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Friday, June 21, 2024

The Great Tech Hub Exodus Didn't Quite Happen

Last October a local couple from the small midwestern city of Greensburg, Indiana offered to be people’s grandparents on demand. The couple, Tami and Dan Wenning, volunteered to babysit children and accompany them to Grandparent’s Day at the local elementary school, in a bid to attract remote workers to their area. Not to be outshined, the Ozark Mountain town of Bentonville, Arkansas soon began paying free-range tech workers $10,000 in Bitcoin plus a bike to move there. These were the latest in a string of efforts to lure tech workers away from hubs like San Francisco and Seattle to sleepier locales.

If they were trying to seed the next Heartland Silicon Valley, they had their work cut out for them. New data from the Brookings Institution shows that despite hopes that work from anywhere would thrive during the pandemic, most tech workers didn’t fan out across the country at all. Instead they remained concentrated in a small but growing group of cities.

Over the past few decades, high-paying tech jobs in the US have increasingly concentrated in a handful of cities, contributing to regional economic inequality. The tech sector grew by 47 percent in the 2010s, and in the latter half of that decade, nearly half of tech job creation occurred in eight “superstar” metro areas: San Jose, New York, San Francisco, Washington DC, Seattle, Boston, Los Angeles, and Austin. By the end of the decade, those eight cities comprised 38.2 percent of tech jobs.

“With the onset of remote work during the pandemic, there's been great hope that footloose techies would bail on the big coastal hubs, head for the hills, and help tech decentralize,” says Mark Muro, a senior fellow at the Brookings Institution who co-authored the new report about the geographic distribution of jobs in the US tech sector.

So has the so-called remote work revolution spawned a grand dispersal of tech jobs? Not really. But it has prompted some modest reshuffling.

Located largely in the nation’s interior, nine “rising stars”—Atlanta, Dallas, Denver, Miami, Orlando, San Diego, Kansas City, Mo, St. Louis, and Salt Lake City— had increased their share of tech jobs before the pandemic struck, growing by an average annual rate of 3 percent between 2015 and 2019. Like the superstars, these cities boasted proximity to large universities and an abundance of highly educated technical workers.

Pandemic-driven remote work did little to loosen these cities’ stranglehold on jobs. In 2020, the pandemic’s first year, both superstars and rising stars added tech jobs, slightly increasing their overall share. The rate of growth, however, slowed, dropping from about 5 percent pre-pandemic to 2.9 percent in 2020.

Instead, 36 other cities notched stronger tech job growth than before the pandemic. These included northern business centers like Philadelphia and Minneapolis, large warm weather cities like Charlotte, North Carolina, big university cities like Chapel Hill, and vacation centers like Virginia Beach. Amenity-rich and vacation towns such as Santa Barbara and Barnstable, Massachusetts saw job growth surge by more than 6 percent, while college towns such as Boulder, Colorado and Lincoln, Nebraska grew by more than 3 percent.

George Valdes, head of marketing at the architecture software startup Monograph, has one of these jobs. His wife gave birth to their daughter in June 2020, three months after the company went fully remote. Valdes lived in Oakland, California, where the air soon grew thick with wildfire smoke. When this happened, Valdes would drive his family south to stay with his aunt in Los Angeles until the air quality improved. “After a couple times of doing that, we thought, we need to get out of here.”

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So they picked up and moved to St. Petersburg, Florida. His mother-in-law lives there and helps out with the baby, and his father lives a few hours away in Miami. Unlike in the Bay Area, they were able to afford a house on his Monograph salary, and Valdes says their quality of life has dramatically improved. “Being able to be closer to family is very real.”

In the second year of the pandemic, job postings slumped in the superstar cities of San Francisco, San Jose, Boston, New York, and Washington DC. The rising star cities, on the other hand, increased their share of job postings, with Denver and Miami in particular showing strong gains.

This doesn’t surprise UC Berkeley economist Enrico Moretti, author of the 2012 book The New Geography of Jobs. “The hype around remote has not really changed the economic fundamentals,” he says. For one thing, fully remote work continues to represent a small slice of the overall workforce: It tripled during the first month of the pandemic, but still only represented 6 percent of total office jobs. Then the amount of fully remote jobs on offer quickly leveled off. Data gathered by Stanford economist Nicholas Bloom and Jose Maria Barrero, a finance professor at the Mexico Autonomous Institute of Technology, showed that the average US tech worker currently works 2.7 days a week from home, suggesting that hybrid models are predominating.

