It is generally-expected behavior for an automaker to shift production to the cheapest labor market. Well, maybe not the absolute cheapest. Cost of goods transport, e.t.c. also factor in. But it doesn't surprise anyone for manufacturers to open factories in locations that lower their costs. It's an obvious thing to do.
So it has always baffled me that tech companies do the exact opposite. They motivate the most skilled people to leave low-cost areas and move to the most expensive. They pile them in higher and higher and keep driving their own labor costs through the roof. And VCs exacerbate the problem by refusing to fund anything in less expensive locations.
It's easy to dismiss this as irrational. But is it really? Are there benefits to this that are so huge they outweigh the costs?
If you could pay $10,000,000 to move 1000 devs to Kingman, AZ, then cut their avg salary from $250,000 to $150,000, why wouldn't you do that? What is the downside to saving $90,000,000 after moving expenses in the first year alone?
The obvious first argument is reduction in the standard of living would cause the talented to refuse. I'm sensitive to this, but also skeptical. People making 150 in Kingman would improve their SOL.
I could be wrong, but I think there are more important factors. I think there is too much money at stake for these employers to have not thought it through. When a common behavior looks insanely irrational, it is more likely that you haven't seen all the variables.
Companies that require skilled labour don’t move to places with cheap labour. They move to places with abundant skilled labour that’s available at a reasonable cost. Or, they spend money training and equipping the available labour. There’s no way around it.
If you think building cars is unskilled labour I can only assume you've not owned anything newer than a Leyland P76, and managed to miss the whole "Japanese car makers eating the US and British industries" thing.
Auto workers have a skilled tradesman classification and other classifications and most aren't skilled tradesmen. They still perform pretty complex tasks. It's just a term, like how in insurance contracts you'll read "Act of God". That doesn't mean that State Farm is a theistic organization that believes that supernatural beings are imposing earthquakes upon us.
> So it has always baffled me that tech companies do the exact opposite.
The primary inputs to the tech industry, especially but not exclusively consumer software industry, are culture, trends, and of course software engineering labor. All of these predominantly generated by cities, and among those, the big cities of the world.
The inputs to auto manufacture are materials, skilled manual labor, and schematics. The schematics like software, are a product of culture, and trends, and engineering research, all of which are cultural objects predominantly produced by major urban hubs. That is why auto manufacturers still design their cars in cities.
That doesn't mean that software can't be developed remotely or in cheaper COL places. But its most likely be to be designed in proximity to major cultural centers.
No, because you're missing out on that the specific culture matters. Cities produce culture in a certain sense, but they don't all produce the same culture.
There's a reason that the major tech hubs in the US are liberal cities, and more conservative ones generally don't have a strong tech sector.
Exactly, culture matters a great degree for creative work. If there were a big untapped reservoir of cultural input for tech firms being underutilized, it would be invested in. You see this a bit in secondary tech hubs like Boulder or Austin, which by dint of their history have some of whatever culture and skillsets the tech industry needs.
Big cities and metropolitan areas are generators of their flavor of culture, and that influences the kind of work objects that the local labor pool can produce.
Many of the cities on GP's list are actually major tech hubs (Tokyo, Sao Paulo, NYC, LA), and many of the other cities (Cairo, Mexico City, LA) are major creative centers for other industries especially media/entertainment industries for their respective spheres of orbit.
That's sort of a subset of the real answer: the in-demand talent that the companies need so much of are usually left of center, and relatedly appreciate some things that are more common/better in left-er areas: public transport, decent public universities, support for biking/walkability, friendliness to cultural/ethnic diversity, friendliness to LGBT people, stronger social safety net.
There are things that liberal areas are worse at, of course: housing costs are usually higher, they're not as accommodating to religion, taxes are higher, some regulations can be stifling. But most techies are less concerned with these latter things than the former.
Comparing the direct population of Columbus OH to SF is silly; it ignores the huge amount of the surrounding area, as SF proper is rather small. Some quick Googling says the Columbus MSA is ~2 M people, and the SF+San Jose MSAs are 5-7 M people.
Some quick Googling says that Phoenix metro is about 5M people.
