We hired a new developer a couple weeks ago. He’s soft spoken, a bit timid, and intelligent. He’s the prototypical nerd. As we were driving to a place to grab some lunch, he talked about his old job. He worked on software that automated and streamlined data entry for an electronic medical records system. After he finished up his last project, his former company laid off 20 people who were no longer needed, because the software he wrote did their old jobs.
He felt really guilty about it. But I told him to shrug it off. Henry Ford killed off the horse and buggy industry, after all, and we’re all glad that we no longer need to clean horse shit from city streets. But my analogy isn’t ideal. After all, cars replaced horses and carriages, but people in my line of work do something different. We replace workers with computers.
And that’s good for the bottom line. Workers cost a lot of money. Companies have to pay wages, benefits, health insurance, worker’s comp insurance, unemployment insurance, and payroll taxes for every employee on their payroll. If they could just buy a computer for a thousand dollars, they can use that thing for years while just paying the cost of electricity to operate it. It would take a month to recoup the cost of the computer compared to a minimum wage worker. For a more white collar-ish job like data entry or insurance underwriting? It could take as little as a week.
All you need to do is pay a developer to write the software that the computer needs to replace your job. This is much more cost prohibitive for a small company, but for the larger ones, it makes a lot of sense to have a payroll of 4-5 software developers, a project manager, and a business analyst to develop software that 100 computers can use instead of hiring 100 people to do the job. The result is the “new economy” in which highly skilled workers see increases in pay while former middle class jobs get downsized into low wage work or eliminated outright.
Here’s an example of that dynamic: General Motors, a corporate titan of the 20th century, employs 219,000 workers. Last year, those employees worked to bring in a total profit of 5.3 billion dollars. That works out to 24,000 dollars of profit per employee. Google, a corporate titan of today, employs 50,000 workers and made 13 billion dollars in profit last year. That works out to 260,000 dollars of profit per employee.
This phenomenon will become more and more pronounced as software matures and companies begin consolidating. Before long, the job I have will get replaced by newer and better software developed by a developer who’s smarter and more hard working than me. Because even though developers and computers are cheaper than a bunch of semi-skilled workers, developers are extremely expensive to have on the payroll.
Since software can be replicated easily (as anybody who’s ever pirated music or movies can attest), it’s better to have 1 “rockstar” developer than 5 mediocre ones. So you pay the rockstar the salary of 3 okay programmers and then pocket the rest. Because that’s the smart play. And the smart play is the only play in business. And it will drive down the cost of labor for most jobs while completely eliminating others. When was the last time you used a phone book or a travel agent? If you’re under the age of thirty, the answer should be “never”.
There are two ways you can protect yourself. The first way is by learning the skills necessary to get a job that’s hard for machines to replace. The second way is by saving the money you make and investing it in the very companies trying to destroy your way of life. Both options are going to take a lot of time, effort, and discipline to accomplish. But I never said it was gonna be easy.
I know that the average 20-something out of college is already feeling overwhelmed. It’s hard enough to get a “good job”. And many of you will be consigned to long stints in unskilled or semi-skilled work. But it’s very important for you to realize that even if you currently have a good job, you can’t assume that you’ll have it forever. Because other people are dreaming up of ways to getting rid of your job.
When you do lose your good job, are you going to feel great that you spent your prime working years and money on overseas travel, exorbitant bar tabs, designer clothes, luxury car leases, and upscale restaurants? If you had invested that money instead and built up a sizable nest egg that generates just as much income as your former good job, you’d be feeling a lot better about your situation.
Take it from a guy who’s trying to eliminate your job. You don’t want to be living paycheck to paycheck when I succeed.