Facebook pay cuts for remote employees who move to Nevada or Texas prove that the labor market is rigged?

“Zuckerberg says employees moving out of Silicon Valley may face pay cuts” (CNBC):

The company will begin allowing certain employees to work remotely full time, he said. Those employees will have to notify the company if they move to a different location by Jan. 1, 2021. As a result, those employees may have their compensations adjusted based on their new locations, Zuckerberg said.

“We’ll adjust salary to your location at that point,” said Zuckerberg, citing that this is necessary for taxes and accounting. “There’ll be severe ramifications for people who are not honest about this.”

If there is a market for productivity and accomplishment, the remote worker should be able to get paid the same regardless of location, no? For items where there is a functional market, we can’t say “Oh, this is of excellent quality, but was produced in Cambodia so I am going to pay only half as much as I would pay for the same item, same quality, made in higher-cost China, right?

Readers: Does the fact that Facebook can unilaterally set the price it will pay for labor depending on the cost of housing from which the labor toils show that the market for Silicon Valley labor is rigged?

Related:

  • High-Tech Employee Antitrust Litigation (Wikipedia): High-Tech Employee Antitrust Litigation is a 2010 United States Department of Justice (DOJ) antitrust action and a 2013 civil class action against several Silicon Valley companies for alleged “no cold call” agreements which restrained the recruitment of high-tech employees.
  • Hacker News thread on this post (my favorite: “Supply and demand makes sense as an explanation [for why on-site workers in different locations are paid different amounts], but it doesn’t actually explain this one. 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.” Also good: “Salary based on an individual’s needs is quite the ‘hmmmmm’ moment. 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.” And quoting American academia’s favorite thinker: “No, it just proves that Marx was right about the nature of the wage/salary. The value of labour power is the cost of reproducing/maintaining that worker at a particular standard of living, not some particular fraction of the value generated at work.”)

29 thoughts on “Facebook pay cuts for remote employees who move to Nevada or Texas prove that the labor market is rigged?

  1. 1. The cost of employing someone is different in different jurisdictions. Especially because employing someone in a given locality may make your entire company subject to that locality’s tax rules.

    2. This is just unfounded opinion but for any work that involves cooperating in a team it is probably more productive to be able to meet face-to-face. The tools for remote co-working are just not that great. Building a discount rate into compensation to account for that feels right to me.

    Also, for really big company’s this is already the case. For example, companies with campuses in multiple states already make job offers with different salary amounts depending on which campus you agree to work at.

  2. Facebook is the largest tech company so far to announce they want to permanently expand remote work going forward, so they’re somewhat of a monopsony, but if enough other companies follow suit, I expect compensation to mostly even out over time. I think part of what they’re doing is taking advantage of an opportunity to save on labor costs for current employees who choose to become remote workers in cheaper areas. It’s unclear why they would really care about where a new hire who says they want to work remotely chooses to live.

    I wouldn’t be surprised if we continue to see an unfair (depending on your perspective) salary gap between different countries due to immigration restrictions. If someone in Nevada thinks they can get a better deal in California (ha ha), they’re free to move, but that’s not necessarily the case for someone in e.g. Bangalore, or even London, who sees that people in Menlo Park, Seattle, and NYC are getting paid more.

    • I used to work at Facebook in Menlo Park; one of my former coworkers said he made over $700k one year in the Seattle office but moved to the Bay Area because he felt his career was not going well enough.

  3. I’m not sure if this is that different than Facebook or some similar company relocating the physical location of its office to Nevada or some lower cost of living area, then hiring from Nevada at lower wages. And during globalization, companies do this all the time.

    Its hard to think how this is different than companies using remote work to lower their salary costs, so they keep the office someplace presumably convenient for the CEO but the work is outsourced remotely to lower cost locations. They may lose some propaganda/ PR in stating they are moving the work to Nevada for any other reason than saving on labor costs.

    The mistake here seems to be overvaluing the bargaining power of labor. In fact companies have gotten very good at pricing their salaries at just enough to cover employee cost of living.

  4. Perhaps they would like to lower the salaries for all fully remote employees, but can’t do it California for employment law reasons.

