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Believe it or not, this explanation of the dynamics is relevant to Econ 101, in that it employs a number of fallacies directly addressed in a first year intro class.

Let's start with whether non-engineers should subsidize the salaries of engineers through implementing protectionist policies at their own expense in terms of more expensive products? This isn't an obvious answer. Presumably, protecting the salaries of engineers through strict immigration policies also protects the salaries of doctors, factory workers, accountants, taxi drivers, bankers, lawyers, teachers, agricultural field workers. In other words, doesn't it protect the salaries of everyone, across the board?

Does the cost of excluding foreign trained engineers end up being paid back to everyone when their salaries get subsidized as well?

What do people do with their salaries? They buy services and stuff, and the vast majority of the costs can be traced ultimately to expenditures on labor. In fact, it is counter intuitive, but greater capital efficiency in terms of automation and software for example (developed by engineers) makes the non-labor inputs relatively cheaper in comparison to the labor inputs, and explains why real income and measures of quality of life have surged over the past 50 and 100 years.

How do we know that it isn't just an act of faith to believe greater competition for wages doesn't hurt people more in terms of lower salaries than it helps them in terms of decreased costs? That's a comparatively simple answer—people are only hired if the opportunity cost of not hiring them is greater than the cost of their entire compensation package. In other words, if you make $100k in your job, someone who managed not to go out of business is under the impression that not having you would make them lose out on more than $100k of revenue.

Economic growth comes from a greater number of transactions, where the surplus value from what the work is worth is greater than what the effort is worth. Growth does not come from constraints on supply. The immigrant who is paid $80k for work worth $120k takes out $80k, but contributes $120k of work. The original worker, took out $100k, and contributed the same $120k. The aggregate economy is $20k richer, and it is spread out to everyone, because consumption and production balance out.

The scope of my argument is narrower than you're making it out to be. Letting in immigrants with tech skills would definitely hurt engineering salaries. Would it help the average person who doesn't have a VC fund? Possibly, but deciding that point involves a lot more assumptions about the nature of things.

If all occupations cooperate and allow greater competition in their respective fields, then the net wealth effects on the economy are positive. If one occupation blocks competition, its members may benefit relative to other occupations, but there is no reason to assume that only one occupation will be able to defect, and encourage a policy decision that benefits its members.

One of the ways to counter the inevitability of actors making rational decisions that end up making everyone worse off is through the setting of effective public policy with an eye to aggregate benefits.

I think it is very safe to assume that the point of funding engineering education was that engineers' work is valuable to society, not that people who can make it through intrinsically merit certain salaries. If acquisition of talent through immigration is another channel, so be it.

The idea of education subsidies is also interesting to consider. On one hand more people are able to choose the career, so the skills are less scarce, and salaries are lower. On the other hand the increase growth in the community of trained people allows for greater sophistication, cooperation and specialization, which leads to more valuable output, and higher salaries.

Letting in immigrants with tech skills would definitely hurt engineering salaries.

Not necessarily. Letting in immigrants with tech skills to compete with software developers should reduce salaries. But letting in immigrants with tech skills to found companies should drive up demand for software developers.

Letting in immigrants with tech skills would definitely hurt engineering salaries. Would it help the average person who doesn't have a VC fund? Possibly, but deciding that point involves a lot more assumptions about the nature of things.

What assumptions? Do people who are neither software engineers nor VC fund owners not own cell phones? Do they not use Google and Facebook? Etc. etc.

Comparative statics are not a good way to analyze immigration policy!

I don't know whether there is a shortage of engineers in the US, but I know that your argument that there isn't is invalid, because 90% of the country could be starving and you could still say that there is no shortage of food, after all anyone willing to pay the market price can get it.

Those benefitting from higher wages are not the people of the United Stated who defend the borders, just the small fraction of the people who happen to be software engineers. All the rest of the people of the US are hurt by this, since they have to pay more for the goods and services to which the software engineers contributed.

