> An optimization coming from an engineer in Taiwan saves you the same money as if it comes from an engineer in SF but the SF engineer gets 8x the reward for doing the work.
Suppose you have a thousand engineers and those thousand engineers generate ten billion dollars in annual profit. How much do they each get paid? They amount they're worth? Nope, the amount they'll accept.
If you live in the US and you have the wherewithal to be an engineer then you could also have been a doctor or a lawyer or some other high paying occupation. And many of those can't be fully remote because they have to see domestic patients or interact in person with local courts or clients. Which means that if you want someone in the US to be your engineer, you need to pay them an amount that makes them want to do that instead of choosing one of those other occupations. Whereas the one in Taiwan doesn't have the option to become a doctor in San Francisco and is therefore willing to accept less money.
So why don't companies just hire exclusively the people in Taiwan? There are all the usual reasons (time zones, language barriers, etc.), but a big one is that they need a thousand engineers. So they and their competitors hire every qualified engineer in Taiwan until Taiwanese engineers reach full employment, at which point the companies still don't have all the engineers they want. And when the average engineer is making the company ten million dollars, paying San Francisco salaries is better than not having enough talent.
So then why doesn't every smart person in Taiwan become an engineer? Because the companies hiring engineers there are only paying Taiwanese wages, and then they're not any better off to do that than to become a doctor or a lawyer in Taiwan. And if they would pay higher wages there, the local economy would have to start paying local doctors and engineers more to keep them all from becoming engineers, and then you would only get a modest increase in the number of engineers for a significant increase in compensation. Which is still what happens, but only slowly over time, until the wages in Taiwan ultimately increase enough to no longer be a competitive advantage. And companies don't want to make that happen faster because then they'd have to pay higher salaries in Taiwan.
Not everyone who can be an engineer can also become a doctor or a lawyer. Different requirements and tolls on your mind and work style that aren't interchangeable for everyone.
There are two reasons that doesn't matter. The first is that it's untrue more often than not; plenty of people could do both. And the second is that "doctors and lawyers" are just arbitrary stand ins for high paying domestic jobs. They could also become physicists, commercial airline pilots, Wall St. quants, actuaries, etc.
Because here in the real world the barrier to entry in SW engineering jobs is significantly lower than the law bar or med school. Not to mention cheaper.
And yes of course, Americans have the highest salaries in the world for white collar professions, what other new information do you have that we don't already know?
There is a significant correlation between higher scores on one and higher scores on the other.
> Because here in the real world the barrier to entry in SW engineering jobs is significantly lower than the law bar or med school. Not to mention cheaper.
The barrier to either of those professions is getting good grades and then scoring well enough on a standardized test, and the entire premise is that the professions pay well which is how people pay back the loans.
> Your high sat scores won't prevent you from puking at the sight of corpses or diseases.
Which only applies to a minority of people, and even that minority of people could still become an orthodontist. Likewise, if your SAT scores are 800 math and 450 verbal then that's quite uncommon and you probably shouldn't try to be a lawyer but you could still be a quant, and if you have certain medical conditions then you can't be a commercial airline pilot but you could still be a dermatologist.
It doesn't matter if every individual engineer has every individual option available to them when the overwhelming majority of engineers have a significant variety of alternatives.
> There's way more to performing in medicine that sat scores.
There is way more to performing in <anything> than <any individual thing>. But we use these things as proxies because they're designed and intended to be proxies and they're the thing for which data is available if data is the thing you want to inspect.
On your original post, you said they pay lower in other places because they can, which I agree with, of course companies will pay as little as they can, because margin on labor is the key profit margin that enables capitalism to function. But I disagree that this is due to efficient markets. Instead I believe it's because corporations can be sociopathic, whereas humans are humans, and come with feelings and flaws. A corporation can for example leverage the human desire for being a part of something larger, or local culture social pressure, to extract more hours of work out of someone than they're contractually obligated to give (see for example Japan or Taiwan working culture). Corporations are immune to these sorts of things so it's a one way, non-market-based street of exploitative behavior. Furthermore of course is the fact that corporations weild far more capital and thus power than individual workers, and will often collude with governments to prevent worker collective bargaining.
Furthermore, I believe your idea applies too much autonomy and collaboration between corporations. Example:
> . And if they would pay higher wages there, the local economy would have to start paying local doctors and engineers more to keep them all from becoming engineers
This seems to suggest that companies are colluding to prevent macroeconomic effects such as wage inflation. It's post ipso facto explanation, kind of like when make presumptions with evolutionary sociology: "ADHD people served an important role as guarding early human settlements. Their heightened deep focus and obsession with finding details in noise made them ideal to scan the horizon at night." Assuming evolution is an intelligent designer that made different sorts of humans for serving distinct purposes, rather than the reality that we have different sorts of humans because of entropy, and humans happen to be sentient and can leverage these sorts of diverse manifestations to their advantage sometimes - or perhaps, our society just was built in a way that reflects the reality of different sorts of people existing, either way, thus you have people misattributing purpose to chance.
