Friday, January 17, 2014

Why Technology Firms Are Moving Downtown

Outsourcing innovation employment to recent college graduates at Pacific Standard magazine.

Theme: Convergence of Innovation Economy.

Subject Article: "Companies Say Goodbye to the 'Burbs: Young Talent Wants to Live in Chicago, Not Libertyville; Dilemma for Older Workers."

Other Links: 1. "Move to Dubuque, Not San Francisco."
2. Comment from Dave at Burgh Diaspora.
3. "Mapping Silicon Valley’s Gentrification Problem Through Corporate Shuttle Routes."

Postscript: The resonating read for today's post, "Tales from an overworked City":

Competition among interns is incredibly tough, says one undergraduate who has completed a stint at a boutique bank. “Only a certain amount of interns get through. You will try to be the first one in and the last one out.” Interns, he says, will break the rules. “You want to impress.”

Moreover, an increasing number of international students is adding to the pressure: “Once they’ve got the internship they want a job in the City to get their foot in the door in London so they can get their visas. We’re competing against students from America, China and India. It’s very, very competitive.”

Pay sky-high rent to locate in London in order to "hire" the best and brightest for a pittance. The driving logic behind the economic geography of innovation is the cost of talent.


Dave said...

Hey, my first citation! I'm honored.

I've never worked for IBM, but have worked for 25 years supporting IBM mainframes, usually for large banks. Most people in my field are aware of what IBM is doing in Dubuque, Columbia and E. Lansing.

Your conclusion is 100% correct - I'm relatively expensive, the workers in Dubuque are not, it is a cost issue, no question. In addition, the jobs in Dubuque are mostly support type jobs (as opposed to innovation type jobs) - they need people with tech talent, but it doesn't have to be at the level of the top Stanford/MIT/CMU grads. The talent coming out of Mich State, Mizzou, and Iowa State will do fine, and is cheaper as well.

The criticism I had with your earlier post was with using Dubuque as the headliner for your thoughts about keeping the big city salary in a cheaper place - Dubuque is not the place to do that, at least not now. It is the place for the non-genius grad to get some experience and then leave, perhaps for the Cool City. It's possible that some offshoots from the IBM effort in Dubuque will one day make a more robust tech cluster there. But for now it is more "Onshore Bangalore", not "Silicon Valley-in-the-Corn".

And yes, the "lower on the value chain" tech work is dispersing, as it is with Finance, I believe.

Pete Saunders said...


I agree with your assertion that tech firms will move to cities, but without the cynicism I think I hear in from you. I wrote on my blog recently that the Google Bus controversy in SF/Silicon Valley is the beginning of the end for SV communities. They just don't know it yet. The tech firms will find a way to move into or closer to the city to be in a place where their talent wants to be. Reminiscent of factories leaving Detroit for the burbs in the '50s. If a true international SV challenger emerges, watch the shift accelerate.

Allen said...

As you know, there are a lot of variables at play. It helps that downtown Chicago has oodles of vacant office space. Also the city seems to have thrown Google a few bones. And it's not clear that Google stands to loose much since it's not clear how many of these employees will be going to that new office every work day. If talented, experienced engineers are allowed to work from home and only need to travel downtown a few days a week they don't risk losing them. The same with the lab space need for their work. I suspect they'll retain some space on that campus or in the area for modern labs.

Chicago Office Space:

Jim Russell said...


I realize I come off as cynical about the relocation rationale. I'm driving at big-picture economic change. One thing I gleaned from reading Enrico Moretti's "New Geography of Jobs" is to track wages in the dominant economy (e.g. manufacturing). When wage increases start driving business location decisions, the dominant economy is in decline (i.e. converging). For example, moving from union-dominated states to "right-to-work" states.

Pete Saunders said...

SV's case seems different. Workers are moving for two principal reasons - lack of supply and affordability of SV housing, and a desire for SF living. Tech firms haven't moved yet but worker trends continue they might try to find a way to get closer to them. Now if Bangalore or some place emerges as a next gen SV, woe is the valley.

Jim Russell said...

Workers are moving for one reason: jobs. The housing supply is irrelevant.

Pete Saunders said...

Housing supply is irrelevant to big-picture economic concerns. If you mean inter-migrational things, like why people go from one metro to another, I'd agree. If you look at intra-migrational things like I do, housing supply plays a role. Workers seem to be choosing SF over SV towns because of affordability and availability of rentals, and to a lesser extent livability preference. That has an immediate impact on SV places. But I do agree that ultimately SV tech firms will seek other areas (like that Post article you cite) and SV will get hit hard by that.

Jim Russell said...

Yes, I mean inter-regional. I'm thinking about talent attraction issues and the lure of the city. The tech buses are servicing the least affordable parts of San Francisco. I doubt geographic arbitrage is driving intra-regional migration into the city, unless we are talking Oakland (Brooklyn West) or somewhere else urban East Bay.