Compensation and Cost of Living

Good points well made.

I've worked contract for the past decade or so, and there is also a regional component based on the historical area salaries as well as a "cool" factor as defined in the minds of either the manager or HR.

There are some areas (Phoenix comes to mind) where the perceived desirability of desert living held salaries under market. Despite the higher costs associated.

So while adjusting expectations is valuable, so is not starting the conversation with "I'd love to live (where ever the next employer is)".

But as you say, financially I'd rather earn $75K in Huntsville then $85K in Houston.

One blind spot that surprised me with recruiters was international hiring. I have experienced recruiters who would call US engineers and yet be unable to discuss any of the associated issues with crossing borders. At the time these consisted of such things as work permits, what currency one is to be payed in, how expenses would be offset, etc. Not trivial issues.

Thanks for a good post.

Thanks Edignan! I appreciate the reply.

KER Recruiter makes a very good point.

I think Transcendian is being to hard

I have been in Engineering and Engineering Management for over 25 years. I started my career in a very large metropolitian area making a very good living in an area with a very high cost of living. Thinking being in the "Big Time" would keep me honed and advance my career faster. Then a friend talked me into a mid-size company out of the large metro area. I have never gone back. My career sky rocketed. I was given more opportunities learned more skills honed others. My advice is to don't put the blinders on. Look at all opportunities. Continue to learn and grow that is what makes you stronger and better. I have friends that over the years that work in the "big city" that come out to visit me on my 100 acre lot with my 3600 square foot home. I don't make their kind of money but my cost of living makes it better. But life is finding what makes you happy and doing that!

Dear KER Recruiter, Since the job may not at all be available in your area, I am inclined to say that the job ought to pay the same regardless of where it is in relation to where I may live. Harrison Ford apparently has a farm in some place like Idaho. According to your advice he ought to work for less because he lives in Idaho.

Living in an area where the cost of living is supposedly low, if you have specialized talents, does not account for travel expenses required for top level people to stay in the game.

Staying in the game is more important than any temporary advantage.

Smart people know that if they move out of the way, take less, and are trapped out of the way, temporary advantages are just that, temporary.

My advice to anyone with any sort of unique professional career is to move to a large Metropolitan area, and commit to staying there from at least the age of 35 to 55. It is likely that 20 to 55 is more sensible.

When the headquarters of Xerox was moved from Rochester New York, to White Plains New York, would you have moved to Rochester, or White Plains?

The cost of living is less in Siberia, so I guess I should move there?

Give me a break.

P.S. Whereas LA is recommended for actors, I am not certain what cities are most perfect for Engineers. We shall ask on CR4, what cities are best all around for Engineers, and see what the consensus is.

Transcendian,

I didn't get the impression KER was advocating to always relocate where cost of living is lowest. But was suggesting not to avoid a job because the salary is lower and to consider a larger set up criteria. And as you rightfully point out, you should not take a job only because the salary/cost of living ratio is high either as you may be stuck unable to find employment should the company go out of business. Making a move is a big decision and should be given a great deal of thought....all aspects/options reviewed and considered (okay my wife calls me over analytical).

Years ago, I applied for a job in Palm Springs, CA. My potential boss, when offering me the job, asked repeatedly if I understood it was in the desert and that they were about the only engineering company there and that it wasn't San Diego. I think he had had a previous experience of an engineer being unhappy that he didn't have many options once he quit (or was fired). Had I stayed with the company I might have had to make a tough choice (commute 90 min one way to work or relocate at a huge loss) when they hit rough times.

JB, Thank you! Everyone's situation is different and we all have personal needs and wants in life. This blog was intended to help shed light between the cost of living and your salary.

This sound like an argument for the idea that engineers should consider renting rather than owning. There was a recent article in the Economist suggesting that home ownership can be bad for the economy because it reduces the mobility of labor. You seem to be making the same point. In spite of their greater education and earning power, engineers are still in many respects 'migrant workers'.

In my struggles with what is right all around between employers and employees, in this era, I can't get around a call for an international minimum wage.

