„ It's odd to see Valley types, in light of the FB WFH news, debating whether comp should follow a 'cost plus' or 'fraction of value added' model.
In my experience it's always followed the Goldman Sachs bonus algorithm: Exactly $1 more than your walkaway price as an employee.“
I've generally been a fan of Greenspun's blog, but this conclusion seems nonsensical to me.
If we follow your reasoning, London employees are half as productive as the SV ones.
If facebook were just charging a market rate determined by supply and demand, then your salary would drop when you become remote, regardless of where you actually live, as your location has nearly no bearing on your productivity or competition for the same job.
The fact that Facebook wants workers to report their location, as they cannot easily see the difference, shows their motivation cannot be driven by supply and demand.
If it costs N$ to purchase one developer in Kansas, and $2N to purchase on developer in SF, if there are enough developers in Kansas to satisfy the demand, then yes the price drops to $N. But if in fact the demand is higher than the supply Kansas can provide, then Facebook will buy out Kansas, and get its remaining supply from SF.
The average price of developers goes down, yes, but you get a form of price discrimination since those in SF value the city at more than the increase in relative salary from leaving.
The Kansas developers could increase their cost to compensate, sure, but you run into a few issues, while the market is supply-limited otherwise this wouldn't be an issue, if Kansas devs cost the same as SF devs, FB might just revert to its old practice and leave the Kansas devs back jobless.
You can sort of think of this as high CoL cities having a monopoly effect on pricing. "Normally" the market would fix this, but people are attracted to cities for lifestyle perks that can't be made up with equivalent $$. In other words, the city has an absolute advantage in city-lifestyle, so others can't compete on price to people who want city-lifestyle. In other words, for the person who enjoys living in SF, you'd have to offer them more to work in Kansas than to work in SF. As long as enough of those people exist, the market won't equalize. The normal econ-101 kind of understanding of supply and demand doesn't work, because you have, in essence, one consumer who wishes to purchase from two different markets with different market prices. City-livers and non-city-livers.
No, they won't, that's my point. If both developers are remote, and so Facebook is nearly indifferent to hiring Kansas vs SF, then it would happily keep pay Kansas developers until they raise their wages all the way to that of SF. That's true even if there's a fixed number of Kansas developers and that number will never increase (which I don't believe).
Or, in economics terms, both SF and Kansas workers are substitutable goods, so neither group has a monopoly and you'd expect their prices (or marginal price, to be accurate) to equalize, regardless of the elasticity of supply curves of the two goods.
We know the developers are substitutable, as the article states that Facebook isn't able to easily tell them apart, short of threatening them with strict penalties for lieing.
Then you're missing my point: if the Kansas dev costs as much as the SF one, why not just recentralize in SF? It's pretty clear that facebook believes that remote workers are somewhat less efficient. Maybe that cost is worth it at a 10% discount on labor, but maybe it isn't on 3% less.
>Or, in economics terms, both SF and Kansas workers are substitutable goods
Yes, in isolation, one SF worker and one Kansas worker are substitutable. But 1000 SF workers and 1000 distributed workers aren't. Or in other words, once you have 500 SF workers, the marginal value of an SF worker is > than a Kansas worker, even if the worker in question is the same human being in two different locations.
I know this because this happened in several smaller cities in my country way before the virus, for other reasons.
Anecdotally, they also tend to tell me they are happy, compared to metropolis-dwelling friends who often confide in me that city life isn't all roses...
TLDR: One only really needs a community of about 150-250 non-interchangeable like-minded people to be happy and have dating/marriage prospects. In a city of 10K people you can also change your Dunbar community several times if you want to.
While true, this also forces you to change the things yo do to fit the community. If you have, say, two relatively unique pasttimes, you'll be able to find communities for both in most major cities, but will be one of only a handful (or the only!) person who does the thing in a town of 10000.
