The Anomaly of Silicon Valley: The Disparity between Jobs, Workers, Layoffs & Workforce Funding within the NOVA Local Workforce Investment Area A White Paper 505 W. Olive Avenue, Suite 550 Sunnyvale, CA 94086 www.novaworks.org info@novaworks.org 408-730-7232
Introduction NOVA is a Workforce Investment Board (WIB) in the Silicon Valley dedicated to easing the transition of workers as they move through challenges along their career paths. Most of the funding that supports NOVA s one-stop career center and labor market initiatives originates with Congress under the Workforce Investment Act of 1998 (WIA). Prior to the passage of WIA, the public workforce development system was focused almost exclusively on serving individual job seekers with a funding formula based on the unemployment and poverty of local area residents. WIA recognized the employer as an additional and very important customer. As a result, private-sector-led WIBs like NOVA were able to reshape services to address both the supply and demand sides of the labor market. Efforts to identify the skill gaps and worker shortages of employers in the local economy and to actively customize workforce preparation programs to meet these demands have paid off with a much more effective workforce development system. Nowhere is this more evident than in the Silicon Valley where the tech industry requires workers with only the most current skills and where the economic churn of creative destruction regularly displaces workers even in a healthy economy. But the WIA funding formula was not updated with the change in customer focus, so resources are still based upon the residence of workers as opposed to the location of employers. For most local workforce investment areas (LWIAs), there is not a serious disconnect for labor supply and demand. NOVA is a unique and important exception: unique, because there is currently a dramatic over-supply of jobs especially tech-related jobs as compared to resident workforce; important, because technology and other STEMrelated jobs are growth areas key to the economic recovery of California and the nation. The data and charts included in this paper provide a comparative view of the potential demand for workforce services relative to funding for Silicon Valley and other LWIAs within the state. These data expose the consequences to the Silicon Valley workforce of ignoring employers in distributing funding for services. Silicon Valley s middle - and high-skill jobs with family-supporting wages draw workers from every contiguous county in the region and as far away as the Central Valley. At some point, most will be displaced as a victim of churn and many will be displaced more than once. This dynamic and flexible economy will require a subset of job seekers to have their skills enhanced or to be retrained in new fields altogether. Networking and other new skills will be required to successfully navigate a constantly changing labor market and regain those family-sustaining wages. Yet public workforce investment funding does not recognize this need. NOVA responds to layoffs within the NOVA workforce investment region. Workers who have lost jobs in the region seek new jobs within the region. Both area employers and workers displaced in the region are using the 1
NOVA one-stop career center to meet their respective needs. WIA funding for the displaced worker goes to the area in which they reside and not necessarily to the area in which they lost their job or hope to find a new one. The only funding designed for the employer is to provide staffing for rapid response to a layoff or WARN activity. A disproportionate inflow of workers into the region combined with the disparity between the region s share of dislocations and its share of the labor force results in an outsized and unfunded demand for dislocated worker services. The purpose of this paper is to quantify the scope of this problem with the hope of accessing additional resources from the Governor s discretionary WIA dollars for emergency dislocations. Accommodating this unique market disconnect as an emergency will allow NOVA to continue to serve the Silicon Valley economic engine in a manner that shortens both the period of unemployment for our workforce and the time to hire for our employers thus contributing to the economic recovery for all of California. The investment made in support of Silicon Valley will further benefit the state as a whole. The gross metropolitan product (GMP) for the metropolitan statistical area (MSA) in which NOVA resides represents nearly 10 percent of California s total, the fourth largest in the state. The MSA also had a 7.5 percent annual growth rate (2010 11), which was the greatest of the top 100 metropolitan regions in the nation. Wages within the region are also considerably higher than most other regions of the state and are 35 percent higher than the statewide average. Workers therefore return a greater share of pay to the state through higher income taxes than their counterparts throughout California. 2
