With the social media frenzy at a fever pitch, people may be excused for thinking that Silicon Valley is still the main engine for growth in the technology sector. But a close look at employment data over time shows that tech jobs are dispersing beyond the Valley and its much-celebrated urban annex of San Francisco.
We turned to Mark Schill, research director at Praxis Strategy Group, to analyze job creation trends in the nation’s 52 largest metropolitan areas from 2001 to 2013, a period that extends from the bust of the last tech expansion to the flowering of the current one. He looked at employment in the industries we normally associate with technology, such as software, engineering and computer programming services. He also analyzed the numbers of workers in other industries who are classified as being in STEM occupations (science, technology, engineering and mathematics-related jobs). This captures the many tech workers who are employed in businesses that at first glance may not seem to have anything to do with technology at all. For instance just 8% of the nation’s 620,000 software application developers work at software firms — the vast majority are employed in industries as disparate as manufacturing, finance, and business services.
The four metro areas that have generated tech jobs at the fastest pace over the past 12 years are far outside the Bay Area, in the southern half of the country, in places with lower costs of living and generally friendly business climates. In first place: Austin-Round Rock-San Marcos, Texas, where tech companies have expanded employment by 41% since 2001 and the number of STEM workers has risen by 17% over the same period. Looking at the near-term, 2010-13, the Austin metro area also ranks first in the nation.
The keys to Austin’s success lies largely in its affordability and high quality of life, both in its small urban core and rapidly expanding suburbs. Best known as the hometown of Dell, a host of West Coast tech titans have set up shop there in recent years, including AMD, IBM, Cisco, Hewlett-Packard, Intel and Oracle.
Much the same can be said about Austin’s East Coast doppelganger, Raleigh-Cary, N.C., which ranks second on our list. Like Austin, Raleigh-Cary is a big college metro area, and also hosts the state capital, something that tends to lessen wild swings during industry downturns. Like Austin, Raleigh is not a primary center of the social media boom, but it has registered a 54.7% increase in tech sector employment since 2001 and an impressive 24.6% rise in STEM jobs. Much of the growth comes from global companies such as IBM,GSK, Syngenta, RTI International, Credit Suisse, and Cisco.
The next two spots go to two surprising metro areas with a less than stellar degree of tech cred: Houston-Sugarland-Baytown, Texas, and Nashville-Franklin-Murfreesboro, Tenn. Not much of a role for social media here, but STEM employment has expanded 24% in Houston since 2001 thanks to boom times for the increasingly technology-intensive energy industry. The Houston metro area ranks second only to Silicon Valley in the proportion of engineers in its workforce.
In Nashville, tech employment is up 65.8%, largely due to the area’s rise as a hospital management and healthcare IT hub, with a 160% spike in jobs in computer systems design services.
The Strange Case of Silicon Valley
How about the Bay Area, the legendary center of the tech industry? There has certainly been considerable growth in the San Francisco-Oakland-Fremont MSA, which has logged a 28% expansion of tech company jobs. The region is unique as a beneficiary of the social media boom: Twitter and other tech darlings are concentrated in the area, with many others in adjacent San Mateo County. Tech employment in San Francisco plunged by nearly half between 2000 and 2004, but now appears back to the levels experienced in the first dot-com boom.
In contrast, San Jose-Sunnyvale-Santa Clara — home to roughly 40% of the nation’s venture capital — clocks in at a mediocre 25th on our list. How could this be, giving the presence of such iconic companies as Google, Intel, Facebook and Apple? After all, the area has gained 20,000 jobs in Internet publishing and web search since 2001. However that pales next to the decline in high-tech manufacturing, where the area has lost an estimated 80,000 jobs. This may be one key reason why STEM employment has dropped 12% in the San Jose area over the past 12 years despite the success of so many tech firms over that period. In San Francisco, STEM employment is up, but only a tepid 5.5%.
This disappointing trend also extends to some other historically strong tech areas, most of which have grown recently but are still struggling with losses over a decade ago. This includes Boston-Cambridge-Quincy (26th) and San Diego-Carlsbad-San Marcos (28th), both of which were early tech high-fliers. Boston-area tech companies have expanded employment by 16% since 2001, but the number of STEM jobs is down 1.6%. The San Diego area registered strong growth in tech and STEM employment in the first years of the millennium, but since 2010 gains have been few. Being first may earn a region kudos, but does not seem to guarantee continued rapid growth.
