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Cost of living indexation being applied to salary of a knowledge worker is a flawed economic thinking that is being perpetuated by some. Firstly, knowledge wor

Cost of living indexation being applied to salary of a knowledge worker is a flawed economic thinking that is being perpetuated by some. Firstly, knowledge workers should be paid market competitive rates – and the definition of market in a digital economy is global. Secondly, cost of living index for a software engineer in India vs US is not that different - cost of electronics, housing, clothing, accessories, vacation/travel etc are all same. In some cases, things are more expensive due to global trade economics – for example cars/bikes, fuel, travel, luxury goods etc are way more expensive in India than US. Food and housekeeping was assumed to be cheaper – but that was based on flawed logic that someone is cooking food at home for you for free (an unemployed family member) and you are exploiting some poor person for housekeeping without caring about their healthcare or their children's education (these are basically un-costed externality that keeps poor families poor). In reality, today's generation of software engineers have to cook their own food (costs time which is learning opportunity cost which is nothing but money) or hire professional help (costs money) or eat catered food (which is possible due to app based delivery services in major cities like Bangalore, costs money) every day. Besides, no matter where you are living, only a small part of your paycheck goes towards non-discretionary expenses like basic food and basic shelter. A large part of your paycheck should be going towards future savings/investments and discretionary spending like leisure/travel and enhancing your quality of life through better nutrition/healthcare, continued education etc. None of these things cost less in India than US. Expecting Indian engineers to do this any less than US engineers is just another form of discrimination.

rhn_mk1 5y ago
> Food and housekeeping was assumed to be cheaper Who assumed that? You're comparing a situation where there's an unpaid family member, with a situation where the only person cooking is the information worker. In reality, there are a multitude of arrangement between those extremes, invalidating your argument. Even then, health insurance costs differ between areas. Not to mention that the cost of every option you listed apart from using own time to cook is dependent on the local circumstances. Similarly, travel and housing are very sensitive to geographic location, unless you want to travel across the world. I don't think that "flawed economic thinking" follows from your second argument.
vitus 5y ago
> the definition of market in a digital economy is global. I strongly disagree. If you're a large tech conglomerate, and your center of mass is in the US, then the timezone difference (California -> New Delhi is 12.5hr) largely eliminates viability of real-time collaboration (without imposing significant burdens on the remote worker) and imposes significant communication delays if conducted asynchronously (e.g. over email, where your RTT is a full business day). > cost of electronics, housing, clothing, accessories, vacation/travel etc are all same. Mumbai seems to be broadly accepted as the most expensive city in India. [0] says that if you want to buy a 1-bed apartment, it'll run you ~80 lakh - 1.5 crore. This translates roughly to $100k - $200k, in the most expensive city in the country. For reference, in Atlanta, at the start of 2019 (so pre-pandemic shifts), the median 1-bed condo was just over $200k, per [1]. If we limit to top 200 metros, that's ~85th percentile, where the median price in the broader metro is comparable price-wise to a flat in the most expensive parts of Mumbai. But okay, maybe instead it makes more sense to rent in Mumbai, at ~$300-500 per month. This is roughly half the price of renting in Oklahoma City, the cheapest metro surveyed by [2] (where according to [1], that same 1-bed would sell for $60k). Are salaries in India (Mumbai in particular) depressed relative to comparable areas in the US? Likely! Looking purely at cost of purchasing housing, I'd expect salaries to be comparable to, say, Chicago, but that's nowhere near the case. Or if looking at rents, half of what a US-based engineer with comparable experience makes in a cheaper labor market (e.g. a new grad at Google in Chicago might receive ~$150k in total compensation). Here's the thing, though: the primary driver of what companies are willing to pay you is not actually your estimated cost-of-living expenses (even if that's what they call it), but your local labor market. Minimum wage in Mumbai for skilled labor for college graduates is ~$18k (USD) / year. Minimum wage in Chicago is $14/hour; at 40 hours/week, 52 weeks/year, that's ~$30k / year which you could earn stocking shelves at Walmart or flipping burgers at McDonald's, as a high school dropout. Regardless, if you're good enough that $BIGTECH thinks you're worth the high salary, then you're good enough for them to want to relocate you. That bar's just much higher when they also need to sponsor a work visa (what with H1B quotas and all). [0] https://housing.com/news/cost-of-living-in-mumbai/ https://housing.com/news/cost-of-living-in-mumbai/ [1] https://www.zillow.com/research/data/ https://www.zillow.com/research/data/ [2] https://www.businessinsider.com/one-bedroom-apartment-cost-largest-us-metro-areas-2019-8 https://www.businessinsider.com/one-bedroom-apartment-cost-l... > Besides, no matter where you are living, only a small part of your paycheck goes towards non-discretionary expenses like basic food and basic shelter. Cheapest median rents in the Bay Area are about $2k / month for a 1-bed, although pre-pandemic you were almost definitely compensating with transportation costs / time spent commuting. If you work at a startup in SF and make a modest $100k/year, that's 25% of your pre-tax income (a third of your post-tax income) going to housing alone. Add on cost of food, utilities, commuting costs (let's underestimate each of these at $100 / month), and now you're looking at nearly 40% of your post-tax income. I don't consider that a small part of the paycheck. (Okay, maybe you make $150k pre-tax instead because you're an engineer. Now it's "only" 30% of your post-tax income on these non-discretionary expenses, just to support yourself.)
988747 5y ago
> the definition of market in a digital economy is global. You do realize that global average GDP per capita is $11k? If you are in the US or Western Europe then the switch to "global economy" would probably push your salary down to $30k or less.

