The 2022 drop for SWE is easy for me to explain, and it's not on these analysts' list of factors (though I'm not an economic quant, I don't know how you could really control for it): In 2017, a tax bill was passed that cut a particular tax incentive in 2022 in an effort to be counted as "revenue neutral" despite being otherwise a massive tax cut overall. The incentive in question was a writeoff for "Research and development". This means that in 2022, it got effectively much more expensive to hire anyone who falls under that category, including developers not directly necessary for the day-to-day function of a business (hell, one might argue they would have counted anyway) and scientists of most kinds. That this hit big firms, which have a higher relative amount of R&D efforts going at a given time, first makes a lot of sense.

For customer service, my explanation is that companies literally do not care about customer service. Automated phone trees, outsourced call centers whose reps have no real power to help a customer, and poorly-made websites have been frustrating people for decades, but businesses never seem to try to compete on doing better at it. It's a cheap win with investors who want to hear about AI initiatives to lay off yet even more of this department, because it doesn't matter if the quality of service declines, there are no market or regulatory forces that are punishing this well enough to ever expect firms to stop breaking it, let alone fix it

Love this note. For those interested, this is the Tax Cuts and Jobs Act (TCJA) of 2017 Section 179.

For a software engineering business, the Tax Cuts and Jobs Act (TCJA) of 2017 significantly impacted how software costs can be expensed under Section 179. While Section 179 previously allowed for the immediate expensing of many software purchases, TCJA reforms restricted this deduction primarily to "off-the-shelf" software. Custom-developed software and internal development costs are no longer eligible for Section 179 expensing and must now be capitalized and amortized.

Under the TCJA, Section 179 cannot be used for software that a company develops for itself. This includes the direct costs for the engineers, programmers, and other personnel involved in the development process.

The report not addressing this elephant in the room is a disappointing.

This 1000x.

I was working in Europe for a big American company, which will remain nameless, and they started shutting down most, if not all, of their European operations.

A change in the US tax code made software development amortize over 5 years in the US and over 15 years overseas. It was later changed instant deduction in the US but still 15 years for overseas. It no longer makes sense to outsource software development in many cases.

> It's a cheap win with investors who want to hear about AI initiatives to lay off yet even more of this department, because it doesn't matter if the quality of service declines, there are no market or regulatory forces that are punishing this well enough to ever expect firms to stop breaking it, let alone fix it

There's also some argument that, if people cannot get customer service to "help" they stop asking for help - driving that cost down.

And not having to remedy issues in the product = no repair/replace cost

And people are then left with only a few options, one of which... buy a replacement... which in a restricted market is a WIN because more money coming in...

And something to note - this cut has been reinstated as part of the Big Beautiful Bill. Which has passed. I think the drop in jobs between now and a year from now atleast be separated as AI vs just interest rates. There are less confounding variables.

I've heard this complaint/observation many times and I just don't buy it. For one thing, particularly for large companies, the deduction smooths out. Yes, you can only deduct 20% of the costs this year but you're also deducting 20% from the previous year, 20% from the eyar before that and so on.

Also, the 2017 tax cuts and the recent bill have provided substantial tax cuts to these corporations too.

Usually this subject comes up where people (at least on HN) are telling people to mail their Congresspeople and Senators to get a bill passed to "fix" this and my question is always this:

"What tax cuts are you going to give back to pay for this?"

If we want to end this ridiculous IP transfer to Ireland and royalty payments to offshore profits to avoid taxes at the same time, I'm 100% on board with fixing the deductability of engineering salaries.

How does US tax bill explain global slowdown?

You absolutely misunderstand Section 174 and you are spreading misinformation.

The only companies this affected are those right at the margins of becoming profitable. It doesn't affect new startups and it doesn't affect established businesses. And if you are at the margins of becoming profitable you have likely accumulated more than enough tax credits for all your losses.

The changes to Section 174 is not the explanation of why software engineering jobs were lost in 2022. They were lost because every company overhired from 2020-2022 and they have to absorb it given the drop in activity once the Pandemic was over.