But not all of the early high-fliers are underperforming. The Seattle-Tacoma-Bellevue area has remained a consistent tech performer, ranking 7th on our list with 45.5% growth in tech company employment and a 19.5% jump in STEM jobs. One reason for this may lie in the diversity of companies in the region, from software giant Microsoft to dominate etailer Amazon as well as Boeing, a long-time massive employer of technical workers. Seattle’s success, like that of Houston and Nashville, has much to do with both manufacturing and trade as well as an associated rising demand for software services; it is often forgotten that a majority of the country’s scientists and engineers work for manufacturers, and that industrial companies account for 68% of business R&D spending, which in turn accounts for about 70% of total R&D spending.
Is Tech Moving Downtown?
Perhaps nothing has captured the imagination of the media and professional urban boosters as much as the notion that tech jobs are moving from the suburbs to the inner core. Although there is some evidence of growth in social media jobs in some central business districts, notably San Francisco, most large urban centers have not done particularly well in technology over the past decade.
In some ways, this reflects the extreme volatility of Internet-based software and marketing firms, which, unlike tech hardware or customer support services, have shown a notable tendency to concentrate in urban cores. In some places, notably New York, these sectors have grown at the expense of traditional media and advertising employment, which have fallen off dramatically in recent years. None of the three largest metro areas in the country — New York, Los Angeles and Chicago — made it into the top half of our rankings. New York, where any two nerds in a room can expect gushing media attention, clocks in at 36th. Some locals claim the city is now second to the Silicon Valley in tech, but that is widely off the mark. Since 2001, Gotham’s tech industry growth has been a paltry 6% while the number of STEM related jobs has fallen 4%.
The chances of Gotham becoming a major tech center are handicapped not only by high costs and taxes, but a distinct lack of engineering talent. On a per capita basis, the New York area ranks 78th out of the nation’s 85 largest metro areas, with a miniscule 6.1 engineers per 1,000 workers, one seventh the concentration in the Valley.
This means that tech growth is likely to be limited largely to areas like new media, which will be hard-pressed to replace jobs lost in more traditional information industries. Since 2001 newspaper publishing has lost almost 200,000 jobs nationwide, or 45% of its total, while employment at periodicals has dropped 51,000,or 30%, and book publishing, an industry overwhelmingly concentrated in New York, has lost 17,000 jobs, or 20% of its total.
The prospects for Los Angeles-Long Beach-Santa Ana (38th) and Chicago-Joliet-Naperville (42nd) seem no better. Due in large part to the continuing shrinkage of its aerospace sector, the number of STEM jobs in the L.A. area is down 6.3% since 2001though tech industry employment has grown a modest 12%. For its part, Chicago has experience significant decline in both tech employment and STEM jobs over the past 12 years.
On the positive side of the ledger, L.A. at least still boasts the largest number of engineers in the country. Chicago, in comparison, has barely half as many engineers per capita as L.A. This suggests that Los Angeles may prove better positioned in terms of developing tech-related jobs than its Midwestern rival.
Look To The Hinterland
Where should we look for future tech growth? Certainly long-term you can’t count out Silicon Valley and its enormous, and uniquely deep reservoir of engineering expertise. Seattle also seems a safe bet, in part due to its lower energy and housing costs, at least compared to San Francisco and the Valley.
But perhaps the biggest trend over time will be dispersion. After the top five on our list come a series of less-celebrated metro areas, including Salt Lake City, Indianapolis, Baltimore, Jacksonville, Kansas City and Denver. These areas are generally less expensive than the trendier cities, and could attract more tech investment once the current bubble conditions die down.
The future of tech may be best represented not by the fresh-faced 20something social media CEOs lionized by the media but by the huge tech corridor along I-15 between Salt Lake and Provo, now filling up with offices of such tech titans as Intel, Adobe and eBay. In recent years the University of Utah has led all universities in fostering startups; it may not have the cachet of Stanford yet, but the trend lines are encouraging. A critical factor here may be the cost of living, particularly for over-30 engineers who can never really hope to buy a house in San Francisco or Silicon Valley but can find housing prices 50% or less than what they would pay on the coast.
Further out expect other, often smaller communities to emerge as tech-hot spots. One recent report from the Progressive Policy Institute spotlighted fast high-tech growth in such places as Madison County, Ala., exurbs like Virginia’s Loudon County, as well as resurgent Orleans parish, Louisiana. Another study, this one by the Bay Area Council, found that of the 10 fastest-growing tech centers in America, seven have populations around or under 150,000.
This suggests that, contrary to the conventional wisdom, tech employment is likely not to grow fastest in our biggest and most expensive urban cores, but spread out across an ever-widening geography. None will likely rival Silicon Valley, with its enormous resources and powerful inertia, but they will make themselves heard in the marketplace.