Coupons are one obvious long-standing mechanism. Loyalty cards are another. Another is the stocking of similar products at different price points in different locations, either different stores or different places within a store. Many stores these days seem not only to have a store brand vs. brand name products, but may have two or more levels of store or economy brands. You can add products from local producers at a higher price; maybe they even come from the same source as the regular ones, but you label them to differentiate your customers. Yet another thing I've seen (granted, it could be an error, but who knows) is pricing a larger size product or one that is labeled as an "economy" size at a higher per-unit cost than a smaller one. Or even pricing it at the same per-unit cost, which helps extract more money from people.
The basic principle you use to discriminate when you can't do it directly is to exploit a correlation - an obvious way to charge people with money more is to use the fact that they probably value their time more and are more impatient. But if someone who is poor is impatient, and is stuck paying more, all the better for the business. People are far from ideal economically rational actors and every aspect where it's normal to use heuristics can be targeted to improve profits.
Increased supply of workers means that prices/salaries will drop, likely.
I just wonder if it will work.
I've heard people say "folks in california are ok with their taxes and paying more for things". Which makes me think of "people don't care about their privacy".
Thing is, people do care, but they can do very little about what is done to them.
It will be a strange world with strange incentives. For example what motivates me to earn more if I can’t buy more because my personalised price for everything goes up by the same amount?
Airlines already use sleazy tactics to extract more money (perhaps they regret that now), but will this go further down the chain and I pay more for say food as well?
Companies just don't pay people high salaries because of 'need'.
However, I would not be surprised if Facebook did some internal polling of their employees and saw really high levels of interest in leaving the Bay areas. So its possible that the salary adjustments were brought up as a way to counterbalance the interest levels. If 2/3 of company decides to just pick up and leave the Bay area, that could cause some problems.
Too much NIMBYism has resulted in a highly distorted market that then spreads to other related markets.
> “We’ll adjust salary to your location at that point,” said Zuckerberg, citing that this is necessary for taxes and accounting
Well, he's not wrong (on the tax/etc calculation on the salary) though even with a change on the base salary to non-SF salaries the move might be worth it.
It is one of the reasons Violet Newstead — Lily Tomlin’s character in 9 to 5 — is given when she furiously demands to know why she was passed over for a fair promotion.
The guy who got the job instead? Well had a wife and kids to support. He needed it more.
For young women who have no children, the "risk" (from the employer's perspective) of pregnancy and motherhood is another large factor.
Remote working hugely serves to balance the possibility of everyone regardless of gender and nationality to access the jobs that best fit their talent and work ethic. I'll be very very interested to see what happens to traditional gender and nationality roles once it's fully entrenched.
The "has family" checkbox isn't so much a sexist thing, I believe. A woman with children is also much less likely to just pack her bag and move to India on her search for enlightenment, she has more things tying her down, making her more predictable. If you want a long term employee, you'll pick a woman with children over a single man without children, all other things being equal.
Remote working might have an impact there. But if you believe that there are hidden biases holding some people back, they won't just go away, and remote working isn't going to change that, unless you completely anonymize any communication between the employees and the company. Would be a fun experiment, but I don't know how practical it is.
Facebook will only pay what they have to. You'll take the best offer you can get - there or elsewhere. That's how it works isn't it?
If you're in the gig economy the employer has the power since they have plenty of alternatives to go for. If you're in the talent economy then the employer either takes your price or doesn't do the thing they want to do and you go to one of the other people after your services.
And that's the difference. Workers tend not to have a a 'no deal, I'll not bother option'. Because if they do that eventually they starve. The lower down the tree they are the quicker they starve.
I think it was Beveridge that pointed this out originally. Essentially companies only hire when there is a chance of a profit, whereas workers have to get hired or they starve. That's the asymmetry of power which Beveridge hoped to correct by ensuring there were always more jobs on offer than people who wanted them.
Right at the moment Facebook knows you don't have too many alternatives - given the state of the economy. Zuckerberg is taking advantage of that to reduce his costs while still appearing to be magnanimous.
Welcome to the gig economy.
Nothing new in what he is doing and we have seen what trajectories companies take - you just end up becoming either a Yahoo or an Oracle.
