The Geography of Market Innovation

Government shouldn't pick winners. Deregulate and unleash the market. Taxes distort the economy. Why aren't my free market friends shouting down noncompete clauses?

So the argument goes, without noncompetes, innovation suffers. California mocks that position. California discourages noncompetes. Silicon Valley innovates just fine and thank you. Squash noncompetes and don't worry about innovation. The defense [department] could rest right here.

The obvious rationale for banning noncompetes seems lost on libertarian-leaning Republicans. California is a high-tax state. Fight high-tax states. Since California is tax and spend liberal, banning noncompetes must be bad. Never mind that Silicon Valley anything disproves any devolution fantasy. Big Government birthed Big Tech. Without nonprofit Stanford, the private market chases the diminishing returns of manufacturing.

Noncompete contracts serve the interests of big business. As Ben Chinitiz once wrote, serving the interests of big business hurts the regional economy. Competition is good.

What's good for the goose is good for the gander. How competition saved New York, competition for talent could save the United States. Make America great again. Stop subsidizing captive labor for lazy industry.

Happy H-1B Visa Day

Facebook is dying at Pacific Standard magazine.

Theme: War for talent.

Subject Article: "More than 100 Chicago tech execs sign letter urging immigration reform: State's GOP delegation told of need for foreign engineers, scientists."

Other Links: 1."Offshore firms took 50% of H-1B visas in 2013: Government data shows who is really using the visas."
2."The STEM Talent Shortage Debate."
3."Talent Is the New Oil: OPEC of Tech."
4."The Price of Panic."
5."Tech Talent Recruiting Geography."

Postscript: I could go back and forth forever about the relationship between the skills gap and immigration policy. I'm in favor of dramatically increasing the supply of foreign born labor in the United States. Migration is economic development. I'm not writing about the war for talent from a policy perspective.  I'm trying to figure out if the Innovation Economy has peaked and begun converging (i.e. geographically diffusing). The primary point of contention concerns labor costs. When an economy is diverging (i.e. geographically concentrating in a few places), employers can afford dramatic increases in wages. When wages become an overriding concern, businesses should seek out geographic arbitrage opportunities. To date, tech companies have done everything but change address. Today, April Fool's Day, is a day of reckoning.

The STEM Talent Shortage Debate

No STEM talent shortage at Pacific Standard magazine.

Theme: War for talent.

Subject Article: "The Myth of the Myth of the Science and Engineering Shortage."

Other Links: 1. "The Myth of the Science and Engineering Shortage: American students need to improve in math and science—but not because there's a surplus of jobs in those fields."
2. "Peak Talent."
3. "Robert D. Atkinson: President Information Technology and Innovation Foundation."

Postscript: A headline from yesterday's (March 25th) The Vancouver Sun, "Mind the gap: Are you ready to compete for global talent?" The opinion piece warns about a looming "critical skills shortage" for British Columbia and all of Canada. Today's (March 26th) headline in The Vancouver Sun, "Canada is not facing labour or skills shortages: Findings question government's position that jobs are vacant due to lack of homegrown skilled employees." I'll take the word of a labor economist (latest headline) over that of The Immigrant Employment Council of British Columbia who authored the op-ed.

Talent Is the New Oil: OPEC of Tech

Extending the metaphor that talent is the new oil at Pacific Standard magazine.

Theme: Demographic decline.

Subject Article: "Revealed: Apple and Google’s wage-fixing cartel involved dozens more companies, over one million employees."

Other Links: 1. "Checkmate for cheap unconventional gas: Shale reserves are not a miracle; they are a high-cost source of fuel."
2. "Work and the ‘problem of demographics.’"
3. "Peak Talent."
4. "Microsoft Vancouver responds to immigration woes: The company will open an office in Vancouver in order to retain foreign workers without being subject to H-1B restrictions."
5. "It’s the Birth Rate, Stupid."

Postscript: Presaging a forthcoming post, another problem to consider is declining geographic mobility:

“There has been a large downward trend in mobility that goes back at least a few decades and (it) has been there as prices go up and down,” he said.

Schulhofer-Wohl and his research partner see a bigger factor keeping workers from moving as much: local labor markets are growing more uniform and less specialized. There aren’t very many places like Silicon Valley boasting a strong concentration of one kind of job.

“The kinds of jobs you can get and the money you can earn varies less around the country than they used to,” he said. “There’s less reason to move because of the kind of job you can get.” ...

