East County Gazette

Tech Companies Leaving California is a Big Bust

Work-at-home revolutions triggered by the COVID pandemic are being hailed as the catalyst to finally free California and Silicon Valley from their stranglehold on high-tech jobs.

Several recent studies have found this to be the case, including one from Mark Muro and Yang You of the Brookings Institution.

There’s a suggestion that we’re on the brink of entirely different geography. It is believed recent history or the nature of the technologies point in that direction.

Mark Muro, Brookings Institution

Even though the pandemic impacted the trend toward concentrating tech jobs in a few large metro areas, the large established hubs as a whole “slightly increased their share” of national high-tech employment from 2019 through 2020.

News reports describe discontented California entrepreneurs leaving for up and coming hubs or even remote (but broadband-enabled) locales.

In a sort of diary published last year by The Times, Geoffrey Woo, one of these ex-pats, wrote about his relocation to Miami to flee the crime and pandemic lockdown of San Francisco. Woo is still in Miami today.

Yet “the big tech superstar cities aren’t going anywhere,” Muro told me.

“There’s a suggestion that we’re on the brink of entirely different geography. I don’t think recent history or the nature of the technologies point in that direction.”

The tech employment hubs are grouped into three categories by Muro, in accordance with other experts in the geography of work.

The superstar metro areas are Silicon Valley and San Francisco; New York; Boston; Washington, D.C.; Seattle-Tacoma; Los Angeles; and Austin. Next come “rising stars”: Dallas, Atlanta, Denver, San Diego, Miami, Kansas City, Salt Lake City, St. Louis, and Orlando. Finally, everywhere else.

The superstars gained 0.3% of the total tech jobs through the pandemic. As a group, rising stars increased their share by 0.1%, down from 0.5% previously. Meanwhile, other hubs saw their shares drop.

“The California metropolises really do retain their irreplaceable depth and strength,” Muro stated.

“That’s not to say there won’t be some movement. Early in the period, we saw some exiting, especially from the Bay Area, but it turned out that much of it was within California, rather than to Kansas.”

This shouldn’t come as a surprise. For decades, centralized ecosystems have been documented to foster innovation. Elite academic institutions tend to attract innovators and to spin them off into new technologies and new industries, as noted by Stanford’s Nicholas Bloom et al. in 2020. The presence of elite academic institutions attracts others like them as well.

The result was Boston and San Diego becoming biotech hubs and Silicon Valley and San Francisco becoming innovative computer hardware and software centers. There’s a notable cross-pollination effect: Inventors who relocate to these cities with a large cluster of inventors in their field see “a sizable increase in the number and quality of patents produced,” according to UC Berkeley economist Enrico Moretti.

High living costs, high taxes, and congestion are outweighed by the benefits of living in such a cluster.

hubs

Of the 100 largest U.S. metro areas (gray), eight are established tech hubs, including the San Francisco/Silicon Valley metro and Los Angeles.

(Brookings Institution)

“High-tech clusters tend to be located in cities with high labor and real estate costs — cities like San Francisco, Boston, or Seattle — rather than in cities where costs are low,” Moretti suggests, perhaps because intellectual productivity outweighs costs for creative intellectuals.

Moretti said some tech companies have moved some operations out of their traditional headquarters or expanded elsewhere, but that was happening long before COVID. “I’m skeptical that COVID-induced changes are driving an acceleration in an exodus of tech firms,” he said.

According to Muro, the pandemic has triggered an evolution in high-tech geography, not “a wholesale decentralization of tech.” There may be several reasons why a large-scale flight from the big hubs hasn’t happened.

It is one thing that most tech companies will not abandon office work permanently but will expect their employees to commute a day or two in a week.

This hybrid system “allows employees to move further from their place of work, such as from a city center to a surrounding suburb,” Bloom reckons. “But it does not allow an employee to move to another metro area entirely because they must still commute to work on some days.”

Bloom’s findings contradict the theory by urbanist Richard Florida and economist Adam Ozimek. In the future, remote work will lead to the emergence of “Zoom towns,” remote communities, like Tulsa, Boulder, Colo., and Bozeman, Mont., that will welcome workers who wish to stay in touch only through the Zoom and Slack platforms.

Statistics from the US Postal Service show that some residents of densely populated cities are moving to distant locations, but the change is “small relative to the within-metro movement from city centers to their suburbs,” Bloom wrote.

