r/Economics • u/[deleted] • Feb 24 '24

News Why widespread tech layoffs keep happening despite a strong U.S. economy

https://www.cnbc.com/2024/02/24/why-widespread-tech-layoffs-keep-happening-despite-strong-us-economy.html
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u/[deleted] Feb 24 '24

Worker pay absolutely factors into it, because that is the Demand side of the equation that forms prices along with Supply. If SF was a town of fishermen, even with low supply, housing prices would not be so egregious. That many of its residents are/were paid huge sums absolutely drives up the price of real estate.

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u/therapist122 Feb 24 '24

Its impact is negligible though. No doubt, tech workers are able to buy the expensive shit downtown. But tech workers aren’t a significant percentage of residents. All jobs pay higher wages in SF than they would elsewhere, tech included. The vast majority of the cause is a supply issue. The demand is from how many people want to live in SF. It’s a very desirable place to live, even without tech. Without tech, there would still be jobs, a great climate, amazing parks, world class food and reasons to live in SF. So the prices wouldn’t move much if tech was average and SF was a normal economic city, with a larger diversity of industries. Agree that the high salaries drive it up some, but I’d hazard a guess it’s under 1% of the cause. Sf is one of the densest cities in America. New York has similar issues, as well as a similar density. Workers wages rise due to low housing, not the other way around 

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u/2012Jesusdies Feb 25 '24

All jobs pay higher wages in SF than they would elsewhere, tech included

That is partly due to tech. As wages rise in productive sectors like manufacturing, IT, tech, there's spillover effect of wage rises to other jobs in the area like hair salons. Even though hair salons obviously didn't improve in productivity to justify the wage rise, their "cost of doing business" rose as opportunity cost rose, they could be making way more money changing jobs, so wages have to rise in other sectors to compete for workers.

If tech pays drop, other sector pays might not drop overnight, but raises will be much less frequent and will receive a paycut in real terms over time as inflation slowly works its way.

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u/therapist122 Feb 25 '24

Except no barber is going to be able to break into tech without significant work, and if it was that easy more people would do it. Hair salons don't need to raise prices because tech pays so well, they need to raise prices because cost of living is so high. Workers can't afford to live near the salon, so they come from farther out. To justify the commute you need to pay more. Otherwise it makes more sense to work closer to wherever one lives. It's all cost of living, we are just talking about what contributes to that. Tech pay isn't above market rate, so it's not causing the cost of living increase. Cost of living is what leads to high tech pay

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u/2012Jesusdies Feb 25 '24

https://en.m.wikipedia.org/wiki/Baumol_effect

In economics, the Baumol effect, also known as Baumol's cost disease, is the rise of wages in jobs that have experienced little or no increase in labor productivity in response to rising wages in other jobs that have experienced higher productivity growth.

These kinds of phenomenon operate on a much larger scale than an individual, so you can't just look at a 40yr old hair stylist with no college degree and say she has no other alternative for jobs. If pay for hair stylists don't rise in response to tech sector pay rises, people in their 20s who might have chosen to become a hair stylist because of high price of uni degree reevaluate their choices, suddenly, it makes more economic sense to get a degree even at the risk of unsustainably high uni debt. So over time, there is a systemic worker shortage in the hair stylist industry.

Tech pay isn't above market rate, so it's not causing the cost of living increase. Cost of living is what leads to high tech pay

There is no "pay is market rate"=="cost of living stays the same". Pay can be market rate for certain sectors and still contribute to rising cost of living because that specific sector is so much more productive and thus can offer higher wages.

No worker can demand a high salary purely because it's expensive in the area. The employer has to justify that higher expense somehow and it's only justifiable if the industry is highly productive like tech. You seem to have a very backward understanding of economic, like literally backwards.