Silicon Valley Increasingly IS California's Recovery

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One of the main reasons people continue to flock to the Silicon Valley-Bay Area despite the high cost of living is that the region is the epicenter of the Golden State's labor force recovery. For instance, if you were to remove the Silicon Valley-Bay Area region from the state, California's overall employment growth rate between 2009 and 2014 would fall from 7.5% to just 5.7%.

But it isn't just California's labor force that the Silicon Valley-Bay Area is propping up. California's entire economic recovery stems directly from the region. This is evident by exploring the Silicon Valley-Bay Area's contribution to California's gross domestic product (GDP) and personal income, of which both are good estimates of economic health - for comparison Greater Los Angeles is also examined.

First the facts: Greater Los Angeles consists of the Los Angeles-Long Beach-Anaheim, Riverside-San Bernardino-Ontario, and Oxnard-Thousand Oaks-Ventura metropolitan statistical areas (MSA), while the Silicon Valley-Bay Area consists of San Francisco-Oakland-Hayward, San Jose-Sunnyvale-Santa Clara, and Vallejo-Fairfield MSAs. As of the end of 2013, the Greater Los Angeles region's total real private industry GDP was $837.1 billion compared to $516.6 billion for the Silicon Valley-Bay Area region. Meanwhile, total real personal income was $667.3 billion and $359.7 billion, respectively. But this masks an important point. Greater Los Angeles, in terms of population, is almost 3 times are large as the Silicon Valley-Bay Area. When population is taken into consideration, the Silicon Valley-Bay Area's real GDP is roughly 1.7 times Greater Los Angeles' - 1.1 times for real personal income per capita.

Exploring the growth in both GDP and personal income since the Great Recession reveals much the same as the regions' labor force growth during the period: the Silicon Valley-Bay Area has led the economic recovery. Between 2009 and 2013, the Silicon Valley-Bay Area's real GDP per capita and real personal income per capita has increased 10.3% and 15.1% respectively - compared to 2.1% and 5.1% for Greater Los Angeles. Thus, the Silicon Valley-Bay Area coming out of the recession has been creating more wealth for its inhabitants and more economic wealth for California despite having a smaller population than Greater Los Angeles. Its economy is firing on all cylinders, which shouldn't be surprising considering what we know about its labor force growth over a similar period.

Just as removing the Silicon Valley-Bay Area region would lead to devastating results for California's labor market health, taking the region out would also significantly (and negatively) impact California's economic health. For instance, in aggregate, California's real GDP per capita and real personal income per capita grew by 4.9% and 8.8% between 2009 and 2013. However, if the Silicon Valley-Bay Area region were to be removed, these growth rates drop to just 2.7% and 6.9%. Just as we witnessed with the labor market growth, removing Greater Los Angeles actually increases California's real GDP per capita and personal real income per capita growth during this period to 7.4% and 11.6%. This is the difference between a solid economic expansion and a mediocre recovery. This is yet more evidence that without the Silicon Valley-Bay Area, California's post-recession recovery becomes sluggish (at best), but without Great Los Angeles, it improves.

In 2013, the national real GDP average growth was just under 2%. California's rate was closer to 3%. Without the Silicon Valley-Bay Area, California basically becomes average across the states, while without Greater Los Angeles, the Golden State performs at twice the national average. This matters because California's tax system (and budget) is designed purely expecting strong economic health.

Silicon Valley-Bay Area's strong post-recession economic growth is the reason California has had a recovery; hence, the recovery shouldn't be cause for celebration among the state's leaders. California's economic recovery is occurring on the shoulders of just one region. This lack of economic diversification puts the Golden State in a precarious position. And yet, Sacramento continues to pretend everything is just okay.


Carson Bruno is the assistant dean for admission and program relations at the Pepperdine School of Public Policy. Follow him on Twitter @CarsonJFBruno.

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