FRBSF Economic Letter
2007-23; August 3, 2007
Trends in Bay Area IT Employment
The San Francisco Bay Area has long been a key center
of information technology (IT) innovation and production.
This Economic Letter explores how IT employment trends
have evolved in this area, as well as how they compare
to other key IT centers and the nation. The findings show
that, although the region has seen a modest decline in
its share of the nation's IT jobs while other key centers
have seen gains, the Bay Area remains the national leader
in IT employment. In particular, sectoral shifts from IT
manufacturing to IT services within the Bay Area over the
last decade, coupled with above-average job growth in several
key IT services in recent years, have helped maintain the
Bay Area's advantage in IT employment nationally. Not surprisingly,
the Bay Area IT sector continues to be a key source of
strength for the region's economy.
Bay Area's share of
IT employment, 1990-2006
For the purposes of this analysis, IT will be divided
into two broad components: manufacturing and services.
The IT
manufacturing component includes companies that make
computers, communications equipment and their primary building
blocks,
semiconductors, and other advanced electronic machinery,
as well as a variety of advanced measuring and testing
equipment, such as photonics and electrometrical and
aeronautical devices, along with consumer electronics (Daly
and Valletta
2004). The IT services component includes internet service
providers and computer programming, design, management
services, and research and engineering services.
 Figure 1 provides telling evidence on the evolution of
IT employment trends in the Bay Area as well as on the
region's long dominance as a leader in IT employment.
The figure plots the share of the nation's IT employment
from
1990 to 2006 for the five metropolitan areas cited among
the nation's largest centers for IT employment by the
American Electronics Association (2000). This 16-year period
covers
the years leading up to a productivity surge that was
largely driven by developments in IT, the dot-com boom,
the recession
in 2001-2002, which was largely led by a retrenchment
in IT investment (marked by the second gray bar in the
figure),
and the subsequent recovery.
Although the Bay Area has seen a fall in its share of
the nation's IT employment, it nonetheless has been the
leader
among metropolitan areas throughout this period of booms
and busts in the industry, and remains so today. Shares
also have shifted for the other top IT centers. For example,
although Los Angeles has maintained its second-place
ranking, its share of the nation's IT employment has fallen.
The
Boston area, too, has seen some erosion in its IT employment
share, and, indeed, it has ceded its third-place ranking
to Washington, D.C., where the share has risen. Seattle
remains in the fifth-place position, with its share showing
a steady upward movement.
Regarding the Bay Area, the figure shows that its share
of the nation's IT jobs hovered around 8% throughout
most of the 1990s before spiking to just above 9% in 2000,
at
the tail-end of the IT boom. This was a period of rapid
deployment of internet-related services, which ushered
in a new era of commerce conducted not in brick-and-mortar
stores but on the World Wide Web. When the dot-com boom
turned to a bust, amid the more general decline in IT
investment nationally, the Bay Area's share of the U.S.
IT labor force
fell and today has leveled off to 7%, a touch below what
it was in the early 1990s.
Changing composition of IT employment
To understand why these shifts have occurred, it is useful
to look at the changing composition of IT employment,
which has been driven by the ongoing transformation of
the IT
sector. Since the inception of microprocessor manufacturing
in Silicon Valley, the nucleus of the Bay Area IT center,
the U.S. IT sector has been characterized by rapid advances
in technology and the emergence of new products and applications.
What began as an industry associated with the development
of faster microprocessors and the production of personal
computers has increasingly become software-oriented,
as the personal computer has evolved into a general-purpose
machine to which new functions can be added simply by
installing
new programming (Economist 2006). Likewise, the use of
the internet and wireless communications has grown phenomenally.
While the services component of IT has burgeoned, changes
also have occurred in the manufacturing component. Globalization
of the IT supply chain has shifted IT manufacturing production
to new locations, often overseas, where labor is relatively
inexpensive (Valletta 2003). These developments are reflected
in the rising share of IT jobs in services compared to
manufacturing in the U.S. and in the Bay Area.
 Figure 2 shows a decomposition of the IT sector into
manufacturing and services for the Bay Area and the nation
as a whole.
