Why you’re having trouble hiring

I was discussing recruiter spam with a friend of mine the other day. He mentioned a recent message he received soliciting his interest in more than a dozen open Director and VP-level gigs. Cool, right? Except here’s the problem: virtually all of the positions were based in San Francisco (or NYC), which made him instantly hit “Ignore” on the recruiter message. We had a good laugh about this, because I always do the same.

Recruiter spam is nothing new, but the idea of doing nationwide candidate searches for non-executives strikes me as awfully weird. The dominant narrative, after all, is that SF and NYC are the most talent-rich places in the country for tech. So why are those of us in flyover country still getting inundated with solicitations to relocate?

The answer is that while recruiting is difficult anywhere, I think it has gotten harder than ever for many firms in these two mega-metros. A big reason is that the numbers just don’t add up. What I’m going to do in this post is break down what a big salary job offer actually means in practice for someone in a smaller city contemplating a move to SF/NYC, and why it doesn’t really make much practical sense to move. Recruiters and HR pros, take note.

Hypothetical scenario: a reputable tech firm in SF or NYC offers $125,000 in salary to a mid-level, established professional in Atlanta, Raleigh/Durham, Columbus or Austin. To make the comparison especially stark, let’s say the candidate is making $80,000 where they are. I’m choosing that figure mostly to make the math easy (it’s late here!) – increases of $45k are a lot bigger than you usually see.

$80,000 gross means that after taxes and whatnot, you’re probably taking home something around $55,000, or just north of $4,500 a month. (This is being pretty conservative.)

Housing costs in any of these areas aren’t cheap, but they’re still pretty comfortable at this level of income. The median rent for a 1BR apartment in Atlanta is $1,350; in Raleigh, you can get a 2BR for about $1,200; in Columbus, a 1BR goes for under $1,000; and in Austin, the most expensive of the bunch, a 2BR goes for about $1,400. Much of the housing stock in these cities is newer and better than that in SF/NYC, but we won’t get into that here.

Owning a car is also pretty much a necessity in any of these places. Assuming it’s financed, I would ballpark an extra $600/month for car payments, insurance and maintenance combined.

That amounts to under $2,000/month in housing expenses plus your car, and puts you at another $2,500 to cover food, bills, entertainment and everything else for the month.

So: how does that $125,000 in San Francisco or New York compare?

Having recently left NYC myself, I have a pretty keen sense of what the taxes are like there (😭). I estimate that your take-home will be around $75,000, but to be particularly generous, let’s call it an even $80,000, or about $6,700/month.

Housing costs will naturally soak up a big chunk of that difference in income. In Brooklyn (forget Manhattan for now), you’ll pay about $2,350/month for a median 1BR apartment. You’ll also get to enjoy the fast, efficient and pleasant commuting experience on NYC’s MTA that you’ve heard so much about on twitter for an hour or more every day.

If you’re in the Bay Area, things don’t look much better. San Francisco itself is, of course, way out of your budget. In Berkeley, which boasts some of the lowest rents in the region, a 1BR will cost you around $2,500/month (which you’ll probably be lucky to get), and you’ll also have a serious commute on your hands.

Assuming you forgo a car, that could leave you with as much as $4,300 ($6,700 – $2,400) in disposable income to cover food, bills, entertainment and everything else. That means that the $45,000 raise you obtained moving to SF or NYC resulted in a grand total of an extra $1,800 a month in more disposable income over ATL/RDU/ATX.

Initial $1,800 delta between these two figures.

Now, you might be thinking: $1,800 is a whole lot of money! At least, it is to me, and I suspect to most people, and might even be worth it for considering a relocation. But that’s not the end of the story.

Cost-of-living differences are quite real. When we go out, my wife and I like to play a game sometimes called “what would this cost in New York?” It’s fun. Obviously, cost of living is different for each person, depending on their patterns of consumption and activity – how often you eat out, drink, the things you like to do. But pretty much across the board, SF and NYC are substantially and unavoidably more expensive places to live in terms of things like food, transport, entertainment and so on.

