Possibly the single biggest pain point for tech workers in the Bay Area or NYC is the ever-escalating cost of living, driven by local taxes and rent, with the cherry on top of incompetent & malicious local governance. (I was told by one real estate/tech company headquartered in SF that that was in fact the one major city they didn't & couldn't operate in!)
Certainly it is their biggest quality of life issue whenever I talk to them, whether online or in person.
As absurdly high as their salaries become, the cost of living drains it away, and many wind up being better off after moving away, because the steep salary cuts are outpaced by even steeper cost of living.
Considering that labor is one of the single largest costs for big tech companies, the cumulative dysfunctionality here must amount to hundreds of billions of dollars essentially flushed down the drain.
Why don't they fix it, or, if political realities render that impossible, leave?
The usual answer is agglomeration efficiencies ('all the good programmers are already in X, we can't leave!'), but they can coordinate a move, or simply follow a leader who makes a big commitment to a better location.
Steve Jobs and other tech CEOs were able to coordinate an extremely illegal wage-fixing cartel when they wanted to cut costs, after all, so a legal HQ or office move (or simply freezing net labor growth in the Bay Area & grandfathering in those offices) shouldn't be that hard, and the advantages only increase with time.
Even if they can't take steps as drastic as that, it seems like they could do more than - whatever it is they have done about it thus far. Which seems to be, I'm not sure what, exactly.
The main response seems to be buying up big office buildings or real estate for new HQs now before the prices can go up even further, which may be a practical response but is treating only a symptom.
One suspicion has creeped up on me: if they don't act like they care, maybe... they don't care.
Why would they not care? Even if employee happiness/burnout/turnover is foolishly ignored by them, the sheer expense of salaries ought to make them care.
Unless... the salaries have a silver lining which help offset their cost.
What if the salaries are golden handcuffs? If salaries must keep pace with Bay Area CoL, this has a few implications:
- collective employee savings will remain minimal, as whatever excess there is can be absorbed by the landlord oligopoly simply raising rent some more
- not working is an unattractive option, as the cost of simply existing is so enormous
- job hunters will prioritize jobs which pay in cash, as cash is needed to pay rent, and other assets are not accepted, whether they are shiny gold rocks or stock options
These points mean that employees will have a hard time saving up large amounts of capital to serve as cushions, retirement savings, or seed investments for a startup of their own; they will be risk-averse to being fired or switching jobs, as those incur loss of working time/salary and risk extended periods of unemployment, and, perhaps most importantly, startups - which are cash-poor equity-rich - will struggle even more to be founded or then hire employees.
After all, how can a startup compete with a FANG or AmaGooBookSoft or whatever big tech company offering salaries like \$200k+ & perks to the best software engineers?
Sure, that startup might be able to offer them handsome stock options with an expected value (in the very distant future after the increasingly-hypothetical IPO) of say \$150k, but this equity is effectively worthless to an engineer who needs to make rent now.
A FANG, on the other hand, can pay cash on the barrelhead and throw in some options as a bonus, for that old-time SV flavor.
Aside from cash salaries needed for rent and other expenses, there is student debt, particularly for younger employees or employees with graduate degrees.
Perhaps the only thing in the USA outpacing real estate costs is college tuition/student debt.
Well, two things - student debt and health care.
People are if anything even more terrified of losing a good health insurance plan than they are of being evicted/potentially homeless or their kids not going to college.
Here too a FANG or other giant has the scale and brawn and cash and tax advantages to offer a gold-plated health insurance plan - of the sort which cannot be bought on the market and if it could one could not afford it - which cannot be matched by any startup.
Imagine a FANG software engineer contemplating quitting to join a startup. The startup seems like it could be big, very big, and he's excited. His wife acknowledges this and encourages him to follow his dreams and make a mark - but exactly how much can it pay, in cash, not equity?
Their house, necessary for them and their two kids and dog, costs \$4k/month and the landlord will be raising the rent soon, he hasn't paid off his student loans from CMU (which cost $200k in student debt), and their savings won't last much more than a year considering all their other expenses.
