California's wage gap is the biggest in the US | Hacker News Reader

California's wage gap is the biggest in the US

sfgate.com

50 pointsjerlam69 comments

Even within tech companies, the wage gap is the biggest I've ever seen. I've never worked anywhere that entry level employees (or contractors/vendors) could be making 50-75k/yr, entry level FTEs could be making 90-150k, and more senior staff could easily be making 500K up to several million per year. That's just ridiculous.

I think a lot of this is explained by the crazy gross margins we see from tech companies. Typically, the more software-focused the company the higher the gross margins. The higher the margins, the more you can pay workers.

Apple's gross margin is 46% (lots of hardware), Google's is 58%, and Meta's is 83%. Meanwhile, Ford's gross margin is 8.4% and Walmart's is 25%.

I don't know about that. If a tech company categorizes its software engineers as R&D, my understanding (which could be flawed) is that typically would be CapEx but not COGS. In that case, high engineering salaries wouldn't be reflected there. That would help resolve the puzzle when tech companies have a high gross margin but a low or negative net margin, as many Bay Area unicorns did, for example.

I work in small businesses accounting (not an accountant), so take my view with a grain of salt. But labor is its own category, separate from COGS. Contractors show up as indirect expense.

I’ve never heard of any kind of worker or contractor in Capital Expenses/Balance Sheet. That’s wild.

Generally Accepted Accounting Principles don’t let you put t labor wherever you choose to ‘categorize’ them.

But you can pay consultants and buy services from “third-parties”, which moves the expense, as I described, from payroll to indirect expenses. This falls into that funny gray area for contractors—looks like a duck…

As I said, I could be mistaken and I'm willing to defer to your expertise. What I'm trying to understand is this. Is it possible for a company--say a tech unicorn--to have a high gross margin and a low COGS, and yet pay some of its employees--maybe engineers in R&D--astronomical compensation that somehow isn't reflected in the gross margin and/or COGS? While we're at it, is it further possible for such a company to have a high gross profit margin and yet fail to make a profit? I ask because I'm trying to square the claim about the high gross margins and I guess efficiency of San Francisco tech companies, with reports in the popular press about tech unicorns like Twitter and Pinterest losing money quarter after quarter.

I think it's because you are looking at companies that are in rapid growth mode. In those cases, you would likely have negative Net Income because you are investing all revenue into growing the business. More mature tech businesses that are IP-based, have high gross margins and profits.

This follows into other industries with high IP-based costs rather than traditional asset-based costs. We see high margins from investment firms, consultants, banks, and SaaS companies. Basically, companies who rely on their employees knowledge to deliver products. We tend to see lower margins from auto manufacturers, construction, textile, and chemicals. The type of companies that require large asset investments and maintenance on machines and factories.

This is why Apple has pushed so hard into their "Services" offerings. The margins are incredibly high (and more predictable) compared to building and selling physical phones and computers. I can build the service once and sell it to 100 million people. For phones, I have to build each one before selling it.

I was looking at companies like those described here, some of whom went from rapid growth straight to the the rubbish bin.

https://fortune.com/longform/failed-unicorn-startups-billion...

Whatever the reason, the outcome is the same: companies held aloft on a cushion of easy money, untethered to market forces, free to pay arbitrary salaries to people easily outcompeting their neighbors who aren't so blessed.

This sounds in line with big law and big finance. Those are exactly the type of people who have flooded into tech over the last decade. It shouldn’t be surprising that compensation structures mirror those industries.

After decades in industry it becomes obvious some people really generate 5x+ of a new hire. Not sure why they shouldn't be able to capture that wealth when the market bears it. I don't make nearly 500k but I'm happy for most anyone that does.

As someone who isn't in law, medicine, or finance but must from time to time pay for legal services, medical care, and financial advice, I'm not happy there are lawyers, finance people, and doctors who make $500k. I'm doubly not happy when I have to compete with those people for housing and other goods and services.

Indeed. The bay area was a better place before google compensation priced everyone else out of it.

Testify

Of course, even 10x is possible. We all wish that was always the case.

I had this hilarious though I feel I should write down here but doubt it at the same time. ..