Meanwhile, the bay area is the #1 highest COL in the continental U.S. Phoenix is ~#29.
If the argument is that tech requires a big city, I think Phoenix qualifies. If this is a hangup for you, consider Philadelphia: 5-7 M people, #21 COL.
It is obvious to me that population size is not why tech giants gravitate to SF or Seattle. (I'm confident that the high COL is also not the reason.)
Tucking 1000 employees into Houston and 1000 into Charlotte and 1000 into Toronto, then saving $200,000,000 per year seems very attractive to me. And if relocating 3000 makes sense, why not 10000?
There's obviously enough good reasons that they haven't done it. But from my seat in the balcony of the ignorant it seems awfully strange from an industry that prides itself on disrupting stale thinking.
> Tucking 1000 employees into Houston and 1000 into Charlotte and 1000 into Toronto, then saving $200,000,000 per year seems very attractive to me. And if relocating 3000 makes sense, why not 10000?
There are plenty of companies in the tech industry who already have done this - how many times have you heard about someone told by their employer that they will have to relocate to X and take a pay cut, or lose their job?
These are, however, companies whose M.O. is cutting costs to the bare minimum to increase margins. You can probably think of many that fit this model. This nearly always means they are no longer focused on growth or product innovation.
Even growth-focused companies have already moved a most of their operational and support to lower cost-of-labor areas, well before COVID19. But very few tech companies have their creative functions in those areas.
Part of it has to do with capital, but a fair portion is due to network effects.
As an example; in Boston, if you are looking to setup a Biotech shop you need to throw a rock down the street and you'll hit someone involved in the industry. In Louisville, KY? Forget about it, yes there are some folks who are in the field but as a whole?
Perhaps the location is only a side effect, while the true reason is the low supply of qualified coders. Why do corp lawyers command $400-600/hour? Why not to just hire a lawyer in India for $40/hour? Why not to hire a cheap accountant in Phillipines? Ah, right, the cheap options cost more in the long run and those who are competent have migrated to the US and now command the same 600/hour.
> The obvious first argument is reduction in the standard of living would cause the talented to refuse. I'm sensitive to this, but also skeptical. People making 150 in Kingman would improve their SOL.
There are two problems with your reasoning here:
1. What counts as standard of living or quality of life varies according to the individual.
For example, the bay area has excellent weather, a ton of ethnic/cultural diversity, very solid restaurant scene, lots of interesting nature nearby to explore, the area around SF has passable public transit, some bits have decent biking/walkability, and there's excellent options for international travel. Never heard of Kingman, but based on it being in Arizona and cheap, it's probably substantially worse on all those metrics.
Sure, you'll be much more easily able to afford a nice big house in a good school district, and for some people that's of paramount importance. But not everyone; some people value the things I listed above more, and don't mind living in an apartment.
2. You also have to think about it from a long-term perspective. If you settle down in the bay area, yeah the housing situation is awful, but you don't have to worry too much about your particular company going under or treating you like garbage one day, because there are a ton of other tech companies you could switch to.
If you move to a random non-techie city where your current employer is the only employer of note, then that means settling down there puts you in an awkward situation: you're now tied down to them. Switching companies may well mean moving again, which could be awkward if you've put down roots.
So it has always baffled me that tech companies do the exact opposite. They motivate the most skilled people to leave low-cost areas and move to the most expensive. They pile them in higher and higher and keep driving their own labor costs through the roof. And VCs exacerbate the problem by refusing to fund anything in less expensive locations.
It's easy to dismiss this as irrational. But is it really? Are there benefits to this that are so huge they outweigh the costs?
If you could pay $10,000,000 to move 1000 devs to Kingman, AZ, then cut their avg salary from $250,000 to $150,000, why wouldn't you do that? What is the downside to saving $90,000,000 after moving expenses in the first year alone?
The obvious first argument is reduction in the standard of living would cause the talented to refuse. I'm sensitive to this, but also skeptical. People making 150 in Kingman would improve their SOL.
I could be wrong, but I think there are more important factors. I think there is too much money at stake for these employers to have not thought it through. When a common behavior looks insanely irrational, it is more likely that you haven't seen all the variables.