Economic shortage is a term describing a disparity between the amount demanded for a product or service and the amount supplied in a market. (http://en.wikipedia.org/wiki/Economic_shortage) Note, that says noting about price. The reason why there is no shortage of engineers is there are surplus 'Unemployed' engineers on the market that move into other industries not because they are cheap. One of the first effects of a shortage is an increase in price, however wages have stagnated again suggesting a surplus.

PS: Rayiner's argument is despite a surplus of engineers people still want to increase the H1B cap and they want to do that to save money.

Oh please. "The reason why there is no shortage of food is there are surplus 'Unrealized' meals, i.e., all the things other than food produced by people who could be producing food instead, if only food was more expensive."

(As a side note, I personally have never met or heard of an actually unemployed software engineer, i.e., a person who was able to write code and was looking for a job and couldn't find one. Not only in the US, any of the countries I've lived in. Unemployment in Poland in the early 2000s was at times above 20% and yet I've never heard of an unemployed computer programmer, despite the fact most of the people I was hanging out with were computer programmers.)

There are a lot of talented engineers who have been forced out of the field due to never finding a job after collage. I worked with a guy that had his masters from MIT in engine design who said less than half the people in his program found Engenearing jobs and that was more or less expected. He was doing statistical analysis of criminal behavior.

Now Progamers are in much higher demand, but even still the percentage of programmers that stick with it for more than 10 years is fairly low.

I know at least 2 who were unemployed for some time. But then again, I only know them because my employer is the one who fired them.

I think there's something like 5% unemployment amongst computer programmers in the US. Based on experience with (ex-)coworkers, that number can easily be attributed to people who are looking for programming jobs who aren't competent enough to hold a job. In fact, that unemployment number should probably be higher, and I shudder to think what kind of crappy unmaintainable code is being written by those programmers who really should probably be unemployed (or at least in another field.)

In short, our need for programmers doesn't come from some lack of people willing to work for a certain salary; it comes from a lack of people capable of doing the job.

This doesn't entirely make sense. Price is inextricably coupled with supply and demand. I mean, you literally cannot graph supply and demand without involving price, because price is one of the axes of the graph.

I don't know about the "unemployed" claim. Is there any data on this? The existence of some unemployed engineers does not mean there is not a shortage of engineers. They could be grossly incompetent. Or they are part of the level of unemployment that is considered normal. That's why 4% unemployment is considered to be "full employment."

Wages have most certainly not stagnated in the tech industry.

You can have economies without prices as with socialist states.

Econ 101 also distinguishes between elastic and inelastic supply. Engineering labor supply seems pretty inelastic - doubling engineering salaries might only raise supply 5% (some students switch majors, some engineers choose to work more hours or retire later). That is the definition of a shortage - there is not enough at any price.

That seems a pretty bold claim to make that doubling salaries would only raise supply by 5%. During the tech bubble people were coming out of every nook and cranny imaginable.

Yeah... but they weren't producing anything, which caused the crash.

No, what caused the crash was that there was no bigger fool to sell overvalued stock to. Engineers coming out of the woodwork were simply responding to the economic incentives that existed for them (and that's the problem with bubbles, it's that incentives get distorted).

I'm sure d2vid was exaggerating, but engineering labor supply is most certainly inelastic.

this is a long-run / short run criterion. but it is frankly irrelevant and trumped by the OP's analysis. the shortage of STEMs is a myth. People with those skills don't per-se want those jobs. Its like gulf-arabs. They need to import labour to clean their toilets. There is not a "shortage" of skilled labour in the houskeeping sector. At least not in any normal sense.

If no one wants to do a job at X price, it is then by definition a shortage.