NerdWallet estimates these differences to be in the 20-30% range, which feels intuitively correct to me. That amounts to a discount (we’ll call it 25%) on that extra income: $4,300 * 75% = $3,225. In my personal experience, I’d say the discount feels like more than that, because when living in NYC, we found ourselves simply given more opportunities (and pressure) to spend. But we’re keeping this rigorous, so we’ll arrive at $725 as your real take-home salary increase for making such a move.

$725 delta between these.

$725 every month is still a lot of money! But from the $45,000 bump the candidate received, it only means a real increase of around $8,700 annually.

By contrast, if that same candidate works to advance their career locally and gets an increase from $80k to an even $100,000 a year, their equivalent real take-home will increase around $1,000 monthly (assuming the $20k increase means about $12k after taxes). They capture more and more of the surplus the higher they go, affording them a much higher standard of living than they’d ever be able to afford at the same income level in SF or NYC.

Other considerations

There are two big caveats to this model that need to be considered.

The first is equity grants or stock options. Most firms offering relocation include them as a matter of course, while this may or may not be the case in a candidate’s existing city. If moving to a startup that isn’t yet public, offering some kind of equity package is standard.

These factors can be difficult to value. No one knows what a startup’s equity will actually be worth. It could be the next Facebook, or it could be the next Good Technology (let alone Theranos). The tech industry, and particularly startupland, is infamous for luring candidates with empty promises of getting rich instantly during a successful IPO. The conventional wisdom, with which I agree, is that equity packages are a necessary but not sufficient part of any compensation package at a small company, and best thought of as a lottery ticket. Candidates should not count on them to bring their compensation up to par.

The second big caveat is what breaks the relocation proposition completely: kids. Especially young ones.

Like housing, another critical commodity whose price has spiralled out of control everywhere, but particularly in megametro cities, is childcare. Full-time childcare can easily cost you $2,500/month in San Francisco (assuming you can get in off the waitlist). In New York, we literally had no other option but to pay $4,000 a month for a nanny.

(Side note: if that sum sounds unbelievable to you – trust me, I agree! But we paid it, even though we could not afford it, because there was literally no other feasible option. We had to dip into savings. Maybe if we’d lived in Harlem or Brooklyn or somewhere, it might’ve been cheaper, but we did not, so it wasn’t. One semi-local daycare in Manhattan quoted me a waitlist two years deep. Fortunately, it was just for a few months before we moved back to Carolina. Here, we pay about $1,300 a month for 4 days a week of care.)

I have friends who work in both SF and NYC with young children. They work jobs that I’m vaguely familiar with, which means I know they’re not pulling down completely insane salaries. Some have partners who are full-time caregivers to their kids, and others send them to expensive full-time daycare. I honestly have no idea how they afford it. It’s not the sort of thing that’s polite to ask, after all. But knowing the numbers, it just does not add up. Even with a higher salary than the ones we’re breaking down here, childcare breaks the entire model. You’re definitely not doing it on $125,000 annually.

College dorms on the coasts

There’s a lot of places you can tweak a model like this, but the fact remains that even large compensation bumps are quickly swamped by the dizzying rise in cost of living, particularly in housing and childcare, in the places where the tech hiring market is tightest. Increasingly, the type of person who is most likely to move for a high-paying job like this one is young and relatively free of obligations. They may be willing to live with a roommate/roommates to cut down on housing costs, are likely single and almost certainly does not have children. I bet that many of these people, who represent something of an archetype of tech employees, would see some resemblances to this anonymous fintech employee in NYC profiled in the great Money Diary series.

Of course, some people just love San Francisco or New York and simply cannot imagine living anywhere else. That’s a perfectly fair reason to live there, I think, provided that they are willing to pay for it. Where we choose to live is, after all, a consumption choice, and moving to a very high cost of living area is choosing to spend more on our location than on other things.

Combined with the unrelenting rise in the cost of living in SF/NYC, the strong growth in opportunities in other tech hubs across the country has made relocation a less and less attractive option. This hurts growing companies in those cities in two ways: first, it forces them to pay higher compensation for people in their “home” metropolis (where retention will also suffer). Second, by insisting on co-locating all their personnel in one of these cities, they naturally close themselves off to an enormous amount of talent.

My advice: distributed teams are the future of the workplace. Accept it. The sooner your firm embraces them, the better, and stronger, you’ll be.

And please stop asking the rest of us to move to San Francisco.

 

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