THE MYTH OF VALLEY WAGES By Michael S. Malone
You may have been surprised by the news this week, announced by the Bureau of Labor Statistics (“After the Dot-Com Bubble: Silicon Valley High-Tech Employment and Wages in 2001 and 2008”), that wages have continued to climb in Silicon Valley right through this recession.
Indeed, the BLS statistics suggest that in real terms, wages have jumped an average of $35,000 per year since 2001 for the average Valley technology worker – and that, in the words of reporter Scott McGrew of KNTV-NBC, “the greater pay means technology firms have the largest payrolls ever, pumping $60 billion into the economy – far more than in the height of the Internet boom of 2000-2001.”
This may seem like great news, at least for folks working for those technology companies. After all, where else in our currently crippled national economy can you find a similar oasis of prosperity and rising wages – well, that is, outside of Washington, D.C.? Hey, everybody, let’s move to San Jose, they’ve got jobs!
But if you look closer at these statistics, they aren’t as wonderful as they seem at first glance. And for this Valley veteran, I find these figures – counter-intuitively to the outside observer – deeply disturbing. Let me explain why.
Let’s look at the rest of the BLS numbers. First of all, keep in mind that the stats run from 2001 to 2008. Both dates are very important.
For one thing, 2001 wasn’t 2000. I was running a business – Forbes ASAP magazine – both years. For most of 2000, with the dot.com bubble at the point of bursting, I couldn’t pay enough salary to hang on to a lot of my employees. Every day they were getting phone calls from my competitors and being offered – even the youngest, least experienced kids – huge salaries and impressive job titles. Just to stay in the game, I (or more accurately, the Forbes family) was paying 25 year-olds up to $70,000 per year for what in normal times would have been $30,000 per year jobs. And my competitors were offering more.
By comparison, by early 2001 it was becoming apparent that the Internet economy was going off the rails, and that the world really didn’t need sixteen on-line pet food stores. By mid-year, we had not only stopped hiring, but as our advertising from the dot.commers dried up, we actually suffered an across-the-board salary cut. To save money, I even fired myself, taking a contributing editor position and promoting my executive editor to my old job with much less salary. It wasn’t enough. Within months, Forbes ASAP, like most of its competitors, was gone.
In other words, to measure Silicon Valley wages with a baseline of 2001 is to already start with a depressed figure.
Meanwhile, by comparison, the Valley’s 2008 figures represent a very different distortion. The years from 2001 to 2008 were very good to Silicon Valley – at least for established companies. For one thing, they grew up: that is, instead of being whipsawed by the usual four year boom-bust cycle, frenetically hiring during good times and flinging people into the street during bad times, this time the more mature Valley companies – Intel, Cisco, Apple, HP, Oracle, etc. – for the first time played the game conservatively. They hoarded their cash, were more judicious in their hiring, and grew as much through acquisitions of proven companies than expensive new market development.
Too true. The economic climate seems increasingly designed to avoid letting any “upstart” companies take on the establish corporate giants. Small wonder they gave vast piles of cash to the campaign of a blatantly anti-capitalist candidate.
Venture money for the forseeable future will be hoovered up by “green” technology companies chasing government grants, with no need to ever deliver a product (why bother when the grant money keeps coming regardless?).
The good news is that it can all be reversed if any sense comes to Washington. The bad news is that sense never comes to Washington any more.
And at the same time, the high-tech industry continues to press the government for more and more H-1 visas to bring in increasing numbers of tech workers from abroad, to meet a non-existent “skills shortage”.
You’re right. Even in small startups, where I’ve spent my career, few are willing to do the old trade of low or no wages for stock, because the chances of a decent payout are so low. The best you can hope for is to get bought by one of the Valley titans, and if you’re a typical startup guy, a Dilbert-world job at a giant company isn’t very interesting, even if you get a golden handshake of a hundred grand or so. IPOs are dead, capital gains taxes are going up, and Valley memories of people getting bankrupted by alternative-minimum taxes in the early 2000s are deep.
So, pay packages at startups are a lot higher than they used to be – but you also do a lot of offshoring, so the typical modern startup team is a core of highly experienced graybeards doing biz and strategic tech with one or more teams in India doing the gruntwork. This model won’t generate a lot of jobs for non-specialists; startups outsource pretty much everything that isn’t in the core competence, from HR to office IT.
One aside: web-based startups tend to have younger people, but in more “technically dense” fields, youth and the ability to be a code-horse isn’t as useful as deep experience in the field (or in tech business).
My isolated data point confirms this article. For those with jobs, life continues to be sweet. For those without…not so much.