Neoclassical economics suggest moving up the price ladder. But as a comment above mentioned, STEM job supplies are quite inelastic. In fact we should expect it to be inelastic, since STEM jobs require more expertise than say general labour.

no one != not one more

there are other options any fixed price x(i): no trade (not one), and equilibrium (no more). If X is floating, the question is different. Then its a question of why X wages are not enough. Its also a question of why the jobs are not made better (not everything is price related, the firm is a hierarchy...). etc.

The US also spends a lot of money subsidizing engineers. It spends $76 billion a year on defense R&D. For comparison, Google's annual revenue is just north of $50 billion.

I don't know how much of that money goes to engineers, but I do know that more than a handful of my engineering friends have been lured to defense. It would be interesting to a study that tried to quantify the distortions, though.

A subsidy is money paid to producers to offset production costs and reduce market prices.

Employing engineers in defense has the opposite effect of a subsidy: it takes engineers out of the commercial job market thereby decreasing supply and raising prices.

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

What you described is one type of subsidy. It's not the only type.

From that wikipedia article you linked: "In standard supply and demand curve diagrams, a subsidy will shift either the demand curve up or the supply curve down. A subsidy that increases the production will tend to result in a lower price, while a subsidy that increases demand will tend to result in an increase in price."

Defense R&D increases the demand for engineers and thereby raises their "price". I don't know if it has a significant effect though.

Neither tlb nor cadlin are entirely right about this from an economic standpoint.

The government employing engineers is strictly speaking not a subsidy. It's just an increase in demand. Yes, one type of a subsidy does result in an increase in demand. But causing an increase in demand is not a necessary&sufficient condition for being a subsidy. Because now the government is demanding engineers. It does not decrease supply. Someone who is employed is still by definition part of the labor market. The only person who is not a part of the labor market is someone permanently not looking for work.

Defense spending goes to MRU's who train engineers who go into the private sector. E.g. MIT receives almost $1 billion in DOD funding each year, which benefits all the companies that hire MIT engineers.

Even where we are now I know several people who are going back to school to get their comp sci degrees that were previously anything from teachers to law school graduates. I would argue that 1. This market is elastic and that 2. labor is slower to shift than capital.

Everything is elastic over the "long-term." But things can still be very inelastic over the short term. Like the supply of engineers. In your case, it would take 4 years for those people going back to school to finish their bachelors degree, and, if we're talking about the supply of PhD engineers, 5-6 more years to get a PhD. That's a long time in the tech industry, especially given the tech industry's growth. That's four to ten billion-dollar companies.

you are right that there are probably many people who see immigration reform as a way to drive down labor costs. you're also correct in asserting that it's wrong to equate immigration opposition to xenophobia.

an elite investor like mike moritz, however, cares less about constraining costs and more about planting seeds, that is ensuring the brightest minds launch companies in silicon valley. he makes money when entrepreneurs dream of and execute against audacious ideas that change the world. people like sergey brin and andy grove. billion dollar ideas and teams, the ones he generally invests in, can attract financing and are not more likely to succeed if labor costs dip. in other words, most of his failed investments did not fail because labor costs were too high.

while there may not be a shortage of engineers, there may be a shortage of quality engineers. degrees do not guarantee talent or quality. i graduated with dual degrees in computer science from stanford, yet if i had pursued a career in software development, i would have been at best a good engineer -- not an elite one. the stripes, facebooks, and googles of today are seeking world class engineers. not merely good ones. this is the crux of mortiz's argument.

I don't buy the argument that the Facebooks and Googles of today can't find the "elite" people they need. They just have not, until recently, been willing to pay what it takes to recruit those people.

I went to one of the more well-known STEM magnet high schools in the U.S. Lots of very bright kids, total immersion in science and technology. Looking back on my class 10 years later, I see way more people in finance, consulting, law, and even accounting than in STEM. Until the recent Silicon Valley salary wars, the tech industry just didn't pay salaries sufficient to compete with those other industries for graduates. Contrast my brother, who graduated from the same school, and recently from one of HYP. Tech attracted a lot of people in his class. And it's obvious why. Salaries at the top software companies are now quite attractive relative to any other industry besides Wall Street (and a lot of people would take a 50% paycut to work for Google rather than Goldman).

