But this ignores the fact that the labour market in the whole of the US is not the same as the labour market in SV - so it is a pretty poor argument.

The costs of living differences are vast inside a country, and so a company that has equal pay for different locations either massively overpays some people, ballooning its salary budget, or prices itself out of employees in high cost of living areas.

Imagine the equivalent for house prices, saying that the same spec house should cost the same regardless of location, and you're not allowed to buy a house for more or less than the set price. If you think that's a good idea, fair enough (although I would completely disagree); otherwise I don't understand how you reconcile this difference.

Unfortunately there are two misconceptions here: 1) that companies pay based on added value and not on replacement cost, & 2) that "a fair market rate" does not vary with location, when in reality different locations have different labor markets.

The reason SV companies pay so much is because their candidates expect it, and part of why they expect it is the high cost of living in the area. A company that pays less than average will get worse/fewer candidates, thus a local labor market. For a remote company, paying an SV employee the same rate as a midwest employee is to effectively compensate the latter much higher, and what's fair about that?

It doesn't. Your unwillingness to relocate does.

Everyone has their own reasons for where they're willing to look for work and why. But those reasons, your reasons, have a price tag attached. To you, your reasons + your salary is equivalent to a SV salary. (Else you'd relocate.)

Similarly, companies who are unwilling to allow remote workers and/or choose not to build remote teams aren't paying more because of their location. They're paying more because they value having their employees at their location and that value is greater (to them) than the difference in SV salaries vs the midwest.

100% agreed with this. I personally see no issue in paying a premium if an employer is asking for something extra, like being in a specific location, or working odd hours, paying a premium is reasonable. There are many reasons why a company may want someone to be on-site in a specific city; this applies if the city is SF, or a small city.

The issue that I personally have is when location is not a factor, but is still factored in to "location dependent pay". Pay someone in SF more because it's important to you for them to be phsycially present? Sure. Pay someone in Oklahoma less than someone in Austin, despite the fact that neither of their locations makes a difference to their work? Now you're openning yourself up to implicit discrimination and "unfair" conditions.

PP was asking about why SV pays so much more in the first place. That's a related question but with different variables fixed constant.

Indeed, it's very stupid to so discriminate between different locals. And it's not even clear this is in the employer's interests besides the higher order effects of dominating labor: in simplistic first-order modeling pay scales like this only hinder the arbitrage between different remote locations that are equivalent in the big corp's eyes.

> So the employer punishes people that cannot afford to live close to the office?

This already happens. If you aren't local, you can't even get the job.

> if they need to travel to conduct business, their pay is decreased?

Yes and no. If you're talking "I need you to go to China to meet with investors" no, if you're talking "we're having an all hands meeting on the first Monday of each month" then yes, but the employer is paying for your airfare and lodging as well.

> If the company __needs__ to hire talent that lives far away, why should they be punished?

Needs? Who said that? They just need employees. I'm talking about how much they need them in the office. If you don't need them in the office at all, then no pay differentials. But if you do need them in the office, well obviously there's different utility for that employee and should pay not reflect utility, as opposed to locality?

I mentioned in another thread the following scenario. Office in SF, one remote worker in Phoenix, another in NYC. How does the one in NYC have more utility than the one in AZ? (which is how pay works under current remote schemes) I'd argue it is easier/cheaper to get the AZ employee to the office. The AZ employee also shares the same time zone half the year and is only an hour off the rest of the year. How is that fair? So why not make it a function of distance and how much you are needed in the office rather than where you live?

When the worker has agency to chose remote vs in office, tying pay to physical location seems like coercion though. Doesn't that constrain the worker? "Live in this specific area and come to the office and we will maintain your current pay. Else, you have to take a pay cut for the same role and work output"

Maybe this is a reason why some companies are hesitant to have it both ways and are inclined to force people back to the office. Could they be reducing legal exposure to equal pay lawsuits?

It's no more fair than paying based on lifestyle choices; if any employee in SF is providing labor worth $200k, then an employee in Bucharest providing the same labor is also worth $200k. The fact that the SF employee has higher expenses doesn't make their labor more valuable. Sure, they are paying more to live in a more desirable location, but that no more deserves higher pay from a remote employer than an employee paying more to live in a bigger house, or to consume more expensive designer drugs outside of work hours.

