New study shows that while Silicon Valley continues to create jobs, the foundations of prosperity are under continued strain
SAN JOSE, CA – The landmark Silicon Valley Competitiveness and Innovation Project, which reviews data for 22 innovation-economy indicators locally and in technology regions across the country, shows that while Silicon Valley continues to create jobs, the foundations of prosperity are under strain. The slowdown in IPOs and the outflow of home-grown talent to other parts of the U.S. are symptoms of underlying issues for the region. Other factors are placing additional pressure on the region’s long term innovation assets, including high pre-exit startup company valuations, increased cost of living, slower growth in universities’ and national R&D expenditures, slow growth in STEM degrees conferred and wide disparity in student education outcomes. Despite these pressures, Silicon Valley continues to be a leader in global innovation, with strong investments and a dense STEM talent pool.
This year’s report also includes selected data from China, South Korea and the European Union.
Specifically, the study – now in its second year – continues to find that Silicon Valley must address STEM education and high-quality Pre-K education to help grow its own top tech talent, must tackle housing and traffic issues and increase investments in research and development (R&D) to continue to prosper.
The Silicon Valley Leadership Group and Silicon Valley Community Foundation joined together in 2014 to develop the Silicon Valley Competitiveness and Innovation Project (SVCIP) to proactively benchmark trends in the innovation economy and develop overarching public policy strategies at local, state and federal levels to enhance and reinforce the Valley’s competitive advantages in innovation.
Study details, including a downloadable PDF of the study, can be found at SVCIP.com. The report also features updates on the public policy initiatives identified in 2015 as key ingredients for ensuring Silicon Valley’s economic success and broadening its prosperity. Among the key findings, in abbreviated form:
Silicon Valley’s Innovation Industry jobs and output continue to grow.
Innovation Industries are comprised of companies that research, develop and/or scale new technologies, uses and processes, or support the development of startup companies. In 2014, the most recent available year, Innovation Industries comprised 25 percent of Silicon Valley’s total jobs, the highest of any of the innovation regions examined. Output increased 10 percent between 2013 and 2014, while jobs increased 7 percent.
Silicon Valley is the global innovation leader, though the U.S. is losing ground on research and development (R&D) and talent.
Silicon Valley ranks first among global innovation regions for its ability to launch and support development of new businesses and technologies, followed by New York City, Los Angeles, Boston and London. However, the number of science and technology researchers in China and South Korea is growing more rapidly than the U.S., and China’s total investment in R&D quadrupled between 2004 and 2013, compared to a 25 percent increase in the U.S.
Immigrants remain a critical part of the innovation economy in Silicon Valley.
Fifty-eight percent of the region’s STEM workers are foreign-born, and more residents are entering the region from abroad than from other parts of the U.S.
Talent is one of Silicon Valley’s most critical innovation assets, though some warning signs are emerging.
While Silicon Valley’s STEM talent is the most concentrated in the U.S., STEM degrees conferred from regional education institutions are growing more slowly than in other regions. In addition, for the first time since 2011, net domestic migration in Silicon Valley was negative, meaning that more Silicon Valley residents left the region for other parts of the U.S. than arrived from other parts of the U.S.
Venture capital fundraising was strong in 2014 and 2015, though initial public offering (IPO) valuations fell below recent highs.
As a precursor to investment, increased venture capital fundraising was a positive sign. IPO valuations in 2015 of Silicon Valley-based companies fell below 2014 and 2013 levels.
Congestion and housing costs worsened.
In 2014, the average Silicon Valley commuter lost 67 hours in traffic congestion, an increase of 13.6 percent from 2010. Silicon Valley’s median home value was $870,000 in 2015, and grew more rapidly from the prior year than in any other innovation region. In the city of San Francisco, average monthly rent for a two bedroom unit in 2015 was $4,200, higher than in any other major metropolitan area in the U.S. Silicon Valley home prices increased 13 percent between August 2014 and August 2015, and rents increased by 12 percent.
Education is a critical issue for the long term health of Silicon Valley.
In 2015, only 49 percent of Silicon Valley’s 8th grade students met or exceeded the new state standards for mathematics proficiency, and there was significant disparity in proficiency by race and ethnicity. Only 20 percent of Black or African American students and 21 percent of Hispanic or Latino students met or exceeded standards for mathematics in 8th grade, compared to 79 percent of 8th grade Asian students, and 66 percent of White students.
Data from the project is among the strongest evidence yet that public policies are needed to expand the innovation economy throughout the region.
“Silicon Valley’s economy continues to outpace economic growth in many parts of the country – but our updated SVCIP report underlines that we still struggle with rising housing prices and severe transportation issues that cause many people to leave the area. We will keep pushing for public policy leaders to address these and other issues so that Silicon Valley will remain both the world’s center of innovation and a great place for all to call ‘home,’” said Emmett Carson, Ph.D., CEO and president of Silicon Valley Community Foundation.
“There are two ways to weather a storm – buy umbrellas or build boats,” said Silicon Valley Leadership Group CEO Carl Guardino. “In Silicon Valley, to battle the economic storms of international competition, the better way – the most successful way – is to build boats that lift everyone in our Valley when the inevitable rainstorms occur.”
To help benchmark trends in the innovation economy, an advisory council, comprised of CEOs, community and nonprofit leaders, identified competitiveness and innovation indicators to track annually with comparisons to other top U.S. innovation regions. The advisory council considered key innovation hubs around the country, and identified New York City, Boston, Southern California, Seattle and Austin as the key comparison regions for SVCIP. Silicon Valley is defined as Santa Clara, San Mateo and San Francisco counties. Data compilation and analysis was conducted by Collaborative Economics of San Mateo. This year, in recognition of Silicon Valley’s global competitiveness, data also was gathered for relevant indicators in China, South Korea and the European Union.
The Leadership Group and SVCF launched SVCIP because the health of local innovation industries affects the regional economy, helping to create direct and indirect jobs and opportunity in good economic times, and directly causing a loss of jobs and reducing demand for local services (and the jobs associated with them) during difficult economic times.
The Silicon Valley Competitiveness and Innovation Project also represents a first step in identifying key public policy issues to address in the near term. Over the next several years, regional stakeholders will work with policy makers to address the region’s needs and promote a robust, inclusive economy for all of the Valley’s residents. Progress on the SVCIP policy agenda and data updates are available at svcip.com.
About the Silicon Valley Leadership Group
The Silicon Valley Leadership Group, founded in 1978 by David Packard of Hewlett-Packard, represents nearly 400 of Silicon Valley’s most respected employers on issues, programs and campaigns that affect the economic health and quality of life in Silicon Valley. For more information, visit svlg.org.
About Silicon Valley Community Foundation
Silicon Valley Community Foundation advances innovative philanthropic solutions to challenging problems. As the largest community foundation in the world, we engage donors and corporations from Silicon Valley, across the country and around the globe to make our region and world better for all. Our passion for helping people and organizations achieve their philanthropic dreams has created a global philanthropic enterprise committed to the belief that possibilities start here. Learn more at siliconvalleycf.org.
About Collaborative Economics
Collaborative Economics (COECON) is a strategic advisory and consulting firm that works with clients to create breakthrough solutions for regions and communities. COECON has extensive experience helping states and regions develop innovation strategies. Find out more at coecon.com.