TL;DR
- Many companies still follow policies from a pre-remote world
- Remote labor will be it’s own market
- The remote labor market will set a new floor in many locations
- Roles that must be in a specific location still might be able to command a higher salary than the remote equivalent
- Time zones might end up still matter, even for remote roles.
Every few weeks an article like this one will pop up that’s about employers threatening employees who relocate with pay cuts to compensate for cost of living changes. There are a few small aspects that these articles tend to get wrong. None of them seem to think about the long-term consequences coming with more remote work.
Note: For this topic more than other topics, I want to call out again that the opinions I present here are not those of my current or past employer. They also aren’t based on any non-public information or plans I might know about as part of my employment.
Many employers have been paying different salaries in different markets based on local cost of labor. If you need employees in San Francisco, you need to pay them a San Francisco salary. Not because the cost of living is high in San Francisco, but because there has been high demand for that type of labor in SF. Employers aren’t making up for their employer’s cost of living out of the good of their heart. The market forces them to pay higher salaries to compete for talent.
When someone relocates to another office their leverage changes. Their salary also might be different than their new, local coworkers’. Many employers will adjust the salary to match the local market. This (in theory) used to make the deal fairer for everyone. The individual’s employee’s salary would be adjusted (up or down) to what they can demand in the market. This should have lead to more equitable payment in the employee’s new location across the local employee population.
Looking Ahead
For remote roles this makes little sense. The remote labor market isn’t constraint by location. It’s separate from local labor markets. Many companies haven’t adjusted to this new reality. We are seeing their old practices being applied to a new world. This mismatch is intuitively obvious to many. That’s why these pay cuts can seem punitive. Corporations are very slow moving organisms. They will eventually adjust to this new reality because they must in order to stay competitive.
As more roles are moving to remote-first competition for top talent will go up everywhere. If you are in San Francisco or in Raleigh, you now have more employers competing for you. This is great for top performers who now have more freedom to chose where they want to live.
There still will be roles for which location matters. In those cases employers still might have to pay a premium to get the right person in the right location. I’d expect that this will matter for fewer and fewer roles in software. Companies have a financial incentive to decouple employee selection from location. Now that many companies have seen that remote can work for them they’ll follow that incentive.
This all sounds great for everyone discussed so far. More flexibility and choice for employees, a wider employee-pool for employers. But, this also might mean tougher competition for employees who have been able to demand a top salary primarily because of their location and not because of their refined skill set. They are now in competition with many more people.
Looking Abroad
If you already are hiring remote, why only look for employees in your country? If there are talented developers in Canada, Mexico or Costa Rica why not higher them? I do expect that exact location will matter less, although time zones might remain a more practical constraint. It’s hard to hand off work or drive towards agreement on complex topics if you only have a few our of overlap or have to work at unusual hours to get any overlap at all.
I expect this to mean more of the same effects I predict higher up. Higher compensation for top talent regardless of location, but also more competition that you have to come out on top off. More competition for top talent by employers and more competition for top roles by employees.
Ultimately, I believe this is a fantastic change. There is the obvious value to the economy that comes with more efficient employee/employer matching. Just like globalization, this will increase the average standard of living and give to folks who most need to move out of poverty. It also can help connect communities within the US by fighting the big sort and even connect us globally. This is great for peace and will lift many out of poverty.
Of course all of this is speculation and I am not an economist. I just work in software and listen to too many economics podcasts 🙂.
Updated 2021/09/31 for clarity