Silicon Valley

America’s New Oligarchs—Fwd.us and Silicon Valley’s Shady 1 Percenters

Joel Kotkin — Tue, 14 May 2013 10:42:52 -0400

When Steve Jobs died in October 2011, crowds of mourners gathered outside of Apple stores, leaving impromptu memorials to the fallen businessman. Many in Occupy Wall Street, then in full bloom, stopped to mourn the .001 percenter worth $7 billion, who didn’t believe in charity and whose company had more cash in hand than the U.S. Treasury while doing everything in its power to avoid paying taxes.

A new, and potentially dominant, ruling class is rising. Today’s tech moguls don’t employ many Americans, they don’t pay very much in taxes or tend to share much of their wealth, and they live in a separate world that few of us could ever hope to enter. But while spending millions bending the political process to pad their bottom lines, they’ve remained far more popular than past plutocrats, with 72 percent of Americans expressing positive feelings for the industry, compared to 30 percent for banking and 20 percent for oil and gas.

Outsource Manufacturing, Import Engineers

Perversely, the small number of jobs—mostly clustered in Silicon Valley—created by tech companies has helped its moguls avoid public scrutiny. Google employs 50,000, Facebook 4,600, and Twitter less than 1,000 domestic workers. In contrast, GM employs 200,000, Ford 164,000, and Exxon over 100,000. Put another way, Google, with a market cap of $215 billion, is about five times larger than GM yet has just one fourth as many workers.

This is an equation that defines inequality: more and more wealth concentrated in fewer hands and benefiting fewer workers.

While Facebook and Twitter have little role in the material economy, Apple, which continues to collect the bulk of its profit from physical goods—computers, iPads, iPhones and so on—has outsourced nearly all of its manufacturing to foreign companies like Foxconn that employ workers, often in appalling conditions, in China and elsewhere. About 700,000 people work on Apple’s physical products for subcontractors, according to the New York Times, but almost none of them are in the U.S. “The jobs aren’t coming back,” Jobs bluntly told President Obama at a 2011 dinner in Silicon Valley.

Not so much anti-union as post-union, the tech elite has avoided issues with labor by having so few laborers who could be organized. Andrew Carnegie and Henry Ford exploited workers in Pittsburgh and Detroit, and had to deal with the political consequences; the risks are much less if the exploited are in Chengdu and Guangzhou.

"There doesn't seem to be a role" for unions in this new economy, explained Internet entrepreneur and venture capitalist Marc Andreessen, because people are "marketing themselves and their skills.” He didn’t mention what people without skills in demand at tech companies might do.

But Americans with those skills shouldn’t rest easy, either. These same companies are always looking to cut down their domestic labor costs. Mark Zuckerberg, in particular, is pouring money into a new advocacy group, Fwd.us, with a board consisting of big-name Valley luminaries, to push “comprehensive immigration reform” (read: letting Facebook bring in a cheaper labor force). In a remarkably cynical move, Fwd.us has separate left- and right-leaning subgroups to prod politicians across the political spectrum to sign on to the bill that would pad the company’s bottom line.

Ostensibly, the increase in visas for high-skilled computer workers is a needed response to the critical shortage of such workers here—a notion that has been repeatedly dismissed, including in a recent report from the Obama-aligned Economic Policy Institute, which found that the country is producing 50 percent more IT professionals each year than are being employed in the field. The real appeal of the H1B visas for “guest workers”—who already take between a third and half of all new IT jobs in the States—is that they are usually paid less than their pricy American counterparts, and are less likely to jump ship since they need to remain employed to stay in the country. Facebook’s lobbyists, reports the Washington Post, have pressed lawmakers to remove a requirement from the bill that companies make a “good faith” effort to hire Americans first.

The Valley of the Oligarchs

Even as market caps rise, the number of Americans collecting any cut of that new wealth has scarcely moved. Since 2008, while IPOs have generated hundreds of billions of dollars of paper worth, Silicon Valley added just 30,000 new tech–related jobs—leaving the region with 40,000 fewer jobs than in 2001, when decades of rapid job growth came to an end.

The good jobs that are being created are also heavily clustered in one region, the west side of the San Francisco peninsula—a distinct and geographically constrained zone of privilege. The area boasts both formidable technical talent and, more important still, roughly one third of the nation’s venture funds along with the world’s most sophisticated network of tech-savvy investment banks, publicists, and attorneys.

But little of the Valley’s wealth reaches surrounding communities. Just across the bridge to the East Bay are high crime rates and an economy that’s lost about 60,000 jobs since 2001 with few signs of recovery. Inland, in the central Valley, double-digit unemployment is the norm and local governments are cutting police and other core services and even trying to declare bankruptcy.

“We live in a bubble, and I don’t mean a tech bubble or a valuation bubble. I mean a bubble as in our own little world,” Google’s Schmidt boasted to the San Francisco Chroniclein 2011. “And what a world it is. Companies can’t hire people fast enough. Young people can work hard and make a fortune. Homes hold their value. Occupy Wall Street isn’t really something that comes up in a daily discussion, because their issues are not our daily reality.”

Inside the bubble zone, centered around the bucolic university town of Palo Alto, employees at firms like Facebook and Google enjoy gourmet meals, child-care services, even complimentary house-cleaning. With all these largely male, well-paid geeks around, there’s even a burgeoning sex industry, with rates upwards of $500 an hour.

Those at top of the tech elite live very well, occupying some of the most expensive and attractive real estate in the country. They travel in style: Google maintains a fleet of private jets at San Jose airport, making enough of a racket to become a nuisance to their working-class neighbors. They have even proposed an $85 million flight center, called Blue City Holdings, to manage airplanes belonging to Google’s founders, Larry Page and Sergey Brin, and its executive chairman, Eric Schmidt. Like the Russian oligarchs, currently making a run on Tuscany’s castles and resorts, the Valley elite have embraced conspicuous consumption, albeit dressed up in California casual. In San Francisco, San Mateo, and Santa Clara counties combined, luxury vehicles accounted for nearly 21 percent of new car registrations from April 2011 to March 2012, more than twice the national average. Home prices in places like Palo Alto and the fashionable precincts of San Francisco go for well over a million—and routinely trigger all-cash bidding wars.

We’re the best thing happening in America,” one tech entrepreneur told the Los Angeles Times. Even a reporter for the New York Times, usually worshipful in its Valley coverage, described the spending as “obscene.” An industry party he attended included a 600-pound tiger in a cage and a monkey that posed for Instagram photos.

But past the conspicuous consumption, the most outstanding characteristic of the new oligarchs may be how quickly they have made their fortunes—and how much of the vast wealth they’ve held on to, rather than paid out to shareholders or in taxes. Ten of the world’s 29 billionaires under 40 come from the tech sector, with four from Facebook and two from Google. The rest of the list is mostly inheritors and Russian oligarchs.

Tech oligarchs control portions of their companies that would turn oilmen or auto executives green with envy. The largest single stockholder at Exxon, CEO and chairman Rex Tillerson, controls .04 percent of its stock. No direct shareholder owns as much as 1 percent of GM or Ford Motors. In contrast, Mark Zuckerberg’s 29.3 percent stake in Facebook is worth $9.8 billion. Sergey Brin, Larry Page and Eric Schmidt control roughly two thirds of the voting stock in Google. Brin and Page are worth over $20 billion each. Larry Ellison, the founder of Oracle and the third richest man in America, owns just under 23 percent of his company, worth $41 billion. Bill Gates, who’s semi-retired from Microsoft, is worth a cool $66 billion and still controls 7 percent of his firm.

The concentration of such vast wealth in so few hands mirrors the market dominance of some of the companies generating it. Google and Apple provide almost 90 percent of the operating systems for smart phones. Over half of Americans and Canadians and 60 percent of Europeans use Facebook. Those numbers dwarf the market share of the auto Big Five—GM, Ford, Chrysler, Toyota, and Honda—none of whom control much more than a fifth of the U.S. market. Even the oil-and-gas business, associated with oligopoly from the days of John Rockefeller, is more competitive; the world’s top 10 oil companies collectively account for just 40 percent of the world’s production.

Greater Representation with Minimal Taxation

Despite this vast wealth, and their newfound interest in lobbying Washington, the tech firms are notorious for paying as little as possible to the taxman. Facebook paid no taxes last year, while making a profit of over $1 billion. Apple, “a pioneer in tactics to avoid taxes,”has kept much of its cash hoard abroad, out of reach of Uncle Sam. Microsoft has staved off nearly $7 billion in tax payments since 2009 by using loopholes to shift profits offshore, according to a recent Senate panel report.

And now, these 1 percenters—who invested heavily in Obama—are looking to help shape the “public good” in Washington and, as with Fwd.us, what they’re selling as good for us all is what aligns with their interests.

There’s been a huge surge of Valley investment in Washington lobbying, not just on immigration but also on issues effecting national, industrial, and science policy. Facebook’s lobbying budget grew from $351,000 in all of 2010 to $2.45 million in just the first quarter of this year. Google spent a record $18 million last year. In the process, they have hired plenty of professional Washington parasites to make their case; exactly the kind of people Valley denizens used to demean.

The oligarchs believe their control of the information network itself gives them a potential influence greater than more conventional lobbies. The prospectus for Fwd.us—headed up by one of Zuckerberg’s old Harvard roommates—suggests tech should become “one of the most powerful political forces,” noting “we control massive distribution channels, both as companies and individuals.”

One traditional way the wealthy attain influence is purchasing their own news and media companies. Facebook billionaire and former Obama tech guru Chris Hughes (who owes his fortune to having been another of Zuckerberg’s college roommates) has already started on this road by buying the New Republic. (His husband, perhaps not incidentally, is running for the New York State Assembly.) Leaving old-media legacy purchases aside, Yahoo is now the most-read news site in the U.S., with over 100 million monthly viewers, and the Valleyites are also moving into the culture business with both Google-owned YouTube and Netflix getting into the entertainment-content business.

Great wealth, and high status, particularly at a young age, often persuades people that they know best about the future and how we should all be governed. Twitter founder Jack Dorsey, a 37-year-old resident of San Francisco, recently announced on 60 Minutes that he’d like to be mayor—of New York, a city he’s never lived in.

Expect more of this kind of hubris from the new oligarchs. Some cities, ranging from Seattle, where Amazon is leading the charge, to Las Vegas and even Detroit now are counting on tech giants to expand or restore their damaged central cores.

But if those oligarchs do come, they will have little interest in retaining or expanding blue-collar jobs in construction or manufacturing, which they see as passé; the housing they build and even the public amenities they invest in will be for their own employees and other members of the “creative class.” The best the masses can hope for are jobs cutting hair, mowing grass, and painting the toenails of the oligarchs and their favored minions. You won’t see much emphasis, either, on basic skills training and community colleges, which are critical to auto manufacturers, oil refiners, and other older businesses and can provide opportunity for upward mobility for middle- and working-class youth.

Yet these limitations will not circumscribe the ambitions of the new oligarchs, who see their triumph over cyberspace as a prelude to a power grab in the real world, a proposition they’ve tested over the last three presidential cycles. “Politics for me is the most obvious area [to be disrupted by the Web],” suggests former Facebook president and Napster founder Sean Parker.