I feel the same when I hear people make market-based justifications for some economic reality like geographic labor cost diversion. My confusion isn't around why it happens, it's why laborers tolerate it. The Invisible Hand of The Market isn't setting labor rates because it needs to maintain cross-role equilibrium between well defined roles, labor rates are simply, as low as a company can get away with.
Markets aren't efficient. A doctor in Taiwan must study for ten years longer than an engineer, in the USA the same is true but also the doctor must take on potentially hundreds of thousands of dollars of student debt. In medical school a student must sacrifice both their mental health and social life and dedicate themselves entirely to completing the curriculum. If they fail they're saddled with debt they have no hope of paying (in the USA, Taiwan not so much), and even still, many fail. Then there's residency. Then in the USA you get a relatively high paid job, but also depending on your role, one of the highest stress, highest legal-exposure, highest-stakes jobs on the market. In Taiwan, same, except, the pay isn't even that good! And in the USA, because of the debt and the timeline before productivity, you'd be far better off simply immediately becoming a software engineer out of college and leveraging compound interest to come out at worst at retirement the same place the doctor does. In Taiwan, in the end the engineer will always come out ahead, and have a social life to boot.
In an efficient market, nobody would ever become a doctor. It's not like people determine whether to go through the hell of medical school based on whether they'd make more as an engineer, monitoring shifting salaries year on year as they come up through highschool.
The vast majority of people aren't making their career choice based on compensation. Compensation plays a role, but the vast majority are making choices based on interest, local availability, local culture, their personal experience (people who were strongly affected by a good teacher or therapist are more likely to become a teacher or therapist), and of course their personal capabilities. This is the sort of thing that's irrelevant to a corporation, and an efficient market hypothesis can't account for.
The market is skewed to protect profits since the market, analyzed in aggregate, represents the will of corporations to extract profit against the sloppiness of humans who are motivated by things other than money, and are also sometimes stupid and irrational, and often at a severe information disadvantage. Furthermore sometimes stupid people run corporations so the corps will behave irrationally rather than sociopathically profit driven like they're supposed to.
Rates are lower in Taiwan because it was basically a third world country living under military dictatorship 40 years ago where a ruling class was an invading military force that took land by force and then stumbled upon incredible profits by turning Taiwan into the chip manufacturing hub for the world. The amount of wealth flowing into Taiwan is astonishing but it's mostly captured by a small subset of chip industry founders, mostly all older than 50, and most of whom have some familial connection to the KMT that let them get government protection as well as having the capital to set up things like foundries. The little these companies pay out to their workers is recaptured by the same class, who own something like 80% of the land in Taiwan, in the form of rent or selling property at outrageously inflated rates.
So, wealth has clumped, and so has power, and so when google sets up an office in Taipei, they find out that engineers there get paid 30k to do a job an sf engineer would do for 120k, so they pay 30k. Or maybe 35 to get the really really good ones. Hell that might be why Google showed up at all.
One final aspect: Google can take advantage of geographic arbitrage, but an individual taiwanese engineer can't, because things like borders, visas, cost of moving, mental toll of leaving behind home, and familial responsibilities don't exist for Google, but they do for the Taiwanese engineer.
Suppose you have a thousand engineers and those thousand engineers generate ten billion dollars in annual profit. How much do they each get paid? They amount they're worth? Nope, the amount they'll accept.
If you live in the US and you have the wherewithal to be an engineer then you could also have been a doctor or a lawyer or some other high paying occupation. And many of those can't be fully remote because they have to see domestic patients or interact in person with local courts or clients. Which means that if you want someone in the US to be your engineer, you need to pay them an amount that makes them want to do that instead of choosing one of those other occupations. Whereas the one in Taiwan doesn't have the option to become a doctor in San Francisco and is therefore willing to accept less money.
So why don't companies just hire exclusively the people in Taiwan? There are all the usual reasons (time zones, language barriers, etc.), but a big one is that they need a thousand engineers. So they and their competitors hire every qualified engineer in Taiwan until Taiwanese engineers reach full employment, at which point the companies still don't have all the engineers they want. And when the average engineer is making the company ten million dollars, paying San Francisco salaries is better than not having enough talent.
So then why doesn't every smart person in Taiwan become an engineer? Because the companies hiring engineers there are only paying Taiwanese wages, and then they're not any better off to do that than to become a doctor or a lawyer in Taiwan. And if they would pay higher wages there, the local economy would have to start paying local doctors and engineers more to keep them all from becoming engineers, and then you would only get a modest increase in the number of engineers for a significant increase in compensation. Which is still what happens, but only slowly over time, until the wages in Taiwan ultimately increase enough to no longer be a competitive advantage. And companies don't want to make that happen faster because then they'd have to pay higher salaries in Taiwan.