No, it is supply and demand. And a good deal of culture sprinkled on top. Americans are much more prepared to accept obscenely high salaries for exceptional talent. In Germany by contrast, even the greatest software engineering genius will not make that much more than some middling developer.
Salaries are not set according to how much you need the money. The reason US salaries are high is that US software companies can make staggering amounts of money.
> Salaries are not set according to how much you need the money.
This is not true at all.
When I started working at Microsoft in 2007, Microsoft was one of the most profitable tech companies of all time. (They still are!)
Salaries in the Pacific Northwest were around 1/2 to 2/3rds what they were in the bay area, and total comp was a lot less, since MS's stock was flatlined at the time.
But do you know what we all told each other?
"Housing here is cheap, traffic isn't bad, it isn't worth it to move to the Bay Area."
A senior engineer is happy earning 130K a year if they can get a good house for 500 or 600k!
Once housing prices started exploding, salaries had to go up.
(The other counterpoint would be that many companies have location specific CoL adjustment to their salary bands)
> The reason US salaries are high is that US software companies can make staggering amounts of money.
SAP makes staggering amounts of money!
For knowledge workers, salaries are very disconnected from how much value the employee brings to the company.
I don’t think it’s high housing prices cause high engineer salaries. By that logic all jobs in SF/Seattle should be high paying but that isn’t the case.
I see two ways it could be working:
1. High engineering salaries cause high housing prices
2. High engineering employer demand causes high housing prices (more employees in the same area and stagnant housing supply)
For 2, the high housing prices probably do push up salaries to an extent but the real cause is demand for engineers
Salaries in Seattle are sky high across the board. I've seen house painters getting paid 100/hr, that was obviously on the high end, but 60/he isn't unreasonable around here.
SAP also makes a lot of money. It's not purely related to how much a company makes. There are German companies that generate a shit ton of revenue, but they still pay way lower salaries. The mechanism how salaries come about are much more complex than that.
Prices are set by the highest a seller is able and willing to pay, and the lowest a buyer is willing and able to accept (absent collusion).
It is clear that in certain US metros, sellers are both able and willing to pay a lot, and buyers are not willing to settle for less, because they can find other sellers able and willing to pay more.
Higher land prices come downstream of that. No one is stopping businesses from paying less in areas with lower priced land, but evidently, it is more difficult to make a successful, highly profitable business in lower priced areas.