If You're the Customer, You're the Product

Perhaps an even bigger danger stems from the ability of “the sovereigns of cyberspace” to collect and market our most intimate details. Moving beyond the construction of platforms for communication, the oligarchs trade on the value of the personal information of the individuals using their technology, with little regard for social expectations about privacy, or even laws meant to protect it. Google has already been caught bypassing Apple’s privacy controls on phones and computers, and handing the data over to advertisers. The Huffington Post has constructed a long list of the firm’s privacy violations. Apple is being hauled in front of the courts for its own alleged violations while Consumer Reports recently detailed Facebook’s pervasive privacy breaches—culling information from users as detailed as health conditions, details an insurer could use against you, when one is going out of town (convenient for burglars), as well as information pertaining to everything from sexual orientation to religious affiliation to ethnic identity.

As Google’s Eric Schmidt put it: "We know where you are. We know where you've been. We can more or less know what you're thinking about."

But while Facebook and Google have been repeatedly cited both in the United States and Europe for violating users’ privacy, the punishments have been puny compared to the money they’ve made by snatching first and accepting a slap on the wrist later.

It's no surprise then that Silicon Valley firms have been prominent in trying to quell bills addressing Internet privacy, both in Europe and closer to home. Washington is where big firms have always gone to change the rules to protect their own prerogatives and pull the ladder up on smaller competitors. Like previous oligarchical interests, the Valley, predictably, has become a regular and crucial fundraising stop for Obama and other Democrats crafting those rules.

Al Gore—who owes much of his Romney-sized fortune to lucrative positions on the board of Apple and as a senior adviser to Google, as well as to energy investments heavily backed by federal funds—has emerged as the symbol of the lucrative, if shady, intersection of those two worlds.

Green is an easy sell in the Valley. If California electricity is too unreliable or expensive, firms will just shift their power-consuming server farms to places with cheap electricity, such as the Pacific Northwest or the Great Plains. Middle-class employees who, in part due to green “smart growth” policies, can no longer afford to live remotely close to Palo Alto or in San Francisco, can be shifted either abroad or to more affordable locales such as Salt Lake City, Phoenix, or Austin, Texas. Meanwhile, with supply restricted, the prices on houses owned by the oligarchs and their favored employees continue to rise into the stratosphere.

What we have then is something at once familiar and new: the rise of a new ruling class, arrogant and self-assured, with a growing interest in shaping how we are governed and how we live. Former oligarchs controlled railway freight, energy prices, agricultural markets, and other vital resources to the detriment of other sectors of the economy, individuals, and families. Only grassroots opposition stopped, or at least limited, their depredations.

But today’s new autocrats seek not only market control but the right to sell access to our most private details, and employ that technology to elect candidates who will do their bidding. Their claque in the media may allow them to market their ascendency as “progressive” and even liberating, but the new world being ushered into existence by the new oligarchs promises to be neither of those things.

Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared in the The Daily Beast.

Official White House Photo by Pete Souza.

Prescription for an Ailing California

Joel Kotkin — Mon, 28 Jan 2013 00:38:49 -0500

Only a fool, or perhaps a politician or media pundit, would say California is not in trouble, despite some modest recent improvements in employment and a decline in migration out of the state. Yet the patient, if still very sick, is curable, if the right medicine is taken, followed by the proper change in lifestyle regimen.

The first thing necessary: Identify the root cause of California's maladies. The biggest challenge facing our state is not climate change, or immigration, corporate greed, globalization or even corruption. It's the demise of upward mobility for the vast majority of Californians, and the rise of an increasingly class-ridden, bifurcated society.

California's class problem spills into virtually every aspect of our malaise. It is reflected in both the nation's highest poverty rate, above 23 percent, and a leviathan welfare state; California, with roughly 12 percent of the population, now accounts for roughly one-third of the nation's welfare recipients. This burgeoning underclass exacerbates the demand for public services, deprives the state of potential taxpayers and puts enormous pressure on the private sector middle-class to come up with revenue.

The growing class chasm also distorts state priorities, creating an inordinate demand for public sector employment – and related jobs in health and education – while inculcating deep-seated resentment among private-sector entrepreneurs and professionals toward a state that asks much of them, but gives increasingly little.

Conservatives generally have recoiled from a class-based analysis, hoping to play on ethnic or cultural fears to advance their agenda of lower taxes and less regulation. Their incoherence and inability to adjust to changing demographics have left them increasingly irrelevant.

On the other hand, progressives feel comfortable with class as an issue, but see more regulation and ever higher taxes on the private sector as the solution. Yet the experience of the past decade has shown their folly, as California's middle class has continued to shrink, and poverty has worsened, particularly in the state's interior. The dangers of a large permanent underclass of unemployed and underemployed should be clear even to the most dreamy progressive.

Essentially, there is only one practical solution to this dilemma: a program that promotes economic growth. This strategy would transcend the recent reliance on asset-based bubbles that have boosted property markets and technology stocks. Another bubble, whether an investor-driven spike in property values in Newport Beach or a stock mania in Silicon Valley, may provide a temporary boost in revenue but will do very little to improve employment for the vast majority or to stabilize long-term finances.

The recent surge in tech employment in places like Silicon Valley is neither likely to persist or improve conditions for many Californians. The days of huge employment gains in Silicon Valley – where jobs more than tripled from 1970-2000 – are over. Even in the current boom, the Valley's employment remains down from a decade ago, and the rest of the state is doing decidedly worse. Social media simply will never be a major job producer or productivity enhancer; Facebook has 4,300 American employees, while old-line firms, like Intel, which have been shifting employment out of the state, have 10 times as many.

Other proposed bromides, like Gov. Jerry Brown's promised 500,000 "green jobs," need to be dismissed for what they are – stories we tell our children so they will fall asleep. High-speed rail, another modern-day Moonbeam program, is seen, even by many progressives, such as Mother Jones' Kevin Drum, as an "ever more ridiculous" boondoggle based on "jaw-droppingly shameless" assumptions.

Instead of delusion, California needs policies that can boost economic growth in precisely those areas – construction, agriculture, manufacturing and energy – with the best prospects for creating good, high-paying jobs for both blue- and white-collar Californians. Yet, right now the Legislature and, even more so, the empowered state apparat, seem determined to do everything they can to strangle an incipient recovery in these industries.

Sadly, much of this is done in the name of the environment, but often based on dubious assumptions. Laws that seek to reduce water allocations to the Central Valley are justified as protecting a bait fish, but create windswept new deserts, along with shocking poverty, in the state hinterland. It is no longer enough to protect the still-wild environment; mankind itself must be pushed away from areas that, in some cases, for generations, has provided food for the world, income for families and revenue to the state.

Concerns over climate change have justified much of the state's regulatory tsunami. Yet it is absurd to assert that California by itself can change global climate conditions in any meaningful way, given that the big increases of carbon emissions are all coming from the developing world; overall, America's emissions already are dropping far more quickly than in other high-income parts of the world, largely due to the natural gas boom.

Yet such mundanities matter little when our greatest policy goal seems to be to make the regulatory apparat, Hollywood and Silicon Valley moguls and their favored nonprofits feel better about themselves; if it provides job opportunity for zealots or the rent-seeking kind for favored venture capitalists and companies like Google, all the better.

Worse, the consequences of these policies, such as soaring energy prices, likely will not be felt in Portola Valley, Corona del Mar or Pacific Palisades, but, rather, in Santa Ana, Modesto and Oakland. Our regulatory regime already has cost California the opportunity to cash in on two significant booms – in manufacturing and in fossil fuel energy – that are creating middle-income job opportunities and upward mobility in other parts of the country.

On the environmental side, these policies could have an overall negative effect by driving both people and industries to areas that, because of climate and regulatory environment in their new homes, likely will expand their carbon footprint. Arguably the best thing California can do to reduce global carbon emissions would be to boost its industrial profile. The state also should be leading the shift to natural gas, which California, a potentially big player, so far largely has refused to join.

Another great opportunity lies in housing, a key source of both white- and blue-collar jobs. Population growth may have slowed, but the pent-up demand, largely from immigrants and millennials, for single-family homes, remains potentially strong. If the supply was increased, and prices moderated, homebuying would become more attractive for families with children. Emissions could be cut in more family-friendly ways, by encouraging more fuel-efficient cars, the dispersion of industry and, most particularly, telecommuting.

Sparking the revival of these basic industries and higher-wage employment would enhance California's budget situation over time far more than increasing taxes on the remaining residue of entrepreneurs and professionals. Energy work, in particular, pays high wages, often more than for many tech jobs, and both manufacturing and construction generally provide higher incomes than the low-wage service work that has become the only option for millions of Californians.

Getting kids from the Central Valley or East Los Angeles working on housing sites, factories and energy facilities is both the most humane, and practical, way to right our fiscal ship. Growth in these industries would also spur the knowledge sector of the economy; many of the strongest gains in STEM (science, technology, engineering and mathematics) jobs in recent years have occurred in manufacturing regions, such as Detroit, or in the energy belt, notably Houston. California's technical know-how should not be expended simply on developing computer games and social networks; resuscitating the tangible economy would also diversify employment opportunities for the highly skilled.

Government can play a critical, even determinative, role here. But it needs to shift priorities from redistribution and wealth suppression to providing the basic infrastructure essential for a growth economy. It means transforming our education system from a jobs and pension program for public sector workers and corporate rent-seekers to a focus on providing our economy with the skills – including those used in basic industries – needed for a revived California. It means spending money on the kind of infrastructure, such as gas pipelines, roads, urban bus lines, water and energy systems, that can spur growth instead of misallocations such as high-speed rail and subsidized green energy boondoggles.

This back-to-basics approach could restore California's aspirational promise, and not only for a favored few in a handful of favored places, but for the majority of our people, from the mountains to the sea.

This piece originally appeared in the Orange County Register.

The New Places Where America's Tech Future Is Taking Shape

Joel Kotkin — Thu, 10 Jan 2013 11:46:13 -0500

Technology is reshaping our economic geography, but there’s disagreement as to how. Much of the media and pundits like Richard Florida assert that the tech revolution is bound to be centralized in the dense, often “hip” places where “smart” people cluster. Some, like Slate’s David Talbot, even fear the new tech wave may erode whatever soul is left to increasingly family free, neo-gilded age San Francisco.

Such claims have been bolstered by the tech boom of the past few years — especially the explosion of social media firms in places like Manhattan and San Francisco. Yet longer-term trends in tech employment suggest such favored media memes will ultimately prove well off the mark. Indeed, according to an analysis by the Praxis Strategy Group, the fastest growth over the past decade in STEM (science, technology, engineering and mathematics-related) employment has taken place not in the most fashionable cities but smaller, less dense metropolitan areas.

From 2001 to 2012, STEM employment actually was essentially flat in the San Francisco and Boston regions and declined 12.6% in San Jose. The country’s three largest mega regions — Chicago, New York and Los Angeles — all lost tech jobs over the past decade. In contrast, double-digit rate expansions of tech employment have occurred in lower-density metro areas such as Austin, Texas; Raleigh, N.C.; Columbus, Ohio; Houston and Salt Lake City. Indeed, among the larger established tech regions, the only real winners have been Seattle, with its diversified and heavily suburbanized economy, and greater Washington, D.C., the parasitical beneficiary of an ever-expanding federal power, where the number of STEM jobs grew 21% from 2001 to 2012, better than any other of the 51 largest U.S. metropolitan statistical areas over that period.

The question is whether the last two to three years, during which places like San Francisco, New York and Boston have enjoyed stronger STEM growth than their peripheries, represents a paradigm shift or is just a cyclical phenomenon. As with tech in general, the long-term trends are not so city-centric; over the past decade, the core counties nationwide overall have lost about 1.1% of their tech jobs while more peripheral areas have experienced a gain of 3.5%.

