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Tech-Fueled Job Boom Spreads Beyond San Francisco’s Nerds

By Aki Ito
November 26, 2012 5:45 PM EST 20 Comments
An employee at the Gap Inc. store in San Francisco, on Nov. 14, 2012. San Francisco’s non-tech employers are playing a growing role in the city’s labor recovery.
Photographer: David Paul Morris/Bloomberg
An employee at the Gap Inc. store in San Francisco, on Nov. 14, 2012. San Francisco’s non-tech employers are playing a growing role in the city’s labor recovery.

Nerds are no longer the only ones benefiting from the innovation boom.

Having left the heavy-lifting to technology companies until early this year, San Francisco’s non-tech employers are playing a growing role in the city’s labor recovery. Positions in everything from retail to construction to hospitality now comprise about 75 percent of the city’s job growth, helping the Northern Californian hub add jobs at among the fastest rates in the nation and reduce its unemployment rate to 6.5 percent.

San Francisco’s experience is also seen in broadening expansions in other U.S. technology centers such as Seattle and Boston, easing concerns that innovation would create work for only the most highly-skilled and highly-paid while others get left behind. Every new technology job in a city creates five additional local jobs outside the sector over time, according to an analysis by Enrico Moretti, an economics professor at the University of California, Berkeley.

“People were missing the big picture,” said Moretti, author of “The New Geography of Jobs” published in May. “Tech cannot offer jobs to the average worker, but every software engineer attracted to Twitter will indirectly support many more service jobs. My research suggests that this multiplier effect is particularly large for high-tech jobs.”

Shares fell as U.S. leaders prepared to negotiate a budget deal to try to avert the so-called fiscal cliff of tax increases and budget cuts slated to take effect next year if lawmakers don’t act. The Standard & Poor’s 500 Index dropped 0.2 percent to 1,406.29 at the close of trading in New York, paring a decline of as much as 0.8 percent.

‘Misplaced Faith’

In the face of a manufacturing contraction accelerated by the 2007-2009 recession, even the biggest names in American technology worried so-called knowledge work wouldn’t be able to sustain U.S. employment. Andy Grove, co-founder of Santa Clara, California-based Intel Corp. (INTC), warned in July 2010 of “our own misplaced faith in the power of startups to create U.S. jobs.”

“The great Silicon Valley innovation machine hasn’t been creating many jobs of late,” Grove wrote in an article in Bloomberg Businessweek. “What kind of a society are we going to have if it consists of highly paid people doing high-value-added work -- and masses of unemployed?”

Grove wasn’t available for comment, said Tom Waldrop, an Intel spokesman.

In 2010, computer systems design was the only industry in the San Francisco metropolitan area that added more than 2,000 jobs. The city lost 12,200 positions across all industries.

Broadening Gains

Two years later, the home of some of the world’s best-known Internet companies, including Twitter Inc. and Yelp Inc. (YELP), has been transformed. Jobs in most major industries, aside from the government, grew in October from the same month in 2011, including a 5.6 percent surge in the retail sector and 3.2 percent gain in construction. Three-fourths of the city’s job growth took place outside the industries of information, computer systems design and computer and electronic manufacturing, compared with 40 percent as recently as January. Seasonally unadjusted unemployment in the metropolitan area -- also including the counties of San Mateo and Marin -- is now a full percentage point lower than the national average.

Signs of the spreading recovery are evident in record ridership on the Bay Area Rapid Transit rail system and construction sites sprouting in once abandoned corners of the city. Home values in San Francisco have been growing on a year- on-year basis for four consecutive months, accelerating to a 5.3 percent increase in August, the biggest 12-month gain in almost two years, according to the S&P/Case-Shiller index. That compares with a 2 percent gain in 20 U.S. cities.

‘Full-Fledged’ Recovery

“That can’t be driven by just one sector, which actually isn’t that big a sector,” said Ted Egan, chief economist of San Francisco’s city government, referring to technology companies. “It’s a full-fledged recovery.”

Nationwide, technology was among the early drivers of the economic recovery, and, as in San Francisco, continues to outpace other sectors. Jobs in computer systems design services started rising from a year earlier in April 2010, while it took another five months for total payrolls to begin increasing.

Technology has a wider reach than traditional sources of jobs both because those companies tend to need more business services to operate and their workers have bigger salaries to spend, UC Berkeley’s Moretti said.

For every new technology job, two positions in professional work -- doctors, lawyers -- and three others in non-professional occupations -- waiters, store clerks -- are supported over time, according to Moretti’s analysis of 11 million U.S. workers in 320 metropolitan areas. Technology’s multiplier of five compares with 1.6 for manufacturing, Moretti said.

Innovation Centers

From greater Seattle, home of Amazon Inc. (AMZN) and Microsoft Corp. (MSFT), to Boston, to Austin, Texas, and Raleigh, North Carolina, jobs in the country’s other innovation centers are growing at a faster pace than the national average. A similar dynamic is at play in all of these areas, where early technology-driven growth in employment is now spreading to local services, UC Berkeley’s Moretti said.

Driving economic growth in the tech clusters are programmers like Simon Murtha-Smith, co-founder of San Francisco-based Singly Inc., which provides software services to engineers. He says he spares few expenses, including a $9 half- gallon of orange juice from his local Whole Foods store every week. He and his fiancee also have been spending an additional $150 on rent since August, when they moved into a one-bedroom apartment with a hilltop view of the city.

His company also drops plenty of money in the local economy, he said.

Contracting Help

“We have someone who delivers catering to our office four days a week, and on the fifth day we eat out in the Mission,” Murtha-Smith said, referring to the office’s neighborhood lined with organic-produce restaurants and bars serving craft beers. “We have accountants, we have lawyers, all in the local area. We outsource all of it. We also hire designers on a contract basis to do specific things for us.”

Benefiting from the spillover are workers such as Elana Polichuk, 28, who ended three months of unemployment in the middle of September.

Polichuk says with the contract jobs from creative temporary staffing companies and freelance work editing graduate school applications, she will be earning more than she ever did in Minnesota, from where she moved in July.

“There are way more opportunities here and way more competition, and it’s exciting because it helps me up my game,” said Polichuk, who hopes to secure full-time work. “I just bought a sweater. I have gas money to go up to Marin to go hiking. I was able to buy my friend a cup of coffee. It’s all these small things that I couldn’t afford to do a couple months ago.”

To contact the reporter on this story: Aki Ito in San Francisco at aito16@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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