I once negotiated with an employer that tried to use these exact kinds of cost-of-living stats to compute an adjusted "matching" offer to an offer from California. But it's a bad deal because those high california prices are "paying" for very desirable benefits like nice weather and job opportunities. These differences are not considered when "living" is treated like a commodity where the only stat to compare is cost.
Exactly. If I'm going to forgoe the great weather, I need some of that "excess living expenses" to make up for it with tropical vacations and maybe a nicer car or something.
But shouldn't the cost go down for the company as well? Now they no longer need to use office space to accommodate you or provide you with a space to eat/bathroom/take breaks. Rent in the valley is a nightmare and companies could save a lot by not needing a physical space for the entire workforce.
I thought people in SV are paid what they're paid because they're uniquely qualified and productive, making their employers extremely profitable, or salable.
Is that no longer true when they don't sit in a SV chair?
> I thought people in SV are paid what they're paid because they're uniquely qualified and productive, making their employers extremely profitable, or salable.
Yes. And on top of a salary like that they get some additional pay if they happen to live where it's unusually expensive.
If the employee moves elsewhere and only nominally works at the same office, the employer of course doesn't want to pay extra (and they are right because they can find a replacement by sourcing cheaper offers from the same or similar time zone across both Americas).
It’s funny: I don’t know where people get the idea that people are paid based on the value they produce. People are paid based on the amount they command in the labor market, and labor markets are local (and if they produce less value than they command, there’s no hire). It works like nearly every other economic transaction. Engineers cost more in the valley because there is far more competition to hire them, not because they are unilaterally better or more qualified. (Not to say there isn’t a lot of great talent in the valley, but I’m sure there’s lots of talent outside the valley as well.)
I’m not sure if your comment was sarcastic or not, but this is an extremely common misunderstanding. It often comes up when people discuss CEO salaries (“do they really work YYY times harder than entry level staff?”, as if people are paid based on how hard they work).
Labor markets aren't local when everyone can work from home. That's why this kind of move is absurd. Talent outside the Valley might be willing to take lower pay, based on lower cost of living, but just like everything else the price of their labor shouldn't be based on the cost to produce it.
Labor markets are still local until we have widespread remote working. That’s not the case yet. I’m sure companies remote compensation will become competitive in the all remote market as it evolves, whatever it turns out to look like.
I think the word “absurd” is an inappropriate description, which is just the company behaving rationally.
> just like everything else the price of their labor shouldn't be based on the cost to produce it
This is another misunderstanding. Nothings price is fundamentally based on the cost to produce it — that only happens for commodities in competitive markets. The cost of labor is based on supply & demand. And that’s different today in different places.
While I agree that there is dissonance between value produced and salary paid, but your argument doesn't seem to hold as well.If higher competition drives salaries upwards then the salaries should increase in a remote worker economy as worker pool is not bound to a geographical locality but rather to the whole planet(or at least a larger region if culture or timezone differences are major concerns).
Economics of demand and supply is much more complicated than we could reduce to a liner or so about competition or a few factors. Increased base living costs for the employees combined with the larger availability of capital with the employers probably plays a major role here.
There are still very few companies that want to hire pure remote, so demand is low. This might all change: supply goes up as people go remote, demand goes up as companies look to hire remotely. It’s unclear what this market will look like, but I sincerely doubt it will mean higher compensation than the current Bay Area salaries.
Cost of living has nothing to do with it. The density of employers (and capital) in the valley plus a desire to hire locally leads to high compensation. This leads to engineers moving to the valley. The high density of high earners and demand for housing is what is responsible for the high cost of living in the Bay Area, not the other way around (high costs of living leading to high compensation).
In theory a business that was paying somebody $8 to create $800 of value would have an incentive to pay a lot of people until either the $8 increases or the $800 decreases. If they didn't do it, somebody else would.
Vice versa a business that paid someone $8000 to get $800 worth of value might be able to sustain it (it can divert $7200 from something else) but won't be able to scale it.
People who want to sound reasonable might talk about figures like $790 and $810 but that guarantees you will be in the weeds because you never know exactly where to "charge" things. For instance, a firm invests in equipment for a worker, worker B fills in the gap when worker A slacks off, etc. Even in areas where it is widely believed you can measure productivity (e.g. sales) this is problematic.
I have been looking in the macroeconomics literature but haven't yet found any exploration of the following:
what if an organization has a nodal structure such that at each node somebody can divert X% (say 1 for the hell of it) of what goes through the node? The salary of the top man is then basically proportional to the size of the node, so to get mega-rich, a bank president in New York might buy a bank in New Jersey. The node in New Jersey remains, but a buyer of the bank in New York now gets to skim additional cream.
A corollary of that could be that the "competitive advantage" of "productive" urban areas is in theft. In Ancien Regime France you would set up at Versailles because that is where you had connections for thieving. In post-2008 America, Washington D.C. has boomed because it has "comparative advantage" if you want to bribe politicians to help you steal. Certainly in a country like Equatorial Guinea you are going to settle in the capital because that's where you can steal.
> what if an organization has a nodal structure such that at each node somebody can divert X% (say 1 for the hell of it) of what goes through the node? The salary of the top man is then basically proportional to the size of the node, so to get mega-rich, a bank president in New York might buy a bank in New Jersey. The node in New Jersey remains, but a buyer of the bank in New York now gets to skim additional cream.
This is basically how the world works, if you consider each of those nodes a business. The cost to buy that bank though, already factors in the income stream that you’d get from it. Like how you can go buy shares on the public market and receive dividends.
The unfortunate reality is that you're worth the same as what the next qualified person is willing to accept.
Compensation is determined by the local cost of labor: if a competing candidate is living in North Dakota and willing to accept 30% less, then that's what they'll pay.
