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Comment by mtviewdave | Hacker News Reader

Here's a thought experiment. Let's say an employer is based out of downtown San Jose, and employs people on-site. Would it be reasonable for them to adjust salaries depending on what city an employee lived in? The average rent for a one-bedroom apartment is $3,291 in Mountain View, but $2,390 in Morgan Hill. If an employee moved from Mountain View to Morgan Hill, would the employer be justified in reducing the salary of the employee to adjust for the fact that the (on-site!) employee now lives in a lower cost-of-living area? (Let's assume that other CoL factors are not more expensive in Morgan Hill than Mountain View, which I feel is a safe assumption).

Would it be justified if the company was fully remote?

What about if the employee moved to Sunnyvale? The average rent is $3,016; a smaller difference, but still cheaper than Mountain View.

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To answer your thought experiment: salaries aren't dictated by justifications or fairness.

Silicon Valley firms don't pay high salaries because employees have to pay a high cost of living, they pay the high salaries because if they don't, some other company will pay it and the employee will leave.

They pay the salary that they need to get people to come work. The cost of living is an OUTCOME of this calculation, not the input. The CoL is lower in Morgan Hill because people living there have to commute further to get to their jobs, so fewer people want to live there. You can figure out the price people put on commute distance by comparing housing prices based on distance from work sites.

The really interesting thing will be to see how CoLs in the country change when commute distance is no longer a factor in home prices.

I think a new wage fixing agreement between companies within SV is going to happen, just to avoid the situation you have mentioned in your reply.

I don't think they are going to need it, because the actual problem is going to be the opposite; this will drive down developer salaries. Having to be local to Silicon Valley really limited the supply of good developers; only so many people can physically live in the area, so increased demand can't be met with increased supply indefinitely. This drives prices up. If everyone is remote, suddenly the supply of available developers goes way up for these firms. The supply of developers available to them goes way up. Sure, they have to compete with firms everywhere in the world now, but that is fine for them; the global market is not nearly as strong a seller's market for developers as it is in Silicon Valley.

I'm not sure that the example is similar to the current topic: rent is cheaper than Morgan Hill largely because it takes an hour to drive to lots of workplaces. People are choosing between paying higher rent in Mountain View and paying with their commute time in Morgan Hill.

It's arguably a different scenario from someone attending VC from their $400K, 5-bedroom mansion in Raleigh, NC.

But that's also sort of the point, isn't it? When you are dealing with a remote worker, the commute time doesn't matter. You don't need to consider paying geographical based salaries, because the location isn't relevant. There is no "paying with commute time."

You just need to pay the amount that enables you to get the workers you need. The "fair" thing to do is to pay people without regard to location and let them decide for themselves whether it is worth it to live in a HCOL area or not.

Well, in an ideal, completely efficient market for remote workers, of course the "fair" thing to do is to pay for enough salary to hire the best people in Prague or Bangalore. People can decide whether they want to live in San Francisco with that salary. Most people can't, so naturally there will be a diaspora spreading out to low-cost areas, and rent in SF will drop until the area can be "competitive" again.

But this dry description involves a ton of economic/social upheaval, which we (the society) really wouldn't like to deal with, especially right now. (Not to mention a "completely fair market" is an illusion: you can't just fire your entire team on the bay area and hire replacements from Bangalore.) So a compromise is reached, where companies try to keep people they have now at roughly the same price they're paying now, with ugly, stop-gap measures to dissuade people from getting ahead of the equation.

I'm not saying we should thank Facebook - it's behaving completely in its own interest - but people who complain that this isn't "fair" might want to answer what's their position on the logical conclusion of a "fair market" for remote workers.

You've given voice to exactly what I intended in my comment, but didn't quite have the words to say. Thanks

Right, but they know they don't have to pay that remote worker as much to keep them, because that remote worker doesn't have as many options with where to work... or at least, that was the case before EVERYONE became remote workers.

Companies always pay as little as they need to in order to retain the talent pool they feel is required to do the job they want. They aren't going to pay someone more than they HAVE to out of fairness.

