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

by Ozzie Gooen5 min read19th Nov 20216 comments

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Software engineeringQuantified Uncertainty Research Institute
Frontpage

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. ↩︎

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This is basically my own experience. I worked a bunch on AI independent research, but now I don't really because it just doesn't make sense: I have way more opportunity to make money to do more good than any direct work I could do, in my estimation, so I just double down on that.

(For context I'm on the higher end of technical talent now: 12 years of work experience, L7-equivalent, in a group tech lead role, and if I can crank up to L8 the potential gains are quite large in terms of comp that I can then donate.)

  1. If you're a software developer reading this and you think you aren't taking advantage of this situation, consider talking to me. I know all sorts of common problems and potential solutions for this which I think are worth talking about
  2. From an employer's point of view, I'd consider take advantage of this situation by finding employees who haven't changed jobs for a long time.
  3. "I've so far seen multiple incredibly promising effective altruists leave effective altruist nonprofits because the money outside of them was just too good": 
    1. I'm surprised by this and I'd be happy to hear more. I would predict this doesn't happen so much.
    2. Also, I'd be happy to get more clarity about the need for software developers in EA right now (since I'm asked about this a lot and only have a vague sense of the situation)
  4. I love how you write :) It inspires me to try to present my ideas like this too

I just want to say I love this metaphor and have already referenced it twice in conversation.

Thanks so much, that's really useful to know (it's really hard to tell if these metaphors are useful at all), and also makes me feel much better about this. :) 

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.

Hm, I thought lightcone infrastructure might do that.

Our current salary policy is to pay rates competitive with industry salary minus 30%. Given prevailing salary levels in the Bay Area for the kind of skill level we are looking at, we expect salaries to start at $150k/year plus healthcare (but we would be open to paying $315k for someone who would make $450k in industry).

https://www.lesswrong.com/posts/eR7Su77N2nK3e5YRZ/the-lesswrong-team-is-now-lightcone-infrastructure-come-work-3

Yea; lightcone  is much closer to any other group I knew of before. I was really surprised by their announcement. 

I think it's highly unusual (this seems much higher than the other and previous non-ai eng roles I knew of). 

I'd also be very surprised if Lightcone chose someone for $400,000 or more. My guess is that they'll be aiming for the sorts of people who aren't quite that expensive. 

So, I think Lightcone is making a reasonable move here, but it's an unusual move. Also, if we thought that future ea/engineering projects would have to pay $200k-500k per engineer, I think that would change the way we think about them a lot.