Today’s urban tech boom looks a lot like a rerun of the dot-com boom of the late 1990s. In that period media-savvy dot-com startups proliferated in such places as South of Market in San Francisco and the Silicon Alley in lower Manhattan. At their height, these firms and their founders were as likely to be covered in the fashion and lifestyle sections as on the business pages.

Yet by the early 2000s, many of these dot-com darlings had merged, been acquired or simply gone out of business. Anchored largely on hype, they fell victim to flawed business models, and rapid industry consolidation. In San Francisco, for example, tech employment crashed from a high of 34,000 in 2000 to barely 18,000 four years later. Silicon Alley suffered a similar downward trajectory, losing 15,000 of its 50,000 information jobs in the first five years of the decade.

The peaking social media boom, marked by the weak performance of Facebook’s IPO last year, suggest another bust at the end of the “hype cycle.” Urban darlings such as San Francisco’s Zynga and Chicago’s Groupon have floundered in spectacular fashion. More are likely to join them.

These firms may have generated buzz, but they have done not so well at the mundane task of making money. One problem may be that the most avid users of social media are largely young people from the “screwed” generation who lack much in the way of spending power — a clear turnoff to advertisers. Now , with venture capital flows declining overall, cooler heads in the Valley are shifting bets to more business-oriented engineering and research-intensive fields more grounded in marketplace realities.

And what about the future of the Valley — still home to virtually all the Bay Area’s top tech firms? Its glory days as a job generator and economic exemplar seem to have passed. Between 1970 and 1990 the number of people employed in tech in the Valley more than doubled to 268,000, and then burgeoned to over 540,000 in the 1990s. At the peak of the last tech boom in 2001, the unemployment rate in Santa Clara County was a tiny 3%; the Silicon Valley Manufacturing Group confidently predicted there would be another 200,000 jobs by 2010.

However, at what may be the peak of the current boom, the number of tech jobs in the Valley remains down from a decade ago and unemployment is over 7.7%, just around the national average. In reality, social media was never going to reverse the downward trajectory in the rate of job growth. Old-line companies like Hewlett-Packard or Intel, with over 50,000 employees in the U.S. alone, were capable of creating a broad range of opportunities for workers; in contrast, the social media big three of Facebook, LinkedIn and Twitter together have less than 6,500 employees.

As the social media industry matures and consolidates, employment is likely to continue shifting to less expensive, business-friendly areas. The Bay Area, where the overall cost of living is 68% higher than the national average and housing is the most expensive in the nation, may continue to attract and retain only the highest-end, best-paid workers. But for the most part they will follow the path of established tech firms such as Apple, Intel, Adobe, eBay and IBM to lower-cost places like Austin, Columbus and Salt Lake City. A similar phenomena also can be seen in other urban-centered industries, such as entertainment and finance where virtually all employment growth is in places like St. Louis, Des Moines and Phoenix, even as the largest centers, New York, Chicago, Boston, Los Angeles and San Francisco have suffered significant job losses.

Demographic forces may further accelerate these trends. The critical fuel for tech growth, educated labor, is now expanding faster in places like Columbus, Austin, Raleigh, Dallas and Houston than in Boston, San Jose and San Francisco. The old centers may still enjoy a lead in brains, but other places are catching up rapidly.

Companies may also discover that with many millennials starting to hit their 30s, some may seek to leave their apartments to buy houses and start families. In California new local regulations essentially ban the construction of new single-family homes in some of the state’s biggest metro areas, pricing this option out of reach for all but a few, and forcing a key demographic group to seek residence elsewhere.

Under these conditions, Silicon Valley will be forced to rely increasingly on inertia and mustering of financial resources than innovation. As a result, the nation’s tech map will continue to expand from the Bay Area, Boston, Seattle and Southern California to emerging metropolitan areas in North Carolina, Texas, Utah, Colorado and the Pacific Northwest. In the future parts of Florida, Phoenix, and even Great Plains cities like Sioux Falls and Fargo could also achieve some critical mass.

Ultimately, one of the main dynamics of the information age — that even sophisticated tasks can be done from anywhere — works against the dominion of single hegemonic industry centers like Wall Street, Hollywood and Silicon Valley. The tech sector is particularly vulnerable to declustering, due in large part thanks to the freedom from geography created by technologies of its own making. Silicon Valley may continue to reap riches from the periodic technology gold rush , but in the longer term, tech growth will continue its long-term dispersion to ever more parts of the country.

STEM Occupations in the Nation's 51 Largest Metropolitan Areas
MSA Name	2001 - 2012 Growth	2005 - 2012 Growth	2010 - 2012 Growth	2012 Location Quotient	LQ Change, 2001 - 2012
Washington-Arlington-Alexandria, DC-VA-MD-WV	21.1%	12.7%	3.7%	2.19	10.6%
Riverside-San Bernardino-Ontario, CA	18.6%	-1.4%	2.2%	0.57	1.8%
San Antonio-New Braunfels, TX	18.3%	17.2%	4.5%	0.83	1.2%
Baltimore-Towson, MD	17.9%	11.4%	3.9%	1.37	15.1%
Raleigh-Cary, NC	17.9%	14.6%	6.2%	1.53	0.0%
Las Vegas-Paradise, NV	17.2%	-2.6%	0.8%	0.52	4.0%
Salt Lake City, UT	16.3%	18.1%	7.4%	1.16	4.5%
Houston-Sugar Land-Baytown, TX	15.7%	17.2%	6.6%	1.20	-2.4%
Seattle-Tacoma-Bellevue, WA	15.4%	22.2%	6.7%	1.86	8.1%
Jacksonville, FL	13.0%	6.5%	2.4%	0.87	8.7%
Austin-Round Rock-San Marcos, TX	12.2%	17.2%	9.1%	1.82	-8.5%
San Diego-Carlsbad-San Marcos, CA	11.3%	8.0%	2.1%	1.38	6.2%
Columbus, OH	10.4%	12.8%	4.7%	1.27	7.6%
Orlando-Kissimmee-Sanford, FL	9.4%	-1.1%	0.8%	0.84	-3.4%
Indianapolis-Carmel, IN	6.9%	6.5%	2.7%	1.04	2.0%
Nashville-Davidson--Murfreesboro--Franklin, TN	6.7%	3.5%	2.4%	0.77	-1.3%
Sacramento--Arden-Arcade--Roseville, CA	6.4%	3.5%	0.4%	1.33	2.3%
Oklahoma City, OK	5.5%	9.6%	6.4%	0.89	-1.1%
Pittsburgh, PA	5.3%	10.3%	4.9%	1.07	5.9%
Virginia Beach-Norfolk-Newport News, VA-NC	4.8%	2.3%	0.5%	1.10	3.8%
Charlotte-Gastonia-Rock Hill, NC-SC	4.3%	8.2%	5.7%	0.99	-3.9%
Kansas City, MO-KS	4.0%	5.8%	4.6%	1.12	4.7%
Richmond, VA	3.8%	4.4%	3.4%	0.99	0.0%
Cincinnati-Middletown, OH-KY-IN	3.7%	5.5%	6.8%	1.02	4.1%
Buffalo-Niagara Falls, NY	3.2%	6.4%	3.6%	0.90	4.7%
Dallas-Fort Worth-Arlington, TX	3.1%	11.4%	5.5%	1.19	-5.6%
San Francisco-Oakland-Fremont, CA	2.5%	15.0%	9.9%	1.63	5.8%
Phoenix-Mesa-Glendale, AZ	2.3%	3.5%	3.9%	1.05	-6.3%
Minneapolis-St. Paul-Bloomington, MN-WI	2.2%	6.7%	5.9%	1.31	1.6%
Portland-Vancouver-Hillsboro, OR-WA	1.6%	6.4%	5.4%	1.19	-3.3%
Louisville/Jefferson County, KY-IN	0.9%	9.6%	6.9%	0.76	0.0%
Denver-Aurora-Broomfield, CO	0.5%	10.8%	3.7%	1.43	-2.1%
Atlanta-Sandy Springs-Marietta, GA	-1.0%	5.5%	6.5%	1.07	-2.7%
Boston-Cambridge-Quincy, MA-NH	-1.3%	11.2%	6.0%	1.64	-1.2%
Providence-New Bedford-Fall River, RI-MA	-1.5%	-1.6%	1.9%	0.88	2.3%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD	-2.8%	-1.4%	1.4%	1.06	-1.9%
Hartford-West Hartford-East Hartford, CT	-4.5%	1.5%	0.3%	1.10	-3.5%
New York-Northern New Jersey-Long Island, NY-NJ-PA	-4.6%	2.8%	3.2%	0.90	-6.2%
St. Louis, MO-IL	-4.8%	-1.7%	1.4%	1.05	-0.9%
Milwaukee-Waukesha-West Allis, WI	-6.1%	-0.8%	4.0%	1.00	0.0%
Tampa-St. Petersburg-Clearwater, FL	-6.3%	-4.3%	2.5%	0.89	-3.3%
Miami-Fort Lauderdale-Pompano Beach, FL	-6.4%	-8.3%	0.6%	0.67	-8.2%
Los Angeles-Long Beach-Santa Ana, CA	-7.1%	-3.5%	3.1%	0.98	-5.8%
Memphis, TN-MS-AR	-7.3%	-4.0%	0.7%	0.62	-4.6%
Cleveland-Elyria-Mentor, OH	-8.8%	-2.1%	4.3%	0.89	1.1%
Chicago-Joliet-Naperville, IL-IN-WI	-10.8%	-1.4%	3.5%	0.87	-7.4%
Birmingham-Hoover, AL	-11.4%	-8.0%	-2.0%	0.76	-8.4%
Rochester, NY	-12.0%	-2.1%	4.1%	1.14	-10.2%
San Jose-Sunnyvale-Santa Clara, CA	-12.6%	12.4%	8.3%	3.18	-4.8%
New Orleans-Metairie-Kenner, LA	-16.0%	-7.4%	-2.4%	0.74	0.0%
Detroit-Warren-Livonia, MI	-17.7%	-10.3%	10.5%	1.42	-3.4%
Analysis by Mark Schill, Praxis Strategy Group
Data Source: EMSI 2012.4 Class of Worker - QCEW Employees, Non-QCEW Employees & Self-Employed

The LQ (location quotient) figure in the table above is the local share of jobs that are STEM occupations divided by the national share of jobs that are STEM occupations. A concentration of 1.0 indicates that a region has the same concentration of STEM occupations as the nation. The analysis covers 80 STEM occupations in all industries.

Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register . He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared at Forbes.com.

Computer engineer photo by BigStockPhoto.com.

How California Lost its Mojo

Bill Watkins — Tue, 09 Oct 2012 01:38:23 -0400

The preferred story for California's economy runs like this:

In the beginning there was prosperity. It started with gold. Then, agriculture thrived in California's climate. Movies and entertainment came along in the early 20th Century. In the 1930s there was migration from the Dust Bowl. California became an industrial powerhouse in World War II. Defense, aerospace, the world's best higher education system, theme parks, entertainment, and tech combined to drive California's post-war expansion.

Then, in the evening of November 9th, 1989, the Berlin Wall came down. On December 25, 1991, the Soviet Union was dissolved. The Cold War was over. America responded by cutting defense spending and called the savings the Peace Dividend.

California paid that peace dividend. A huge portion of California's military industrial complex was destroyed. The aerospace industry was downsized, never to come back. Hundreds of thousands of well-paying manufacturing and engineering jobs were lost.

