05 June 2016

Entrepreneurship and the Route to Higher Wages

This year I've been working with a client in the heart of Silicon Valley. I live in San Diego.

San Diego is a lovely place to live. We have moderate weather, good universities, a variety of industries, the best fish tacos in the country, and good surf. I've lived in the Bay Area and am still fond of the region. The weather is only slightly more extreme, and the culture is one of the things that most intrigues me about the Bay Area. It's easiest to say that it's more liberal but that doesn't really capture it; there is a different set of concerns there and an openness to experimentation that manifests in everything from new fads and lifestyles to new technologies and industries.

Economically, San Diego and Silicon Valley may as well be in different countries.

Average wages in the US are $50,180. In San Diego, the average is $53,612, which puts us a modest 6% above the national average. Because of proximity to the beach and the best weather in the country, we pay more for housing than most places but it's not unreasonably high. It's nice but it's very much a part of the US.

In Silicon Valley (Santa Clara specifically), average wages are $112,008 a year, more than double what they are in San Diego. Double.

Just in terms of ratio of pay, Silicon Valley is to San Diego what the US is to Kazakhstan. The ratio of US to Russia, Malaysia, Greece or Poland is not as great as the ratio of Silicon Valley wages to San Diego's.

Bikes and electric cars on Google campus.
Prices, of course, are higher in Silicon Valley. I regularly spend (or more specifically, charge the client) about $400 a night for a hotel that would cost from $100 to $250 a night anywhere else in the country. One week Google was having a conference that drove up hotel prices. That week all my usual places were sold out but one place I had once stayed at a short distance away for the going rate of nearly $400 was charging $929 a night for that week.

Outdoor conference space on Google campus.
But even adjusting for the high cost of living, folks in Silicon Valley are making roughly $400 a week more than the next highest paid region of the country.

It is true that Silicon Valley has attracted some of the best and brightest, and that accounts for at least part of this wage differential . It's also true that the reason that the area can afford to pay these kinds of wages is because no area takes entrepreneurship more seriously. While other areas are busy making products, Silicon Valley's focus is on making companies. They are a manufacturing region and what they manufacture is equity. "What do you make?" "We make companies."

If you want to raise wages and create wealth, focus on entrepreneurship. It's the policy answer that raises all the right questions.

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