>(this makes zero sense to me, the value you add most likely doesn’t change because of where you live)?
Price is the intersection of supply and demand. A buyer will ask a seller to accept a lower price if they think the seller is willing to accept a lower price. A seller might accept a lower price if they don't think they can get a higher price.
You are paid $X because the buyer couldn't find someone willing to accept $X-1, and you accepted $X because you couldn't find someone to give you $X+1.
Yes, that's correct. But the question being asked is why the location changes the $X's there. I don't know that restatement of economic generalities helps unless you're going to apply them to the dynamic being asked about.
That seems obvious to me: lowering your cost of living means you are willing to accept $X-1, or if you personally don't want to another person that also moved out of high priced living area may accept a lower salary (so they get your job). Otherwise why did companies even have different compensation tiers for same type of work across US regions?
Just because it takes some time for the market to price the changes it doesn't mean it won't do that. Enjoy the initial boost in discretionary income but prepare for having to negotiate lower compensation down the line (or, more likely, not getting any increase in compensation for a long time).
True, also there is now a bigger talent pool to choose from, since you don't need to worry about finding candidates willing to relocate, that means more employees to choose from.
I know a know a TON of people looking forward to the next couple of years employment opportunities. lots of people I know have gotten offers from SV, seattle, etc companies but refused to relocate for one reason or another. now that people are accepting of full remote, they have their eyes open for the jobs they want, with the hope that full remote is now an option.
I myself turned down many offers from west coast corps because pay wasn't high enough to justify moving and the life style cost and inconveniences increase.
That is the whole point of information asymmetry in negotiation. The party with more information has an advantage. All salary discussions are negotiations.
Clearly the buyer (employer) thinks the seller (employee) will have no choice but to accept lower pay due to the seller having a lack of buyers willing to pay more.
If the buyer's prediction is true, then the seller will accept (maybe not in individual cases, but averaged over entire workforce). If the buyer's prediction is false, then sellers will opt to sell to other buyers offering more.
When there are 100 jobs and only 10 qualified people in SF ,all paying huge cost of living, they can command very high salaries to cover COL plus more.
When there are 10 Million people living in dramatically cheaper COL centers they (a) can survive on much less, and (b) are all competing for 100 jobs, driving the supply curve way down.
>> restatement of economic generalities help
because this is a textbook example of why these generalities hold true, but only in really basic, aggregate cases.
I think that's just a question that people look at backwards. From a company's perspective, salaries outside the SF Bay Area are the "right" ones - they think they're moving closer to the world where location doesn't matter, not further away.
Its not the location, is the competition pool. When you become remote, you now increase the competition by a lot of people that also want to work remote, if not half the world.
Its very imprecise to base salary on location, but if remote were just as competitive as in-office, you wouldn't hear people asking to get paid the same when they go remote
Because in a world where many jobs are not remote, especially over the longer-term, on average local job options will tend to influence the salaries of people working remotely from that location.
agreed if someone is remote is SF or remote in Wyoming, the pay will not depend on the employees personal expenses, but there might be a price differentiator for an SF employee that can come to the office within a moments notice. That adds value that has a cost associated with it.
Silicon Valley, at least the bigger companies, already do that. Most people are not native to the area. Almost everyone I know in the bay area moved there for work.
The big tech companies have plenty of satellite offices, though. If you want to work for Google but need to stay in NYC, Boston, Pittsburgh, Chicago, Santa Monica, Seattle, Boulder, Austin, etc. for whatever reason, you can totally do that. You just are somewhat limited in the teams/projects you can be working on, and it may affect your career advancement. (But this likely applies to remote work as well.)
A remote employee as commodity is essentially fungible, in which case why would a company bid more on the same employee living in a higher cost of living area than the same employee living in a lower one?
It would only make sense if employers collude so that those employees can't get competitive offers. Otherwise, why wouldn't another company bid more since location doesn't change the value?
> and you accepted $X because you couldn't find someone to give you $X+1.
My buddy accepted $X -($X *.8) = $Y because the company offering $Y was doing something ethical. Point being there's far more variables at stake here to over simplify.
Of course, but I didn't think it was necessary to state "all else being equal". In a conversation about why the same employer pays less to people if they move, it's strictly because they can and the employee doesn't have a choice to defect. Whereas in SF, the employee can walk around the corner and start working for someone else. Which is an illustration of the intersection of supply and demand.
You aren’t wrong, but we need to be careful when applying typical market economics to the labor market. It has its own field of study specifically because some of these relationships/intersections breakdown in the employee-employer relationship.
A classic example is the lack of perfect information in the labor market like you see in a commodities market. A more specific example is the wage-fixing scandal that hit tech companies [1]. In this case, the companies used their market power and unified to lower worker wages and stop them from crossing the street for more pay.
I see that example as supporting the idea of supply and demand determining price.
Employers colluded to reduce number of buyers, hence reducing demand, causing sellers to have fewer alternatives to sell their services to, causing them to sell at a lower price than they otherwise would.
There may be more effects due to lack of information or ability to move or issues of social signaling compared to a simple example of widgets, but in the grand scheme of thing, it still follows the same principle.
wouldn't the wage fixing scandal, which was essentially illegal oligopolistic behaviour, be an example of how a larger market, wider area supply/demand relationship would look more like the classic economic model, i.e., this exact case?
There isn’t an open market where the worker can get a clear market value for their salary. The companies hold far more information than each worker. Nuances like this non-clearing behavior, geographic forces, compensating differentials, and monopsonies make labor economics it’s own field of study.
Did your buddy take an 80% salary cut? If that’s the case, I’d guess that he was either extremely well paid before, or he’s got huge savings and could afford to not to work anymore.
That said I work for below market because I value the work and enjoy it. Not sure what kind of bump I’d get but it wouldn’t be a 5x
Price is the intersection of supply and demand. A buyer will ask a seller to accept a lower price if they think the seller is willing to accept a lower price. A seller might accept a lower price if they don't think they can get a higher price.
You are paid $X because the buyer couldn't find someone willing to accept $X-1, and you accepted $X because you couldn't find someone to give you $X+1.