levels going forward. Reforms in the 2025 budget will lower income taxes and incentivise both IT talent and companies to come work and to invest in Sweden," said Svantesson.  

The Swedish government’s drive to attract top-tier foreign IT talent will include significant reforms to the country’s existing work permit system. Compared to the corresponding period in 2023, Sweden saw a 20% drop in the number of highly qualified IT professionals approved for work permits during the period January to May 2024. 

Within the area of IT engineers, system developers and test leaders, – the professions with the highest total of work permit holders – the number of approvals granted for first-time applicants dropped by 39% from 1,876 to 1,137 in January to May, while approvals for work permit extensions declined by 26% from 3,636 to 2,661.  

Labour market reform

The roadmap to strengthen Sweden’s capacity to attract top IT talent is embedded in the government’s labour market reform plan bolted to the 2025 budget. The plan will require Sweden to enact new legislation, scheduled to take effect from 1 January 2025, to implement the EU’s Blue Card Directive. 

In an initiative directed at reforming how Sweden attracts international talent, the government has appointed a special investigator to evaluate existing immigration laws around family reunification. The evaluation, which is linked to the government’s proposal to re-focus immigration on highly educated and skilled professionals, is expected to be presented to the government in August 2025. 

Overall, the proposed legislative changes will likely result in a major shift where more foreign IT talent professionals choose the EU Blue Card instead of the traditional work permit route to pursue employment opportunities in Sweden, said Martina Ogenhammar Conti, the head of immigration and global employer services at financial consultants Deloitte Sverige.  

"The new legislative proposals for EU Blue Card holders will, among other things, allow for greater freedom of movement. Having a more flexible work permit will profit both Sweden as well as the EU generally," Conti said.  

In a pre-budget action in June, aimed at expanding the labour pool within the semi-skilled domain, the government launched an initiative to raise the monthly salary threshold, or national minimum wage, for foreign workers to €2,510. The updated threshold applied to new work permit applicants and renewals from 24 June 2024, with future annual adjustments based on median salary figures.

By comparison with the monthly salary threshold in October 2023, which stood at €1,146, the upward adjustment is dramatic. Sweden plans to further increase the monthly salary threshold for foreign workers to €3,200 in June 2025, a move that will correspond to a 120% elevation on the October 2023 level and potentially add impetus to widening the labour pool while helping to increase the pool of IT skills available to employers.