The ever-resilient California bounced back though. Tech, driven by an entrepreneurial culture and fed by California's great universities drove California's economy to new heights.

Then, there was the dot.com bust. A mild national recession was much more painful for a California dependent on its tech sector. Eventually California recovered. California's tech sector and climate, aided by a housing boom, restored California's prosperity.

The housing boom was followed by a housing bust. Again, California paid a high price, and unemployment skyrocketed to 30 percent above the national average.

Today, California is recovering. Its tech sector is once again bringing prosperity to the state. Furthermore, California's green legislation is providing the motivation for a brave new future of economic growth and environmental virtue.

The story is true through the Peace Dividend. California did pay a high price for the collapse of the Soviet Union. California's defense sector did begin a decline, and it never recovered. But, defense recovered in other places, as the country expanded defense spending by 21 percent in the 2000s. The United States has constantly been engaged in wars and conflicts for over a decade. On a real-per-person basis, the United States is spending as much on defense as it has at any time since 1960.

But when it comes to the present, the narrative falls down. Defense has rebounded, but not in California. California's defense sector is small and declining, not because of a permanently smaller U.S. defense sector, but because of something about California.

California's tech sector did boom after the collapse of California's defense sector, but that doesn't mean that California recovered. In fact, much of California never recovered. It's the aggregation problem.

The 1990s' recovery was largely a Bay Area recovery. Los Angeles hardly saw any uptick in employment. Here is a chart comparing Los Angeles County's jobs growth rate with the San Jose Metropolitan Statistical Area (MSA):

San Jose probably had California's fastest growing job market in the 1990s. Los Angeles was not the states slowest. Still, the differences are striking.

A few years ago, a couple of my graduate students looked at California data from 1990 through 1999. They divided California into two regions, the Bay Area and everywhere else. The Bay Area was defined as Sonoma, Marin, Napa, Solano, Contra Costa, Alameda, Santa Clara, Santa Cruz, San Mateo, and San Francisco counties. Using seven indicators of economic growth, they performed relatively simple statistical tests to see if the two geographies experienced similar economies. The indicators were employment, wages, home prices, bank deposits, population growth, construction permits, and household income.

By every measure except population growth, the Bay Area outperformed the rest of the state. The exception was probably due to commuters to the Bay Area, given that region’s exceptionally high housing prices.

Some economists will tell you that California saw faster-than-national job growth from the mid 1990s until the great recession. This is another aggregation problem. The claim is technically true, but only in the sense that California had a higher proportion of the nation's jobs in 2007 than it did in 1995. If you look at annual data, you will see that California's share of the nation's jobs only grew from 1995 through 2002. Since then, California's share of United States jobs resumed its decline:

In reality, California never recovered from the dot.com bust. California, perhaps the best place on the planet to live, couldn't keep up in a housing boom. Something was wrong.

California had lost its mojo.

Opportunity is now greater outside California than inside California. For almost 150 years, California was as widely known for its opportunity as it was for its sunshine. The combination was like a drug. George Stoneman, an army officer destined to become California's 15th governor, spoke for millions when he said "I will embrace the first opportunity to get to California and it is altogether probable that when once there I shall never again leave it."

They did come to California, and they made an amazing place. Opportunity-driven migrants are different than other people. They take big risks to leave everything they know for an uncertain future in a new place. They are confident, bold, and brash. California became just as confident, bold, and brash. The Anglo-American novelist Taylor Caldwell spoke the truth when she said "If they can't do it in California, it can't be done anywhere."

That was then. Today, California can't even rebuild an old Hotel.

The Miramar Hotel is a partially-demolished eyesore beside the 101 Freeway in Montecito, just south of Santa Barbara. The Hotel's initial structure was built in 1889. Over the years, it was expanded to a 29 structure luxury hotel and resort. In September 2000 it was closed for renovations which were expected to take 18 months. That was when the fighting started. Community groups, neighbors, and governments all had their own idea of what the Miramar should be. Two owners later, and after millions of dollars, the future to the Miramar is still uncertain.

The Miramar Hotel is a case study of what is wrong with post-industrial California, precisely because it should have been easy, and because it is not unique. Everything is hard to do in California. The state that once moved rivers of water hundreds of miles across deserts and over or through mountain ranges can't rebuild a hotel.

The situation will get worse. California has become the place people are leaving. The following chart shows that for 20 years more people have left California for other states than came to California from other states:

California's population is still increasing because of births and international immigration.

Two decades of negative domestic migration has taken its toll. Millions of risk-taking, confident, bold, and brash people have left California. They took California's mojo with them.

That seems pretty clear when you look at some statistics: California's unemployment is way above the national average. With only about 12 percent of the nation's population, California has over 30 percent of the nation's welfare recipients. San Bernardino has the nation's second highest poverty rate among cities over 200,000.

Sometimes though, aggregated data can hide California's weakness, and some, representing the always-present constituency for the status quo, use these data to deny that California's future is any less golden.

Most recently, those representing the constituency for the status quo have used California's aggregated jobs data to argue that all is well in California. They argue that California's tech sector is leading California to a new golden future.

Year-over-year data confirm that, through August 2012, California gained jobs at a faster pace than the United States. Once again, though, that growth is largely confined to one industry and one geography. California's tech sector is recovering, and amidst a generally weak recovery, it appears strong enough to generate pretty impressive aggregated results. If we disaggregate California's data, we will find that there is not just one California. There is a rich and mostly coastal California, with a few smaller inland counties on the San Francisco-Lake Tahoe corridor. Another California is very poor and mostly inland.

Here's a list of California's poorest counties by poverty rate:

County	Poverty Rate	Child Poverty Rate	Rank
Del Norte	23.5	30.6	3
Fresno	26.8	38.2	1
Imperial	22.3	31.8	6
Kern	21.4	30.3	10
Kings	22.5	29.7	5
Madera	21.7	31.7	8
Merced	23.1	31.4	4
Modoc	21.9	32.5	7
Siskiyou	21.5	30.7	9
Tulare	33.6	33.6	2

Here's a list of California richest counties by poverty rate:

County	Poverty Rate	Child Poverty Rate	Rank
Calaveras	11.1	18.3	10
Contra Costa	9.3	12.7	4
El Dorado	9.4	11.6	5
Marin	9.2	10.9	3
Mono	10.8	15	8
Napa	10.7	14.7	7
Placer	9.1	10.7	2
San Mateo	7	8.5	1
Santa Clara	10.6	13.3	6
Ventura	11	15.3	9

There are some big differences here. The percentage of Fresno's children living in poverty is four and half times the percentage of San Mateo children living in poverty. In fact, the data for California's poorest counties looks like third-world data.

When disaggregated, the job-growth data shows the same story. Through 2012's second quarter, jobs in the San Jose MSA were up 3.6 percent on a year-over-year basis. In Los Angeles, jobs were up only 1.1 percent, while in Sacramento they were up only 0.6 percent. For comparison, U.S. jobs were up about 1.3 percent for the same time period.

You can perform this analysis for all types of data. When the data are disaggregated, the story is always the same. It's telling us that California needs to get its mojo back, and the current tech boom is likely not to be enough for its recovery.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

Unemployment photo by BigStockPhoto.com.

The Cities Where A Paycheck Stretches The Furthest

Joel Kotkin — Mon, 09 Jul 2012 16:20:30 -0400

When we think of places with high salaries, big metro areas like New York, Los Angeles or San Francisco are usually the first to spring to mind. Or cities with the biggest concentrations of educated workers, such as Boston.

But wages are just one part of the equation — high prices in those East and West Coast cities mean the fat paychecks aren’t necessarily getting the locals ahead. When cost of living is factored in, most of the places that boast the highest effective pay turn out to be in the less celebrated and less expensive middle part of the country. My colleague Mark Schill of Praxis Strategy Group and I looked at the average annual wages in the nation’s 51 largest metropolitan statistical areas and adjusted incomes by the cost of living. The results were surprising and revealing.

In first place is Houston, where the average annual wage in 2011 was $59,838, eighth highest in the nation. What puts Houston at the top of the list is the region’s relatively low cost of living, which includes such things as consumer prices and services, utilities and transportation costs and, most importantly, housing prices: The ratio of the median home price to median annual household income in Houston is only 2.9, remarkably low for such a dynamic urban region; in San Francisco a house goes for 6.7 times the median local household income. Adjusted for cost of living, the average Houston wage of $59,838 is worth $66,933, tops in the nation.

Most of the rest of the top 10 are relatively buoyant economies with relatively low costs of living. These include Dallas-Fort Worth (fifth), Charlotte, N.C. (sixth), Cincinnati (seventh), Austin, Texas (eighth), and Columbus, Ohio (10th). These areas all also have housing affordability rates below 3.0 except for Austin, which clocks in at 3.5. Similar situations down the list include such mid-sized cities as Nashville, (11th), St.Louis (12th), Pittsburgh, (13th), Denver (15th) and New Orleans (16th).

One major surprise is the metro area in third place: Detroit-Warren-Livonia, Mich. This can be explained by the relatively high wages paid in the resurgent auto industry and, as we have reported earlier, a huge surge in well-paying STEM (science, technology, engineering and math-related) jobs. Combine this with some of the most affordable housing in the nation and sizable reductions in unemployment — down 5% in Michigan over the past two years, the largest such drop in the nation. This longtime sad sack region has reason to feel hopeful.

Only two expensive metro areas made our top 10 list. One is Silicon Valley (San Jose-Sunnyvale-Santa Clara), where the average annual wage last year of $92,556, the highest in the nation, makes up for its high costs, which includes the worst housing affordability among the 51 metro areas we considered: housing prices are nearly 7 times the local median income. Adjusted for cost of living, that $92,556 paycheck is worth $61,581, placing the Valley second on our list.

In ninth place is Seattle, which placed first on our lists of the cities leading the way in manufacturing and STEM employment growth. Housing costs, while high, are far less than in most coastal California or northeast metropolitan areas.

What about the places we usually associate with high wages and success? The high pay is offset by exceedingly high costs. Brain-rich Boston has the fifth-highest income of America’s largest metro areas but its high housing and other costs drive it down to 32nd on our list. San Francisco ranks third in average pay at just under $70,000, some $20,000 below San Jose, but has equally high costs. As a result, the metro area ranks a meager 39th on our list.

Much the same can be said about New York which, like San Francisco, is home to many of the richest Americans and best-paying jobs. The average paycheck clocks in at $69,029, fourth-highest in the country, but high costs, particularly for housing, eat up much of the locals’ pay: adjusted for cost of living, the average salary is worth $44,605. As a result, the Big Apple and its environs rank only 41st on our list.

Long associated with glitz and glitter, Los Angeles does particularly poorly, coming in 46th on our list. The L.A. metro area may include Beverly Hills, Hollywood and Malibu, but it also is home to South-Central Los Angeles, East L.A. and small, struggling industrial cities surrounding downtown. The relatively modest average paycheck of $55,000 annually, 12th on our list, is eaten up by a cost of living that is well above the national average. This creates an unpleasant reality for many non-celebrity Angelenos.

Many of the metro areas that rank highly on our list have enjoyed rapid population growth and strong domestic in-migration. Houston, Dallas-Fort Worth, and Austin all have been among the leaders the nation in both domestic migration and overall growth both in the last decade and so far in this one. In the past year, for example, Dallas led the nation with 40,000 net migrants while Austin’s population growth, 4 percent, was the highest rate among the large metropolitan areas.