It may seem spurious for me to compare Harrison Fords pay scale to an engineers.

However the more I think about it, the more I have to stand by the comparison.

"Costs what it costs, and takes what it takes."

P.S. Figure nobody will hire you if you don't make money for them. We have no problem with making others rich, as long as we get to live safe, happy and warm as a reward. (I don't expect others to really contribute that much to my happiness, but just want fair pay.)

This is a very good point.

Let's put it down a bit more formally. Unless one works for a tiny regional shop, the company's products are not sold locally and consequently revenue (R) is not a function of its location, generally. But, if resources (incl. labour) can be found at a lower cost (C), companies are very willing to get them. Thus profit (P) can be maximised:

R-C=P (eq. 1)

Let's look at the employee 'equation', where revenue (r) is his salary, cost (c) is his overall cost of living and profit (p) is obviously the difference:

r-c=p (eq. 2)

Naturally the employee wants to maximise this.

Assume, just for simplicity of presentation, that only salaries make up the company's costs, therefore

C=Σr (eq. 3) (did sigma print out right?)

and we may rewrite eq. 2 as:

r=p+c (eq. 4)

Eqs. 1 and 3 and 4 yield:

R-Σ(p+c)=P, or equivalently:

R-Σc=P+Σp (eq. 5)

What this means is that, if you are a company operating in Backwaterville, you can get top-tier emplyees from Supermetropolis and at the same time raise your own P as well as their p's, even if you pay the a lower Σr than they were getting before. The money for this came from the lower Σc. Everybody is happy.

Or is he?

Problem 1: If you hire form Backwaterville, where salary expectations are low because local businesses sell locally, unlike you, you can drive Σr further down. That's one of the key reasons EU and USA are 'bleeding' factories/ jobs to China, India etc. This truly maximises P!

Problem 2 (more relevant to this thread): If you ever want to relocate back to Supermetropolis, no one is going to really consider your previous p, because, really, it's quite difficult to measure anyway. All that matters is your previous r. Tough luck! You are now stuck in Backwaterville.

Problem 3.1 (most relevant to this thread): When the time comes to send your children to the university in Supermetropolis, I wonder if you are going to get a discount in tuition fees. Perhaps a car is cheaper in Backwaterville(?) Therefore, is c really as 'local' as it's advertised to be?

3.2: When the time comes to relocate (because somehow you managed to talk your way out of the 'low r' vicious cycle -see problem 2- and got the same p, you lucky fellow), I wonder how desirable your cheap property at Backwaterville will be to buyers; if it were, you wouldn't have gotten it cheap! So you may yet get out of there, but chances are your investments stay locked... This closely related to 3.1, actually.

I don't mean to be negative, but the above seem to hint that regionally differing salaries can hurt mobility and we all know engineers nowadays need to be mobile.

Finally, there is no moral justification for making r a function of location, when R is clearly not! (If one cares/ can manage to define a concept of morality in business, that is)

Honestly, this is yet another short-sighted double standard that is (conciously or subconciously) used to raise P, not p. Employee, beware.

p_x

One thing that seems to be missing is something difficult to quantify, quality of life. Quality of life is difficult to measure because it means different things to different people. Some people may enjoy the convienences that exist by living in a large metroplitan area. Others may prefer the countryside, being close to nature. So if optimizing profit is just optimizing $ (or Yen, Won, Rubles, Pounds, Turkish Lyra, Riyals, Euro, or whatever.) then that still may not be the best choice for an individual. I have met many executives that gave up their jobs in Virginia, Mass, NY to move to Colorado and work for next to nothing. Not because it optimized their monetary profit, but they loved skiing and the mountains and they were willing to give up $ to live in such a beautiful area that met other needs.

I quite agree. In my opinion, quality of life is the most important thing. It is also, I believe, not only difficult but impossible to convert to money, at least in any objective way. That's why it should not be part of any equation, or discussion for compensation. It is in no way provided by the employer (unless in the form of specific paid-for benefits, if any, which can be converted to money- essentially they are part of the salary) and is therefore only incidental to any arrangement.