I worked at 3 companies in the last couple of years. All 3 had layoffs this year. The smallest one was hit hardest. I know probably 30 or 40 people who have been let go. I think that 3 have found new positions, months later.
One difference I see from this article is that my current company, and many others, have had noticeable pay and benefit cuts this year.
“The bad news is that sense never comes to Washington any more.”
Blame the tech sector voters. They almost invariably cast their ballots for culturally left-wing Democrats and “moderate” Republicans. And don’t let these people tell you anything different. They have funded their enemies! Lenin allegedly said that capitalists will supply the rope that will be used in their execution. Barack Obama probably got minimally 80% of the techie “elite” vote. The useful idiots never gave a dime to a center-right candidate.
I work in tech (analog IC design) and I see the same things.
The Valley, though, is being killed by California as much as DC. Put a fab or anything that might manufacture something in CA? Never. Too costly, too many regulation changes. How about hiring new folks? Tough. Nobody can afford the prices of the Valley who hasn’t been in the Valley for a while, so new blood is hard to find.
The capital costs have also gone through the roof, especially with the stronger dollar driving much of the innovation offshore. It’s cheaper to get developers with skills in Israel than San Jose. Just ask Intel — those Israeli chip guys saved their bacon from AMD with their Core design when San Jose’s marchitecture just about killed the company.
Before it was Silicon Valley, it was home to some enterprising large companies. IBM build large computers. FMC built farm machines and tanks. GE built nuclear power plants.
These guys all left due to high costs.
The magic was in the low cost in a great climate. The climate is still here but the burdens of government and high costs (largely government-caused) bury productive productive businesses.
Peterike is right – the VC firms are turning into rent seekers. Their investments are chasing government mandated markets in “green” energy. They won’t admit that their firms won’t change a thing in the real world.
Malone doesn’t seem to realize that all good things come to an end.
I’m puzzled as to why you didn’t provide the actual employment stats since they are so readily available…
http://data.bls.gov/PDQ/outside.jsp?survey=sm
San Jose-Sunnyvale-Santa Clara Private & Gvt Employee Payrolls by Year (Not Seasonally Adjusted – Figures from May of Each Year to Eliminate seasonality):
May 1999: 980,000 jobs (rounded to ’000)
2000: 1,037,000
2001: 1,040,000
2002: 928,000
2003: 876,000
2004: 864,000
2005: 867,000
2006: 890,000
2007: 909,000
2008: 918,000
2009: 878,000
So – Silicon Valley has over 100,000 *fewer* jobs than it had *10 years ago* – and the figures include all the wasteful public-sector make-work jobs for which California is so justly known (and broke…)
To reiterate – that is a *decade* without *any* job growth.
I am amazed that these facts are not much more widely known since they are so easily available on the internet…
I’ve been contacted in the last 3 months by two startups that just got funding. So it is not true that VC money is unavailable, though it may be hard to get and require a reasonable business plan, i.e., no Web 2.0 nonsense.
In February 2009, HP actually implemented salary cuts (http://news.cnet.com/8301-1001_3-10167006-92.html).
I suspect similar things happened at other companies. I suspect the results will be a lot less rosy when 2009 will be considered in calculations.
Another aspect that I did not see mentioned in the article is this: while salaries may have been numerically larger, there has been a constant erosion in non-salary benefits – for instance diminished bonuses, reduced medical coverage, forced vacation, etc.
ManekiNeko: I’m afraid your examples are mostly anecdotal. I too know some companies that have been funded in the last few months — notably Qik. But most of those guys spent months chasing the money, instead of weeks, and had to settle for lower valuations and smaller investment rounds. This is a long ways from the new start-up engine we knew in 1989, 1999 or even at the beginning of Sarbanes-Oxley. Meanwhile, on the other end of the process, there have been essentially NO companies that have gone public in Silicon Valley in the last three years — even during the boom market. That suggests to me that this is not a matter of a bunch of uninteresting new business plans from Web 2.0 companies, but a system that is broken.
Whitehall: “Malone doesn’t seem to realize that all good things come to an end.” Oh yes I do, but I don’t see this particular decline as a force a nature, but rather the result of Washington interference and incompetence. . .and thus something that can be reversed. Being a lifelong Valleyite, I don’t subscribe to the kind of fatalism — very East Coast and European — that passively accepts economic extinction. I’m reminded every day, when I see those start-up teams working at tables at my local Peet’s Coffee, of the sheer entrepreneurial energy that still exists in this town. All it needs is to be unleashed by a government that believes in economic liberty.
