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Comment by slg | Hacker News Reader

I am a developer, so I am all for higher developer salaries, but your posts shows a common misunderstanding about economics. The value someone creates has nothing to do with their salary. Their salary is dictated by how many people need to hire developers and how many developers exist to fill those jobs or in simple terms, supply and demand. I might create millions of dollars in value with my code, but there might be another developer that will accept $5k less that can still create millions of dollars with their code. Similarly, the job that 95% of us do really isn't that unique. Sure, each development job has its own challenges and there certainly are a handful of 10Xers out there, but the truth is that once you get to the point of "competent developer" and the meaty part of the bell curve, we are all pretty much interchangeable. It then becomes a question of who will do the same work for less.

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Your answer also shows a common misunderstanding about economics, because it takes too narrow a focus.

If there exist jobs that produce $1MM in value but that have a going rate of 200k, then there should be more of those jobs: either the company doing the work should expand, or it should have competitors. This will lead to increased competition to hire, which means higher wages. The increased number of jobs might generate downward pressure on the value produced by those jobs (since the output is now less scarce), and the increase in salary should increase the number of people who want to work in the field (which would dampen the salary increase), but we should ultimately reach some sort of equilibrium. The fact that tech companies bemoan how hard it is to find employees suggests that we aren't at this equilibrium.

To give an analogy, your explanation is akin to when people observe that the price of a good is based on the competitive market, and that the cost to produce merely provides (in most cases) a floor to that price. However, that's only part of the story: in a well functioning market large spreads between cost to produce and price encourages competitors to enter the space, which leads to lower prices. There may be delays, and there may be exceptions, but generally the function of competition is to reduce these spreads. Likewise, we should expect competition to reduce the spreads between job value and job salary, generally by increasing salaries and lowering values.

> either the company doing the work should expand, or it should have competitors.

That's not how technology works. The most evident example is where data feeds data, creating a market without compare. You can't compete with google for map data or AWS for hosting.

> we should ultimately reach some sort of equilibrium

The equilibrium is not based on the metrics you have proposed except in the slightest degree.

Doesn't the fact that people are trying to compete with those services suggest that you can? Bing maps, Apple maps, Azure, Google Cloud Platform, Digital Ocean, Joyent.

I don't think technology is that different. Incumbents have always had advantages. That doesn't totally preclude the possibility of competition. It might be that they compete by providing less value for less cost (eg the maps might not be as good, but they might be good enough for some users), or by servicing users that the incumbent doesn't care about (side note: isn't this what The Innovator's Dilemma is about?). But it's rare that a competitor is so dominant as to totally preclude any possibility of competition. You certainly haven't provided an example of one yet.

> Doesn't the fact that people are trying to compete with those services suggest that you can?

In 20 years, we will see who is competing and who is was just funded with unicorn dreams. I don't consider a single one of those comparable.

> I don't consider a single one of those comparable.

Azure and Google Compute Engine? I'd say those are pretty comparable to AWS.

Spend 25k a month on Azure vs AWS. It's not comparable any more than Sonii branded product are comparable to Sony products. One derives revenue comes from ignorance while the other is the product being copied, badly. GCE is akin to Oracle's "cloud offering" which is simply a different product, but hey they all say "cloud" so they are competing! Market influence isn't as powerful when you can't actually deliver. What's to the left of you at 33.802799, -117.885665 using apple maps? Oh Apple Maps a different market, meaning it's not in the same market. Being apologetic about features is being disingenuous about choices. There aren't that many for people who have specific technical needs and marketing doesn't solve "address those issues" (a scripted phrase from highwinds CDN, which is another terrible service). The leaders will stay that way and there's not a lot that venture capital can do to avoid that, since outliers are absorbed in these winner-take-all markets.

What's to the left of you at 33.802799, -117.885665 using apple maps?

Could you explain your example? I tried this, thinking it might give me something interesting, but I couldn't figure out what you were referring to.

>If there exist jobs that produce $1MM in value but that have a going rate of 200k, then there should be more of those jobs: either the company doing the work should expand, or it should have competitors.

How could you possibly determine how much value your efforts are producing? How much value are you assigning to the risk the founder and investors are taking? Maybe your $200k job is producing $200k in value. Or even less.

>The fact that tech companies bemoan how hard it is to find employees suggests that we aren't at this equilibrium.

Tech companies always pretend it's impossible to find employees. That's not reality, though. That's a political strategy.

> How could you possibly determine how much value your efforts are producing? How much value are you assigning to the risk the founder and investors are taking? Maybe your $200k job is producing $200k in value. Or even less.

I'm not disputing that there's difficulty, and that it might not always be possible (although we can often estimate and assign a confidence level). But the parent comment claimed that even if we did know, value shouldn't pull salaries up: that's what I'm responding to (side note: the parent also implied that we can know what values are, since he acknowledged their use as a floor for salaries).

In college I spent a couple summers doing repair work in the shop of a family friend. I got stuck with a boondoggle repair and when it got into day 2 that I was still working on it, and the manager got pissed off and tried to take over for half an hour before he figured out why it was taking me so long. Then we had a shocking conversation about the fact that while he was paying me $x/hr, I needed to be booking at least $10x/hr in repairs, so I needed to work faster. It seemed so unfair to me until I spent a lot more time working in small companies.

The repairs were a profit center, and the labor I was billing was keeping the utilities turned on, buying replacement tools, consumables, paying for my lunch break, covering rework, a hedge against me injuring myself, paying for the shop van I used to run inventory between stores, paying taxes, business licenses, my manager's salary, the owner's salary, paying for Bob to wander over and consult on a repair I wasn't sure about, paying the interest payments on the loans, and covering the loss leaders that got us repeat customers who needed repairs in the first place. Things like trade-ins and entry level equipment.

At your programming job, every manager above you in the chain, every support team that you use to get your work done are all being paid out of the money billed for you. Yes you may be writing $1M in software a year, but the company wouldn't exist and you wouldn't have any sales without those other people, so all of that overhead gets subtracted from your value. Ironically and possibly painfully, a company can exist for months without a single programmer, but it can't exist long without a management chain.

I don't disagree with any of this. I'm not saying that if an engineer writes software that increases profits by $1MM then they have realized $1MM in value: it's a team sport. But I don't think that prevents us talking at all about the value of the work that is done in a job.

Do you have quarterly goal setting reviews? People generally find that a formal process such as this will answer the questions you pose.

For example, you may discover that someone else got that promotion that you were eyeing, because they provided 15x value compared to you - 7 patents, 3 products architected that opened up new areas for growth, etc.

"How much value are you assigning to the risk the founder and investors are taking?"

Absolutely 0, because they're not the ones doing the work.

Really? You think people should risk their money without compensation? Where can I find such people?

And what makes showing up at the office and typing on a keyboard such a holy use of time that it alone deserves compensation?

I know what you mean. It's the current system that's messed up, that just by holding money you can create money. It generates all kinds of fucked up inequalities.

You can't create money by holding money. You create money by risking money. There's a huge difference between the two.

You create money by borrowing. You win money by risking money(). You earn money by being useful in what you do.

) In Icelandic, "win" means "work".

This is pleasingly precise, but besides the point.

Holding money generates nothing, you have to at minimum risk it in a savings account or the index, or for real gains, playing roulette on a start-up.

Yes there is risk...but so much investment is made by those that can afford to risk it..that is the risk of losing the investment is not losing your home and car or being thrown to the street. If risk is defined by surplus money alone then yes, investors take risks, but if you define risk as the chance of losing your livelihood and basic needs? Typing on a keyboard entails more risk.

When the poor takes an investment risk of $1000 they risk more than some elite putting up $1000.

No, it's the money itself which is risked. Everything else is adjacent. How much the specific individual holding the money actually values it is irrelevant. It's how much that you value the money that's relevant.

What is $1,000 worth to you? Now, that question has a wide range of answers. In some places, that's literally worth multiple lives. Or it could be beyond insignificant.

Obviously very few can or should take a personal investment risk of 100% or more of their net worth.

You are arbitrarily limiting the scope of risk to a unit of account without regard to what those units of account do or do not afford one in the world. That is too limited a definition to be useful IRL.

What I was trying to get at is that the value of money is both absolutely consistent (unit of account) but also completely situational ($10 can save a life). At the same time, the IRR of investing on public markets, like an index fund tracking the S&P 500, is exactly the same for everyone, and anyone can invest 10% of their net worth, whether that is $1,000 or $10,000,000.

