Wednesday, October 12, 2011

California Brain Drain

California is hemorrhaging talent. The cost of living is too high. Taxes are out of control. The state is bankrupt and dysfunctional.

As usual, Chicken Little is wrong. So says the Milken Institute. If anything, California has a relatively low outmigration rate of highly-skilled workers. That wasn't always true:

Whether California faces a brain drain is a fair question to ask in a state that has seen an exodus of skilled workers before. The downsizing in aerospace and other defense industries after defense cuts in 1992 dramatically reduced job opportunities for some of the best and brightest, and it reversed California’s longstanding trend of net in-migration (Gabriel et al., 1995).

That 1990s brain drain has haunted Californians. Some pundits point to the Great Recession as the potential trigger of a new brain drain. California’s unemployment rate is the second highest in the nation, and the hightech sector alone shed more than 75,000 jobs from 2008 to 2009. (Footnote 6) Since the recovery began in 2009, growth has remained slow, causing concerns that knowledge-based firms will relocate or start up elsewhere.

The brain drain hasn't shown up, yet. The erroneous perception stems from an actual crisis. It's an interesting parallel to the Pittsburgh exodus of the 1980s. The specter of those dark years helped to shape Richard Florida's ideas about Creative Class migration.

California's recovery from the 90s also supports the kind of optimism that still seems prevalent in much of the battered Sun Belt. We've been down before but always came back strong. Not this time thanks to the Great Reset.

The Milken report blows a big hole in the brain drain myth. There is also a word of caution:

California’s high-tech economy has been highly dependent on bright, talented immigrants. On the upside, our study reveals that foreign-born, high-skilled workers in California are as unlikely to move to other states as native Californians. On the downside, however, there is a good chance that, once they decide to relocate, they will move back to their home countries. Many of the developing economies, especially China and India, are growing at full speed. While this presents unprecedented opportunities for California’s business and trade, it can also pose serious challenges to an economy where the formula for prosperity has always included immigrants seeking better opportunities than were available back home. With opportunities in their home countries multiplying on a daily basis, it is even more imperative for California to plan ahead in order to maintain a stable supply of skilled workers. One obvious strategy is to cultivate home-grown human capital, the sort that is least likely to leave California.

Emphasis added. Most boom towns and states have benefited from substantial brain gain via migration (international and/or domestic). Instead of cultivating home-grown human capital, the investment is in Creative Class amenities. The better to attract more talent. That winning strategy is now a liability. Tortoises such as Pittsburgh hold most of the cards.

The reversal of fortune bodes well for the Rust Belt. Emerging markets batter California's talent pool while tech continues to diffuse to more cost effective and skill rich locales. A company can make software anywhere. Why not in Youngstown?

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