Silicon Valley real wages outstrip next best market by $10K-despite sky-high housing costs

With Silicon Valley’s $2,000-a-month rents and $4.6 million median priced homes, it might seem like even a big paycheck is quickly eaten up by the high costs of living.

But a new analysis shows that Silicon Valley workers still bring home much more money than their peers in other cities even after shelling out for inflated housing prices.

new analysis of federal data by the Atlantic CityLab and Arizona State University found that workers in the San Jose metro area bring home real average wages — or the money left over after factoring in costs of living — of $75,288 per year. That compares to $64,321 in Stamford, Connecticut, $60,562 in San Francisco and wages in the $55,000-range in affluent sections of Maryland, North Carolina and Texas.

However, the report notes that the higher wages in expensive areas also magnifies problems for workers making less money, contributing to a trend toward “economically and geographically segregated” areas of the country — another dynamic vividly illustrated in Silicon Valley.

While low-wage service sector businesses don’t generally face intense pressure to compete for top talent, major employers in the Silicon Valley tech industry must shell out to attract and retain workers for a variety of reasons.

Silicon Valley Leadership Group CEO Carl Gaurdino told me earlier this year that many employers used to offer housing subsidies to help cover the high cost of living here. After changes to the tax code that make that more difficult, he draws on personal experience to explain the ways businesses look to lure talent in expensive areas.

“When I left HP 18 years ago, our pay differential was 30 percent between the Valley and most other U.S. locations because of the cost of living primarily,” he said. “That doesn’t make you very cost-competitive because our workers in those other regions in the U.S. were just as productive.”

The new report on real wages did find that productivity per worker was closely correlated with higher pay, meaning that employers pay a premium in expensive markets with the understanding that they’ll still get an acceptable return on their investment. It’s also no secret that Silicon Valley tech companies are obsessed with maximizing productivity, with employment perks like buses and free food designed to keep employees working.

To better understand how abstract variables factor into wages, Arizona State first had to account for how much costs of living factor into wages in various markets. Researchers analyzed regional cost differences for housing, food, transportation and education from the U.S. Bureau of Economic Analysis.

Using 2012 numbers, researchers found that Silicon Valley workers still earn way more than their peers for several potential reasons. (It’s worth noting that the numbers date back to 2012, which doesn’t capture recent rapid increases in Silicon Valley housing costs. New numbers released Tuesday by apartment tracker RealFacts show that average rents for all apartment types in Santa Clara County climbed 9 percent in the last year to $2,321.)

Areas with high real wages did correlate with high housing costs. But beyond that, surging tech employment, a strong base of a creative talent and high levels of college education were associated with higher pay — all of which fit the bill in Silicon Valley.

“Workers in higher-cost places still do better than most, even when higher costs for housing and other expenses are taken into account,” wrote CityLab Co-Founder and Demographer Richard Florida. “This takes some of the wind out of the sails of the arguments that people are better off moving from higher cost to lower cost places.”

Other states have tried to use that logic to lure companies out of Silicon Valley. Texas is a prime example of a state government that has repeatedly sought to lure California companies with low taxes and promises of affordable, huge homes for employees.

More important, Florida notes that day-to-day struggles with costs of living in expensive areas like Silicon Valley usually don’t hurt the region’s best-paid workers the most.

“In higher-cost, higher-productivity metros, the benefits are largely concentrated in the hands of highly educated knowledge workers, whose wage gains are more than sufficient to offset higher living costs,” he wrote. “It is lower-skilled, lower-paid blue collar and service workers who bear the brunt of high costs of living.”

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