... Even as Americans are making fewer moves between states, Sinclair’s own research suggests workers are mobile in a different way: they’re willing to move to new professions. Sinclair saw a pattern when studying use of the online job website Indeed.com.

“One of the dramatic things we’re seeing is that people are very keen to look at other occupations,” she said.

Emphasis added. Silicon Valley has niche thick labor market. You can move around within the industry easily. Startup failed? No problem, plenty of other tech jobs open for you in the Bay Area. In other regional job markets, there are more opportunities for a career shift. You don't have to stay a techie in Pittsburgh.

Peak Talent

Peak talent is the new peak oil at Pacific Standard magazine.

Theme: Demographic decline.

Subject Article: "Slumping Fertility Rates in Developing Countries Spark Labor Worries: Birthrates Fall in Thailand, Raising Concerns about Aging Population."

Other Links: 1. "Talent Is The New Oil."
2. "Shale Gas And Talent Geopolitics."
3. "Age Problem: Projected year of working-age population peak."
4. "Hong Kong Is Dying."
5. "Asia's Rise: Don't believe the hype about the decline of America and the dawn of a new Asian age. It will be many decades before China, India, and the rest of the region take over the world, if they ever do."
6. "Putin is violating a rule that was designed to prevent World War Three."
7. "Plugging China's talent pool."
8. "Can Chinese 'immigration deficit' be cut in future?"
9. "A Second American Century."

Postscript: I guess I'm hitching my wagon to the talent-is-the-new-oil metaphor. I already term places such as NYC "talent refineries". Universities are talent extractors, the energy companies. Places such as Pittsburgh are resource-rich fields where the good stuff is easy (i.e. inexpensive) to mine. The low-hanging fruit is pretty well picked over with demand ever-increasing as new markets develop economically. We've entered an era of difficult-to-extract talent, which requires considerable innovation and investment.

Fatal Talent Attraction

Talent attraction Tuesday at Pacific Standard magazine.

Theme: Using Silicon Valley to highlight the structural shift from talent attraction to talent production.

Subject Article: "Homegrown talent: An answer to Silicon Valley's STEM shortage?"

Other Links: 1. "Living for the city: Vibrant urban cores lure young talent."
2. "Viva Las Vegas! Part 1 – Tony Hsieh and the Downtown Project."
3. "Silicon Valley report shows a 'region at risk' : Annual Index of Silicon Valley shows area's economic engine is stalled."
4. "End Of Migration."
5. "From Hong Kong to Canada and back: the migrants who came home from home: For Hongkongers who migrated to the North American country and returned upwardly mobile, a sense of place is a thing of the past."
6. "Disney Research Pittsburgh scientists are aiming for human-like robots."

Postscript: Two-weeks ago, Reuters article sounding the same alarm on a global scale:

The traditional emigrant states are beginning to want their best minds back. The hunt for clever people is globalized: Universities, companies, even government bureaucracies seek them here and seek them there. The needs of the developed world and the greater needs of the developing world now conflict.

Trouble In Portland

Portland is a talent magnet. It is also part of a western states boom indicative of how the Innovation Economy is converging. The end of agglomeration:

Software defines what is possible on your smartphone or tablet. It is unlikely that any sector of the economy will be more important in the foreseeable future, yet the United States is training far fewer software engineers than are needed. It is unlikely that this trend will change soon, and thus the competition for talent is here to stay. Regions that win this battle will have a significant and sustainable economic advantage over regions that lose.

The good news for Oregon, and western states in general, is that right now we are winning that war for engineering talent. And not just winning, but dominating: Seattle, Portland, the San Francisco Bay Area, Los Angeles and Denver are just a few of the cities that have an established track record of building and maintaining powerful technology franchises.

Salesforce.com was said to be considering Salt Lake City or Portland for its big expansion; despite their iconic status, cities like New York, Chicago and Boston weren't on the list. This is not an anomaly but an acknowledgment of the reality that to attract the technical creative class, firms need to locate in the western United States.

Emphasis added. Salt Lake City and Portland are the new kids on the block. They are cheaper and more attractive alternatives to the old guard still sitting at the top of the urban hierarchy. The world is flat.

Portland has a problem, a big problem. As the Innovation Economy continues to converge, more cities will be competing for talent such as software engineers. Salesforce.com won't be able to bank on Portland winning the war as new hot spots pop up around the country. Young, college-educated adults are geographic whores. Instead of relocating to hip Portland, firms will move to where the talent they want is produced.

