Employment Futures in Silicon Valley

PART 1 Research and Evidence:

With increasing technological advancement and developments taking place, the industry mix of Silicon Valley has evolved. In recent years there has been a shift in employment share from hardware industries to software industries as well as in the evolving patterns of venture capital investment. In the last five years there has been an incredible growth in energy and clean technology and as a share of total investment in the region, biotechnology and medical devices have pushed semi-conductors from second-place in terms of venture capital investment.

With such changes and developments taking place, the systems that support those who work and live in the region, must also evolve. Sustaining the innovative economy is not possible without the people who maintain the region’s community infrastructure.

Silicon Valley has six major areas of economic activity: Information products and Services, Life sciences, Community infrastructure, innovation and specialised services, business infrastructure and other manufacturing. Developers of green technologies and providers of related products and services are present and growing across the areas of economic activity. Between 2007 and 2008, employment in the industry expanded by 1.4% with gains in products and services, Life sciences and community infrastructure. Among all regions community infrastructure is the largest, accounting for 57% of Silicon Valley’s total employment in 2007. This is a very important sector as it includes health services, education, retail, transportation and government administration.

Silicon Valley Employment Growth by major Areas of Economic Activity

Percent Change Q2 2007–Q2 2008

Without the maintenance of people an innovative economy is not possible. Without the diversity and scope of support activities from schools, talent and businesses involved in export-driven sectors like information and products would not prosper in the region.

With the change in industry, the skills demanded by the labour market have also changed. The region continues to demand highly skilled workers who command high wages. The largest percentage of occupations in Silicon Valley is in jobs with a median annual wage of between $30,000 and $80,000. Occupations with annual earnings above $80,000 account for 29% of employment, considerably higher than 17% in California.

Some of the issues facing Silicon Valley are that its social infrastructure supporting the innovative economy is under stress. The Valley is not prepared to meet its projected workforce needs for 2016. According to the occupational projections the region will need to fill 30,000 jobs annually between 2006 and 2016 and 70% of these will replace current workers. The region is not producing enough talent with the necessary skills to fill the large volume of replacement jobs opening in community infrastructure and in hi-tech. If this growing mis-match of jobs and skills continues it could result in income polarisation in which the tight supply of highly skilled workers will demand high wages and the excess supply of lower-skilled workers will experience high wage erosion. Moreover, in such circumstances it will not be easy even to meet the workforce needs by importing workers from abroad.

The ability of Silicon Valley to adapt and thrive depends on its responsiveness to establish and enact. According to William F. Miller of Stanford University:

“Policies that support the education and training of the workforce, that support research combined with education, that support a modern infrastructure, and support the development of institutions that facilitate collaboration between business, government ,and the independent sector will have lasting effects of building capacity that does not diffuse away. Develop the people and places – the Habitat for living and working.”

Education and training are vital for an innovative economy. Recent research by Claudia Goldin and Lawrence Katz points to the fall in the growth of education attainment since the 1970s:

“As technological change races forward, demands for skills – some new and some old – are altered. If the workforce can rapidly make the adjustment, then economic growth is enhanced without greatly exacerbating inequality of economic outcomes. If, on the other hand, the skills that are currently demanded are produced slowly and if the workforce is less flexible in its skill set, then growth is slowed and inequality widens. Those who can make the adjustments as well as those who gain the new skills are rewarded. Others are left behind.”

For the first time an important issue concerning the region’s competitiveness is that for the first time since 2001, value added per employee stalled in 2008 shaving off a half percentage point from previous year. Even though regional productivity continues to exceed the U.S average, it now equals the state-wide average.

Examining the trends in California’s workforce, Deborah Reed in her recent study revealed that the state is not in a proper position to meet its needs for college educated workers and that this will be a limiting factor in the state’s economic growth. In her analyses she also states that even if the state imports workers it will not be able to fulfil the demand for the workers. In 2025, she notes that migration would have to increase to 160,000 to meet the level for next 20 years. However, since 2000 international migration has brought only 56,000 college graduates to California.

At the same time, the supply of workers with a high school diploma or less will exceed demand. These countervailing trends will drive up wages for skilled labour and erode wages for unskilled labourers, resulting in increased income inequality and with it increased demand for public services.

Like always, Silicon Valley has the opportunity to innovate. However, it should adapt in a way that it leaves a meaningful impact on the rest of the world.

