Software Leviathans strain on the programming job market.

Why I’m not worried about H1B, outsourcing or remote work.

Software leviathans dominate the market due to diseconomies of scale. Leviathans are a bit of a self-fulfilling prophesy. You create a thing like Facebook and it starts to take off. Then you find a way to make money off of it. Then due to marginal costs you end up hiring 10,000 engineers to maximize the value of ads on facebook. 

Software that is valuable gets bigger over time. Due to diseconomies of scale it gets even more expensive to maintain. But counteracting these diseconomies of scale are the natural monopolies like Facebook, which solve the problem by pouring more money into it. Hiring the absolute best programmers to fight the information problem back a little longer. 

Leviathans drive demand for the best programmers. And importantly that demand is far above the number of engineers at the peak of skill. This demand has so far created a bifurcation in the job market with FAANG salaries and restricted stock options surging ahead of pay in the rest of the market. The bifurcation has persisted over the last decade despite FAANG opening offices in India and China, H1B visas and the surge in new Computer Science majors entering the market. 

Now in 2020 the big shock is remote work. We just spent the last year working remotely. Lots of accountants are thinking to themselves, “Why are we paying San Fransisco salaries when we could be paying less than half that anywhere else on the planet?” 

We are moving towards a ‘Remote first’ programming market. Where anyone in the correct timezones can fill any role at a top tier company. This should reduce compensation a bit since the cost of real estate in a few cities has been a major driver of FAANG salaries. But it won’t change the fundamental problem which is diseconomies of scale in software. FAANG and other big tech companies will still pay higher compensation than everyone else. The terms will just be a little different, instead of making 500k in Seattle senior engineers will make $200k anywhere they want to live. 

You might think this is a bad thing for software engineers since we will be getting paid less overall. But that misses two important factors the first being land costs. Not everyone wants to live in San Fransisco, San Jose, Seattle and New York. I for one would never have moved to Seattle if I wasn’t promised nearly double what I was making in Denver at the time. 

The second factor is that remote work is not going to be a software engineer only change. Most other white collar desk jobs can also be done remotely. Which means they will also see a drop in compensation. Lawyers don’t really need to do anything in person, they certainly managed to keep working through the pandemic. Why hire an expensive law firm in Atlanta when you can get the same remote lawyer based in Montana for one fifth of the price? 

Remote work reduces the locality of labor. This will result in labor prices globalizing. Programmers salaries will become more consistent across the globe. At the same time diseconomies of scale and the sheer demand for software will act to keep programming demand high. 

But other industries that do not have the same level of demand as software will also see their compensation globalize. This will most easily be seen in a reduction in the price of white collar services globally. 

The future looks extremely deflationary to me. The prices of white collar labor will drop due to remote work and the price of manual labor will drop due to automation. The people who come out on top will be white collar workers who live in low cost countries and the owners of capital. 

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