If all companies are remote and competing for workers everywhere in the world, you will see geographic salary discrepancies disappear... slowly.

> You just need to pay the amount that enables you to get the workers you need.

That depends on where these workers already live or are willing to live. You can't get enough applicants from Silicon Valley if you pay too little, you get way more remote applicants than you need if you pay too much.

> The "fair" thing to do is to pay people without regard to location and let them decide for themselves whether it is worth it to live in a HCOL area or not.

That's just not how pricing works. If I can work from anywhere without even having to commute, I'll be willing to do that for far less money. I don't think that's unfair at all, after all my quality of life will be as good or better.

lol I grew up in Raleigh NC, and 5 bedroom mansions are not $400k, they're closer to $1mil even on the outskirts of town.

What I don't get about these ideas is that isn't the factor "how much do you need to be in the office?" If you don't need to be in the office, why not just keep salaries the same and then you select from a larger pool of candidates (this should give you a pretty good pick, but you're still limited by when waking hours overlap).

If you only need to be in the office once a month, dock a little as now you have to cover travel and lodging.

It really seems like the factor of pay should be based on how important physical presence is, not on where the person is. Because otherwise I don't see it as a rational thing for a headquarters to be in SF and an employee in Arizona to get paid less than an employee in NYC. There's more advantages for the company for having your employee(your average programmer, at least) be in AZ rather than NYC. You need them in the office? A whole lot easier/cheaper to get that AZ employee there.

> why not just keep salaries the same and then you select from a larger pool of candidates (this should give you a pretty good pick, but you're still limited by when waking hours overlap).

Because you make less profit if you pay the outrageously high SF salaries. Bay Area salaries are incredibly high because there is outrageous competition for the top engineers and there are a lot of rich companies local to the region who can afford high salaries. They aren't able to hire a bay area engineer at 2/3 pay because that hire can go somewhere else.

If you are one of the early ones to the remote-game then you aren't competing with other bay area companies for an engineer in Tulsa. You are competing with local Tulsa businesses, which don't tend to make the gazillions in profit or VC money needed to afford to pay engineers 300k+. So you don't lose as many candidates when you say now you are paying 150k. So you make more money.

Over time this difference could even out as more and more companies become remote-friendly or remote-first and there are no more local job markets. But this isn't going to end with bay area salaries for the whole world outside of a very very small number of companies and very top performers who can command high pay.

How does this address a office in SF and a remote worker in NYC making more than a remote worker in Phoenix? Both workers are remote. How does the NYC worker provide ~2x utility to the company compared to the AZ worker (remember, both are remote).

They don’t! Which is why in this new remote world the applicant in Phoenix has the advantage because they’re able to accept a lower salary because of CoL.

None of this makes any god damn sense in regards to adjusting the pay of people that move but it doesn’t matter in the long run because such practices are still governed by market forces. Facebook can try and predict what someone is willing to accept based on their location and renegotiate based on their available options but it’s not infinite leverage.

People aren't paid by their utility (if that were true, employees at highly profitable companies would be paid a lot more). They are paid the lowest amount that either the market (or other forces - like unions) will bear. A remote worker in Phoenix doesn't have as many options as a remote worker in NYC when it comes to switching jobs a getting a high salary. So the company pays the NYC dev more since they need to pay more in order to retain that person.

I'm absolutely certain that there are some 10x engineers in Bangalore that are getting paid peanuts because they can be exploited and don't have as many options. That's the nature of capitalism and why many see it as an extractive system.

> in Bangalore that are getting paid peanuts because they can be exploited

The thing about Cost of Living is that poor schmuck in Banagalore may well be living like a king off those wages compared to his other options.

I made a pittance in west coast tech terms, but here in Iowa that means I own my house outright, I have a wife that doesn't need to work, and I have three kids.

From what I read on here that is a pipe dream for many of the same west coast tech people.

I'll take Iowa.

People are paid by utility, but it isn't the only factor. You don't pay a line cook to be a surgeon. Utility is obviously the dominant factor.