The original comment was that holding money generates nothing, you have to risk it, and I completely agree. You can risk 20% of your net worth and you're not risking your livelihood, and odds are in ~8 years your investment will have doubled, and your net worth increased by 20%. For some people that's a thousand dollars, others it's ten million. If you want to double your net worth in less than 30 years, you're going to have to risk a lot more. Everyone has access to the same returns on the public market (and we restrict access to private markets for very good reasons).

So it's a literal definition of risk, and as a percentage of net worth it works well. The problem of massive wealth inequality to me is completely adjacent to risking capital in return for investment returns.

In truth my original comment was to point out that the holding money comment was misunderstood to mean keeping money under a pillow when I took it as it takes money to make money, and those that have money risk little in terms of their physical welfare.

I do not believe that you shouldn't get any compensation, but the idea that simply having money entitles you to the lion's share of the compensation, above and beyond those that actually do the damn work, is idiotic.

"And what makes showing up at the office and typing on a keyboard such a holy use of time that it alone deserves compensation?"

The fact that it actually makes the damn product.

... so does the money. There's no keyboard typing without the money.

> Tech companies always pretend it's impossible to find employees. That's not reality, though. That's a political strategy.

Genuinely interested to hear an expansion of this. How would pretending that technical employees are hard to recruit, benefit a company politically?

If you can convince the general public the tech industry will wither on the vine for lack of skilled labor, you can get Congress to raise the H-1B cap, allowing you to drive down your labor costs.

Does this mean if a company loses money the employees should contribute to the funding of the company rather than take a salary?

No. Why would that be a remotely rational thing for them to do?

When I use "should" in my earlier post, I don't intend it as an ethical "should". I mean it as a "if everyone acts in a rational way, this should, eventually, be the outcome".

If everyone acts in a rational way, and there is no occurrence of monopolies or price fixing, and if information is widely distributed, and a few other "ifs" that are not obviously missing from the scene, this should, eventually, be the outcome

True :).

Unfortunately we have network effect monopolists who can get away with huge margins. See Google, Facebook

To put it in simpler terms, if an employee creates $100 in value but only costs $10, competitors will line up to outbid that $10 to poach that employee.

...except if all the competitors ask how much the employee was paid at their last gig, so bid $12.

Price fixing is an actual thing, that's why we have labor laws. Also see: non-compete agreements.

If you get bitten by that, you are just a bad negotiator.

64k Bay Area tech workers were bad negotiators?

https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L...

Sorry, I was only responding to your first line.

Totally agree that the price fixing wasn't kosher.

"Our policy only impacted cold calling, and we continued to recruit from these companies through LinkedIn, job fairs, employee referrals, or when candidates approached Google directly. In fact, we hired hundreds of employees from the companies involved during this time period."

It doesn't sound like it was very effective. Cartels in general tend to be unstable, as members have powerful incentives to cheat on the agreement.

It's hard to say if this agreement actually reduced salaries in any significant way, as there were plenty of other companies in the area who were not part of the cartel.

And the next competitor bids $12.

There are 10s of thousands of businesses in the US. It's hard to believe there'd be any remotely successful collusion in keeping wages down.

Non-compete agreements are invalid in many states. Also, would you sign a non-compete agreement in order to get paid 10% of your value to the business?

> There are 10s of thousands of businesses in the US. It's hard to believe there'd be any remotely successful collusion in keeping wages down.

This takes many assumptions: People know of all these businesses. People are able and willing to move at a whim (not so easy with family/friends), people are willing to change their jobs every other month (for a business a job is just a transaction of money vs time, human beings, failed constructions that we are don't see it that simple) and so on. Neither the world nor people are completely rational, so things which work in theory often donThere are 10s of thousands of businesses in the US. It's hard to believe there'd be any remotely successful collusion in keeping wages don't work in reality.

> If there exist jobs that produce $1MM in value but that have a going rate of 200k, then there should be more of those jobs: either the company doing the work should expand, or it should have competitors.

> in a well functioning market

All these big California technology firms argue to shareholders that their network effects create a "moat" (they prefer you not to call it a "natural monopoly"), and that this is exactly why their revenues are disproportionate to their spending/hiring.

I think your argument should be played backwards: the large-cap CA technology industry is not a "well functioning market" because everyone's just seeking natural monopolies--and sometimes capturing them.

If there exist jobs that produce $1MM in value but that have a going rate of 200k, then there should be more of those jobs

This is true generally, but I think it doesn't apply in context. Tech has saturated the existing market, there is no demand to be satisfied for more tech. Of course, the industry will continue to grow, but only because the very nature of tech is to innovate. Growth in tech doesn't come from creating new supply to fill an ever-growing demand, it comes from innovating and creating new demand. That means that the growth of tech is bound to the rate of scientific progress, of investor's wallets and of cultural change. You can't keep hiring more and more 200k developers to make more millions, because there's no one left to pay more millions.

The parent, slg, was right in their analysis except for one point: employers have to compete on salary between each other, but they also have to compete against the engineer's opportunity to start their own company, which would let them earn directly in proportion to the value they produce. Engineers' salaries are therefore related to the level of risk and difficulty of entrepeneurship. The easier it becomes to start a startup (controlling for the expected returns of starting a startup), the more employers will pay their engineers.

As long as not everyone has eg an iPhone, I see plenty of demand for tech left.

You are looking in the wrong places, then. Not everyone without an iPhone wants one - the demand you cite doesn't exist.

No. People who don't have an iPhone either have a different smartphone (their demand is owned by Apple's competition), they can't afford a smartphone (they're not a source of demand — until someone innovates and makes a cheaper smartphone), or they've actively chosen not to own a smartphone (not a source of demand).

You said:

> Tech has saturated the existing market, there is no demand to be satisfied for more tech.

Of course, if you mean at current prices, then sure: everybody who wants and can buy at current prices will do so.

Still, demand is very elastic. Even with current tech, there's lots and lots more demand at slightly lower prices. Companies can just wait until their capital investments have deprecated a bit more, and then lower prices a bit.

(You also want to keep prices high initially, even if costs would allow to go lower and still break even, to capture the higher willingness of some people to pay more to get your product sooner. Basic price discrimination.)

You appear to be ignoring everything else that goes into making a company besides labor. There isn't perfect competition in the real world. Companies don't all have the same resources, customer base, or opportunities.

For example, a person doing the exact same job at Facebook is going to provide more value than a person doing the exact same job at Twitter which is going to provide more value than a person doing the exact same job at a brand new startup. The Facebook employee might be producing $1m and the Twitter employee might be producing $200k. In that instance Twitter can't pay more than $200k and Facebook has no incentive to offer more than $200k.

Or maybe a more concrete example, if I am the head of design for Ford, the value I produce for Ford is always going to be more than I can provide by myself because I have no way to put my skill set to use in a new company. I don't have access to the supply chains Ford does. I don't have access to the factories that Ford does. I don't have access to the labor market that Ford does. If I wanted to actually compete with them, it would require billions in funding behind me like Tesla.

I feel like my earlier comment has been misconstrued as "if your work generates $1MM in profit than it should be rewarded with $0.999MM in salary". That's not what I'm attempting to say at all. Assessing value is definitely more complex than that.

Additionally, yeah, it's true, competitors might not be able to realize the same value in the same space. Competitive advantages exist. Spreads between value and salaries will exist, and some companies might have bigger spreads than others because they're more able to realize value. I agree with all of this.

All I am attempting to do is refute the claim that there's no relationship between value of work and renumeration for that work ("[t]he value someone creates has nothing to do with their salary"). I don't dispute that we can create toy examples where that doesn't happen, but they aren't effective refutations of the general point.

The labor theory of value has been refuted. In a market economy, prices (including the price of labor, i.e. salaries) are set by supply and demand.

And what drives demand for labor?

I agree. Labor is just another input that a company requires in order to create its product. I would expect labor prices to be driven by similar if not the same market forces as goods. Excluding government interventions of course.

In the short term, yes. In the longer term competition and companies/people entering/leaving the market moves demand and supply closer to something that justified by costs of production and 'value' of product.

(Economists say demand and supply are elastic, I think.)

Which is bullshit, all the way around :)

Labor theory of value claims that the value of X depends only on the amount of labor required to produce X. This theory doesn't explain how gold is more valuable than iron, or how $UNICORN is more valuable then this other startup. So it's a bad theory.

matthewowen's argument is not assuming the labor theory of value is true. It's just pointing out that, other things being equal, if the demand for X increases then the demand for X-makers' labor increases too; hence X-makers' wages increase.

