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Innovation economy

In both Silicon Valley and Boston, concerns about layoffs, relocation, and cost of living

In an aerial view, cars drive by the San Francisco skyline as they cross the San Francisco-Oakland Bay Bridge on October 27, 2022 in San Francisco, California.Justin Sullivan/Getty

On a visit to Silicon Valley last month, I was struck by all of the same things you notice in Boston: thick traffic inching past empty office buildings, discussions about people who’ve moved away during the pandemic, and questions about whether we’re heading into a recession.

One of the people I met on that trip was Sean Randolph, who oversees the Bay Area Economic Institute, a public-private partnership of business, higher education, labor, and government that focuses on the region’s competitiveness. Randolph has worked at various points of his career at the State Department, the White House, Congress, and the Department of Energy.

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We met at the Foster City, Calif., offices of Illumina, a maker of gene sequencing equipment, on a Friday. The place was empty, as you’d expect of an office complex on a Friday these days. Afterwards, we caught up via Zoom for a conversation about some of the issues on the minds of policy-makers and corporate leaders in Silicon Valley as we head toward 2023 — and how they’re similar to what people here are thinking about. The conversation that follows has been lightly edited for clarity and length.

Q. Is this a recession?

A.Not at this point. If you look at the rate of unemployment, it’s still below 4 percent. The number of unfilled jobs out there – it’s 1.5 unfilled jobs to every one employed person. That doesn’t feel like a recession. What is making people think in that direction is inflation. Will the Fed get it right? I think there’s a legitimate concern. …From what [Federal Reserve chair Jerome] Powell was saying [this month about] maintaining relatively high rates, but slowing the rate of rise, it’s far from inevitable that there will be a recession – but it’s a possibility. Maybe it’s the second quarter of 2023.

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Q. In Boston, the headlines in recent months have been about layoffs at big tech companies, but it doesn’t really feel like we’re seeing widespread layoffs at startups, or adjacent industries that aren’t tech.

A. If you look at categories of industries that have had major layoffs…it does feel primarily like a tech phenomenon. It probably to a significant degree results from the last two years of over-hiring. Even [Meta CEO Mark] Zuckerberg admitted that. There was this explosion of investment and a ton of hiring, not just at Meta, but so many of these companies, in 2020 and 2021. It appears to be the case that they were overly enthusiastic.

Even our friends at Illumina announced cutbacks. The volume has been growing as we have gotten deeper into the year. It does seem to be a wave, and it’s not clear how high it is. The question is, do layoffs in tech continue to build momentum into the first quarter of 2023. Then you probably have a real issue.

Right now it feels like those people laid off could be picked up elsewhere, in startups, or tech-related jobs in non-tech companies.

A cluster of Illumina machines at a lab in Boston, Sept. 3, 2021.SIMON SIMARD/NYT

Q. In Boston, we’re seeing the Tuesday-Wednesday-Thursday phenomenon, where most people are expected to be in those days. When I e-mailed recently with the new CEO of the Mass Technology Leadership Council, Sara Fraim, she said that employees aren’t in the office as much as employers would like, and that that is likely going to cause companies to cut back on space. Is that similar in the Valley?

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A. The general policies tend to be two days a week, maybe three. Everybody’s flexible, and the enforcement of those two to three days is pretty loose, so I keep hearing that not everybody is showing up. That’s all kind of in play. In San Francisco, the office utilization and occupancy rate based on keycard swipes is still around 40 percent where it was pre-pandemic. [San Jose, at the southern end of Silicon Valley, is even lower according to the same data from Kastle Systems, a maker of access control systems, at 36 percent.]

In San Francisco, the office occupancy is very light, but you can find a restaurant full of people, and conferences are coming back. But you really are aware walking around that there just aren’t people downtown on a continuous basis.

There will be lots of [office] leases up for renewal in the next two to three years. So what are companies going to renew if they don’t need the space? That would drop a ton of space onto the commercial office market, and we’ve already seen a growing amount of sublease space on the market.

Q. It’s not hard to notice that traffic feels as bad as it did before the pandemic here. What do you make of that?

A. Traffic is bad because use of public transit is down sharply — probably less than half of what it was before the pandemic, which raises long-term financial viability questions for the transit agencies. They got federal funding during the pandemic, but not now.

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Q. People relocating during the pandemic — what Jay Ash of the Massachusetts Competitive Partnership calls “leakage in talent” — is something that comes up as a concern in Boston. Both California and Massachusetts are on the list of states that have lost population in the last few years.

A. It’s not a huge number, but a not insignificant number of tech people bailed out of San Francisco and Silicon Valley over the last three years. And it’s hard to miss Company A or Company B relocating its headquarters somewhere else. [Software maker Oracle and the carmaker Tesla relocated their headquarters to Texas in 2020 and 2021, respectively.]

We do know that the pace of that has increased from 2019 and 2020. Locally, there’s a discussion [about] what are the drivers of that, and how do you systematically fix whatever those underlying issues are.

Passengers waiting to board the orange line at Downtown Crossing during the morning rush hour on Sept. 19, 2022. David L. Ryan/Globe Staff

Q. Aren’t cost of living and taxes a driver when companies move from California to Texas?

A. The big one is the cost of housing. That has always been an issue, but everything was reshuffled with Covid when remote work became pervasive. It’s the combination of the option for remote work and the high cost of housing. Tax rates are more [of an issue] for very senior executives who make a lot of money. Maybe the executive team moves, and not the whole company.

A lot of people still see this as an amazing and unique place to live, with a quality of life that’s very hard to replicate elsewhere. And there’s a recognition that there’s an enormous concentration of smart and talented people. That’s really hard to replicate outside of a handful of areas. You have these institutions like Stanford, Berkeley, and University of California at San Francisco that aren’t going anywhere – not to mention all the federal labs, and that whole research apparatus. And even though some companies left the Bay area over the past few years, more overseas-headquartered companies have come in.

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Q. So much chip production and manufacturing of consumer electronics happens in China. Are people talking about moving that to the US, or to more friendly countries?

A. That’s going to continue to play out in 2023 and beyond, even though maybe the President Xi-President Biden meeting [in November] put a bit of a floor under the relationship, maybe stabilized it so it’s not spinning out of control. But the underlying pressures haven’t changed a lot, and Xi hasn’t changed his stripes.

According to the American Chamber of Commerce in Shanghai’s latest poll, a significant number of companies has already shifted some operations out of China, or are considering over the next several years shifting out of China. That doesn’t mean they’re leaving China. Most of them plan to stay in China, producing for the China market as long as they can. But to get out of the line of fire and achieve greater security and redundancy, they’re looking elsewhere. We’ve seen some of that going to southeast Asia, especially Vietnam. We’ve seen some of that looking at India and Mexico, and some looking at the US.

Q. Do people in the Valley now acknowledge that the center for life sciences has moved east, and it’s in Cambridge now?

A. I don’t follow it that closely, but in the US, it’s probably three places: the Bay Area, Boston, and San Diego, with the Bay Area and Boston being roughly comparable. There’s obviously two big poles in the country.


Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.