eli5 why does pay depend on where the job is located?


Two people working the exact same job, in the same nation, but differently compensated because of where the live just sounds off to me.

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Cost of living varies by area depending mainly on:

1)the income of the people already in that area and

2) the ratio of demand for housing in that area/city vs supply.

Pay is sometimes dependent on cost of living of where you’re working.
Pay is also commonly dependent on how remote the work is since: remote work attracts less workers ( such as oil rig paltforms at sea)

There are all kinds of examples of incentives for going to certain locations. For example Drs getting tuition assistance for committing to a rural area after graduation. It’s a pretty standard recruiting method.

Taxes might be different, even within the same nation there can be different employee tax rates in different locations. Equipment like office space and such can cost different in different places which also factors into the cost of employing someone. But more importantly there are more available work in larger cities so employees can more easily demand higher pay. And the higher cost of living kind of forces them to negotiate higher pay then workers in smaller cities or rural areas.

But there are actually people who “game” the system by getting high paying jobs in a large city which promises the ability to work 100% remotely or the ability to relocate, and then move out of the city while still keeping their high pay.

Nice 4000 sqft home with some yard in Minneapolis Minnesota – $500-850k
Same 4000 sqft home in San Francisco – $2million+

Market dictates all – if prices are higher in a market because of high demand, then a company that wants to work in that market has to pay workers enough that they can live in that market.

Salary is a balance between what the employer is willing to pay and what the employee is willing to accept.

If the job is located in a high cost of living area, then the employer must pay more, otherwise people won’t be willing to work there because pay won’t be enough for a decent life.