Nail on the head right here. The price of an employee isn't their MPL, it's no greater than their MPL and is set by how little the next guy is willing to take to do the job. Competitive pressures work to drive down labor prices, too!

Nobody is stopping engineers from saying "I'm going to contribute $1.5m to your bottom line this next year, I want you to pay me $1.4m", but they'll be shown the door because there's a guy that's willing to contribute the same $1.5m in exchange for $100k in compensation.

> Nobody is stopping engineers from saying "I'm going to contribute $1.5m to your bottom line this next year, I want you to pay me $1.4m", but they'll be shown the door because there's a guy that's willing to contribute the same $1.5m in exchange for $100k in compensation.

Which is why you should be an owner/competitor versus an employee if you know the business well enough.

Assuming that you can tolerate the commensurate risk, absolutely. Many people forget that the rank-and-file employee isn't exposed to the financial and legal risk that their employers were/are.

But they are exposed!

In case of financial trouble (very common at startups), who gets to be laid off first, the CEO or the developer?

Also, rank-and-file employees are typically scape-goated in legal proceedings, example: finance people going to jail for rogue/insider trading, even though upper management at least encouraged such behavior.

Every employment position comes with some degree of risk exposure. But, the risk of "I might lose my job" is quite a lot less scary than "I might lose all my invested capital and/or be stuck with crippling debts after the company crumbles". Early-stage startup employees are given greater compensation packages than later-stage employees specifically because of the greater risk of going to work for an early-stage startup.

This isn't a very difficult thought exercise - if you believe the risk profile is greater for employees than CEOs, then why not quit your job and become a CEO of your own company?

I am of the mindset that risk profile is entirely a subjective concept when it comes to what actual living people do in the real world. What a person knows about their situation or for that matter, someone else's, is the only real factor in how they perceive their risk and their ability to confront said risk. This is to say, there is no real variation between the risk an employee takes and the risk his/her employer takes.

In cases where employee ends up dependent on their employer, knowledge and experience of their job market would have prevented them from falling into this "trap", and also help them to escape it.

Likewise, employers (the shrewd ones at least, which our contemporary world tends to worship for good or bad) often don't actually take on real risk. We have witnessed many cases where companies have capitalized on profits, but chosen to socialize losses, bankruptcy or even worse, internal misconduct. This is in addition to the veil which usually shelters real corporate decision makers from risk.

This is not to say that risk analysis does not matter, but to emphasize its inherent subjectivity, and that the perception of risk can be varied through greater knowledge of one's situation.

Part of the disagreement that seems to be emerging is that not all management positions are the same. Being a CEO of a large company per se doesn't carry the same risk as starting your own business.

A CEO or manager at many large corporations often has very little risk relative to the employees, and their contributions are often small relative to that of the employees, and in the least often not greater than the employees. I'm not saying there aren't good managers, or that they do nothing, but management has become too top heavy in the US as a whole, and the salaries of management pathologically disproportionate to their relative contributions.

You don't have to look very far to find examples of CEOs driving businesses into the ground and then leaving with severance packages that dwarf average employees' salaries, sometimes even average employee lifetime salaries, or of CEOs sheltered from financial or legal consequences by corporate personhood. There's also plenty of CEOs who take over businesses that are already turning around from a downside, after reforms that were put in place, and then are credited with causing the improvements, even though they did nothing.

Starting a company is different from managing or acting as an executive of an existing one, and my guess is that this is what people are reacting to. Even founders are sheltered to some extent when you consider venture capital and the protections of incorporation relative to, say, acting as an independent contractor.

"Every employment position comes with some degree of risk exposure. But, the risk of "I might lose my job" is quite a lot less scary than "I might lose all my invested capital and/or be stuck with crippling debts after the company crumbles". "

That doesn't happen. The company has those debts. Not the individual.

"Early-stage startup employees are given greater compensation packages than later-stage employees specifically because of the greater risk of going to work for an early-stage startup."

Usually not, actually. We've seen plenty of stories about early stage employees being underpaid compared to what the new guys get, and their stock compensation gets dilluted to all hell.

"This isn't a very difficult thought exercise - if you believe the risk profile is greater for employees than CEOs, then why not quit your job and become a CEO of your own company?"

Because I like engineering, and becoming CEO is the fastest way I know of to stop doing engineering.

> That doesn't happen. The company has those debts. Not the individual.

Small company and startup loans are often secured by personal guarantees of the owners / founders.

That doesn't happen. The company has those debts. Not the individual.

In certain industries, in certain places, this is possible. For tech businesses in the US, it might even be the norm. But it is far from universal. My food business failed 3 years ago, and despite being an LLC, I'm still personally liable for brick and mortar leases, business loans, credit card debt, unpaid taxes, and outstanding invoices from suppliers. On good days I think I might get past this and be a member of society again, but this seems far from certain. You are welcome to argue that with better risk management this would not be the case, but your blanket statement "That doesn't happen" is false and offensive.

Between those two choices, the developer.

However, there are many staff that are let go prior to cutting engineers out right.

Financially they don't generally risk anything. Yes, your compensation could end at any time due to termination of your employment, but the risk of not getting paid at some point in the future is unavoidable regardless of whether or not you're an employee. The major difference is that as an employee you're very unlikely to have to put any of your own capital at risk.

Most employers post-pay, meaning a portion of your earned capital is nearly always at risk as an employee.

I hate to say this, but if you think getting laid off is a huge financial risk then you probably have not done much business. There are exceptions of course, but most founders I know carry huge financial risks (like years and years of salary on the down side, and tens of times that on the upside...).

If you haven't tried you probably can't imagine how stressful it can be at times...

Most founders (at least in the software area) provide a lot of sweat equity, but almost never any cash.

Also, early startup employees are persuaded to accept below-market salaries and work a lot of overtime, exactly like the founders, without the upside ( rarely more than 1% of the company).

I was given an offer like this recently.

The downside was a lower pay now and substantially larger risk of losing my job compared to other places. And developer work here isn't exactly hard to find.

The potential upside was... maybe two years down the line they'd start paying me what other people were willing to pay me now. The guy I negotiated with even tried to make it sound like we were all there on the same terms cos our monthly pay was the same, leaving out that I'd be the only without a share, the other four sharing the company equally... have to say I walked away from that one.

This is very common. And some kid will take the offer. Blows my mind.

Take a job for below market pay, sure. You better have decent equity though or you are being taken advantage of.

I know a lot of founders who've put in significant cash in their businesses. And besides, sweat equity is also, well, equity.

I'm not saying there aren't early employees that deserve better deals, I'm quite sure there are. But a lot of the perception of unfairness I think stems from a lack of understanding of the differences between being a founder and being an early employee. They are just very different bargains, each with their ups and downs.

For example, let's say three founders own 20% each and there's an external investor that owns 20% and a 20% options pool. The founders payed for their shares with a year's sweat equity. The first employee gets 1% from the options pool. From then on everybody makes the same, and works just as hard. Is that unfair?

I'd say it depends, and the math is not entirely straightforward... Stuff you would have to take into account (and which I rarely see mentioned when people talk about this) include the probability of the company failing before raising money / hiring the first employee, each person's alternative costs and the company's expected future value when the first employee was hired. There are also more subtle issues, like the employee having every right and incentive to leave the minute the company starts going downhill, whereas the founders... Well, it's just very different.

I've been both by the way. :P

Come to think of it, I've been playing a bit with Bayesian probabilistic programming with PyMC lately, and it might be pretty interesting to put together a model for this. I think it could give a pretty interesting picture of how expected future outcomes vary for the different people, depending on the different parameters. Anybody want to join in the fun? :)

who gets to be laid off first, the CEO or the developer?

Wrong comparison. The CEO and developer are both employees. I've outlasted laid-off CEOs at several places of employment.

The comparison is between an employee and an owner. (Of course an owner may ALSO be an employee, maybe even CEO, and an employee may also be an owner, but comparison should consider these roles separately.)

The employee is risking having his assets stop growing temporarily as he is forced to go find another source of income. The owner might have no income from the business for a long time even if it is succeeding (or ever if it fails) and has to hand over already-earned assets to the business in hopes of getting it back plus more, but if things go south, he might not get anything back and may even be forced to hand over additional assets to cover damages. The employee's risk is temporarily not gaining assets, while the owner's risk is potentially losing his.

Reality is a little murkier than this separation, because an employee might lose assets moving to a new city only to get laid off. In a certain sense, an employee is the "owner" of a small service business providing services to a customer (his employer) and owners can trade off equity for risk by bringing in partners, but the big picture is still that people who decide on ownership vs. employment are choosing between two very different risk/reward profiles.

