Thursday, November 26, 2009

Paradox of the Poor (Money No Enough) Programmers

Recently, I got involved in a some discussions over the future of Computer Science in Singapore. The truth of the matter is that Singapore has done very well with regards to attracting lots of world-class Infocomm companies to set up shop in Singapore. REGARDLESS of whether the current economic recovery is going to be U-shaped, W-shaped, O-shaped, whatever-shaped, the jobs are coming over the next couple of years. There are going to be a large number of them and these are going to require good programmers (and not just run-of-the-mill graduates).

But there's apparently also a shortage of good programmers. For a CS prof who is concerned about the state of the local IT industry, this is clearly something that I am deeply troubled about.

After discussing this issue with some folks over the last few days, I came upon this apparent paradox: it is well-known that a good programmer is 10 times more productive than a mediocre one. In this light, suppose a mediocre programmer makes $30K a year, the good programmers should be expected to make $300K a year. However, we are not seeing this in the market today. WHY?

While thinking about this problem, I suddenly recalled this conversation I had over lunch a couple of weeks ago with my ex-classmate who is the co-founder of a successful startup. Over lunch, we were discussing the issues of manpower and pay. He made this one remark, "I have this guy who is worth 10 times what I'm paying him - but I'm not paying him that much. The reason is that he doesn't KNOW he's worth that much, and I have no incentive to tell him."

This indicates that there's information asymmetry. The classic example of this is what's known as the Market for Lemons. The idea here is that in the used-car market, there are two kinds of cars, lemons and peaches. Lemons are cars that will break down frequently and peaches are good and reliable cars. The catch is that only the seller knows whether his car is a lemon or a peach. A buyer cannot tell. Hence the information asymmetry. The question is this: suppose lemons are worth $20,000 and peaches are worth $60,000, what is the price of a used car?

Clearly, the price must be at least $20,000 and at most $60,000. A market price of $60,000 is impossible because the buyers risk getting a lemon and suffering a huge loss. Suppose the clearing price for used cars is $20,000+x, where 0<x<40,000. The lemon sellers will gladly sell their car 'cos they will enjoy surplus x>0. The peach sellers however will not sell 'cos they will lose $40,000-x>0. This means that at this price, the market is full of lemons. If the buyers were rational, they would never pay $20,000+x since they know that they must be looking at a lemon. The stable equilibrium is therefore a market clearing price of $20,000 and where only lemons get sold. This is a market failure because peaches cannot be sold.

So how is this issue of information asymmetry and lemons related to programmers?

Well, it seems to me that there's some weirdness in the market. If there's a so-called shortage of good programmers, then logically, the salaries of good programmers must shoot through the roof (in Singapore, not talking about Google, Mountain View here), but that's not happening. Hold that thought.

Over the past couple of years that I have been teaching at NUS, I have come to realize one curious thing. The class of Honours is NOT an entirely good indicator of whether a student is a good programmer. There is some correlation, i.e. First Class Hons typically better programmer than Third Class Hons, but there are very good programmers who are only 2nd Upper/Lower students (and quite a number of them!).

I have had students who are elite programmers who fail MA1505 (calculus) and get their CAPs thrashed. There are also First Class Honours students that I would never touch with a ten-foot pole. Software companies try to do their due diligence and set tests and exams, etc. However, the laupok First Class Honours will still probably get through.

All in all, I believe that there's an information gap. Companies look at the prospects and they are not entirely sure. Good programmers who just graduate fresh from school don't really understand their own market value and are willing to accept somewhat low salaries from the bigger firms. Bigger firms don't pay more because the programmers are docile enough to accept and they also have no interest to pay more. Cheap is good what. Smaller firms don't have the financial resources to compete and also take the cue from the large firms.

I had an idea: suppose we have an oracle that will magically reveal the value of each programmer. We take a programmer and stick him into the oracle and out comes a dollar value, i.e. say $40,000, or $60,000 and both the market and the programmer believe that the oracle is accurate. How will this change the situation? :-)

I have a theory - and I plan to build the oracle to test if my theory is correct. Wish me luck.

Here's another post on the same issue (Thanks Zi!). The funny thing about productivity in programming is that we actually want programmers who write less code, not more. Also, the majority of the time is spent not so much on writing code, but in debugging. Good programmers generate fewer bugs. :-)