Well, he seems to be arguing that without an immigration reform, you may not have Google in the first place (it's getting tougher for skilled immigrants to come in):

"Everyone knows that the remarkable achievements of the foreign born have led to the formation of companies such as Google, Intel, Sun Microsystems, nVidia, Yahoo! PayPal and scores of others. Of the last eleven early stage companies that have allied themselves with Sequoia Capital, seven have had immigrants among their founding lineup."

They also explicitly say on their website that they invest in Gen1 companies: http://www.sequoiacap.com/us/about/gen_1

google can obviously afford to pay much more for talent. one reason they don't is to avoid attracting mercenaries. they seek engineers who love working at google and building great software and products -- not people motivated primarily by compensation. they are happy to let those people build careers on wall street if money matters more to them. as a clarification, many people have legitimate reasons for prizing money (e.g., paying off debts, supporting family) above else, but these are not the people google wants. the definition of elite here extends beyond intellect.

Do you work for google or something?

Google, Microsoft, Apple, etc.. have illegally agreed to not poach each other potential engineer therefore keeping their wage down.

http://news.cnet.com/8301-13578_3-57565425-38/apple-google-a...

They can pay more, they just don't want to, because why pay more when you can pay less to get the same value?

That is a rather silly argument: Are you saying that excellent engineer A who is being paid $100K won't be paid $300K because that will attract the "wrong kind of people". Why not just make sure you have interesting work and have a process that filters in the kind of people you want instead of artificially depressing the market...

because one way of filtering is by not offering $300K and giving only $100K instead. if the candidate wants more cash upfront, go to wall street. google is testing how much you want to work there. put another way, google attracts engineers who feel that working at google and working on world-changing products is part of the compensation. cash is another part. writing bank software and working in an org where engineers are second class citizens will appeal to fewer developers than writing world-changing software in an org where engineers are first class citizens. banks must pay more to attract engineers of comparable quality as a result.

Absolute bullshit. Let me give you a direct counter-example. Want to know where you rank in the Google pecking order? Tell your manager that you are considering an offer from Facebook. Expect to see a raise and/or equity refresher and your choice of interesting projects to transfer to, if not then you are just a drone and should either count yourself lucky to even be there or start looking for a better gig.

Google attracts engineers who want to work on interesting things _and be paid extremely well for doing so_. Period.

your argument is sound, but i'm not sure how this contradicts my statement.

my point is this: they want people who want to be at google, and offering a lower salary (or not the highest salary) is one way of filtering for those people -- because they are willing to take less compensation to work at google.

working at google and working at citibank are like two products on the market. if you value one more than the other, you're willing to pay more -- that is, accept lower compensation.

of course, they will pay more for engineers they deem valuable (as in your example) and even mercenary exceptions who are supremely talented and well-suited for a strategic task.

but this doesn't invalidate the notion that a lower base salary helps filter out people who assign little value to working at google.

I am sorry, I don't know you from heck. However, I must ask you this: Have you worked at Google in the past two years? No offense but Google has thousands and thousands of engineers. Long gone are the days where each and every engineer used to work on world-changing stuff. These days, there are enough people who work at Google and are still cogs in the wheel. This doesn't necessarily mean that Google itself doesn't do interesting work or there aren't people (who have wikipedia entries to themselves) working at Google on the most cutting edge problems. Frankly, the fact of the matter is that a non celebrity who just graduated from school is not going to be paid to work on the next game changing search/social algorithm at Google. On the other hand, he or she might be a quality engineer and deserves to be paid commensurate with the market's needs.

you're right, sorry for the confusion. i didn't mean to suggest that every google employee works on world-changing software. what i meant to say is that engineers "price" google employment much like they price any product on the market.

if they value google employment more than citibank employment, they're willing to pay more, that is accept lower compensation. beyond world-changing projects, there are benefits to google employment that attract developers -- things like free restaurant-grade food, the google stamp on a resume, and bright, motivated co-workers.

if these intangibles diminish in value and cannot any longer offset the lower cash compensation, people leave.