This one is a tough problem. On one side, I am in support of Silicon Valley pay being distributed across the entire US instead of being concentrated all in one place.
On the other hand, I don't like economies in small localities being disrupted because one person ends up getting a pay SO MUCH higher than majority of his neighbors for from revenue that is not sourced from the employee's home town.
Maybe the market should let it play out as it does. But at the end of the day, the tech bosses are the real winners when employees' pay get cut. And that is a net negative for all.
Taxes are necessary to fund shared infrastructure and services. They're not supposed to overtly punish success or prevent people from earning a high salary.
There's an argument that high earners can (and possibly should) pay a higher share of taxes because they have the most ability to do so, but you seem to be just advocating taxing away people's earnings out of a jealous desire to not see anyone have more than you.
They also don't tax high earners more. They tax the high end of high salaries more.
In other words, I pay the same amount of taxes on the first $50k of earned income as a ceo pays. We both pay the same rate on the next $50k, and so on. Then, he may pay a higher rate for that last $3m he earns. Seems completely fair to me.
In reality, he has a lot more resources and power to tax plan his income, so he will likely pay a lower effective tax rate than me anyway. So taxing the higher incomes, if anything, is needed to keep things fair.
But regardless, assuming those higher income brackets aren't taxed at an extremely high rate, no one is declining higher salaries or choosing to earn less because it will be taxed more.
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[ 2.8 ms ] story [ 65.1 ms ] threadIf your cost of life gets more than 18% cheaper by moving somewhere else, one could seriously consider taking the hit.
And that one probably should. If anything, you'll get those money back in the next job hopping session.
But now you're permanently remote and can use that as leverage in your next job offer negotiations.
Is that no longer true when they don't sit in a SV chair?
Yes. And on top of a salary like that they get some additional pay if they happen to live where it's unusually expensive.
If the employee moves elsewhere and only nominally works at the same office, the employer of course doesn't want to pay extra (and they are right because they can find a replacement by sourcing cheaper offers from the same or similar time zone across both Americas).
I’m not sure if your comment was sarcastic or not, but this is an extremely common misunderstanding. It often comes up when people discuss CEO salaries (“do they really work YYY times harder than entry level staff?”, as if people are paid based on how hard they work).
I think the word “absurd” is an inappropriate description, which is just the company behaving rationally.
> just like everything else the price of their labor shouldn't be based on the cost to produce it
This is another misunderstanding. Nothings price is fundamentally based on the cost to produce it — that only happens for commodities in competitive markets. The cost of labor is based on supply & demand. And that’s different today in different places.
Cost of living has nothing to do with it. The density of employers (and capital) in the valley plus a desire to hire locally leads to high compensation. This leads to engineers moving to the valley. The high density of high earners and demand for housing is what is responsible for the high cost of living in the Bay Area, not the other way around (high costs of living leading to high compensation).
Vice versa a business that paid someone $8000 to get $800 worth of value might be able to sustain it (it can divert $7200 from something else) but won't be able to scale it.
People who want to sound reasonable might talk about figures like $790 and $810 but that guarantees you will be in the weeds because you never know exactly where to "charge" things. For instance, a firm invests in equipment for a worker, worker B fills in the gap when worker A slacks off, etc. Even in areas where it is widely believed you can measure productivity (e.g. sales) this is problematic.
I have been looking in the macroeconomics literature but haven't yet found any exploration of the following:
what if an organization has a nodal structure such that at each node somebody can divert X% (say 1 for the hell of it) of what goes through the node? The salary of the top man is then basically proportional to the size of the node, so to get mega-rich, a bank president in New York might buy a bank in New Jersey. The node in New Jersey remains, but a buyer of the bank in New York now gets to skim additional cream.
A corollary of that could be that the "competitive advantage" of "productive" urban areas is in theft. In Ancien Regime France you would set up at Versailles because that is where you had connections for thieving. In post-2008 America, Washington D.C. has boomed because it has "comparative advantage" if you want to bribe politicians to help you steal. Certainly in a country like Equatorial Guinea you are going to settle in the capital because that's where you can steal.
This is basically how the world works, if you consider each of those nodes a business. The cost to buy that bank though, already factors in the income stream that you’d get from it. Like how you can go buy shares on the public market and receive dividends.
Compensation is determined by the local cost of labor: if a competing candidate is living in North Dakota and willing to accept 30% less, then that's what they'll pay.
On the other hand, I don't like economies in small localities being disrupted because one person ends up getting a pay SO MUCH higher than majority of his neighbors for from revenue that is not sourced from the employee's home town.
Maybe the market should let it play out as it does. But at the end of the day, the tech bosses are the real winners when employees' pay get cut. And that is a net negative for all.
Taxes are necessary to fund shared infrastructure and services. They're not supposed to overtly punish success or prevent people from earning a high salary.
There's an argument that high earners can (and possibly should) pay a higher share of taxes because they have the most ability to do so, but you seem to be just advocating taxing away people's earnings out of a jealous desire to not see anyone have more than you.
They also don't tax high earners more. They tax the high end of high salaries more.
In other words, I pay the same amount of taxes on the first $50k of earned income as a ceo pays. We both pay the same rate on the next $50k, and so on. Then, he may pay a higher rate for that last $3m he earns. Seems completely fair to me.
In reality, he has a lot more resources and power to tax plan his income, so he will likely pay a lower effective tax rate than me anyway. So taxing the higher incomes, if anything, is needed to keep things fair.
But regardless, assuming those higher income brackets aren't taxed at an extremely high rate, no one is declining higher salaries or choosing to earn less because it will be taxed more.
HR is a cold calculation, and people forget HR's primary (and second and third) priority is to serve the company.