>> But they are exposed!

For their exposure, employees are compensated with salaries. Are you willing to pay your company money if the product you work on misses expectations?

Does the CEO pay? The founders don't get to pay the compamy, they usually don't invest cash (in angel/VC-funded startups). With some luck/skill the company gets sold/aqui-hired and the investors can get their money back. Not always, but quite often.

> Many people forget that the rank-and-file employee isn't exposed to the financial and legal risk that their employers were/are.

Which makes it the perfect position to be in to launch and iterate and test and lean startup a good side hustle.

This is what they're trading, decreased risk for decreased reward.

But in reality, it's not really a decreased risk.

The assumption there would be risk is silly. Business structures isolate risk and eliminate that as a problem.

If I'm willing to walk away from a paycheck to eat your margins, I have implicitly agreed to take on a substantial level of risk.

Agree though, risk vs reward.

...but Massachusetts just killed their efforts to reform non-competes.

http://www.wbur.org/morningedition/2016/08/02/non-compete-ag...

Argh. Oh well. Massachusetts continues to be a state I have on my blacklist.

Or you can just get your non-competes redlined. I did it at literally every job I worked at after my first out of college (and that non-compete was "travel companies", BFD).

I could, but why bother having to do that when I could just live in a place that doesn't recognize them to start with?

There are literally thousands of reasons to live anywhere, and it turns out that Massachusetts measures real well on a lot of them. If you base your living decisions on "there might in the nebulous future be an onerous non-compete I can't get an employer, who is trying to be appealing to me and in an industry as stupid-hot as tech is almost never the only game in town, to redline", I envy your few and trivial problems in life.

Hell, I've treated it as a filter in the past: the mindset that leads a company to be unyielding on noncompetes is a signal not to work for them in the first place. That a noncompete is unenforceable in some jurisdictions functionally only means, for the overwhelming majority of tech employees, you aren't finding out how much they think of you before you sign on the dotted line and quit your other job.

>Which is why you should be an owner/competitor versus an employee if you know the business well enough.

Uber just lost a war of attrition with Didi Chuxing after throwing a billion dollars at China's taxi market

How much attrition can you afford?

The reason is simple: Uber did not know the business well enough, at least not in China.

The reason is simple but absolutely wasn't that: they both subsidized their customers' rides to the tune of a billion dollars in a bid to undercut one another.

As it turns out taxi riders care a lot more about price than they do about the company's cultural sensitivities.

This isn't unusual in the transportation sector. In the 80s UK bus companies would undercut each other in a bid to achieve a monopoly. Some even offered completely free buses in a bid to drive their competitors out of business.

Having thought about this a bit, I actually come to the opposite conclusion.

I think a lot of companies who might have previously hired devs would be better off trying not to anymore, with what devs cost today. This is going to mean all sorts of things, including more off-the-shelf stuff vs. home-rolled for companies, smaller software companies that don't get started because people would rather take the BigCo job that pays $200k base plus stock, etc.

Pretty much any business is about taking stuff and making something out of it that can be sold for more than its inputs. With dev salaries being what they are, a lot of opportunities get ruled out quickly because they just aren't big enough.

Sure. And this seems an OK thing. Many tiny companies hire a programmer to write them excel macros. If they can be replaced by some SAAS app, then do so.

No reason for 100s of companies to write the same app.

I wish I could, but I don't have the cash. Maybe I can save some, by working a few years as an aforementioned employee monkey, but I'll be 30+ by then.

This assumes the opportunity's to generate 1.5m in value are finite and all developers are equivalent. Both are rather sketchy assumptions. I might have a 1% chance of preforming an amputation successfully. But, the people with an 90% chancing of doing the same are worth vastly more.

Out of 100 developers 10 might save you 1.5million and getting the correct 2 might save you 3 million.

But what the patient really needed was an appendectomy.

Not sure your point. A heart surgeon has much better odds of doing an appendectomy than I do. Further, while doctor and programmer can do a range of things a specialist is a much smaller pool.

No, the reason you don't get that salary is because you need to discount for the risk that you don't deliver $1.5m.

Realistically, you just could be full of shit, you could get bogged down in politics, your wife could get cancer, and any number of other things could happen. So the price trends down sharply.

How did you come to that conclusion? All thing being equal why shouldn't you pick the 100k guy?

All things are never equal.

Even assuming that you had an identical prior on the two candidates, the information that one person was willing to do a job for half price would make me doubt his intelligence.

So you always go for the guy who requests the highest salary?

If in some artificial scenario, I had to blind hire one of two candidates with functionally identical resumes, where one asks for market value, and the other asks for half market value, yeah, I take the higher salary..

You seem to assume that no one is being paid to do nothing. Sometimes an employee, for a multitude of reasons, may be paid top dollar and merely benched. Whether to keep the employee out of competitors hands or because their deployment is done and as a reward for prior service does not matter. There are no upper or lower bounds* in what employers will pay.

* I say there is no lower bound because slavery still exists. There are employers who do not pay people at all.

So, this supply and demand thing.

We keep hearing from large tech companies that there's a crisis -- a massive shortage of qualified software engineers, to such a degree that they won't be able to operate at all if they can't raise the H1-B quotas and import more people to fill all the jobs currently going unfilled.

If that truly is the case, then supply and demand would tell us that currently engineers are underpaid; if there are companies so desperate to hire engineers that they're turning to immigration law to try to increase the supply, why aren't they simply offering large enough compensation packages to attract the existing pool?

Pondering the answer to that may enlighten you.

Exactly. If a company were to announce they were going to bump dev salaries up by 75K/year, they'd be flooded with people wanting to interview.

A similar issue exists with respect to illegal immigration and low-pay, low-status jobs such as crop picking, meat-packing, and janitorial services: if there aren't enough Americans willing to do the job at prevailing wages, then aren't prevailing wages too low? Sure, my tomatoes would cost more and cleaning services might be 200% more expensive, but that's just the cost of doing business.

Or for another "white-collar" example: the alleged "pilot shortage" in the US. There's no shortage of trained, qualified pilots; there is a shortage of trained, qualified pilots willing to accept the wages and working conditions that are typical when starting out with a US-based airline. That one ends up draining in the opposite direction: instead of working for airlines in the US, those pilots go overseas where the offered pay and working conditions are better, and end up flying for Asian or Middle Eastern airlines.

But who would be served by that?

With immigration Americans get cheaper tomatoes and unAmericans get comparatively better jobs. It's a win-win.

> why aren't they simply offering large enough compensation packages to attract the existing pool?

Well, they are. Compensation packages at the big tech companies are ridiculous. I know someone that got $100k signing bonus (cash, not stock) without a degree at 21 years old. He's not a genius either.

At a certain point, don't you think it's better to share some of that opportunity with smart foreigners? How many Teslas does an American twenty-something need?

>Well, they are.

Clearly they aren't. Say an engineer can make a company $1 million per year. They are only willing to pay $200k per year in total compensation, but they complain that they can't hire enough engineers. Obviously they aren't paying enough per engineer.

>At a certain point, don't you think it's better to share some of that opportunity with smart foreigners? How many Teslas does an American twenty-something need?

So it's not the multi-billion dollar companies that are being greedy, but the engineers making $150k a year?

Companies want to import foreign workers to depress wages so that they can save money, and your instinct is to blame the workers who don't want lower wages?

> They are only willing to pay $200k per year in total compensation, but they complain that they can't hire enough engineers. Obviously they aren't paying enough per engineer.

Engineers are not created from money. You might be able to fill your positions by paying more, but not all of the positions in the entire country. Not without immigration or higher graduation rates.

> Companies want to import foreign workers to depress wages so that they can save money, and your instinct is to blame the workers who don't want lower wages?

How do you justify that the location of birth should be the main determinant in whether an engineer earns $150k a year or $30k a year? That line of reasoning is a lot more disgusting to me than corporate profit-maximizing.

> You might be able to fill your positions by paying more, but not all of the positions in the entire country. Not without immigration or higher graduation rates.

There is not set number of "positions", the number depends on the number of developer willing to work for the wage offered. If you would consider an employer who is willing to pay $50 per month for a developer to have an open "position", then the number of positions would be an order of magnitude higher.

If there was really a shortage of engineers, then engineer salary would be very close to the value the engineer adds to the company, because the competition to hire would drive the price as high as it could possibly go. Salary is nowhere near close to the value an engineer adds to the company, so most likely there is no shortage.

The shortage is a manufactured problem to justify an attempt to depress wages.

