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New study shows why Silicon Valley’s economic health is good at present – and why changes are needed for continued successes and broader prosperity

Contact: Steve Wright
Swright@svlg.org / 408.501.7853

The Silicon Valley Leadership Group and Silicon Valley Community Foundation project studies 23 innovation indicators and makes comparisons with five other U.S. technology regions

San Jose, CA – Jan. 15, 2015 – A landmark study on Silicon Valley’s competitiveness and innovation economy released today shows that by several measures the Valley is currently healthy and is far outpacing other tech regions. But critical to its long-term continued economic success will be its ability to attract, retain and develop top-level tech workers, as well as improve pathways to participation in innovation industries for local residents.

Specifically, the study found that Silicon Valley must address STEM education and high-quality Pre-K education to help grow its own top tech talent, must tackle housing and traffic issues and increase investments in research and development (R&D) to continue to prosper.

The Silicon Valley Leadership Group and Silicon Valley Community Foundation joined together to develop the Silicon Valley Competitiveness and Innovation Project (SVCIP) to proactively benchmark trends in the innovation economy and develop overarching public policy strategies at local, state and federal levels to enhance and reinforce the Valley’s competitive advantages in innovation.

Study details, including a downloadable PDF of the study, can be found at SVCIP.com. Among the key findings, in abbreviated form:

  • Innovation industries generated roughly 33 percent of Silicon Valley’s annual output in 2013, and directly employed 26 percent of the workforce in the first quarter of 2014.
  • Startup Series A investment levels in Silicon Valley were triple those of New York City ($2.46B in 2014, through November), and Angel/Seed/Seed VC investments were roughly 50 percent higher ($630M).
  • Labor productivity in Silicon Valley was 17 percent higher than the next most productive innovation region, New York City, and Silicon Valley ranked lower on the cost of doing business index than New York City and Boston in 2012.
  • Roughly 3,000 businesses in innovation industries opened facilities or moved into the region in 2013, but the region gained only 500 innovation businesses in net because 2,500 also closed or moved out. More than 90 percent of these changes were due to businesses opening and closing facilities.
  • In 2013, 56 percent of Silicon Valley’s STEM (science, technology, engineering and mathematics) workforce and nearly 70 percent of its software developers were foreign born. Only one out of five STEM workers in Silicon Valley was born in California. Access to a large, highly educated STEM workforce provides a competitive advantage for innovation industries, which rely on this talent to research, develop and scale new technologies, uses and processes.
  • To continue to develop, attract and retain talent, Silicon Valley must improve STEM education and high-quality Pre-K, as well as address housing and traffic issues.
  • Investment in R&D and efforts to reduce costs of doing business are other areas of strategic importance to Silicon Valley’s long-term prosperity.

Data from the project is among the strongest evidence yet for public policies that are needed to expand the innovation economy throughout the region.

“Rising economic tides may not lift all boats, but receding tides can certainly sink all boats,” said Carl Guardino, president and CEO of the Silicon Valley Leadership Group. “In our region, whether a family’s income is from high-tech, low-tech or no-tech, every household is impacted by the ups and downs of Silicon Valley’s innovation economy. The more we can collectively address policy issues that keep us globally competitive, the more resources we will have in both the public and private sectors to address the vital needs we face locally.”

“The Valley’s strong innovation economy can only be sustained if we take intentional public policy steps to address growing income inequality, our education and housing challenges and the transportation congestion that are affecting the quality of life for our entire community, especially the middle class and poor,” said Emmett Carson, Ph.D., CEO and president of Silicon Valley Community Foundation. “If we are unable or unwilling to address these regional challenges, it is unlikely that we will be able to sustain our competitive advantage.”

To help benchmark trends in the innovation economy, an advisory council, comprised of CEOs, community and nonprofit leaders, identified 23 competitiveness and innovation indicators to track annually with comparisons to other top U.S. innovation regions. The advisory council considered key innovation hubs around the country, and identified New York City, Boston, Southern California, Seattle and Austin as the key comparison regions for SVCIP. Silicon Valley is defined as Santa Clara, San Mateo and San Francisco counties. Data compilation and analysis was conducted by Collaborative Economics of San Mateo.

The Leadership Group and SVCF launched the project because the health of local innovation industries affects the entire regional economy, helping to create direct and indirect jobs and opportunity in good economic times, and directly causing a loss of jobs and reducing demand for local services (and the jobs associated with them) during difficult economic times.

