#85: Hedonic Adjustments & The Global Remote Work Experiment
#85: Hedonic Adjustments & The Global Remote Work Experiment
😎 Reflections on life, work & what matters
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📍 Canary Islands until the 22nd#1 Cost of Thriving & Hedonic Adjustments (h/t Ryan Borker)
It’s hard for anyone to agree on what success means. Does it mean doing better than your parents? Doing better than your peers? A general sense of well-being?
One economist, Oren Cass, has tried to simply measure this by a “cost of thriving index.” Here is how he defines it:
*Number of weeks of median weekly wage for full-time male worker to afford a three-bedroom house at the 40th percentile of a local market’s prices, a family health-insurance premium, a semester of public college, and the operation of a vehicle”
By this measure, the number of weeks to afford these things has increased from 34.9 weeks to 58.4 weeks, meaning it takes the median worker more than a year of work to afford this bucket of goods.
Or put more visually:
If it is taking more than a year’s worth of wages to be “thriving” this can only give us two possibilities
People go into debt to “keep up”
People settle for less and cut their spending
Many people are experiencing one of these states and it helps to explain why there is a disconnect between headline economic numbers (GDP, Wages, Unemployment) and people’s felt reality of their day-to-day lives.
The typical measure of people’s costs is inflation. In the US, the measure used is the CPI, which if we look at the statistics, has been lower than 3% since 2008:
This inflation number is used by many businesses to determine things like price and wage increases. For many people in the US the cost-of-living-adjustment (COLA) based on the CPI is often the only raise that people get at their job (1.6% for 2020).
This is great if your costs grow at 1.6% or lower, but many are finding that their healthcare, rent and education costs are increasing much faster.
One way this rate stays so low is through something called “hedonic adjustment.”
The “adjustment” is essentially an argument that the quality of goods is giving people so much value that it in reality people are saving money by buying the better product. There is nothing secretive about this technique and the BLS lays out a detailed explanation of how it works on their website.
Here is an example they share of Plasma televisions replacing CRT TV’s.
A person is spending $1,000 more, but the inflation measure that dictates their pay and is supposed to measure their cost of living says that their costs have actually dropped about 7.1%.
Statistical jujitsu.
This all may seem a bit crazy, but probably makes sense when you look at some things such as your cellphone. Your cellphone is certainly more expensive than it was 10 years ago but likely replaces other electronics such as a camera, long-distance calls and stereo equipment and might even improve your quality of life.
Yet if we think about things like education, this kind of adjustment can get out of hand quickly. When a university adds a lazy river or state-of-the-art fitness center or endless administrators tasked with boosting the US News Rankings is that really an increase in quality of the education? A hedonic adjustment calculation might tell us it does and that you are saving money.
This is why I think measures such as the “cost of thriving” can be powerful. In the report, it closes with this:
the COTI does not automatically validate any specific policy agenda. To the contrary, it highlights two very different pathways that each deserve much greater study: What can be done about low wages? And what can be done about high costs?
Lowering the cost of a good life is not something discussed widely yet it seems to be what most people want. Technology has made many things in our life cheaper, but it has not yet made things like healthcare, education or housing cheaper.
In the long-term, a focus on growth may win out and help unlock abundance across all dimensions of life. But in the short term, your landlord, insurance company and school just raised prices and they don’t yet accept your hedonic adjustment vouchers.
#2 A Global Remote Work Experiment
I did a google trend search and found that recently interest in remote work seems to have surpassed “office job.” With millions of people across the world about to embark in extended periods of remote work due to coronavirus, we may see a shift in interest and openness and interest in remote work.
In the corporate world, remote work has remained an exception. Something you can do with an excuse (kids, errands, health issues, cable install) but not something who wants to be taken seriously and promoted should do. Part of this is definitely “this is the way we do things” but another more important part is that most companies are not designed for remote work.
Companies such as Automattic, Basecamp, Mozilla, Gitlab, Doist and Zapier have been trying to solve this challenge and have experimented with the best ways to work remotely for the past decade.
💻 👉 I wrote up a short post on the lessons I’ve learned from these companies and some of the best resources if you and your team are working remotely for the first time.
This week, I also had lunch with two remote workers from Automattic, the company that runs Wordpress. Maria and Artur are from Warsaw, Poland but spend about half their year traveling for work and for pleasure. It was amazing to meet people from a different part of the world with so much in common in terms of how we think about work and life.
To get a sense of what it might be like to be a full-time remote worker, Artur shares entertaining and informative post on what it’s like to be a remote developer, including why he likes to work in a bathtub.
Seeing someone working in a bathtub is sure to trigger people who have been trained to think that work should always be a serious endeavor. Yet I think this is remote work at its best. You can still get serious when a project is on the line, but you spend less time focused on what others think of you and can devote more energy to doing your best work.
❓ Is your company “going remote” - how is it going? I’d love to hear from people, especially at big companies.
#3 Chart of the week
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