  5. I wonder whether this seems unsavory because of the way it was worded. Suppose everyone was paid the same base pay, but those who worked from a higher-cost-of-living area were given a “living allowance” in addition to base pay. The federal government does something like that with respect to travel allowances. The allowance is greater for those traveling (for work) to expensive cities than for those traveling to less expensive cities. If described as a “living allowance,” the result would be the same as what Zuckerberg has said will be happening. But instead of it sounding unsavory, it would sound benign or even generous.

    • The Federal government doesn’t just do this for travel allowances; part of your pay if you’re a Federal employee is “locality pay”, and can change if you move to a new locality even if you’re doing the same job. AFAIK most large corporations have some kind of similar arrangement.

  6. This is common practice. I have had people on my team from Austin, Vermont, Minnesota, Seattle and India. There are different pay scales for each location based on the cost of living for those locations – so a senior engineer might make 180K in SF, 165K in Austin and 50K in Hyderabad (I’m making up the actual numbers). E.g. when one of my team moved from San Francisco to Montreal there was a significant pay cut. Pay went back up a bit when he moved to Vermont. And his pay went way up when he moved back to SF.

  7. As others have pointed out, we do this all the time in the U.S. already when it comes to outsourcing work overseas, so basically Facebook is just “spreadsourcing” its own employees to other places in the country where the cost of labor is less.

    I guess San Francisco isn’t the most diverse place in the world, after all. I think it’s great if they cast their net in places where people ordinarily wouldn’t even think of trying to work for them. The concentration of tech jobs in a handful of cities around the country has been bad for our society. People shouldn’t have to leave their wonderful small towns just because they want to work for a tech company, and a lot of people who have had their “fun in the big city” get tired of it and would rather live someplace else. If they can accomplish that with remote work, etc., great.

    Let’s see what happens in a few years with their employment statistics. I’d be interested to see how Facebook spread out and whether it winds up employing more people in the U.S. overall.

  8. I read the story as saying they want to reduce expenses, but instead of laying people off, they’re hoping to lower their salaries by letting them move to the middle of nowhere.

    “There’ll be severe ramifications for people who are not honest about this.” It can’t be worse than being in the 99% of the world which doesn’t work for facebook.

  9. Maybe it’s a vaccine against antitrust action, to make it more complicated and unpalatable to a wider cross section of American politicians? “Facebook’s employees are spread all across the United States. If you break us up, you won’t just be damaging a few cities, you’ll be affecting thousands of workers in hundreds of cities nationwide.”

    • That’s an interesting angle. I certainly think tech companies have been getting wildly abused by the local governments where they operate. E.g. cities passing taxes on employing people (that sounds really strange now that our unemployment rate is so high, doesn’t it?) or saying they can’t cook food for their employees in an attempt to prop up the local restaurant industry (if these restaurants were any good, they’d surely be able to get some business from the thousands of local workers with disposable income to spend, even if they have cafeterias at work). Amazon‘s HQ2 in NYC is another example, where the politicians negotiated a deal and then immediately reneged after their constituents complained.

    • Ryan: The decision to reject Amazon is probably not looking so great in retrospect, at least from the politicians’ perspectives.

      (I still think the Amazon move-in might have been a negative from the median New Yorker’s perspective. In February 2019 I wrote “I wonder if everyone’s favorite member of Congress has figured out that the immigration of Amazon into Manhattan is likely to be a net negative for most of her constituents. Plainly, property owners will be better off. There will be more demand for office space, retail space, and apartments. … Why is the teacher better off after Amazon moves in? The teacher’s salary is set by union contract and won’t go up. Amazon was forecast to pay an average of $150,000 per year. This is great news for the teacher’s landlord, who now has 25,000+ new potential renters earning $150,000 per year. Why is it great news for the teacher?” https://philip.greenspun.com/blog/2019/02/18/alexandria-ocasio-cortez-takes-an-anti-immigration-position/ )

    • @Ryan: The Amazon HQ2 opposition was hard Left and it was the only time in my memory that Andrew Cuomo expressed any anger toward the Left; I don’t think he named them specifically. He was furious about the loss of state revenue, which he estimated at $30 billion even though NYS offered Amazon $2.8 billion in tax breaks.

      Instead of calling people out by name, he blamed: “a small group [of] politicians [who] put their own narrow political interests above their community.” which could be anybody, really. He left it up to people’s imagination to fill in the blanks, which wasn’t difficult. It was interesting to see him dance around AOC – he was mad, but he didn’t want to burn her, either.