War For Talent: Seattle

Moving where the talent is on a much smaller scale:

“We’re excited to expand our presence in Seattle,” said Bershad. “There’s a strong pipeline of talent in Washington and we now have more than 850 employees in our Seattle and Kirkland offices working on a variety of key products including Google Search, Chrome and Google Plus.”

Interestingly, the statement makes no mention of the new Bothell operation. However, with three facilities located throughout the region, the company could be able to draw on technology talent no matter where they live. That could become even more important after tolling takes effect on the 520 floating bridge, which connects Seattle to Bellevue, Kirkland and Redmond.

Scattering offices around the region to reduce the costs of commuting is a new one for me. Talk about reverse engineering transportation. Beats throwing millions at light rail.

Talent Retention Fuels Brain Drain

Is your region trying to keep the best and brightest from leaving? Those talent retention policies undermine economic development and, ironically, cause brain drain. The proof:

"I think the real punch line here is that it appears that it's the better inventors who are more likely to respond to these laws," Fleming says. "It's the people who have lots of patents, it's the people who have high-impact patents, it's the ones with many coauthors. Prior research has shown that the best engineer is worth much more than the average engineer. And if those are the people whom the states are losing, it's a big hit. Policy makers in these states are really shooting themselves in the foot. Some have argued that firms will not invest in R&D unless they can keep their people, but other research by Mark Garmaise at UCLA has shown just the opposite."

To that end, Marx and Fleming have shared their findings with government officials in their home state of Massachusetts, where legislators are considering a bill that would restrict the terms of non-compete agreements in the state. A hearing is set for September 15. Brain drain is arguably an issue in Massachusetts, which reportedly retains only about 60 percent of its college graduates.

You can read a copy of the unpublished report here. The case study looks at Michigan talent migration patterns. The results are fascinating:

Limited job mobility within a state that enforces non-competes is likely to entail higher opportunity costs for more productive inventors, with their past track record also making them more visible to and hence likely to be recruited by out-of-state firms. Likewise, those with significant past collaborative ties might have greater awareness of out-of-state opportunities through their professional networks, and hence be more likely to emigrate to the best available option even outside their original state. Interestingly, both of these kinds of elite knowledge workers are probably exactly the kind of talent a state would normally be particularly interested in retaining.

The best talent is less likely to stay in a state with a restrictive geographic mobility regime. You might retain greater numbers of graduates, but at a cost. You'll encourage the cream of the crop (innovators and job creators) to leave.

Over the 5+ years I've been blogging about brain drain, I've shifted my thinking from talent retention policies are ineffective to outright destructive. The underlying issue pits quantity of migration against quality of migration. Brain drain is commonly (and erroneously) phrased in quantitative terms. Shifts in population numbers do not indicate brain drain or gain. "More" doesn't necessarily mean "better".

This is the unspoken part of the shrinking cities paradigm. They aren't coming back. Graduates will continue to leave. The region can still thrive. But those aren't numbers that buy votes or justify economic development projects. And for that matter, won't sell books.

Building A Global Talent Pool

Regions tend to think small scale, locally. While serving on the Planning and Zoning Commission for the City of Longmont, I tried to advance a global perspective. Could my community plan and zone for globalization? What does globalization zoning look like? I didn't find many examples I could draw upon for guidance.

A reorientation of economic development is necessary. Via Burgh Diaspora, I advocate for serving workforce interests that can benefit the entire region. Again, actionable models are sparse. The opposite is true on the international scale. From The Chronicle of Higher Education:

Corporations are trying to find out what affects students’ employment choices in different countries. Airbus, the aircraft manufacturer with headquarters in Toulouse, France, has found in its surveys that “training and development opportunities” are particularly important to students in Spain, while “work-life balance” is important to German students, and job security is important to students in India.

That's the mirror image of what I observe going on in Pittsburgh and other Rust Belt cities. Workforce development is finding out regional talent needs and delivering employees to local companies. When workers are dear, as they are in demographically challenged communities and countries, this is the wrong policy.

The goal should be to push students towards global talent shortages. Education professionals must be aware of global labor market conditions. I don't see the value in framing the problem in regional terms.

Increasingly, a workforce with the right kind of skills attracts major employers. But the only way to deepen the talent pool is to export graduates to the established economic cluster. That's the Rust Belt advantage and Pittsburgh is cashing in on it.

