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<p>I don’t see anything so tragic about that. If you work your end off and become an investment banker, you deserve to earn a lot of money.</p>
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<p>I don’t disagree that this is a serious problem. </p>
<p>Nevertheless, it should be noted in contrast that the general public surely doesn’t really understand why the modern finance industry is so important either - and indeed even key observers and researchers such as Simon Johnson, Paul Volcker, and Raghuram Rajan have called the importance of the modern finance industry into serious question, particularly in light of the events of 2008 - yet that apparently doesn’t seem to stop financiers from being paid outsize bonuses. </p>
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<p>That’s surely a vast exaggeration; any induced outsourcing would be marginal at best. Engineering labor costs represents little more than a rounding error of any manufacturing industry of note. Keep in mind, I’m not talking about the total labor costs involved in manufacturing, I am simply talking about the engineering labor costs. For example, of the 200k current employees at GM, only about 25k are white collar workers, and likely not much more than 10k of them engineers (with the rest being in sales, marketing, finance, HR, and other business functions). </p>
<p>And besides, I’ve always wondered why it is that the spectre of outsourcing is always raised whenever anybody ever proposes that engineering salaries should rise, but never when management/MBA salaries rise. Why doesn’t anybody ever propose that the banks and consulting firms outsource their work because newly minted MBA’s consultants and investment bankers are demanding too much pay? When top managers demand ever-higher pay packets, why don’t shareholders ever threaten to outsource the entire management overseas? After all, it’s a well-established fact that managers of US firms are paid far more - sometimes by more than an order of magnitude more - than their counterparts at European or Asian firms, yet it’s not clear that American firms are an order of magnitude better managed than are their foreign competitors. For example, as an admittedly crude measure of management complexity, of the 10 largest publicly traded firms in the world as measured by revenue, only 3 are American (Walmart, ExxonMobil, Chevron).</p>
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<p>On the other hand, you can work your end off - just as hard as any investment banker - as an engineer but never dream of making the type of money that bankers could ever make.</p>
<p>That’s the core of the problem. With the important exception of the startup environment - but which entails becoming a quasi-businessman yourself - there are few if any opportunities for true engineering superstars to achieve great financial success. Surely we can all think of several engineers who were far more capable and productive than the average engineer. Indeed, most decent engineering firms have a few such ‘guru’ engineers. But they didn’t make far more than did the average engineer; they may have made double, or at most triple that of the average engineer. </p>
<p>Let’s also keep in mind that the average investment banker probably didn’t work as hard as did the average engineer to simply obtain the job that they did. The average investment banker probably majored in business, economics, or some other relatively easy social science while in college, and that’s surely not comparable to the traumatic crucible of a typical engineering curriculum. Granted, once on the job, the average Ibanker does indeed work harder than does the average engineer, but much of that is karmic payback for the far more pleasant undergraduate experience he enjoyed. {I agree that those students who majored in engineering and then became Ibankers were doubly slammed.}</p>
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<p>Again, I don’t really see what’s unfair about it, because the market dictates wages. Engineering superstars don’t make that much money because frankly, engineering superstars are only marginally more useful than average engineers. I mean, think about it, what are most engineering jobs about? Many of them are trivial gruntwork. For every guy at Intel who is designing the latest CPU architecture, there are 200 guys writing Perl scripts in the background. And as a new hire, then need YOU to write those scripts- and it doesn’t matter if you have a 4.0 from MIT or a 2.0 from a state school. That’s simply the work they need to get done.</p>
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<p>Well, the average investment banker probably needed to go to an elite school and obtain a very high GPA, while an engineer with a 3.0 from a regular state school has many good opportunities. Maybe they are wondering why THAT is so unfair. </p>
<p>I know what you’re thinking- why does the banker make more than the elite engineering school graduate with the high GPA? The answer, once again, is this: Perl scripts. They need writing. That is simply the nature of the work that must be done as decided by the free market.</p>
