Why are tech salaries so high?
Does it feel like tech employee salaries are doubling every 5 years? And what does J. Powell have to do with your expensive developer? Hiring and sustaining tech teams has become extremely expensive and time-consuming, and US interest rate has a lot to do with it.
IT professionals’ salaries have indeed doubled in the last 15-20 years and are at an all time high with Google’s median employee salary sitting at $300k… double click into that stat, we are talking about Google’s employee median, not even software developer median. Here’s why:
An era of US abundance: The US Federal Reserve and Treasury.
The US has the largest tech industry in the world, and of course is the wealthiest country in the world. Market forces in the US have an effect on global markets and industries as they change. Very low/zero interest rates since at least the 2008 financial crisis, as shown in the chart below, means that borrowing money was basically free:
(Source: https://www.macrotrends.net/2015/fed-funds-rate-historical-chart)
What this means is that banks could borrow money at low interest rates. Companies and individuals in the US can also take our cheap debt (almost free money) to finance growth or buy assets – the lower the cost of money, the less pressure there is to pay back the loan. Money supply increases, resulting in billions of dollars pouring into the Venture Capital (VC) industry, creating a massive bubble in the tech industry in the US. We are seeing this bubble deflate in late 2022 with massive tech layoffs in Silicon Valley.
VC firms take our debt and invest in speculative high risk tech startups, funding these companies to the hilt. In 2021, it was not uncommon to hear of a founder receiving millions of dollars in venture funding, off the back of a powerpoint presentation. Big tech also borrowed cheaply to fuel growth. Growth and expansion demands human capital to develop new products. Consequently, companies have been in a war for talent, bidding and out-bidding each other to offer higher and higher salaries, driving up remuneration across the tech industry in the US.
This is a real response we received in our DMs from in discussions with a candidate:
Then of course, the world discovered that work could be done remotely during the pandemic which accelerated global hiring. High-paying Fortune 500 companies realised that they could hire knowledge workers from anywhere in the world, more cheaply than hiring US talent. These companies could offer much higher salaries for developers in India, Pakistan, Ukraine, Poland, Mexico, Brazil, Philippines than other companies in those regions. Finally, this caused an increase in the demand and accessibility for talent globally and increased the average salary for developers globally.
When looking for developers, quality skills can be found in every region, but some regions offer the perfect combination of cost, culture, expertise and work ethic. Ukraine is one of those places, and we continue to hire and grow our footprint in this region. South Africa could be one of those places, but SA does not produce anywhere near enough tech skills, and has a massive brain-drain issue which is yet to be plugged. Needless to say, in both countries, the supply of developers is restricted and their salaries keep going up and to the right.
There are only about 27 million software developers in the world, with tech and finance being the largest industries in 2022. Supply does not meet demand for software specialists, so the “cost” of a developer just keeps going up. Perhaps with the Fed increasing interest rates, we may see a slow-down in this trend. However, new tech is driven by developers and given the tech is not slowing down, salary increases won’t either!