Rust Belt War Within

Ronald Reagan's first term as US President coincided with my middle school years in Upstate New York (near Schenectady). I remember my father reacting in anger to the local news when the issue of taxes were discussed. He framed the problem as Upstate subsidizing the Big Apple. Talk of secession was in the air. A revolt was at hand.

Cities are often at odds with their host states. Within metros are parochial fractures. And once again, the Rust Belt is not at war with the Sun Belt, but itself:

Gov. John Kasich painted a grim economic picture of Ohio on Wednesday night, saying a brain drain and a lack of investments are contributing to the state’s financial woes.

“I’ve come to realize Ohio is under siege. Not from India, but from Indiana,” he told more than 200 people during the Greater Springfield Chamber Annual Meeting and Business Expo at Kuss Auditorium.

Kasich said a third of college graduates are leaving Ohio to go to states such as Indiana, Texas and Illinois.

Indiana is the megaregional bad guy, particularly when it comes to poaching business:

“Feeling Squeezed by Taxes?” is the tagline on a Northwest Indiana campaign launching Monday in Chicago print and electronic media, and it dovetails with a broader Indiana push rolled out late last month, using the tagline, “Illinnoyed by Higher Taxes?”

The tougher the times, the uglier the rhetoric. Much of this hot air is similar to scapegoating immigrants for economic woes. Ultimately, it is self-defeating. The Rust Belt GOP governors are in a race to the bottom, looking for a bigger piece of a shrinking pie.

Burgh Energy Report: Talent Shortage

I'm seeing some indication that workers are moving to Pennsylvania for energy jobs. I'm not referring to a job-in-hand migration. More like a "let's go to Pittsburgh and see what happens":

At Penn College, students can take a three-week training course and become certified "roustabouts" -- laborers who work near drilling sites. They often work 14 days in a row and then have seven days off. They start out making between $15 and $20 an hour.

Almost all of the students in that program come from Pennsylvania, but there are exceptions.

"I had two graduates in one of the three-week courses that we did, they were from Las Vegas," said Penn College instructor John Harper. "They had lost their jobs. ... And they heard about this and came in here. They went to work the day they graduated."

I'd like to know how the course graduates from Las Vegas heard about the program. I'd call it a pioneer migration, a pathway once forged that will act as a pipeline of talent desperate for work. That's a watershed moment for the energy industry in Pennsylvania and Greater Pittsburgh, a metro that more closely resembles Calgary with each passing week:

Among the Cranberry-area Marcellus Shale players are Exco-North Coast Energy, a division of Texas-based Exco Resources. In 2009, Exco-North Coast Energy signed a seven-year lease on space in an RIDC Thorn Hill Industrial Park building that formerly housed Fore Systems Inc. and Marconi Corp.

Canadian-based Talisman Energy recently established a regional office in the Pennwood Commons development and announced plans to employ 125 people.

Shell also has a local presence, thanks to its 2010 acquisition of Warrendale-based East Resources.

“This area is the heart of the Marcellus Shale,” said Susan Balla, executive director of The Chamber, which serves the northern Pittsburgh, northern Allegheny County and Cranberry business corridors. “That’s why we’re seeing these companies establishing a presence here.”

Pittsburgh is strategically located to serve business center for the interstate energy boom, which also concerns nuclear and coal. There are going to be a lot more employment opportunities than the local universities and community colleges can staff. Eventually, the unconventional gas supply is going to gain access to the global market. The quest for talent will also scale up, going worldwide:

The ability to source skilled labour, wherever it may be, is crucial in the oil and gas industry, which has faced intermittent labour shortages in recent years.

However, with a widespread requirement for specialist skills, sometimes difficult to source within the [European Economic Area (EEA)], it is vital to the health of the sector and the wider UK economy that immigration law take these challenges into account.

Part of this challenge is to ensure employers have sufficient flexibility to engage skilled non-EEA personnel when the need arises and without undue cost or delay. But in what some observers see as an attempt to appease the tabloid media, the Government has been accused of being more concerned about cutting net migration than safeguarding access to specialist skills.

Energy markets are volatile and difficult to predict. In response to the unexpected swings, talent most be geographically mobile. There will be times when labor must leave Pennsylvania, perhaps fueling the shale gas boom in Poland. Pittsburgh will be a major player in that talent market, which in turn will result in new talent pathways to Southwestern Pennsylvania.

