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nitpick: it's not a "cost of living" adjustment these companies make when you change locations; it's a market rate adjustment. The distinction is important whe

nitpick: it's not a "cost of living" adjustment these companies make when you change locations; it's a market rate adjustment. The distinction is important when you end up in markets with high COL but low software engineer market rates (e.g., London), or how dealing with the expensive Bay Area can still make sense compared to midwestern metros--depending on the type of lifestyle you can live with, that is.

nrmitchi 6y ago
You're right that they are different. Unfortunately, the terms are often used interchangeably, which makes discussions around this topic difficult to have.
jbay808 6y ago
Part of the question is, why is market rate so location-dependent. COL is obviously a function of location, but it's much less obvious that market rate should be. In fact, if you assume that the market rate of an individual is based on the options available to them, and that individual has the option of moving to the Bay Area/Seattle and is just as happy to live there as anywhere else, then the Bay Area / Seattle rate, minus the COL difference, is that individual's market rate, regardless of where they actually live. Of course some SE's in London don't have a visa to work in the USA, and others wouldn't want to even for a huge pay boost. But it's still quite fascinating that a location-dependent "market rate" materializes from this dynamic. In some cases it seems like location is used as a proxy for skill -- as though an engineer who opts to drive three hours south from Vancouver, BC to Seattle, WA is now a higher-skilled "Seattle dev" than they were three hours before. If that assumption is taken away, then the fascinating thing is not that companies would pay less in areas like Vancouver or London, but rather that they are willing to pay such a high premium to engineers who live in Seattle and the Bay area. It's hard to think of any explanation other than that very profitable companies (like Google and Netflix in the Bay area, and Microsoft and Amazon in Seattle) started there, and paid a lot for engineers to move in and join them in an era where remote work was rare; then, when remote work became common, the legacy of a location-dependent market rate created a self-sustaining expectation (Schelling point) that engineers in that area wouldn't work for less to compete with talent elsewhere, sometimes using high COL as an excuse. That might gradually be reversed as companies seek to reduce their payroll expenses, or it might not.
- cameldrv 6y ago
  I think it ultimately comes down to the decisions of the marginal worker. Most people are not indifferent to where they live. In the Bay Area, as long as the tech industry continues to grow at a rate faster than new local graduates, you have to pay people enough to convince them to migrate. Since the cost of living is much higher, they will demand more to move. In senior roles, many employees will put more of a premium on being able to afford a decent house and be less willing to live with roommates or in a tiny apartment, and so you see the rates for senior employees are much higher in the Bay Area.
  - jbay808 6y ago
    At the time that you're negotiating your salary, you're the marginal worker.
    - webmaven 6y ago
      > At the time that you're negotiating your salary, you're the marginal worker. Very well put.

nrmitchi 6y ago

You're right that they are different. Unfortunately, the terms are often used interchangeably, which makes discussions around this topic difficult to have.

jbay808 6y ago

Part of the question is, why is market rate so location-dependent. COL is obviously a function of location, but it's much less obvious that market rate should be. In fact, if you assume that the market rate of an individual is based on the options available to them, and that individual has the option of moving to the Bay Area/Seattle and is just as happy to live there as anywhere else, then the Bay Area / Seattle rate, minus the COL difference, is that individual's market rate, regardless of where they actually live. Of course some SE's in London don't have a visa to work in the USA, and others wouldn't want to even for a huge pay boost. But it's still quite fascinating that a location-dependent "market rate" materializes from this dynamic. In some cases it seems like location is used as a proxy for skill -- as though an engineer who opts to drive three hours south from Vancouver, BC to Seattle, WA is now a higher-skilled "Seattle dev" than they were three hours before. If that assumption is taken away, then the fascinating thing is not that companies would pay less in areas like Vancouver or London, but rather that they are willing to pay such a high premium to engineers who live in Seattle and the Bay area. It's hard to think of any explanation other than that very profitable companies (like Google and Netflix in the Bay area, and Microsoft and Amazon in Seattle) started there, and paid a lot for engineers to move in and join them in an era where remote work was rare; then, when remote work became common, the legacy of a location-dependent market rate created a self-sustaining expectation (Schelling point) that engineers in that area wouldn't work for less to compete with talent elsewhere, sometimes using high COL as an excuse. That might gradually be reversed as companies seek to reduce their payroll expenses, or it might not.

cameldrv 6y ago
I think it ultimately comes down to the decisions of the marginal worker. Most people are not indifferent to where they live. In the Bay Area, as long as the tech industry continues to grow at a rate faster than new local graduates, you have to pay people enough to convince them to migrate. Since the cost of living is much higher, they will demand more to move. In senior roles, many employees will put more of a premium on being able to afford a decent house and be less willing to live with roommates or in a tiny apartment, and so you see the rates for senior employees are much higher in the Bay Area.
- jbay808 6y ago
  At the time that you're negotiating your salary, you're the marginal worker.
  - webmaven 6y ago
    > At the time that you're negotiating your salary, you're the marginal worker. Very well put.