In contrast, many of the cities toward the bottom of our list — notably the Los Angeles and New York areas — have led the country in domestic outmigration. Between 2000 and 2009, the nation’s cultural capitals lost a total of over 3 million people to other parts of the country. Although migration has slowed in the recession, the pattern has continued since 2010.

And how about the future? Income and salary growth has been so tepid recently that few large cities can claim to have made big gains over the past five years; there has been continued volatility as some regions that did worst in the past decade — for example San Francisco — pick up steam. Unfortunately any growth in such highly regulated areas also tends to increase costs rapidly, particularly for housing. In California, this is made much worse by both soaring taxes and a regulatory regime that drives up costs faster than income games.

Similarly these high prices seem to have the effect of driving out middle-class workers; places like New York, Los Angeles and San Francisco have extraordinary concentrations of both rich and poor workers but fewer in the middle. As we pointed out in our annual job and STEM rankings, many technology, manufacturing and business service jobs are heading not to the hotspots but more to the central part of the country.

Over time, it seems clear that, for the most part, the best prospects for the future lie in places that both experience income and employment gains but remain relatively affordable. These include some cities that didn’t crack the top 10 of our list but appear to be gaining ground, such as Nashville, Pittsburgh, St. Louis, San Antonio and New Orleans, a once beleaguered city that has experienced the nation’s fastest per capita personal income growth since 2005.

Maintaining affordability and a wide range of high-paying jobs many not be as glamorous a metric for success as the number of hip web startups or the concentration of educated people. But over time it is likely to be about as good a guide to future prospects as we have.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

This piece originally appeared in Forbes.

Houston photo by BigStockPhoto.com.

Note: The table below was updated with 2012 data, so it may not match the narrative above discussing 2011 data. Contact Mark Schill at mark@praxissg.com.

Metropolitan Pay per Job 2012 - Adjusted for Cost of Living
MSA Name	2012 Avg. Annual Wage	Unadj. Rank	2012 Adj Annual Wage	Adj. Rank	Rank Change
Houston-Sugar Land-Baytown, TX	$67,279	7	$75,256	1	6
San Jose-Sunnyvale-Santa Clara, CA	$107,515	1	$71,534	2	(1)
Detroit-Warren-Livonia, MI	$60,503	16	$64,571	3	13
Dallas-Fort Worth-Arlington, TX	$60,478	17	$62,867	4	13
Austin-Round Rock-San Marcos, TX	$58,103	19	$62,679	5	14
Memphis, TN-MS-AR	$53,069	36	$61,780	6	30
Charlotte-Gastonia-Rock Hill, NC-SC	$57,506	20	$61,636	7	13
Atlanta-Sandy Springs-Marietta, GA	$58,836	18	$60,844	8	10
Seattle-Tacoma-Bellevue, WA	$67,225	8	$60,237	9	(1)
Cincinnati-Middletown, OH-KY-IN	$54,683	26	$59,828	10	16
Nashville-Davidson--Murfreesboro--Franklin, TN	$53,928	30	$59,787	11	19
Birmingham-Hoover, AL	$52,773	37	$59,563	12	25
St. Louis, MO-IL	$54,112	29	$59,398	13	16
Columbus, OH	$53,634	33	$59,395	14	19
Denver-Aurora-Broomfield, CO	$62,021	11	$59,068	15	(4)
Washington-Arlington-Alexandria, DC-VA-MD-WV	$79,852	2	$58,672	16	(14)
Chicago-Joliet-Naperville, IL-IN-WI	$62,746	10	$58,477	17	(7)
Pittsburgh, PA	$55,004	24	$58,021	18	6
New Orleans-Metairie-Kenner, LA	$54,636	27	$57,151	19	8
Salt Lake City, UT	$53,901	31	$56,978	20	11
Raleigh-Cary, NC	$53,243	34	$56,762	21	13
Milwaukee-Waukesha-West Allis, WI	$55,434	22	$55,825	22	0
Phoenix-Mesa-Glendale, AZ	$53,835	32	$55,788	23	9
Minneapolis-St. Paul-Bloomington, MN-WI	$61,515	14	$55,645	24	(10)
Oklahoma City, OK	$50,641	42	$55,345	25	17
Jacksonville, FL	$51,763	40	$55,126	26	14
Richmond, VA	$55,065	23	$55,010	27	(4)
Tampa-St. Petersburg-Clearwater, FL	$50,462	43	$54,969	28	15
Louisville/Jefferson County, KY-IN	$50,385	44	$54,945	29	15
Hartford-West Hartford-East Hartford, CT	$67,826	6	$54,787	30	(24)
Kansas City, MO-KS	$54,378	28	$54,706	31	(3)
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD	$63,615	9	$54,372	32	(23)
Cleveland-Elyria-Mentor, OH	$54,701	25	$53,946	33	(8)
Boston-Cambridge-Quincy, MA-NH	$73,267	5	$53,363	34	(29)
San Francisco-Oakland-Fremont, CA	$79,137	3	$52,988	35	(32)
San Antonio-New Braunfels, TX	$49,219	47	$52,867	36	11
Rochester, NY	$51,798	39	$52,533	37	2
Baltimore-Towson, MD	$61,542	13	$51,759	38	(25)
Buffalo-Niagara Falls, NY	$50,013	46	$50,723	39	7
Las Vegas-Paradise, NV	$50,378	45	$50,328	40	5
New York-Northern New Jersey-Long Island, NY-NJ-PA	$77,640	4	$50,169	41	(37)
Portland-Vancouver-Hillsboro, OR-WA	$56,134	21	$49,414	42	(21)
Virginia Beach-Norfolk-Newport News, VA-NC	$51,693	41	$49,091	43	(2)
Miami-Fort Lauderdale-Pompano Beach, FL	$52,357	38	$48,012	44	(6)
Orlando-Kissimmee-Sanford, FL	$46,481	48	$47,771	45	3
San Diego-Carlsbad-San Marcos, CA	$61,149	15	$46,822	46	(31)
Los Angeles-Long Beach-Santa Ana, CA	$61,634	12	$46,411	47	(35)
Providence-New Bedford-Fall River, RI-MA	$53,071	35	$42,254	48	(13)
Riverside-San Bernardino-Ontario, CA	$46,084	49	$41,000	49	0
Indianapolis-Carmel, IN	$53,839		No data
Sacramento--Arden-Arcade--Roseville, CA	$59,200		No data

2012 wage data: EMSI Class of Worker, 2012.3
Cost of living data: C2ER

No, It's the Deniers who Are Wrong

Bill Watkins — Fri, 15 Jun 2012 01:38:04 -0400

Dennis Meyers is the Principal Economist at California’s Department of Finance. He has recently published two parts of what is promised to be a four-part series titled The Declinists are Wrong. He intends to convince us of “the fundamental strength of the Golden State’s dynamic and vibrant economy.”

I was going to wait until the entire series was complete before commenting, but part one and part two are so poorly argued that I feel compelled to respond now.

In part one, Meyers argues that California’s economy is strong because it is big. He points out that California represents about 12 percent of the United States population and is the ninth largest economy in the world.

This is, as Mr. Spock would say, highly illogical. It just doesn’t follow that just because you are big you will have a “dynamic and vibrant” economy. Instead, we have lots of counter examples. Great Britain was once large, wealthy, vigorous, and powerful. Not anymore.

Closer to home, we have Detroit. In 1950, Detroit’s population was 1.85 million, and it was America’s fourth largest city. Today, Detroit has a population of only 713,777. Its once-vigorous economy is not even a shadow of its former self. Its government is unable to even keep the lights on. It turns out that the lights do go off before the last person leaves.

In part two, Meyers argues the California is wealthy and this assures a prosperous future. This is, of course, the same logical fallacy as in part one. Detroit was also once one of America’s richest cities.

Meyers makes another mistake: He talks about average incomes. When it comes to incomes, averaging hides California’s real story, which is its increasing inequality and increasing poverty. California has two of America's poorest cities. Fresno, with a poverty rate of 30.2 percent, is the eighth poorest American city over 200,000 population. San Bernardino, in the same category, and with a poverty rate of 34.6 percent, is second only to Detroit.

One of the denialists’ favorite tactics is to find a data point where California does pretty well, and then argue that the selected data point is a reason for the state to do well. Call this a selective data bias. Of course, expanding from the specific to the general is a logical fallacy. This dog is brown therefore all dogs are brown.

Typically, venture capital is the selected data. A huge percentage of the nation’s venture capital is invested in California, no doubt about it. The problem is that the nation’s venture capital is not all that much. In 2011, California received 51 percent of the nation’s $28.76 billion venture capital net investment — $14.76 billion, which represents less than one percent of California’s almost $2 trillion economy. Almost all of it went to four counties in the Bay Area.

Meyers takes selective data analysis to a new zenith. He digs through California’s jobs data to find small sectors that are generating jobs at a faster rate in California than nationwide. For example, California's Computer and Electronic Production Sector (a sub-category of Durable Manufacturing) created jobs at a rate of 2.1 percent in 2010, compared to a national rate of 1.1 percent.

That’s all well and good, but over the past 12 months, California has lost durable manufacturing jobs. The growth that Meyers cites has only slowed California’s manufacturing jobs losses. Slowing decline is welcome, but it’s not a sign of imminent prosperity.

And he adds a nice touch discussing mining:

"The one high-wage sector in which national job gains outpaced those in California was Mining, which includes oil and natural gas production. There are several regions, such as Texas, that are blessed with generous deposits of these resources which California lacks. This advantage also shows up in Engineering Services employment…. The presence of healthy oil and natural gas resources typically generates demand for engineering consulting services related to exploration and extraction."

That’s just wrong. California has abundant oil and natural gas resources. In fact, recent California discoveries are roughly equivalent to the proven reserves of Nigeria, the world’s 10th-largest oil producer. We’ve chosen not to extract them. We’ve also chosen to no longer exploit California’s vast mineral resources.

Chris Thornberg, Beacon Economics founder and economist, recently came up with a novel argument to deny California’s decline. He says that since recent jobs data have been revised upward, “we are in full recovery mode and not looking back.” The problem here is that the jobs data were revised from terrible to merely dismal.

Look at the data. Below are two charts summarizing changes in jobs since the pre-recession peak. The first is the United States. California is the second. Both are pretty discouraging. Four and half years after the recession, the US is still down almost 5 million jobs. This represents about a 3.5 percent net decline. California, down almost a million jobs, is even worse — down a net 6.2 percent.

Job Changes From the Peak

California has also seen slower-than-US job gains over the past year. It is worse than that, though. California has lost jobs in durable manufacturing, non-durable manufacturing, and in the other services category, labeled as Personal, Repair, & Maintenance Services in the table. By contrast, the US only saw job losses in one sector over the past year, the information and technology sector.

The very recent news is worse. In March, the most recent month for which we have data, California lost jobs while the nation gained. And the number of declining sectors has expanded to include construction, durable and non-durable manufacturing, transportation, warehousing, utilities, education/health, and leisure/hospitality.

The signs of California’s weaknesses are all around us. With about 12 percent of the US population, we have about a third of the nation’s welfare recipients. It tops the nation in teen unemployment. Domestic migration has been negative for about two decades, after a century-and-a-half of being the destination for people from all over America.

California’s weakness is the result of California’s choices. It has chosen to be anti-oil and anti-gas, and to unilaterally implement the nation’s most restrictive environmental regulations. California has elected to impose the nation’s most restrictive regulatory regime on all businesses and an onerous tax system. In short, California has chosen to be anti-opportunity and to have a weak economy. The denialists have chosen not to see California’s decline.