The best way to have a wage gap is lack of access to education or even books. Second would be to have access but not make an effort.

It makes me wonder is there is data on physical punishment. people say it is a terrible thing but I would love to put them in some loud factory conveyor belt job for a decade or so with just a few more bills than salary. To call me a sadist is to agree :p

Is it not more about specialization and deep domain experience than raw output?

If I just need raw output, the army of juniors is a viable solution. You might even find it’s preferable if you have many separate functions or projects or think you may flex down/up the labor expense later on.

In software development it's not uncommon to have a staff engineer who outproduces juniors in terms of raw output by a 5x factor.

With similar work that should be expected. It would be the same with cabinet making as well. But in cabinet making, they’d hire 5 juniors if it was less than a single experienced person. The experienced guy has a job because sometimes a project requires complex and fast solutions, even if pace is reduced by the complexity.

could this just be stock?

people get a salary + a percentage of their salary in stock

If the stock is going up non-linearly, wouldn't earnings be skewed. Especially new people compared to people vesting stuff from a couple years back.

or are people getting salaries of 500k irrespective of stock? are they matching salaries to stock of other companies?

plenty of legacy companies are similar with slightly lower entry level bands

De rigueur at Meta and Google.

Salary negotiation consultants are a thing.

> senior staff could easily be making 500K

Can we please stop connecting the words easy and $500k without also discussing the difficulties and lifestyle trade-offs obtaining L6 and equivalent positions at Google and other companies?

Jesus Christ its like an entire generation of basic education went out the window when Blind was launched.

These data are available in Excel format here: https://www.bls.gov/oes/current/oes_ca.htm

Click the link titled 'downloadable XLS file'.

To get the 146% figure:

1. Filter AREA_TITLE for California

2. Filter OCC_TITLE for 'All Occupations'

3. Calculate A_PCT75 / A_PCT25 - 1

I'm a little suspicious of the data, though. I looked at every state and compared the value of:

A) A_PCT75 / A_PCT25 - 1 (Annual wage gap)

B) H_PCT75 / H_PCT25 - 1 (Hourly wage gap)

I expected the two numbers to be different, because many of the folks with a low annual wage are probably working part time due to family responsibilities, studies or whatever. But in every case, the two measures are the same, to within 0.1%.

On closer inspect, it turns out that the hourly wage isn't an hourly wage at all. For every single 'hourly wage percentile' column, the value is just the annual value divided by 2080.

I think this sums it up quite easily: https://www.reddit.com/r/funny/comments/edrxpl/california_ex...

Map of median income by county: https://rstudio-pubs-static.s3.amazonaws.com/581630_272937bc...

Should link to the original article. The SFGate article appears to be a low-effort summary.

https://www.ocregister.com/2024/06/13/california-has-no-1-us...

There are a number of reasons for the wage gap but one of them is that California is a top destination for illegal aliens and asylum seekers. They often have few job skills and are more likely to be working off the books for cash in ways that aren't accurately reflected in economic statistics. (I'm not trying to start a political debate on immigration, just pointing out one of several reasons for the wage gap.)

Marget wages represent labor supply/demand/productivity dynamics, I dont like it when government starts looking into people’s wages. It is their hard earned money.

Government should focus on increasing efficiency, reducing bloat, and helping private sector thrive: building more housing, allowing dense housing, there should be orders of magnitude more housing across the board

Are they really "market wages" when employers are known to have conspired to limit them?

They may not be doing so for the low-end, but if California is like most other states with a lot of illegal immigrants, there are people you can pick up at a parking lot somewhere that'll do the work for lower than minimum wage, which distorts the comparison because we do not have such a market for high $ workers

Except there is that competition for high compensation workers.

I'm proof of it. I was imported from New Zealand to the US to take a job at a wage an American wasn't willing to accept.

That it was $160k/yr doesn't change that my employer couldn't find anyone at that wage. In fact, they couldn't find anyone at that wage + >~100k, because that's about how much they spent to hire me, move me (lawyers + immigration), and keep me legal.

My entire career has been spent moving from country to country and (essentially) taking jobs at wages locals aren't willing to work for.