>How do you justify that the location of birth should be the main determinant in whether an engineer earns $150k a year or $30k a year?

If we take that to it's logical extreme. No one makes $150k a year. We allow an unlimited number of software engineers in until the average salary drops down to a level where it's not worth it to immigrate here. Maybe that's worth it to you, but if global income equality and globally open borders are your goal, argue for that.

Stop with this false argument about an engineering shortage that doesn't exist.

> Salary is nowhere near close to the value an engineer adds to the company, so most likely there is no shortage.

I think it is more likely that the marginal value added by an engineer to a company is much less than you think it is.

If Google currently earns an average of ~$2m per engineer that does not imply that they will earn an additional $2m upon hiring another engineer. In fact I'm confident they could fire at least 500 engineers tomorrow without negatively impacting their profit at all.

..because the engineers have created things that the company can continue to profit off. They're not factory workers, they don't need to be there on the day-to-day to add that value, so it's a little disingenuous to suggest the impact would be seen "tomorrow". Still not having those engineers 6, 12, 24 months down the line might not look so happy, though.

You wouldn't attribute much of the value created by a Boeing 747 to the mechanic the maintains it, so why would you do so with the mechanics that maintain the AdWords money machine built ten years ago?

I'm not really sure what to make of this analogy. Are you suggesting that the mechanic maintaining a 747 is on the same level as the design and fabrication team who built it?

The design and fabrication team who built AdWords years ago are rich. The engineers they're hiring today at 150-200k are akin to the mechanics hired to keep it running.

>In fact I'm confident they could fire at least 500 engineers tomorrow without negatively impacting their profit at all

That makes no sense. If they can lose a significant chunk of their engineering team "without negatively impacting their profit at all" then why did they hire them in the first place.

If your assertion is true, they must have significantly overestimated their staffing needs. If they did, it's likely everyone did, so the engineering shortage crisis doesn't really exist after all.

That was the least important part of my comment. If you're arguing there's no shortage because wages are much lower than the marginal value of hiring an engineer, it's on you to come up with evidence supporting this supposed (much) higher marginal value.

Everything I've seen points to a real shortage and desperation on the part of the employers: interns making six figures with free Manhattan penthouses, nonstop recruiter spam, 22-year-olds negotiating stock packages on their 8 fulltime offers before they finish school, fresh grads buying Teslas with signing bonuses before their first day of work, countless job listings that never ever go away, $10k+ referral bonuses, websites where employers apply to you...

> it's on you to come up with evidence supporting this supposed (much) higher marginal value.

There's no more onus on me to prove a higher marginal value than there is on you to prove a lower one. You've attempted to shift the burden of proof by arbitrarily deciding that your assumption is the correct one.

I will say that most of the people I've read trying to determine the marginal value of software engineers, think that it's a good deal higher than what you seem to think it is. When you consider that there are outliers who will make or save companies tens of millions and not very many who are going to have very large negative impacts, the average is going to trend pretty high.

>Everything I've seen points to a real shortage and desperation on the part of the employers: interns making six figures with free Manhattan penthouses, nonstop recruiter spam, 22-year-olds negotiating stock packages on their 8 fulltime offers before they finish school, fresh grads buying Teslas with signing bonuses before their first day of work, countless job listings that never ever go away, $10k+ referral bonuses, websites where employers apply to you...

None of that is at all even remotely normal. The vast majority of software engineers don't experience anything like that. None of the people you're talking about are close to average. Average programmers don't pass Google style interviews. I went to a fairly average state school, and I've done a lot of tutoring and interview prep. I'd be shocked if 1% of the students I graduated with could pass a Google interview.

It's hardly shocking that the top 1% of engineers are making large salaries. Top law firms start associates out at $200k a year, do you think there's a shortage of lawyers?

If there really was a shortage, Google and other companies would relax their interview processes, and invest more in training. If anything, the real problem is that everyone thinks they need to hire the top 1%, but they don't want to pay for it.

$150k in silicon valley is equivalent to about $90k a year where I live, so I'm not interested in moving. If someone there offered me $300k, I'd go in a heartbeat.

So we've been disagreeing the whole time on what it means to be a 'qualified engineer'.

The employers don't consider someone who can't pass an AmaGoogTwitBook interview (with some practice, of course) to be a 'qualified engineer', and there is indeed a shortage of such people.

Companies have arbitrarily set a very high standard that can only be passed by x% of engineers, and then argued they can't find enough. You could do the same for any industry. Here's an example (also keep in mind this next example would work the same even if the bar isn't set arbitrarily):

Let's say I run a cleaning business, and I decide that I only want to hire janitors who can run a 4 minute mile. I think that they are the best people for the job, and no-one else will do.

Let's also say that I only want to pay them $50k a year. Some time goes buy and I'm having a really hard time finding people. Now I could raise what I'm offering to $100k a year, and find plenty of candidates who would move here from other states, change careers, move from management back to working as a janitor, come out of early retirement etc...

Or I could relax my requirements--take people who show the potential to run a 4 minute mile and train them.

Or I could lobby the government to increase the visa cap so I can import qualified people who are willing to work for $50k.

This doesn't sound so bad when you think about it. I wasn't willing to offer more than $50k a year, so wages weren't increasing anyway.

However, if I didn't have the option of raising the visa cap, and I really believed that only janitors who meet my qualifications would work, I would have no choice but to offer a higher salary.

Therefore, importing more workings depresses wages for qualified janitors.

Now you might be thinking $50k is plenty for qualified janitors. They can live with less. But here's the important part. You didn't increase the visa cap for only qualified janitors.

You increased the visa cap for all janitors, who are making at least the prevailing wage. And it's based on a lottery. The number of extra visa spots aren't proportional to how much a company is paying. Every company who is willing to pay the candidate at least the prevailing wage gets the same shot at these visa slots. Since, most companies don't have sub 4 minute mile requirements for janitors, the prevailing wage is much lower than $50k a year.

Now the market is flooded with janitors willing to work at average companies for $20k a year, and you've driven down wages for all janitors not just the top 1% of qualified janitors. Even though the shortage is only for the top 1%.

Average software developers aren't making $150k a year and buying Teslas, and they are the ones you're going to hurt with visa cap increases.

I'll agree that there is a shortage of top 1% programmers. There is a shortage of the top 1% in nearly every industry almost by definition. However, until you develop a system for only importing enough top 1% programmers to meet demand, you're going to hurt everyone who's not in the top 1%.

There are several systems for doing this. The easiest to implement probably to use an auction instead of a lottery (this comes with a set of its own problems though).

Just to be clear on your last point, I don't object to immigrants pursuing engineering, at all, provided it was a choice they made freely, that the immigrants were also free to choose not to become engineers as a condition of entering the US. I do object to empowering employers to coerce would-be immigrants into studying engineering (or any field for that matter) or working as engineers as a condition of gaining access to the US labor market, as I believe that this produces harmful market distortions and is an affront to personal freedom.

Generally speaking, immigrants (about 1.2 million annually to the US) are free and full participants in the labor market, free to pursue the degrees and skills they wish, in response to salary, working conditions, career longevity, personal interests, and so forth. They may wish to open a sandwich shop, sell real estate, or write software. Just like people who were born in the US.

It turns out that, like those born in the US, these immigrants don't go into engineering in numbers that high tech employers feel they should. Personally, I think this is a sign that perhaps high tech employers need to sweeten the pot a bit - if people (immigrants or otherwise) who are free to choose aren't choosing you, that's the market's answer. It's not them, it's you.

Employers have responded by lobbying for what I consider to be a wildly self-serving and coercive visa that gives them the power to bestow and revoke US residency and work rights under the notion that there is a "shortage" of engineers. This enables them to say - we'll let you in if you study computer science and agree to write code for us for the "market rate" salary that fails to attract those with the freedom to choose their careers in sufficient numbers. We won't let you in if you don't take our tech test, and if you try to quit your job and open up a sandwich shop, we'll have you deported. You know, free labor markets.

I'm opposed to a system that allows employers to bestow (and revoke!) US residency and work rights on non-citizens under the condition that they study what the employer says they should study, work on what the employer says they should work on, live where the employer says they should live, and so forth. I think this position is very consistent with pro-immigration attitudes and personal freedom.

> if there are companies so desperate to hire engineers that they're turning to immigration law to try to increase the supply, why aren't they simply offering large enough compensation packages to attract the existing pool?

I don't get this argument. If there are 100 open positions and 80 eligible candidates, 20 (at least) positions will remain vacant, regardless of compensation. Not saying that this example reflects the real world, just that the argument is not sound from a logical/mathematical standpoint.

