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Impact of High-Tech Employment on U.S. Metro Wages
2 Mar 07
Most metro areas with strong wage growth have heavy concentrations of high-tech employment.
The average wages of a metropolitan area are correlated with its economic structure (the number of high-wage industries) and the quality of its work force (skill levels and educational attainment). Not surprisingly, the growth in wages is mostly dependent on the relative concentration and growth of high-paying economic activities in a metropolitan statistical area (MSA). This article provides a historical perspective on the regional pattern of wage growth in U.S. metro areas. Analyzing the annual wage disbursement per employee data of 379 metros during 1995–2004, we found that the high-tech sector seems to have a demonstrable impact on metro area wages.MSAs with Fastest Wage Growth, 1995–2004 | | | | (10-year average annual percent change) | | | Rank | MSA | 10-Year Average | Average Wage 2004 | Location Quotient | | 1 | San Jose-Sunnyvale-Santa Clara, CA | 5.96 | $72,830 | 1.6 | | 2 | Boulder, CO | 5.59 | $47,970 | 2.5 | | 3 | San Francisco-San Mateo-Redwood City, CA | 5.38 | $66,170 | 2.0 | | 4 | Bridgeport-Stamford-Norwalk, CT | 5.31 | $69,300 | 1.2 | | 5 | Boston-Quincy, MA | 5.17 | $57,710 | 1.1 | | 6 | Austin-Round Rock, TX | 4.99 | $43,370 | 1.3 | | 7 | Cambridge-Newton-Framingham, MA | 4.99 | $57,430 | 1.9 | | 8 | Oxnard-Thousand Oaks-Ventura, CA | 4.92 | $48,340 | 1.0 | | 9 | Durham, NC | 4.90 | $45,550 | 0.5 | | 10 | Rockingham County-Strafford County, NH | 4.89 | $40,660 | 0.9 | | 11 | Fort Walton Beach-Crestview-Destin, FL | 4.84 | $34,590 | 1.1 | | 12 | Napa, CA | 4.80 | $43,400 | 0.5 | | 13 | Oakland-Fremont-Hayward, CA | 4.72 | $52,940 | 1.3 | | 14 | Fayetteville-Springdale-Rogers, AR-MO | 4.71 | $34,220 | 0.6 | | 15 | Seattle-Bellevue-Everett, WA | 4.67 | $50,100 | 2.3 | | | U.S. Average | 3.82 | $40,170 | | |
As can be seen above, five California metros rank among the top-15 metros with the fastest wage growth. California is known for its rapid expansion in high-tech activities over the past two decades, and this is directly related to the growth in its metro wages. To demonstrate this connection, we calculated the location quotient (LQ) for high-tech sector employment in all 379 metro areas. A location quotient is simply a ratio comparing the local percentage of employment in a sector to the national average percentage of employment in that sector. A location quotient greater than 1.0 suggests a higher-than-average concentration of employment in that sector. Four of these five California metro areas have an LQ value above 1.0, confirming a greater-than-average concentration of high-tech industry in the metro economy. Also, 11 of the top-15 MSAs have a LQ greater than 1.0. But two of the top 15 metros with an LQ less than 1.0 are essentially outliers of larger MSAs on the list—the Rockingham and Napa MSAs are located near the Boston and San Francisco MSAs, respectively, and are home to commuters who do high-tech work in the larger MSAs. Conversely, 13 of the 15 metro areas listed below have an LQ of less than 1.0, and thus have a below-average concentration of high-tech industries. They also recorded the slowest wage growth in the United States during 1995-2004. MSAs with Slowest Wage Growth, 1995–2004 | | | | (10-year average annual percent change) | | | Rank | MSA | 10-Year Average | Average Wage 2004 | Location Quotient | | 1 | Anderson, IN | 1.18 | $32,480 | 0.6 | | 2 | Battle Creek, MI | 1.56 | $37,300 | 0.4 | | 3 | Weirton-Steubenville, WV-OH | 1.67 | $30,330 | 0.7 | | 4 | Flint, MI | 1.70 | $40,420 | 0.6 | | 5 | Huntington-Ashland, WV-KY-OH | 1.74 | $30,650 | 0.5 | | 6 | Parkersburg-Marietta-Vienna, WV-OH | 1.93 | $30,360 | 0.6 | | 7 | Kingston, NY | 2.03 | $29,970 | 1.2 | | 8 | Binghamton, NY | 2.18 | $32,360 | 0.8 | | 9 | Bay City, MI | 2.18 | $33,920 | 0.6 | | 10 | Youngstown-Warren-Boardman, OH-PA | 2.19 | $32,560 | 0.6 | | 11 | Saginaw-Saginaw Township North, MI | 2.22 | $36,840 | 0.9 | | 12 | Lima, OH | 2.22 | $32,120 | 0.6 | | 13 | Anchorage, AK | 2.22 | $41,510 | 1.3 | | 14 | Springfield, OH | 2.25 | $30,710 | 0.2 | | 15 | Atlantic City, NJ | 2.25 | $37,100 | 0.3 | | | U.S. Average | 3.82 | $40,170 | | |
Silicon Valley in California and the Boston/Cambridge metro region in Massachusetts are good examples of high-tech clusters. In such regions, entrepreneurs find easy access to capital. Universities with a strong base in technical research, such as Stanford, Berkley and MIT, work closely with the local firms. Venture capitalists and investment bankers find it easier to locate new investment opportunities. Substantial markets exist for technical labor, managers, and other inputs. Many of these benefits occur by exporting to external economies, lowering the cost of invention and expansion in large economies of scale. The large number of companies such as Cisco Systems, AMD, Intel, Oracle, and Google in Silicon Valley is proof of the value of high-tech clusters. In turn, the expansion of high-tech industry leads to the creation of thousands of well-paying jobs in the region, driving up the average wage. by Naveen Joshi
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