The scale is so much less since high compensation workers tend to be brought in legally (or kept out of the country so that they're not counted in the wage disparity)

Knowledge industries are not good for local economies. Places like California and New York are not good places to live if you're not an intellectual elite. You're much better off in a place where the economy is not so reliant on sorting people based on intellectual capability. Iowa might be boring, but the economy is flat. The rich aren't that rich, and the poor aren't that poor. And the rich people aren't out there bidding up prices for everything, so normal people can afford to buy houses and start families.

You can talk about income redistribution, but the problem is that the folks who are driving the inequality don't want to be the targets of redistribution. I grew up in a cookie-cutter 1950s house with 1,100 square feet in a boring Virginia suburb. I guarantee you that the white collar worker that has bid the price of that house up to almost $900,000 now doesn't think we should take money from him and give it to people lower on the totem pole.

I'm with you every step of the way up until the cracks about intellectual capability. I'm not persuaded that knowledge economies like California and New York have a higher concentration of intellectual capability than boring Iowa or Virginia. Not until we've ruled out other factors, like elitism, would I be willing to entertain the theory of intellectual sorting.

Allowing housing to become so incredibly inexpensive is really bad.

Good!

You want to live in a place in which if you work your bollocks off, you will be rewarded handsomely for it.

The alternative is something like the UK, in which it's very difficult to "make it" because pre-existing / inherited wealth is dominant and highly paid jobs are very thin on the ground.

You don't want that. Unless you're already rich, then sure, it's great.

You act like there are enough of these high paying jobs to go around. Everyone in california could work their bollocks raw but there’s never going to be 45 million half million dollar a year job openings.

That's not the only alternative. A better model are the Scandinavian countries with a strong social safety nets. If the ultimate goal is happiness, look at the Danish system.

I have lived in Scandinavia.

I would describe it as stifling. Great if you want a Volvo. If you are ambitious you are socially ostracised.

It sounds like you want more than what typical Scandinavians have. Put another way, it sounds like you want income inequality, with you on the winning side.

Nobody in America works harder than the poor.

What was it in past decades? It doesn't seem particularly surprising that California would have a broad range of incomes. It contains some of the wealthiest and highest cost-of-living sub-regions of major metropolitan economic hubs and it also contains communities in absolute middle of nowhere barren deserts. All of the American southwest has the barren desert, but only California has the coastal hubs in the same state. East coast and PNW has major coastal cities, but not the barren desert. Texas is the most similar, but a lot of "middle of nowhere" Texas is wealthy anyway because of oil.

The usual metric for this is "payslope" an excellent article on this:

https://www.theglobeandmail.com/news/national/time-to-lead/h...

Drive around office parks around 4 am, and you'll invariably encounter cleaners who either don't live locally or can't afford to live nearby living in their cars.

See also: the number of people living along the highways, freeways, and under bridges in the Silicon Valley region from Palo Alto east southeast to San Jose, and then north northwest to Newark.

And, again the number of people living in RVs and cars from Palo Alto to Sunnyvale.

Another way to say this is that if you you're at the 25th percentile in California, you're making more than your counterpart in 43 other states. If we randomized and reassigned everyone's salaries, would you prefer a higher chance of having a higher salary or would you rather a lower salary but have less of a gap between you and someone who earns more?

Of course, what the article fails to do is look at living costs, which I expect would change things a great deal.

> If we randomized and reassigned everyone's salaries, would you prefer a higher chance of having a higher salary or would you rather a lower salary but have less of a gap between you and someone who earns more?

This is a classic false dichotomy. https://speakola.com/political/margaret-thatcher-on-socialis...

The interesting thing is your phrasing here about randomizing and reassigning is very similar to a Rawlsian framing -- if you don't know anything about what your specific outcome will be, but you can have an opinion on the distribution over outcomes, what should you want that distribution to look like?

Ok, what other options should I include? For example, "less gap + higher wage"? That's fine, but I believe the ordering of (now 3) preferences will still make my point.

I'm sure this is just a coincidence:

https://www.axios.com/local/san-francisco/2024/01/04/califor...