Canadian Talent Migration And Innovation

I am seeing a shift in the relationship between proximity and innovation. Face-to-face still matters. It's the most important consideration. What's new is the value in being closer to other talent markets:

In recent years, Boston and New York have also become hotbeds of the tech sector, challenging Silicon Valley for talent. While the valley continues to lead the pack, its East Coast rivals have the added advantage of being closer to Canadian talent. The competition for that talent has, as a result, intensified, something that works in favour of Canadian startups.

Silicon Valley is experiencing a talent crisis and Google, to its credit, is staying ahead of the curve. Don't expect the mountain to continue to come to Mohammed. Or, should I write, "Mohammed coming to Mountain View"? I digress. The idea is to move where the talent is, not the other way around.

There is value in locating your startup near where the talent you need is produced. That's a big change from banking on everyone worth her salt relocating to the Bay Area. Every talent migration boomtown should be concerned (e.g. Boulder, Austin, and Seattle). If you need a steady supply of knowledge workers, then you would be better off in Youngstown.

Rise And Fall Of Texas

If people vote with their feet, then Texas has won the election. In particular, the Triangle is a hot destination. Then why is Dallas looking at Rust Belt Pittsburgh with envy? It's about talent and innovation:

It's natural to hail the Pittsburgh Steelers for winning Super Bowls. But give props to the city of Pittsburgh, too, for rebuilding and reshaping a Rust Belt economy, and creating one of the country's most livable cities.

The path to recovery is worth recounting, not only because Pittsburgh fans are streaming into Fort Worth, where the Steelers are staying for next Sunday's title game. But it could be instructive for leaders in North Texas, who keep talking about strengthening local colleges, fostering more collaboration and creating Tier One research centers.

Pittsburgh's renaissance was largely built around its world-class universities and their strengths in medicine and computer science. That concentration of academic talent and market power may be unrivaled anywhere short of Boston.

One can celebrate Pittsburgh without disparaging Dallas. The growth in North Texas is undeniable and remarkable. But concerning prosperity and cost of living, Pittsburgh is ahead of both Dallas and Houston. Texas could learn a few things from Southwestern Pennsylvania.

Furthermore, much of the population growth in Texas is more a function of immigration than domestic migration. Looking ahead to 2040, the trend is clear:

Without immigration, the population of Harris County is expected to be only 4.3 million, not much increase at all. But using the immigration rate from 2000 to 2007, Harris County is expected to be 6.8 million, a 70% increase or almost 1.8% growth per year. The SMSA is expected to grow even faster, from 6 to over 11 million by 2040.

Proximity to Mexico, particularly large border cities, is what drives immigration to Texas. It's not the state policy (e.g. low taxes) that is the crux of the attraction. For all its growth, Houston lacks brain power. From the same article:

Again, choices abound. Will Houston become the Pittsburgh and Detroit of the 21st centuries?

Those cities rode their industries into the ground—first Pittsburgh and the steel industry in the 1970s and Detroit and the auto industry today. Or will Houston invest in the diversified technologies of the 21st century?

While Houston has lots of money, Houstonians do not invest as much in high technology investment as investor do in Dallas-Fort Worth and, of course, Austin. Houstonians know what a good real estate or oil deal looks like, but they don’t know nearly as much about a bio- or nanotechnology investment. For comparison, Austin has about three times the venture capital investment even though its economy is only a fraction of the Houston economy.

Two industries in particular might the targets of that investment.

The information technology will have largely been exploited by 2040, unless a whole new technology like quantum computing becomes feasible. At any rate, Houston has never been a leader in information technology anyway. Rather it is the biological technologies that promise the next wave of technological innovation, and the Texas Medical Center could be a platform for participating in the growth of that industry.

The high tech spinoff from the Medical Center, however, has been disappointing to date, perhaps because of the relatively low venture funding in Houston. Talented entrepreneurs with good ideas and technologies need to move to the coasts to get funding. Will Houstonians stop this brain drain by 2040 or not?

In this sense, Houston is way behind Pittsburgh. The region has most of its eggs in the basket of energy. The remark about Detroit and Pittsburgh is a reference to over-dependence on one industry. Houston, we have a problem. The booming population masks a vulnerable economy. Even a more diversified Dallas is considering the value of the Pittsburgh model.