<p>Star engineers simply do not contribute anything exceptional to a company when they are just another grunt, another cog in the corporate machinery.</p>
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<p>Alternatively, you can make decisions that result in 3 of the 15 the greatest recorded quarterly losses, including the #1 largest quarterly loss, of all companies in all of US history and force the company to turn over the vast majority of the ownership of the company to the government…and yet demand multi-million dollar bonuses anyway. Why not - that’s what the financiers at AIG did. </p>
<p>Or, you could also synthesize financial transactions that would, years later, ultimately result in the largest bankruptcy in US history…yet keep all of the money you had been paid up until that time. Again, why not? That’s what the bankers at Lehman Brothers did. They were paid large bonuses up until 2008, and they’re not giving any of it back. To be sure, some of those bonuses were paid in the form of restricted Lehman stock which later fittingly proved to be worthless. But much of it was not, or had fully vested, and hence represents ‘fake profits’ that neither the shareholders nor the creditors will ever be paid back.</p>
<p>And that gets back to the point I made in the beginning of this thread. People prefer to obtain MBA’s rather than become engineers because as the former, you can be paid very well without really having to produce true profits: fictitious profits are often times sufficient. You merely have to produce transactions that only seem profitable at the time, and when they later turn out to be unprofitable, too late, you’ve already been paid and they can’t force you to return any of it.</p>
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<p>And there it is again - the philosophy of economic triumphalism that ‘markets dictate wages’, which entirely ignores the fact that markets are social constructs. That is, markets do not, never have been, and likely never will be generated pristinely, but are rather products of the social and political forces around them. Therefore, if wages are determined by markets, then that’s nothing more than the equivalent of saying that wages are determined by social and political forces. </p>
<p>Like I mentioned before, how many other industries can demand an $800 billion taxpayer bailout along with the opening of myriad other emergency financial liquidity facilities all in the space of a few months? That was nothing more than the clear and naked display of the political power of the finance industry to affect the structure of markets. If markets were truly free from political forces, most of the finance industry would surely have been declared insolvent. </p>
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<p>And by that very same logic, I could ask what exactly do most investment banking jobs entail, particularly at the lower levels? The vast majority of them consist of gruntwork that is just as trivial as that of engineering work, arguably even more so. For every Ibanker who is orchestrating a 12-figure merger, there are surely hundreds upon hundreds of banking grunts in the background running Excel models and building pitchbooks. Practically every investment banker who is being honest will admit to you that their work, at least at the lower levels, is not particularly intellectually complicated. </p>
<p>So, again, why are they paid so much more than are the engineers?</p>
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<p>Again, see above. Financial spreadsheet models need to be built just as much as engineering Perl scripts need to be written.The vast majority of lower-level investment bankers would surely admit that they are clearly nothing more than another corporate cog. But the major difference is that they are well-paid corporate cogs. If you’re going to become a corporate cog anyway, better to be a well-paid one. </p>
<p>And that’s why people would prefer to be MBA’s rather than engineers.</p>
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<p>Your 2nd paragraph, by your own admission, invalidates the first two sentences of your first paragraph. Salaries are never merely a matter of ‘supply and demand’. Rather they are also fundamentally subject to the internal social and political dynamics of the organization itself. Sure, managers might be paid to maximize profits which might mean keeping costs down…but that doesn’t mean that they will do so. Managers routinely spend more on labor (and plenty of other expenditures) than they must…as long as doing so advances their own self-interest. </p>
