Just because it's standard practice doesn't make it right. Is the employee contributing less to the company based on their location in a cheaper market? I think not. So why should we as workers allow a company to extract more profit from our labor based solely on our physical location?
Markets never pay you what you contribute, they pay you some number between "what you contribute" and "what you can earn working elsewhere". Your contribution sets a ceiling on your compensation; your opportunity cost sets a floor. What you actually make is whatever you can negotiate in between.
When you work in an area with fewer jobs in your field, it's far less likely that you'll have a competing offer that'll jeopardize the company's ability to keep you. That means your opportunity cost is much less, which means that the floor on what they can pay you is less.
(A similar dynamic on the investor side is why startups end up starting in the Bay Area to begin with. In most other regions of the company, there are very few investors willing to invest in high-risk tech startups. That means that a prospective startup needs to take the only financing option they can get, which means that the investor ends up owning the majority of the company. The Bay Area has a liquid and competitive market for funding, which means that there's a real chance of a VC firm losing the deal, which is what allows startups to raise capital on fair terms.)
It does feel quite bizzaro doesn’t it? The manager here says
Happy to let you do it, but know that the market rate for your skills there is X, which means an adjustment in salary for a voluntary move.
my question is: in this hypothetical, did my skills somehow lose monetary value to the company because I left the west coast and bought a house in Indiana? What’s the calculation on that one? Let’s talk numbers.
I’d love to sit down to coffee with a hiring budget manager one day and get into the weeds on CoL against present value and just do all of the math until the cafe closes or one of us has to take the first coffee induced “bio break”.
Or at least, this is how it would go if my company tried to sell me on this. Hell, I might even be amenable to the pay cut if the company was otherwise doing right by our relationship as employer and employee and I felt sufficiently invested in continuing that relationship, but we’re going to get real mechanical and be VERY thorough about it.
I mean CoL is a thing. There are some talent asymmetries in DevOps and InfoSec, that could command high salaries/remote work. Remote work in security vs. salaries support this.
But for your run of the mil developer -> senior developer, a large chunk of that $150k Bay Area pay for non-FAANG is COLA, no way around it.
> my question is: in this hypothetical, did my skills somehow lose monetary value to the company because I left the west coast and bought a house in Indiana? What’s the calculation on that one? Let’s talk numbers.
It doesn't have anything to do with your skills. It's just that they believe they can replace you in Indiana with a lower salary.
I'm not saying it makes a lot of sense, just that they're probably thinking about it in that way.
Or that there is less demand for those skills in Indiana so the market for those skills in Indiana pays less than the market for those skills in a separate location. This raises the question of if "remote" is its own "virtual location" in terms of market. Unfortunately, there is not yet enough remote work for there to be an established "remote" market distinction.
For people where there is only a handful of people with those skills in the world, they command ny/sf pay wherever they live.
This is an interesting take. I am a remote worker (technically in Chicago), but my employer is headquartered elsewhere. We have offices in Chicago. But I live in Indiana.
What's my 'demand market', as it were? Is it Cali where my parent company lives? Is it Chicago where the subsidiary division I support operates? Or is it Indy?
How does one negotiate salary taking in all that when negotiating a permanent full remote transition?
(This is just for the sake of the hypothetical, I’m very satisfied with my current actual arrangement, but we’ve crossed into a new working world and consider me a career “prepper” or something)
i think there are reasonable arguments for each permutation of answers!
Ultimately, every negotiation comes down to BATNA (best alternative to negotiated agreement.) You have to demand from the company you think can/will pay the most the amount of compensation you are confident (but perhaps not sure) that you can get from the second-expected-highest company. This is similar to a Vickery auction -- the winner is the person who is willing to pay the most but they pay the price the second-highest bidder put forward.
In tech labor, the distribution of compensation for the same work is much wider than almost any market participant realizes.
To your last point, what would be the closest comparison? Is there even one? I’m sympathetic to the reality that there are lots of variables at play here between work sectors, but do you think a reasonable analogue exists in another industry, and could any actionable models be taken from, iterated upon and applied to tech labor with the effects of equalizing the demand curve and negotiating change through all of this?*
Appreciate the back and forth on this, it’s an interesting set of conditions we’re wading through as a society and I enjoy the thought experiment.
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* there may be a better way to phrase this question, unable to figure how to put it, at the moment-if you’ll accept the pleasantry as far as the hypothetical will warrant it.
yes, your skills did loose monetary value. That's because it costs X less to hire in that location. The reason people are will to accept X less is because there's a lower COL.
But, the crucial thing to remember is that people's calculation of ROI of compensation to COL is way off. And so they're being under compensated in places like the bay area relative to other areas. Bay area is 50% more than the rest of the country but the COL is x4 to x8 (heck even day care is x4 more in SF than houston).
> yes, your skills did loose monetary value. That's because it costs X less to hire in that location.