I'll circle back to our fixation with population numbers. The metric is almost useless, a relic of the industrial era. We need to rethink how we measure regional success.

War For Talent: China

I think I've exhausted the demographic time bomb going off in Germany. There's considerable pressure to attract more immigrants at a time when voters are at the pinnacle of an intolerant mood swing. In China, a looming talent shortage looks more dire by the day:

We've noted this trend a couple of times before (here, for example). The interesting question is how firms in Shanghai, Guangzhou and other cities close to the coasts will respond. Factories can raise their wages and improve conditions to appease picky workers. Or if workers won't come to them, they can go to the workers—moving inland or overseas, where labour is cheaper. (That amounts to paying higher logistical costs in order to escape higher wage costs.) But firms in service industries, like Sichuan restaurants, have to remain close to their customers. So South Beauty is trying a third option: migrating up the age-scale. It has removed the age-limit for applicants, and is now happy to hire older staff.

We talk about peak oil. Is there such a thing as peak talent?

Since human capital is renewable, the metaphor is strained. However, people can't move around the world like oil does. As the above passage indicates, firms are more mobile than talent. Also, necessity is the mother of invention. As the supply of cheap labor tightens, businesses get creative.

US regions could learn a lot from China's demographic challenges. They would also benefit from a better understanding of best talent management practices:

If talent is the leading indicator of whether a business is up or down, a success or a failure (and it is) . . . do you know how to accurately judge raw human talent? Understand a person's unique combination of traits? Develop that talent? Convert what supposedly are "soft" subjective judgments about people into objective criteria that are as specific, verifiable, and concrete as the contents of a financial statement?

The talent masters do. They put people before numbers for the simple reason that it is talent that delivers the numbers. Success comes from those who are able to extract meaning from events and the forces affecting a business, and are able to look at the world and assess the risks to take and the risks to avoid.

What regions do wrong is put the numbers before people. Instead of developing talent, we develop places. Why else would we educate foreign born people at our finest universities and then push them back from whence they came?

Talent retention strategies are cut from the same cloth. There is no concern about developing people. The focus is on a place, such as Memphis. We should be trying to better align the interests of talent and place, not undermining growth and prosperity (which what plugging the brain drain does). The failure to acknowledge the linkage between geographic mobility and economic wellbeing is appalling.

Talent Is The New Oil

The current labor market in Germany is a preview of where the United States is headed. Talent shortages are dominating the economic landscape. Via Demography Matters, East German companies are scrambling to fill skilled positions:

For years, demographers have been warning that Germany could face a labor shortage as its population ages. In eastern Germany, such scarcities have already become reality. Competition for talent is fierce -- and businesses are becoming more generous. ...

... These developments show that the lack of skilled workers is no longer an economic problem but a structural one. Well-trained individuals are becoming the most important and scarce commodity in a modern industrial and service society. This doesn't just apply to Germany, but in hardly any other country is the outlook quite as dramatic.

I think this story puts the recent headlines about Google's brain drain into proper perspective. It's akin to China's scramble for energy to support growth. What does this mean? Labor is capital:

If labor is capital, then we have lost the automatic tight connection between spending and employment. Firms can vary their output with little or no variation in employment. This explains how we can have a “jobless recovery,” meaning a large percentage increase in output without a comparable percentage increase in employment. For firms in today's economy, labor represents an investment. Firms hire workers in order to develop capabilities that will eventually produce output more efficiently. The return on an investment in workers may take as long or longer to realize as the return on investment in a machine. The return on investing in workers may be at least as uncertain as the return on investing in equipment.

The dominant model in play today has firms attracting talent (see the above East German example). Various "bottlenecks" restrict these flows and the resulting mismatches could (I predict will) turn the migration on its head. Companies willing and able to move where the talent is will have a competitive advantage. This is a return to the economic geography that birthed cities such as Buffalo. Production needed to be near the scarce commodity. Bad mortgages and protectionist labor markets are eating away at geographic mobility.

Labor is one of the least mobile forms of capital. To the extent that this movement is restricted privileges the regions that produce the most talent. Regions that improved educational attainment rates through inmigration are in a tough spot. They will be competing with each other for the labor that can still move, driving up the price for that talent. Companies will find it increasingly attractive to move to Pittsburgh if they can't outbid Google.

Moving your company from Ann Arbor to Austin for better access to talent is myopic. It looks good now, but is a bad bet longterm. Ann Arbor is struggling to attract the right people. The suggested policy solution is to be more like Austin. That's the migration game, yesterday's economy. Produce more talent and the companies will come knocking.

