For Tech Jobs, the Rich Cities Are Getting Richer

Five coastal cities—San Francisco, San Jose, Seattle, San Diego, and Boston—gained the lion’s share of lucrative “innovation industry” jobs from 2005 to 2017. 

Earlier this fall, during a town hall meeting at Facebook headquarters in Menlo Park, California, Mark Zuckerberg addressed his flock with a common Silicon Valley lament: That the cradle of tech is losing its luster—“tapped,” as he put it. Zuckerberg brought up the cost of housing, the snarled traffic, the crumbling infrastructure. What that meant, he said, is that Facebook would now look elsewhere to expand. But there was a hint of cognitive dissonance to the complaints. Facebook may indeed plan to look elsewhere, but for the foreseeable future the company and the Bay Area are thoroughly intertwined. The company has real estate and lease proposals in the pipeline that will bring thousands of new workers to the region.

Despite such hand-wringing, Silicon Valley’s role as a tech capital continues to grow in scale and importance, according to a new report. The region, and a few other coastal tech hubs, are gobbling up a greater share of high-tech jobs than ever. The data suggests just a few places are pulling away from the rest, taking the highest-paying jobs and investment with them.

Researchers from the Brookings Institution and the Information Technology and Innovation Foundation, a tech-industry-backed think tank, arrived at their conclusion by looking at a fairly narrow slice of jobs—13 industries that involve the highest rate of research and development spending and STEM degrees per worker. That includes much of the software industry, as well as jobs in areas like pharmaceuticals and aerospace. The researchers found that, between 2005 and 2017, five metro areas—San Jose, San Francisco, Seattle, San Diego, and Boston— not only added lots of jobs, they were also becoming more dominant in those industries overall.

There are other ways of measuring success. Judging by total job gains, other large metros like Austin and New York appear to be doing just fine, as are many smaller cities. The takeaway also depends on how you slice the job market. Looking at a broader set of innovation industries, or more narrowly at just software, a different set of cities join the ranks of the successful. But the goal was to show where the center of gravity is shifting in research-intensive industries, says Mark Muro, a senior fellow at Brookings and coauthor of the report. The answer is that it isn’t moving much. “Many cities are adding jobs and that’s great. The question is whether that’s really moving the dial,” he says. The industries he examined tend to be among the highest paid, and largely responsible for venture capital investment and the growth of a host of related industries.

What might be most surprising, in light of Silicon Valley pessimism, is that the jobs gap is growing. “We’re seeing the strengthening of a trend that’s been going on for at least 20 years,” Muro says. The centers of innovation are getting more consolidated. The rich truly do get richer.

In part, that’s due to changes in what businesses need, says Enrico Moretti, an economist at UC Berkeley who wasn’t involved in the study. The enduring dominance of some tech hubs is somewhat counterintuitive. Technology was supposed to be a democratizing force—the internet and iPhone would make it possible to do innovative work from just about anywhere. But instead, high-tech industries became about proximity to your fellow high-tech workers. Businesses clustered around hubs of investment, in places where skilled workers could stick around after school, hop between jobs, and stay in touch with contacts. That plays out on an individual level too, Moretti says. In recent research tracking the patent activity of scientists as they moved in and out of places like the Bay Area, Moretti found that they were far more productive in those innovative hubs.

That tendency for innovative companies to glom together is by now pretty well documented, Moretti says. The increased focus on people also means businesses are ultimately less sensitive to the infrastructure issues Zuckerberg and many others have lamented. That also makes it harder for government policy to intervene and shift well-paying industries elsewhere. Fifty years ago, Moretti notes, building infrastructure was a sure way to encourage job and wage growth in a region.

Now the calculus for spurring growth is a bit more complicated. The report’s authors propose looking to a second tier of smaller cities that are adding new high-tech jobs, but at a slower rate. That includes places like Pittsburgh and Madison, Wisconsin. They’ve already got lots of workers with STEM degrees and budding startup ecosystems built around major universities.

The researchers’ point is that it’s hard to build hubs of innovation from scratch—in places where the economy is really struggling, and where there’s little existing tech talent. Instead, you want to start with places that are already buzzing, and through a mix of investment—in things like R&D, education fellowships, and financing for small businesses—and tax incentives to encourage new business, nudge them to become innovation hubs. In other words, those places are already fertile ground for high-tech companies, but they need a little more fertilizer to get there. The researchers prefer federal investment to local subsidies that try to attract individual businesses—an often fruitless effort for smaller communities, as incidents like the downsized Foxconn factory in Wisconsin and Amazon’s HQ2 search demonstrate.

The question is whether that investment would be well placed. It may make sense to fund promising regions, Moretti says, if you want to help prime a region over the long term to become a more attractive outpost for Amazon or the home of a new generation of startups. But politically speaking, that investment is a tough sell when plenty of other cities are struggling. Where would Congress want to direct federal tax dollars: toward high-flying Madison, or a place that’s losing ground in high-tech employment, like Wichita?

Muro notes that he doesn’t think Congress should adopt his proposals to the exclusion of helping cities that have been truly left behind—that’s a different problem, with a different set of complex solutions. Another question is whether cities want the kind of growth Silicon Valley inspires. Madison is a pretty healthy economy right now. It might do the country good for Wisconsin to siphon off some heat from the economy of San Francisco or Seattle. But as even the tech industry has learned, that comes with bad stuff, too: widening inequality, overstretched roads, skyrocketing housing prices. As even the leaders of tech are now admitting, not everyone wants to be like Silicon Valley.

All Rights Reserved for Gregory Barber

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