Booms and busts: Silicon Valley economy divided

Silicon Valley’s economy is waiting to see how recent changes like remote work culture and the slowdown of pandemic-driven booms in the tech sector play out, according to a new regional report.

Even with that in play, the most consistent indicators show Silicon Valley is still a place of drastic divides, with gaps between the haves and have-nots widening and worsening racial disparities in earnings and housing options.

Joint Venture Silicon Valley, an organization that researches trends in the area, is releasing its annual Silicon Valley Index, a high-level overview of the region’s economy and health in the past year. The report defines Silicon Valley as Santa Clara and San Mateo counties, plus Fremont, Newark and Union City in Alameda County and Scotts Valley in Santa Cruz County.

“If you live in Silicon Valley, you should never get overly euphoric during the boom, and you should never get over despondent during the bust,” Russell Hancock, CEO of Joint Venture, told San José Spotlight.

While Silicon Valley doesn’t appear to be in a bust cycle, it’s slowing down from the frenetic pace of tech growth spurred by the COVID-19 pandemic and more than a decade of steady expansion before that—with thousands of layoffs announced in the past year.

Hancock said those clawbacks are an adjustment based on a leveling out and reduction in demand, and don’t amount to a crisis. For young tech workers, this may be their first taste of a downturn. But while the headlines around layoffs keep coming, overall the thinning represents only about 1% of Silicon Valley workers as a whole, and about 2% of the tech workforce, Hancock said.

Remote work, another long-term trend, could affect commercial real estate across the region. In 2022, companies signed more office and commercial leases than in 2021 but leases were for less space on average. Vacancies edged up slightly to about 15% in commercial spaces from about 13% 2021, the report said.

About 35% of people in Silicon Valley worked from home in 2022, up 7% from 2021, representing the highest concentration of remote workers in the nation, according to the report. The numbers are well above the 6% estimated to be working from home in 2019, before the pandemic.

“This is not a passing fad,” Hancock said. “It has actually become a cultural and social upheaval that is going to outlive the pandemic.”

But not everyone can work remotely. While those who earn above $150,000 annually are working from home at a rate of roughly 60%, lower income earners hover around 26%, the report said. Black and Latino workers are also less likely to be able to work from home, at 26% and 21% respectively, the report said.

Disparities along racial lines are common in the region, with Black and Latino residents less than half as likely to be able to buy their first home in the region as compared to white residents, and about a third as likely as Asian residents.

Even educational attainment has not cured income disparities, the report said.

White residents with a bachelor’s degree had a per capita income that is 80% greater than Black or African American college educated residents, the report said.

Other staggering wealth gaps exist. The San Francisco Bay Area is home to the third greatest concentration of billionaires in the world behind New York City and Hong Kong, yet also has 220,000 households with less than $5,000 in their bank accounts, according to the report.

In San Mateo and Santa Clara counties, the top 0.001% of households hold an estimated 4% of the collective wealth, when “ultra-high net worth” households are included, the report said. The top 1% hold about 37% of the wealth, and the top 10% hold about 66%. Just eight Silicon Valley residents in those counties hold more wealth than the bottom 50% combined, or nearly 500,000 households.

This year marks the first time the index included ultra rich people in its estimations of household wealth.

“Through this lens, inequality is even more stark,” the report said.

Scott Myers-Lipton, a sociology professor at San Jose State University who has headed up the Silicon Valley Pain Index for three years — an annual report that focuses on racial discrimination and income inequality in the region — said those figures are devastating and outrageous.

“That is not a democracy in my mind. That’s what you have when you have a monarchy,” Myers-Lipton told San José Spotlight.

When ultra rich people are included, Silicon Valley’s household wealth is 72 times that of the combined city governments, the report said. Myers-Lipton said with so much wealth in “the hands of the very few,” it’s impossible for governments to address major social issues like housing affordability and  homelessness.

Hancock said the success of Silicon Valley’s capitalistic economy has minted 118,000 millionaires and nearly dozens of billionaires, but the system is flawed and has left many more behind.

“Capitalism has some grotesque attributes, and one is that it really does create these gaps,” Hancock said. “They are more pronounced in Silicon Valley than any other place on the planet.”

Myers-Lipton said that without significant constraints on capitalism, it leads to immense inequality that  hits harder among Black and Latino communities, perpetuating historic racist structures.

“We have to have different rules if we’re going to have any sense of justice,” Myers-Lipton said. “Unless we make large-scale changes, in 100 years we’re going to be having the same conversations.

Contact Joseph Geha at [email protected] or @josephgeha16 on Twitter.