<p>I see that there are a number of proponents of economic thinking within this thread, yet the economists themselves have devised an entire branch of their discipline called Agency Theory to understand the actions of those you as an owner might hire to manage a company. In short, managers are not bloodless, robotic servants who faithfully execute the will of the shareholders, but rather represent their own distinct sociopolitical group within the firm, and hence are out to maximize their own utility, separate from what the shareholders may want. In fact, you admitted yourself that a manager will readily overpay other managers if by doing so he can then justify greater pay for himself. I strongly suspect that a similar mentality regards why managers happily pay high fees for consulting and financial services, as he may be hoping to join a consulting or banking firm himself. {And besides, it isn’t his money that he was paying anyway.} </p>
<p>But that does lead to a possibility that the economists would surely endorse. If engineers could somehow devise a way to align themselves with the interests of management, such that higher engineering salaries would improve the political standing of managers, then managers would surely be glad to pay the engineers more.</p>
<p>sakky writes And there it is again - the philosophy of economic triumphalism that ‘markets dictate wages’, which entirely ignores the fact that markets are social constructs. That is, markets do not, never have been, and likely never will be generated pristinely, but are rather products of the social and political forces around them. Therefore, if wages are determined by markets, then that’s nothing more than the equivalent of saying that wages are determined by social and political forces. </p>
<p>Very true. In the US, lawyers, financiers and doctors are high status positions. In many other countries the high status positions are in engineering and medicine. Anyone can go into business but the top students are pushed towards engineering and medicine. In the US, the MBA or JD degree offers status, requires a relatively easy workload to obtain versus engineering, and presents the potential for very high compensation if obtained from a “top” school. It’s no wonder we have too many MBAs and lawyers.</p>
<p>The entrepeneurial culture in the high tech industry is changing the social status for engineers and computer scientists. But, that’s not going to help so much the engineers in general manufacturing.</p>
<p>This thread is very weird to me. In my home city, engineers are very well-respected, just like lawyers and doctors and other professionals. They earn very good wages and live good lifestyles.</p>
<p>I don’t think we have investment bankers here.</p>
<p>Plus, I don’t think we need to promote engineering more. Like, almost everyone in my physics class is planning on being engineers. We don’t need 80% of the population in engineering lol.</p>
<p>Also, I think our real problem is the second dot-com bubble that’s coming. All these planned social networking IPOs are supposed to be worth billions, but I don’t think there’s really any value there. Look at what MySpace is worth now - almost nothing. It’s gonna be Pets.com all over again.</p>
<p>These 2 points are good contributors to why we have more mbas than engineers:</p>
<p>ChrisTKD
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<p>Sakky
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<p>Because we actually work under incredibly imperfect markets, people are NOT paid according to what they’re worth but rather in proportion to the STATUS they occupy within a company. </p>
<p>High status can be achieved in a company/organization through socializing, high social IQ, making the right friends, social maneuvering, etc.</p>
<p>Often acheiving the rank of manager increases your status, but not necessarily your actual value to the company. In many cases it means the company will pay you more to do an easier job with better hours that actually requires fewer SKILLS and whose tasks are EASIER than the tasks performed by their subordinates. In many cases, managers are completely unqualified to do the jobs of the people they are managing. </p>
<p>People are chasing MBAs because our imperfect system rewards STATUS with easier, safer better-paying jobs called “manager”. Couple that with the easier curriculum and you have a red-hot career track!</p>
<p>some of these posts are taxing my limited attention span. in effort to be brief:
- what companies hire both engineers and investment bankers? you can hardly compare the two pursuits, much less the nature of companies that need their respective skills.
- consider that all managers in large organizations seek to expand their significance by upping their budgets (ie, headcount X salaries). i submit that engineering managers, normally valuing work performance in terms of greater efficiency, are less likely to arbitrarily inflate their department needs to get the job done. business managers, on the other hand, always value bigger numbers. so they certainly have no problem seeking to hire more people, at higher salaries…in effort, naturally (HAH!), to increase business.
- in my own experience, business managers have less career stability - the new hire in breakfast cereal marketing may very well have last worked with laundry detergent. but as a result they develop greater flexibility. engineers, otoh, get specialized / pigeonholed - (try moving from engineering at p&g to kellog’s for ex) which limits lateral career moves.