The Silicon Valley Anomaly Chart 1: Dislocation & Funding to Labor Force (5-year average) See Attachment 1 for larger image This chart displays the top ten California local workforce investment areas (LWIAs) by descending share of statewide dislocations as highlighted by the dashed line. Each area has a unique set of challenges and features that these three data sets attempt to quantify: labor force is the count of residents living within an area who are either employed or unemployed as defined by EDD; dislocations are an assessment of the number of people who lost their jobs within the area s boundaries; and formula funding is the monies allocated to the areas to provide dislocated worker services. Most LWIAs are reasonably balanced between shares of dislocations, labor force, and WIA Dislocated Worker formula funding. The disparity between these related measures is most radical within the NOVA LWIA, where dislocations are five times greater than the labor force and seven times greater than funding. The NOVA LWIA is a job center. As subsequent slides will show, there exists within the area a greater volume of jobs than employable residents. When funding and labor force measures (based upon residence) are presented side by side with the measures of dislocations (based upon employment location), the NOVA area reflects a dramatic disparity between the measures as compared to the other areas of high dislocation. 3
NOVA s extraordinary share of dislocation has two primary causes: commute patterns and the inherent nature of the technology industry. In the following pages, we will detail the dramatic commuter influx of workers into the area, none of whom are considered by either the funding formula or traditional labor force estimates. The second cause is the high rate of job churn due to the nature of Silicon Valley s primary industry sector, technology. Job churn is the situation whereby companies cut jobs in one area and add in others. Technology evolves so quickly that the technology sector experiences remarkably short life cycles for both products and the companies manufacturing them. The technology sector, while famous for some big name companies, is built upon a foundation of legions of smaller companies. These companies and their products rise and fall with remarkable speed, generating the need to continually change the mix and volume of the workforce that supports them. It also means that the skillsets required to support these new technologies must evolve along with them, as older skills become outdated. According to the Longitudinal Employer-Household Dynamics (LEHD) data produced by the U.S. Census Bureau, the volume of jobs created and jobs lost within the region are both great. This ongoing churn accounts for a high rate of dislocation with a minimal effect on the unemployment rate. NOVA s management information system shows that in CY2012 we enrolled 3,902 individuals dislocated from a total of 2,197 different companies. Dislocations within the NOVA area, the second-highest statewide share, result from a very high number of lowvolume dislocation events. It is this relentless advancement of technology and its requisite skills that has made Silicon Valley the model for lifelong learning. It is this continual demand for skills upgrades that makes the need for WIA services much greater than traditional metrics would support. 4
Chart 2: Dislocation & Funding to Labor Force (4 Largest LWIAs & NOVA; FY2007 12) Chart 2 displays the top four LWIAs (based upon share of the State s labor force) in addition to NOVA. The number in each column represents the respective LWIA s rank amongst California s 49 LWIAs for each of the three variables: labor force; dislocations; and formula funding. The circle simply illustrates that most LWIAs are reasonably balanced on these variables. The disparity between these related measures is most radical within the NOVA LWIA, where the volume of dislocations have been the second highest in the state over the last five years, while the labor force has been 19 th and the funding over that timeframe has placed 30 th. The two-way arrow above the NOVA data highlights the disparity between the rank in dislocations (2 nd ) and the rank in the formula allocation funds for dislocated worker services (30 th ). 5
Chart 3: Worker Commute: Inflow/Outflow Net Difference Chart 3 highlights worker commutes and the inflow and outflow of workers by LWIA. The net increase or decrease is shown here for 16 select LWIAs within California selected by size (combined, they represent 67% of the state s labor force) and geographic representation throughout the state; they are ranked here according to decreasing size of the inflow/outflow net change. According to the most recent U.S. Census data, NOVA sees a daily increase of more than 163,000 workers into the region, which is a 74% daily increase to the workers who reside within the seven-city region and the third-highest volume within the state. Funding formula factors are all based upon place of residence. Given the net inflow of workers, NOVA s true employment numbers are underrepresented by this net difference of 163,632. This chart demonstrates that a large share of the staffing for local employers consists of people who live outside of NOVA s jurisdiction. As an element of our strategy to support local employers, NOVA provides job-seeker services to all customers regardless of where they live. 6