The argument is that there are thousands of eligible candidates who simply haven't chosen to apply for your company because they are happy at their current position, and Apple/etc are choosing to focus on increasing the pool of candidates rather than increasing their attractiveness to the existing group of candidates.

Your math is wrong, or rather irrelevant. The pool of eligible candidates is not fixed. It constantly changes based on the offered compensation and other factors. For example there are plenty of people qualified to do engineering work who aren't working in that field right now for whatever reason, but could be enticed to take an engineering job for enough money.

I disagree, the pool of candidates basically only changes via immigration and as people retrain or teenagers choose different college majors (very slow).

> For example there are plenty of people qualified to do engineering work who aren't working in that field right now for whatever reason, but could be enticed to take an engineering job for enough money.

Like whom? How can you be qualified to do software engineering if a) you've invested so much in a different career that you already make more than SV salaries and b) you presumably haven't done software engineering in years?

That's just flat out wrong. I know people who were formerly software developers and who stopped their careers to become stay-at-home parents. If you offered a salary of, let's say, $300K they would be happy to reenter the workforce. It's not that hard to catch back up.

As for past investments in different careers, those are sunk costs and irrelevant to decisions made now.

> I know people who were formerly software developers and who stopped their careers to become stay-at-home parents.

The population of people who consider $150k a year not to be sufficient incentive to get a job is vanishingly small.

> As for past investments in different careers, those are sunk costs and irrelevant to decisions made now.

It's not irrelevant if they did those things instead of learning/doing software engineering. You can't study medicine or law or banking for 8 years and just become an engineer at Google overnight because the Google starting salary had (hypothetically) risen to $300k and it's now a better deal.

All of these things are true. However, there is another input into supply side, and that's alternatives to employment like starting a company.

Any employees that really create much more value than their salary can and will just leave and start their own company, where they get to set their own salary. By doing so, they'll also be leaving the pool of employees, and potentially hiring others too (reducing supply, increasing supply, driving salaries up).

Of course, every employee creates more value than their salary, to cover overheads, some profit for shareholders, etc. Employees that claim to be creating far more value than their salary, but not leaving to start a company, are probably deluding themselves, and vastly underestimating the value of the capital employed in their company, goodwill with customers, the sales and management functions, etc.

The latter is not necessarily true - you might be creating tremendous value, but have barriers to market entry that are enormous such that you can only really create that value from within one of the existing players on the market. See aerospace, telecommunications, medicine, government contracting for examples of such industries. If I'm making a huge amount of added value for a large telecom, it's unlikely I can start a startup to compete with it, and given the state of the market I'm unlikely to make much more at their direct competitors. Thus, as long as my value is industry-specific, and the industries have large barriers to entry, I might be creating much more value than my salary but unable to leave and compete against my employer.

You're a component in a value creating engine which includes the ability to hurdle those barriers to entry, which means you don't get credit (on your own) for the total value that you are able to produce within that system.

More likely, you're a resource being extracted by a monopolist that set up those barriers to entry.

Eh, some barriers to entry are artificial, some are not. Even artificial barriers are difficult for a single moustache-twirling monopolist to bring about on his own.

You make the strong case that your value-creation in such a scenario is an amplification of value created by other people, and is not actually value created by you in a vacuum. What sense would it make for you to claim priority ownership of that value if you can't create it on your own?

If you can only really create value inside an existing player in an industry with large barriers to entry... then it's actually being an incumbent in that industry that's valuable, and not the employee.

It's like a person making minimum wage working at a hotel in Times Square, charging $800 / night, saying they're getting a raw deal because they're creating so much value.

Right? So many people are looking at company overhead as burdensome, but how are you going to cash in on the $1.5 million in value that you create if you don't have sales and marketing people to get your product out there? How do you even know it's worth $1.5 million if you haven't done market research?

It's not just overhead, it's a highly efficient system.

Highly efficient or not depends on the actual system, ie company. Some companies aren't all that efficient, and have to painfully learn about that fact when real competition shows up.

(See eg the effects of Aldi on the Australian retail sector.)

I agree with your explanation but I'd suggest a slightly different way of explaining it.

Labor's price is set in a competitive factor market, just like land or capital. It gets bid up and down by supply and demand. Let's call this "the labor market force".

How much value a person can provide in a given setting depends on a whole range of things including what the employer does (scaled product company vs. body shop), overall management effectiveness, how motivated they are (both themselves and by their employer), their skill level, etc. Let's call this "the company force"

The reason people aren't paid as much as California devs elsewhere has a lot more to do with the "company force" than the "market force". The fact is, most companies who employ developer just don't need great devs. They need people who can develop websites of moderate complexity, keep things going, write line-of-business software, etc., not people who can do original, innovate algorithmic work.

Related, there is no "Developer shortage". There is only a technical talent shortage insofar as dev salaries are getting bid up and the buyers who are getting outbid (mostly smaller startups) are complaining. The good companies are getting exactly who they want.

>The fact is, most companies who employ developer just don't need great devs. They need people who can develop websites of moderate complexity

They actually do they're just unable to recognize great devs, unable to recognize that they don't recognize them and refuse to pay for them.

But they certainly need them.

>Related, there is no "Developer shortage".

There's always a shortage of labor in every industry.

That's one of the iron rules of business lobbying - if you whinge about it enough the government will go and do something (training, bring in immigrants, teach code in school) that will let you pay employees less. => higher profit.

An illustation of that is found in high-end hotels. Beyond the building, it's the value that the cleaning and groundskeeping staff provide which makes the stay great. And yet their pay is not that much higher than their counterparts working for a budget hotel.

(As a side-note, that's why I always smile and engage with the staff whenever I can: it's a thankless job, despite being one of the most important.)

That's great! I dig how you treat them with respect and human dignity, that they're not beneath you but working hard, too. I hope you also support their right to unionize wherever that is possible.

How does one follow from the other?

I appreciate that grocers are selling me cheap goods, and that it took hard work to create and supply them. Yet, I don't want them to form a cartel.

"Whoa, whoa, whoa. I like to be nice enough to the Help so that I can pat myself on the back. But let's not get ahead of ourselves and let these people fight for higher wages, which might impact my costs!"

They can raise their asking price, or exit that particular labour market. I did something similar, and became an economic migrant.

Cartelization is not good for the economy, no matter who tries to pull it off.

I don't think the poster of your parent comment would disagree with your explanation of the how things are; they're only saying that's not how it should be.

If we lived in a just meritocracy, people who created millions of dollars in value with their code would be compensated with millions of dollars, but this is rarely, if ever, the case. It's this fact which makes libertarian arguments about the unfairness of tax and social welfare programs offensive.

The are great advantages to individuals and society to paying less than the value of goods and services. If my daughter is ill, and a simple shot of antibiotics will cure her, should I pay $20 for that, or should I pay what saving her life is actually worth to me? I've enjoyed ever faster internet connection speed at my home (coming in two weeks -- gigabit!) I assure you I'm not paying the full value of what that speed is worth to me. The same for food, clothes, transportation, everything. If I really did have to pay the full value to me for each of those I would, by definition, be indifferent to buying any of them.

Market economics has some serious downsides, but it has vastly increased the welfare of humanity. More people have been coming out of poverty in China in the past few decades that ever before in human history.

If you feel it is unfair that as a developer you can create millions of dollars in value that you aren't being compensated for, then I recommend you consider ways that you could be compensated for this value. Perhaps instead of being an employee, maybe get involved in a start-up with equity (or found a company.) Having done so, I can assure you it's more nerve wracking than ever I would have expected, and harder to unleash the millions in value than one might expect, but it's still fun, challenging, rewarding, and worth giving a go! :-)

> The are great advantages to individuals and society to paying less than the value of goods and services. If my daughter is ill, and a simple shot of antibiotics will cure her, should I pay $20 for that, or should I pay what saving her life is actually worth to me? I've enjoyed ever faster internet connection speed at my home (coming in two weeks -- gigabit!) I assure you I'm not paying the full value of what that speed is worth to me. The same for food, clothes, transportation, everything. If I really did have to pay the full value to me for each of those I would, by definition, be indifferent to buying any of them.

Okay, so what's the society of my boss getting paid twice as much as me while actively impeding my ability to create value?

Also, antibiotics and internet are poor examples of market economics; both are heavily subsidized and regulated. So it's disingenuous to hold these up and then in your following paragraph claim that market economics is helping humanity.

