The Meaning of Silicon Valley to California's Economy
Last week, after speaking to a local rotary club on California's housing affordability issue, a member of the club came up to me and asked an interesting question: if the Bay Area is so expensive in which to live, why do people still move here? While there are likely nuanced answers to this question, generally speaking, the Bay Area is where the jobs are.
Over the next few weeks, I'm going to explore this issue is some depth, specifically exploring how the Silicon Valley-Bay Area factors into California's economic and fiscal health. To do so, I'll examine the region's contribution to California's labor force, gross domestic product (GDP), personal income, and tax revenue. A theme should emerge; since the Great Recession, the Silicon Valley-Bay Area has become absolutely essential to California's economic and fiscal health (to show this, I'll compare this region versus Greater Los Angeles - the part of the state historically connected to the ethos of the Golden State).
When asked how the economy is doing, the go to response is to look at the unemployment rate. While the U6 unemployment rate is the more comprehensive unemployment measurement, the data isn't easily available on a county-by-county basis; as such, this analysis focuses on the aggregate labor force, total employment, and the U3 unemployment rate, which together succinctly show how the labor force is functioning.
First the facts: Greater Los Angeles consists of Los Angeles, Orange, Riverside, San Bernardino, and Ventura counties, while the Silicon Valley-Bay Area consists of Marin, Alameda, Contra Costa, San Francisco, San Mateo, and Santa Clara counties. As of the end of 2014, the Greater Los Angeles region had a total labor force of 8.95 million compared to 3.45 million for the Silicon Valley-Bay Area. During the period of 2000 to 2014, the Greater Los Angeles region's labor force and employment grew faster than the Silicon Valley-Bay Area - 1.7 and 1.8 times faster, respectively.
But this masks something important. During the early portion of the 2000's, the Silicon Valley-Bay Area was recovering from the dot-com bubble burst, which, for the most part, didn't affect the other regions of California. For instance, between 2000 and 2003, unemployment swelled by 96% in the Silicon Valley-Bay Area, almost 3 times the increase as Greater Los Angeles. Meanwhile, the Greater Los Angeles region wasn't particularly experiencing strong growth. Between 2000 and 2003, employment grew by just over 2%.
Since the Great Recession - which affected all of California very badly - the Silicon Valley-Bay Area has greatly outperformed Greater Los Angeles. Between 2009 and 2014, the Silicon Valley-Bay Area's labor force and employment totals increased by 10% and 16% respectively - more than triple and double Greater Los Angeles' recovery. Moreover, the Silicon Valley-Bay Area has seen a 41% drop in its total unemployment, about 11 points better than Greater Los Angeles. Thus, the Silicon Valley-Bay Area coming out of the recession has not only been growing its labor force at a faster pace, it also has been putting more of those people to work. As a result, on average, the Silicon Valley-Bay Area's unemployment rate has been 2.3 points below Greater Los Angeles' since the recession.
This results in a massive positive contribution to California's labor market health since the Great Recession. Taking the Silicon Valley-Bay Area region out of the picture would have devastating effects, essentially eliminating the recovery, while removing Greater Los Angeles actually improves California's labor market recovery. For instance, in aggregate, California's employment grew by 7.5% between 2009 and 2014. However, if the Silicon Valley-Bay Area region were to be removed, this growth rate falls to just 5.7%. Moreover, removing Greater Los Angeles actually increases California's employment growth to 8.1%. In term of the unemployment rate, removing the Silicon Valley-Bay Area versus removing Greater Los Angeles, on net, increases California's average unemployment rate between 2009 and 2014 by roughly a half-percentage point. Simply put, without the Silicon Valley-Bay Area, California's post-recession recovery becomes sluggish (at best), but without Great Los Angeles, it improves.
It's not so much that Greater Los Angeles has been an anvil to California's recovery, but rather that the Silicon Valley-Bay Area has been the singular labor market driver in the state since the recession. Whether this will continue into the future is unknown, but the fact that it is occurring now shouldn't go unnoticed by the state's leaders.