Flickr Photo by Steve Rhodes: Jobless not Hopeless, Ask for my resume - Chris Stewart, Union Square, San Francisco 2009

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

Is Perestroika Coming In California?

Joel Kotkin — Mon, 11 Jun 2012 21:09:52 -0400

When Jerry Brown was elected governor for a third time in 2010, there was widespread hope that he would repair the state’s crumbling and dysfunctional political edifice. But instead of becoming a Californian Mikhail Gorbachev, he has turned out to be something more resembling Konstantin Chernenko or Yuri Andropov, an aged hegemon desperately trying to save a dying system.

As with the old party bosses in Russia, Brown’s distinct lack of courage has only worsened California’s lurch toward fiscal and economic disaster. Yet as the budget woes worsen, other Californians, including some Democrats, are beginning to recognize the need for perestroika in the Golden State. This was most evident in the overwhelming vote last week in two key cities, San Diego and San Jose, to reform public employee pensions, a huge reversal after decades of ever more expansive public union power in the state.

California’s “progressive” approach has been enshrined in what is essentially a one-party state that is almost Soviet in its rigidity and inability to adapt to changing conditions. With conservatives, most businesses and taxpayer advocates marginalized, California politics has become the plaything of three powerful interest groups: public-sector unions, the Bay Area/Silicon Valley elite and the greens. Their agendas, largely unrestrained by serious opposition, have brought this great state to its knees.

California’s ruling troika has been melded by a combination of self-interest and a common ideology. Their ruling tenets center on support for an ever more intrusive, and expensive, state apparatus; the need to turn California into an Ecotopian green state; and a shared belief that the “genius” of Silicon Valley can pay for all of this.

Now this world view is foundering on the rocks of economic reality. The Soviet Union armed itself to the teeth and sent cosmonauts into space while the public waited on line for toothpaste and sausages. Similarly, Californians suffer from a combination of high taxes and intrusive regulation coupled with a miserable education system — the state’s students now rank 47th in science achievement — and a rapidly deteriorating infrastructure.

The current recession has been particularly severe, continuing at a more acute level than in most states, including places like Florida and Arizona, which also suffered greatly from the housing bust. California now has the third highest unemployment rate in the U.S., beating out only its co-dependent evil twin Nevada and Rhode Island. At the same time, according to a recent Public Policy Institute of California study, inequality in the devoutly “progressive” state has been growing much faster than in the rest of the country.

The most auspicious sign of grassroots support for perestroika was last week’s smack down of public employee unions in San Jose and San Diego. For the first time in recent memory, the unions suffered a humiliating defeat — the measures passed by a margin greater than two to one — as voters endorsed deep reform of the pension burdens bringing these cities to the brink of bankruptcy. Backed by its Democratic mayor, Chuck Reed, San Jose’s measure B aims to reduce pension benefits for both future and current hires. Unsurprisingly, the public employee have threatened to sue.

This may precipitate what could become the California equivalent of a prairie fire. Like San Jose and San Diego, many other California cities are on the verge of bankruptcy. Union-dominated Los Angeles could be the next big domino to fall, according to the city’s own chief administrative office, and has been forced to boost its bonded indebtedness and cut back on critical infrastructure spending to stave off the inevitable.

As services drop and taxes rise — California’s already are among the nation’s highest — voters increasingly realize that one of the main problems is over-generous pensions for public sector workers. This is reflected in the sad reality that the state consistently competes with Illinois for the worst bond rating in the country. Most recently, the state upped its deficit estimate to $16 billion from a $9.2 billion estimate made just in January.

Brown could have used this mounting crisis to reveal his inner Gorbachev. But instead, he has so far chosen a classic Chernenko-Andropov muddle. He proposed a mild pension reform but could not persuade his own party — aware that vengeful the unions will be around long after the old man is gone — to consider it.

More recently, the governor showed his own inner Stalinist by jettisoning his original more modest tax increase proposal for a more radical teachers’ union measure that would raise California’s income tax to the highest in the nation.

Brown’s “millionaire’s” tax, as it is being marketed, starts with individuals making $250,000 or more. Right now it is still ahead in the polls but seems to be losing ground. Joel Fox, a longtime anti- tax activist, senses that people in the state — as evidenced by the San Jose and San Diego votes — are beginning to realize that the tax increases are designed primarily not to improve the schools, keep the parks open or pave the roads but simply to bolster public-sector pay and pensions.

This collective turning on of the civic light bulb comes at the same time that the primary economic delusion that has dominated progressive politics — the myth of the high-tech savior — has fallen into disrepute. Under Brown and his monumentally incompetent predecessor, Arnold Schwarzenegger, state officials maintained a belief that Silicon Valley’s money machine would be able to bail the state out of its budgetary morass.

In this context, the underwhelming performance of Facebook’s IPO last month takes on major political significance. Not only will there be fewer puerile billionaires to inflate the Valley real estate market and bankroll “progressive” candidates and causes, scores of hip wannabe start-ups suddenly may find themselves no longer the darlings of venture capital investors or the stock market. Like California’s budget itself, the social media boom is now looking like something of a fraud.

Another potential casualty of the weak economy could be the green drive to remake the state into a kind of Ecotopian paradise. This is evident in growing opposition to some of Brown’s most beloved initiatives, notably a fantastically expensive high-speed rail system. Sold in the euphoric progressive atmosphere of 2008, support has collapsed as the price tag has soared and the state’s grievous fiscal problems have worsened. The most recent LA Times poll currently finds nearly three in five California voters would like to see the project scrapped.

Once unassailable politically, the environmental community is fracturing between those thoroughly allied to rent-seeking capitalists and the Democratic Party and those still primarily concerned with preserving nature. The Sierra Club, for example, objects to Brown’s attempt to exempt the high-speed line from environmental review. Some Greens also object to Brown-supported projects like the massive tortoise-roasting solar farm planned for the Mojave Desert.

Both Brown and the Greens also have failed to deliver many of the much ballyhooed “green jobs” that they insisted their policies would produce. Instead they may soon have to confront an electorate increasingly skeptical about green fantasies and more concerned with a persistently under-performing economy.

Clearly, the conditions for a California perestroika are coming into place. Still missing is a coherent vision — from either Independents, centrist Democrats or Republicans — that can unite business, private-sector workers and taxpayers around a fiscally prudent, pro-economic growth agenda. Yet it’s clearly good news that , for the first time in a decade, there’s hope that the whole corrupt, failing California political edifice could come crashing down, providing a renewed hope for recovering the state’s former greatness.

This piece originally appeared in Forbes.

Jerry Brown photo by BigStockPhoto.com.

Facebook’s False Promise: STEM's Quieter Side Of Tech Offers More Upside For America

Joel Kotkin — Wed, 06 Jun 2012 11:09:04 -0400

Facebook‘s botched IPO reflects not only the weakness of the stock market, but a systemic misunderstanding of where the true value of technology lies. A website that, due to superior funding and media hype, allows people to do what they were already doing — connecting on the Internet — does not inherently drive broad economic growth, even if it mints a few high-profile billionaires.

Of course Facebook is a social phenomenon that has affected how people live and interact, but its economic impact — and future level of profitability — is less than clear. This stands in sharp contrast to Apple‘s iTunes, which has become a new distribution platform for small software companies and musicians, not to mention the role of Amazon in the distribution of books and other products.

From the standpoint of economic development, it’s time to focus on the growing divergence between two different aspects of technology. One is largely an information sector that focuses on such things as information software (think Facebook or Google), publishing and entertainment. For most journalists and urban theoreticians, this is the “sexy” sector, particularly since it tends to employ people just like them: younger, products of elite college educations, often living in “hip and cool” places like San Francisco, Manhattan or west Los Angeles.

Then there’s a larger, less-heralded group of workers that my colleague Mark Schill at Praxis Strategy Group has focused on: those in STEM (science-, technology-, engineering- and mathematics-related) jobs. These workers perform technology work across a broad array of industries, including but not limited to computers, media and the Internet, representing some 5.3 million jobs in the nation’s 51 largest metropolitan areas. This compares to roughly 2.2 million jobs classified as in the information sector in these 51 regions.

These STEM occupations are about harnessing technology to improve productivity in mundane traditional industries and the service sector. STEM workers are as likely, if not more so, to be working for manufacturers, retailers or energy producers as for software firms. These workers epitomize the notion of technology, as the French sociologist Marcel Mauss once put it, as “a traditional action made effective.”

The information sector may be increasingly important, but it is STEM workers, working in a diverse set of industries (including information), who hold the broader hope for the U.S. economy. Over the past decade, the information sector has created many stars, but about as many flameouts. Overall information employment peaked in 2000 at 3.6 million jobs; by 2011 this number had dropped by almost a million. Things have not much improved even in the current “boom”; between February and May this year, the sector lost over 8,000 jobs.

Essentially the information sector has created a huge amount of churn, as the nature of its employment changes with shifts in technology. For example, the software sector within information has seen real growth, adding some 10,000 jobs the past two years, while other parts of the information sector have suffered significant drops. These include, sadly for aged scribblers, traditional publishing, such as newspapers and book publishing, which has gone from nearly 1 million jobs in 2002 to under 740,000 in May of this year.

With Facebook stock in the tank, and other major social media sites languishing, the current “boom” may prove among the shortest-lived in recent memory. Shares of less well-anchored companies — meaning those with only a vague outlook for long-term profits — such as Zynga and Groupon have fallen dramatically. The market for the next round of ultra-hyped IPOs also seems to be dissipating rapidly. The carnage has led at least one analyst to suggest Facebook’s fall could “destroy the U.S. economy.”

Fortunately the overall picture in technology is more hopeful than you’d understand from reading about social media startups. STEM employment has grown 3% over the past two years, more than twice the national average. In the 51 largest metros areas, 150,000 STEM jobs were added from 2009 through 2011. More important still, this reflects a long-term pattern: Over the past decade, STEM employment — despite a drop during the recession — expanded 5.4%.

These two different classifications underpin geographical differences between and within regions. Sometimes the “hot” areas don’t look so great when it comes to actual job creation in these generally well-paying fields.

Silicon Valley’s social media boom, for example, may have propelled it once again, at least temporarily, into the ranks of the fastest-growing employment centers. Yet it’s not seeing the gains in STEM jobs that took place during earlier Valley booms in the ’80s or ’90s that were broader based, encompassing manufacturing and industry-oriented software. Indeed STEM employment in the Valley still has not recovered from the 2001 tech bust — the number of STEM jobs is down 12.6% from 10 years ago.

