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With little sign of a recovery in the economy, only 25% of firms are willing to hire contract IT staff, compared to nearly 50% a year ago, a survey of 120 employers by recruitment company Elan has revealed.
The trend could mark the beginning of a longer-term shift by businesses towards employing permanent rather than freelance staff, recruitment specialists believe.
Over the next year, 70% of businesses plan to recruit more permanent IT staff but there will be few new openings for contractors.
"There is a real emphasis on cost cutting. A lot of projects have been shelved or frozen. Companies have been asking how they can make cost savings quickly. The obvious answer is by cutting contractors," said Kate McClorey, director at Elan.
At the same time, a growing proportion of contractors are seeking permanent positions, with 76% now having seriously considered permanent work, compared to only 28% a year ago.
Those that remain self-employed can expect shorter contracts - on average three to six months - which is a far cry from the open-ended contracts of the late 1990s.
A significant proportion of contractors said they are now more poorly treated by employers than they were in the past, and 20% said they are having to work for less money.
Prospects for recovery in the jobs market vary from region to region. Employers in the North of England are most optimistic, with 33% expecting to recruit more permanent staff over the next 12 months. Scottish employers are the most pessimistic, with only 15% expecting to recruit permanent staff.
When the recovery comes, contract staff with security, project management and .net skills are likely to be most in demand. Employers in the Midlands are expected to be offering the most freelance jobs, Elan predicted.