California Dreamin’ no more: state facing tech jobs exodus

Silicon Valley is still the main hub of the world's best tech firms, but the Golden State is now bleeding talent – and fast. Several factors explain the worrying trend – but is it reversible?

“The share of all US tech industry jobs that are located in California has now fallen to some of the lowest levels in a decade, dropping a full percentage point over the last year alone,” data analyst Joey Politano posted on X this week, citing numbers from the Bureau of Labor Statistics.

Sure, data can be a bit misleading. Even if the region’s 20 biggest tech companies laid off around 19,000 employees in 2023, the Bay Area actually had a net gain in tech jobs, a new report from Joint Venture Silicon Valley recently showed.

Moreover, these firms now still have 37,000 more jobs in the area than at the end of 2019, right before the COVID-19 pandemic hit and tech companies went on a hiring spree. The latter is definitely over – hence the waves of layoffs.

Still, the exodus is more than visible – dozens of large tech companies are leaving California and departing to states that offer less strict regulation, lower cost of living for the workers, and, of course, more lavish tax incentives.

It doesn’t have to be that way, analysts say – California is still very rich and attractive for many different reasons, including glorious weather all year.

The state, though, needs to offer a better deal, both for tech talents and the firms that must make them happy. This is a dilemma, however: what should California sacrifice in seeking to get the jobs and the attention back?

Too expensive to feel comfortable

When Oracle and Tesla moved their headquarters from Silicon Valley to Texas in 2020 and 2021, respectively, most of us thought, oh, okay, this is just because of the pandemic – nearly 250,000 people left the Silicon Valley region during the pandemic, after all.

Many of these people haven’t come back, as other companies, large and small, have also decided to move out for good. Palantir, a data analytics software company, has hopped east to Colorado, for example.

Other startups keep choosing New York, Miami, Boston, Seattle, Philadelphia, or Chicago. The tech scene has also surged in Arlington, Virginia, with startups raising $1.9 billion in venture capital and Amazon selecting it for its second headquarters. This alone is set to create 25,000 jobs by 2030 – jobs away from the Bay Area.

Sure, one shouldn’t forget that all those regions still pale in comparison to Silicon Valley, an area that drew $74.9 billion in investments in 2022 alone. Even New York ($29B) is very far off. Apple, Google, Meta, Netflix, and many others still have headquarters in the area.

However, even though the region is the home of most US startups, Silicon Valley’s share of the total value of venture capital investments in the United States last year was at its lowest since 2012. And, of course, the jobs follow the money.

Plus, the tech workforce is increasingly mobile and decentralized. Remote work is now not even a perk but a staple – Airbnb has moved to permanent remote work, for example. If people can work from anywhere, why not set up shop somewhere cheaper?

“The danger is real. Silicon Valley's secret sauce has always been its concentration of top-tier talent. But that talent is increasingly mobile. And they're voting with their feet,” Gustav Nicholson, an editor at Ampifire, an automated content creation and distribution platform, told Cybernews.

Nicholson is based in Los Angeles and sees the exodus live. For several reasons, he’s not surprised – the cost of living and doing business in California seems just too expensive.

“The cost of living in the Golden State is bonkers. $4,000 a month for a shoebox apartment? No, thanks. My dev team was spending more than 50% of their income just to keep a roof over their heads. It’s not sustainable,” said Nicholson.

The possibilities of spending your nights inside 4-foot-tall structures for $900 a month in San Francisco are well documented – and that’s actually cheap.

Kerri Lisenbigler, an editor at TheRevOpsTeam, thinks the migration – at least for individuals – makes sense in today’s environment. Tech workers value flexibility and financial freedom.

“Remote work allows them to work for some of the biggest tech companies or join scrappy startups from the comfort of mid-to-small-sized cities, which offer a much lower cost of living,” says Lisenbigler.

Red carpets elsewhere

As organizations, tech companies are also worried about commercial real estate costs and the stringent regulatory environment in California. Navigating the legislative landscape in the state is tremendously difficult for smaller and mid-size tech firms.

“The combination of high taxes, stringent regulations, soaring real estate prices, and cost of living has rendered California prohibitively expensive for many tech businesses like my own,” says James Velco, president of TechNoir CIO Solutions, an IT services firm operating in Chicago.

He points out that the California Consumer Privacy Act (CCPA) and other similar measures impose major data privacy rules that some companies see as too complex and burdensome to implement.

“CCPA mandates that companies allow consumers to request their data to be deleted and to opt-out of the sale of their personal information. Implementing these rights at scale is extremely complex engineering-wise and resource-intensive,” Velco told Cybernews.

“If the legislators in California don't realize they are taxing the tech companies out of their state, they're going to lose major industries.”

Daivat Dholakia.

Nicholson is also furious about alleged overregulation only super-rich tech giants can afford: “California's regulatory environment is a beast. CCPA compliance alone costs companies millions. And don't even get me started on the hoops you have to jump through for basic permits and licenses. It's death by a thousand cuts.”