rhn_mk1 5y ago

> Food and housekeeping was assumed to be cheaper Who assumed that? You're comparing a situation where there's an unpaid family member, with a situation where the only person cooking is the information worker. In reality, there are a multitude of arrangement between those extremes, invalidating your argument. Even then, health insurance costs differ between areas. Not to mention that the cost of every option you listed apart from using own time to cook is dependent on the local circumstances. Similarly, travel and housing are very sensitive to geographic location, unless you want to travel across the world. I don't think that "flawed economic thinking" follows from your second argument.

vitus 5y ago

> the definition of market in a digital economy is global. I strongly disagree. If you're a large tech conglomerate, and your center of mass is in the US, then the timezone difference (California -> New Delhi is 12.5hr) largely eliminates viability of real-time collaboration (without imposing significant burdens on the remote worker) and imposes significant communication delays if conducted asynchronously (e.g. over email, where your RTT is a full business day). > cost of electronics, housing, clothing, accessories, vacation/travel etc are all same. Mumbai seems to be broadly accepted as the most expensive city in India. [0] says that if you want to buy a 1-bed apartment, it'll run you ~80 lakh - 1.5 crore. This translates roughly to $100k - $200k, in the most expensive city in the country. For reference, in Atlanta, at the start of 2019 (so pre-pandemic shifts), the median 1-bed condo was just over $200k, per [1]. If we limit to top 200 metros, that's ~85th percentile, where the median price in the broader metro is comparable price-wise to a flat in the most expensive parts of Mumbai. But okay, maybe instead it makes more sense to rent in Mumbai, at ~$300-500 per month. This is roughly half the price of renting in Oklahoma City, the cheapest metro surveyed by [2] (where according to [1], that same 1-bed would sell for $60k). Are salaries in India (Mumbai in particular) depressed relative to comparable areas in the US? Likely! Looking purely at cost of purchasing housing, I'd expect salaries to be comparable to, say, Chicago, but that's nowhere near the case. Or if looking at rents, half of what a US-based engineer with comparable experience makes in a cheaper labor market (e.g. a new grad at Google in Chicago might receive ~$150k in total compensation). Here's the thing, though: the primary driver of what companies are willing to pay you is not actually your estimated cost-of-living expenses (even if that's what they call it), but your local labor market. Minimum wage in Mumbai for skilled labor for college graduates is ~$18k (USD) / year. Minimum wage in Chicago is $14/hour; at 40 hours/week, 52 weeks/year, that's ~$30k / year which you could earn stocking shelves at Walmart or flipping burgers at McDonald's, as a high school dropout. Regardless, if you're good enough that $BIGTECH thinks you're worth the high salary, then you're good enough for them to want to relocate you. That bar's just much higher when they also need to sponsor a work visa (what with H1B quotas and all). [0] https://housing.com/news/cost-of-living-in-mumbai/ https://housing.com/news/cost-of-living-in-mumbai/ [1] https://www.zillow.com/research/data/ https://www.zillow.com/research/data/ [2] https://www.businessinsider.com/one-bedroom-apartment-cost-largest-us-metro-areas-2019-8 https://www.businessinsider.com/one-bedroom-apartment-cost-l... > Besides, no matter where you are living, only a small part of your paycheck goes towards non-discretionary expenses like basic food and basic shelter. Cheapest median rents in the Bay Area are about $2k / month for a 1-bed, although pre-pandemic you were almost definitely compensating with transportation costs / time spent commuting. If you work at a startup in SF and make a modest $100k/year, that's 25% of your pre-tax income (a third of your post-tax income) going to housing alone. Add on cost of food, utilities, commuting costs (let's underestimate each of these at $100 / month), and now you're looking at nearly 40% of your post-tax income. I don't consider that a small part of the paycheck. (Okay, maybe you make $150k pre-tax instead because you're an engineer. Now it's "only" 30% of your post-tax income on these non-discretionary expenses, just to support yourself.)

988747 5y ago

> the definition of market in a digital economy is global. You do realize that global average GDP per capita is $11k? If you are in the US or Western Europe then the switch to "global economy" would probably push your salary down to $30k or less.