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Supply and demand makes sense as an explanation in a lot of these cases, but it doesn't actually explain this one. If facebook were just charging a market rate

Supply and demand makes sense as an explanation in a lot of these cases, 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.

joshuamorton 6y ago
This doesn't actually follow. Assume that there is a wide degree of variation in what people value "living in San Francisco" at. Some people value it at a million dollars a year, others value it negatively (ie. they'd prefer, all else equal, to live in Kansas). Both of these people probably exist in the real world. 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.
- idoby 6y ago
  City lifestyle can be replicated by a large group of people in their 20s and 30s who settle in a smaller town. This is possible because in reality, you only ever meet and engage with a small percentage of the people who live alongside you in, say, NY. But up until recently, it was just easier to flock to the biggest city in your state/country. Now the virus is forcing people to consider smaller communities, which also has the advantage of better geographical sorting by self-selection. 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.
  - joshuamorton 6y ago
    > 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.
    - idoby 6y ago
      If your thing is that niche, yeah, I guess.
- BorisTheBrave 6y ago
  > FB might just revert to its old practice and leave the Kansas devs back jobless. 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.

joshuamorton 6y ago

This doesn't actually follow. Assume that there is a wide degree of variation in what people value "living in San Francisco" at. Some people value it at a million dollars a year, others value it negatively (ie. they'd prefer, all else equal, to live in Kansas). Both of these people probably exist in the real world. 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.

idoby 6y ago
City lifestyle can be replicated by a large group of people in their 20s and 30s who settle in a smaller town. This is possible because in reality, you only ever meet and engage with a small percentage of the people who live alongside you in, say, NY. But up until recently, it was just easier to flock to the biggest city in your state/country. Now the virus is forcing people to consider smaller communities, which also has the advantage of better geographical sorting by self-selection. 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.
- joshuamorton 6y ago
  > 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.
  - idoby 6y ago
    If your thing is that niche, yeah, I guess.
BorisTheBrave 6y ago
> FB might just revert to its old practice and leave the Kansas devs back jobless. 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.