Amtrak is going nowhere fast soon.
Amtrak is going nowhere fast soon. Charles Mudede

This weekend, the New York Times posted a story about how the two main cities of the Pacific Northwest, Seattle and Vancouver, have the potential to form a big tech corridor. The reason for this development is not that the two cities have a lot in common culturally and geographically, nor that they are growing toward each other, with the short distance (25 miles of farms and forests) between Bellingham and Mount Vernon being all they need to cover to connect into one unbroken system. The speculations are being fueled instead by Microsoft's huge ($120 million) investment in that city. And the reason for this huge investment is what the local economist Alan Harvey calls in his book Demand Side Economics: Demand Side Minds wage arbitrage—taking advantage of price differences between two markets.

Canadian tech workers are paid far less (an average of $49,000 a year) than Seattle tech workers (an average of $110,000 a year), and, due to Canada's favorable immigration policies, the city can also easily attract cheap tech labor from other, poorer countries. The New York Times does report that the one big problem with this scheme is that Vancouver is too expensive for even tech workers. (This is a point I made in my post City of Empty Towers.) Tech workers have been priced out of that market, but this, however, is not all that bad for Microsoft or Seattle tech companies. What could easily happen is that Vancouver's house values remain high and thereby continue to retard the full development of its tech sector.

With this in mind, let's turn to the most important passage in the NYT post:

Dennis Pilarinos, chief executive of Buddybuild, a Vancouver maker of developer tools for mobile apps, says affordability has been less of a problem for young tech workers, who may be willing to rent smaller apartments and live with roommates. But when start-ups get bigger, many struggle to recruit senior executives with families, said Mr. Pilarinos, who previously worked for Microsoft and Amazon in Vancouver.
Vancouver's expensive housing market could prevent it from establishing the kind of high-wage tech sector that would make it competitive with Seattle—and I say competitive because Microsoft is clearly not opening offices in Vancouver for altruistic reasons. A big tech corridor combined with the housing crisis might also condemn Vancouver to a low-wage tech sector that Seattle makes huge profits from.