– Mike Malone, Edgelings editor-in-chief
We (Silicon Valley tech company) were starting to make plans to go public in late 2007, until the legal/accounting types said that we needed at least another year to get our internal procedures up to Sarbanes/Oxley standards. Before we got there, the economy crashed. Sales down 40% or more from projections. We laid off a lot of the folks who were upgrading procedures for SOX because that work wasn’t strictly necessary to corporate survival. R&D was slashed (more layoffs), salaries cut 10% across the board, 401(k) match gone, etc. Everyone I talk to in tech has lost income due to a furlough or salary cut. Those who still have jobs, that is.
Anecdotally, I have several friends who’ve been laid off in the last year. One by one, as their savings run out, they’re moving out of the Valley to find jobs elsewhere. Good people, smart people, established people. They’ll be hard to replace. Two more friends just got laid off in the last two weeks. No “green shoots” here.
Thanks for correcting the spin on that report and telling it like it is, Mr. Malone.
My data-point, also from Mountain View, is a similar nullity. After ’03 when the eBooks division where I worked doing UI design went tits-up I went on Teh Yob Searzch, but the “external ballistics” of my skill-set had changed. While I busily worked inside The Big Lethargic Company, what I had to offer had been taken-over by coders outside and elsewhere.
So, I’ve done occasional side-work for a CEO friend back East, and been a condo-husband ever since. Fortunately my wife’s job at The Big Private University took off, partly due to the massive burden Sarbanes-Oxley has placed on large corporate entities. Altogether we make less, but we also pay less taxes, and our home is paid-for. We’re both local born-and-raised, (my wife remembers seeing you a long time ago at a very early interview session you held, at an old theater in Los Gatos) with our family and all of our mental associations located here, so entrenched that we have not once considered moving.
I’ve lived in other parts of the US in the past but really don’t know anybody besides people here, and don’t want to move somewhere that I’d be unwelcome as I know Californians are. I’m a NorCal guy – until retirement and taxes force that issue further.
I took at quick look at BLS data just for Santa Clara county at http://www.bls.gov/cew/data.htm selecting all industries, all private firms for 2001 to 2008 (years that data is available). In that time frame private employment peaked at 955,067 in March of 2001 and declines 20% to 763,233 in March of 2003 with low point occurring January 2004 at 738,589 (a 22.66% drop in total employment) for a loss of 216,748 jobs. December 2008 estimates are 807,648 total private jobs in Santa Clara County which which still represents a loss of 147,419 jobs or 15.5% from the March 2001 high water mark. If you can suggest other sources of data for 1980 to 2008 for Santa Clara County (I think a good proxy for Silicon Valley that’s easy to extract from jobs data) I would be happy to extend the analysis.
According to this map, unemployment is pretty rampant is Silicon Valley
http://www.localetrends.com/metro/san_jose_california_home.php?MAP_TYPE=curr_ue
Hard to believe wages arent decreasing in line with increasing unemployment.
I predict that a lot of VC types are going to get severely burned by this green energy stuff. Not only because the only way they can make money is with government subsidies (which are likely to be shut off with the change in the political winds), but because they’re all living in Moore’s Law land, and that doesn’t apply to energy.
They’ll be back, but only after losing their hides on this green stuff, and recalibrating their knowledge base for nano and bio tech.
I tend to agree that electronics has moved down the maturity curve, and may not be the land of milk and honey for startups again for a long time, if ever.
This is just ancedotal, but let me give you a micro example. I had always thought that an industry, which I’ll call science-tech, that allowed its workers to be undercut by temporary immigrant labor, no matter how skilled. just doesn’t have the survival skills when times get tough. Indivually people would bemoan their Master’s degree in engineering or hard science that cost them $50-100k, realize they couldn’t do a home or family for years at $40-50k, see 1/3 to 1/2 of employees of the company was green card labor, and not put the connection together. I thought, and still think, the disconnect was amazing.
The macro example is of the same material. No booming startups, no IPO’s, employement stagnant or falling. Yet no connection that its the government, state and federal, that shifted the business from growth to falling. And yet I have no faith at all the tech sector will piece the evidence together and figure it out.
Blame the tech sector voters. They almost invariably cast their ballots for culturally left-wing Democrats and “moderate” Republicans. And don’t let these people tell you anything different.
Well, considering the center-right’s suicidal catering to its anti-immigration constituency, it should be obvious why tech would rather vote for RINOS and Democrats. Very few products of the socialized education system in this country can handle the sort of jobs we’re discussing here, notwithstanding the ongoing complaining from the non-competitive and the labor protectionists.
There are a lot of libertarians in this biz, and on immigration they tend to favor cross-border freedom of association, and the Democrats are, alas, still perceived as the the only way to vote that issue.
