I’m keeping my eyes on the tech job market, and what I’m seeing isn’t just a normal economic cycle; it’s a perfect storm that’s fundamentally reshaping the software development industry.

Let me walk you through what’s happening behind the headlines, because this affects every tech professional I know.

The COVID Overhiring Hangover

Remember running home after seeing the COVID-19 infection rate curve reach for the stars? Shortly after companies told their employees to work from home, they went into panic mode, hiring developers rapidly to build digital experiences to replace in-person interactions. It made sense; we needed remote work tools, e-commerce platforms, and digital services to keep businesses alive.

But here’s where it went sideways. Companies didn’t just hire for immediate needs; they hired like they were preparing for a permanent digital-first world. And they hired people who might not have been the best fit.

Now we’re still seeing the fallout. Those same companies realized they overestimated their long-term digital needs, and they’re stuck with teams that aren’t as productive as they hoped. It’s not the developers’ fault; it’s the result of panic hiring during unprecedented times executed by overzealous leadership.

The Tax Law That Nobody Talked About

This is where it got “fun”. The 2017 Tax Cuts and Jobs Act (TCJA) made a change that was quietly devastating to investment in software development.

Before 2022, companies could immediately deduct their R&D expenses, including developer salaries and software development costs. Then they had to capitalize and amortize these expenses over 5 years for domestic work or 15 years for foreign work.

Think about what this meant for a moment. A company that spent $1 million on software development in a given year couldn’t write off that expense until 2030. That was a massive cash flow problem that made hiring developers much more expensive in the short term.

This tax change created a perverse incentive to offshore development work. Why? Domestic R&D was amortized over 5 years, whereas foreign R&D was stretched over 15 years. Companies were being told, “If you want to develop software in America, you’ll pay more taxes upfront. If you send it overseas, you can spread the pain out longer.” It was a tax policy that was actively pushing jobs offshore while claiming to protect domestic innovation.

Companies responded by cutting costs wherever they could, and unfortunately, that often meant cutting the very people who could help them innovate their way out of this mess.

Luckily, this tax burden has now been lifted. On July 4, 2025, the One Big Beautiful Bill Act (H.R. 1, 119th Congress) became law, immediately restoring the ability for businesses to fully expense domestic R&D costs starting with the 2025 tax year. Small businesses (under $25 million in gross receipts) can retroactively expense domestic R&D costs back to 2022. This change effectively reverses the TCJA’s R&D amortization requirements and should significantly improve the hiring environment for software developers.

However, the damage is done, and recovery will take time.

The AI Waiting Game

Here’s what’s happening that’s impacting the software development industry: Companies are delaying hiring as they await the impact of generative AI on software development.

They’re betting AI tools will boost team productivity, removing the need to grow headcount.

Here’s the reality: AI isn’t replacing developers but changing what they need to know. Those who thrive are the ones who judiciously integrate AI tools into their workflows.

Companies laying off staff now are making a mistake by losing institutional knowledge and experience when they need it most for effective AI implementation.

The Uncomfortable Truth About Cost Reduction

I’m going to say something that might sound conspiratorial, but hear me out. Some business leaders believe software development has become too expensive and use this to justify cost cuts.

Think about it: COVID normalized overhiring, the tax law increased R&D costs, and AI offers a narrative of “doing more with less.” It’s a cover for cutting software development expenses.

But here’s what they’re missing: cutting development costs now leads to slower innovation, less competitiveness, and lower long-term profits. This short-term thinking will hurt them in the future. Expect thousands of startups to compete fiercely with Big Tech incumbents like Microsoft, Google, and Facebook. Good luck facing the storm…

What This Means for Developers

If you’re a developer reading this, you’re likely feeling anxious. I understand, we’re facing uncertainty. But here’s what I’ve learned from these cycles:

  • Versatility and adaptability are your superpowers. Being able to work across technologies and understand their connection provides a unique perspective often missed by specialists.
  • Continuous learning isn’t optional. The tech landscape evolves rapidly, and staying current is your best defense.

The Path Forward

I’m not going to sugarcoat this: the next few years will be challenging for many developers. But here’s what gives me hope:

  • Companies that cut too deeply will later need more talent, not less.
  • The AI revolution will create new opportunities for developers who can harness its power.
  • Economic cycles turn, increasing demand for skilled developers.

What You Can Do Right Now

  • Build your AI skills. Learn how to use generative AI tools.
  • Network aggressively. The people you know will be more critical than ever.
  • Consider alternative paths. Freelancing, consulting, or starting your own business may be more viable than traditional jobs.
  • Stay visible. Build your personal brand and showcase your skills.

The Bottom Line

What we’re seeing isn’t just a temporary downturn; it’s a fundamental shift in how companies think about software development and IT talent. COVID created the conditions, tax law changes made it more expensive, and AI provides the narrative for cost-cutting.

Developers who adapt to this new reality, work effectively with AI tools, and demonstrate clear value will not just survive but thrive. Generative AI will also create new, unimagined jobs.

The tech industry has always been about disruption and adaptation, and this is just the latest chapter. The question isn’t if you’ll be affected by these changes, but how you’ll respond. 💪🏻

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