We all realize that differences in cost of living does exist across the globe and even within the United States. For example, in New York, making a payment of $3,000 a month will get you a small room in the city where you can share a bathroom with a roommate. On the other hand, paying $3,000 a month will get you a 6-bedrom, 4-bathroom mansion in North Platte, Nebraska where you can spread out on an acre of land. This has always remained one of those unique and perennial conundrums of moving to a major metropolis to make more money, only to spend that same amount on living expenses.
Take Silicon Valley for example. The rise of the technology sector had companies flock to this innovation hub. This abundance of companies and jobs spurred hiring and talent wars to attract the top designers, programmers, and engineers. However, this also ended up artificially inflating other professions where support functions were now six-figure salaried positions. San Jose had become the new Mecca for talent.
The increased wages disproportionately resulted in realty shortages. This new talent flooding the area needed a place to live; however, there were not enough houses to buy. These shortages brought bidding battles for houses. Cash buyers became a norm as opposed to the exception, impelling people to enter shared living spaces or to endure extreme commutes. These conditions brought on recruiting difficulties to local companies that found it hard to recruit global talent to the Bay Area because the incoming talent would not be able to afford a house even if they made double in wages as compared to their previous employment.
Then, the Covid-19 Pandemic struck. While the world wasn’t unfamiliar with remote work, it got comfortable very quickly. The daily grind was initially clunky but when corporations realized this pandemic was a long-term situation, online collaboration skills quickly adapted. Remote work had been the privilege of a growing number before the quarantine but is now an expectation without any exception.
Work from home en masse was not ideal to begin with. Co-working couples invading each other’s boundaries, and parents juggling online school with their own work left many strung out. Thankfully, the human spirt is built for adaptation and many remote workers soon began operating at a higher level than back in the office. Studies undertaken before the pandemic suggested that individuals who worked from home were 13% more productive. Those productivity numbers have remained steady during the pandemic.
Realizing the office cost savings and increased productivity gains, agile companies have grabbed the headlines by creating a fulltime option of remote work moving forward. Many companies went so far to release their employees into the wild, letting them live wherever their hearts desired. Workers, in turn, began to relocate across the country, causing unexpected population booms in Salt Lake City, Jacksonville, Boise, and throughout Texas to name a few.
While many companies have opened to permanent remote working conditions, a few of them have begun to evaluate remote cost of living. Facebook and VMware have now taken the centerstage of corporate progress as they intend to implement cost reductions for employees, leaving the overpriced Bay area for cheaper locales. When this cost cutting move will save money and look great on a balance sheet, it will also sow seeds of long-term discontent.
Regardless of whether a remote worker is in Palo Alto, California or Reno, Nevada, the company sees no less value in the production effort they receive. The company therefore will extract greater value than what they had originally agreed to pay for. Thus, they are exploiting the situation at the expense and detriment of the employee. This is the modern-day equivalent of overpaying a married man and underpaying a single man because the former had to support a family. This is personalizing the wage system that has led to gender and race pay inequalities.
Corporations have long been able to produce equal or higher value by extracting lower labor costs using outsourcing across the globe. Location was once believed to be the key to finding the right talent and that a programmer in San Francisco was significantly better than the programmer in Bangalore. However, that is no longer the case and no longer the belief. Value can be produced almost anywhere, and costs are competitive. Going back to the Bay Area example, much of the talent that relocated to this area has been paid handsomely for it. So much so that it nearly broke the State’s infrastructure. Companies put a value on their location even though it had no impact to their overall value creation. An agreement was made to pay a specified amount for a product, and now, a few corporations are seeking price renegotiation because of where it is produced.
The fact of the matter is that regardless of your location, you are paying for talent. If you choose to reduce salaries because the workers have relocated to cheaper areas, your top talent will eventually leave. Companies looking for a competitive advantage will poach your disgruntled staff, or they will go out and start their own ventures. The ones that will stick around will not prove to be talented enough to be poached. Worse still, they will sow seeds of pervasive discord throughout the organization. Thus, instead of focusing on pay efficiencies and attempting to social engineer fairness policies, delve deeper into your value creation process of attracting global talent by paying for the value that they create.
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