Metropolitan STEM Job Growth, Sorted by 10-year Growth
MSA Name	2001-2011 Growth	2009-2011 Growth	2011 Concentration
Las Vegas-Paradise, NV	25.5%	-3.4%	0.51
Washington-Arlington-Alexandria, DC-VA-MD-WV	20.8%	4.4%	2.16
San Antonio-New Braunfels, TX	20.1%	3.0%	0.82
Nashville-Davidson--Murfreesboro--Franklin, TN	18.5%	3.1%	0.74
Riverside-San Bernardino-Ontario, CA	18.3%	-1.6%	0.55
Seattle-Tacoma-Bellevue, WA	18.1%	7.6%	1.95
Salt Lake City, UT	17.5%	4.5%	1.17
Jacksonville, FL	17.4%	3.0%	0.88
Baltimore-Towson, MD	17.2%	3.9%	1.36
Raleigh-Cary, NC	14.9%	1.4%	1.56
Houston-Sugar Land-Baytown, TX	14.3%	3.6%	1.25
Orlando-Kissimmee-Sanford, FL	14.2%	-1.4%	0.90
San Diego-Carlsbad-San Marcos, CA	13.1%	6.5%	1.38
Austin-Round Rock-San Marcos, TX	8.8%	2.4%	1.75
Charlotte-Gastonia-Rock Hill, NC-SC	8.1%	2.1%	0.97
Columbus, OH	7.8%	3.8%	1.32
Buffalo-Niagara Falls, NY	7.7%	2.4%	0.96
Virginia Beach-Norfolk-Newport News, VA-NC	7.5%	-3.1%	1.05
Miami-Fort Lauderdale-Pompano Beach, FL	7.5%	2.8%	0.73
Indianapolis-Carmel, IN	7.5%	1.2%	1.06
Oklahoma City, OK	7.3%	2.9%	0.89
Dallas-Fort Worth-Arlington, TX	6.2%	3.7%	1.21
Cincinnati-Middletown, OH-KY-IN	6.1%	4.6%	1.08
Sacramento--Arden-Arcade--Roseville, CA	6.0%	-1.6%	1.19
Louisville/Jefferson County, KY-IN	5.6%	4.3%	0.77
Phoenix-Mesa-Glendale, AZ	5.4%	1.5%	1.00
Portland-Vancouver-Hillsboro, OR-WA	5.2%	4.2%	1.24
Atlanta-Sandy Springs-Marietta, GA	4.8%	4.3%	1.10
Denver-Aurora-Broomfield, CO	4.0%	2.8%	1.47
Richmond, VA	3.8%	0.4%	1.14
Providence-New Bedford-Fall River, RI-MA	3.6%	2.4%	0.90
Pittsburgh, PA	3.1%	3.6%	1.07
Hartford-West Hartford-East Hartford, CT	3.1%	1.2%	1.18
Minneapolis-St. Paul-Bloomington, MN-WI	2.6%	3.1%	1.37
Tampa-St. Petersburg-Clearwater, FL	2.4%	2.0%	0.88
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD	2.2%	0.3%	1.19
Kansas City, MO-KS	1.9%	-2.6%	1.15
New York-Northern New Jersey-Long Island, NY-NJ-PA	1.2%	2.9%	1.00
San Francisco-Oakland-Fremont, CA	0.8%	3.7%	1.60
Memphis, TN-MS-AR	0.0%	0.7%	0.56
Boston-Cambridge-Quincy, MA-NH	0.0%	4.8%	1.64
Los Angeles-Long Beach-Santa Ana, CA	-2.2%	1.7%	0.98
Milwaukee-Waukesha-West Allis, WI	-2.3%	0.2%	1.04
St. Louis, MO-IL	-3.5%	-1.4%	1.05
Birmingham-Hoover, AL	-3.9%	-3.4%	0.70
Cleveland-Elyria-Mentor, OH	-4.9%	1.2%	0.93
Chicago-Joliet-Naperville, IL-IN-WI	-5.2%	1.1%	0.96
New Orleans-Metairie-Kenner, LA	-6.7%	3.6%	0.71
Rochester, NY	-8.9%	2.1%	1.19
San Jose-Sunnyvale-Santa Clara, CA	-12.6%	4.9%	3.09
Detroit-Warren-Livonia, MI	-14.9%	8.8%	1.42
Total in Top 51 Regions	4.2%	3.0%

Data source: EMSI Complete Employment, 2012.1. The "2011 Concentration" figure is a location quotient. That's the local share of jobs that are STEM occupations divided by the national share of jobs that are STEM occupations. A concentration of 1.0 indicates that a region has the same concentration of STEM occupations as the nation.

This piece originally appeared in Forbes.

Computer engineer photo by BigStockPhoto.com.

Facebook’s IPO Testifies to Silicon Valley’s Power but Does Little for Other Californians

Joel Kotkin — Fri, 18 May 2012 09:54:51 -0400

The $104 billion Facebook IPO testifies to the still considerable innovative power of Silicon Valley, but the hoopla over the new wave of billionaires won’t change the basic reality of the state’s secular economic decline.

This contradicts the accepted narrative in Sacramento. Over five years of below-par economic performance, the state’s political, media, and business leadership has counted on the Golden State’s creative genius to fund the way out of its dismal budgetary morass and an unemployment rate that’s the third highest in the nation. David Crane, Governor Schwarzenegger’s top economic adviser, for example, once told me that California could easily afford to give up blue-collar jobs in warehousing, manufacturing, or even business services because the state’s vaunted “creative economy” would find ways to replace the lost employment and income. California would always come out ahead, he said, because it represented “ground zero for creative destruction.”

Schwarzenegger’s successor, Jerry Brown, and his economic team have been singing the same song, hoping, among other things, that the Facebook offering, and other internet IPOs, might bring in enough money to stave off the state’s massive, growing deficit, now estimated at more than $16 billion. Yet even as the new IPO wave has risen, California’s fiscal situation has worsened while state tax collections around the nation have begun to rise.

Of course, Facebook’s public offering will help, but only so much. According to the legislative analyst’s office, the Facebook gusher should put an additional $1.5 billion into the state coffers this year, roughly one tenth of the state deficit, with perhaps another billion in the following few years. This constitutes a nice win, but barely enough to sustain the state even over the short—not to mention the long—run.

The problem lies in large part in the nature of the economy epitomized by Facebook. Being based in cyberspace and driven entirely by software, such companies employ almost exclusively well-educated workers from the upper middle and upper classes. In the past “a booming tech economy created all kinds of jobs,” notes Russell Hancock, president and CEO of Joint Venture Silicon Valley, a key industry research group. “Now we only create these rarefied jobs.”

As Hancock suggests, this contrasts with previous California booms. Back in the ’80s or even the ’90s, California’s tech booms were felt broadly in Orange and other Southern California counties and appeared to be moving inland to places like Sacramento. Anchored by its then dominant aerospace industry, Los Angeles remained a tech power on its own while enjoying employment from a burgeoning fashion industry, the nation’s dominant port and, of course, Hollywood.

In contrast, today’s job surge has been largely concentrated in a swath from San Francisco down to Sunnyvale. These firms create the kind of outrageous fortunes celebrated in the media, but their overall employment impact has not been enough to keep California even at parity with the rest of the country. Over the past decade, the state has created virtually no new STEM jobs (science, technology, engineering and math-related employment), while the U.S. experienced a 5.4 percent increase. Arch rival Texas enjoyed a STEM job gusher of 13.6 percent. More important still, mid-skill jobs grew only 2 percent, one third the rate nationally and roughly one fifth the expansion in the Lone Star State.

Even the Bay Area itself has enjoyed less than stellar growth. Indeed, even now overall unemployment in the Valley remains at 9.3 percent, below the state average of more than 11 percent but higher than the national average. The Valley now boasts 12 percent fewer STEM jobs than in 2001; manufacturing, professional, and financial jobs also have shown losses. Overall, according to research by Pepperdine University economist Mike Shires, the region at the end of last year had 170,000 fewer overall than just a decade ago.

Today’s Valley boom is also very limited geographically as well, with most of the prosperity concentrated in the Peninsula area, particularly around places like Mountain View (headquarters of Google), Menlo Park (headquarters of Facebook) and in pockets of San Francisco. Meanwhile, San Jose, which fancies itself “the capital of Silicon Valley,” faces the prospect of municipal bankruptcy, a fate increasingly common among cities across the state.

The magnetic pull of the current tech boom is even weaker across the bay in the Oakland area, where unemployment scales to 14.7 percent. According to the recent rankings of job growth Shires and I did for Forbes, Oakland ranked 63rd out of the nation’s 65 largest metropolitan areas, placing between Cleveland and Detroit.

Outside of San Diego, which has continued to gain jobs, the echoes of the tech “boom” are even fainter elsewhere in the state. Sacramento placed 60th in the job creation study, just behind Los Angeles, by far the largest region in the state. Former high-flier Riverside-San Bernardino ranked 50th, while the once booming “OC,” Orange County, could do no better than a mediocre 47th.

These economies have also become technological laggards. According to a study on tech job creation by my colleague Mark Schill, greater Los Angeles, Sacramento, and Riverside-San Bernardino, three large regions, now rank in the bottom third in tech growth. The Los Angeles area, once the global center of the aerospace industry, now has a lower percentage of jobs in tech-related fields than the national average.

Beyond the big coastal cities, in places few reporters and fewer venture capitalists travel to, things are often worse. Fresno, Modesto, and Merced have among the weakest employment numbers in the nation. They may be partying in Palo Alto, but things are becoming increasingly Steinbeckian just 50 miles inland.

This is happening even as there has been an ominous decline in the overall quality of California’s talent pool. For residents over age 65, the state ranks 2nd in percentage of people with an AA degree or higher, but among workers 25 to 34 it falls to 30th. Even worse, according to National Assessment of Educational Progress, California eighth graders now rank 47th in science-related skills, ahead only of Mississippi, Alabama, and the District of Columbia.

None of this seriously affects the new wave of Valley firms. A Google, Apple or Facebook can cream the top not only of the California workforce, but the most gifted drawn from around the world. The old Valley depended on engineers and technicians cranked out in unheralded places like San Jose State and the junior colleges; the new Valley simply mines Stanford, CalTech, Harvard and MIT for its most critical raw material.

This reflects the contradiction inherent in California’s emerging economy. High-end, massively financed tech firms like Facebook can endure the Golden State’s weak general education, insanely tough regulations, high energy costs, and rising tax rates. Silicon Valley software firms generally tend to support, or certainly don’t oppose, the draconian energy, land use, and other state regulations widely opposed by other, less ethereal industries.

The main reason: costs cannot be so well sustained outside the favored zones. This explains why people are not flocking in large numbers to California anymore. Last year, according to IRS data, California ranked 50th ahead of only Michigan--for rate of in-migration. So as the most gifted young nerds cluster around Palo Alto, middle-class families leave; between 2000 and 2009, 1.5 million more domestic migrants left the state than came. Even the Bay Area--the epicenter of the boom—has been losing 50,000 domestic migrants a year, due to unsustainably high housing prices and a narrower range of employment options for all but the best educated.

Many of these people–and companies—are moving to places that are far less attractive in terms of climate or culture, such as Utah, Texas, or even Oklahoma. The migrants may miss the beach or the temperate climate but reap huge benefits from lower home prices, lower taxes, and much better business environments.

Of course, any state would welcome the windfall that is coming from Facebook and other dot.com phenomena. But the celebration over IPOs and rich payouts obscures the greater danger that threatens the future of the Golden State. The current boom demonstrates that Californians can no longer count on the prosperity of a few as the harbinger of better things for the rest of us. Instead Californians now inhabit, as a recent Public Policy Institute of California study suggests, a society that is increasingly class divided, far more so than the national average.

Ultimately, one should not expect Facebook, or any company, to solve these vast problems. To expect this tech wave to reverse California’s decline is nothing short of delusional.

This piece originally appeared in The Daily Beast.

Facebook photo by BigStockPhoto.com.

The Best Cities For Tech Jobs

Joel Kotkin — Thu, 17 May 2012 09:51:26 -0400

With Facebook poised to go public, the attention of the tech world, and Wall Street, is firmly focused on Silicon Valley. Without question, the west side of San Francisco Bay is by far the most prodigious creator of hot companies and has the highest proportion of tech jobs of any region in the country — more than four times the national average.

