Opportunity Costs of Technical Talent: Intuition and (Simple) Implications

TLDR

  • Strong technical talent has very high opportunity costs right now

  • Therefore, technical nonprofit projects need to do one of:

    • Create very large amounts of value per person

    • Find ways of usefully using people with low opportunity costs

  • These basic principles also apply to other areas

Meta

Epistemic Status
I’ve known this area for a while and am speaking from experience. This post is mainly to attempt to convey intuitions. If you want to know more about the specifics of (high) salaries in the tech sector, there’s a lot of other materials out there.

Facebook Thread
An early version of this was written as a Facebook post. That post features some relevant comments.

Personal Take
I’ve been struggling to figure out how to best express these ideas. I think these metaphors will be useful to some, but get in the way for others. I think the ideas are useful. I wish the flow were better, but the opportunity cost of improving it further seemed too high.

Ambitious Software Engineering Efforts
This is on the same topic as the previous post, but the style is very different.

Updates
6PM Nov 19: I changed the title from The Dreaded Beast Who Gobbles Up Technical Talent, after feeling sort of awkward about it and noticing the post seemed to be getting some downvotes.

The Horror

Software products take almost absurd amounts of labor and talent. The world has far fewer people capable of implementing these services than it does potentially useful services to be implemented. Market forces mean that the absolute most profitable sectors are eating up the big bulk of these capabilities, and everyone else gets the scraps.

Startup valuations are sky-high right now. Tech salaries are increasing. Recruiters are looming.

These bring a ton of pressure to non-elite employers.

It feels like a nefarious beast that eats up anyone who gets to be too good or makes loud noises.

slime
https://​​castleage.fandom.com/​​wiki/​​Abomination,_Ancient_Slime

Employers are like horror movie civilians. Hiding in corners. Trying to keep hires who won’t attract the hoard. If anyone gets too experienced, they’ll be noticed. Maybe if they provide some work-from-home or extra vocational benefits, they can mitigate damage this year.

It’s like a chopping block that destroys (from the employer’s view) anything that clears a nebulous bar.

Or a swarm of locusts that comes intermittently and eats up all of the promising opportunities and leaves dust in its path.

locusts
https://​​www.maxpixel.net/​​Swarm-Meadow-Insects-Grasshoppers-Animals-Locusts-5952699

It’s terrifying, and it’s a constant worry.

Sometimes this effect is called Creative Destruction. [1] Creative Destruction sounds like accountant jargon for a minor inconvenience, not like a terror that devastates ambitious efforts.

Is Good Management a Solution?

One common criticism to the above complaints is something like,

“You just need to have great management. If you can inspire programmers, provide great working conditions, and find really ideal projects that provide solid returns.

I agree that if you have great management, you can greatly reduce the problems here.

SpaceX and Tesla are both interesting examples. I went to college in Engineering at Harvey Mudd (graduating in 2012), close to LA (roughly near both companies), and have friends who went to both companies. Pay was surprisingly low at both. Hours were often incredibly high, and the working environments seemed highly stressful. People seemed to work there due to a combination of company vision, ambition, professional status, and interest.

Few companies can figure out how to replicate these conditions. Elon Musk figured out how to, and now he’s worth over $250 Billion.

So, if you are the next Elon Musk, you can probably make it work. You can outcompete the rest of the market at converting labor into economic value.

But, say you aren’t Elon Musk, and you’re not even Google Product Manager level. Can you just hire managers that could do this work?

The obvious answer is,

“Yes, in theory, but then you need to worry about the beasts that come after great management talent.”

Excellent technical managers have even higher opportunity costs than excellent engineers, and there’s even more competition for them. These people are incredibly valuable and the market has recognized that.

Implications

All this is great for employees! It’s probably a (mostly) efficient allocation of resources (Capitalism in action!)

But I’m going to bet it’s been pretty brutal for any org that can’t quite pay competitive rates (which are very high right now).

Governments, nonprofits, mediocre companies, hospitals, open-source community projects. All of these have had a really miserable time getting good talent, and I imagine it’s getting worse.

If you’re upset that your US government website, free open-source package, health tech app, or effective altruist web service [2] are really bad… well, I think this is the other side of it.

Is this still a problem for Effective Altruists?

You might be thinking,

“Sure, most organizations have trouble finding great talent in areas of tight competition. But within effective altruism, people are altruistic, and will forego high salaries to work on really important projects.”

I think that opportunity cost challenges still apply. Effective altruists now have a lot of money, but not that much money. [3] [4]

I’ve so far seen multiple incredibly promising effective altruists leave effective altruist nonprofits because the money outside of them was just too good. Their intentions are to earn more and donate. This is even happening very recently; after Open Philanthropy started donating heavily to select effective altruist organizations.

I might write more about this in future blog posts.


  1. Thanks to Stefan Schubert for this connection. ↩︎

  2. I don’t mean this as a dig at effective altruist websites. I think they’re really great compared to what we should have expected. But, for example, there’s clearly a gap between most effective altruist website designs and that of Apple and Google. The main point of this article is that we could choose to fully close that gap (and similar gaps), but it probably wouldn’t be worth the costs. ↩︎

  3. For example, I can’t imagine any EA donor paying a non-ML engineer/​manager $400,000, even if that person could make $2,000,000 in industry. I realize this isn’t a perfect argument; you could argue that this wouldn’t be funded because it was weird, not because it’s expensive; but I think the argument mostly holds. ↩︎

  4. To be clear, if employees leave projects to make dramatically more money, and then donate the difference, that would be a good thing for effective altruist interests on the net. However, if they kept on doing it, that would imply that we’d have to rethink what sorts of organizations we can expect to make. The challenge is to find projects that justify the opportunity costs of the employees. This is a hard challenge. ↩︎