In 1995, nearly three-quarters of Bay Area IT jobs were
in manufacturing, while, at the national level, IT manufacturing
jobs constituted about half of total IT employment. By
2006 the Bay Area IT sector had become more balanced
in its mix of manufacturing and service jobs, though it
remained
relatively more focused on manufacturing than the nation.
Though not shown, the data reflect similar developments
in the other IT centers. Los Angeles and Boston, which
have been more oriented toward manufacturing, have seen
a decline in the share of the nation's IT jobs, while
Washington, D.C., and Seattle, which are more oriented
toward the services
component of IT, have seen their shares rise.
Despite the downshift in IT manufacturing jobs in the
Bay Area, the erosion of its IT employment shares has been
modest, in part because of the offsetting effect from
faster-than-average
growth in IT service jobs. Since the mid-1990s, IT service
growth in the Bay Area has outpaced the U.S. average,
while IT manufacturing jobs have fallen a bit faster than
average.
 The growth rate for IT jobs during key subperiods since
the mid-1990s is shown in Figure 3. In the 1995-2000
period, the Bay Area saw exceptional growth in IT service
jobs
and above-average growth in IT manufacturing jobs. During
the 2000-2004 period, the erosion of shares also largely
reflected the difference in its job growth compared to
the national average. In the most recent period, above-average
gains in IT service jobs have offset a somewhat larger
contraction in IT manufacturing jobs, working to stabilize
the Bay Area's share of overall IT employment. Among
IT services, the Bay Area's edge over the nation has been
due in part to the exceptional recovery and growth in
jobs
at firms providing internet-related services, such as
web search portals and data processing.
Importance of IT to the Bay Area
IT employment has long been important to the vigor of
the Bay Area economy. Especially important in this regard
has
been the exceptional increase in earnings of the typical
IT employee in the Bay Area. In 1990, the IT sector accounted
for 8.8% of all jobs, and the share was only a bit higher,
9%, by 2005. During that period, however, the share of
the dollar value of total wages and salaries in the Bay
Area accounted for by the IT sector rose from 14.2% to
20%. By contrast, for the U.S., the increase in IT share
of total wages and salaries over the period was more
modest, from 6.7% to 8%. The gain in the role of IT in
the Bay
Area and the U.S. in large part reflects the gains in
productivity in the IT sector compared to the other sectors
of the economy
as a whole.
Conclusion
The Bay Area has retained its prominence as the leading
IT center nationwide. While giving some ground in terms
of IT employment share, the Bay Area still accounts for
1.5 times more IT jobs than the second-ranked Los Angeles
area. The region's IT sector also has been shaped by
the national trend in the growth of IT services. In fact,
over
the past several years, Bay Area IT service firms have
added jobs at a faster pace than IT service firms in
the nation as a whole. As a result, while the Bay Area
today
maintains its legacy in hardware development, the region
has a more balanced mix of IT manufacturing and IT service
jobs than in the mid-1990s. This transformation has been
a key factor in the Bay Area's success in retaining most
of its share of overall IT employment in the U.S. Also,
with a relatively stable share of IT employment combined
with substantial gains in productivity, the IT sector
has had a growing impact on the Bay Area economy, accounting
for as much as 20% of the total wages and salaries of
workers
in the region. Lily Hsueh
Regional Analyst
References
[URLs accessed June 2007.]
American Electronics Association. 2000. Cybercities:
A City-by-City Overview of the High-Tech Industry. Washington,
DC.
Daly, Mary C., and Robert G. Valletta. 2004. "Performance
of Urban Information Technology Centers: The Boom, the
Bust, and the Future." FRB San Francisco Economic
Review 2004, pp. 1-18.
The Economist. 2006. "The PC's 25th Birthday--Getting
Personal." July 29, pp. 57-58.
Valletta, Robert G. 2003. "Is Our IT Edge Drifting
Overseas?" FRBSF Economic Letter 2003-30 (October
10).
Opinions expressed in this newsletter
do not necessarily reflect the views of the management
of the Federal Reserve Bank of San Francisco or of the
Board of Governors of the Federal Reserve System. Comments?
Questions? Contact
us via e-mail or write us at:
Research Department
Federal Reserve Bank of San Francisco
P.O. Box 7702
San Francisco, CA 94120
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