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(Photo: Patrick Nouhailler/Flickr)

Bright Flight From Silicon Valley

• April 08, 2014 • 2:00 AM

(Photo: Patrick Nouhailler/Flickr)

Talented people are starting to move to places where the cost of living is more reasonable, but a town can’t just be cheap and wonderful. It also has to be connected.

The Innovation Economy is moving to where the cost of living is reasonable. The anecdotes and data points are piling up, putting the squeeze on talent-starved Silicon Valley companies. Tale of the domestic migration tape:

“It’s a kind of middle-class flight—a bright flight,” said William Frey, a demographer at the Brookings Institution, a think-tank in Washington, D.C. “People are moving to where the cost of living is reasonable.”

The shift holds some long-term implications for the economy. The clustering of workers with advanced degrees has been a driver of America’s growth, economists say. That is because skilled workers are more productive when they collaborate with similarly skilled colleagues. Consider Silicon Valley, for example, or Detroit’s Motor City in the 1950s, where innovation and industrial-scale operations drove economic development.

However, if professionals young and old fan out to more places, that could spread the nation’s talents more widely. A broader dispersal of America’s skilled workers eventually could mean more jobs and new businesses, boosting the economy’s dynamism.

Emphasis added. Detroit’s Motor City in the 1950s is today’s Silicon Valley. Then manufacturing fanned out to more places, at home and abroad. Government labs attracted the best and brightest to new knowledge hubs. Detroit slipped into the cul de sac of globalization. Now it’s Silicon Valley’s turn.

Before we stick in fork in the geography of innovation, not every place will benefit from Silicon Valley’s decline. Finding cheaper digs is easy. Attracting highly mobile talent to some forgotten corner is another story. Can Buffalo compete with Barcelona?

Another attraction Barcelona holds for fledgling tech companies, aside from its warm climate, location and cultural appeal, is its relatively low cost base for anyone looking to build a start-up in its early stages.

While high competition for engineers in Silicon Valley means that talented engineers can demand ever higher salaries, the lower wages that are paid in Barcelona to workers who want to stay in Europe and enjoy the city’s lifestyle can allow new ventures to flourish. …

… “Lots of people want to live in Barcelona, and this helps companies to have a much lower cost base than other places, but still operate out of Europe in an attractive location,” he says.

The other side of the Silicon Rust coin is the cost of talent. Start-ups can’t compete with Google or Apple for employees. Places such as Barcelona comprise the minor leagues for tech. Thus, proximity to the largest markets matters. A town can’t just be cheap and wonderful. It also has to be connected.

Barcelona has another asset going for it. It’s a tourist destination. Restaurant workers and housekeepers already have an economic rationale to be there. Furthermore, returning to the original concern about the rent being too damn high, Barcelona has a long way to go before it bubbles over with Silicon Valley-like gentrification pressures:

East Palo Alto is the last haven of low-rent housing in a region where companies like Tesla, Facebook Inc. and Google Inc. have minted at least two dozen billionaires and thousands of millionaires. Woodland Park is where Silicon Valley’s cooks, janitors and housekeepers live, often working second jobs to hang on to their homes as rents soar and wages stagnate.

The service class can’t afford to work in Silicon Valley. The foreign born usually fill that void. But California has reached peak immigration and is rapidly sliding into demographic decline. Better opportunities await elsewhere, including in the homeland. With plummeting birth rates worldwide, the absolute number of potential workers is constricted. The supply crunch is hitting Silicon Valley at both ends of the labor market. Get out while getting is good.

Jim Russell
Jim Russell is a geographer studying the relationship between migration and economic development.

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