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:
- In labor markets today, pay varies by geography for complex reasons related to supply, demand and productivity — not just because of cost of living, as is commonly assumed.
- Even if 20 percent or more of U.S. workers remain fully remote after COVID, the majority of workers will not. According to recent research, only about 37 percent of U.S. jobs can ever be done fully on a work-from-home basis (in the extreme case that no one returns to offices post-COVID). That means geography will probably still play an important role in salary for the foreseeable future.
- Once local labor markets adjust to a wave of newly remote workers, the equilibrium pay for workers who’ve left expensive, congested metros like San Francisco and New York for smaller cities will probably adjust downward as the interplay among supply, demand and productivity forces unfolds across cities.
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
- For tech roles leaving San Francisco and New York, expect big changes: Pay for tech workers leaving SF and NYC could adjust substantially, as both cities pay a large location premium. Software engineers, software developers, and product managers leaving SF could see an average base pay cut of -24.8%, -21.3%, and -23.1%, respectively across the 30 cities we examined. Leaving from NYC, the average base pay cut for these same jobs is -12.2%, -10.4%, and -9.6%, respectively.
- Registered nurses, not tech jobs, would face the biggest pay drop from leaving San Francisco: The job with the biggest average pay drop when relocating away from San Francisco is that of registered nurse — a job that’s nearly impossible to do remotely. The average possible pay cut for nurses leaving San Francisco is -29.8%. That’s followed by marketing manager (-25.8%) and sales representative (-25.5%). In New York City, the job with the biggest predicted pay drop from relocating is account manager (-14.2%), followed by analyst (-13.5%), and attorney (-13.1%). These are the jobs for which workers would lose the most bargaining power by relocating away and becoming remote workers.
- Workers leaving San Jose, San Francisco, and New York City face the biggest pay drops: On average across the 25 common jobs we examined, workers leaving San Jose can expect the largest downward base pay adjustment of -24.6% among the 30 cities we examined, followed by San Francisco (-21.7%), New York City (-9.8%) and Seattle (-9.7%). By contrast, workers moving away from Denver, Minneapolis, and Houston would on average see base pay adjust by less than 1%.
- Net-neutral cities for New Yorkers with no pay drops? For workers looking to leave New York City, there are 5 other cities where minimal pay adjustments (less than 5%) can be expected: Seattle (-0.1%), Los Angeles (-1.1%), Washington D.C. (-2.3%), Boston (-2.9%), and San Diego (-3.7%). For workers looking to leave San Francisco, there are no “net-neutral” cities: The closest are Los Angeles (-13%), Seattle (-12%) and New York City (-11.9%). Pay premiums are so large in San Francisco that pay is likely to drop from any move other than to nearby San Jose in the heart of Silicon Valley.
- How will employers handle moves to higher-paying cities? The other side of the coin for pay adjustments is workers who may choose to move from lower-paying cities to higher-paying ones. For example, workers relocating from Austin, TX to Washington D.C. can expect an average base pay increase of nearly 10%, due to significantly stronger outside offers and differences in urban productivity. Will employers be willing to adjust pay upward for employees as fair compensation for these types of work-from-home moves? Only time (and future labor market forces) will tell.
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:
- Compensating Differentials: First is what economists call “compensating differentials.” Some areas of the country are inherently more desirable — or undesirable — than others, and that impacts how much workers are willing to earn to live there. Urban amenities like nice weather, inexpensive real estate, robust local culture, or simply an attractive reputation as a city will impact salaries, even for fully remote workers in those areas.
- Bargaining Power: Second is bargaining power and what economists call “reservation wages.” An important factor impacting pay is the opportunity cost facing workers in different metros. That is, what is a worker’s realistic next-best alternative salary they could be earning if they left their job today? That figure will affect bargaining power, and that will impact the lowest possible wage (or “reservation wage”) that work-from-home employees will be willing to accept. That may differ dramatically depending on where employees locate, since most U.S. jobs will not be remote and workers in some areas will be in stronger bargaining positions than others.
- Urban Productivity: A third reason work-from-home pay is likely to vary by city is what economists call “urban productivity.” For complex reasons, geography has always mattered for pay throughout history, and it’s well-established that even an identical worker can have different productivity levels when located in different cities. Why? Factors include better or worse infrastructure (like broadband), proximity to universities and other knowledge centers, severe or mild weather, congested roads and highways, or even simple differences in local culture, public policy and local laws. All of these factors have a potential impact on worker productivity. And even if a worker is fully remote, their pay will be impacted by these local factors.
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.