I’m your employer. If you live somewhere it costs you $1,000/month to live, then I should pay you less than if you live somewhere it costs you $10,000/month to live. Makes sense, right? I don’t think so. We are seeing an interesting balance of power play out as more work goes remote. Should you as an employee be paid less if you live somewhere with a lower cost of living? Should you as an employee be paid the same regardless of your living costs? I can see how the norms of our industry could tip either way, but I’m going to make the case here that geographic compensation will lose in the end.
I think your analysis is spot-on, Kent. My perspective is based primarily on the US & Canada - working for one of the larger tech staffing firms, I can tell you the proliferation of remote work that accelerated during the pandemic and continues today, is quickly reducing the relevance of geographic location. The effect is probably accentuated when looking at contingent workers, but I also see the line between contractors & employees blurring. Increasingly employers use our firm as a sort of try-before-you-buy service, taking advantage of our large recruiting network to find the right people, then hiring them as FTEs if they prove to be a good fit.
Crossing int’l borders complicates the analysis, but I think more for considerations of time zones and culture than taxes & currency.
Love the thought. Unfortunately the way your wages are paid are defined by where you live. Most countries/states and even municipalities require employers to contribute for each employee that lives within their boundaries.
As such, the "$20K profit" made by employee X on basis of Salary Y is influenced, as the total cost of employment for "Salary Y" is different depending on "<low cost place of living>".
Immagine an employee choosing to migrate to Thailand, while working for StartupA based in California.
How does StartupA run payroll in Thailand? They now need to hire someone to understand tax exemptions in Thailand, and they need to hire someone to manage FX fluctuation and they........
so the profitability of employee X has suddenly gone completely negative, as StartupA had to hire 3 additional consultants just to pay employee X.
Your reasoning might work for large global corporations that have infrastructure in all low cost countries, but it doesn't for most medium and small businesses.
I'm not an economist by any means, but it feels like this analysis is based on "how much value you add" type arguments and that's not how wages are set in market economies. Like Engineers earn more than Marketing not because of how much value they add to the company but because that's what the market for engineering wages is.
In your example, you've not accounted for the fact that in <low cost living place> there might be other engineers who are prepared to work for less than $10,000/month and that would put a downwards pressure on wages for remote only engineers.
I think they sticky-ness of wages is certainly a factor too. Like for a company to reduce the pay of a current employee who moves feels like more hassle than it's worth but the next fully remote hire.....
Be super interesting to see where this all shakes out thou!
I think your analysis is spot-on, Kent. My perspective is based primarily on the US & Canada - working for one of the larger tech staffing firms, I can tell you the proliferation of remote work that accelerated during the pandemic and continues today, is quickly reducing the relevance of geographic location. The effect is probably accentuated when looking at contingent workers, but I also see the line between contractors & employees blurring. Increasingly employers use our firm as a sort of try-before-you-buy service, taking advantage of our large recruiting network to find the right people, then hiring them as FTEs if they prove to be a good fit.
Crossing int’l borders complicates the analysis, but I think more for considerations of time zones and culture than taxes & currency.
How long will this trend take to percolate to the market at large? A decade? Two?
Love the thought. Unfortunately the way your wages are paid are defined by where you live. Most countries/states and even municipalities require employers to contribute for each employee that lives within their boundaries.
As such, the "$20K profit" made by employee X on basis of Salary Y is influenced, as the total cost of employment for "Salary Y" is different depending on "<low cost place of living>".
Immagine an employee choosing to migrate to Thailand, while working for StartupA based in California.
How does StartupA run payroll in Thailand? They now need to hire someone to understand tax exemptions in Thailand, and they need to hire someone to manage FX fluctuation and they........
so the profitability of employee X has suddenly gone completely negative, as StartupA had to hire 3 additional consultants just to pay employee X.
Your reasoning might work for large global corporations that have infrastructure in all low cost countries, but it doesn't for most medium and small businesses.
I'm not an economist by any means, but it feels like this analysis is based on "how much value you add" type arguments and that's not how wages are set in market economies. Like Engineers earn more than Marketing not because of how much value they add to the company but because that's what the market for engineering wages is.
In your example, you've not accounted for the fact that in <low cost living place> there might be other engineers who are prepared to work for less than $10,000/month and that would put a downwards pressure on wages for remote only engineers.
I think they sticky-ness of wages is certainly a factor too. Like for a company to reduce the pay of a current employee who moves feels like more hassle than it's worth but the next fully remote hire.....
Be super interesting to see where this all shakes out thou!