> A remote worker in Phoenix doesn't have as many options as a remote worker in NYC when it comes to switching jobs a getting a high salary. So the company pays the NYC dev more since they need to pay more in order to retain that person.

So the premise of this is that these people are working remotely... why wouldn't the Phoenix person have the same opportunities to switch jobs as the NYC person if both are able to work remotely? That's kinda rejecting the premise of the scenario.

> Utility is obviously the dominant factor.

Supply and demand is the dominant factor in pricing. Utility is barely quantifiable in most cases. A personal computer has immense utility, a Rolex has very limited utility. The latter is in very short supply and in high demand, that's why its prices are high.

Now let's take a software engineer at Uber versus a nurse at a random hospital. The software engineer is part of a scheme that keeps destroying capital, his utility is negative. The nurse on the other hand may prevent decades of lives lost every day. It's not that hard to become a nurse though - more people are capable and willing to do it, so the supply is large. The cherrypicked software engineer on the other hand, is quite rare.

> why wouldn't the Phoenix person have the same opportunities to switch jobs as the NYC person if both are able to work remotely?

They have the same "fully remote" options, but not the same "onsite" opportunities. If you work remote, of course you're going to want to optimize your cost of living, because you'll be competing with people who will do the job for less money.

Utility will put a cap on whether the business can exist. Employers won't willingly pay above your utility. And if they could get you to work for free they sure would.

The Phoenix person and the NYC person don't have the same opportunities because the huge majority of tech jobs still don't support fully remote positions. So the Phoenix person has all the fully remote jobs (many of which adjust salaries down) and all the local Phoenix business. And the NYC person has all the fully remote jobs and the gazillions of local NYC jobs.

Your employer doesn't know that you'd never want to work for a local NYC company or whatever, so they operate under the assumption that they have tighter competition for your labor.

Some day, if lots and lots and lots of remote work is available, this effect will shrink and that will either pull remote salaries closer together or people in LCOL regions will still be willing to accept lower pay and the HCOL people are in trouble.

> Bangalore that are getting paid peanuts because they can be exploited

Um, that's not what is happening. I can't vouch specifically for Bangalore, but if you can work fully remotely, the savings in taxes and COL are ridiculous - so much, in fact, that it doesn't make /financial/ sense to move to a high COL for anything less than FAANG salaries (and even then, it depends on what you want out of life).

I'm talking about €300-500/day income.

If I were to be optimistic, I'd say that Facebook's employees won't even feel the reduced salary - but SF government and landlords certainly will.

Sure. But you'd be able to take home even more money if they were paying SF salaries. It is a fine arrangement as it stands but the big companies are extracting a greater percentage of your labor since they can afford to pay you less and you will accept less.

In principle, yes. But things are not always so clear cut. In certain European countries, there is a special tax regime that lets you pay very little tax as long as you stay under a specified limit (the highest is, AFAIK, €100k/year and 15% tax).

In such a scenario, you're better off trading a lower salary for more free time (if possible, of course) as a large portion of a higher salary would be eaten up by higher taxes and/or COL (if you had to be relocate).

In essence, you're making less in absolute values but you're /much/ better off in relative terms (say, per hour).

Why is it a surprise? The moment the employee is willing to hire remotely the employer is competing against people willing to make half or less, since they don’t care to live where you decide to live. Hilarious right? Same happens when minimum wage goes up. Imagine it goes up to a livable $40/hr. Now these high school kids are competing with people with college degrees for the same job.

I'm not sure this makes sense. Did I not include these people? Wage as a function of distance, right? I didn't say that everyone gets paid the same. And is it not more advantageous for the employer to be able to select from a larger pool of candidates?

> Imagine it goes up to a livable $40/hr. Now these high school kids are competing with people with college degrees for the same job.

Do they? This doesn't mean that every job that pays under $40/hr (which is pretty high! You must be living in the Bay) becomes $40/hr and jobs higher do not go up as well. But rather now those companies have to compete (you can compete in ways more than wage, especially if it is $40/hr!). High school kids may have to compete with people with college degrees for things like McDonalds, but now an engineering firm like Boeing (who pays less than $40/hr for starting salaries in most locations) has to compete with McDonalds. The competition doesn't work only in one direction.

