ZIRP's End Meets AI - Changing the Rules of Software Work

The end of the Zero Interest Rate Period (ZIRP) and the advent of modern AI have tipped the balance of power in the technology industry back to the employer, and continue to reshape the industry. This post examines the second and third order effects of these major trends.

1. Introduction: A Changing Tech Industry

The end of ZIRP

After the global financial crisis of 2008/2009, many economies responded to low growth and financial instability by lowering interest rates. In monetary policy, the goal of lowering interest rates is that you make it cheaper for businesses and consumers to borrow, which results in increased investment and spending in the economy.

What’s less well known is that the lowering of interest rates was accompanied by many rounds of quantitative easing (QE), which is basically when the government (via an “independent” central bank) injects money into the financial system

Although regarded widely as printing money, this is not the case

Instead, a central bank buys up government bonds, which causes the price of these assets (government bonds) to increase, and therefore their yields to decrease. This encourages banks and investors to rebalance their portfolios by investing in assets with a higher yield - i.e. riskier assets such as corporate bonds, equities and venture capital.

The increased investment in these riskier assets causes their prices to rise, causing a general increase in confidence in the economy and a rise in spending.

Great, but how is this relevant to tech?

As we just recapped, when yields from less risky financial instruments (such as savings accounts and bonds) are low, then one of the asset classes that offers an attractive, higher rate of return is Venture Capital (VC). As a result, during the ZIRP era capital flooded into VC accounts. Those VCs in turn funded startups.

source: The Pragmatic Engineer

Those days are now gone, and indeed it should be noted that is the norm. Historically speaking, higher interest rates are standard, with the ZIRP era an anomaly:

Federal Reserve Rate Since 1980

The AI Surge

Those who think that AI (GenAI) is “hype” and “overplayed” are wrong. It is incredible, and here to stay. Those who offer foolish platitudes like:

AI won’t take your job, a person using AI will take your job!

This is nonsense, in many cases AI will take your job. The areas where it will not are fiercely competitive industries where if your competitor has a team of 10 software engineers using AI, you need to have 10 engineers using AI to match their pace.

But many, many industries are not that competitive. They are bloated, with regulatory moats, inefficiencies and limited competition. In these industries, if the work churning out widgets used to require a team of 10, but now a team of 4 using AI can churn out those widgets at the same pace…then 6 people are getting the sack, and the company will pocket the cost savings as profit.

2. Post ZIRP Capital Crunch Meets AI

In a post-ZIRP world, funding is harder to come by, and valuations are lower. Investors have a smaller risk appetite. This means that the playbook changes - no more “blitzscaling”. Instead, the emphasis shifts to earlier revenue and profitability.

AI-driven productivity gains act as a cost cutter, allowing the slashing of headcount in low-competition sectors, and hence complementing the new post-ZIRP incentives.

The uptake of AI developer tools continues at pace. According to our 2024 Developer Survey with input from over 65,000 developers, 76% of respondents were using or planning to use AI tools in their development process, up 6% from the year before Stackoverflow 2024 Developer Survey

Even in high-competition areas, headcount reduction is rampant. This likely a combination of adjusting from the ZIRP era hiring exuberance, and an emerging Silicon Valley ethos of doing more with smaller teams.

Second-Order Effects

• Geographic Concentration: Proximity to investors becomes paramount again, driving a new wave of physical “tech hubs.”
• Reduced Moonshots: Fewer audacious projects; larger companies quickly snap up distressed startups for IP.

Third-Order Effects

• Startup Culture Overhaul: Bootstrapping is back, with open-source and lean operations central to many new ventures.
• No more “CV-Driven” development: Boring technology will win the day as practical considerations and less software engineer job hopping mean that the reality crushes shiny object syndrome.
• Corporate R&D Slowdown: With cheaper acquisition of (frequently distressed) startups, giant incumbents may deprioritize in-house innovation.

Yes, I’m referencing my own tweets now - another symptom of the troubled times

3. RTO Mandates: Real Estate and “Voluntary Attrition”

There was a sharp increase in Return to Office (RTO) mandates throughout 2024 (a Google reveals dozens - here’s one from Amazon), and this trend continues. Let’s talk about why.

Cost Savings via RTO

• Reduced Severance Costs: By insisting on in-person work, companies effectively encourage some remote-preferred employees to resign.
• De-Facto Layoffs: Voluntary attrition helps organizations manage headcount cuts without formal layoff packages.

Commercial Real Estate Angle

Plenty of those urging RTO, including the head of the world’s largest commercial landlord, have a vested interest in people returning to commercial real estate properties and patronizing the businesses on which those properties depend. They have a financial stake in preserving white-collar business districts even when the data doesn’t support the contention that daily in-person interaction is necessary to produce innovative, creative, and meaningful work. Stack Overflow blog

• REIT Influence: Real Estate Investment Trusts and institutional investors pressure corporate tenants to occupy office space.
• Expensive Lease Justification: Organizations locked into high-cost leases use RTO to make these expenditures appear necessary.
• Tax Incentives: City governments provide benefits for keeping seats filled, aiming to sustain commercial and retail districts.
• Power Shift: Being onsite more often can reduce flexibility, making it harder for employees to job-hop or attend interviews discreetly.

Second-Order Effects

• Re-Urbanization: Highly skilled workers relocate to major hubs that enforce on-site presence.
• Skyrocketing Rent: Urban centers see rising housing costs, driven by returning employees and well-paid tech workers.
• Local Economies: Increased foot traffic revitalizes retail and service sectors near office districts.