As the vanguard of economic innovation, Silicon Valley should take the lead in demonstrating social innovation that works to counteract the growing economic pressures creating a crisis in its communities.

In my analysis, using the Porter’s Diamond model (factor conditions) I will examine the innovative approaches used by Silicon Valley in order to improve its factor conditions and I will also analyse them giving recommendations where possible.

PART 2 Theoretical Framework

The model was developed by Michael Porter where he gave four determinants of gaining National Competitive Advantage. M.E Porter’s Diamond of National Advantage (1989)

1. 1. The model was developed by Michael Porter where he gave four determinants of gaining National Competitive Advantage, and
   2. Factor conditions (i.e. the nation’s position in factors of production, such as skilled labour and infrastructure),
   3. Demand conditions (i.e. sophisticated customers in home market),
   4. Related and supporting industries, and
   5. Firm strategy, structure and rivalry (i.e. conditions for organisation of companies, and the nature of domestic rivalry).

I will be using this model for my analysis and justification and as my part deals with training, support and assistance, I will mainly use the factor conditions of the model.

In the factor conditions Porter refers to inputs used as factors of production which include human resources, physical resources, knowledge resources, capital resources and infrastructure. In this model Porter argues that the “key” factors of production (or specialised factors) are created, not inherited. According to Porter, specialised factors of production are skilled labour, capital and infrastructure. It is the same as I have mentioned about Silicon Valley; we all know that the region has an ample supply of labour; however, this labour is unskilled and not trained so it cannot help the Valley gain any competitive advantage. Specialised factors involve heavy, sustained investment. They are more difficult to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable.

Porter also argues that it is also sometimes true that firms innovate more if they have scarce skilled and specialised resources. That is true because sometimes abundance generates waste and burden for the whole economy while scarcity leads to innovation.

For example, due to shortage of skilled labour in the hi-tech sector of Silicon Valley, companies are abandoning labour and concentrating more on the innovative hi-end ways of production.

PART 3 Analysis

As Silicon Valley responds to market forces and technological change it is essential for the industry to change the skills of its employees (human resources) accordingly. This continuous process has resulted in an increasingly turbulent employment environment in which job tenures in the Valley are shortening. Due to this the industry has introduced various up-skilling and retraining programmes. The challenge for Silicon Valley is to navigate a career path traversing within the industry.

Although the industry has hard-working and talented people, with increasing employment turbulence, there has been an increase in income inequality and attaining education and healthcare is becoming difficult. For Silicon Valley, workforce development is the key to keeping workers employed and moving up the income and career ladders.

For the development of knowledge resources the first issue is foundational and concerns the quality of preparation provided to the youth from kindergarten to high school. The second is adult lifelong learning and is concerned with adults learning new skills with changing technological demands. Continued adult education will only be effective if youngsters are well prepared with foundational skills of reading, writing, arithmetic, natural sciences and computer literacy. For students on the traditional track within the country and from all over the world, the educational route is well developed to support high school graduates attain a four-year degree. However, sky-high costs and state budget deficits are limiting accessibility to this option.

For adults, on the other hand, no cohesive system exists that can provide technical skills and trades.

We all know that adult education requires a lot more than just the foundational skills and university offerings. Currently the industry only has its community colleges and trade schools that sometimes even provide training to high school graduates if there is a need for their skills to be upgraded. People who have access to training from these two places have better chances of earning more than those who do not.

Apart from these training programmes the industry has various incubator programmes. The incubators provide entrepreneurs access to resources and to a network of seasoned professionals driven to accelerate their growth in order to develop strong strategic relationships. For example, the San Jose incubator program has supported companies with experienced teams and commercialises technologies that generate financial and social returns. The incubator programme has been a great success and generated around $12 million in tax revenues in 2008. Moreover, it has also created over 4,000 jobs and graduated 240 companies.

Increasingly, Silicon Valley’s workforce is coming from abroad which is leading to increasing talent. According to recent statistics, around 60% of the people that came to California had a Bachelor’s degree and this led to a 15% increase in the occupations requiring this level of education in 2008. Although Silicon Valley will continue to be a magnet for international talent, it is not advisable for the industry to completely rely on foreign inflows. According to Debora Reed’s recent analysis for California, the growth needed to meet projected workforce demands will not be met in foreign and out-of state inflows. One of the major reasons, I think, for this is that other innovation centres in the world are also attracting global talent. There has also been a rise in the developing countries like India and China that are attracting people from all over the world to become global competitors.

