Are tech workers going to be paid much less now?

A pause in the gold rush.

When I was a kid in the 90s, there was this idea that everyone was going to learn to code, and that we were going to become a nation of computer programmers. Then after the dot-com crash, in the early 2000s, a bunch of people said that coding was a dead-end job, that everyone in America would be replaced by cheaper, equally competent workers from India and elsewhere. In fact, both prophecies were wrong. Software engineering never became the kind of mass-employment job that manufacturing did, but for those who stayed in the industry, opportunity roared back. Of course if you were lucky enough to snag an early job at Google or Facebook you got very very rich, but even if you came in later, once the big companies became big, you were doing very very well. Software engineer compensation at the top companies is several times the median U.S. income, even at the low levels. Here are some self-reported salary figures from a website:

Source: Levels.fyi

Not bad work, if you can get it (and upper management gets paid so much they’re not even listed on the website where I got the data.) It’s not just engineers; project managers and data scientists get paid big bucks too. Nor is it just the FAANG who pay this much — medium-big companies often actually pay more, to make up for the greater risk and lower pedigree of working there.

But there is one small catch: A lot of this compensation is in stock rather than cash, and the percent of stock tends to go up as you go higher up the pay scale. This stock is generally given in restricted stock units (RSUs), which you can’t sell for a certain period of time. So if the stock goes down before you can sell, you just took a big retroactive salary cut.

And hooo boy, did tech stocks just go down. Netflix is down 70% this year so far. Shopify is down 74%, Coinbase is down 75%, and so on. Even the big champion companies are down — Amazon 37%, Facebook/Meta 43%, and so on. The Nasdaq as a whole is down around 28%. And the markets might have further to fall.

That will drive down compensation, especially for the highest-paid folks. Some will get their companies to issue them more stock in order to “right-size” their compensation going forward. But the market crash reflects not just pessimistic sentiment, but also disappointing earnings. If lots of tech companies don’t have the money-printing power people thought they had, wages are going to fall and jobs are going to be more scarce, at least for a while. Already, some tech companies are engaging in hiring freezes and layoffs.

For some, that raises the question: Is the great tech job gold rush over now? Is learning to code and moving out to the Bay Area or Seattle no longer a glide path to the upper class?

Well, no. But I think we may see some long-term changes in the tech labor market going forward. The crash suggests that tech industries’ markets might be more competitive than many assumed. And we may also be witnessing changes in the clustering forces that have pushed high-end tech workers into overpriced cities like San Francisco. So ultimately we may see a tech industry where rewards are less eye-popping at the high-end, but more evenly spread out across workers and regions.

Salary cuts should be spread pretty evenly throughout the industry

Suppose you’re a software engineer at one of these companies, and you got hired a year ago at a compensation level of $500k, with half in cash and half in stock. Then your company’s stock declines by 75%. Well, now your salary over the past year was $312,500, not $500,000. Nothing to cry about, certainly — you’re still making almost ten times the median personal income. But if you just bought a house based on a $500k salary expectation, you might be facing some difficulties.