Before joining Pixite I spent several years as a freelance Android developer. Being 100% remote for all of those years, I learned many things about the process of hiring and employment.
The biggest eye-opener for me was the realization that when you apply and interview for a job, you are selling a product. Though the language is often about employers providing perks to “sell you” on the idea of working there, the actual relationship is the opposite.
If you look at the basics of employment this becomes obvious, money changes hands in the form of salary, in exchange for the labor that is provided.
After several years of literally selling my services as a freelancer I began to view the employer/employee relationship in much more literal economic market terms.
Prices Reflect the Selling Market⌗
If I manufacture a physical product in an inexpensive market like Chippewa Falls, Wisconsin, and sell it in an expensive market like Menlo Park, California, I would expect the sale price of the product to reflect the market into which it’s being sold.
The difference in price from where it’s produced and where it’s sold is irrelevant to the buyer so long as the quality is the same, and this is something that I can exploit to increase my profit margin. This is immediately obvious when looking at physical goods: just look at the “made in…” label on the nearest product you can reach.
With cost reductions in the delivery of physical goods (i.e. global shipping), companies are moving production into low cost markets every day to reduce the cost of production and increase the profit margin. This may incrementally decrease the price in the selling market, but not proportionally so, only enough to be competitive in the market in which it is sold.
Your Labor is a Product⌗
This is no different than employment in the tech industry. As an employee, you have a product, your labor, that you are selling for a price, your salary. You have a finite supply of labor you can sell, and generally the selling price reflects the quality of the labor you are selling.
The internet has reduced the cost of delivering the product that employees sell, allowing them to be located anywhere in the world. There are artificial limitations to this, like tax regulations, and actual limitations, like the cost overhead of crossing time zones, but generally speaking a software developer can deliver the same quality of product from almost anywhere in the world.
The pricing of that product, however, doesn’t seem to match the way market dynamic works in the rest of the economy. If I produce my product by working in inexpensive Chippewa Falls, and sell it to my employer in expensive Menlo Park, my salary should be based on cost of similar quality labor in Melo Park. If my profit margin is higher than someone who chooses to base their production in more expensive metros, that’s their choice.
By comparing employment to manufacturing a lot of the arguments for Cost of Living Adjustments break down.
The Lifestyle Argument⌗
Some have argued that it wouldn’t be fair to people in expensive metros if someone in an inexpensive location received the same salary. Sure, if you look at housing prices or the cost of milk in Menlo Park vs Chippewa Falls then that salary can buy you a much different lifestyle in Chippewa Falls.
This argument, however, confuses the relationship between employers and employees. An employer is not selling a lifestyle, they are buying your labor. In the same way that Apple manufactures their products in inexpensive markets but still sells them for high prices, if you live in an inexpensive market you have every right to sell your labor for the price in your employer’s market.
The Local Market Collapse Argument⌗
There is also an argument that if Facebook paid their Menlo Park salaries in other markets that it would cause the collapse of local markets, as other players couldn’t compete with that price. That, however, oversimplifies both people’s motivation and how local market economics works.
When a small town manufacturer sells a high priced good somewhere else, they inject money into the local economy. It can be a limited effect, as much of it often gets captured instead of trickling down to the local employees, but by doing more than recirculating local money, this has the power to build a vibrant local economy with local restaurants, local shoe stores, local events and actvities.
When an employer only matches the local market salaries, they are doing nothing to help the local economy. Instead, they’re extracting value by exploiting the lower cost of production, but keeping captured margins of that cost disparity.
The Gentrification Argument⌗
Another argument is that paying extremely high wages in an inexpensive market will lead to gentrification and inequality. Ignoring the silly idea that Facebook, Netflix or Amazon are making salary decisions out of respect for the well-being of some small-town economy, this still doesn’t hold water.
Paying a salary to employees puts money into the local economy, no matter where that local economy is based. If I employ 100 high-wage workers in my home town, I’m supporting 100 expensive houses and several expensive restaurants and stores, but my home town still needs teachers, sanitation workers, nurses and a whole host of other varied services that are required to sustain any area. If I’ve created a large market for expensive houses and restaurants and clothes, where do all of those other people live?
If I, instead, employ 100 high-wage workers in 50 small towns, yes, those 100 workers might live like kings, but the entire local economy hasn’t been altered to only cater to those two workers in each town. Those people still support local restaurants and shops by spending their wages, but they can’t support it alone, so prices need to remain reachable for the rest of the population.
This means that a teacher can now afford to live and shop near the school in which he works, and a sanitation worker doesn’t have to blow their whole paycheck on gas.
Your labor is valuable, so don’t forget to treat it that way. There’s no reason that you should be paid less because you are saving your company money by not taking up office space.
The next time you’re negotiating your salary, keep in mind that you’re the one selling a product to your employer, not the other way around. That’s a fortunate position to be in, and it would be a shame to waste it.