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What is driving California’s tech exodus?

Over the past two years tech workers and tech firms have begun leaving Silicon Valley and moving elsewhere. What are the drivers for this?

Areas of California have long been associated with technology companies, especially ‘Silicon Valley’ (the southern part of the San Francisco Bay Area in Northern California, more accurately for pedants the Santa Clara Valley, centered around San Jose). The formation of the area was based on the premise that sought-after qualities like creativity, innovation and economic output tend to thrive in hubs where people with similar knowledge and enthusiasm work, play, and set up home close together. This ideal appears to be unravelling.

Technology workers are leaving California in large numbers, with the effect of shifting San Francisco area rents downwards (by up to 35 percent in some cases). A popular choice for many technology firms is to gravitate to Texas, as represented by Elon Musk moving his home to the state. Musk has been joined by Larry Ellison, Drew Houston, and Joe Lonsdale.

This is part of a general trend where the numbers leaving the sunshine state are outstripping those electing to settle in. 653,000 people moved from the Golden State in 2019 and a similar number left in 2020, according to data compiled by the San Jose based removing company Fairprice Movers, who blog: “There aren’t a lot of people moving to California, and the high cost of living and the annual wildfires may be to blame.” To this, transportation can be added.

A further economic factor is called out by Sanjay Varshney, Sacramento State Finance Professor: “It has to do with taxes, clearly, because the states that have been winning recently is the states that don’t have any income tax or corporate taxes.”

With economic and environmental factors shaping the trend, the biggest sector moving out is technology.

Examples of big name technology companies moving out of California include Oracle, which shifted its headquarters from the Silicon Valley to Austin, Texas, along with HP Enterprise. Advanced Micro Devices and Dell have been established in Texas for a number of years.

Texas is not the only state to attract major firms. The e-cigarette maker Juul is in the process of moving to Washington, D.C., and cybersecurity firm Tanium has uprooted to a suburb of Seattle.

Even where companies stay put (as with Facebook, Dropbox, and Twitter, as examples) many employees are electing to move. One reason for this reflects the fact that the world of work has fundamentally changed. Many areas of the sector permit remote working. If people do not need to sit in an office at work and where they can achieve the same level of productivity at home, then the lure of cheaper property prices becomes very strong.

Despite the exodus, the Bay Area of California still remains the major technology hub in the U.S. In 2020, 38 percent of all venture dollars deployed went to startups located within Silicon Valley. For the first quarter of 2021, even with the coronavirus pandemic, this proportion rose to 40 percent.

Furthermore, 96 percent of startups established in  the Bay region have remained in the San Fransico area. Of the startups that moved, Business Insider reports, 12 percent relocated to Texas, 21 percent moved to New York, and 21 percent to other areas of California.

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