The job market is a market

Companies are not organic hippie farms…

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My first job was at a bank . When it came time to discuss compensation, HR sent me a letter that explained that my future job was categorized as a level 8 job and that per the collective agreement negotiated between the unions of bank employees and the organization of bank employers, my salary would be X. It was my first job, I had no idea what X meant and I still lived at home, so I barely needed money anyway. The collectively bargained agreement also came with standard increases every year to account for growing experience and of course there was the yearly inflation correction. It was highly organized and nobody worried about compensation.

A few years later, I worked for another bank and by that time the shortage of IT talent was starting to hurt. Because of the constraints of the wage tables negotiated by the unions, it was getting hard for banks (and other sectors of the economy that were ruled by similar agreements) to pay enough money to stay competitive. There was a healthy (or perhaps unhealthy) stream of people who left these organizations to work for “software bureaus”. These were body shops that paid a higher salary than organizations in sectors run by collectively bargained agreements could offer and then contracted staff out to their original employers.

Example: One of my colleagues left on Friday and came back on Monday as a contractor, but with a higher salary and a nice company car. He was very good and very nice so we didn’t begrudge him that.

Unions were unwilling to make allowances for certain types of expertise, all in the name of fairness. In their eyes, a software engineering role that required a four year college degree should be paid about the same as any other role that required a four year college degree, market conditions be damned. In later years, the unions grudgingly agreed to a ”labor market bonus”. With this bonus certain types of jobs could be offered a higher salary than other jobs that required about the same amount of education and expertise.

A cursory web search indicated that this is still a thing in Holland. In one sector’s agreement I found a clause that said that the labor market bonus could be as much as 10%. This being Holland, the consent of the workers council is of course required because generally people hate it when other people earn more than they do.

Even with the labor market bonus, employers had a difficult time hiring into certain jobs because there were other benefits that the body shops could offer and they couldn’t, such as a company car, luxurious trips, and relatively generous expense accounts. For people who thought their skills were worth even more, there was the option to start their own one-man body shop. This came with the obvious advantage that you could bag all of the contracting hourly rate. On top of that, you did not have to pay certain types of social security taxes that applied to employees but not to individuals who ran their own small businesses. I started my own one-man operation in 1992 (and didn’t have a regular job again until I joined Google in 2006).

Examples of such social security taxes are the unemployment tax and the disability tax. Most of these “one-cylinder” operations figured they would never be unemployed. Some (like myself) insured themselves privately for disability. Being a one-cylinder operation also came with options to lower your total tax burden by stashing any money you made but did not need in an LLC, thereby hiding it from income tax.

Then the 90s hapened and the official motto of society became: “Laissez les bons temps rouler”. The whole economy moved in the direction of laissez-faire capitalism and everyone in the IT sector benefited, as tech companies enjoyed the benefits of the network effect and disrupted one market after another. The world went from “a few computers, somewhere” to “lots of computers, everywhere” and so the demand for people who knew how to build, program, and maintain these computers grew and grew. On top of that, social democracy was out and neoliberalism was in, and that ideology prescribes that everyone must get as much out of the market for themselves as possible, whatever the consequences.

This had two effects: First and foremost, salaries went up because the regulations went down and the job market is, well, a market. Secondly: Lots of new people entered the market, drawn in by the high prices even a junior engineer could demand; these were the times where we had to offer equity to interns! The result of this was that anyone working in information technology did phenomenally well as the price of employment went through the roof. Everyone got accustomed to high and growing compensation as well as to other forms of remuneration: Free food, fun offices with pinball machines, gym memberships, lots of flexibility to work from home, free shuttles to the office, unlimited PTO, generous 401(k) programs, employee stock purchase programs, free phones, paid-for Internet connection at home, and free snacks. No idea was too wild if it could help get scarce talent through the door.

One often-neglected insight from this is that it is really expensive to be poor. If you are struggling in a low wage job, you probably also have to buy all of your own food, pay for your own gym membership (if you can even afford it), pay for your own Internet, and pay for your own commute. Nobody will invite you to cushy trips or give you $1500 for Christmas just because. On the other hand at Google we had people complaining that they had to arrange for their own food during the weekend and people got terribly upset when the catering staff organized a meatless Monday, with the money not spent on meat donated to the World Food Program. One engineer was so upset that he loudly complained that “it is impossible to work under these circumstances!”

It is not hard to understand that these very pleasant conditions made software engineers a happy lot. Unfortunately, part of that happiness was caused by having a really short memory and most people had forgotten what working conditions were actually like before this holiday from history.

One of the more annoying aspects of our hyper anxious news cycle is that whenever things are going well, there are lots of pundits that will declare that things have fundamentally shifted and that this time, really, the trees will grow into the heavens forever and will never stop growing. We regularly hear economists confidently declare that there will never be a recession again. Other economists have been know to state equally confidently that the economy will continue to grow at this amazing pace and that everybody will be rich. The understanding that many aspects of the human experience are a sine wave seems to go right out of the window every time we are nearing the top of the curve.

Book tip: Y2K: How the 2000s Became Everything (Essays on the Future That Never Was) by Colette Shade is a must-read book for people who grew into adulthood in the 1990s and early 2000s. One of the essays is about the outrageous economic claims that were made.