- what would help is for senior engineering managers to realize they do their employer, as well as their professions, a disservice when they seek to minimize technical salaries and job horizons, as by outsourcing work to a third world location - all in name of “efficiency”.</p>
<p>It’s all about the money. Engineering doesn’t pay enough in the long run. PERIOD!!!</p>
<p>My CFO who doesn’t even have an MBA (only undergrad degree from cal poly) is getting paid more than 1/4 million usd in salary (not including various other compensations) and my principal engineer who got his bs and ms from ucla is making half of that.
To add insult to the injury, the CFO dropped out of engineering and switch to business. He said he couldn’t take the curriculum.</p>
<p>rheidzan - been there, done that. remember The Right Stuff? here’s my fave lines: </p>
<p>Gordon Cooper: You boys know what makes this bird go up? FUNDING makes this bird go up.
Gus Grissom: He’s right. No bucks, no Buck Rogers. </p>
<p>tell your ceo if he wants to keep good engineers, he needs to pay for them.</p>
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But what really is lost if the engineering is done elsewhere (if it physically/legally can be)? I can’t say I have had much experience with engineering schools elsewhere, but from what I saw in Chennai in India for a week, their programs are on par with U.S. programs. If you can get the same quality work done elsewhere at a lower cost, why wouldn’t you? I saw a comment earlier about why outsource engineering if it’s a small percentage of the overall costs - if you still save money, even it’s not as significant, why not? If your operations don’t benefit from being located in a high cost of living area, why in the world would you keep it there?</p>
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<p>Because the small savings you might obtain are almost certainly dwarfed by the risks involved. China, for all its success over the last few decades, is still a nation roiled by social tensions and widespread political corruption. What if, one day, some Chinese government apparatchik decides that he needs to ‘appropriate’ the intellectual property from your outsourced designs - as indeed is rampant behavior in China today? What if the government decides to target your operations for state-backed industrial espionage - as indeed what already happened to numerous Western firms including Google? India is one of the few nations in the world that still has an active Communist insurgency and a political system that is periodically roiled by caste politics, in addition to being a nation noted for corruption. What if the Indian government one day decides that a certain percentage of all of the jobs at your Indian operations must be reserved for the ‘untouchable’ dalit caste? What if certain Indian officials demand ‘payment’ in return for necessary business licenses - as indeed what is roiling the Indian telecom industry now?</p>
<p>The upshot is that to outsource operations to another nation is to assume a large tail-end risk. Is that really worth the small percentage of savings one might obtain from lower engineering costs? </p>
<p>One must also consider the transportation costs involved. The price of oil is about $100/barrel, and that price impacts every manner of transportation you might utilize, whether by land, air or sea. Whatever savings one might obtain from outsourcing your manufacturing to save on engineering costs could easily be lost several times over by having to transport those goods back to this country. </p>
<p>And, as I asked before, if firms are truly worried about shaving their labor costs through outsourcing, then why don’t they ever shave their management/MBA costs by outsourcing those jobs to cheaper foreign nations. Why doesn’t the financial services industry outsource all of its lower-level (but still impressively paid) analyst and associate-level jobs to China and India? Let’s face it - those jobs don’t exactly involve much more than robotic financial spreadsheet modeling and pitchbook publishing, which can easily be completed remotely. Why don’t strategy consulting firms outsource their analyst/associate jobs overseas? Consultants are always flying to client sites anyway, so who cares where those consultants fly in from? Even having the round-trip tickets to China and India to send your consultants home, say, once a month would still not cost that much, relative to the salary savings. Nor does it seem to be a matter of a lack of raw talent - many students at the top MBA programs come directly from China and India (and it is debatable whether they actually learn much within the MBA program, for much of the value seems to stem from recruiting and networking). And, like I said before, general corporate management positions in foreign nations are substantially lower paid than are their American counterparts, yet it’s not clear that American firms are substantially better managed. {The 2008 crash exposed the US financial industry, formerly the beacon of American-style capitalism, as being embarrassingly poorly managed.} </p>