      Time magazine skimmed over it: https://time.com/5530386/aoc-amazon-new-york-hq2/

      It’s a big subject in its own right, but if you dig deeper, it was the comrades, comrade!

      My harebrained idea about antitrust relies on the calculus that FB will be able to say: “Look, we have thousands of really good taxpaying jobs now in 46 states, the District of Columbia and Puerto Rico, and those workers are above-average income in all their areas. They contribute to their local economies disproportionately. They pay a lot of taxes and spend a lot of money on local businesses. We’re active in local Chambers of Commerce all across the fruited plain. Facebookers are on school boards and they donate to their local senior centers. Why do you want to break us up?”

      Also, I’m not familiar with the tax law ramifications, but I have a hunch that it’s going to be a lot tougher for an antitrust legal team to follow all the money and argue their case in court. So at the very least, I think it would tend to slow that litigation down.

  10. It shows that supply and demand of software developers and software developer jobs change with geography and that wages can be reduced when companies move software developer labour from areas with higher to areas with lower demand for software developers.

    It will be interesting to see the impact on software developer wages in current software development hotspots, such as California, if remote work does take over long-term in the post-corona world.

    Will we hear less complaints about capitalism, gentrification, etcetera when (and if) current development hot spots are no longer hot spots and no longer blighted by high wage software developer jobs?

    • @S.F. Griffin: As I said above, I’d like to see the employment numbers today versus 3-4 years from now. Will FB wind up employing more people overall, or less (my guess: yes! in furtherance of their other goals)? How will having FB employees spread out in more cities across the country affect its influence over local communities? I think it could be a huge win for the Facebook brand. They’ll have FB boots on the ground in local schools, frequenting local businesses, and encouraging locals to work more closely with whatever new products and features FB decides to roll out over the next few years.

      For example, they’re creating their own Zoom alternative: https://www.npr.org/sections/coronavirus-live-updates/2020/04/24/844360404/facebook-launches-rival-to-video-meeting-app-zoom

      A couple of years from now, these newly “spreadsourced” FB workers will be living and breathing influencers in local business and political decisionmaking. Local education, town meetings and boards, etc. Everything from local newspapers to the Chamber of Commerce. Facebook could roll out a new suite of services: “Facebook Town” and their local influencers could lobby their municipal departments at town meetings. They could be active in local elections. They live there! It’s a way to take a giant tech. company from unknown place far away and put it right on people’s front porch. Sort of “Company Town” by degrees.

      https://www.businessinsider.com/company-town-history-facebook-2017-9#relatedly-googleis-spending-30-million-and-partnering-with-the-modular-home-startup-factory-os-to-build-300-units-of-pre-fab-housing-for-employees-in-mountain-view-california-13

      Influencing local decisionmaking is deeply dependent on having real people who live where the voting and so forth is being done. That’s how you do it. In the last Congressional election, my little town saw a big uptick in “strangers” who suddenly decided to rent apartments and homes here, to put Elizabeth Warren signs out in their yards. After she won the election, many of them left town. They were astroturf, in other words. Facebook will be planting real sod.

    • @Alex, maybe, but I doubt it. The company town effect works due to concentration of forces. They’ll go from an influential cluster where they are currently to a sprinkling of uninfluential nerds here and there.

      If the remote policy is global — ultimately, why not? — then who knows if most of their employees will even be based in the U.S. (or any other single country) given some time for employee churn?

  11. In Europe, this would be considered as discrimination – if two remote workers with the same role and responsibilities get different salaries only because of their different locations. Usually, big employers solve this by creating a unique set of responsibilities for a given location…

  12. The ability to work remotely from a less populous state is a mutant superpower. Let me explain.

    I’ve been 100% work-from-home for about five years, living in a medium-sized town in the Midwest. There is no local tech industry here. I’m a software engineer at a consulting company based in Boston, and also employs people in Silicon Valley. I receive significantly lower pay than people in those two places, but I’m not being ripped off. My cost of living is *dramatically* lower. I enjoy much greater buying power than my colleagues on the coasts. I get paid more than I would at local companies, and under better terms, but my boss thinks he’s getting me as a bargain. If you can work remotely from a place like Ohio or Kansas, it gives you an advantage over tech workers in expensive cities. Find a place with good schools and fast internet, and Amazon Prime will make up for a lot of things you might otherwise miss.