These people are obviously clowns and have conveniently forgotten that in a perfect market all profits eventually go to epsilon. If there is money being made anywhere, that is either a temporary condition or a sign that there are unnatural barriers to entry, such as borders, limited availability of work visas, or state supported monopolies. That said, companies that were on the hunt for scarce talent until very recently continued to offer ever more outrageous compensation: Free massages in the office, a concierge service to help you make restaurant reservations at the French Laundry, or a 10% pay rise for everyone. The “bon temps” were really “rouler-ing”!

But, pilots know that everything that goes up, must eventually come down, and in the case of the demand/supply ratio for software engineers, that landing was rough! Many people had started to believe that the good times would go on forever and, even more weirdly, had started to believe that the cushy job conditions that they had become accustomed to was some sort of natural state of affairs. I can potentially forgive you for these mistaken beliefs if you were born after the year 1994 or so, but everyone older than that really should have known better.

With the supply/demand ratio suddenly inverted, companies were freed from having to offer high compensation and cushy work conditions, so things quickly reverted to a more normal state of affairs, with downward pressure on compensation, downleveling on hire, layoffs, and “voluntary” exits.

Here is a fun side story about voluntary exits. Years ago, a large Dutch bank I was working for wanted to let go of some people but the unions strenuously objected. They struck a deal where 25% of people were categorized as A-class employees and the rest as B-class employees. The A-class employees got a letter saying: “You are in the A-class, we are happy with you, please don’t leave”. The B-class employees got a letter that said: “You are in the B-class, we are not going to fire you, but if you leave of your own accord, you’ll get a package”. The result: 100% of employees were unhappy! The A-class people were unhappy because they could easily get a job somewhere else and they wouldn’t mind a package. The B-class people were unhappy because, well, they were now officially labeled as B-class.

Local VPs had significant leeway in assigning people to the A or B class. Some VPs had a rule that if you were with the bank for less than one year, you were automatically in the B class. A friend of mine who was very, very, good at his job had been with the bank for 11 months and so was declared to be in the B-class. During meetings, when asked difficult questions, he would answer: “That seems more of a question for someone in the A-class 🙂”. Of course some A-class employees left because they were upset and some of the best of the B-class also left for other jobs, but with a package. The real stragglers in the B-class stayed of course because they knew they would never get a job anywhere else. So overall: Lots of employees were upset, some very good people left, and the people they most desperately wanted to get rid off, stayed.

I see lots of stories on LinkedIn where people are complaining about companies engaging in practices that decrease the comfort and remuneration of employees. Return to the office is a big hot button topic, but so are complaints about wage decreases, lay-offs, and other practices that are inspired by companies’ desire to lower their cost base in a market where there is ample supply.

I fear that most of these people have forgotten that the job market is, in fact, a market. During the holiday from history, companies did not offer high salaries and cushy benefits because they wanted to be nice, they did so because otherwise they would not be able to hire any staff! Of course you should not be afraid to ask a high price for your skills when they are in high demand, but you should also be ready to flex when market conditions change. You might think it dumb for companies to get all of their employees back into the office, but all things considered, that is not your call to make. If it is dumb, then the market will eventually punish these companies because they will not be able to get the best people at the best price. But if a free market means anything, it definitely also means that companies are free to offer the working conditions that they want to (bar their responsibility vis-a-vis the law of course); freedom also means the freedom to be wrong.

It is of course possible to change the law and to make some of the cushier conditions that we like mandatory. For instance in Holland you have a legal right to part-time work and in Sweden the parents have 480 days of parental leave (with a minimum of 90 days for the father, giving rise to the phenomenon of the Latte Dad). Everything is possible, really the only laws are the laws of physics. But you are not free from the consequences of any choices that are made. These countries have higher taxes and lower wages for the upper echelons of the job market. They have near-free education, cheaper healthcare and better retirement for most people, but less access to experimental treatments and drugs. Really everything is a market when you look at it from the right angle. If you think we should change the laws to change the deal between employees, employers, and the state, my advice is to become politically active. I know I am…

Anyway, back to employment conditions. If for instance working from home is super important to you, that is your good right and if it was important to me I would definitely find an employer who would offer that. But, the market being what it is, I might want to compromise on that in favor of other things. I look at my entire employment package holistically; there are things in there I like, things I don’t care about, and things that I do not like but which I can stomach because, all things considered, I want a good-sized paycheck and this is the best way to get one. Telling companies they are doing it all wrong is your good right, but I fear it is not very productive in a market where you also want to be hired by these companies. Remember: You are selling, the companies are buying, and as my dear old mother used to say: “Nobody has ever won an argument with a customer.”

We are sadly (for us) in a time where software engineers have less market power and companies are over eager to exploit that situation to the fullest, just like we were ready to exploit the situation to the fullest when the situation was reversed. But, rejoice, as long as the engines are still working, everything that comes down pretty much always goes back up again. Again, pilots know that when you are in an unaccelerated flight and push on the throttle, the plane will go up; that’s just physics.

That said, I am very happy I am not a new-grad these days, because that surely must suck major balls. But then again, when I graduated from college in 1988 we thought that there would be people who would never ever have a job and clearly most everyone did. It might be a bit of a rough ride for a while, but the good times will come back. They always do. In the meantime, make sure you have a competitive offering for any prospective employers!