I mean, the logic clearly doesn't work because if you instead ask "why shouldn't the employer pay the same low salary in both locations", the argument immediately goes right back to cost of living being different. For the argument of pay correlating to value creation to hold, it must hold in both scenarios, not just the one you happen to like more.

This goes further than tech salaries. By all accounts, the people in a factory that built the device you're using to be on HN right now should also be paid bay area level figures since they clearly are a very important part of the supposed value creation you're partaking in. But if they did, your computer would cost $500,000 instead of $5,000. And your shoes would similarly cost a fortune, and probably your mangos and pretty much everything else too, which is effectively the "low" salary scenario I brought up above, except with more zeros on the right side of the price tags. So something's gotta give, and taking the pay-for-value-creation argument to a logical conclusion frankly doesn't seem all that appealing.

I get it that often companies are specifically trying to encourage people to live near their office in expensive cities, but from a standpoint of value created for the company it seems irrelevant what an employees outgoings are.

Presumably greater competition from more places around the world would eventually drive down developer wages in major cities. I do hear a lot of justification in terms of market costs for labour varying by region, but it frequently comes from people who benefit from stock market prices that are not priced depending differently on region.

Maybe it's naive and unrealistic but I'd actually like to see it cause cities to get too expensive and actually create benefit for bringing economic activity to places with lower market wages.

I know the UK most intimately, and I can only imagine how areas like the North East might look if money had flown out of London and allowed more people who can work remotely to live there at higher wages. Would it have caused rifts and gentrification? Would the additional money have made it into the local economy and created more local businesses and a better economy?

There are a lot of open questions and I'm certainly in the camp that supports non-regionalised pay - to the extent I'd sooner work for someone else than accept a pay cut for doing exactly the same work.

Cost of living doesn't justify location based pay. It happens to correlate, but if a company could offer you an less pay in a high COL area without you declining the offer, then they might. They could even move their entire operation to an area with 1/4 the labor rates, like the Philippines, but there are big reasons they don't.

> then is car-based pay justified

Car based pay doesn't exist AFAIK, so what's the point? Companies pay what they have to pay to hire/retain the employees they want. There are a myriad of factors affecting any labor market, including all sorts of day to day personal costs like housing and transportation, but those are distilled through the personal choice of the employee. The main input to what employers pay is what other employees pay - it's a feedback loop at an unstable local equilibrium.

That said, if a major company or three decided to move to globally uniform compensation (the same pay in Czechia as Chicago), well that would be an interesting experiment to watch, though I wouldn't want to work there.

If they offer to raise the person getting 125k to 400k if they move to an expensive area, then at least it's fair :shrug:

There are situations where two people of equal ability and output are worth differing amounts to the company. If you're in a vastly different time zone that makes work coordination difficult or the company has reason to need in-person collaboration, paying someone more to conform to those location constraints make sense as those people are more valuable to the company. But thinking a company should pay a remote worker who chooses to live in a high rent area more than a person who doesn't even though both have equal value to the company isn't logical. In the end, the people in the low rent areas will be picked off by competitors who see their value rather than their location.

I don't understand the parental model of employment that seems to be all the rage these days. Employees aren't the company's children and the company aren't the employees' parents. It's weird how often people bring their personal choices and needs into the compensation discussion and often elevate it into a moral issue. If you have six babies you don't deserve to get paid more for the same work as someone who is childless but that seems to be a common way of thinking now.

Cost of living adjustments occur because companies can get away with it. That’s pretty much all there is to it. They have additional leverage when a potential employer wants to live in a particular location and that puts the potential employee at a disadvantage.

That said, I actually think most of these companies would prefer to pay everyone equally if they could get away with it as well, because ultimately they will cost the company less in labor. But they can’t at the moment. All the talent is concentrated in just a few spots and much of this talent does not want to move. In a hypothetical world where remote work really takes off, location will no longer matter. No company is going to pay someone twice as much just because they want to live in a nice location. It’s simply that this is what is required by companies at the present time to keep the employees that they value and have already invested in.

It would be interesting to run some simulations where you vary the desire of a workforce to work remotely and see how it changes the pay required for maximum talent retention. Since widespread remote work is new, we’re not anywhere near an equilibrium yet.