The problem is that wages are basically not covering the cost of living (primarily housing). That money has to come from somewhere one way or another (or you will see stores closing, completely understaffed etc). The situation where some people make $300k/year, live in an area with $2m median price homes and expect to pay service fees for an area where homes are $100k simply can’t last.
I think a lot of it is that pay scales on cost of living. It allows prices to go to crazy amounts and also disincentives moving to cheaper areas. If pay didn't scale on cost of living then tons of people would move from those high cost areas. I'm making 70k a year but I'm putting 14k into my 401k and investing an additional 14k each year (saving up for a down payment on a house) and that's while having hobbies and travelling some
If all the major employers in the area cut wages down to $80k, wouldn't the cost of housing be forced down too? Who can buy a house for 2.2 million when making $80k.
And on a side note, there are many companies in the area that pay $80k and less, oil change mechanics for example. So it's not like you MUST pay that SV wages because cost of living is high.
I have a feeling it is due to high demand for those workers.
Every city job I’ve seen outside of the minimum wage service jobs pay better than all the surrounding small cities and towns. Which helps offset costs.
But certainly many urban areas have been very slow to match the right level and type of housing development for the needs of a growing population. The effects of building laws, zoning, political influence, rent control (particularly how it was done in 70s/80s), etc has a long recorded negative pressure on supply vs demand. So it’s very likely the wage differences aren’t sufficient for most people.
I would say that is a problem in any place where it is desirable to live these days. Locations I've experienced first hand: London, Sydney, Bay area, Los Angeles, Vancouver... and I'm sure there are many more where you can't buy on that salary.
Which leads to another issue which isn't brought up enough.
What is going to happen to all the remote high paid workers when it becomes the common trend to scale pay to the area?
Currently...you need to make 3x the average pay to be eligible for a house. Anyone who loses their job that has moved to the area is going to find that there is little to no high paying jobs for quite some distance.
It has already happened to more than one person I know locally. Not saying they will have any issue selling their house.
Of course the lower paid people live in cheaper areas, where else can they live? $15/hr is no longer a sufficient/comfortable wage for anyone in the US.
> Compensation isn't nearly as elastic as housing prices though.
Because there is usually room to give. If people were on the brink of actually having to leave due to rising costs, incomes would lose their inelasticity pretty quickly, insofar as the need for labour is required. There is always superfluous work that is useful at a low price, but fine to give up completely if costs grow too high.
> Not only that, the demand side for housing is also the supply side for the job market, so prices are squeezed on both sides.
Squeezing is necessary to a point. After all, the economy eventually seeks equilibrium. It has been the case – at least before housing costs grew out of control – that one could make a fortune by moving to the Bay Area, where average incomes are significantly higher than most of the rest of the country. Now the costs are rising to close the gap with lower-income areas.
If someone in a low-cost area has a gross income of $30,000, and expenses of $25,000, then someone in a high-cost area with a gross income of $150,000 can take on expenses of $145,000 without being any worse off. While housing isn't the only cost one has, it is usually among the largest (with taxes being the other major expense). Having $145k to spend on expenses each year can go a long way.
It makes sense. Low-wage workers simply can't afford to move to a lower cost of living city, even if there were better job opportunities and cost of living.
Sadly this is the common theme among all of the large population centers. And if you want a high paying job you have to live in a large population center or get paid sub-standard wages with poor career growth that will not keep up with rising housing costs that occur even in rural locations.
Relative to rent, wages are not keeping up and we are facing a future where a significant portion of the population will not have stable housing.
Theoretically, the wages should come up to make it possible to live there, assuming the service providers are actually having trouble hiring.
It seems to me there might be some disconnect in demand and supply of various labor types (not many unskilled jobs compared to the number of unskilled workers, vs not many software devs but lots of openings). It seems these forces drag the bottom down while pushing the top higher.
Where I live, you have to earn at least 3 times what you spend on housing to be allowed to rent/buy. This alone forces people to live further away from work even if it costs them more in the end.
That sounds about right from the number of people who live in lower cost of living areas. People have a poor intuitive understanding of this -- they can't understand how someone could live on less than $15/hour because they live in New York City or San Francisco where that would be unreasonable. But it's much less unreasonable in Memphis or El Paso where things cost a lot less.
The real problem is that things, especially housing, still cost too much everywhere -- much worse in San Francisco, but not great no matter where you are in the US. Which requires higher wages to make a living, which puts pressure on employers to cut labor costs by making people do more with less. And then you get problems.
But employers can't just raise wages unilaterally -- if they paid more (and thereby raised prices), first of all that increases the cost of living even more, second of all the people who are already hurting because of the high cost of living are going to switch to any competitor who can offer a lower price, so the employers who do this lose to any that don't.
What we really need to do is lower the cost of living.
Just as a fun thought experiment, let's say we price all the service workers at current income levels out of the market so they all move away. At some point, people will be willing to pay more for service work due to a strong demand for limited services.
It almost seems pernicious to have low income housing since it allows employers to get away with lower wages to cover an artificially low cost of housing, at the same time, service workers retain a poor quality of life because outside housing everything else is expensive.
I'm currently temporarily in a place where people also crowd and salaries are on par with those expensive coastal cities.
I see where they're coming from because it's still somewhat surreal to me, but I want to go home.
Which brings me to another point: there's something off about this. Most of the cost of living compensation appears to address the cost of real estate, which is artificially inflated in the first place.
Why do companies still do that if all they achieve is pumping the local housing prices even more?
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