What Price the Bay
tl;dr: for a certain set of fairly common life circumstances, one may only need to see a 30-40k increase in pre-tax compensation to “break even” on moving to the Bay Area (add 10k to the upper bound if targeting San Francisco).
There’s a persistent myth that it's not worth moving to the Bay Area for a higher salary because in the increased cost-of-living (CoL) will eat up all your gains (or worse!). I don't want to say that this is impossible, but it's probably not true on average, at least for the self-selected group of people who are willing, capable, and already thinking about it.
Operating under the assumption that we're trying to maximize take-home pay and we've ruled out working at a satellite office of a well-paying tech company (which can be a great idea), the math is pretty straightforward.
Let's take some representative mid-level engineer who's thinking about making this kind of jump, maybe between 3-5 years of experience in the field. Since they're not working for a well-paying tech company, they're probably making something in the vicinity of 80-120k (pre-tax) per year. Let's say 100k. After taxes they're somewhere around 70k. What does rent cost them? If they're living in a low CoL area like Houston, they might be paying $800/month (~10k/year) for a decent 1-bedroom. In Los Angeles you're paying double that, but let's estimate the “worst case” potential difference. After rent you're left with 60k per year. I'm not going to adjust for things like food costs - while it's true that most things are slightly more expensive in the Bay, it's by a much smaller percentage than rent, and the absolute numbers are basically insignificant at this scale. (Also, well-paying tech companies tend to feed their employees quite well, so you may actually end up spending less on food.)
Let's say this mid-level engineer takes their interview prep seriously, lines up a few interviews to maximize their ability to negotiate with multiple offers, and comes out of it with an average “mid-level engineer” offer, which is something on the order of 250k/year, where 60-70% of that is cash and the rest are RSUs (which are equivalent to cash upon vesting). After taxes, this works out to a little over 150k/year. If you’re trying to minimize your commute, a reasonable 1-bedroom in the Mountain View/Palo Alto area might run for $2500/mo, but you can absolutely find places for under $2000/mo with under a 30-minute commute. That’s an extra 15-20k, after taxes. You’re left with at least 120k post-tax, post-rent. That’s twice what you were banking in Houston!
But wait, you say, not everybody in the Bay pays that much! True, so how much more do you need to earn to break even on rent and state income taxes? We’ve established a comfortable upper bound of paying an extra 20k a year in post-tax money for increased rent. The highest relevant CA tax bracket is 9.3%, taking effect above ~52k. You’re going to pay ~6.3k on the first 100k and 9.3% thereafter (until over 260k, which is irrelevant to our calculations). You’ll need somewhere in the vicinity of 130-140k to break even compared to earning 100k in Houston.
Note that the given situation was chosen with a few assumptions:
- You are a single software engineer with no dependents. Having a significant other in the tech industry who can secure a similarly high-paying job makes the calculation better, since that will more than pay for the increased relative cost of a 2-bedroom, but might be slightly worse otherwise - the differential in going from a 1-bedroom to a 2-bedroom between Houston and Palo Alto is something on the order of an extra 5k in after-tax money, so the significant other needs to earn an extra 7-8k to compensate. This is obviously doable but not guaranteed outside of tech. Similarly, having children will make the calculation significantly worse - childcare resources are one of the things outside of housing that are much more expensive in the Bay Area.
- You want to live without roommates. Tolerating or actively preferring roommates can swing the calculation further in favor of moving to the Bay, since splitting living expenses pushes the cost differential down.
- You are not considering taking a job at a startup and planning on living in San Francisco proper. Startups pay relatively poorly if you discount non-liquid compensation, i.e. equity/options (which you probably should) and rent in San Francisco is actually more expensive than rent in the South Bay. This may be offset by not having to own a car, with all the associated expenses, but that depends heavily on your expected lifestyle and you will need to run those calculations yourself. It should go without saying that there are some startups which will pay well enough (in salary alone) to overcome the CoL differential and it pays not to underestimate the benefits of being able to walk to work.
- You don't have the option to take a BigTechCo job at a satellite office. In strictly monetary terms, this is almost always superior to taking a comparable job in the Bay; any geographical difference in compensation will generally be much smaller than the actual difference in CoL. The two main factors that stop this from being a no-brainer are the reduced likelihood of having significant negotiating leverage (there are less companies at comparable pay scales to interview with in satellite office locations; Seattle and New York are the meaningful exceptions), and the reduced long-term potential for career growth. It is generally accepted that working in "HQ" is better if you are aiming to grow your career within a company, due to the greatly increased number of high-profile projects available and the increased visibility that your work will have. If you choose to advance your career by job-hopping, you will likewise be better off living and working in a major tech hub, with all the tech companies fighting over your talents.
- My methodology for calculating rent was to take "low but representative numbers" for each city, i.e. it was never the lowest-priced option in the category, but the lowest price point at which there were multiple comparable options to choose from. I chose that rather than median to more closely approximate how I expect engineers in the relevant demographic to search for housing, though I may be typical-minding. That said, my numbers are validated by some (though not all) CoL calculators, including those with more transparent breakdowns.