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 debtjust 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.