AeA, the nation’s largest trade association representing all segments of the high-tech industry, released its annual Cyberstates report in April, and some of its results may seem surprising. The report looks at high-tech jobs, wages, venture capital investments and other factors nationally and in all 50 states, the District of Columbia and Puerto Rico.
AeA reports that the high-tech industry added jobs to the U.S. economy for the third year in a row. Tech industry employment totaled 5.9 million after adding 91,400 jobs in 2007. That’s the good news. But the pace of job growth has slowed from gains of 139,000 jobs in 2006. The industry added 87,400 jobs in 2005 after four straight years of job losses following the bursting of the dot-com bubble.
This is the fourth straight year of employment gains in the tech industry’s two strongest sectors – software services (+82,600) and engineering and tech services (+45,800). The downside is that growth in these sectors was slower than last year; and the other two tech sectors, high-tech manufacturing and communications services, both saw net employment losses in 2007.
The Cyberstates report itself focuses on the numbers, which AeA collects from the U.S. Bureau of Labor Statistics. But in analyzing the data in the broader context of what is happening in our companies and what is not happening in Washington, DC, we can pinpoint why job growth was not more robust.
The first red flag is unemployment rates across tech occupations. Many of the rates were below 2 percent in 2007, which any economist will tell you are beyond full employment. For computer and information systems managers the rate was 1.4 percent; for electrical engineers it was 1.0 percent. In such a tight labor market, high-tech companies are increasingly unable to find the talent they need to fill open positions and launch new U.S.-based operations.
The anecdotal evidence backs this up. Visit the website of any major tech company and you will find hundreds, sometimes thousands of unfilled technical positions across the United States. Then look at how long the positions have remained unfilled – six months, nine months, over a year.
In addition to slowing the growth of the high-tech industry, these unfilled positions are unfortunate because they are exactly the kinds of jobs that every state or municipality tries to attract. The high-tech industry employs highly educated workers and pays them well – 87 percent more than the average private sector worker nationwide. Forty-seven “cyberstates” had wage differentials higher than 50 percent and four cyberstates had differentials higher than 100 percent in 2006, the most recent state-level data available at time of publication.
The 2006 data show that most of the country was growing its tech employment base. Forty-eight cyberstates experienced net tech industry job growth in 2006. The largest gains occurred in California (+21,400), Texas (+13,700), Virginia (+9,800), New Jersey (+8,500) and New Mexico (+6,700). On a percentage basis, New Mexico saw the fastest job growth in 2006 at 16 percent.
Beyond the absolute numbers, which tend to favor the big states, a critical factor in deciding where to locate a high-tech business is the concentration of tech workers in the state. Virginia continued to lead the nation in 2006 with the highest concentration of tech workers of any cyberstate – 91 of every 1,000 private sector workers were employed in Virginia’s tech industry. Massachusetts and Colorado had the next highest concentrations.
One key input to help create these high paying jobs is venture capital, which invested nearly $17 billion in the high-tech industry in 2007, a 6 percent rise over 2006. Technology companies attracted 58 percent of all U.S. venture capital investments in 2007. California remains the overwhelming lead destination for venture capital, followed by Massachusetts, Texas, Washington and New York.
So What Does AeA Think Washington Can Do To Help High Tech Add More Jobs?
Although the U.S. tech industry continues to add jobs, AeA is concerned that future growth is jeopardized unless the United States prepares itself for a vastly more competitive global marketplace. In March 2007, AeA released the report, We Are Still Losing the Competitive Advantage: Now Is the Time to Act, building on a similar report released in 2005. Both reports warned of an impending slide in U.S. global competitiveness, caused by negligence on the part of our political leaders to adequately invest in scientific research, improve our education system, and allow the best and brightest from around the world to work in the United States.
The high-tech industry has long demonstrated its ability to drive the economy. But it will continue to do so only if we as a country address unprecedented global competitiveness challenges as nations around the world open their markets to trade, embrace technology, and invest in research and education.
If Americans are to compete in a global economy that is knowledge-based and driven by technology, the U.S. education system needs to improve dramatically. Recent international tests show that American 15-year-olds ranked 17th in science and 24th in math compared to their peers in other developed countries. Skilled workers are the lifeblood of the technology industry. The United States needs to ensure that the American education system from K-12 to our colleges and universities produces enough scientists and engineers to support an industry that is so crucial to our economic prosperity.
Additionally, U.S. federal research and development (R&D) funding has faltered. Federal research generated numerous technological breakthroughs in the 20th century, from the Internet to the MRI scanner to GPS – to name just a few. The high-tech industry’s extraordinary success was built in large part on federal R&D investments from 20, 30 even 40 years ago. But as a percentage of the economy, these investments have declined from their peak in the mid-1980s. Meanwhile, Congress has let the R&D tax credit lapse, in effect, discouraging companies from investing in future innovation in the United States. Other countries, including China, have significantly more attractive R&D tax credits that are permanent.
Lastly, we need to support high-skilled immigration. High-tech companies need to be able to recruit the best and the brightest from around the world. Given the poor state of our education system and the lack of American kids pursuing careers in science and engineering, high-skilled immigration is a critical safety valve for our industry. Half of all U.S. graduate degrees in engineering go to foreign nationals. Yet these people often have to leave the country as soon as they graduate because they can't get a visa to stay. We educate them and then we basically tell them to go home. This is absurd. These talented individuals do not come here and take American jobs; they create thousands of jobs by developing intellectual property, spawning innovation and founding companies.
AeA was proud to have been instrumental in promoting legislation that became the America Competes Act, which overwhelmingly passed through Congress and was signed into law in August 2007. This Act addresses many of the issues raised here. But the bill only authorized these measures; funding was not provided for this legislation. Unfunded legislation is little better than no legislation at all. AeA calls on policymakers to fully fund the America Competes Act in 2008.
About Cyberstates
This 11th annual edition of AeA’s flagship publication, Cyberstates, examines the high-technology industry in all 50 states, the District of Columbia and Puerto Rico. It provides new 2007 national data on high-tech employment and venture capital investments. It also includes the latest data on high-tech wages, establishments, payroll, and research and R&D expenditures. Unfortunately, state specific data from the U.S. Bureau of Labor Statistics lag by nine months, and as a result are for 2006, the most recent available at time of publication.
AeA members can purchase the report for $125; non-members for $250. Please visit www.aeanet.org/cyberstates for more information. Two other major AeA cyber reports are forthcoming that analyze the U.S. high-tech industry: Cybercities 2008: An Overview of the High-Technology Industry in the Nation’s Top 60 Cities, and Trade in the Cyberstates 2008: A State-by-State Overview of High-Tech International Trade.
About AeA
AeA, founded in 1943, is a nationwide trade association that represents all segments of the technology industry and is dedicated solely to helping its members’ top line and bottom line. This is done in partnership with their small, medium and large member companies by lobbying governments at the state, federal and international levels, providing access to capital and business opportunities, and offering select business services and networking programs. For more information, please visit www.aeanet.org.
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