The Silicon Valley Competitiveness and Innovation Project-2015 also represents a first step in identifying key public policy issues to address in the near term. The Leadership Group and SVCF will be meeting in the next few weeks with local, state and federal elected officials, community leaders and CEOs to review the report and develop a Silicon Valley public policy agenda and action steps. Over the next several years, regional stakeholders will work with policy makers to address the region’s needs and promote a robust, inclusive economy for all of the Valley’s residents. Progress on the SVCIP policy agenda and data updates are available at svcip.com.

 

Expanded key findings:

Innovation industries generated roughly 33 percent of Silicon Valley’s annual output in 2013, and directly employed 26 percent of the workforce in the first quarter of 2014. In addition, between 1993 and 2013, GDP in innovation industries in Silicon Valley more than doubled while the rest of the economy grew 45 percent. The creation of one high-tech job is estimated to lead to five new services jobs elsewhere in the economy.

Silicon Valley accounted for 30 percent of venture capital deals and 46 percent of venture capital investment in the United States through the third quarter of 2014. Series A investment levels in Silicon Valley were triple those of New York City ($2.46B in 2014, through November), and Angel/Seed/Seed VC investments were roughly 50 percent higher ($630M). In the first half of 2014, the median pre-money valuation of late stage startups based in Silicon Valley (Series B and above) was $211M, compared to $60M in 2011, and significantly higher than other innovation regions.

Labor productivity (estimated as annual output per worker) in Silicon Valley was 17 percent higher than the next most productive innovation region, New York City, and 62 percent higher than the national average in 2013. Though the cost of doing business index was 19 percent higher than the national average in 2012, business costs in Silicon Valley were lower than in New York City and Boston. Sixty-five percent of Silicon Valley’s total job growth in 2013 was generated from existing companies expanding and 12 percent from companies moving their operations into the region.

Roughly 3,000 businesses in innovation industries opened facilities or moved into the region in 2013, but the region gained only 500 innovation business establishments in net because 2,500 closed or moved out. More than 90 percent of these changes were due to businesses opening and closing facilities. In total, Silicon Valley gained 92,500 jobs in innovation industries between Q1 2011 and Q1 2014.

In 2013, 56 percent of Silicon Valley’s STEM workforce and nearly 70 percent of its software developers were foreign born, the highest among the key innovation regions. In Silicon Valley, 3 percent of new residents in 2013 moved from other parts of the U.S. and 97 percent moved in from abroad, while in Austin, 83 percent of new residents previously lived in other parts of the U.S.

Only one out of five STEM workers in Silicon Valley was born in California. Boston had the highest proportion of its STEM workforce born in-state; 31 percent were born in either Massachusetts or New Hampshire. The number of Silicon Valley residents with a Master’s degree or higher rose 9.5 percent from 2011 to 2013, the highest increase relative to total population among the key innovation regions.

The number of patents registered annually by Silicon Valley inventors doubled between 2003 and 2013 to nearly 18,000, the highest of the innovation regions. Silicon Valley observed particularly strong gains in patents for computers, data processing and information storage technologies, cumulatively registering roughly 47,000 patents between 2003 and 2013.

Only 59 percent of 3rd graders in Silicon Valley scored proficient in reading, and only 54 percent of 8th graders scored proficient in Algebra on state exams in 2013.

Housing sale prices rose 33 percent between 2012 and 2014 (through September), and nearly 1 in 6 commuters traveled two hours or more each day in 2013, rising from 1 in 8 in 2011.

Total R&D expenditures among Silicon Valley universities grew 9 percent between 2004 and 2012, while other regions saw growth from 14 percent to 42 percent. Federal R&D funding for the region’s universities fell 2 percent from 2011 to 2012.

 

About the Silicon Valley Leadership Group
The Silicon Valley Leadership Group, founded in 1978 by David Packard of Hewlett-Packard, represents nearly 400 of Silicon Valley’s most respected employers on issues, programs and campaigns that affect the economic health and quality of life in Silicon Valley. For more information, visit svlg.org.

About Silicon Valley Community Foundation
Silicon Valley Community Foundation makes all forms of philanthropy more powerful. We serve as a catalyst and leader for innovative solutions to our region’s most challenging problems, and through our donors we award more money to charities than any other community foundation in the United States. SVCF has more than $6 billion in assets under management. As Silicon Valley’s center of philanthropy, we provide thousands of individuals, families and corporations with simple and effective ways to give locally and around the world. Find out more at siliconvalleycf.org.

About Collaborative Economics
Collaborative Economics (COECON) is a strategic advisory and consulting firm that works with clients to create breakthrough solutions for regions and communities. COECON has extensive experience helping states and regions develop innovation strategies. Find out more at coecon.com.

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