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2010 February 02 Tuesday
Silicon Valley Never Regained 2000 Peak

Silicon Valley peaked in 2000.

Santa Clara County and neighboring communities had 544,387 high-tech jobs in 2000. By 2004, that number had dropped more than 25 percent to 403,994. Silicon Valley bounced back over the next four years, bringing the number of high-tech jobs in 2008 to 435,958. That number, though, was still more than 19 percent below the total in 2000.

The average annual tech wage in year 2000 dollars was $120,064. That dropped 15.8 percent to $101,057 in 2004, then climbed back only slightly to $103,850 in 2008, down 13.5 percent from 2000.

The Valley has a lot of energy start-ups. But even if some of them take off I expect their photovoltaics plants and battery plants will get built elsewhere and most of the engineers for those companies will eventually work at other locations where labor costs, housing costs, and taxes are lower.

Jobs are being moved out of the Valley in order to lower costs.

Amar Mann, a regional economist for the B.L.S. who is based in San Francisco, said that in 2008 even before the recession hit bottom there were 108,000, or 19.9 percent, fewer high-tech jobs in the Bay Area than in 2000, when the bubble reached its peak. During that same period, inflation-adjusted average incomes fell by 13.5 percent in the Valley, while high-tech workers elsewhere in the country enjoyed a 1.3 percent gain.

In the course of his research, Mr. Mann said, he encountered a recurring theme: High-tech companies, looking to cut costs, moved out of the region. That said, he added, the outflow of companies and jobs is difficult to quantify.

The very communications technology revolution that Silicon Valley did so much to foster has enabled shipment of jobs and tasks abroad. Software developers and engineers can collaborate on the same problem across time zones. Technical support personnel do not need to be in the same location as product developers. Email, virtual private networks, and internet web sites enable information to flow outside of small geographical areas. The Valley has a harder time maintaining any sort of sustained advantage in knowledge and ability.

Given the high costs of coastal California the US needs another place with sustainably lower costs to become the entrepreneurial and venture capital center.

Share |      By Randall Parker at 2010 February 02 10:00 PM  Economics Venture Capital


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Comments
James Bowery said at February 3, 2010 6:57 AM:

Any idiot can see that's because Congress didn't do as Bill Gates asked: Remove the limits on H1-b visas.

If Bill Gates isn't enough of an authority on the value of H-1b visas, there is the proof offered by Scott McNealy, of the incredibly resilient Sun Microsystems -- one of the largest users of H-1b visas which introduced to the world the gift that keeps on giving: Java -- in this statement offered just after the crash in employment in Silicon Valley:

"This is you ought to be net importers of brilliant people. I am fighting with our government to allow H1B visas cap to be raised. I was in at the White House talking to the chief of staff to get the H1B visa cap raised. We already half way through the fiscal year, capped out on the number of really bright Israelis and Indians."


psota said at February 3, 2010 7:59 AM:

Not sure if anyone here is from the SF Bay Area/Silicon Valley; but, if tech jobs never regained their peak, they have nonetheless reached a pretty high plateau. The ramp up in tech jobs in the Nineties was a - sorry - paradigm shifting event in the Bay Area. Simply put: there were a lot of people moving here looking for opportunity and many of them have stayed. The sort of person you were likely to meet pre-Bubble was very different post-Bubble. It's made a positive difference in the social and cultural life in the region. Plus, the Valley is still dynamic and growing.

Daniel said at February 3, 2010 10:00 AM:

If the price to pay for expanding employment in Silicon Valley is to endlessly expand employment opportunities for foreigners to come in on H1-B visas then I say that it isn't the cost. What good does it do me or other Americans that these jobs are handed over to Chinese, Indians, Brits, etc...? None. Oh, you will that they expand the economic pie, producing jobs for ancillary services. But these jobs are given to low wage competitors from Mexico. Or you may say that they expand the tax base, funding government services...I rest my case on that one.