Third-Order Effects

• Inequality and Homelessness: Escalating housing prices push lower-income populations out, exacerbating homelessness in metro areas.
• Strained Infrastructure: Public services (like transportation and healthcare) face heavier loads in dense urban cores.
• Long-Term Community Shifts: Once again, suburbs and smaller cities may be hollowed out economically as workers gravitate to the largest job markets.

4. The Evolving Tech Labor Market

Recent shifts in the tech industry are placing more power in the hands of employers, creating a tougher environment for both programmers and managers. Reduced job openings, fiercer competition, and tighter budgets mean engineers are facing slower career progression and must meet higher performance expectations to stand out.

Power Tilt Toward Employers

With fewer positions available and companies increasingly selective, software development role negotiations often favor the hiring side. Office politics are taking on greater importance, influencing who gets promoted or retained in an increasingly lean workforce.

Fewer Middle Managers

Advances in Generative AI and automation are pushing organizations to flatten their structures. As a result, some engineering manager roles are disappearing, replaced by “player-coach” tech leads who split their time between writing code and overseeing small teams. This change raises the stakes for those stepping into these hybrid positions, but it also offers a chance to foster more cohesive, stable teams.

Second-Order Effects on Engineering Practices

Fewer management layers—and growing emphasis on productivity—are driving simpler, more pragmatic solutions. Large monolithic architectures are making a comeback over complex microservices, and responsibility for key tasks (like QA, security and devops) is shifting more to engineers. The fullstack engineer is much more attainable given artificial intelligence assistance.

We can expect to see startups hold-off longer on hiring specialists, and much longer before hiring dedicated teams e.g. a devops team, as opposed to just “that dev who knows a lot about infra”.

In 2025 we will likely see ongoing restructurings, layoffs disguised as strategic pivots, and mounting burnout risk heightened by the expectation to deliver more with fewer resources.

The number of “non-technical” or “non-hands on” managerial roles in tech will dwindle.

Third-Order Effects

• Mental health professionals continue to have excellent prospects.
• Many senior managers in tech may take early retirement, or be forced to shift industry

5. Where We Go Next: Opportunities, Practical Guidance, and Predictions

For Startups & Corporates

Hiring Talent: For startups and less prestigious large enterprises, this is a golden opportunity to snap up talented technologists. Previously, these software engineers wouldn’t have touched your org with a 10-foot barge pole, but if you can offer perks like remote or hybrid work, they’re much more likely to give you a second look.

Build a solid team: With job hopping on the decline, now’s the time to double down on team cohesion. When people stick around longer, there’s more scope to get shit done and foster genuine camaraderie. Stronger bonds reduce knowledge churn and boost productivity; long-term alignment also makes it easier to tackle more ambitious projects.

Foster the New Generation: GenZ are noteworthy for drinking far less alcohol than previous generations. As GenZ enter the workforce more and more, office social culture will need to shift.

Watch the Politics: A trend back toward in-person work means more office politics (ugh). Remaining remote workers can become second-class citizens if policies aren’t balanced, and resentment may boil over into morale problems.

• Prioritize early revenue over vanity metrics. If you’re burning through cash with nothing to show, expect a rude awakening.
• Lean hard on open-source software to cut costs and accelerate your dev cycles.
• Offer flexible work setups, meaningful equity, and a culture where people have a genuine stake in the outcome.

Beware you don’t lose you best talent with RTO.

For Individuals (particularly software engineers)

• Gain AI fluency. The good news is that this is that AI Engineering is much easier than ML engineering (much to the annoyance of ML engineers everywhere), and very similar to software development (with some noteworthy differences).

Source: Swyx on AI Engineering

Knowledge of hosted LLM tools and workflows (ChatGPT, Claude, copilot), SDKs (OpenAI, Anthropic), Dev tools (Cursor, Windsurf), Observability tools (Logfire, Langfuse) and frameworks (PydanticAI, Llama Index) becomes key.

• Keep your network active, both online and IRL, since a return to the office might make face-to-face rapport a factor again.
• Be ready to pivot into roles or sectors where AI is expanding faster than it’s killing off jobs.
• If you get really good at AI engineering, you’ve got about a 2-3 year consulting gold rush window.
• Software engineering, especially of trivial technical things (CRUD apps, basic UI) is going to plummet in value. It’s time to start adding new skills to your toolbox: sales, marketing and product sense.
• You’re going to have to actually stick around and maintain your code now! Start with a monolith.

Predictions

• Drop in Entrepreneurial Activity: When landing a new gig took a week, failing on a startup idea wasn’t such a big deal; now, job hunts can drag on for months. That lowers risk appetite—and with funding harder to come by, fewer people will take the plunge. On the flipside, the startups still in the arena are likely to be cracked.
• Sustainable Growth Mindset
  Profitability is poised to trump blitzscaling, especially as investors and employees lose their taste for ultra-high-risk moonshots.
• AI Ubiquity
  AI will increasingly seep into every job function, from code review to operational analytics. People who don’t keep pace risk being sidelined.
• Real Estate–Tech Ties
  Pressure for an in-person HQ will keep climbing, especially in certain industries. That said, companies forcing everyone back could alienate high-value remote talent—and we’ll see how that pans out in a labor market that still rewards flexibility.