Software engineers enjoy working with new technologies, having great benefits, working on interesting projects, but also their high salary. There are several reasons why software engineers have a high salary. Interestingly, not all software engineers around the world have a high salary.
When you start doing research about software engineers’ salaries in the US, you will find crazy salary numbers for someone who sits in front of a computer the whole day. In this article, we are going to explain the reason why.
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Reasons Why Software Engineers in the US are Highly Paid
There is no one specific reason why there are higher salaries for software engineers in the US than in the rest of the world. Here are the reasons why software engineers in the US are highly paid:
1. The US has the largest tech market in the world
There is no other country like the US putting efforts into the tech industry. In 2020, the technology industry was on the pace of reaching $5.2 trillion. The US represents 32% of the total which is about $1.7 trillion. Its closest competitor is Europe with 20%, while China is at about 14% despite its rapid growth.
The US having the largest tech market in the world is not a surprise as the country has always been eager to be at the top of innovation. Innovation is associated with future progress and technology impulses innovation. Therefore, tech workers are considered high value in the economy of the country, which in consequence they are highly compensated. As the tech industry keeps growing more and more, tech worker salaries will also grow.
2. In average, the US is the home of 8 out of the 16 largest tech companies by revenue in the world
You have probably heard of tech giants such as Google and Microsoft as most of their products are used worldwide. In fact, you probably used Google to come across this article. These companies happened to have started in the US, many of them in California, becoming a technology hub for many emergent tech companies.
These tech giant companies are not only called giants just because of the number of users consuming their products but the amount of money generated from the normal business operations. In 2021, companies like Apple, Alphabet aka Google, Microsoft, Dell, Mete (previously known as Facebook), Intel, IBM, Lenovo, and HP, are among the top 16 largest tech companies in revenue, all of them with headquarters in the US.
However, this is not a surprise as most of these companies have been on the list of largest tech companies by revenue since 2018, with the exception of Cisco in 2020.
One key aspect displayed in the image above is the amount of revenue generated is displayed in billions versus the total of employees by each of these companies. Notice how companies like Meta (Facebook) employ less than half of the total employees of other companies like Intel, Sony, or IBM, and manage to generate more in revenue.
This is the reason why tech giants are not only able to provide excellent salaries and compensation while also attracting the top tech talent as highly skillful tech workers are capable of developing innovative solutions that scale businesses, which impacts their ability to generate money and become more profitable.
3. The US has by far the largest venture capital funding in the world
Based on the amount put in startup investment, there is an average of $800 for every person in the US. Interestingly enough, the US is not ranked the highest when it comes to per capita startup investment, or in other words, the total of funding based on the population of the country. Countries like Singapore and Israel are the top countries with a higher investment per capita funding while the US is ranked four.
While this is surprising, one important aspect to remember is the population comparison between countries like Israel versus the US. Israel’s population is 5.9 million people. Hence, $8.44 billion in funding is enough to outrank the US when it comes to funding per capita. On the other hand, the US has received about $269 billion in funding for a population of 333 million people.
When comparing among the largest nations in the world, the US has by far the largest venture capital funding in the world. The second-largest country with the highest funding is China with $60.6 billion. However, that represents only $42 per capita funding as China has a population of 1.445 billion people.
4. 34 out of the 35 top largest software companies have headquarters in the US
With the exception of SAP, with headquarters in Germany, the rest of the largest software companies have all headquarters in the US.
Are you wondering why this has anything to do with high software engineer salaries in the US?
These large software companies not only provide job opportunities for software engineers but also generate high revenue. Having a high revenue allows them to make more profit and provide high salaries to their tech workers.
If you decide to search the average salary for software engineers for any of these companies, you will find an average of $110,000 to $130,000 for their first-level software engineers. For example, when researching salaries for engineers at Microsoft, Autodesk, Twillio, Palantir, and Adobe, I noticed none of their salaries, excluding the stock and bonus, was less than $110,000 for their first-level engineers.
However, we must remember these large software companies are located at are high cost of living such as San Francisco, California, which is one of the top-most expensive cities to live in the US.
5. The US tech industry market is worth around $1.6 trillion representing 10.5% of the national economy
According to Computing Technology Industry Association (CompTIA), the tech industry in the US accounts for 10.5 percent of the direct economic value which is over $2.0 trillion. This provides indirect benefits in the technology industry. For instance, the IT services category has an estimated jobs multiplier of 4.8. That means, for every one job in this tech subsector, an estimated 4.8 additional jobs are created or supported through direct, indirect, or induced means.
The US is the world’s biggest economy and is in the top ten of this index thanks to a technological sector that leads the world in the number of startups and in the concentration of high-tech firms. Hence, software engineers among other tech workers become high-value workers for the nation as they produce innovative technological products that drive the economy of the country.
6. 78% percent of software engineers in the US change jobs for a higher compensation
In any industry, it is common for professionals to change jobs to get a higher salary or better compensation packages. However, this is very noticeable for software engineers in the US where 78% of software engineers change jobs for higher compensation. Interestingly, there are 5 job opportunities for every software developer.
This is a clear example of high demand, low supply problem, driving salaries high just like the real state industry when there is a seller’s market when the houses are sold for at a high value due to low inventory.
If you put this in perspective, if more than three-quarters of software engineers look for higher compensation in the US, this forces employers to increase salaries if they want to keep their top talent in their companies before employees look for elsewhere. This prevents companies go through the process of hiring qualified engineers when the talent pool is not large enough for the demand even if the US has the largest number of software engineers in the world with about 4.5 million as of 2021.
Conclusion
As you notice, there is not a simple reason why software engineers in the US get higher salaries when compared to the rest of the world. However, the tech industry plays a major role in the economy of the country as well as the amount of money generated by large tech companies, many of which are located in the US.
Also, the funding generated for startup investment is by far the largest of any other country in the world in hopes to attract top talent to hyper-accelerate the development of a product or a service with a startup.
What did you think about the reasons why software engineers have a higher salary in the US than in the rest of the world?
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