HITS

The Silicon Valley Pandemic

There is no virus (currently) running rampant in Silicon Valley; instead, I’m talking about the rather toxic impact tech businesses have on their surrounding communities.

Until recently, this effect has been limited to places like San Francisco, Seattle, Portland, and Austin. Cities that have either been epicenters of tech — Apple, Google, Facebook in Silicon Valley; Microsoft, Amazon in Seattle — or small hip cities — like Portland or Austin — that have been overrun by well-to-do 30-somethings that have no practical limits on what they can spend on housing.

Now, however, with the normalization of Zoom commuting, overpaid technologists can be anywhere, and the problem is spreading.

Too much money

To understand the heart of the problem, it’s essential to understand one important truth when it comes to tech: big tech companies make a lot money. I’ve gone into some details as to why this is (little to no capital costs, no time lost in transit, etc.), but the heart of the problem is that when compared to every other industry on the planet, it’s too much.

To drive this point home, we can look at some historical comparisons. Back in 1979, General Motors (GM) was the highest-earning company in the world. That year, GM earned $234 billion (inflation-adjusted) with a workforce of 853,000 people. That’s an impressive $274,971 per person. By comparison, Google earned $181 billion in 2020, with a workforce of 135,300. That’s $1.3 million per person.

With all this money, why not pay workers more? It is the right thing to do, after all.

However, the problem with this is two-fold: Non-tech people don’t make as much. Amd Silicon Valley is notorious for not creating entry-level jobs.

Non-tech people don’t make as much

According to 2016 Census, median income in the United States was $37k per year. However, in San Francisco, median income for a software developer was $150k per year. That’s over four times the median salary in the USA. Prior to the pandemic and the shift to remote work, the impact of these oversized salaries meant steep costs of living in the San Francisco area, where an average home costs over $1.4M. And the home values there have been flat since around 2018. It’s not just housing. Everything is expensive in San Francisco because of the high salaries in tech.

Silicon Valley is notorious for not creating entry-level jobs

The other much bigger problem with Silicon Valley is the low number of entry-level jobs. Yes, tech giants do hire all of the UC Berkeley and Stanford Computer Science graduates they can, but big tech companies and tech startups are often too focused on the near-term (going public, the next round of funding, etc.) to hire people who have less than ten years of experience. With increasing demand for software developers and not enough new ones being trained, the wage gains continued to be concentrated in a relatively small group of people, who until recently lived in highly localized areas: the Bay Area, Seattle, etc.

The pandemic

So when the pandemic hit in 2020 and companies en masse decided to ask people to work from home, workers began asking themselves why they were living in such expensive cities and began looking elsewhere.

States and cities all around the country have been seeing influxes of people moving from California. There’s even a webpage on GeekWire dedicated to helping software engineers calculate what their effective salary would be in different cities in comparison to the San Francisco cost of living.

The departure out of tech hubs is real. Residential rents in San Francisco are down 27 percent vs. 2020, and office vacancy rates have climbed to 16.7 percent — a number not seen in decades. But where are the tech people going? The answer is anywhere they want.

According to the Atlas Van Line 2020 Migration Patterns https://www.atlasvanlines.com/migration-patterns , since 2017, more people have been leaving the state than arriving, but that picked up massively in 2020. By comparison, states like Texas, New Mexico, Arizona, Nevada, Idaho, Utah, and Washington have all seen increases, with Idaho being hit especially hard.

The impact

Normally inbound migration to a city or town is a good thing, but the pace and ferocity have dramatically affected the price of housing. Increases of 30 percent-plus YOY in house prices and spikes of even 15 percent in just a few months are being seen all over the country. In the picturesque city of Ketchum, Idaho, people who work regular jobs are camping in the national forest because they can’t afford to rent.

The answer

While I am generally a proponent of increased tax on top earners, no reasonable increase in taxation will level the playing field. Additionally, it makes no moral or business sense for large tech companies to pocket additional profits and pay their workers less in the name of equality. Instead, the answer — the only answer — is to create more entry level jobs in tech. Until wage gains are seen in tech that are more in line with the rest of the workforce, we should continue to encourage our kids to pursue Computer Science degrees and encourage employers to create more entry-level jobs and internships in technology.

Until then or until big tech companies and startups call their workers back to work in offices, we are likely going to see a normalization of high housing prices, increases to costs of living, and most unfortunately, homelessness.

These effects have been widely felt on the West Coast and other large metros, and unfortunately, the rest of the country may be in for a bumpy ride.

By Joaquin Lippincott, CEO, Founder, Metal Toad