Ask HN: How do the recent tech layoffs affect salaries in the job market? | Hacker News Reader

Ask HN: How do the recent tech layoffs affect salaries in the job market?

14 pointsdm035148 comments

I'm a complete economics n00b. I'm wondering if the flood of layoffs is enough to drive salaries down? Assuming the number of engineers is constant between pre covid and current, is the influx of talent back to the market enough to drive salaries down?

If engineers are constant and opportunities are constant? What are some strategies for reasoning about this using sound economic principles?

Taking a stab at it, based on really nothing. If the number of candidates and opportunities are constant, than the market could absorb everyone fine, but I don't think this is the case. I believe that covid created more opportunities, so more opportunities and same amount of workers created a scarcity of workers driving salaries up. With the recession opportunities are shrinking, but workers are staying constant, trigger a return back to pre-covid salaries??

Anecdotally, I saw an increase ~25% pre covid to peak covid for my market and role!! It's hard to imagine that this is still the case with the current influx? WDYT?

Thank you!

My expectation, based mostly on seeing who I have observed being laid off is that there will be many fewer positions at a mid-senior level (Google L5 / Amazon SDE III, etc), and that many folks who have historically been in those roles will have to either pass interviews for Staff-level, enter management, or accept pay in the L4/SDE II bracket if they want to find work quickly.

Economic theory can often be inaccurate for this. For example, we predict that if a state has a minimum wage and a neighboring state doesn't, unemployment in the state without minimum wage laws will increase, because people will cross the border for the higher salaries. Turns out that's not the reality. You have to look at real work "controlled" experiments to verify the theories.

Salaries, like real estate prices can be quite static, except when it's a bubble of someone trying to sell something to the next sucker. If someone can't hire someone at a specific budget, they're more likely to not hire anyone instead of increasing the budget. Similarly, if someone can't get the same job at the same salary, they end up getting other jobs. We see cases where actors without work become waiters instead of taking a poorly paid acting role.

There's probably some point of desperation, but even then, some people are likely to take jobs at shitty startups that work them 12 hours/day, 6 days/week than take a pay cut.

My prediction is average salaries will go down very slowly. Probably 0%, a decrease compared against inflation. Maybe around 5% this year. What will most likely happen is work conditions will become worse and benefits will be cut. Many people will simply change careers. It might be like the telco boom, where people with a telco degree and experience just ended up making apps in 2010.

> For example, we predict that if a state has a minimum wage and a neighboring state doesn't, unemployment in the state without minimum wage laws will increase, because people will cross the border for the higher salaries.

I don't understand the logic behind that prediction. Minimum wage exists because we recognize people won't voluntarily move into the highest paying work possible, often prioritizing other factors like loyalty, enjoyment, fear of the unknown, etc. We impose minimum wage so that workers are forced into more economically productive pursuits in order to remain employed for the betterment of the economy as a whole.

If a state didn't have a minimum wage, while the neighbouring one did, we would first question why the one state found minimum wage necessary and would predict that is most likely that the other state suffers from the same problem, therefore realizing that workers in the state without minimum wage would be most likely to stay in the jobs they have, even if low paying. If people were always searching for the highest paying jobs available, minimum wage wouldn't be necessary.

The core of economics is people, not companies or money. People with incentives are quite predictable.

You do have a good point there, that you have model it as people. A person doesn't simply leave their city for a better wage; they can be tied down by family, friends, and certain loyalties.

In this case, you can model a working class human like you'd model lifestock, always seeking greener pastures, or like a bag of flour, whose price is controlled by regulation instead of supply. I don't think these models are necessarily wrong. And sometimes the more accurate ones tend to dehumanize. But it's useful to have experiments that prove/disprove a theory, instead of assuming everything in papers is true and applicable.

I also don't believe you can model tech workers like blue collar workers. The conditions are very different - length to get a job, severance pay, money in the bank, and so on. I would also assume that those in the minimum wage range would always search for higher paying jobs, because the difference between $7/hour and $11/hour is life-changing, whereas there's not a big quality of life difference between $70/hour and $110/hour.

> I would also assume that those in the minimum wage range would always search for higher paying jobs, because the difference between $7/hour and $11/hour is life-changing

I would assume they are less likely to.

Such a move may be life changing, but change isn't always for the best. If you have a $7/hour job you know what you've got. What if the $11/hour job is unbearable or the employer finds that you're not a good fit? As you point out, chances are you don't have any money in the bank to weather the mistake, making it an incredibly risky move. If you've been making $70/hour you're more likely to be in a position that you can be without work for a few months if things go bad, making a jump to $110/hour not so scary.

Someone making $7/hour probably has less time to look for a new job. Not only may they be working more hours to make ends meet, but lower paying jobs tend to be more commanding of your time while on the job. It is unlikely they can browse jobs sites while sitting in a boring meeting like tech can. Not to mention that a tech worker is more likely to have recruiters handing them opportunities.

As minimum wage exists as a tool to keep liquidity in the market in the face of workers not staying liquid by their own volition, once you know minimum wage is in the picture, you've already shown that the workers won't seek higher pay by themselves, no matter what their reasons are. If one state faced that problem, it seems likely that a neighbouring state would have the same problem. Cultures tend to be similar within narrow geographic areas.

So, I'm not sure I understand the basis of your assumption.

In the tech job market, the demand still exceeds the supply. This is beyond Covid, beyond the war (unless nuclear war happens I guess), beyond the current hire freeze in FAANG.

That means, when you are looking for a job you still have negotiation power when it comes to salary (but usually, negotiation, is an skill on itself and depends on many other things).

Found a bunch of statistics regarding this topic. Just linking one:

https://www.forbes.com/sites/stuartanderson/2022/09/27/tech-...

Meta grew it's workforce by 50% from 2019 to the layoffs.

They appear to think they can get away with 10 or 15 percent RIF to restore profitability.

The rest of the industry seems to think so as well.

Higher interest rates means expensive financing and poorer stock performance, meaning in addition to reduced profits - overhead just went up a lot for companies using debt rotation to finance operations to preserve equity.

However, the shift to remote work is real - so companies providing those services are going to stay. That's an entire market segment that simply didn't exist before 2019.

My prediction is that maximum pain is 4 or 5 months out, then we will start seeing salaries rise again and the labor market tightening back up as the companies that make it through see the light at the end of the tunnel.

The demand for staff/senior engineers remains high and salaries the same but demand for entry level/junior engineers has dropped along with salaries as many companies enact austerity measures.

Reply on news.ycombinator.com