I.e. although one may be inclined to work for less pay at a better out-of-the-way (rural?) location, it does not really make sense (except to the employer) to actually pay him less. Just as it would not make sense for employees to ask for extra compensation because they have to work in an ugly noisy metropolis (nothing to do with cost of living)

p_x

Agreed on the quality of life issue. But I don't think it should be excluded from the equation. It might be difficult or impossible to put a monetary value on it, but it is still a driving factor in the decision making process as to work for company x vs. y. In making a big decision (such as which house to purchase or job to take), I tend to use a spreadsheet and put my requirements/desires/etc in it and give a weighting factor to each (such as I value salary pretty high, so I would give it a weighting factor of 8 out of 10, and location also may be high), then rank the job as to how well it meets the different categories...multiply the weighting factor of each category by it's ranking and then sum them up. Compare the summation of various potential employers and you have a something analytical to help you make up your mind. In the end, it will most likely be an emotional decision regardless of the analysis....one finds themselves adjusting the weighting factors to give them the answer they really want.

As to your last paragraph - doesn't it all boil down to supply and demand? Employers generally pay less in a rural area because they can (if not, they raise the offer until they can get someone) and employees who don't think it suits their situation go to where the jobs meets their desires. The wrinkle is that it's not easy for either employer or employee to make changes if they find they are unhappy with their choice. It's not like you weren't happy with your shopping experience at grocery store A, so next time you go shopping you will go to grocery store B. However, over the long term I think things follow the supply and demand rules for the most part.

"It is neither wealth nor splendor, but tranquility and occupation which give happiness." -- Thomas Jefferson

Quote from CR4 quotations

Another thing to consider is the time you have to spend in the car to get to/from work. This adds up.

I had a fantastic job as an intern near L.A. and even though the job was only 10 mi. away, it took 45mins each way sometimes. The aggravation was just not worth it. Same thing with L.I.,NY.

Rural areas are different, driving 50mi/day is not that big a deal.

It all depends on your temperament, if bumper to bumper traffic drives you nuts then avoid the suburb/city commute. Same goes for subways/trains.

Of course the most important thing is looking forward to getting to work, and if you have that, well commute time is secondary.

So is salary. I'd rather make half the salary at a job I love than twice that at a job I loathe.

Like most things engineering, it's a tradeoff.

Checked into this blog thread after starting the question about what cities or towns were best for work.

Good Money, Good Project, Good People, Must have two out of three is an admonition that comes back to mind for job picks.

I have to say that since I have lived in suburbs, small towns, major cities, and medium sized towns up and down the East Coast, I am concerned with somehow finding a "safe" situation for daily life.

There has been over the past 50 years a profound inflation of what it costs to live in a relatively safe neighborhood.

The two major factors influencing that have been a lack of respect for educational achievement, from both the government that has increasingly allowed higher education to become unaffordable by withdrawing availability of Pell Grants, (Starting during the Reagan years.), along with irrational and grandiose encouragements to strike it rich as part of the cast of a "reality show".

The second factor has been the Drug War that springs from dubious moral objections, certainly in relation to the competitor to alcohol, marijuana.

Switzerland, Germany, and the Netherlands, not to mention Vancouver in Canada basically have legalized pot and hashish, and they are probably safer in general for the regular income people than is the case in the US, for middle of the road, or low income people.

I have lived in high crime areas, like the East Village in NYC, and recognize that part of the reason I survived was that I had no particularly identifiable schedule.

Some of you may worry about what the government knows about you, but some of the real concerns for a regular working guy become closer. What's the local burglar know? What do the Drug dealers know? What if everybody else in the neighborhood is armed, and you aren't?

I admit that on this site I am an interloper to some degree. Dr. Doug and you, KER Recruiter are really newcomers, brought in, whereas I have been around here for awhile.

I certainly hope that my friends here are recruited to work at their destiny work, but advise that they get pay enough to be safe, and pay enough to have a plan A, and B, and C even.