Incidentally, does the startup offer a comparable health insurance plan? What would she and the kids do if he was hit by a bus or developed terminal cancer?
We would not be surprised if perhaps the engineer puts off the decision to quit, resolving to do it next year, perhaps, working on it as a side project, after saving up some money, and maybe asking for a raise... (Not that he winds up having time or energy to work on it - given his daily grinding commute over a crippled infrastructure to work, necessary for a house which costs 'only' that much.)
There are further pernicious effects on startups.
They will need to raise more cash, more often, reducing returns for founders and increasing overhead (if for no other reason than the time it takes to do VC funding rounds); the high fixed costs make raising funds more a matter of life and death, and possibly promotes herding/groupthink/conservatism among investors (do the investors in a particularly risky/novel startup want to take the risk of investing in a startup which might not be able to raise money in the next round despite success?); they will be less able to prototype and experiment before needing to raise VCs, perhaps unable at all; the escalating increase in costs offsets other positive trends such as decreasing computing costs from cloud computing etc.
Since this is bad for startups, it is good for FANG. Their employees are increasingly indentured servants, or perhaps we should say, serfs.
They are tied to the land (by rent), and resort to protection (from medical bills) from the feudal lords to which they pledge allegiance.
They have difficulty leaving, making for less turnover and longer tenure, and more importantly, have difficulty leaving for or founding disruptive new startups which are serious threats to the incumbents, who at least are known factors to each other & have reached a certain modus vivendi.
In this scenario, the extremely high cost of living is a 'moat' equivalent to regulation or barriers to entry, which ward off rivals: they must be able to pay escalating inflated salaries just to enable employees to keep living as accustomed. (And to the extent that all the key employees have relocated to the Bay Area, this moat is more, not less, effective.)
The Seen and the Unseen
Some people have observed that the Bay Area and Silicon Valley just don't seem as innovative as they used to, that for all the venture capital money sloshing around and Y Combinators and SoftBank money, FANG just keeps getting bigger and bigger, and small startups (as opposed to 'startups' like Uber or Stripe) seem to struggle more and more.
I wonder if the real estate/health insurance pathologies are part of the answer. Somewhere, they realize it hasn't been that much of a problem for them - everything is still working, the Bay Area offices are still full, they're still able to recruit - as much of a problem as it may be to their employees. They realize somewhere the status quo is much more survivable for them than their present & future competitors, and, aside from being extremely difficult to fix, would not necessarily make them much better off because it would benefit everyone else (and especially their competitors) more.
If so, since there are no signs of the bad trends stopping, much less reversing, nor that big tech companies have had a 'come to Jesus' moment, the anemia will continue and likely worsen.
While the healthcare problem is endemic in the USA and cannot be solved by leaving the Bay Area, we would expect to gradually see a squeeze out to other areas: whatever the benefits of agglomeration & network effects, there must be some breaking point at which startups cannot form or operate in the Bay Area; this could potentially create a rival SV in whatever other area begins to tap into the latent potential of disrupting the now-increasingly-sclerotic tech giants, which will fund further development & VC & startups in that rival location, potentially kickstarting the same virtuous circles & network effects & agglomeration gains which SV originally enjoyed. (Examples of triggers would be the Traitorous Eight or the Paypal Mafia.)
This process could take decades, but we may already be seeing some signs in the growth in places considered alternatives to SF, like Austin, Detroit, Seattle, Atlanta, or peripheries of NYC/DC.
Which one might be the winner is unclear, and likely undetermined at present. It'll be interesting to see if there is any clear winner, or if there will just be a continued extrapolation of the current situation, where CoLs increase to the breaking point and an equilibrium of low innovation/startups while the tech incumbents squat on the economy earning their own rents and a mist of startups and satellite offices and 'HQ2' (or should that be 'HQ2/3' now?) spread out globally without condensing anywhere.
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