Conversely, you’re paying for access to the labor market with your rent, so good markets have high rent.
The company is paying for your costs, plus providing you a margin. If your cost are lower, your margin is the same but the absolute number is smaller.
In that case, they'd look at your lease to see what you are paying. They don't, and whether you live in a cheap apartment or in a luxury one does not matter, even though it can easily change that "margin" by 100%.
You're right regarding the competitiveness setting the price. And once the company is fully remote, the competition is no longer constrained by locality. It does not make any sense to pay more or less because the remote worker lives in some location, and unless there is no competition, somebody else will just pay them more and you will not get the employees you were looking to get for cheap.
The candidate can always choose to relocate to make their offer make sense, but I somehow don’t think we’ll see a lot of that.
1) Buffer I think does this. Pay adjusted based on location/cost of living.
2) There's a world of difference between Montana and 'Palo Alto' where they can come in once a week, or whenever needed, or for meetings, or to pick something up, or for a 2-week crunch etc..
Basically: 'local remote' is different than 'really remote'.
Also, time zones matter, countries matter, languages matter.
that's incoherent--similarly incoherent to facebook pushing employees into cost-plus pricing while enjoying value-based pricing for itself.
absent significant outside influence, markets, including labor markets, will naturally drive prices down to cost-plus levels through competitive dynamics. if a market has outsized value-based pricing, it's a prime signal of inefficiency, and competitors should enter (not being a free market is a significant barrier, but a different issue).
FAANG salaries are product of the hiring competition between each other and their self-imposed selectivity. Lowering the interview bar would likely open up the hiring pool enough where they could also get away with lower offers.
I expect that a new US remote salary standard will eventually emerge out of all of this. The company would pay you a certain amount and the free market will help you decide which state/city you decide to go live in.
New York is expensive but is also seen as more desirable than Omaha or Phoenix, individuals should pay more to live in more expensive and more desirable areas.
Paying employees more to be remote in high CoL cities means that you subsidize their rent or mortgage.
It's a little weird, but most companies seem to want to vary salaries by location, even for remote work. It might not seem fair or correct, but I do think there are reasons you couldn't pull of a scheme like that. The IRS has information sharing agreements with most states.
Let's say you pick Arizona. What happens when your car is registered in Arizona and the IRS tells Arizona that you earned a lot of money and should have paid them thousands? Do you register your car in California, keep a CA license, buy car insurance at the CA address that it isn't garaged at? I know that these are small things and often people don't change this stuff for a few years after college, but at some point it starts adding up to more and more evidence of one's intent to defraud. Do you set up a non-USPS mail-forwarding scheme to make it seem like you're still in CA? If you get into a car crash, will your insurance start looking into why you're always in Arizona?
For Facebook, it wouldn't be too hard for them to figure it out. You'll be connecting to their servers for work from an IP address. Do you keep a server in the CA flat share to proxy everything? What if the box goes down? Worse, this shows real thought going into the fraud. It wasn't a casual, "oh, I thought I was going to be spending most of my time in the $500/mo flat share and just innocently forgot to update that I'm in Arizona basically always" and rather something really intended to defraud.
To keep tax collectors off your back, you'd have to let FB pay CA and then you'd have to pay AZ tax out of your pocket. Even a cheap $500 flat share eats into the profitability of this scheme. If you're earning $200k in CA and offered $150k in AZ, $13k of that will likely be eaten up by expenditures. Plus, with roommate turnover, at what point do people think it's weird to have someone on the lease that basically doesn't exist? How much time and money do you spend on flights for administrative things like flying back to CA to renew your license? Heck, do you vote in CA despite not living there?
It could certainly be profitable, but it does seem like there's significant risk of being caught. I'm not a lawyer, but this feels like defrauding an employer and different states handle background checks differently, but it seems like something that might go on a record that wouldn't be great to explain away. Like, "I was 19 and we thought it would be fun to steal the University sign" is a lot easier to explain than "I thought the company should pay me more so I defrauded them out of tens or hundreds of thousands of dollars."
