Silicon Valley Income Lagging
January 24, 2005NEW ECONOMY
Mixed Report on Silicon ValleyBy GARY RIVLIN
SAN FRANCISCO
VENTURE capital is on the rise, and once again Silicon Valley is growing thick with startups. Research and development funding in the Valley has hit new highs and corporate profits at area firms are generally robust.
And yet, despite an environment in which entrepreneurship is strong and established firms are by and large healthy, the Silicon Valley job market remains stagnant. Household income in the area is down, and troubling disparities persist in the areas of health care, education and housing.
Those are among the findings of a report, "2005 Silicon Valley Index," released today by Joint Venture: Silicon Valley Network, a nonprofit organization that assesses the region's economic health each year.
"There are really two ways to view the Silicon Valley economy," said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. "You could say lots of things are up in Silicon Valley, which gives us reason to be hopeful, except jobs are down, and of course that's an enormous exception." Mr. Levy was an adviser to the Joint Venture.
"Sales and exports are up at Silicon Valley companies," Mr. Levy said. "Profits are up. But that's not translating into general prosperity. In the past, we could take the return of prosperity among Silicon Valley's biggest companies as a signal that general prosperity is upon us. But I think the story here is that link has been severed. The question now is whether that link has been severed permanently."
The study found that the region lost an estimated 1.3 percent of its jobs between mid-2003 and mid-2004, and average pay fell by 1 percent. That drop came on the heels of the 200,000 jobs that were lost earlier in the decade - representing nearly 20 percent of the work force - when the San Jose metropolitan area, which includes much of Silicon Valley, suffered the worst collapse of any metropolitan area in the United States since the Great Depression, surpassing even Detroit in the early 1980's, which lost 13 percent of its jobs.
"Silicon Valley used to be this place that created jobs at a dizzying pace," said Russell Hancock, the group's chief executive. "People thought of that as a reality, but our index is saying this is reality. The reality is that ours is an economy that will be very productive on the high end but not necessarily this big job generator."
The main culprit, Mr. Hancock said, has not been that jobs have migrated to countries where labor is cheaper, as one might have expected, but that productivity gains have enabled companies to do more with less.
"Offshoring has always been part of the Silicon Valley story, back to the 70's," Mr. Hancock said. "Today it's Taiwan and China and India, but back then it was the Japanese. What we do in Silicon Valley is innovate, things become a commodity, and so it's moved offshore while we continue to do the design and innovation."
Increasingly, those high-end jobs can be found in the health and medical fields, the report found. "The local economy is creating these dynamic new clusters in areas like biotech, the biomedical industry, bioinformatics, health care and at the intersection of bio with information technology," Mr. Hancock said. "That seems to be where the job generation is."
The report's authors cautioned against drawing conclusions that were too negative. If comparing present-day Silicon Valley to 2000, things look grim by nearly every measure, as the area has seen a steep decline in everything from jobs to venture capital to funding for the arts and municipal services.
But if the comparison year is 1998, just before the dot-com phenomenon spun out of control, "then we seem to have returned to similar levels of performance, and embarked on a new period of incremental growth," according to the report's authors. The study also found that 40 percent of the regional population is foreign-born, up from 32 percent in 2000.
"I'd say it's not bad news coming out of Silicon Valley, but we have our challenges," Mr. Hancock said. Primary among those concerns is what he called the "Manhattan effect."
"Our worry is that Silicon Valley becomes this world center for people working on innovative enterprises who can afford to live here, but at the same time people who want and need to be here find that ours has turned into an economy that's not robust in terms of the middle," he said. That day hasn't arrived yet, Mr. Hancock said, but the study found that housing is so expensive that "it's difficult to retain young talent, teachers and service professionals."
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