For a change, Daivat Dholakia, a VP of Operations at Essenvia, a software firm in Los Angeles, is unhappy about taxation and says many companies from various industries are leaving California simply because, in general, it’s becoming more difficult to do business in the state.

“The tax requirements of California are not conducive to turning a profit for your business. With that, plus the rising cost of living in the state, many employers can't afford to pay their employees enough to be able to live comfortably in the state,” said Dholakia.

“If the legislators in California don't realize they are taxing the tech companies out of their state, they're going to lose major industries.”

Other US states seem more welcoming, at least at first glance. Places like Texas and Florida offer tempting tax incentives, affordable real estate, and a business-friendly environment in general.

“They’re really rolling out the red carpet. Take Texas – no state income tax, dirt cheap real estate, and a business-friendly government that's handing out tax incentives like candy. It's a no-brainer for companies looking to slash costs,” Nicholson thinks.

What’s to be done?

California, in short, is in a tough spot. The health of Silicon Valley’s tech industry and employment is particularly important to a state that’s heavily dependent on personal income tax revenue.

The stock market performance of tech companies has also grown increasingly important to the Golden State. California is facing a budget deficit that the nonpartisan Legislative Analyst’s Office says has grown by $15 billion to $73 billion.

The California Governor’s Office is already under pressure to tweak tax codes and create a more attractive pro-business ecosystem. This is difficult because citizens want the state to keep the social and infrastructure programs that are funded by these taxes.

Still, startup founders wish to see more support. Jason Sherman, founder and CEO of two small tech firms, Spinnr and Vengo AI, even says that businesses will soon snub places like Pennsylvania and New York.

“You are seeing a boom in Arizona, Miami, and Texas right now since they are welcoming the tech community with open arms and are offering incentives and a lifestyle that accommodates busy techies,” Sherman told Cybernews.

His team started the companies in Philadelphia, for example, but soon saw that the state – full of old money – was eager to support supposedly safer business structures: “Oil, steel, factories, and healthcare.”

“We had to open a second headquarters in Texas to find support and a community. Some places are going to see lots of tech companies moving out as they are not being as supportive as some of the newer tech hubs are. They’re starting to grow and are supporting risky new innovation and the tech community,” said Sherman.

Bill Mann, an expert at Cyber Insider, actually thinks it’s too late for California to make the talent return – unless the state wants to provide truly massive financial incentives.

Besides, “with tech already decentralizing outside of Silicon Valley, it doesn’t make sense for any established business to move to California,” Mann told Cybernews. “The best that the state can hope for is to keep companies there and to provide startups with incentives and hope that they grow.”

Nicholson’s advice to California is crystal clear: “Time for some tough love. Slash red tape, fast-track housing development, and get creative with tax breaks for the tech sector. We're talking serious incentives to stop the bleeding.”

“The state can't coast on its laurels forever. Bold action is needed to avoid a brain drain that could take decades to reverse.”

It’s all raw once again

But maybe the grass is not really greener on other pastures – quite literally. According to Velco, the pipeline of elite engineering talent from universities such as Stanford and CalTech is unmatched – so California still retains key advantages as a global tech epicenter.

Plus, the state's culture of innovation is still going strong. Many in the tech world still move to the Bay Area if they’re willing to take risks because they know that Silicon Valley’s vast VC network will have their back.

Finally, the region is seeing job growth in other sectors such as arts, entertainment, and recreation, and encouraging signs in VCl funding of technology such as artificial intelligence, says the Center for Continuing Study of the California Economy. The Bay Area fully recovered its pre-pandemic jobs in January 2023.

Also, yeah, the weather question. On Reddit, techies have been discussing the possibility of moving to Austin in Texas, and most are almost casually pointing out: “Before you move to Texas, you might want to go there once or twice in the summertime.”

“If you’re used to California, the Texas summer will destroy you,” said one Redditor, while another added: “I know five couples that have moved to Texas in the past decade. Four out of five have returned. The last couple is on a fixed income and cannot move back or they would.”

The presumption that taxes are lower in Texas is not actually true, either. Yes, housing is cheaper than in California, but property tax and insurance rates are high and rising every year.

“Texas politicians and CEOs often tout the state as low-tax because workers here aren't forced to pay the local government a percentage of their income, in contrast to places like California,” Chron.com reported back in December, before explaining how Texans actually pay more in taxes than Californians do.

A Redditor summed it all up quite accurately: “Sure, your taxes are less and land is cheap. But water is a fortune and you better have money to send your kid to private school. Everything is privatized and for sale. Land developers can do almost anything they want, and urban planning is a theoretical concept at best.”

What’s even more interesting is that San Francisco veterans aren’t at all unhappy about the recent changes.

Last year, The Washington Post quoted Brianne Kimmel, founder of an investment firm Worklife Ventures, who noticed a change in identity for the Silicon Valley region. According to Kimmel, “young, very technical, traditional hacker types” are now coming to the Bay Area.

She compared the feeling to the Silicon Valley region during the early days of the internet in the 1990s when people were huddling to work out of garages. These have now been replaced by tiny pods – but they still smell like the raw culture of innovation.