Although Silicon Valley’s innovative economy is creating opportunities for people with the right skills to prosper, the current patchwork of education and workforce development and safety net programmes are failing both to prepare many workers for success and also to meet employers’ needs for skilled talent. The problem is that the region has an inadequate talent development system to capitalise on the opportunities created by its fundamental shift from an industrial to an innovation economy or fill the growing opportunities for replacement jobs in its community infrastructure. The development system that the industry can rely on is the America 21, a 21^st century approach to lifelong learning for workers, as well as assistance for job dislocation. The design of this plan was recommended by The Business Roundtable, an association of chief executive officers of leading U.S. companies with $4.5 trillion in annual revenues and more than 10 million employees.

This system will promote lifelong learning by providing education and training to Americans and assistance to dislocated workers, regardless of the cause of the job loss.

Business Roundtable recommends that this new approach should:

• Incorporate the following principles:
• Portability of benefits
• Flexible access to benefits depending on need
• Simplicity
• Quality
• Public-private partnership

Consolidate funding for current government workforce training and adjustment programmes and use that funding more effectively and efficiently, plus additional investment, as needed, to create access to a redesigned system for lifelong learning and transition assistance.

Development of the workforce also includes the economic security of the workers. To ensure economic security in Silicon Valley, which is an innovative economy, the industry has developed a well built structure. The silicon economy is driven by ever-quickening dynamism and competition. New technologies, new ideas, new products and new markets keep the industry fast moving, rerouting its demand from existing companies to new ones. To retain the economic security in an innovative economy the following factors are considered which are sufficient for Silicon Valley’s workforce development.

Community infrastructure, as mentioned earlier, is the largest area of economic activity and so without the people who maintain community infrastructure an innovative economy is not possible. Without the diversity and scope of support activities – from schools to healthcare to transportation – the talent and businesses involved in export-driven sectors like information products and services and biotechnology would not prosper in the region.

PART 4 Conclusions

After carrying out my analysis on training and assistance in Silicon Valley, I think it can gain competitive advantage if it possesses low-cost or uniquely high-quality factors of the particular types that are significant to competition and growth. To gain competitive advantage from factors the industry has to deploy the factors as efficiently and effectively as it can because wrong choices on mobilising factors as well as technology can dramatically alter the value of the industry’s factors. The nation should attract maximum human inflows from abroad and try to utilise them in the best possible manner.

Particularly, Silicon Valley needs a robust system of workforce development and safety net programmes –that support adult workers retrain and transition in addition to improving the education of today’s young people.

The industry requires renewed attention to its infrastructure in order to improve the quality of life for those who live and work there and also needs to take full advantage of its innovative capacity as sustaining the innovative economy is not possible without the people who will maintain the community infrastructure. The structural changes should offer new opportunities to residents for economic mobility. The success of the region’s globally competitive companies should translate into a thriving community at Silicon Valley.

The Valley is not currently prepared to meet its projected workforce needs for 2016. The region is not producing enough talent with the necessary skills to fill the large volume of replacement jobs especially in the community, hi-tech and infrastructure. Although there are inflows from all over the world, they are not sufficient to meet and cover all the placements that are required.

Programs like American 21 and San José incubator programmes should help the industry reduce the growing mismatch between the jobs and skills that result in income polarisation in which tight supply of highly skilled workers will command premium wages and the surplus of lower-skilled workers will experience wage erosion. A talent development system to match the dynamic innovation economy should be formed in order improve the knowledge and quality of life of the people.

As Silicon Valley possesses specialised and advanced factors it needs to be more focused as such factors carry more risk. Possessing such factors does help a lot in gaining competitive advantage over competitors. For example, many top universities are located in the industry’s home base which is California and are considered to be its specialised factors because gaining access to such factors is hard from a foreign site.

“Silicon Valley’s policies that focus on ‘people and place’ must evolve to help the region’s employers and educational institutions learn, adapt, and reorganise to maintain a thriving regional ‘habitat’ for living and working and to meet the new demands of the global marketplace.”

A system that supports lifelong learning and provides some form of transition assistance is needed to succeed in the changing economy, moving to a talent development system that is more responsive.