Yet Silicon Valley is far from leading the way in expanding science and technology-related employment in the United States.

To determine which metropolitan areas are adding the most tech-related jobs, my colleague Mark Schill at Praxis Strategy Group developed a ranking system for Forbes that measures employment growth in the sectors most identified with the high-tech economy (including software, data processing and Internet publishing), as well as growth in science, technology, engineering and mathematics-related (STEM) jobs across all sectors. The latter category captures tech employment growth that is increasingly taking place not just in software or electronics firms, but in any industry that needs science and technology workers, from manufacturing to business services to finance. We tallied tech sector and STEM job growth over the past two years and over the past decade for the 51 largest metropolitan statistical areas in the United States. We also factored in the concentration of STEM and tech jobs in those MSAs. (See the end of this piece for a full rundown of our methodology.)

Anyone who has followed tech over the past 30 years or more understands the cyclical nature of this industry — overheated claims of a “tech-driven jobs boom” often are followed by a painful bust. This is particularly true for Silicon Valley. The remarkable confluence of engineering prowess, marketing savvy and, perhaps most critically, access to startup capital may have created the greatest gold rush of our epoch, but the Valley at the end of 2011 employed 170,000 fewer people than in 2000.

Most of the job losses came in manufacturing, and business and financial services, sectors with a significant number of STEM workers. Even though the current boom has sparked an impressive 8% expansion in the number of tech jobs in the San Jose-Sunnyvale-Santa Clara metropolitan statistical area over the past two years, and 10% over the past decade, the area still has 12.6% fewer STEM jobs than in 2001. Overall, the recent growth and concentration of tech and STEM jobs remains good enough for the San Jose metro area to take seventh place in our ranking of the Best Cities For Tech Jobs. Next-door neighbor San Francisco, ranked 13th, has enjoyed similar tech and STEM growth over the past two years, but over 2001-2011, its total STEM employment inched up only a modest 0.8%.

The Established Winners

So which areas offer better long-term, broad-based prospects for tech growth? The most consistent performer over the period we assessed is the Seattle-Tacoma-Bellevue, Wash., metro area, which takes first place on our list. Its 12% tech job growth over the past two years and 7.6% STEM growth beat the Valley’s numbers. More important for potential job-seekers, the Puget Sound regions has grown consistently in good times and bad, boasting a remarkable 43% increase in tech employment over the decade and an 18% expansion in STEM jobs. Seattle withstood both recessions of the past decade better than most regions, particularly the Valley. The presence of such solid tech-oriented companies as Microsoft, Amazon and Boeing — and lower housing costs than the Bay Area — may have much to do with this.

Our top five includes two government-dominated regions: the Washington-Arlington-Alexandria MSA places second with 20.6% growth in tech employment since 2001 and 20.8% growth in STEM jobs; and Baltimore-Towson, Md., places fifth with 38.8% growth in tech jobs in the same period and 17.2% growth in STEM. Over the past two years, their tech growth has been a steady, if not spectacular 4%. One key to the stability may be the broadness of the tech economy in the greater D.C. area; as the Valley has become dominated by trends in web fashion, the Washington tech complex boasts substantial employment in such fields as computer systems design, custom programming and private-sector research and development.

Diversity in tech may also explain the success of other tech hotspots around the country. No. 3 San Diego-Carlsbad-San Marcos, Calif., has ridden growth in such fields as biotechnology and other life and physical sciences research. Over the past decade, tech employment has grown by almost 30% and STEM jobs by 13% in this idyllic Southern California region, and over the past two years, by 15.7% and 6.5%, respectively. Like San Diego, No. 11 Boston is also a well-established tech star, enjoying 11.3% tech growth over the last decade and nearly 10% over the past two years, with a diversified portfolio that includes strong concentrations in biotechnology, software publishing and Internet publishing. STEM employment, however, has remained flat over the past 10 years though.

New Tech Hotspots

Which areas are the likely “up and comers” in the next decade? These are generally places that have been building up their tech capacity over the past several decades, and seem to be reaching critical mass. One place following a strong trajectory is Salt Lake City, No. 4 on our list, which has enjoyed a 31% spurt in tech employment over the past 10 years. Some of this can be traced to large-scale expansion in the area by top Silicon Valley companies such as Adobe, Electronic Arts and Twitter.

These companies have flocked to Utah for reasons such as lower taxes, a more flexible regulatory environment, a well-educated, multilingual workforce and spectacular nearby natural amenities. Perhaps most critical of all may be housing prices: Three-quarters of Salt Lake area households can afford a median-priced house, compared to 45% in Silicon Valley and about half that in San Francisco.

Several other top players with above average shares of tech jobs are emerging as powerful alternatives to Silicon Valley. Like Salt Lake City, eighth-place Columbus, Ohio, boasts above-average proportions of tech and STEM jobs in the local economy, and benefits from being both affordable and business friendly. The Ohio state capital has enjoyed 31% growth in tech jobs over the past decade and 9.5% in the past two years. Raleigh-Cary, N.C., ranked ninth, is another relatively low-cost, low-hassle winner, expanding its tech employment a remarkable 32.3% in the past decade and STEM jobs 15%.

Possible Upstarts

Several places with historically negligible tech presences have broken into our top 10. One is No. 6 Jacksonville, Fla., which has enjoyed a 72.4% surge in tech employment and 17.4% STEM job growth since 2001, mostly as a result of a boom early in the decade in data centers, computer facilities management, custom programming and systems design. Another surprising hotspot: No. 10 Nashville, Tenn., where growth in data processing and systems design fueled tech industry growth of 43% along with 18.5% STEM employment growth over the past decade.

Who’s Losing Ground

Some mega-regions with established tech centers have been falling behind, notably No. 47 St. Louis, No. 45 Chicago, No. 41 Philadelphia and No. 39 Los Angeles. These areas still boast strong concentrations of STEM-based employment and prominent high-tech companies, but have suffered losses in fields such as aerospace and telecommunications. Remarkably despite the social media boom, the country’s two dominant media centers — L.A. and No. 33 New York — have also performed poorly enough that their STEM and tech concentrations have fallen to roughly the national average.

Valley Uber Alles?

Silicon Valley may be churning out millionaires like burritos at a Mexican restaurant, but looking into the future, one has to wonder if its dominance will diminish. Limited developable land, an extremely difficult planning environment, high income taxes and impossibly stratospheric housing costs may lead more companies and people to relocate elsewhere, particularly if the big paydays needed to make ends meet wind down. Mark Zuckerberg and company can bask in their big IPO this week, but the Valley may soon need to consider what it must do to compete with the many other regions that are inexorably catching up with it.

Best Metropolitan Areas for Technology Jobs Rankings

Region	Rank	Index Score
Seattle-Tacoma-Bellevue, WA	1	76.0
Washington-Arlington-Alexandria, DC-VA-MD-WV	2	66.4
San Diego-Carlsbad-San Marcos, CA	3	66.0
Salt Lake City, UT	4	58.5
Baltimore-Towson, MD	5	57.7
Jacksonville, FL	6	57.6
San Jose-Sunnyvale-Santa Clara, CA	7	57.2
Columbus, OH	8	52.9
Raleigh-Cary, NC	9	51.9
Nashville-Davidson--Murfreesboro--Franklin, TN	10	51.7
Boston-Cambridge-Quincy, MA-NH	11	51.4
San Antonio-New Braunfels, TX	12	50.7
San Francisco-Oakland-Fremont, CA	13	48.5
Houston-Sugar Land-Baytown, TX	14	47.6
Cincinnati-Middletown, OH-KY-IN	15	47.4
Austin-Round Rock-San Marcos, TX	16	46.8
Atlanta-Sandy Springs-Marietta, GA	17	46.5
Portland-Vancouver-Hillsboro, OR-WA	18	46.3
Detroit-Warren-Livonia, MI	19	46.0
Dallas-Fort Worth-Arlington, TX	20	44.2
Denver-Aurora-Broomfield, CO	21	42.9
Pittsburgh, PA	22	42.9
Buffalo-Niagara Falls, NY	23	42.3
Charlotte-Gastonia-Rock Hill, NC-SC	24	42.1
Indianapolis-Carmel, IN	25	41.5
Minneapolis-St. Paul-Bloomington, MN-WI	26	41.0
Providence-New Bedford-Fall River, RI-MA	27	40.5
Miami-Fort Lauderdale-Pompano Beach, FL	28	40.1
Richmond, VA	29	39.1
Phoenix-Mesa-Glendale, AZ	30	38.7
Louisville/Jefferson County, KY-IN	31	38.6
New Orleans-Metairie-Kenner, LA	32	38.0
New York-Northern New Jersey-Long Island, NY-NJ-PA	33	37.8
Hartford-West Hartford-East Hartford, CT	34	37.6
Tampa-St. Petersburg-Clearwater, FL	35	36.0
Oklahoma City, OK	36	35.7
Orlando-Kissimmee-Sanford, FL	37	35.0
Riverside-San Bernardino-Ontario, CA	38	33.8
Los Angeles-Long Beach-Santa Ana, CA	39	33.7
Las Vegas-Paradise, NV	40	33.4
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD	41	33.3
Sacramento--Arden-Arcade--Roseville, CA	42	33.2
Cleveland-Elyria-Mentor, OH	43	29.9
Rochester, NY	44	29.5
Chicago-Joliet-Naperville, IL-IN-WI	45	26.0
Memphis, TN-MS-AR	46	25.8
St. Louis, MO-IL	47	24.9
Kansas City, MO-KS	48	24.4
Virginia Beach-Norfolk-Newport News, VA-NC	49	24.3
Milwaukee-Waukesha-West Allis, WI	50	24.1
Birmingham-Hoover, AL	51	11.3

Mark Schill is Vice President of Research at Praxis Strategy Group, an economic development and research firm working with communities and states to improve their economies.

Rankings Methodology

Our Best Cities for Technology Jobs ranking is a weighted index measuring growth and concentration of technology-related employment in the nation’s 51 largest metropolitan regions. The 51 regions are scored against each other on a 1-to-100 scale. The index includes both tech industry employment data and occupation-based employment data. Our technology industry component covers 11 six-digit NAICS sectors covering information industries such as software publishing, Internet publishing, data processing, and tech-related business services such as computer systems design, custom programming, engineering services, and research and development. The technology industry data covers 4.5 million jobs nationally. The occupation-based component includes 95 science, technology, engineering, and mathematics (STEM) occupations as classified by the federal Standard Occupation Classification system. This covers 8 million STEM workers that could be employed in any industry. Employment data in our analysis is courtesy of EMSI, Inc. and is based upon over 90 federal and state data sources.

The index comprises four weighted measures: 50% STEM occupation growth, 25% technology industry growth, 12.5% STEM occupation concentration, and 12.5% technology industry concentration. Growth measures are evenly balanced between the 2001-2011 growth rate and the 2009-2011 growth rate, while the concentration measure are job location quotients from 2011.

Note that there is likely to be some double-counting of STEM workers working in tech industries. The tech industries are also obviously employing others, such as salespeople, managers, janitors, etc.

Though these types of rankings typically include only industry data, we felt the STEM jobs data captured “tech” more cleanly so we weighted it higher. However we felt it still important to include the data covering the industries that most identify with the high-tech economy. The heavier weight on STEM helps minimize the effect of a double-counted STEM worker in a tech company.

Seattle photo courtesy of BigStockPhoto.com.