I’m surprised that Mr. Malone forgot to mention the other government bogeymen who probably played an even larger role in killing off Colorado — *cough* sorry, Silicon Valley — the California state government.
To David Thomson #6:
You are so correct- they overwhelmingly tilt leftward. All through the tech boom years (and frankly to this day) I have studiously avoided getting involved in discussions around politics lest I reveal my conservative leanings to my N. Calif business related friends and acquaintences. To them, the hint of anything conservative/Republican is; well SO UNCOOL. Bottomline is that I just keep my opinions to myself because I am definitely the odd man out. Typical example: Last month I attended an executive committee meeting of small tech company in which I’m involved and one participant loudly tossed out some really rude and thoroughly inappropriate joke about Sarah Palin. Truthfully, she’s nothing to me but this sort of thing is common in my experience with the “liberal” breed; as it seems only they have sufficient levels of arrogance and tone-deafness to utter such things in decidedly non-political discussions.
To what extent does the H1-B indentured servitude allow the established people to give themselves raises? I seem to recall some old boy at the NYT bragging about their affirmative action program, which conveniently came into effect long after he’d been hired.
I try to follow the H1-B issue and Prof. Norm Matloff’s claim that the majority are not “the best and brightest,” which he’d like to see given green cards; the majority are cheap labor of low quality, but usually at a cost-effective point of low quality and cost.
Where will these talented characters go? AZ? TX? Galt’s Gulch in MT or ID? Considering the taxes, property costs, terrible public schools, eco-freakos, and looming bankruptcy, I’m sad to say I’d never take a job in CA. The techies I know prefer AZ, TX, and FL, where they can save money and live well.
The computer chip,
desktop and laptop are now 20-30 year old antiques just like my car.
Excellent vehicles but out of date.
Obama-cars wont even give me a cash clunker trade in because I get better gas millage than the new ones.
We need new invention and innovation such as a digital window/bumper computer sticker that I can flash a finger to the cell phone using idiot behind me riding my bumper.
Or flash ‘Obama Sucks’ to a green owner with a 2 seated libtard puke yellow looking matchbox car,
battery or no battery,
trying to hold on to my draft so the wind doesn’t spin him around.
Oh!
for the
‘good old days.’
My experience with techies has always been very negative. I’m Conservative and live in WA. Lots of techies here – mostly adolescent, granola-eating, pony-tailed Lefties. They are always so focussed on following the herd. Heaven forbid they should have independent tastes and thoughts. It’s all about being accepted and about status. They’re the greatest snobs, too, which goes with being part of the cool kids crowd. They are highly re-educated. Ugh!
Oops. Hit submit too soon. There was a point to be made.
They follow the herd in their voting, too. They’re eco-nuts all. True believers. At times I feel like I’m in zombie-land. It never occurs to them that their votes have an effect upon their livelihoods. There seems to be this massive disconnect with reality.
Kinda ramling. Sorry. Just expressing some impressions. I’ll shut up now.
As a life-long valley resident I agree that wage growth has been poor the last 8 years and I think the valley is suffering from several problems:
1) Its in a gap between technological “killer apps”, we haven’t seen specific areas of tech growing like they were in the 70s (chips) 80s (PCs, workstations/servers, software), and 90s (internet, networking, more software). We have energy/green technologies that might mean something but companies like Tesla and Sunpower are still years away from being the next Google or Apple-if they ever get that far and employ that many people in the valley.
2) Too many “me too” startups in the meantime, and with the end of easy IPOs, the only way for venture investors to cash out is acquisition by big tech firms.
3) Combined salary/regulatory/tax burden is convincing people to leave the valley or take major new expansions elsewhere (Arizona, Bangalore, Shanghai) rather than keeping the business in the valley.
4) As the low-end jobs continue to be outsourced, increasingly the technologist entrepreneurs of tomorrow are not getting their sweat equity/post-post-graduate education in the valley, rather the “code monkeys” and overworked engineers of today who will be the entrepreneurs of tomrrow are much more likely to be overseas or located elsehwere in the U.S. This is especially true because we all know that tech startups are a young mans game. If you have the next big idea, chances are you will be between 25-45 years old when you turn it into a new company. You don’t see many 60 year olds forming hot startups.
The Valley is still the place to be for most aspects of the tech industry, and its a great hub to connect with brilliant people, but its becoming a victim of its own success. Even regulatory changes like accounting treatment of stock options were based on the success of the original model, where so many people worked harder because they were given sweat equity that it became an industry practice and as the hard-working, equity-driven tech sector and culture became a major part of the national economy the dilution of existing corporate investors due to options issuance became a major issue affecting financial markets. So now options are expensed and companies are taking pains to avoid issuing new ones.