Chart 4: Worker Commute: Ratio of Total Workers to Resident Workers The ratio of worker commute illustrated in this chart is calculated by dividing the total number of workers (resident workers + inflow) by the number of workers residing within the area. A one-to-one ratio of total workers to resident workers would be shown here as 100%. NOVA s calculation is used as an example in the box at the top of the chart: 384,106 total workers 220,474 resident workers results in a ratio of 174%. This can also be stated that the region sees an increase of 74% of the resident workforce on a daily basis. The number of workers living within the NOVA LWIA is just over 220,000. The increase of 163,632 workers on a regular basis nearly doubles NOVA s worker population. NOVA s ratio of 174% is the most dramatic of California s 49 LWIAs. The region has the unique distinction of being the only one of California s 49 LWIAs (with one very minor exception) that sees a net positive inflow of workers from every other LWIA in the state. 7
Other Factors Gross Metropolitan Product The region has a disproportionate impact on California s economy. The San Jose Santa Clara Sunnyvale Metropolitan Statistical Area (NOVA s MSA) has the fourth largest gross metropolitan product (GMP) in the state, contributing nearly $183 billion (9.3% of California s gross state product) in 2011. The majority of this was due to the technology industry, as the region s Computer & Electronic Product Manufacturing subsector contributed more than half ($26.3 billion) of the state s Gross State Product (GSP) within this sector (2009). NOVA s MSA had a GMP growth rate of 7.5% from 2010 to 2011 the largest of the 100 largest metro areas in the U.S. Our MSA was also the second highest exporter of goods within California with 15.8% of total GMP (2010). Median Wage Wages within NOVA s MSA are also considerably higher as compared to the state. The mean hourly wage for all occupations was $33.59 in May 2011. This is 35% higher than the state average of $24.96. Workers within the region arguably contribute a disproportionate share in state taxes. Innovation The NOVA LWIA is also recognized as having the highest share of patents of all regions in the state. In 2011, patent-holders in NOVA s seven-city consortium held 10,672 patents or 30% of all patents filed in California. One of every 25 patents filed in the U.S. in 2011 came from NOVA s seven cities. 8
Summary Silicon Valley s economic value to the state and the nation is well documented. With a gross metropolitan product that is 9 percent of California s total and the highest year-over-year growth rate of the 100 largest metro areas in the United States, the San Jose Sunnyvale Santa Clara Metropolitan Statistical Area (encompassing Santa Clara and San Benito Counties) is an immensely important contributor to the state's economy. And the seven cities that comprise the NOVA Local Workforce Investment Area (LWIA) are significant contributors to the region's success. Within Silicon Valley, there are more jobs than people as illustrated by the high volume of workers commuting into the area. Without access to emergency discretionary funding, NOVA struggles to address this region s need for services to dislocated workers. The NOVA LWIA has consistently had among the highest shares of dislocation among all 49 LWIAs within California. This is testament to the massive commuter-inflow of workers to the region, as well as to the inherent nature of the technology industry, which is continuously innovating, generating a constant churn of technologies, jobs, occupations, and companies. This disparity between jobs, workers, layoffs and workforce funding could threaten the economic growth in the Silicon Valley region by unnecessarily lengthening the period of unemployment for those whose skills have fallen behind. If the regional workforce does not have the cutting edge skills that will keep employers globally competitive, they may recruit from outside the country or relocate the work. NOVA cannot provide the necessary services to the job seekers and employers of northern Silicon Valley with the available resources. The issues described above the massive inflow of workers, the disproportionate share of dislocation, the inequitable distribution of funds, and the region s invaluable contributions to the State provide evidence of the great need felt within this unique region and why the anomaly of Silicon Valley requires immediate attention. A share of the WIA resources allotted to the State of California remain with the Governor s Office as discretionary funding that can be directed towards economic emergencies and statewide programming. Our purpose in looking deeper than the traditional, residence-based, measures of unemployment and poverty rates is to reveal the economic emergency within the NOVA Local Workforce Investment Area. 9
Sources 1. Bureau of Labor Statistics: Occupational Employment & Wage Statistics (May 2011) 2. California Employment Development Department (EDD), Labor Market Information Division (LMID): Labor force data 5-year average (FY2007 FY2012) 3. California EDD LMID: Labor force data, current (October 2012) 4. California EDD LMID: Number of Businesses, Number of Employees, and Payroll by Size Category, (Q3 2011) 5. California EDD, Workforce Services Division, annually (2008 12) 6. Longitudinal Employer-Household Dynamics (LEHD): Quarterly Workforce Indicators (QWI) (Q1 2007 Q4 2011) 7. NOVA Management Information Systems (FY 2012) 8. U.S. Bureau of Economic Analysis (2009, 2010) 9. U.S. Census Bureau, On the Map Application and LEHD Origin-Destination Employment (beginning of quarter employment: 2 nd quarter, 2002 2010) 10. U.S. Conference of Mayors, U.S. Metro Economies (July 2012) 11. U.S. Patent & Trade Office (2011) 10