I prefer that Silicon Valley outsource the work rather than import labor.

James Bowery said at February 3, 2010 10:22 AM:

posta said: "Plus, the Valley is still dynamic and growing."

You forgot "vibrant".

Black Death said at February 3, 2010 12:31 PM:

The H-1B visa is mostly a scam program designed to import low-wage techy worker bees. Truly brilliant people are eligible for the O-1 visa, which is uncapped but is also more expensive and more difficult to scam. Ilana Mercer had a column about a year ago on the H-1B racket:

http://www.ilanamercer.com/phprunner/public_article_list_view.php?editid1=470

kurt9 said at February 3, 2010 1:01 PM:

I think the Valley is dead. I was there just last week. It seems that every other building I drove past is vacant and has a "for lease" sign in front of it. There are 4 semiconductor fabs of any size left in the valley (I visited 3 of them last week). None of these fabs are leading-edge fabs. Spansion (the old AMD fab) just shutdown a few months ago. Tech manufacturing started leaving the Valley in the late 80's and rolled off precipitously during the 90's. Silicon Valley is no longer Silicon Valley.

The "tech" bubble of the late 90's was mostly software and I.T. services (e.g. dot-coms). The bubble in the Valley had essentially no manufacturing component to it. Of course, many of these companies and jobs are gone as well. Much of this was fluff that represented nothing of real value. It is difficult and expensive to move a semiconductor fab. It is very easy to move a software or I.T. services company. You only have to move the servers and office furniture.

Alternative energy (e.g. photovoltaics) is a joke. There are technical and economic reasons (too long to explain here) why solar power will never account for more than a few percent of the total energy generation of any society. Even if this were not the case, photovoltaic fabs are no more likely to be built in the Valley than semiconductor fabs. If anything PV is even more cost sensitive than semiconductor devices. A 1cm X 1cm chip can sell for $50. A square meter panel must ultimately sell for about the same price as the 1cm X 1cm chip. PV solar panals will never be manufactured in the Valley. Indeed, the biggest PV company, Sun Power (a subsidiary of Cypress Semiconductor) manufactures their panels in the Philippines. Solar cells and panels are easy to design compared to a semiconductor device. You can hire Philippine engineers to do any design work that needs to be done.

MEMS and biotech will not save the Valley either. Both of these industries are widely dispersed. A lot of U.S. biotech is right next to the pharmaceutical industry on the East Coast (NJ, eastern PA). MEMS fabs are everywhere. Also, both biotech and MEMS are becoming Asian industries. Compared to a $2 billion 300mm wafer fab, a biotech lab and plant is very cheap to build. Even Latin America is getting into biotech.

The excessive regulation and high taxation is also helping to kill the Valley. I think its over for the Valley being a special technology place.

Mercer said at February 3, 2010 1:19 PM:

Last night I watched the PBS show Frontline about digital media. One of the items in the show was an IBM work team that has never met in person. They conduct all their meetings as avatars on second life. Is this common in the tech industry with large companies?

Clarium said at February 5, 2010 8:46 AM:

Kurt9

I would like more evidence of South American biotech companies. I am not denying the veracity of that, but I just want to investigate it myself.

"You can hire Philippine engineers to do any design work that needs to be done."

Philippine engineers? Since we are all HBDists to some degree, I suppose this means that there are too many engineers (or that high IQ people who do engineer work are too expensive.) So the Philippines have enough people in the IQ range for the aptitude of engineer work? Richard Lynn's figures states that it has an average IQ of 90 (or something close to that), and it has a smaller population (92 million) than the US.

If the requisite IQ of engineering work is 115, and assuming a Filipino SD of 15, then the z-score for Filipinos needs to be 1.666 corresponding to the 95% percentile of that population which is about 4.6 million people. Let's also keep in mind that there are probably less career tracks that can lead to wealth in the Philippines such as law or finance, so engineering maybe be one upward mobility track. I guess it shows that high g is not a that scarce of a resource worldwide.