> Market economics has some serious downsides, but it has vastly increased the welfare of humanity. More people have been coming out of poverty in China in the past few decades that ever before in human history.

How do you justify attributing this to free market economics?

> If you feel it is unfair that as a developer you can create millions of dollars in value that you aren't being compensated for, then I recommend you consider ways that you could be compensated for this value. Perhaps instead of being an employee, maybe get involved in a start-up with equity (or found a company.) Having done so, I can assure you it's more nerve wracking than ever I would have expected, and harder to unleash the millions in value than one might expect, but it's still fun, challenging, rewarding, and worth giving a go! :-)

I do think it's unfair, but I actually don't care, because I'm self-aware enough to realize that the way in which our economy hurts me is nothing compared to how it hurts most people. I'm incredibly lucky to have landed in a career where things are only as unfair as they are, and I'd much rather work toward helping people in worse situations than me than in fixing the minor injustice of getting paid less than management.

It should be noted that several tech employers were found to be illegally colluding to artificially lower wages.

This, slightly adjusted, would make a killer Onion headline.

Have you ever worked on a project where management considered developers as pretty much interchangeable and added folks to the team that did more damage than good? If so, do you want to repeat that experience?

I'll say this: if you aren't writing code in a way that someone else can pick up the project when you leave, then you are being an irresponsible coder.

The problem is, that's 98% of coders that you've described.

This only makes sense if the compensation isn't tied to your replacement value. If it's tied to replacement value... well, too bad - the company shouldn't create an incentive to ramp up technical debt.

Irresponsible coding follows naturally from irresponsible management.

Take responsibility for your own code. Be a man, or be a woman. Stop blaming other people. Your life becomes better when you take control.

I take responsibility for my own code.

Code that belongs to the company is ultimately the responsibility of the stockholders and their board. As an at will employee with no equity, I will give them exactly what they ask for in their code.

At each job, I will go above and beyond the call of duty once, to gauge the reaction. At some jobs, I get a cash bonus. At others, I just get a pat on the back. The last two jobs in a row, I was told to not do that again. So I didn't.

Don't be an apologist for bad management. I'm not going to do the right thing if I could get fired for it.

That's exactly the point. Developers aren't "mostly interchangeable". Some are much better bets than others.

My post had the condition of "competent developer". There are certainly some developers that aren't competent. In my experience those developers get weeded out of the industry relatively quickly. This cuts off the bottom of the bell curve leaving most most developers with something close to an average skill set or above.

I also won't discount the frictional costs of changing teams. If you take two identical developers and switch their jobs, each of their teams would see a temporary hit in performance as each one gets acclimated. But they will eventually get to the point were their team is exactly as efficient as it was with the other employee.

"There are certainly some developers that aren't competent. In my experience those developers get weeded out of the industry relatively quickly."

That gave me a chuckle.

If you define competence as being able to hold down a job..

(Though, of course, some social intelligence goes a long way. No need to actually know how to code.)

In my experience even something as simple as effort varies greatly between two equally skilled developers and results in very different outcomes.

They don't get weeded out. They might even sit in one place for years at a time before management catches on and does something, if they even catch on at all. Or, they will bounce from job to job infecting various roles with their poor work until the immune system of each company slowly wakes up and does something about them. Sadly, this gives them more "experience" and industry credibility, making it even easier to trick future victims.

Agreed. In my field, physics, salaries are low precisely because supply is high.

The work is hard, and demands a lot of training/skill, but there are a lot of people who will do almost anything to stay in the field. One of the things they can do is accept a lower-than-tech-market salary.

Yes... see game programming too.

> the truth is that once you get to the point of "competent developer" and the meaty part of the bell curve, we are all pretty much interchangeable

That is not my experience at all. I see big skill differences in my coworkers.

But as an employer, it's real hard to know which candidate is 200% of the average and who is 50% (or -10%), so you end up having to offer everyone an average salary with small variations.

CEOs and top executives are highly replaceable too (they sure change companies a lot), and yet they command massive salaries. What happened to the laws of supply and demand there? Why do CEOs have to die or retire before the board decides to replace them with someone more competent? How was Steve Ballmer able to stay in charge at Microsoft for so long?? I remember the day Ballmer announced his resignation, MSFT stock went up by like 10%! So the market definitely wanted him out!

The main difference is that executives have leverage (and they have friends in high places) while average employees have almost no leverage.

It's the government's job to make sure that employees have some sort of leverage over their employers.

There's supply and demand, and then there's also principal agent problems. In practice, shareholder capitalism is a lie: companies are run for the benefits of upper management.

(You see some more examples of stories like the Ballmer resignation, when you look at the "Effects of untimely CEO death", eg http://www.cnbc.com/2016/04/28/the-effects-of-a-ceos-death-o...)

It's not only rank-and-file employees that have little leverage, average shareholders aren't much better off.

The government can try and make sure to keep barriers to entry low for competitors, and barriers to switching to competitors for employees. Competition keeps companies in line, even when it's executives running the show.

This isn't exactly correct either. It's a combination of barriers to entry (e.g. startup costs) and how much value the developer can make vs what they're paid. If a developer makes $100k/year and can create $1 million in value, then certainly I can poach them by offering them $200k/year and still make a profit on top of that.

In many fields what prevents this is startup capital. It's expensive to get a supply chain for physical goods up and running. But if you have the business acumen and connections there is not nearly as much of a barrier to entry in the software world.

You don't even need much startup capital if you're starting up not in an expensive location like SV. The reason so many of us 100kers don't up and leave when we realize we're generating millions in value is because we're only generating that value as part of a larger organism telling us what to focus on. Given individual autonomy most of us couldn't produce the same value, maybe not even our salary value. Ability to autonomously produce value seems independent from coding ability, business acumen, and connections and I would argue is far more important in building a lasting business.

In Silicon Valley it seems popular to just start your own company and capture the value that way, but other fields have solved this issue by unionizing.

Unions do not have a good history of preserving value, at least not in the USA.

Then why are developers outside of the higher pay tiers paid about the same as a unionized UPS driver?

There are certainly problems with unions, but they have definitely succeeded in raising pay for their members.

Those that still have jobs. Employers commonly reduce the number of jobs available when those jobs become more expensive.

High level executives at large corporations are a small enough group with enough common interests that they might as well constitute a union, and they have an exemplary record of preserving value for themselves.

Same for athletes, the MLB Players Union has been extraordinary in preserving value for its members (guaranteed contracts!).

How's the UAW doing? Is it possible that there are factors outside of unionization that affect how these workers are paid?

You'd have to poll their members, but I would suspect they are pretty happy. They are well paid, are not allowed to be worked around the clock like Silicon Valley programmers and have a known career path. For blue collar work it's about as good as it gets.

> Is it possible that there are factors outside of unionization that affect how these workers are paid?

Of course, there are tons of variables. But it's a fact that unionized workers make more than non-unionized workers in the same jobs, that unionized workers are much more likely to have health insurance, that unionized workers are much more likely to have paid vacation and sick time, etc etc.

It's silly to point to a cohort of high-skilled non-union workers that are highly paid and claim that is an argument for the unionization of high-skilled workers.

I'm not arguing for unionization here, although it does have its advantages; I'm arguing that:

1) Unionization is easier and more effective when defection is difficult (or impossible, as in some German unions) and heavily punished. As soon as defection pays off, it loses its value.

2) The set of high level executives at large corporations is small and cliquish enough that it is a de facto union, since they can convince boards to bid up each other's prices and punish/shun those who offer their services at lower prices.

True, but there are plenty of high-skilled, high-paid workers who are unionized, although they typically would dispute the "union" tag.

The American Medical Association is a great example.

Unions typically only exist when there is a huge supply chasing fewer jobs.

With tech it's the other way around.

The AMA and the BMA in the UK would beg to differ

> other fields have solved this issue by unionizing

careful with the "U word" around here. We don't need no stinkin unions, or any sort of professional association.

I mean sure we don't get OT and too frequently get asked to be in a hellish oncall rotation or some 80 hour a week death march. We like it that way and we don't want to do anything to change it!

... Because those stock options are going to make me rich!

Just say No. If they fire you, just change companies.

No need to accept these conditions. Eg Google and Facebook are always hiring and treat their employees better than that.

(And I don't really see why I would want to join an organization and throw in my lot with people who are not smart enough to take above remedy.)

I can't agree with that. For most people, the salary is dictated by how good they are at negotiating, and how strong their ability is to walk away. Two things that are completely unrelated to their ability to do the job, and as such, should have nothing to do with the employment process.

