October 27, 2020
Today, millions of Americans are working from home during the COVID-19 pandemic. The best estimates are that about 42 percent of the U.S. workforce is working full-time from their homes as of June — an unprecedented and unexpectedly sudden boom in fully remote employees across America.
Now that millions of workers have been freed from their daily commute, it’s no surprise many are considering relocating — particularly workers living in congested and high cost of living cities like San Francisco and New York. These workers stand to benefit financially by relocating to cheaper cities while continuing to work from home.
Will WFH Pay Adjust?
A highly debated issue facing employers today is whether pay should be adjusted for their fully remote workers choosing to move to new cites. Opinion on this topic runs the gamut, from those who advocate for fully adjusting pay based on local cost of living to those who argue for a flat pay structure for remote workers — essentially arguing that geography is no longer an influential or determinative factor in setting pay in our newly remote-friendly world.
The reality of how pay will adjust as millions of workers go remote is complex. Every worker is different, and it’s not possible to predict a single or uniform base pay adjustment that will be appropriate for all workers across varying situations and locales. Some employees will bargain to keep pay steady after going remote, while others will be willing to accept big pay adjustments as a price for geographic flexibility.
However, pay on average will almost certainly adjust for most workers who go fully remote and locate to new cities. The economic reasoning is simple:
Estimating WFH Pay Adjustments
How much could pay adjust for workers who go fully remote and relocate? The app below provides estimates for 25 of the most common job titles today, showing how base pay is predicted to variably change across 30 U.S. metros based on a machine learning model using millions of salary reports on Glassdoor (technology similar to Glassdoor’s Know Your Worth salary calculator).
The important thing about this app is that it’s not based on cost of living differences among cities. Instead, it’s based on real-world earnings of workers who’ve reported their pay in Glassdoor salary reports. It uses salaries reported for different roles in different areas of the U.S., after controlling for the specific employer, industry, year, and level of seniority of the worker.
Not all jobs that go remote and workers that relocate will face pay adjustments in line with these estimates. But these are potential estimates of what workers hoping to relocate should realistically plan for in the long term. Even if millions of workers remain permanently remote post-COVID, geography will remain a meaningful factor in pay — regardless of whether workers are remote or not.
To use: Select a job title and origin city to see what pay adjustments could look like across different cities
Why Will Remote Pay Differ by Metro?
It seems counterintuitive that pay for fully remote workers should vary across cities. After all, if workers are fully remote why should geography affect pay? In practice, however, worker salaries are the result of a complex process of supply and demand. The economics of labor markets suggests three big reasons pay likely will vary by city, even for fully work-from-home employees:
How Our Map Works
A common misperception is that cost of living is the main factor driving pay difference among cities. In fact, the reverse is likely to be true — pay differences across cities are partly what drive differences in cost of living, simply because the most important resource in cities is in short supply and can’t be transported: housing. That makes the cost of living expensive in places where highly productive workers bid up the cost of housing, and more affordable in under-developed cities with low productivity and wages.
Our approach to estimating how pay will likely adjust for relocating remote workers is to use actual salary data on the economic rewards for different jobs today and show how that varies across cities (once all other factors are held constant). Among cities, the mix of employers, industries and seniority of workers varies widely, and those factors must be accounted for when making an apples-to-apples comparison of pay for the same job in different cities.
Our estimates attempt to compare the same job, at the same seniority, at the same employer, in the same industry, only letting the city where a worker is located vary. The estimates rely on a regression model that separately estimates the impact of city, employer, industry, year, seniority and many interactions between these factors on base pay, using a sample of more than 1,885,000 salaries on Glassdoor. That provides an estimate of how pay varies for similar roles in one U.S. city to another.