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News : Innovation Last Updated: May 6, 2015 - 7:05 AM

Silicon Valley loses its silicon; Typical household income stagnates - Part 1
By Michael Hennigan, Finfacts founder and editor
Mar 11, 2015 - 8:14 AM

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Stanford University classmates Bill Hewlett and Dave Packard founded Hewlett-Packard (HP) in 1939. The company's first product, built in a garage, part of Packard's rented house on 367 Addison Avenue in Palo Alto, California, was an audio oscillator — an electronic test instrument used by sound engineers. One of HP's first customers was Walt Disney Studios, which purchased eight oscillators to develop and test an innovative sound system for the movie 'Fantasia.'

The simple one car garage became the HP workshop and a little shack out back became Bill Hewlett's home. In 1989, California named the garage "the birthplace of Silicon Valley" and made it a California Historical Landmark. Photo HP Museum

Silicon Valley, the area in Northern California flanking San Francisco Bay, which was once a major fruit-growing area, got its nickname from a journalist in 1971, who evoked the key role of the region in the development of the silicon microchip from 1950s and the  creation of America's innovation engine. However big-scale manufacturing has disappeared and the latest annual report on the region says income has stagnated in the last decade and there is a large gap between the highest and lowest earning racial/ethnic groups, which is larger in Silicon Valley ($44,037) and San Francisco ($50,069) than in California ($28,332) or the United States ($17,716).

In 2009, Intel, whose founders were pioneers in the development of the microchip, closed its chip fabrication plant.

"Increasingly, Silicon Valley is less about silicon and more about technology development," said Chuck Mulloy, Intel spokesman . "It's something that has been happening in Silicon Valley for the last two decades."

As middle income jobs contract, San Jose, a city of 1m people and the largest urban area in the region, is broke according to the mayor.

The third-largest city in California (bigger than San Francisco) and the tenth-largest in the United States is poor because it's population shrinks during the day.

The San Jose Mercury News says: "Still, it is hard for many people to believe the biggest city in a place where new millionaires are minted every day could struggle to pay its bills. At nearly every community meeting, residents show up to proclaim that, surely, there must be enough money here to house the growing homeless population, or crack down on speeding drivers, or fix up the local park.

But California cities really only have two main sources of revenue — property and sales taxes."

The 2015 Silicon Valley Index report says the geographical boundaries of Silicon Valley vary. Earlier, the region’s core was identified as Santa Clara County plus adjacent parts of San Mateo, Alameda and Santa Cruz counties. "However, since 2009, the Silicon Valley Index has included all of San Mateo County in order to reflect the geographic expansion of the region’s driving industries and employment."

“The growth is uneven,” Russell Hancock, president and CEO of Joint Venture Silicon Valley, writes in the report. “Though we’re proliferating high-wage and low-wage jobs, we’re steadily losing share in the middle. It’s as if the economy has lost its spine, and this has important implications for the kind of community we become.”

The following are some of the key findings:

  • Employment grew 7% in 2007-2014 to 1.48m with high tech activities employing 364,000 or 25% of the Valley workforce — 0.23% of the nation's civilian workforce of 156m;
  • While 2013 median (mid-point where 50% are above and 50% below) household incomes in Silicon Valley, California and the US were $1,000 to $3,600 (after inflation-adjustment) less than a decade prior, San Francisco’s median household income rose by 7.4% (nearly $5,500) since 2003 — the latter may reflect a movement of poorer people from the high rent city?
  • The only job types that experienced median wage growth between 2010 and 2014 in the two Silicon Valley MSAs (Metropolitan Statistical Areas) were Healthcare Practitioners and Technical Occupations (median wages up 9.6% to $109,308) and Healthcare Support Occupations (up 2.6% to $37,451);
  • There is a large gap between the highest and lowest earning racial/ethnic groups, which is larger in Silicon Valley ($44,037) and San Francisco ($50,069) than in California ($28,332) or the United States ($17,716);
  • Men in Silicon Valley with a bachelor’s, graduate or professional degree earn 52-61% more than women with the same level of educational attainment. This gender-income gap is more pronounced in Silicon Valley than in San Francisco, California or the United States, and is getting larger over time?
  • Black Silicon Valley residents have experienced a nearly 21% fall per capita income since 2007, compared with a 4.9% dip for the same group throughout the rest of the nation. Latino/Hispanic citizens in the Valley have seen a nearly a 12% drop in per capita income, compared with a 7.5% fall in other parts of the country. Meanwhile, white employees in the Valley had a 0.2% rise:
  • While poverty levels are relatively low, 29% of the region’s residents in 2012 were not self-sufficient (they did not make enough money to meet their basic needs without public assistance);
  • Venture capital is booming and patents granted to San Francisco inventors shot up 24% between 2012 and 2013 (compared to 12.7% in Silicon Valley), and the number of patents granted per capita increased by 65% between 2011 and 2013 (compared to 22% in Silicon Valley and 27% in California).