28, there are essentially no conservative tekkies, but there are a significant number with libertarian leanings. The maddening thing is that many (maybe most) of the libertarians don’t realize what they are, and think they’re liberals.
I think this administration and congress may help to focus the minds of these lost libertarians by showing them what left liberalism is, good and hard.
The hemp crowd is already rebelling. I haven’t got the foggiest idea how they ever concluded that Obama and Pelosi were the least bit interesting in liberalizing drug laws, but that’s a very widespread perception.
I founded a Manufacturing company in the early 80′s in silicon valley, which were heady days. as long as you made delivery dates and quality was good, you could grow 30-50% per year, excepting the mini recessions that hit every 7-10 years. I sold the business in 2005 and left for greener pastures in China.
What people forget is how much the Military supported the Valley; Moffet Field, Alameda Naval Air Station, EGG, Randtron, Argosystems, Watkins Johnson, Loral, L3, etc, etc…that is until Ron Dellums and the rest of the loony fringe made it well known the Military was not welcome, so they left in the late 90′s…
The Military supported hundreds of companies, especially during lean times…that support is no longer there, relocating to San Diego, points north and Texas. That loss will come back to haunt very soon.
Little known facts:
MS and Google relocated their server farms to Canada for lower electricity rates.
MS Building new R&D facilities in Canada and India.
Apple to build $1 billion data center in NC.
Google to build in NC.
CA just keeps on driving business out of the state.
32, MS was never a silicon valley co.
California is doomed flee while you still can, is the mantra echoing throughout all business sectors in the truly once golden state that has now been dragged through the mud like a beautiful woman who got old and turned to whoring to survive only to be condemned to hell by medieval mentality politicians.
I was born in El Camino Hospital and went to St. Francis High School. Live in Sunnyvale for the first 30 years of my life and Milpitas for 5 after that.
It is so amazing that Silicon Valley would be so overwhelmingly for Obama given his fiercely anti-business agenda. This part of the country has the highest # of techie-smart people who at the same time are for all the things that hurt them.
It’s a strange suicidal way of life in a way. Unbelievable.
And, they are the most intolerant people on the planet when it comes to Americans, Christians, conservatives, etc.
The Hate there is endless. I just have to walk out the door and be near people there in public and it seeps out.
“The maddening thing is that many (maybe most) of the libertarians don’t realize what they are, and think they’re liberals.”
The majority of techie libertarians don’t read Ayn Rand for the pure economics. That John Galt stuff essentially bores them to death. It is the sexual libertinism that turns them on. These folks financially support and cast their ballots on behalf of the the pro-choice on abortion issue, first, last, and foremost. Well, the crap has finally hit the fan. The Democratic Party has been captured by radical anti-capitalists. Do pocket book issues matter to you? If so, you will most assuredly have to vote for center-right candidates whether you like it or not.
I live and work in the Valley for a very large digital printing manufacturer, and I would relocate in a heartbeat if I could. Great climate, terribly overpriced, not much for the money. The real estate here went up 40k a year for the past 8 years and now is inaccessible for even people making solid money. On what I make, I could own a very nice house almost anyplace in the country but here. I work with a lot of guys making 6 figures who all live in rental apartments. And culturally, San Jose is overestimated; it’s a cowtown with a bunch of nerd money dressing it up. Mostly, we have to drive to San Francisco for events.
I’m not really sure why our division is here, considering that it could easily move elsewhere and get a much better deal. We are actually expanding and hiring, but we are one of the very few companies I know who are; layoffs and foreclosures are verywhere.
Just what new innovations have come out of Silicon Valley in the past ten years?
Out here in the business world, (where we work, rather than play, for a living) it’s apparently been sales and marketing tools, contact ticklers, endless search engines…
Tweaks to technology that’s 10 or 15 years old isn’t going to lead us further into the 21st century.
Maybe we need another dot-com implosion to provide a reality check.
I really think Sarbanes-Oxley was the core problem. I worked for three startups in the 1980s and 1990s (although in Sonoma County, north of the Gate), and I worked in Silicon Valley as well in the 1980s. The collapse of the traditional high risk, high return venture capital system was a disaster.
And yes, while many of the techies were libertarian or conservative, the big money was always with the hard leftists. There’s nothing quite as weird as having a conversation with a guy who can go from worshiping Noam Chomsky to telling you about what a great time he had racing his Ferrari over the weekend. Or a little less far to the left–the CEO of one company that I worked for who supported decriminalization of all drugs–except for his concern what would happen to the coca farmers.