Apr 12, 2017

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Measuring Innovation and Economic Impacts in the Tech Industry

Measuring Innovation and Economic Impacts in the Tech Industry

cyberstates-2017-coverIn his 2012 book The New Geography of Jobs, Enrico Moretti outlines the importance of the innovation sector to the U.S. economy. He called it “America’s new engine of prosperity,” partly because most innovation jobs are part of the traded sector (i.e., they produce exportable goods and services) and partly because these jobs have a large multiplier effect.

The innovation sector can be a bit squishy to define, but everyone agrees the tech industry—however you define it—is an integral part of the innovation engine.

This is well illustrated by CompTIA in its new Cyberstates 2017 report.

In the report’s subtitle, CompTIA—a tech industry association that has issued more than two million IT certifications—calls Cyberstates the “definitive national, state, and city analysis of the U.S. tech industry and tech workforce.” And indeed, it’s hard to imagine a more comprehensive look at the tech economy and labor force. The study delves into tech industry and occupation employment, wages, projections, job postings, business establishments, gender ratios, and self-employment estimates.

Cyberstates also examines a few key economic impact and innovation indicators by state and metro, which is what we’ll explore in this post. (For a broader look at the tech economy, the Cyberstates websiteand full report are very much worth exploring.)

Ranking the Economic Impact of Tech by State

There are several ways to determine an industry or sector’s impact on a local, state, or national economy. One method is to take a strict workforce perspective and calculate the share of jobs that industry or sector makes up of the total labor force.

Cyberstates does this by isolating a group of tech occupations and industries and ranking each state on their percentage of total and private-sector workers in tech. Massachusetts is No. 1 among all states on both counts, with 8.7% of its total workforce and 9.9% of its private-sector workforce in tech categories. The rest of the top five is as follows:

  • Colorado (7.8% of total workforce in tech)
  • Virginia (7.7%)
  • California (7.2%)
  • Washington (7.1%)

Nationally, just 4.4% of the workforce is employed in tech, per CompTIA’s analysis.

comptia-map-1

Another method is to analyze an industry or sector’s multiplier effect, which takes into account downstream, indirect benefits in addition to direct jobs, earnings, or sales. Moretti’s researched revealed that the high-tech sector has a jobs multiplier of 6.0—meaning every new jobs creates five jobs outside of high tech. Cyberstates, which briefly touches on multipliers, reports that the IT services and custom software services category has a jobs multiplier of 4.8.

A third economic impact method teases out the economic contribution of an industry or sector by looking at its share of gross regional product. Cyberstates does this by using Emsi and the Bureau of Economic Analysis’ gross state product (GSP) numbers.

Looking at the percentage of GSP in the tech industry, Oregon (18%), Washington (13.2%), and Massachusetts (12.7%) constitute the top three states. California—the undisputed champion in many tech industry metrics—is fourth, at 12.6%.

We were surprised to see Massachusetts so high in both the share of GSP and the workforce in the tech sector. What’s happening there? In one word, innovation—lots of it.

Tech Innovation in Massachusetts and Other States

CompTIA ranked Massachusetts No. 2 in innovation per capita, a measure that combines 2015 patents data from the U.S. Patent and Trademark Office with data on startups and new business establishments. The only state ahead of it: California.

massachusetts-patents-granted
Tech patents granted in Massachusetts (source: Cyberstates 2017)

As Cyberstates notes, the number of tech patents granted declined in almost every state from 2014-2015—including Massachusetts (-14%). But from 2010 to 2014, tech patents granted soared in Massachusetts to over 2,600 from slightly more than 2,000—an increase that seems to be driving tech employment growth. Tech jobs in Massachusetts grew 3.2% from 2014-2015 and 14% from 2010-2015.

What are the other top states for tech innovation?

California is the overwhelming leader in tech patents granted. Even with a 9% dip from 2014-2015, it had over 20,000 patents in 2015, more than the next nine top states combined.

CompTIA’s innovation per capita ranking puts Washington, Colorado, and New Jersey just behind California and Massachusetts.

Metro Focus

Don’t discount the effect of metropolitan areas on these state rankings. Nearly 90% of tech workers in Massachusetts live in the Boston MSA (263,500 out of 300,000 jobs, per Cyberstates). San Jose and San Francisco are first and third among MSAs in tech employment concentration, while Los Angeles is third in total tech establishments. In innovation-focused Washington and Colorado, Seattle, Denver, and Boulder are dominant players.

And how about this stat? The top five metro areas (New York, San Jose, Washington, D.C., Los Angeles, and Boston) employ nearly 1 in 4 tech industry workers.

It’s not just direct tech employment that makes these innovation hubs so successful. The multiplier effect of tech industries leads to more and better-paying service jobs for barbers, fitness workers, waiters and waitresses, etc. But the impact of tech goes beyond multipliers, too.

Moretti in The New Geography of Jobs writes, “The rise of the innovation sector is associated with an increase in the value of talent, for a simple reason: economic value depends on talent as never before.” In the tech economy, skilled workers and businesses tend to cluster in the same places more than in other industries. This is good for the cities with powerful innovation sectors, and not so good for cities where tech and innovation are lagging.

Much of the tech data in Cyberstates 2017 comes from Emsi’s online labor market and economic research software.

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