Tech Talent Shortage

The big story in my little blogger world is the war for talent in Silicon Valley. The reason seems to be that the biggest players (e.g. Google or Facebook) are cornering the labor market. My read of the handwriting on the wall is that the HR strategists see an acute shortage on the horizon. One result will be a shaking up of the urban hierarchy:

I’ve talked to more than two dozen engineers looking for jobs in the past 8-weeks. I’ve seen some incredible things. One is that talented yet unproven college grads are getting offers from $120,000k to $180,000 (?!?). This has been inappropriately inflated due to competition in the Valley. Another friend literally went 4-days before getting a huge unsolicited offer. Smells fishy.

This was also confirmed by a Sand Hill friend who adds that Valley companies are looking outside the Valley to meet their needs saying ”If you’re not Facebook or Twitter right now good luck getting the top guys.” Some companies are looking to build offices in nearby locations like Portland and SLC where the opportunities are less competitive and talent comes cheaper.

Sure, Silicon Valley is the center of the venture capital universe. But good luck staffing your start-up. This is a huge opportunity for the smaller innovation markets such as Pittsburgh, which looks to be a cost effective alternative to the scene in New York. I suppose Philadelphia will get first crack as the site of geographic arbitrage.

I've noticed Google (Mountain View) sniffing around my blog the last few days, spending hours looking at this and this. Sparing you the click through, one post covers talent as currency and the other maps the economic geography. The takeaway is a focus on where the talent is produced and its employment destination. These are lines of connectivity to be exploited when inmigration starts to break down. That pipeline is now a two-way street.

Geographic Mobility Incubator

Americans still cannot move their way out of unemployment. The recovery is geographically uneven. However, those most in need of a job are stuck in place:

In a broader sense, the job prospects of nearly all Americans will hinge on education. U.S. competitiveness, like that of all rich countries, will increasingly revolve around moving higher up the food chain in every sector. China may be the world’s factory, but it has yet to create an iPad. Innovations of this sort create truly desirable jobs.

But to ensure that America remains an innovation hub, we’ll need to not only churn out more highly skilled college-educated graduates, particularly in the sciences, but also retrain existing workers to take on jobs in new sectors. Another key difference of this most recent recession from those past is that there is a large mismatch between unemployed workers and existing jobs. A boom in nursing or teaching jobs won’t help out-of-work machinists and builders. “For some time now, there’s been a terrible skills mismatch out there in the economy, particularly for Americans who have been unemployed for six months to a year,” says Bernard Baumohl, chief global economist for the Princeton, N.J.–based Economic Outlook Group. “It’s going to be difficult for someone who has been in the real-estate construction business, building homes for example, to be able to get jobs in this market. So they would love to be able to work as a computer programmer, but they have no skills to do so.”

What’s more, America’s much-heralded labor flexibility has taken a hit because of the housing crisis. The U.S. had traditionally enjoyed lower unemployment rates than Europe, in part because American workers were more willing to move from state to state in order to take new jobs. But with so many homeowners underwater on their mortgages, their ability to relocate has diminished. The result? There are plenty of jobs to be had in such places as Washington, D.C.; South Carolina; North Dakota; and Louisiana. But the unemployed in Nevada, Michigan, California, and Florida can’t afford to take them.

As detailed above, lack of labor mobility is the other major drag on economic growth in those regions which weathered the recession well. Cities and states that have done a poor job producing homegrown talent are biting off more they can chew. (Note the ubiquitous reference to Pittsburgh as the development model of choice) It is even worse in struggling areas such as Bakersfield, California. Without robust inmigration, a significantly more educated workforce will take a generation or longer.

The picture is relatively rosy in the cities better known for brain drain. To be sure, lack of skilled workers is an issue. The domestic diaspora comes to the rescue:

The Hello Regina campaign is a bold bid by the Saskatchewan capital to close the labour gap exacerbated by the province’s resources-fuelled economic growth – a surge underlined by the $40-billion bid by an Australian mining company for Potash Corp. of Saskatchewan.

“We’re going through a bit of a boom here, and to ensure we have enough talent based on our economic growth, we need bodies – we need people,” says Regina Mayor Pat Fiacco.

