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Suburban Dispersion and Pay Cuts

The Covid-19 situation in 2020 has made work-from-home a necessity for a lot of companies. In February, only 8% of the U.S. workforce work-from-home. This number spiked to 35% in May.

Management used to have a lot of reservations about adopting more working form home practices. A pandemic changed everything. Now, the camp is more divided.

There are some owners who still doubt remote work is the way to go. Then there were some bosses who felt this is doable.

This resulted in different companies trying different working schemes along the spectrum of totally working from home and 100% of their workers returning to the office.

The United States is a big place. Many workers would go to bigger metropolitan cities because the job opportunities and pay are better. However, the cost of living such as housing have risen a lot as well. Some families cannot afford to purchase a home there. Others cannot rent a place that is too big.

Remote work acceptance have suddenly allow these workers to spread to other areas.

These areas

  1. Lower job prospects, or have a cap on the jobs in their field, does not pay so well
  2. Cost of living is much more affordable
  3. Closer to family
  4. Better quality of life
  5. Homes are more affordable so you can get a bigger place

The exchange of living locations created a crazy real estate boom.

If you choose to relocate away from the office location, the downside is that you may need to take a pay cut.

The firm that hired you faced a delicate situation

  1. If your cost of living is lower, they should compensate you less
  2. If they fail to compensate you adequately, they cannot hire you, or you will leave the company
Cost of Living Versus Pay

Redfin deliberated extensively on these considerations and they came with something like this:

  1. Headquarter employees will eventually come back to a Redfin office at least a few days a week but have the option to work wherever they wanted full time if they have approval from their manager
  2. Extremely expensive areas (San Francisco and San Jose) would continue to command the highest salaries and equity awards. Failure to pay the top dollar would mean failure to attract top talents
  3. If you live in expensive areas (Boston, LA, NY, Portland and Washingon), the payment will be similar to Seattle
  4. There will be 10-15% reduction in cash compensation and 10% to 20% less in stock if you move to a big group of mid-tier areas (Austin, Baltimore, Chicago, Denver, Houston, Miami)
  5. The rest 20% reduction in cash compensation and a 25% cut to equity awards

There were definitely questions asked once the company policy was announced:

  • What is the definition to cost of living and labor
  • Why was it fair for people doing the same jobs to be paid different wages depending on where they lived

While remote work allows a company to recruit from a more diverse group of employees, there are problems as well.

An existing worker will adjust better to things because they already built up the working relationship. It is tougher for a new hire to get adjusted and build a decent working relationship.

Given this dynamics, a few trends may develop:

  1. Salaries and cost of living for attractive, smaller cities may go up.
  2. Need for office space my drop 10-15%
  3. Younger workers will probably still come to urban areas to start their careers and have fun. Older couples may settle in a sweet spot somewhere

This article might not be fully relevant to Singaporeans. If you are an investor in some U.S based REITs, this might be relevant. However, we can think about whether any of these considerations apply to us.

If you stay in Marsiling, should you be paid less versus someone staying in Pinnacle at Duxton? Personally, I feel that Singapore is a country city, and this kind of pay segregation would be less applicable to us.

However, if the geographic location is less important, what is stopping a company here to hire cheaper remote workers around the region? One thing that may prevent this may be the ruling that a company set up locally needs to be staffed with X number of Singaporeans.

If I choose to work remotely in Sri Lanka, should I be paid less since the cost of living may be lower?

These are my summary points from this Bloomberg article called The Work-From-Home Boom is Here to Stay. Get Ready for Pay Cuts.

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BlackCat

Monday 4th of January 2021

Been thinking abt this: - Lots of people/companies are leaving the California. Schwab, HP, Oracle. Elon Musk, Joe Rogan, Kayne West. The 2020 US census estimates a drop in California's population dropped in 2020 for the first time since 2010. - Continual reports of high cost of living, riots, homelessness. The media I read might be biased, but you can see homeless tents on google maps a few blocks away Downtown LA. - US re-industrialisation means industrial dies better than offices. People make things again. - On top of covid and WFH.

I'm wondering what to do with my Manulife REIT. Got to go through the numbers, see how much is already priced in.

Kyith

Wednesday 6th of January 2021

Hi BlackCat, listen to the management call. Usually, Yahoo finance will put out the transcript a few days after. We might be able to detect it earlier. If not just risk manage your position.

Out of your 4 points, thanks for the #1. First time i have heard about it. I have heard of #2. We will see about #3 and #4

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