Say you’re paying just under market rates for mid-range non-web developers: about 90k ea. That costs you half again as much, once you factor in benefits, so 150k ea. A million pays for 6 devs for a year, and leaves you some change.
Then you have operating costs: at least one person in each of HR, finance, legal, and IT ops - at a bare minimum. You have equipment and utility costs. And we haven’t even gotten to management; even if everyone reported to a single person, 10 direct reports is stretching it, and they’re not doing other jobs like networking and seeking other funding, so you need people for that.
In a bare-bones organization paying people less than market rates, a million dollars probably buys the foundation between 3 and 6 months of operating runtime.
As a caveat, you can definitely find cheaper devs than those prices when looking outside of the U.S. 90k would get you pretty close to the top in Sweden for local companies, for example.
The developers get less, but it ends up costing more to employ people in the EU. In the US, the rule of thumb - for white collar, non-executive jobs, at least - is 1.4x the salary for TCE (and it’s often reasonable to round up to 1.5). For EU employees, it’s between 1.5 and up to 1.8. Norway is 1.7; I don’t know what Sweden is, but I’d assumed it’s around the same.
The social welfare benefits are far better in those countries, and it’s companies paying for those in that overhead. The better the social welfare net, the higher the costs. There may be exceptions, but they’re the minority. You want really cheap labor, go to counties with nearly no social welfare.
Offshoring to reduce costs isn’t the point; for the most part, you get what you pay for. Even offshoring to countries with notoriously cheap labor, if you want good programmers, you end up paying much closer to domestic costs. Highly educated, experienced programmers command higher prices, regardless of the country, but when companies offshore labor for cost control, the cost of the labor is usually the most important decision factor and line managers are left with the consequences.
Regardless, the difference in TCE isn’t going to make a huge difference in how far a million dollars goes. People are expensive.
The developers get less, but it ends up costing more to employ people in the EU. In the US, the rule of thumb - for white collar, non-executive jobs, at least - is 1.4x the salary for TCE (and it’s often reasonable to round up to 1.5). For EU employees, it’s between 1.5 and up to 1.8. Norway is 1.7; I don’t know what Sweden is, but I’d assumed it’s around the same.
So I get where you’re coming from, but this is really not true, and I’ll provide you with some numbers as to why it is not true.
As levels.fyi automatically converts to local currency, this is specified as 800k SEK, or 76k USD in today’s currency exchange. We can multiply that by the factor you provided for Norway, giving us 137k USD.
3.375m SEK, or 321k USD. Using your factor for the U.S, we get 448k USD.
The contrast is of course the largest for San Francisco which is the most high-paying area for engineers, but the thought experiment is basically replicable for any city with a tech scene in the U.S, which is most comparable to Stockholm, which is the most expensive city in Sweden and which has a tech scene.
Essentially the TCE cannot explain the discrepancy in salaries in tech between Europe and the U.S.
Before we inevitably go there, COL does not adequately explain it either - San Francisco is very expensive, but Stockholm is far from being a cheap place to live either. Even when adjusting for this factor, the total amount left after living expenses is quite significantly higher for someone on a U.S salary.
It’s basically a fool’s errand to try to logically explain this discrepancy. The honest answer is that capitalism follows no strict logic, and pay becomes whatever the people with the money can get away with. They just happen to be able to get away with far less in Europe.
You point out that the comparison is unequal, but do you realize how unequal? Stockholm is the 102nd most expensive city in the world; San Francisco is the 13th. If you’re going to compare salaries, at least pick a city closer to Stockholm, like Cleveland, OH (still more expensive at rank 84). 2.4M people live in Stockholm’s greater metro area; San Fran is close to double that size at 4.6M. Cleveland has 3.6M in the greater metro area. Larger populations mean statistically larger employee pools, although economic focus plays a large part.
But regardless, my point was that $1M doesn’t go very far, no matter where you hire your devs, if you at all care about quality. Even your $137k Swedish devs only get the Foundation one more developer, and less pocket change.
And Sweden losses if we’re playing the “cheapest devs” game. If you at hiring and you want to get the most resources for the least money, you’re going to look in Mexico or South America and get the advantage of more time zone overlap for the rest of your organization (if you’re in the US); or you’re going to look in one of the less-well-off EU countries, or even Africa if you’re in the EU. Ukraine was a fantastic place to get great developers at good prices, although they’re unfortunately being fucked over by Russia at the moment. Heck, if your leadership is in the EU, SE Asia doesn’t look so bad time-shift wise, and India has a ton of tech hubs, still relatively cheap labor, and shitty labor laws. China has a great labor pool with highly skilled developers and relatively inexpensive prices.
But we don’t want to play the cost game, right? It isn’t about minimizing salaries - although it’s certainly a consideration, it shouldn’t be the main decision factor. Pool size of quality developers is near the top, but vying for that (IMHO) is time zone overlap. Maximizing within reason the number of hours your team has for meetings, so that nobody has to work outside of hours to hand meetings is critical. Language skill overlap is up there, too. Cost is no higher than fourth, and there might be other things that weigh higher - such as, do you already have a presence in that country. Adding another Ukrainian developer to the couple of guys you already have there might make more sense than hiring someone isolated in Portugal, even if they’re cheaper.
I keep straying off topic, though. Again: the fact is $1MM doesn’t buy you a lot of time. 6 US devs for a year, maybe. Getting them in Sweden might buy an extra two of months of time, which you might very well lose because those people geographically detached, and now you have to contend with cross-national tax and labor laws, which makes your payroll and HR more expensive.