Where better to hunt than Calgary, which is brimming with Saskatchewan émigrés – as many as 250,000, according to some estimates. If that number is even remotely accurate, greater Calgary would rival Regina (population 200,000) and Saskatoon (250,000) as a home for Saskatchewanians.

This anomaly is the product of decades of migration by smart, ambitious Saskatchewan natives who could not find the jobs they coveted in their often economically inert province.

Regina and Pittsburgh have much in common. Each region's expatriates have built the economies of other boomtowns. Now they are ready to come home. The hiccup in this plan is the same issue keeping the unemployed from leaving Michigan. Brookings suggests a mobility bank. That initiative addresses outmigration from distressed cities. Attracting the best and brightest who left is another story.

Regina's PR campaign isn't novel. Rebranding efforts are a dime a dozen. The logistics of return pose the biggest barrier, by far. There is plenty of low-hanging fruit ready and willing to move home. Hello Regina is a misuse of resources.

I think the answer is a geographic mobility incubator. The idea is to catalyze the boomerang migration of those prodigal sons and daughters who are highly intrinsically motivated (for whatever reason) to return. Aid is given to expatriates who address talent shortages or are willing to live in a neighborhood in need of revitalization.

All the money spent on retention or regional branding would be better allocated to this incubator. Given the current unemployment situation, I'm convinced this is the way to go for regions producing dynamic diasporas. Now I need the opportunity to put this theory into practice.

More Talent Shortage News

This time in California:

Tom Frantz, a co-owner of Grass Valley's new Huntington Mechanical Labs, has the unreleased energy of a racehorse. He's anxious to see what Huntington's new plant can do once its firing on all cylinders.

Huntington recently moved from its longtime base in Mountain View, Calif., where it manufactured high-tech vacuums for research purposes for 40 years. It creates custom and ready-to-order products. Located off Loma Rica Road near the Nevada County Airport, the new plant has been up and running for a little more than two weeks, though not at full capacity.

“We're running below our desired staffing levels now,” Frantz said. “We're concerned about getting our production numbers up.” ...

... Huntington workers – some new, and some who have been with the firm since its Mountain View days – have been working with Future Farmers of America students from Nevada Union High School to train them, but they are too inexperienced to be ready yet, Frantz said.

Plant personnel are still hoping to hire local workers but are also casting an eye to the Rust Belt to find experienced workers.

Emphasis added. Companies located in the Rust Belt are also hoping to find similarly experienced workers. The war for talent is heating up.

Where The Talent Is

Mapping the recovery:

At a ULI Fall Meeting 2010 panel on “Regional Economic Drivers,” moderated by Heitman Managing Director Mary K. Ludgin, Richard McLemore of MetLife Real Estate and Craig Thomas of AvalonBay Communities, Inc., attempted to answer the question “where and when will the jobs show up?”

The answers to that question aren't surprising. However, there is a glimpse of a new economic geography:

As for the Midwest, it is becoming a “screaming bargain,” due to the low cost of land and housing, low wage levels, and available human capital.

For all the mindless babbling about brain drain, there is a glut of human capital in the Rust Belt. In Pittsburgh, there is no need to court graduates outside the region. Thus, wages remain relatively low for high skilled positions. If job growth ever took off, then I doubt Pittsburgh could scramble fast enough to attract the talent in demand. Serious worker shortages still loom on the horizon and the competition for workers will be fierce.

The main problem for Midwestern cities is brand. The screaming bargain falls on deaf ears if you are city named Detroit:

Detroit, Oregon is not a crumbling rust-belt city. And it has nothing to do with Mo-town Records. It's a resort community nestled on the shore of a lake in the Cascade foothills. But hotel owner Doug DeGeorge thinks the name is a turn-off to some potential visitors.

Doug DeGeorge: "The name Detroit doesn't bring positive thoughts to anybody's mind."

So he convinced the City Council to put a measure on the ballot that would change the town's name to Detroit Lake. He believes adding that word shifts the mental image. In fact, the lake that borders the town is called Detroit Lake and some highway signs already use the term. Dean O'Donnell runs Mountain High Grocery in Detroit. He says there's support for the change in the business community.

I predict that more and more companies (as well as talent) will come to have a positive association with Rust Belt cities. Bringing together outsiders with employment opportunities moving into the region will be the key challenge for shrinking cities over the next few years. I reckon the talent shortages will be more acute elsewhere before hitting a place such as Pittsburgh. Firms will chase the human capital and the cheap costs that the Midwest has in spades.