<p>To be clear, I am not against free trade and outsourcing. Indeed, I believe in the basic tenets and benefits of free trade and globalization. I just wonder why outsourcing always seems to be leveraged as a tool to bash engineers and keep engineering salaries ‘in their place’, but conveniently never to keep management salaries ‘in their place’. After all, by the same argument you had put forth, if a company could save derive even small savings by outsourcing its management, why shouldn’t they do so?</p>
<p>Sakky, I don’t think the problem is compensation at all, at my school (a state school proud of its engineering program) it is generally acknowledged that engineers WILL get a job and make more money than any other major offered on campus. The data seems to support this as well (<a href=“http://www.payscale.com/best-colleges/degrees.asp[/url]”>http://www.payscale.com/best-colleges/degrees.asp</a>). </p>
<p>We don’t have enough engineers because most of our students can no longer handle the work, especially math. With the transformation of K-12 into ding-dong land, most college freshman will have trouble passing college algebra, let alone a calculus class. Also without the “helicopter parent” in the background, many do not have the discipline to sit down and just DO the work needed for a math-heavy major. </p>
<p>It isn’t worth the effort to them to catch up on their math skills because they don’t understand yet that it is easier to work hard for 4 years and have an easier life, than party for 4 years and work hard the rest of your life in some miserable menial job. </p>
<p>There is still the impression that they can drop down into a major like Business and still end up in a cushy job (or God forbid communications if they totally gave up). This is of course entirely untrue, they don’t know that there have been so many middle managers laid off in this recession, so many MBAs who will never be rehired, so many business majors who will never be hired in the first place. The downturn has done a number on the paper-pusher class. </p>
<p>As the economy continues to stagnate, I think we will be seeing more news stories about the weakness of business majors (they’re already starting <a href=“The Default Major: Skating Through B-School - The New York Times”>The Default Major: Skating Through B-School - The New York Times), and business will return to the sleepy realm of slackers it has been until recently. Students and their parents will migrate back to a technical major out of economic necessity, when it becomes clearer that your vanilla business major is gives you back exactly what was put into it… People are blinded by the outliers, I would be shocked if your average business major was hired (if at all) beyond entry level sales or even retail.</p>
<p>Tedtron, actually I’m afraid you misunderstood the theme of the thread. The issue has never been about the average business undergraduate major, for there is little doubt that they may far less than do the engineers, for the reasons that you had stated. Lutz never discussed there being too many business undergrads. </p>
<p>The issue is regarding MBA’s, and in particular, the elite MBA’s, along with the high-paying banking and consulting positions that preferentially attract them. Plenty of engineers quit engineering jobs in order to attend top MBA programs with the specific goal of entering banking or consulting. On the other hand, there are surely few people within those industries who would rather be working as engineers, even those who formerly worked as engineers. </p>
<p>The issue has spread beyond the MBA level to the elite engineering undergrad ranks. MIT and Stanford are arguably the two most prestigious engineering schools in the world, yet the fact is, many of their higher-performing engineering undergrad students will not actually take engineering jobs, instead strongly preferring positions in finance or consulting. The brain-drain away of top talent from the engineering pool is therefore dramatic; it is ironic indeed that so many of the best-performing engineering students do not actually want to work as engineers. {If only engineering students with 2.0’s from the lowest tier programs were enticed towards finance or consulting, then there wouldn’t be an issue, but we’re talking about the best students from the best programs.} </p>
<p>If engineering firms truly cared about having the very best engineering talent, you would think that they would pay the best engineers top dollar to actually work as engineers. But they don’t. That’s why many of the best engineering students don’t ever really want to work as engineers at all, or if they do, will do so only for a few years before quitting to attend top MBA programs. </p>
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<p>I’m afraid I have to challenge you on this point. If we truly didn’t have enough engineers, then shouldn’t engineering salaries be bid higher? Other posters here have invoked the tenets of neoclassical economics, which stipulate that a shortage of anything ought to increase its price. After all, the high pay of investment bankers is supposedly due to a shortage, and the high pay of top corporate managers is also supposedly due to a shortage. Hence, any shortage of engineers should be similarly accompanied with high pay. </p>
