How Remote Work Boom Is Affecting Tech Salaries

It has been three months since the World Bank declared a global recession due to the COVID-19 pandemic. The economic contraction “puts us in the midst of the deepest recession since the end of World War II,” as the institution put it.

Beyond such foreboding statements, the numbers are a cause for worry. The US Bureau of Labor Statistics in August reported that a staggering 13 million Americans are unemployed. The figure marks a near-eight-million increase since February, right about the time when the US economy hit its peak. This has resulted in many reluctantly dipping into their savings and retirement funds to make ends meet. 

Even though others didn’t lose their jobs, they’ve had to adapt to changes caused by the virus-induced fallout. In a report published by Pew Research Center, 62 per cent of workers who retained their jobs said they are earning less than they were before the pandemic hit.

While this has mostly affected low-income earners, pay cuts also loom large for professionals within the tech industry.

The Fall of Six-Figure Paychecks

Tech professionals have long been known to rake in one of the highest salaries across the job board. The 2019 Global Knowledge IT Skill and Salary Report found that IT salaries average  $89,732 globally and $113,639 in the United States.

For entry-level tech jobs, the starting salary pays from $50,000 to $60,000 annually—without accounting for bonuses and stock options. In the San Francisco Bay Area, otherwise known as the core of the tech industry, the pay is much higher. In 2018, the median salary of Facebook employees plus bonuses stood at nearly $230,000.

However, these figures will soon take a downturn as the dominant players of the tech industry announce the adoption of pay cuts. The move is a response to the talent exodus that’s happening in Silicon Valley in conjunction with work-from-home orders. But why are employees suddenly fleeing the Bay Area? To answer this, it’s important to take a look at how much living in the area looks.

San Francisco is considered one of the wealthiest cities in the United States, largely due to its proximity to Silicon Valley. However, its booming economy has also put it at the top of the list for the least affordable city to live in.

Figures from the Business Insider revealed that rent in San Francisco costs $4,500—nearly triple the average rent price across the country, which stands at $1,650. To afford a house and a comfortable lifestyle, one would need to earn over $230,000, something which 60 per cent of tech workers in the area can’t afford. As a result, some of them have been living in houseboats, vans, and even in their offices.

With such costs to boot, the ongoing urban flight is not surprising, if not expected. Rather than staying in an uber-expensive city, tech workers of the Bay Area are choosing to relocate to more affordable cities, using the new work-from-home set-up as an added incentive.

Tech companies have responded in kind. Four months ago, Facebook said it will be taking a more aggressive approach to hiring remote workers. It also opened the door for its employees who have left the Bay Area to work from home permanently.

Of course, this came with a catch: pay localization. That is, salaries will increase or decrease depending on their place of residence. The policy is slated to take effect at the beginning of next year.

Another social media giant, Twitter, soon followed suit with an added touch of incentive to its employees to soften the blow. This includes a one-time allowance of $1,000 and additional days off.

Software company VMware is also enforcing localized pays. Employees looking to relocate from Silicon Valley to Los Angeles or San Diego will be facing an eight-percent cut on their annual salary, according to Bloomberg.

The Changing Face of Tech

With such tech giants introducing fluctuating wages and embracing permanent work-from-home setups, it won’t be long until other companies follow in their footsteps.

The transitions paint a stark contrast from the industry which built its reputation around the guarantee of six-figure pay cheques, as well as offering every perk there is to keep their employees tucked comfortably inside offices.

As the industry adjusts to the virus-induced disruptions, the impact of the pay localization policy remains to be seen.