Thursday, June 28, 2012

Ironic Talent Attraction

The Iowa Test was one of the nationally standardized assessments I remember enduring as a child. I think it has fallen out of favor. I never encountered the exam once my family left Erie, PA in the late 1970s. The legacy of the experience informed a perception of Iowa as erudite and exceptionally literate. The geographic stereotype endures:

"We have lower unemployment because historically we have had high migration," says Dave Swenson, an Iowa State University economist. "We put the people we can to work. Those we can't, we say 'take a hike.' They don't leave because we don't love them. They leave because we can't use them."

"There is a tremendous amount of demand for Iowa-raised talent," he adds, with accountants, health care workers and other professionals relocating to Midwest cities such as Kansas City, St. Louis and Minneapolis.

Emphasis added. As the post-innovation economy continues to take shape, I expect talent producing hubs such as Iowa to benefit. Instead of firms located in Kansas City, St. Louis, or Minneapolis fighting over the state's human capital exports, businesses will cluster around where the talent is produced.

In early 2009, I noticed a story about IBM opening a plant in Dubuque, Iowa. The thinking was that this would give IBM a competitive advantage in securing scarce talent. A harsh critique of the practice that helps to further the understanding of the strategy:

Work that stays onshore is mainly sent to what are called Global Delivery Facilities (GDF’s), two of which were created at heritage IBM locations (Poughkeepsie, NY and Boulder, CO) while starting new ones in Dubuque, IA and most recently Columbia, MO. IBM’s public position is they are creating jobs in smaller towns when in fact they are displacing workers from other parts of the US by moving jobs to these GDFs or to offshore locations.

In the case of Dubuque and Columbia, IBM secured heavy incentives from state and local governments to minimize their costs in these locations and are achieving further savings by paying the technical team members, most of whom are new hires or fresh college grads with no experience, a fraction of what experienced support personnel would require.

The Dubuque facility is characterized as a high-tech sweatshop. Furthermore, the efficacy of the novel choice of location is in doubt. Whatever the case, I see more evidence of the Innovation Economy diffusing instead of agglomerating.

In "The New Geography of Jobs", Enrico Moretti explains the long cycle of an economy. Forces of agglomeration and rising wages are features of the increasingly dominant economy. Forces of diffusion and lower wages indicate a waning economy. Has the Innovation Economy reached a tipping point? Evidence to the contrary:

The new migration follows a long period in which San Francisco lost residents to states such as Arizona and Nevada, which offered jobs, cheaper housing and warmer weather. During the decade that ended in 2010, an average of 9,000 people a year left San Francisco for other parts of the U.S., according to California's Department of Finance. The city of roughly 800,000 continued to grow due to immigration from abroad. But in the fiscal year ended last June 30, net domestic outflow fell to 3,400 people, the best performance since fiscal 2000.

While there are no migration data for late 2011 or this year, employers and economists say the renewal of San Francisco's tech scene is luring many workers from elsewhere. Local tech companies including Zynga and Twitter Inc. have expanded in San Francisco, and many techies who work at Facebook Inc., Google Inc. and Apple Inc., in Silicon Valley to the south, are opting to live in the city, too.

Agglomeration, right? Not so fast. The decline in net domestic outflow may be a function of the recession. More people stay put during a downturn. Also, parts of Silicon Valley are diffusing to downtown San Francisco. Regional residential patterns are shifting. Richard Florida looks at the "the new geography of technology centers":

Seattle takes first place, besting Silicon Valley, which ranked on top on the original 2002 version of the index. This is not as surprising as it might seem. Seattle is, after all, home to Microsoft, Amazon, and many other high-tech powerhouses.

Silicon Valley (that is the San Jose metro) takes second, followed by the greater San Francisco metro, which has gained ground as large numbers of key high-tech talent and firms have come to prefer more urban locations, such as Twitter, Zynga and

Over the course of a decade, Seattle has displaced Silicon Valley as top dog. However, the list is full of the usual suspects that Moretti mentions as on the good side of the Great Divergence. There is no Dubuque surprise.

I think the main takeaway is the shake up in hierarchy. There are cost savings to be had in the other places not named Silicon Valley. 2002 and the publication of "The Rise of the Creative Class" look more like an apex than the ushering in of a new era. By that year, the forces of agglomeration behind the Great Divergence (the concentration of people with college degrees in a few places) are at least 30-years old. How long is the Innovation Economy's upward trajectory supposed to last?

The boom in Pittsburgh portends the coming earthquake. There's a Great Divergence within the Rust Belt. For the period of 2000-2008, Pittsburgh was one of the top-10 (#3) gainers in college educational attainment. Worcester (#1), Baltimore, Indianapolis, Akron, and New Haven also make the cut. Relevant to the this post's introduction, Des Moines, Iowa was good enough for 10th best. These new winners are indicators of diffusion, not agglomeration. The Innovation Economy is spreading out, now reaching the old industrial superpowers that have long been on the wrong side of the Great Divergence. Traditional talent exporters are the kings of the next economy.

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