Those factors are hugely important. But you'd be hard pressed to get more out of a company than you provide in value to them, even with the best negotiation.

(Unless you are going to work for fools..)

I don't think the poster of your parent comment would disagree with your explanation of the how things are; they're only saying that's not how it should be.

If we lived in a just meritocracy, people who created millions of dollars in value with their code would be compensated with millions of dollars, but this is rarely, if ever, the case.

As a counterpoint: people don't create millions of dollars in value in a vacuum.

Somebody (usually several somebodies) took the chance to create a support structure to enable said person to create the millions of dollars in value.

How much of the value should go to the value creator and how much to the enabler with the capital (and the vision to use it in that way instead of spending it on something else) is a very interesting question that has been tackled for a long time, particularly from Marx onwards.

https://en.wikipedia.org/wiki/Labor_theory_of_value

> Somebody (usually several somebodies) took the chance to create a support structure to enable said person to create the millions of dollars in value.

A tech company contains a lot of structure, and very little of that is actually geared toward enabling anyone to create millions of dollars of value. A large portion of that structure exists to enable the management of a company to justify taking in large profits. It's should surprise no one that those creating the structure would create it in a way that benefits them.

I know a few people who work at a tech cooperative, which has mostly developers with 1 secretary who manages benefits/taxes/etc. and 1 "business liaison" who manages customer communication. They've created millions of dollars of value without most of the structure, and it's no coincidence that they're all set to retire in their late 30s.

A tech cooperative is a kind of structure that should be more popular, I agree.

But is it ok for competition to kill the value of developers work (in the benefit of managers/founders and whomever else)? The actual point I think is to get developers to understand they need to lift the bar higher because it's now set too far from the value they actually create.

Competition drives down prices. Everyone likes that fact except for when it is applied to their own price.

Competition means no profits for anybody, no meaningful differentiation, and a struggle for survival. So why do people believe that competition is healthy? The answer is that competition is not just an economic concept or a simple inconvenience that individuals and companies must deal with in the marketplace. More than anything else, competition is an ideology—the ideology—that pervades our society and distorts our thinking. We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within it—even though the more we compete, the less we gain. - Zero To One, The ideology of competition

Supply and demand absolutely determine programmer salaries.

And what you neglected to mention is that there is currently a massive developer shortage of supply, and lots of developers are being suckered into low salaries when they could be making much more somewhere else.

Once I stop reading article after article here and elsewhere about how there just aren't enough developers in the world to fill all the jobs he have now and coming, then I'll buy that we're on a pure supply & demand curve.

"There aren't enough developers" is explicitly why devs can make six figures rather than $10/hour.

> the truth is that once you get to the point of "competent developer" and the meaty part of the bell curve, we are all pretty much interchangeable. It then becomes a question of who will do the same work for less.

This under-values domain knowledge and especially company-specific knowledge. Yes, someone can ramp up on a code base over time, but I don't know if you've seen how ugly the limiting case is where they utterly replace all the devs with a new set who know nothing about the codebase and drop all the organizational knowledge. The rate at which things get done suddenly becomes a fraction of what it was before and the defects multiply quickly.

I disagree, there was a time when the finance community similarly valued themselves with the broader market until some people realized the numeric dollar value they could create. And the rest is history. Its time for software engineers to collectively realize their expanding relevance to value creation in actual numeric value.

Why collectively? Did the finance people need anything collective?

Not sure how to answer that

It's routine to get bonuses larger than your annual salary in finance, specially in investment banking roles, this is not routine in software engineering

but many forms of greater liquidity could be possible for potential value producing software engineering roles

Only the total compensation is important for me. If anything, I'd rather get a stable one than a variable one. (Variable is only better, if the expected value is higher.)

In any case, in https://news.ycombinator.com/item?id=12212180 you said something like

- finance people used to get normal amounts of money, now they get more - hence, software people need to do something as a collective.

I don't see how the first implies the second. Especially since the finance people didn't do anything as a collective, did they?

I think his point may be: Don't be that guy who accepts $5k less.

They have you trained well.

Assuming perfect information, yes, "supply and demand". Since you are so eager to offhand dismiss people, you can now research that one condition you conveniently left out.

>Assuming perfect information, yes, "supply and demand". Since you are so eager to offhand dismiss people, you can now research that one condition you conveniently left out.

There's plenty of information about salaries at software companies floating around. Everyone knows (or could know with a quick search) what the salary for each level at the big tech firms are, as well as what the typical pay at startups is.

It's a bit harder to do for a fresh grad in the middle of nowhere that's not already in Silicon Valley or even the same continent.

However the information problem for employees isn't actually all that bad, as you say. The problem for employers trying to figure out whether people can actually perform is much, much harder. (But luckily they can usually diversify their bets amongst more than one employee.)

I tend to ignore any comment that starts with "you misunderstand basic economics". That's not so much the arrogant tone but rather the crass dogmatism that pervade those comments.

Change the set of axioms and the initial parameters and you end-up with invalid definition and properties of market dynamics. I guess OP probably believes that markets reach equilibrium by themselves.

This reality provides one of the best arguments for a switch from a capitalist economy, in which it is shareholders who have little to do with the creation of value in the economy who ultimately benefit the most from it, to a free market socialist economy (one based on democratically owned worker cooperatives). In an economy based on worker cooperatives, the distinction between "employee" and "owner" is eliminated. Instead of there being competition in the labor market which drives salaries well below the value created by individual laborers, labor simply receives the value it creates.

Consider that practically every company begins as a democratic worker-owned cooperative, and those worker-owners generally can't wait to diversify themselves out of that position. Risk exposure is a lot higher when you're a worker-owner, and most people are horribly risk-adverse.

Ignoring the risk factor in the equation leads to some rather wrong conclusions.

exactly. The point of shareholders is so that you can spread risk and reward. Instead of contributing all the capital yourself, you sell shares in your business to others, giving up some reward, but also a lot of the risk. Without this, the economy would collapse

> most people are horribly risk-adverse

Free market socialism (i.e. a large UBI + single payer healthcare + low regulation) would largely mitigate that risk aversion, especially when combined with low levels of personal debt, since if you fail you can always count on decent healthcare and the UBI check.

One advantage of the NHS serious medical conditions wont bankrupt you.

That can work fairly well. If you finance the government largesse with a land value tax, you can even untax capital and labour and remove almost all distortions to the economy.

Err no not in my experience - I used to be member of a well lnow tech coop in the UK. They way you structure it is your a member of the coop that owns the company who employes you .

Of course Mondragon in spain is different you have to Ante up

What do stock holders actually risk when they buy stock? Only the money they put into the stock. What does an employee risk when he joins a company? Potentially his livelihood if the company goes under with out warning.

I would argue that the employee's current risk is greater than the stockholder's risk, since the stockholder generally has much more information about exactly what he is risking than the employee does -- and a greater legal right to that information. The average employee has no legal right to information about the health of the company where he's employed. He has to take the risk that the company isn't simply going to collapse out from under him leaving him with no income and a, best case, several week or month job search.

So what about the case of a worker cooperative economy? Where would the risk come from in a worker cooperative (beyond the normal risk an employee assumes)? Capital financing, which could still be done by debt or by crowd sourcing. In the case of debt, the risk depends on how we structure the companies. If they are structured as limited liability corporations, where only the property of the company can stand as collateral for debt, then the employee owner doesn't risk anymore than he does joining any other corporation. The difference is he has a legal right to complete information about the company's health and a voice in picking its direction.

He actually take substantially less risk in a worker cooperative (where employment means ownership is granted as a part of salary as opposed to being required to buy shares) than with a normal corporation. And he stands to reap the full benefits.

This is interesting. Can you suggest any resources that lay out concrete proposals for how this could work in practice? Are there examples of where it has already worked in the world?

Some questions: 1. Wouldn't there still be a need for capital to finance risky ventures that take a long time to create value? How would a forward-looking startup with high capital costs, such as a biomedical device company with unproven technology, work in this economy? 2. How do you measure the value labor creates? 3. Is the allocation of resources among labor proportional to the value it creates? How does that work among a team of specialists that are more than the sum of their parts?

I'd genuinely like to understand whether this could work or has worked.

Richard Wolff and Gar Alperovitz have both written about alternative economies based in part or in whole on worker cooperatives. If you're just curious about how worker cooperatives work in the existing economy, read up about Mondragon or the South Mountain Company. A good book about the latter, written by its founder, is Companies We Keep by John Abrams.

http://www.chelseagreen.com/business-economy/companies-we-ke...

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