It comes with strings attached. They can only use it in a limited number of ways. (Assuming I’m remembering correctly)
Also a few million dollars gets eaten up when you are paying actually developers.
Yup.
Say you’re paying just under market rates for mid-range non-web developers: about 90k ea. That costs you half again as much, once you factor in benefits, so 150k ea. A million pays for 6 devs for a year, and leaves you some change.
Then you have operating costs: at least one person in each of HR, finance, legal, and IT ops - at a bare minimum. You have equipment and utility costs. And we haven’t even gotten to management; even if everyone reported to a single person, 10 direct reports is stretching it, and they’re not doing other jobs like networking and seeking other funding, so you need people for that.
In a bare-bones organization paying people less than market rates, a million dollars probably buys the foundation between 3 and 6 months of operating runtime.
As a caveat, you can definitely find cheaper devs than those prices when looking outside of the U.S. 90k would get you pretty close to the top in Sweden for local companies, for example.
The developers get less, but it ends up costing more to employ people in the EU. In the US, the rule of thumb - for white collar, non-executive jobs, at least - is 1.4x the salary for TCE (and it’s often reasonable to round up to 1.5). For EU employees, it’s between 1.5 and up to 1.8. Norway is 1.7; I don’t know what Sweden is, but I’d assumed it’s around the same.
The social welfare benefits are far better in those countries, and it’s companies paying for those in that overhead. The better the social welfare net, the higher the costs. There may be exceptions, but they’re the minority. You want really cheap labor, go to counties with nearly no social welfare.
Offshoring to reduce costs isn’t the point; for the most part, you get what you pay for. Even offshoring to countries with notoriously cheap labor, if you want good programmers, you end up paying much closer to domestic costs. Highly educated, experienced programmers command higher prices, regardless of the country, but when companies offshore labor for cost control, the cost of the labor is usually the most important decision factor and line managers are left with the consequences.
Regardless, the difference in TCE isn’t going to make a huge difference in how far a million dollars goes. People are expensive.
So I get where you’re coming from, but this is really not true, and I’ll provide you with some numbers as to why it is not true.
Let’s check out the median salaries for senior engineers in Stockholm using levels.fyi: https://www.levels.fyi/t/software-engineer/levels/senior/locations/greater-stockholm
As levels.fyi automatically converts to local currency, this is specified as 800k SEK, or 76k USD in today’s currency exchange. We can multiply that by the factor you provided for Norway, giving us 137k USD.
Now let’s plug in the numbers for San Francisco: https://www.levels.fyi/t/software-engineer/levels/senior/locations/san-francisco-bay-area
3.375m SEK, or 321k USD. Using your factor for the U.S, we get 448k USD.
The contrast is of course the largest for San Francisco which is the most high-paying area for engineers, but the thought experiment is basically replicable for any city with a tech scene in the U.S, which is most comparable to Stockholm, which is the most expensive city in Sweden and which has a tech scene.
Essentially the TCE cannot explain the discrepancy in salaries in tech between Europe and the U.S.
Before we inevitably go there, COL does not adequately explain it either - San Francisco is very expensive, but Stockholm is far from being a cheap place to live either. Even when adjusting for this factor, the total amount left after living expenses is quite significantly higher for someone on a U.S salary.
It’s basically a fool’s errand to try to logically explain this discrepancy. The honest answer is that capitalism follows no strict logic, and pay becomes whatever the people with the money can get away with. They just happen to be able to get away with far less in Europe.
You point out that the comparison is unequal, but do you realize how unequal? Stockholm is the 102nd most expensive city in the world; San Francisco is the 13th. If you’re going to compare salaries, at least pick a city closer to Stockholm, like Cleveland, OH (still more expensive at rank 84). 2.4M people live in Stockholm’s greater metro area; San Fran is close to double that size at 4.6M. Cleveland has 3.6M in the greater metro area. Larger populations mean statistically larger employee pools, although economic focus plays a large part.
But regardless, my point was that $1M doesn’t go very far, no matter where you hire your devs, if you at all care about quality. Even your $137k Swedish devs only get the Foundation one more developer, and less pocket change.
And Sweden losses if we’re playing the “cheapest devs” game. If you at hiring and you want to get the most resources for the least money, you’re going to look in Mexico or South America and get the advantage of more time zone overlap for the rest of your organization (if you’re in the US); or you’re going to look in one of the less-well-off EU countries, or even Africa if you’re in the EU. Ukraine was a fantastic place to get great developers at good prices, although they’re unfortunately being fucked over by Russia at the moment. Heck, if your leadership is in the EU, SE Asia doesn’t look so bad time-shift wise, and India has a ton of tech hubs, still relatively cheap labor, and shitty labor laws. China has a great labor pool with highly skilled developers and relatively inexpensive prices.
But we don’t want to play the cost game, right? It isn’t about minimizing salaries - although it’s certainly a consideration, it shouldn’t be the main decision factor. Pool size of quality developers is near the top, but vying for that (IMHO) is time zone overlap. Maximizing within reason the number of hours your team has for meetings, so that nobody has to work outside of hours to hand meetings is critical. Language skill overlap is up there, too. Cost is no higher than fourth, and there might be other things that weigh higher - such as, do you already have a presence in that country. Adding another Ukrainian developer to the couple of guys you already have there might make more sense than hiring someone isolated in Portugal, even if they’re cheaper.
I keep straying off topic, though. Again: the fact is $1MM doesn’t buy you a lot of time. 6 US devs for a year, maybe. Getting them in Sweden might buy an extra two of months of time, which you might very well lose because those people geographically detached, and now you have to contend with cross-national tax and labor laws, which makes your payroll and HR more expensive.