Wolf-Dog said at February 5, 2010 7:38 PM:

Actually, although the cheap Asian labor certainly makes the manufacturing price of electronic gadgets significantly, in reality, for the average American consumers, the final retail prices of these items made in Asia are only slightly lower than what the prices would have been, had these goods been manufactured in the US. This is because the importing businesses are pocketing the difference as enormous profits.

And at the same time, it is calculated that every billion dollars of trade deficit is responsible for the destruction of thousands of jobs in the United States. In this paradigm, it seems that if these electronic gadgets are manufactured in the US, then the American consumers will pay only slightly higher prices, but with the added benefit that because there will be millions of more jobs in the United States, the buying power will also increase in average, raising the standard of living. (Or at least this will stop the decline in the standard of living to levels below Weimar Germany.)

kurt9 said at February 6, 2010 9:59 PM:

Clarium,

Check out the list of world-wide distributors for Molecular Devices, a manufacturer of biotech instruments.

http://www.moleculardevices.com/pages/distributors.html

You can go to the website of any number of biotech instrument manufacturers and can find their distributors all over the world, including Latin America and the Middle East. They would not have distributors in these places if there was no market.

I was in Hong kong a few years ago, when I visited a bar on Hong Kong Island where the finance people are known to hangout after work on Fridays. I noticed almost all of the finance professionals there were either Filipinos or Indians. I drank with and talked to a few of these guys. They were almost all analysts and traders. There were very few "white" guys there. I can also tell you that many companies in Indonesia and even Malaysia are staffed with Filipino engineers and management people. Some of them are actually quite good.

Jerry Martinson said at February 7, 2010 10:16 PM:

I'm in the bay area and the valley seems very much alive to me. We are in a recession so it's off a bit. It's the #1 place to be if you want to work in high-tech. There are a few other areas that are about 25% as good. Even in the Great Recession most people here are nearly fully employed but I also know of a lot of frustrated unemployed people. There are booms and busts in commercial real estate but the rents are still pretty high so it's misleading to count vacant signs. The 1999 boom was such a bubble that I don't see how anything could go back to that.

The biggest problem with the area is the continued very high housing costs which are higher than they were adjusted for inflation that 1999. It makes everything more expensive and makes it difficult for people who are not tech workers to make it here.

Former SV Engineer said at April 11, 2010 7:25 PM:

In the past, America creates jobs, hires workers and the worker has the money to go buy products and goods. The current situation in America is that every job that can be outsourced overseas will be outsourced. The American workers are jobless and EDD has run out. Now, who is going to buy the products and goods when they are shipped back into America to sell? All of the laid off American workers is still unemployed and EDD has run out. The products are not selling, and one by one the shops in the shopping malls are closing down due to lack of shoppers. Silicon Valley will never be what is once was. There are vacant buildings everywhere in the Silicon Valley. Hello . . . Welcome to reality. The few high tech companies that are hiring are only hiring temps. This way they can adjust the company head count with the work loads by using temporary hires. I have so many friends who used to work in the Silicon Valley, who were laid off and are still not able to find decent work that pays a living wage. I feel very bad for all the hard working Americans who companies laid them off to get cheap labor through outsourcing overseas. All of the crap made overseas with cheap labor are all slapped together and isn't worth the American dollar to buy them. I buy only American made stuff to keep the Americans employed. The foreign made slapped together junk, I won't waste my American dollar on. The current wages in the Silicon Valley are way down too, not like what it used to be. America needs to wake up to the fact that the Americans who used to go shopping are all unemployed now and are not shopping anymore. I was once a well paid Silicon Valley engineer, who now just sits at home. My job was outsourced overseas. Even the Fry's Electronics stores have lost many customers. The Fry's Electronics stores in Sunnyvale and San Jose both have only a small amount of customers and only opens a few registers now. In the past, Fry's Electronics stores were stuffed with customers and at least 10 to 12 registers are open.


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