In decades past, industries were spread much more widely. “If a place was cheaper, it became an attractive place to make the same widgets [or manufactured products],” says Muro. For instance, manufacturing firms flooded the previously agricultural American South after World War II, attracted in part by its supply of cheap labor. But for decades, digital roles have become less likely to scatter over different locations. Moretti’s research found that 45 percent of computer science patents emerged from 10 metro areas in the late 1970s, and now, that number has reached nearly 70 percent.

The industry’s reliance on network effects contributes to this agglomeration, says Muro. Early movers tend to crush or absorb the competition—see Facebook, Google, Amazon—concentrating a lot of jobs at a few companies. “There's a winner-take-most nature to the digital economy,” says Muro. “Once a company begins to gain momentum, its growth can become exponential and dominate the world.”

Muro also points to the emphasis on idea exchange, particularly amongst new technologies. A growing body of research finds that face-to-face interactions promote learning. Economists call this “knowledge spillover.” The more faces, it would seem, the better. When Moretti traced the careers of about 100,000 inventors, he discovered a striking rise in the number and quality of patents they filed after moving to a large hub, or cluster. Conversely, if the nation’s inventors spread out evenly across all US cities, he estimated that it would lead to an 11 percent drop in patent filings.

This may explain why several tech companies have begun calling employees back to the office—sometimes against their will. Google, Microsoft, Facebook, Amazon, and Apple have all announced hybrid work plans, effectively limiting the places where their workers can live. When Bloom and his coauthor Arjun Ramani studied US migration patterns during the pandemic, they saw that rather than moving away from cities, workers were simply moving away from central business districts toward lower-density suburbs. They named this phenomenon the “donut effect.”

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Featurespace, a financial crime-fighting analytics firm with offices in the UK and Atlanta, saw this play out after it adopted a hybrid model. The company’s head of customer success, Nicole Baxby, moved her family from Atlanta 250 miles away to the coastal city of Savannah, Georgia. She still travels to the Atlanta office once a month. The move let her family afford a larger house in a golf course community and frequent nearby vacation spots like Hilton Head on the weekends. “We wanted a walkable city with a great atmosphere and restaurants,” she says.

Bloom’s research has also shown that more mature industries tend to scatter as they become more cost-conscious and less dependent on innovation. The Brookings researchers predict that as various tech sub-sectors mature, they might spread out more geographically. However, the report also notes that the emergence of new technologies ranging from quantum computing to Web3 and the metaverse “may well forecast more years of concentration in the established hubs.”

Muro notes that diversity goals could prompt tech companies to seek new locations. Featurespace founder David Excell says diversity was one of the reasons he chose Atlanta for the company’s US office in 2017.

Excell’s shortlist included San Francisco, Seattle, Chicago, Austin, Charlotte, Denver, Miami, and Atlanta, all home to big pools of tech talent. But Atlanta stood out, not just for its diversity, but for its universities and concentration of payment processing firms, which make up many of Featurespace’s customers. Industry groups like the Technology Association of Georgia and the FinTech Academy also offered ample networking opportunities when he was trying to get the US side of the business off the ground. What’s more, he likes spending his downtime there. “My family moved over here, and we've really enjoyed the quality of life, access to outdoor activities, amazing restaurants, and lots of places to visit.”

He might as well have been cribbing from the Brookings report, which includes a series of recommendations for decentralizing tech. It advises tech hub hopefuls to develop abundant, skilled, diverse workforces; cultivate a vibrant tech community replete with networking opportunities; and build an excellent quality of life. It also calls for state and federal intervention in education and economic development. Sadly, stand-in Nanas didn’t make the list.

Moretti thinks that government intervention is a tall order. “I cannot think of many examples of where a thriving Innovation cluster was born due to explicit policy on the part of a local government,” he says. “The typical path for the emergence of one of these clusters is much more organic. It's the success of a local firm, which becomes the seed around which a cluster agglomerates.”

That isn’t stopping the Build Back Better Regional Challenge, a $1 billion federal project awarding 20 to 30 grants to develop economic clusters throughout the country. Meanwhile the bipartisan US Innovation and Competition Act, which includes investments in technology education at historically Black colleges and universities and minority-serving institutions in new regions, is making its way through Congress. And the National Science Foundation’s artificial intelligence program is investing in emerging technologies in new locales.

While Muro is cautiously optimistic, he’s not bracing for a sea-change. “We shouldn't rule out the possibility of some decentralization,” he says. “But we probably shouldn't bet against the big hubs either.”


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