Of course, I'm sure that there's a upperbound to how well this works though, and I wouldn't be surprised if it was under $80k/yr

> Imagine it goes up to a livable $40/hr.

$40/hr is a high salary for many parts of the US, so I assume your “livable” comment is relative to the Bay Area?

> Imagine it goes up to a livable $40/hr. Now these high school kids are competing with people with college degrees for the same job.

A lot of these predictions seem based on assuming nothing else changes when the minimum wage changes. Realistically you're not going to have college grads applying for highschool-kid jobs, you're going to see college grad jobs paying more.

Ok so it $40 an hour flipping burgers, or $40 an hour writing code. Which would you rather do?

TBH if those were the only available choices, burgers would win. A much easier job.

Is far rather write code for $40 than flip burgers for $100

How long did you flip burgers for? Depending upon the location/business, it means standing on your feet in a hot environment for hours. They've hopefully gotten better, but plastic gloves are also murder on the hands.

Maybe less challenging mentally, but physically way more demanding.

It sounds horrendous. In a reasonable world horrendous jobs like flipping burgers and scrubbing toilets would be far more rewarded than fulfilling jobs like writing code.

My own history of jobs involved delivering f pizzas for a small firm (great, very little pressure, just listen to radio all night), and stacking shelves in a corner shop (I lasted 3 hours)

You literally couldn’t pay me to stack shelves, and I in turn rarely go to shops, I won’t support such a terrible environment.

Flipping burgers and scrubbing toilets can be done by literally anyone. On the other hand, the demand for people who can code like you remains high.

This is the reason why investment bankers make bank. Granted, many of the "signals" are dubious, but the people who can _actually_ do the work of a MD are extremely low.

Companies pay as little as they can get away with. Fair enough. But when their workers are remote, those companies are competing with every other company that's willing to hire remote workers. On the other hand, SWEs are notorious for accepting low pay. So in summary.... who knows how it would shake out?

> SWEs are notorious for accepting low pay

I am simultaneously one of the highest paid people in my peer group, and according to the ranks on HN "low paid".

There is an extreme disconnect between what people in tech seem to think of as normal wages and what the country as a whole (even college educated sectors) considers normal wages.

My comparison is usually nurses who have an actually hard job where people's lives are on the line (and lately their own lives). If someone thinks that software developers are notorious for accepting low pay, I can't imagine what they think of nurses. The worst thing that happens in my day is that I might have to battle bombastic management or know it all whipper snappers in order to get my way :-) (Well, to be fair, as a contractor for a company in the travel industry, my biggest stress is making sure they don't get the impression that paying my invoice is optional...)

Low pay compared to hedge fund managers. Both can (in massive scale organisations) swing massive amounts of money to the company. Neither does it reliably.

I'm not trying to denigrate nurses (a job that would destroy me, emotionally), but there are more of them and they're in less demand (in general).

https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L...

If we were decent negotiators we'd earn more, as a class.

> Would it be reasonable for them to adjust salaries depending on what city an employee lived in?

Companies pay people less in LCOL areas because the local competing offers they receive are lower and they don't have to pay as much to outbid the competition. Not because they actually care about how much you're paying in rent. If two suburbs are in the same metro area, then they are part of the same local hiring pool so there is no reason to offer different compensation based on the average local rents.

Companies already effectively do this, but frame it as a perk for those who live close. IIRC Facebook and Palantir paid 10k to people who lived within 1 mile of the office.

Or better yet, what if they moved to Stockton? A 1-bedroom's $1200/month there, and it's still technically within commuting distance from the bay area.

Everything is factored in the real estate price: the weather, the school district, the night life, the ethnic grocery stores, crime rate etc. and last but not least, the opportunity to change to a new job with much higher comp.

Real estate, while not as liquid as stock market, is quite efficient in my opinion.

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