Yes, candidates are leaving this city. Some of them return though, but prefer working in corporations (lots of benefits, not so stressful job, etc). I don't think we had any fresh grads, although we did do some efforts in organising workshops based on the tech we use in order to meet devs and some of them were pretty young, but without a CS degree.
Our salaries are pretty competitive, its as much as you would get in a bigger city. Other companies here face the exact problem we are facing, but I think they can attract talent based on job security alone (i.e. IBM), whereas we don't know if we're going to be around next year unless we get another round :)
I do agree that there is a lack of challenging jobs around here, most companies are web-shops that do basic websites/blogs/web-apps. We had a candidate that spent 2 years doing just css/html for forms.