Counterintuitively, but very logically as the market just compensates when you think about it, the higher the taxes the higher the pay gap.

The pay gap discussed in the article is more about low wages than high wages. The 75th percentile is the third highest in the country, but the gap between that and the 25th percentile is the largest. In other words, the gap is more about people making less than $40k than about people making over $90k.

The effective state and local tax rate is ~12.5% in Texas and 9.6% in California.

I think every "effective tax rate" calculation, which necessarily combines several things, needs more information about methods ... but I think your statement sounds pretty backwards.

E.g. this seems pretty methodical and finds 13.5% for CA and 8.6% for TX. https://taxfoundation.org/data/all/state/tax-burden-by-state...

Yes the accurate way is to add receipts plus unpaid annual taxpayer liabilities. Divide by gdp. Most the weird ways you see are bogus, for interesting controlling for average taxpayer doesn't take into account the plebs ultimately pay the taxes of the rich through higher prices that look like private income/spending but are actually offsets for higher tax.

Can't be, texas only has tax receipts on about 8% of their gdp.

https://texasgateway.org/resource/162-taxation

Having lived in both California and Texas I have to say, that's a stretch.

What data is backing up those numbers? Does that include sales tax, gas tax, utility tax, car registration fees, and every other form of state tax?

https://fortune.com/2023/03/23/states-with-lowest-highest-ta...

Essentially, California has a more progressive tax system than Texas.

It's almost certainly the real estate taxes.

In California, Prop 13 makes real estate tax effectively de minimis (especially if you bought a long time ago), and the higher income tax rates make up for that.

Texas rates are higher and there's no limitation on their growth.

This difference is obscured if you're a renter.

Real estate and sales tax are what get people in texas: https://www.cato.org/blog/are-taxes-really-lower-california-...

Not sure what "effective" tax rate means, but 9.6% seems accurate to me for income tax only, and can go up to 12%. Sales tax is like 7 something, and all the other taxes are all over the place.

Right but the Texas income tax rate is 0% and the sales tax is 6.25%. So I'm curious how they arrived at a 12.5% vs 9.6% effective tax rate.

Speaking as a Texan, Texas has plenty of ways to tax you. My favorite is the punitive registration fees they recently added to electric cars.

California has had extra EV registration fees for years. Unfortunately it makes sense to do that if road maintenance/repairs are dependent on gas taxes

I did the math and it seems that the TX legislature assumes an EV is going to be driven around 80,000 miles a year.

Better than California requiring 0.65% of your vehicle value every year in licensing fees.

Washington state also added a yearly EV registration fee. Their argument is the gas tax pays for road maintenance, but EVs don't consume gas, so they need some other way of extracting money from those owners.

This makes sense. Gas taxes in almost all states pay for a lot of programs related to DMV activities and what not, so DMVs are having to figure out other ways to recoup the costs of EVs.

EVs are heavier which causes more wear on the roads.

Isn't that because the gas tax is regressive against the poor who have older cars with bad gas mileage and this compensates by having rich electric owners pay the share of gas tax they've skirted?

I heard property tax in Texas is the big one.

My understanding is that California taxes are better for lower-income people, and Texas taxes are better for higher-income people. Your situation will dictate what state is better for your finances.

Doesn’t the local rate depend on… where in the state you live? These numbers don’t make sense at all.

Single moms with sociology degrees unable to wrap their heads around power law.

> "This large gap isn’t particularly surprising, given that San Francisco has the highest density of billionaires of any city in the world, with Silicon Valley known for its absurd CEO pay packages"

Given that the methodology was to compare wages for the 75th percentile vs. the 25th percentile, this just seems like a political potshot/non sequitur rather than an explanation for the wage gap. Billionaires are ~.01% of SF's population, and that won't meaningfully impact the wage gap between the 25th and 75th percentiles.

> This large gap isn’t particularly surprising,

Given the sheer size and scope of California compared to every other state?

> given that San Francisco has the highest density of billionaires of any city in the world, with Silicon Valley known for its absurd CEO pay packages.

The "highest paid CEOs" list has two silicon Valley companies in the top 10. If this is your honest explanation, then I suggest, it should be worthy of surprise.

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