Despite the pandemic-driven shift to remote work, it does seem that entrepreneurs are beginning to see the advantages of doing away with centralized workforces.

Among the tech startup founders surveyed, the percentage of respondents who said they wanted to start a business with a remote workforce from the outset rose to 42.1% in 2021 from only 6% in 2020. San Francisco was the favorite location for founders looking to launch their businesses, but only 28.4% chose it, followed by New York at a distant second.

Recent evidence suggests that the exodus of big business from California hasn’t been as successful as it seemed.

Most tech sectors either returned to pre-pandemic job levels by the summer of 2021 or exceeded them.

(Brookings Institution)

The headline departures reported in 2020 were those from Oracle, Tesla, and Hewlett Packard Enterprise. Three major tech companies are mentioned in the Brookings study this month: Oracle, Tesla, and Hewlett Packard Enterprise.

Rather than making economic or demographic points, some assertions about a California exodus are politically motivated. Consider the work of Lee Ohanian of the Hoover Institution and Joseph Vranich, the CEO of a Texas business relocation firm.

The paper is not a sober statistical analysis of business moves, but rather a rant comprising the usual conservative complaints about California, like too many regulations. Additionally, the report asserts that California has a notorious reputation for levying excessive real estate taxes.

California has the 36th-highest property taxes in the country; Texas, Vranich’s home state, has an effective rate that is more than twice that of California. California has low real estate taxes thanks to Proposition 13.

According to Ohanian and Vranich, “unprecedented numbers,” offer a database of 265 companies that California companies left from January 2018 through June 2021. As part of the list, businesses such as the NFL Raiders, which relocated from Oakland to Las Vegas in 2020, are included.

Disney, the door is open to bring those jobs back to California – the state that actually represents the values of your workers. https://t.co/kbCi7Zgs90

— Gavin Newsom (@GavinNewsom) March 13, 2022

According to the authors, this supposed exodus is not put into its proper context, which is how many businesses have moved into California or been established in the same period. The answer, according to the Census Bureau, is 133,503. Texas added 90,916 during the same period.

Due to the sector’s economic resilience, communities are eager to establish themselves as remote technology hubs. The pandemic had little effect on the long-term growth trends of technology industries, unlike leisure and tourism.

Brookings found that, even though employment in semiconductor and computer hardware manufacturing declined from January 2020 to June 2021, companies such as Google (formerly Facebook), Meta Platforms (formerly eBay), and Yahoo (formerly Amazon) saw only brief employment losses early in 2020 but had larger workforces by mid-2021.

Muro said tech hubs cannot expect to attract digital workers by accident; they must work hard to appear attractive to such workers. The key to achieving that is building up a technical infrastructure, including broadband access, creating a networking culture akin to that of Silicon Valley in its early days, providing good schools, and other amenities.

Disney Co., one of Florida’s biggest employers, faced an uproar over the enactment of the law over the company’s silence; California Gov. Gavin Newsom publicly requested Disney to reverse its decision to move 2,000 jobs from California to Florida. However, Disney has not responded.

It’s unlikely that 100% work-from-home jobs will make up a large share of employment anytime soon. About 6% of workers do full-time work at home, Moretti noted. Compared to the pre-pandemic era, that’s triple the 2% level, but it still constitutes an exception.

All things considered, certain “rising star” metros may still offer qualities that established hubs lack. It’s because of that that Woo, who wrote about his decision to relocate, has remained in Miami.

Despite running two startups and a venture capital fund, Woo said he doesn’t regret moving from San Francisco. Meanwhile, he mentioned the lack of decent Asian food as one drawback.

Tech companies in San Francisco are mostly dominated by established firms with billionaires as founders, Woo said. In Miami, the tech community is more welcoming to “people who haven’t made it, who aren’t billionaires…. San Francisco is in harvest mode rather than create mode — it’s harvesting the value of all the dynamism that has been created over the last 20 or 30 years.”

When it comes to Florida politics, “the most impactful policy for normal citizens is COVID policy,” he said.

“I’ve been used to not having to wear a mask or show vax cards for every little thing, and it’s been great.”

Rather than keeping people away, he believes conservative social policies might change as a result of the influx of a diverse workforce. “As people come in, the policies of the jurisdiction will evolve to match what the constituents want.”

There may be a cultural shift going on in what Moretti calls the “geography of jobs.” But “it’s still unclear how far it will go,” he continued. “It will take at least a few years to know.”

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