California’s main competitors for tech jobs are the Western Blue States
For a generation, California has seen more of its people and businesses move elsewhere, but has found a way to respond, at least in terms of wealth creation, with constant innovation. But today, the Golden State’s grip on economic elites is waning in ways that could threaten the state’s long-term prosperity.
Innovation is California’s best driver of high wages and upward mobility. Data from the Bureau of Labor Statistics shows that in the innovation industry – software, computer and semiconductor manufacturing, technology services and nine other industries – the median salary was $ 208,000 in California. last year. That’s almost three times the median salary of $ 76,000 for all jobs in California.
But now the main competition for innovation-based jobs is coming not only from low-tax, low-cost states like Texas, but also from bluish states like Colorado and Washington. We found that Washington and Utah actually created more jobs per capita in the innovation sector than California over the past decade, while Arizona, Colorado and Idaho recorded higher per capita growth rates for these jobs.
Many of these states, noted Christopher Lloyd, president of the Site Selection Guild, which tracks investment flows, duplicate “a lot of the good things about California.” This includes building elite university systems in places like Washington, Texas, Colorado, and Utah. “The development model has shifted,” suggests Lloyd. “These states have learned from California. There seems to be a failure to recognize that things have changed and that technicians are much more mobile. “
Maintaining technology in California is all the more critical since the state suffers from the highest unemployment rate in the country and Los Angeles is the highest of all major metropolitan areas. We have already seen a disturbing change in business and professional service jobs such as accountants, lawyers and management consultants, the biggest source of higher paying jobs. Over the past three decades, Texas has seen more than double the level of California’s growth in this area, but Washington, Oregon, and Colorado have also vastly surpassed California.
Now, the technology also appears to be under attack. Some tech pillars have already moved their headquarters to Texas, including Hewlett Packard Enterprise, Oracle and, perhaps most crucially, Tesla. Many other companies, like Apple, Airbnb, Amgen, Uber, and SpaceX, are expanding widely outside of this state. These trends are accelerating, notes a recent study by the Hoover Institution.
Of course, large companies often move production and jobs to cheaper places. But the growth in the number of innovative companies is also slowing. Since 2005, the number of such businesses has grown much faster on a per capita basis in Arizona, Utah, Colorado, Florida, Georgia and Oregon. This is not just a reflection of high taxes and regulations; many of our fiercest competitors, such as Washington, Oregon, and Colorado, are barely ruled by conservative, anti-regulatory politicians.
Another warning sign comes from venture capital firms. The Bay Area’s share of the number of venture capital deals in 2021 is expected to fall below 20% for the first time in history. In a study of 90 venture capital-backed companies compiled by Initialized Capital, a San Francisco-based firm, those who said the Bay Area would be their top choice for a company headquarters fell 41% in 2020. to 28% in 2021.
The own evolution of technology poses additional challenges. As digital advertising revenues have grown tenfold in a decade, now accounting for more than half of all ad spend, huge fortunes have been made in a handful of businesses, but for a job base. more and more narrow. Michael Malone, who has chronicled Silicon Valley for the past quarter-century, suggests that quitting production reduces the scope of employment. For example, shortages related to supply chain issues have made chip production – a California invention – a priority, but virtually all new semiconductor facilities planned, employing thousands of workers, are not being built. here but in Texas, Arizona and Oregon.
Malone also suggests that the once hyper-competitive Valley has fallen in love with choosing “the sure thing” backed by massive capital. If there is a potential competitor, just buy it. As a location for new independent businesses, California’s appeal may wane, suggests Jack Dorsey, former chief executive of Twitter.
Faced with these trends, how can California revitalize and expand its technological footprint, with more widely disseminated opportunities?
Here our competitors can be our guide. Increasingly, states like Utah, Colorado, and Arizona are not focusing on business incentives and other traditional flattery, but on improving the quality of life for people, especially young and old. not yet rich. “The number one problem is attracting talent,” says Joe Snell, who has led economic development efforts in Denver and now in Tucson. “California had such a plethora of talent, everyone wanted to be there. But people started looking elsewhere for lifestyle reasons.
Historically, California has attracted people because, frankly, it was more attractive, with better times, a stronger education system, and a unique spirit of innovation. Today California has the worst attraction rate in the country, resulting in population decline. Over the past 20 years, notes EMSI, an economic forecasting company, Los Angeles’ youth population has fallen by 750,000.
California doesn’t need to respond to that by throwing millions into businesses, drastically cutting taxes, or even removing its regulatory regime, although reform is needed. The priority of heads of state should be to restore the attractiveness of the state as a place with a better way of life. This means dealing with issues such as high housing and energy prices, a poorly functioning basic education system, staggering traffic jams and homelessness.
Many workers want to stay in California but have been forced to find more affordable areas in the state. Fortunately, working remotely during the COVID pandemic has made this easier. Between March and November 2020, more than 80,000 people left San Francisco, but more than two-thirds settled somewhere in the region, including suburbs and rural areas such as Mother Lode country. Yet such moves run counter to state policy that favors development in dense urban counties, which have extremely high housing costs.
All the elements California needs to maintain and develop its technological economy – capital, talent, attractive locations, a world-class higher education system – remain. But it must tackle the fundamental issues that drive workers and businesses to seek their fortunes elsewhere. We can always write new chapters, but only if we change the current course.
Joel Kotkin is the Presidential Fellow of Urban Futures at Chapman University and Executive Director of the Urban Reform Institute. He is the author of “The Coming of Neo-Feodalism”. @joelkotkin
Marshall Toplansky is a clinical assistant professor of management science at the Argyros School of Business and Economics at Chapman University.