VC Funding Fueled 20-Year Silicon Valley Wage Decline: Study

Over the past 20 years, wages in Silicon Valley have actually fallen 14 percent, according to new research from the University of California, Santa Cruz, and Working Partnership USA.

Moreover, this income decline happened over a period when productivity was at an all-time high. It’s a sharp contrast to the cost of living in the Bay Area, where most folks feel that home ownership is out of reach. Worse still, many workers drive themselves deep into debt just to stay in tech’s epicenter.

While the study encompasses all professionals in the area, Silicon Valley companies employ a ton of people in the tech sector. As the study’s authors wrote: “If labor’s share of production in 2016 had been the same as in 2001, every employed Silicon Valley worker would have received, on average, an additional $8,480.”

As they also noted: “Wages are lower than 20 years ago for nearly 90 percent of income earners, despite overall per capita economic output increasing by 74 percent between 2001 and 2017 (in inflation adjusted terms).” Net job growth is happening “disproportionately” with lower-wage jobs; entry-level income rose 25 percent, while the fraction of workers in middle- and upper-wage jobs actually declined.

And if you’re an older tech pro, it gets worse:

Challenges for older workers in the [tech] industry have accelerated in the region. In the mid-1990s, the highest paid workers in high tech had an average age of 51; today, that average has crept down to 48. High-tech workers older than 48, on average, earn less than younger workers.

Modern Silicon Valley was built on the concept that being first and making money mattered most, which is also a basic theorem for venture capital (VC) funding. This study underscores why that mentality is potentially a problem; the VC-funded business model creates more losers than winners, and those rare companies finishing first tend to take a lion’s share of the available earnings. This is why jobs at Google, Apple, and Facebook pay so well, while startups with VC funding try to hire cheap and push those pros hard to compete; everyone wants to be the next big thing.

“The dynamics are quite similar in many information markets, and while they are an integral part of the region’s economic dynamics, they also result in significant inequality in outcomes, along with volatility and unpredictability in livelihoods,” the study said of venture capital.

A common utterance in Silicon Valley amongst tech pros looking for work is “funding fell through,” which is shorthand for “we couldn’t secure more VC, and we can’t keep the lights on for longer than a few months, so we’re all scrambling to find a new job before the well runs dry.” Tech pros at startups often believe in the mission more than a big paycheck, so they’re willing to take less pay for a chance at a bigger payoff later via stock options. It’s recurring, and sometimes insidious, but it’s how Silicon Valley works. Sadly, the negative effects might have a larger, longer reach than we knew.

3 Responses to “VC Funding Fueled 20-Year Silicon Valley Wage Decline: Study”

  1. This is only one contributing factor to the decline in pay for tech workers, but there are others, more significant.

    Specifically, the outsourcing scourge, based on voodoo economics, where overseas tech “talent” (actually incompetent amateurs), working for $10,000/yr salaries, displace US experienced professionals, thus depressing their wages.

    A further reason is that tech professionals have not formed an organization, a professional association, or lobby, to protect their economic interests, something akin to what medical, legal, and other professionals have done.

    As a result, you can hire today a US seasoned contract developer at the same dollar-for-dollar rate that you could hire a similar professional 30 years ago, and in the meantime the mighty US dollar lost 2/3 of its buying power.

    • Don’t forget H1B workers. Their only necessity is cheap labor. I went for an interview for Lead SQL Developer contract and I was shocked to see more than 15 foreigners in the waiting area. I was in fact the only white person in the building.

  2. John Joseph

    “The game is rigged, but it’s the only game in town.”

    Government funding paid for the housing in Silicon Valley: tanks and planes and munitions in the ’30’s and ’40’s brought the brainy ones no longer satisfied with farm life.

    Ditto the semiconductor-software craze. Then, those went overseas.

    Something had to replace the government money-teat.

    Enter vulture capitalism, and 20% usury. It’s never different, this time. Technology made it faster-reported, and shorter-lasting.

    Perhaps some alien Spock will interface to our machines 3 million years hence. I have a dream… the still image of

    Middle children of history:

    Yet, somehow, we survive. Elon Musk launched a “Dark Star” reference with very large Spaceballs’ Big Helmet audacity. The Children born of the drug-tripping reality of the 1960’s parents are inheriting the idiot wind of their parents.

    Expecting the story to be different, was foolhardy, when the state’s primary driver was always glitter and not real gold. Sutter’s Fort, not Mill, is the landmark. But we we’re entertaining and entertained, so why must we cry when the music ends and we pay the last piper?

    There’s an app for that.