Unless they start giving people raises for moving to a nicer part of town, they aren't going to lower your wages for moving to the next town over.
I joke with my friends working at Google/FB/MS/Amazon that soon company will make them pay for the office - “want to come the office? Pay the rent yourself”.
All your arguments are about why FB can pay more to remote workers, but just because they can doesn't mean they should and definitely doesn't mean they will.
I don't understand what he is asking. What does "rigged" mean in this context?
Is he asking if SV employers are rigging wages too low? This seems to be evidence almost the opposite of that, because SV employers are paying remote SV employees more than remote non-SV employees.
Is he asking if SV employers are rigging wages too high? What motivation would they have to do that?
Mind boggling to me, but then again I live in Europe... So, how does it work in US?
Same as of they were giving you a raise, the terms can change.
My company has offices in several European countries. If you want to move from our German site to our Spanish one, you’ll take a pay cut.
I think it works the same in Europe right? If you work for a company in Zurich and then move with them to London your wages will decrease, right? The difference being you will have to sign a new contract because its a different country. In the case of the US, they might not have to sign a different contract (unless they are on a visa). There is nothing stopping them from checking with FB what their new pay would be and then move.
It's crazy to me that I pay a larger % of taxes on my high-5-figures income than Jeff Bezos, Bill Gates or Larry Ellison (or other robber-baron types with worse PR if you prefer).
It's not, except for the extremely disingenuous way it was all sold to us. We knew what would happen to the rust belt. We told them "the jobs would come right back" and "it's better for everyone." Well, it wasn't. And if they had the audacity to complain we called them every bad name in the book. And in the blue collar case the poor people that it helped were largely in other countries. Can you imagine a politician making that sales pitch honestly? "We're gonna fuck over the working class, but it's gonna really make our rich richer and some poor people on the other side of the planet will be a little better off." I dare say, that would not have gone over well.
You can tax billionares more, but they have the resources to get around that. A country is more likely to shoot itself in the foot with that kind of class warfare.
The country might start by standing up for the working class once in a while.
We can stand up for the working class by paying for extensive welfare spending via taxing the rich.
In both of these the quality of life is so much better than in my home land, despite the fact my earning here is a bit lower and I pay more taxes on that earning - you get so much for free/cheap from the government here that I don't mind paying the higher taxes & life is so much less stressful: free kindergarten from age 1, 14 months parental leave, 200 euro per child for 18 years (up to 26 years if they study & don't yet have an income of their own), university is free, healthcare is free (it is nominally free in my home country but here a lot more is included in the free tier & the quality is higher), tenants get protections people from my home country find hard to believe when I tell them, and the list goes on and on.
So yes, life in Moldova, Belarus or wherever you come from is shit but it's not shit because socialism can never work. And nobody is arguing in becoming more like the Ukraine they argue in favor of becoming more like Sweden.
And even in the Soviet Union salaries differed according to profession (doctors & professors didn't earn the same as street sweepers).
What's even more amazing is these engineers that live in the bay area, many of them are from diverse backgrounds around the world, not just the US. I have no idea how one can bundle all that up with one generalization. Must feel good to think you're looking down from a higher horse.
I think hn users reflexively stop reading and downvote when they see "Marx." Which is a shame, because he was an interesting guy. You don't need to be a full-fledged communist to acknowledge that he had a lot of insight.
Rent makes up the biggest expense living in Sydney by far but it can vary wildly depending on which area. Pay those in rich areas more to cover costs and watch the leaps of logic unfold.
_Needs saying once.
Most of them have the same perceptions of their workforce: that employees are indentured servants who owe the company their time. The difference is Zuckerberg is willing to 'mask-off' admit this disregard for everyone but himself.
I don't have an answer to this, but I'm almost certain that people in a foreign country office don't get paid the same as those that work in SF or NYC. But then, FB, Google and the likes are already super-profitable so it's hard to argue in their favor.