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<p>In the final analysis, engineering salaries (like anything else) are a function of supply and demand at an equilibrium. </p>
<p>But it does beg the question of why is it that certain other jobs not seem to have problems with lowered salaries? For example, why exactly are consultants and bankers getting paid so well? One might argue that there is a supply of low-cost engineers overseas, but one could then also argue that there is also a potential supply of low-cost bankers and consultants overseas too. Just like how plenty of Indians are being trained to become cheap software engineers, there is no theroetical reason why Indians (or other foreigners) couldn’t be trained to become cheap consultants or bankers too. So why are the top Wall Street investment banks paying, salary + bonus, up to 150k for first-year analysts (right out of undergrad), or 300k for guys right out of MBA programs? Why exactly is private equity paying up to 450k+ for guys fresh out of top MBA programs? Why don’t they just hire a bunch of cheap foreigners instead? That’s what the engineering companies do. If labor arbitrage works so well in the engineering labor market, then one would think that it would work equally well in other markets.</p>
<p>But, ay, that’s the rub. Labor markets are notoriously complex beasts, possibly with multiple equilibriums. Hence, labor markets can actually be tipped one way or another. Employers are not simple price-takers. In many cases, employers can force labor markets to react one way or another.</p>
<p>Let me give you a historical example. In 1914, Ford Motor Company offered wages of $5 a day, a record high wage at the time - about double what Ford’s workers were making the year before, and far more than what Ford’s competitors were paying. The results were also predictable - all of the auto workers in the country wanted to work for Ford, and so Ford was able to pick the very best people to hire. It also greatly reduced turnover and spurred effort - nobody wanted to lose a lucrative $5 a day job because he knew that he wasn’t going to get anything comparable anywhere else. It also spurred many of the most hardest-working and sharpest guys who would have gone to other industries to instead want to become Ford auto workers. Hence, Ford greatly upgraded the quality of its workforce, and contributed greatly to Ford’s great success at the time.</p>
<p>What that shows is that labor is not a simple commodity. You can’t just trade one worker for another, simply because workers differ in productivity. Some people work harder than others. Some people are smarter than others. By paying higher wages, you incent the better workers to want to work for you. You also spur existing employees to work harder for fear of losing their well-paid jobs. The point is, the value of labor is itself a function of how much you pay for the labor. </p>
<p>Investment banks pay very well, and that’s why they are able to pick from the best possible candidates. Google, as an engineering company, is a special case. While they don’t pay especially well, what they do offer is ‘prestige’, and that has value. Hence, many of the best engineers in the world want to get a job for the Google because they are getting “paid” in prestige. </p>
<p>I am quite convinced that other engineering firms could do the same - either increase salaries or increase prestige. They just choose not to. Apparently, they just don’t really seem to think that engineering is not that important. At least, not as important as paying high fees for banking or consulting services.</p>