    When I’ve met my co-workers in person, someone always asks me why I live “out there” instead of moving to a tech hub. I have only to tell them what I paid for my house.

  13. Where is logic in this? FB should pay MORE for remote workers! Cost of having a worker in an office (even in the bastard of a city Menlo Park is) is very non-trivial. Now remote work is the new norm, and companies make the worker pay for space, furniture, internet, some equipment, parking, and, in case of FB, food. On top of that worker doesn’t come to the office, and doesn’t consume these valuable resources there. If worker moves out of the Bay Area, or even bette, California, FB doesn’t have to pay high local taxes. So the company should pay more for the remote work.

    • The company “should” not do any such thing.

      The company logic is that it can save money on everything you mentioned *and* pay less to the employee who chose to relocate, simply because the employee bargaining power is diminished (let the employee go out and find a better deal in say Scottsdale than in San Fran). And, honestly speaking, the employee does benefit tremendously from not having to appear on the plantation anymore too in many ways that are not measured by just money.

  14. One thing is for a company to choose to open a job in a certain location, and pay according to that location.
    The other is a company allowing full remote work from anywhere, and adjusting salary based on the employee’s choice of current location.
    Why should the company pay more for an employee that chooses to live in an expensive area, or less for one that doesn’t?
    It’s OK to have living allowance adjustments if the company is deciding it needs manpower in certain areas. Why should salaries be adjusted based on a free and temporary choice of where the laptop is plugged in today?

  15. Why limit this to state borders? The Bay Area is many cities and counties. Facebook could pay people in the poorer parts of the Bay Area less too! You know, really lock in their privilege.

  16. This a very interesting discussion. The way I see it is that Zuck has given his workers the option to work remotely with conditions. If a worker chooses to move to a less expensive area then he or she knows the terms set by the boss.

    • I’m not disagreeing that Facebook has the power to dictate terms to the slaves on its newly distributed coding plantation.

      The original post is about whether this shows that Facebook and other Silicon Valley employers are colluding to rig the market. If Facebook has all of these great workers who are massively productive when at home, after Facebook cuts the salaries of those who move, why doesn’t Apple or Google swoop in to hire them away at their former Facebook salary? If there were a truly competitive market for labor, Facebook shouldn’t be able to get a discount because someone who was never in the office has moved his or her PC and is now never in the office from a different location.

    • I do not think that collusion would be a good explanation. Someone on this blog mentioned that the management dislike of “telecommuting” is not so much about economics as it is about the power balance between clueless (on average) managers and socially inept (on average) coding slaves. There is probably also some sadistic pleasure that can derived from observing the above mentioned slaves toiling away in their open spaces.

      Even today with the real danger of getting infected, I know about at least one software company in Cal planning to open its office on June 1st and compel their employees to come to the office. The memo I saw states, among other things, that wearing a mask the whole day is compulsory. How can a person deprived of some fraction of oxygen for “its” brain can function in this environment more efficiently than at home ? They also promised to introduce more “separation” between their slaves, although it’s unclear how they are going to achieve that with the same number of people and the same square footage ante and post. The word “efficiency” was used many times to substantiate that decision.

      Paying less in a different geo location is just a supply/demand phenomenon. If one has relatively unique skills, then the location would not matter.

    • @philg A simple model that would not require collusion is as follows. Note: I am not saying that this is a correct model.

      All companies know that remote employees will be less productive (say for the model’s purpose at the level of 50% productivity – perhaps though misunderstanding some things like relative priorities, perhaps through a higher possibility of a hack). However, Facebook will not be currently reducing the salaries of employess who stay where they. This is
      – partly because it wil be paying for the option of calling them back to work,
      – partly as a courtesy and
      – partly because the company expects to be subject to lawsuits if 100% of employees go back to work for not providing a safe working environment.

      In this model trying to switch to Apple ets. and stay fully remote would be only possibe by giving up part of the compensation (and would be madness for those who stay in SF).

  17. If this goes though and becomes widespread, it will sets the required framework for other laws to be challenged as such the Federal government has no say or control over States and States have no say over Counties and Counties over Cities and Towns. At last we go back to the founding of the Constitution in where there is very little Federal government oversight.

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