<p>Either that, or we have to admit that neoclassical economics is not the whole story. Perhaps salaries - whether for engineers, Ibankers, managers, or anybody else - are not explained solely by economic forces. Perhaps the only engineering shortage is regarding those who are willing to work as engineers at current salaries. If engineers were paid like Ibankers, people would be coming out of the woodwork to major in engineering.</p>
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<p>AND? These top engineers are not that useful in the workforce. Who cares if the Perl script gets written in 2 hours instead of 3. If you hired Albert Einstein to write test scripts for some java API, do you think he’d work some miracles for the company? As just another cog in the machinery, he’s useless. </p>
<p>The top business/finance folks are, for whatever reason (don’t ask me, ask the banks) useful and valuable. There is nothing that unfair about it. We don’t live in some fantasy world where everything is regulated and your success and fortune in life is linearly related to the prestige of your college and the rigor of the curriculum.</p>
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<p>I would actually argue that engineers who developed the leading innovations of the day are extraordinarily useful. It is the improvement of technology that has lifted mankind from poverty of peasantry that he used to be relegated in. For example, how much wealth and social value has been generated, and continues to be generated every day, by the launch and development of the Internet? </p>
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<p>Actually, the world of reality is one where affairs are regulated, and probably always will be, whether we like it or not. They just happen to be regulated poorly, and almost certainly, corruptly, and so that makes their affairs ourbusiness. </p>
<p>If you disagree, then ask yourself, why did we, the taxpayers, bail out all of the investment banks? Why did we bail out AIG, which wasn’t even a bank, and pay their supposedly ‘useful and valuable’ their fully honored contracted bonuses, when if the company had been allowed to default, those bonus contracts would surely have been abrogated by the bankruptcy courts? Why do we provide emergency liquidity borrowing facilities to the banks that are available to nobody else? Because the banks are even bigger than they were pre-crash, and given the chaos that befell the markets when Lehman Brothers was allowed to fall (and truth be told probably should have been rescued), it is clear as day that the taxpayers will be certain to have to bail out the banks if and when they fall down again. If they were too big to fail before, now they’re truly too big to fail now. </p>
<p>But that means that bankers’ pay is our business, and always will be. Bankers pay is now being effectively subsidized by the taxpayers because the banks are well aware that they can take excessive risks, knowing that in the case of an extreme loss, the taxpayers must inevitably backstop them. I do not receive that subsidy. If I start a company and cause it to fail by taking extreme risks, the taxpayers won’t come rescue me. The grizzled veterans of the dotcom bust are still waiting for their bailout. </p>
<p>But that means that it is therefore our jobs as the taxpayers to regulate the banks properly. How bankers’ compensation is structured is therefore very much our concern and we as the taxpayers have every right to discuss it. What is clearly unfair is to argue that banks should be allowed to pay their employees whatever they please, but the taxpayers will still have to rescue them on demand.</p>
<p>The day that we devise a system where not a single bank will ever need any taxpayer bailouts or any special financing provisions that are unavailable to the rest of the taxpayers is the day that I will stop talking about bankers’ pay. But that day is certainly not today, and I suspect that day will never come.</p>
<p>But if you continue to disagree, then answer the following question: why should banks be allowed to pay employees whatever they wish while still being allowed to demand taxpayer bailouts?</p>
<p>frankly a lot of this (engineers making less money than SOME business managers) has to do with - sorry for this guys - poorly developed social skills. as long as technical people think all they have to do is be really smart and get all the right answers, they’ll be relegated to being techies. and for a great many of us, that’s just fine. but the swells in the company will be those who know what to wear, where to take customers out for dinner, how to schmooze it up, and all that goes along with the game of business. if it’s not your thing, wear your t-shirts and blue jeans to work, play video games in your spare time, or whatever else floats your boat. it’s really ok, you’ll make a very comfortable living. but if making a lot of money is your objective, you’ll need to develop another dimension of yourself.</p>