Software Engineering Salaries — Why are They So High? (Op-Ed)

$105,590

That’s the median salary for a software developer in 2018, according to the Bureau of Labor Statistics. So, for a career that technically requires no education, why are the salaries so high?

Silicon Valley

We all know of tech epicenter. Home to Facebook, Apple, and Microsoft offices. It’s also notorious for being one of the highest cost of living areas in the United States. According to this PDF by jointventure.org, the median home price reached a record of 1.2 million dollars.

With prices this high, the salaries have to rise as well. Otherwise, no one would be able to live there. Pretty much every new Computer Science / Information Science / Computer Engineer grad strives to work at a FAANG (Facebook, Apple, Amazon, Netflix, Google) company because they pay very well. That median salary figure is sometimes lower than their offers for entry-level positions!

These high-tech cities (NYC, Seattle, Austin, Boston), while, are very large, do not make up the entirety of the nation. So what are the other factors driving up the price of a software developer?

The Economics

I knew taking an economics course in college would come in useful one day! So, one facet to my argument is that software development, in terms of economics, is one of the best businesses you can run.

There is an upfront cost for developing the software that goes into the equipment, licensing, and labor; however, after the product is created, there is virtually no marginal cost. This gives way to a business model that is: sell as much as you can. If there is no marginal cost, then there is no theoretical profit maximization limit.

Beyond the business of selling, the product itself is highly valuable. What if I told you that I can give you hours back to you a day? What would you do with that time? How valuable is that to you? Good software essentially does this.

One of the easiest variables of marginal costs for companies to control is labor costs. If you can decrease the amount of labor for a company to produce the same amount of units, you can save them thousands, or even millions, of dollars.

An Anecdote:

I automated an ETL process for a client. This client was having trouble with getting a daily report from ten of their offices. It was a medium-ish-ly (it’s a word… trust me, I’m an engineer) complex report that tracked several KPIs.

It took each location 20-30 minutes to run the reports, collect the data, and send it out in an email. My solution takes about 5 minutes.

I save 20 minutes a day in labor. 20 minutes at 10 locations is 200 minutes a day. That’s 3&1/3 hours. 3.33 hours every day for a year is 1,216.66 hours a year. For comparison: a fulltime, 40-hours-a-week job, with no time off, is 2,080 hours a year.

I, conservatively (didn’t account for taxes, benefits, etc.), estimated the dollar-savings at just over $23,000. I worked on this project for 51.5 hours. 23,000 / 51.5 = 446.6. That is, for every hour I worked, the client saved $446.6.

To top it all off, that’s just for one year. They get that savings year after year. Next year, they’ll have saved $892 dollars per hour worked.

I could charge the client $400 an hour and still have them save money! Imagine being able to bring home $20,000+ in one week with overtime. If you’re looking at it with an investment mindset, a lot of the business leaders and entrepreneurs I follow think a good investment pays for itself in 3-5 years. If that’s the case, I could have charged $60,000+.

Conclusion

It’s this ability to make not only yourself more efficient, but the others around you as well that really drives the salary for programmers. This is immensely valuable. We save time. Not only do we save time for employers, but we save time for employees. And there is nothing on this planet more valuable than your time.

Leave a Reply

Your email address will not be published. Required fields are marked *