> It is the people of the United States that defend our borders, and it is therefore the right of those people to decide who gets in those borders and who does not. The people are entitled to decide for themselves what kind of trade-offs they want to make re: immigration, based on what benefits them the most. One can make a credible case that the U.S. is in danger of losing it's place as an attractive place to start a technology company if we don't allow more skilled immigrants. One can also make a credible case, without any xenophobia necessary, that we already do a lot to create a large supply of engineers in this country, and that the U.S. is not in any danger of losing it's attractiveness at the moment, and that we'd rather enjoy the higher wages that come from limiting the labor pool.

Although, I agree with your general point, I want to point out that the way the American system works, it is not exactly designed to figure out what the people want. Immigration is an interesting point where both Democrats and Republicans are under intense pressure by lobbyists to make sure high end immigration keeps flowing in (which cynical me agrees with you is for wage depression.). On the other hand, they completely ignore the fact that a huge swathe of the population has falled into the cracks with both border security broken and the fact that illegal immigrants have made a life for themselves here but have none of the benefits of a citizen.

I tend to agree, when universities are supplying growing numbers of a type of skilled worker, it's counter-intuitive to flood the market with foreign skilled workers.

Importing skilled workers not only floods the local market but creates a shortage in foreign markets to depress those countries abilities at effectively forming their own industry.

This is in the investors best interest as it increases their ROI, but it isn't beneficial to our local workers, nor is it beneficial to the origin countries of our imported workers.

As an immigrant working in the construction sector and I can say that the "shortage of tradesmen" is genuine and widespread, which creates an exponential increase in wages and job costs. I receive in company benefits (estimated at my cost) monthly around the same figure as my monthly income, which is likely the point when an industry is in desperate need of new workers.

Can you point to data corroborating your statement that universities are supplying a growing number of STEM graduates?

It sounds like marxist unionism that I'm so used to. However that's not how free market works. Nobody can build a business paying people an ever increasing salary. Until and unless there are lots of companies in U.S that could pay people an ever increasing salary, there's a shortage of tech skills. So a simple measure of shortage of skills is to look at median wages for let's a 5+ years experienced engineer in a particular technology. If the graph points upwards over last few years, you have a tech shortage and sooner than later, some companies(usually startups) would get starved of well qualified engineers.

We hear about 100k+/year salaries for software engineers here on HN every day. Why would salaries be so high (almost 3x the median income) if there is no shortage of workers?

Alan Greenspan makes this point in his book. Educational disparity is the THE primary driver of income inequality in the US.

Too few people graduate with the skills for highly technical, quantitative, or scientific careers, and therefore the supply of those skills relative to demand drives a very high premium.

Many of these salaries are in Silicon Valley, where the cost of living is sky-high. It takes a six figure salary to live decently in these areas. I've seen a number of posts and comments to the effect of lowering their standard of living my moving to Silicon Valley - even with the higher salary.

Not sure where you get this idea that one cannot live in San Francisco/Silicon Valley without a six figure salary. Thousands of people live in San Francisco and do not work in tech and surely make much less than six figures while still live relatively well.

I live in San Francisco. 35-40% of my income goes to oil the tax wheels, another good 15 % goes to make sure I can live within the city. If you keep doing the math, you don't save much at the end. I am not saying I live paycheck to paycheck but the city is so freaking expensive that you don't save much. In fact, a friend making 30% or so less in Austin did the math and found out he could save much more than I could. On the other hand, I am not complaining, I choose to live in this great and amazing city.

You have used the Econ 101 concept to suit your view. From the point of view of software buyer when prices go up demand goes down. Which means less opportunity to grow which equates less employment. It works both ways.