Debunking the myth of higher pay in Silicon Valley

Waterloo Innovation Summit

Each year, like clockwork, I observe the mass exodus of highly-skilled engineering and computer science students from the Kitchener-Waterloo area. Their reasons for leaving are varied: the allure of joining exciting technology companies, the promise of higher pay, and for those heading to Bay Area the balmy California weather can’t be dismissed.

Looking out Thalmic’s Charles St. window on a less-than-balmy December day here in Waterloo, I can’t dispute the weather. However, the Toronto-Waterloo corridor has an incredible amount of momentum right now. Around me, I see a region with the second highest density of startups in the world continuing to grow. In just the past 18 months multiple Waterloo startups went through large growth rounds — Vidyard, Clearpath, Kik, and Thalmic to name a few. And the Waterloo offices of technology companies headquartered elsewhere continue to expand. Google’s new Waterloo office will be home to over 1,000 engineers, and both Square and Shopify Plus continue to expand operations. If you can handle four seasons, there’s plenty of opportunity for excitement in Waterloo.

Weather and opportunity aside, the most common thing I hear when talking to those considering relocation is the allure of higher pay. And it’s true — salaries for similar positions in the Bay Area tend to exceed those in the Waterloo Region. But closer examination reveals you have the potential for a higher quality of life by working at a technology company in Waterloo.

To prove this, we are going to look at the money you can put in your bank account at the end of the year after paying taxes and living expenses. We’ll call this total “Real Earnings,” and it’s what I’m referencing above when suggesting you have higher earning potential in Waterloo vs. the Bay Area.

Spoiler Alert: You’ll need to earn a gross salary of more than double what you’d be paid in Waterloo, to make the same Real Earnings in San Francisco.

Thalmic has offices both in Waterloo and the Bay Area. In the process of hiring for each office we spend a lot of time analyzing these markets. The first time we analyzed comparative earnings we thought there must have been a mistake. To achieve the same Real Earnings, a Bay Area gross salary would need to be more than double a Waterloo gross salary.

To illustrate, let’s start with a comparison of starting salary for an engineer in both locations. A talented STEM graduate can expect offers around $65,000 CAD here in Waterloo. While in San Francisco the same graduate can expect $105,000 USD ($140,469 CAD). With starting salary more than double the amount of gross cash, the Bay Area weather is mere icing on the cake. But what does the talented graduate end up taking home?

Figure 1: Net Income for entry-level STEM roles

Figure 1: Net Income for entry-level STEM roles

After taxes the Bay Area salary is still higher, but Real Earnings reflect both taxes and living expenses. Factoring in fundamental living expenses reveals the myth behind the Bay Area’s higher pay. In the Bay Area, the average one-bedroom apartment is $3,336 USD ($4,470 CAD) per month. Looking for a two-bedroom? The average price is $4,469 ($5,988 CAD).

via www.trulia.com

via www.trulia.com

Comparable one and two-bedroom apartments Waterloo will run from $994 CAD and $1,307 CAD respectively.

via www.kijiji.com

via www.kijiji.com

See where I am headed? Your gross salary for the same role in the Bay Area will be higher, but your Real Earnings will be significantly lower. The table below summarizes this reality by comparing Real Earnings between Bay Area and Waterloo. The roughly $3,000 CAD difference in Real Earnings may initially seem insignificant, but remember the starting salary in the Bay Area was more than double that of Waterloo.

Figure 2: Real Earnings for entry-level STEM roles after taxes and living expenses, 1 BR APT

Figure 2: Real Earnings for entry-level STEM roles after taxes and living expenses, 1 BR APT

So while your ego may benefit from working in the Bay Area (“Mom, I’m already ‘making’ more than you ever did!”), your pocketbook (slash bank account / bitcoin account / Robo-Advisor Account / whatever the kids are using these days) won’t.

And if you want a little more space? Good luck. Simply moving to a two-bedroom apartment in the Bay Area will all but push you into the red. By comparison, a little more space in Waterloo is highly affordable.

Figure 3: Real Earnings for entry-level STEM roles after taxes and living expenses, 2 BR APT

Figure 3: Real Earnings for entry-level STEM roles after taxes and living expenses, 2 BR APT

At this point, the situation for soon-to-be graduates is clear — Real Earnings are higher in Kitchener-Waterloo. But it’s also worth looking at the situations of less-than-recent graduates, like those with families.

Let’s take Canadian expats who are living and working in San Francisco as an example. What might their situations look like if they were to return to Waterloo? Well, a mid-level engineer can expect around $80,000 (CAD) here in Waterloo. Comparable positions in San Francisco pay around $130,000 USD ($174,200 CAD). As the table below illustrates, the reality is they are likely to see higher Real Earnings back here in Waterloo, and a higher quality of life to go along with it.

Figure 4: Real Earnings for mid-level STEM roles after taxes and living expenses, 2 BR APT

Figure 4: Real Earnings for mid-level STEM roles after taxes and living expenses, 2 BR APT

The Bay Area is an extraordinary place to work and live, but there are reasons to pause before moving there. Waterloo is growing every day, and a comparison of Real Earnings reveals a certain quality of life is generally more accessible here.

For those graduating and thinking of leaving — I hope this has made clear it shouldn’t be for the money. From a purely fiscal standpoint, you would need to earn more than double the gross salary to achieve the same Real Earnings as here.

For Canadians in the Valley who may be thinking of coming home, or for Americans and others considering relocating to join companies here — I hope this helps provide additional incentive to come join this vibrant and growing community.

Learn more about working in the Toronto-Waterloo corridor here, and more about opportunities at Thalmic Labs here.

References:
Ontario Tax Estimates
California Tax Estimates
Waterloo Apartment Estimates
San Francisco Apartment Estimates
Cost of Living Comparison (KW vs. SF)

This post was syndicated with permission from Stephen Lake’s Medium account

Feature image credit Matthew Smith

Stephen Lake

Stephen Lake

Co-founder of @thalmic. I like to build things. Triathlon & crossfit when I'm not in the office

  • Dany Caissy

    Groceries don’t cost double in the US, in fact they normally cost less. You’re also basing most calculations on expenses for 2 people, why is that? That sounds like a lot of cherry-picking, it makes a lot more sense to go while single, if not, nobody forces you to get a 2br either.

    Add a section for people who live with roommates, or for people who are buying instead of renting, and consider the net-worth aspect in the long term. Look at the net-worth projection in 10 years for people who live frugally and you’ll see why people go. I didn’t even mention the better sign-up bonuses, better stock-options etc.

    Canadian salaries are just too low and we will continue losing good developers until that changes.

  • Alvin Huynh

    Good article but wouldn’t a better comparison be Palo Alto vs Waterloo cost?