Huffington Post: How Silicon Valley Billionaires Are Creating A New Economic Order

General Motors had a payroll of 618,000 in the US in 1979 in well-paying jobs similar to what created the post 1945 US middle class.

US factories remain in retreat despite cheap energy

Big US companies are no longer big employers

We reported last year that Apple the contemporary GM, employs in the US about 12,000 professional staff; over 30,000 in retail and the rest in customer support. The New York Times reported in 2012 that average retail staff annual pay was $25,000.

Knowledge workers in Ireland; Low-paid manufacturing grafters in China?

According to the US Bureau of Labor Statistics there were 1.06m employed in the durable goods category 'Computer and electronic products' in February 2015 down from 1.32m in February 2005.

Germany at full-employment: Lessons for low-pay US manufacturing

Last January the Information Technology and Innovation Foundation (ITIF) said in a report: "Since its peak in 1979, US manufacturing employment has declined, with moderate losses through the late 1990s, mostly caused by higher manufacturing productivity relative to the rest of the economy. In the 2000s, however, with the rise of China and the new globalization, US manufacturing employment experienced a decade of unprecedented losses, shedding 5.8m jobs, or about one-third of the workforce. But unlike the prior two decades, these losses were caused not principally by superior manufacturing productivity growth, as apologists for the health of US manufacturing continue to assert. Rather, they were caused by significant losses in real value added output, in turn causing a large increase in the US trade deficit, which by 2002 also included a deficit in advanced technology industries."

“If you ask me today, is it possible to live to be 500? The answer is yes,” Bill Maris says one January afternoon in Mountain View, California according to Bloomberg this week. "The president and managing partner of Google Ventures just turned 40, but he looks more like a 19-year-old college kid at midterm. He’s wearing sneakers and a gray denim shirt over a T-shirt; it looks like he hasn’t shaved in a few days."

Long before Bill Maris will find the immortality gene, he and his colleagues may have to contend with something more conventional — a social revolution.

The two charts below were tweeted by Michael McDonough, chief economist at Bloomberg this week 1) the first chart shows the changes in job numbers in 32 US industry sectors since 2005. Low-paying personal aide positions are expected to be the fastest growing occupation in the current decade and here we see that "Health Care & Social Assistance" added most jobs at 3.25m 2) most net jobs added were in low pay sectors.

Dan Breznitz, author or coauthor of several books on innovation-based growth, who holds the Munk chair of Innovation Studies at the Munk School of Global Affairs at the University of Toronto and in the past has been an adviser to Enterprise Ireland, wrote last November that worldwide, "politicians and policymakers lust after innovation, proclaiming it to be the ultimate solution to all economic maladies everywhere. Practically every country aspires to create its own Silicon Valley."

What a bad idea.

Not only is Silicon Valley pretty much impossible to recreate as an innovation eco-system, it’s also no longer the only global paradigm for innovation. The world has changed — drastically. But our understanding of how innovation works, and who benefits, has failed to change with it [ ] Not only our smartphones but also all their major components were developed, designed, produced, and assembled in more countries than most Americans will visit in their lifetimes" and he says this means that countries should develop strategies with a focus on where it can excel in the chain from innovation to the finished product and he cites the success of Taiwan as a world leader in the manufacture of semiconductor chips."

Silicon Valley and the development of the silicon microchip - Part 2

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