I disagree. Your skills didn’t drop. Your value didn’t drop. They weren’t going to hire anyone in <location> anyways, they’ll hire <local> if you quit. So you’re negotiating between them wasting time & money hiring for someone of equal value locally
That chart is completely ridiculous. I moved from one of the cities at the top of that list to SF. My pay went up by 3x, my living expenses went up by 4x and my overall savings increased by 3x.
the compensation numbers I put up are averages based on Stackoverflow salary postings.
You're pay going up by x3 could have many reasons. If you're in the early part of your career, that's very much possible but it's not typical of an average SE in SF vs an average SE in the rest of the nation.
> my question is: in this hypothetical, did my skills somehow lose monetary value to the company because I left the west coast and bought a house in Indiana? What’s the calculation on that one? Let’s talk numbers.
It’s a bad idea for a company to pay you significantly more than you could earn at a different job. Because then you’ll never quit even if you’re miserable. You’ll stick around and be a toxic presence.
This framing is merely convenient. I work in a company that has workers in several countries, and an equally valid framing is "Those in poorer countries are as productive as the Bay Area folks, it is unfair they get paid less. Therefore we will pay everyone equally".
The outcome is that Bay Area folks will get paid less than their current pay, and those in India get paid more than their current pay. Because there's no way my company can afford to pay all their developers Bay Area rates.
That would be using exactly the same rationale as your comment: Equal pay for equal productivity.
I agree that workers in other countries deserve to get paid the same high wages I get paid for doing the same labor I do. If a company can afford to pay me those wages just because of the passport I carry then they can afford to pay, for instance, my Indian colleagues the same fair wage.
Let's not pretend that all companies are cash-strapped startups. The FAANGs of the world and the Fortune $x companies and the multinationals can absolutely afford to pay their global workforce uniform wages, but they choose not to because it's not maximally profitable to do so.
> Let's not pretend that all companies are cash-strapped startups. The FAANGs of the world and the Fortune $x companies and the multinationals can absolutely afford to pay their global workforce uniform wages,
I'll contest that. FAANGs are extreme outliers. I can assure you my company, while it certainly can pay everyone an extra, say, 10%, definitely cannot pay all its SW engineers Bay Area salaries. And then Non-SW engineering companies - even the top ones - rarely have that much money. Their operating expenses and capital costs are a lot more than a SW company's is.
> Those in poorer countries are as productive as the Bay Area folks, it is unfair they get paid less.
That does not really make sense. Work does not have some inherent value, its value is based on market situation, and different markets have different price equilibriums.
Honestly, if you go 100% remote, you are now competing with a much, much larger pool of developers. You are not going to command Silicon Valley prices.
i don't think morality is really useful here: right or wrong, it doesn't matter. labor is labor; that software engineers are a talented, "woke" (or at least perceived as such) group of labor doesn't change anything. you trade your time for money, which you use to buy stuff and then continue to trade your time for money. that's the game.
software engineers have it pretty good, anyway. this manager's example is perfect: sure, people grumble, but they typically eventually accept a reduced salary. why is that? even at a reduced salary, most laborers will be OK with a non-physically-straining, intellectually decent job that lets them live where they want to live and largely earn enough to not worry too much.
Prices aren't set (solely) by value provided. If that were the case, toilet paper and other essentials would cost 10-100x more than it does today.
Prices are set by supply-and-demand. More to the point, companies will pay you the least amount of money they can, while still retaining you. Just like you pay the toilet paper company the least amount of money you can get away with, even if you get vastly more value out of it.
You're welcome to reject the above on principle. But then you'll have to settle for the next best alternative. And if the company's done its homework right, your next best alternative wouldn't be any better.
I mean really you already nailed it on the "anyone can clean a toilet or cook a burger". This is only from my own experience working in a chain restaurant kitchen, but to a pretty high level. You don't need to be a great chef or anything to be a standard line cook, even if you don't know how to cook they can teach you in one or two training days, everything is timed to the second and all the equipment beeps to let you know when it's done. I was 18 at the time with no experience, my interview was "what days can you work, and are you comfortable staying until the bar closes" and for every one of me there were 30 people ready to take over when someone quit, including high school kids and people fresh out of jail without many other options.
What is there to debate? As the person you responded to explained, people don't want to pay $10 for a roll of toilet paper because people can buy one for $0.50. People don't pay a janitor or cook $200 per hour because people can buy one at $15 per hour.
If UBI existed and no one "had" to work, then people would probably have to pay a janitor or a cook $200 per hour.
Employee compensation has very little to do with contribution. It has to do with labor competition. The only way to capture more compensation is shut out workers willing to work for less.
People need to understand that salaries are set based on cost of labor, not cost of living. Companies will pay what it takes, but that value is preset by what employees are willing to accept in any given market.
