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Inflated implies bubble, deflatable. I think it's just the market rate for living in those places. There's no bubble to pop here. Yes, it's true the cost of living are high in these areas, but I don't think that means the wages are inflated. How would you derive a non-inflated base pay eliminating cost of living?

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Inflated implies larger than normal. "Bubble", when it comes to tech, has a negative connotation. SF could totally deflate. Imagine if Google and Apple moved away. Boom, there goes the neighborhood. If those people are gone, the prices go down.

Imagine if all those people abandoned by Google and Apple stayed put and started new companies.

Imagine if all those people were paid by Google and Apple to move.

Yes, I can imagine them then going to have a friendly lunch with their friends working for Facebook and Twitter. Offer letter by end of week, problem solved.

Okay, so salaries in developer hubs aren't inflated. They're correct.

So then developer salaries in other parts of the country that are 40-50% lower due to correspondingly low costs of living on this areas are what, then?

While I don't doubt that they pay more because of the Bay Area, the best developers are worth more money, and I think the best developers tend to flock to the Bay Area for the network effects.

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