Is The Information Industry Reviving Economies?

For nearly a generation, the information sector, which comprises everything from media and data processing to internet-related businesses, has been ballyhooed as a key driver for both national and regional economic growth. In the 1990s economist Michael Mandell predicted cutting-edge industries like high-tech would create 2.8 million new jobs over 10 years.  This turned out to be something of a pipe dream. According to a recent 2010 New America Foundation report, the information industry shed 68,000 jobs in the past decade.

Yet this year, information-related employment finally appears to be on the upswing, according to statistics compiled by Pepperdine University economist Michael Shires. The impact of this growth is particularly marked in such long-time tech hot beds as Huntsville, Ala., Madison, Wis., and San Jose-Sunnyvale-Santa Clara, Calif., in the heart of Silicon Valley, all of which have relatively high concentrations of such jobs.

The San Jose area, home of Silicon Valley, arguably has benefited the most from the  information job surge. Much of this gain can be traced to the increase in social networking sites such as Facebook, LinkedIn and Twitter, all of which have been incubated in the Valley. Good times among corporations  have led many to invest heavily in software productivity tools, while those marketing consumer goods have boosted spending for software and internet-related advertising.

The 5,000 mostly well-paying information jobs added this year was enough to boost San Jose’s standing overall among all big metros 20 places to a healthy No. 27 in our ranking of the best cities for jobs.

But as economists enthuse over the tech surge, we need to note the limitations of information jobs even in the Valley. Software and internet jobs, which have increased 40% over the past decade, have not come close to making up for the region’s large declines in other fields, notably manufacturing, construction, business and financial services. Overall, the region has lost 18% of its jobs in the past decade — about 190,000 — the second-worst performance, after Detroit, among the nation’s largest metros. It still suffers unemployment of close to 10%, well above the national average of 9.0%.

This dual reality can also be seen in the local real estate industry. Office vacancies may be back in the low single digits in some markets popular with social networking firms, such as Mountain View, but they remain around 14 or higher throughout the region — 40% higher than in 2008. No matter how impressive reporters find a new headquarters for high-fliers like Facebook, the surplus of redundant space, particularly in the southern parts of the Valley, suggest we are still far from a 1990s style boom.

Some observers also warn that the long-term prospects for the Valley may not be as good as local boosters assume.  Analyst Tamara Carleton cites many long-term factors — like the financial condition of local cities and diminishing prospects for less skilled workers — that make it tougher on those who live below the higher elevations of the information economy. She also says that a precipitous decline in foreign immigration could slow future innovation.

This dichotomy is even more evident in the other big information gainer among our large cities, Los Angeles. Although it is little known by the media or pundit class, the Big Orange actually boasts the nation’s single largest number of information jobs. Its over 5% growth in information jobs translates to roughly 10,000 new positions over the past year. In LA, the big sector for information jobs is likely not social media but traditional entertainment, one of the area’s core industries.

Yet information growth clearly is not bailing out the overall economy. Other much larger sectors, such as manufacturing and business services, continue to shrink. The area still suffers from an unemployment rate of roughly 12%.

Other information winners among our large metros include Boston and Seattle, both traditional centers for software-related jobs. These areas have not been as hard-hit by the real estate and industrial declines as their California counterparts, so increasing information employment does not constitute the outlier that we see in the Golden State.

Less expected gains were notched by some of our other big information sector winners. One big surprise was New Orleans-Metairie-Kenner, whose information sector, including a growing film and television industry, expanded almost 39% in past year. As is the case with its strong overall rankings in our best cities survey, the Big Easy’s comeback from the devastation of Katrina is heartening. But we must curb our enthusiasm by pointing out that total regional employment remains 100,000 less than it was before the hurricane.

Equally intriguing has been the strong performance of Warren-Troy-Farmington, Hills, Mich., and Detroit-Livonia, each of which has benefited from the resurgence of the American auto industry. In these areas, information jobs tend to be tied to the needs of large industrial companies. The state has also waged a major campaign for film and television jobs, as part of an attempt to diversify its economy.

Yet for all the hype that surrounds industries like media and software, it’s critical to point out that overall this is not a huge employment sector. Even in Seattle — home to Microsoft, Amazon and other software based companies — information jobs account for barely 6% of the total. In Los Angeles, it’s 5%, compared with 10% each for manufacturing and hospitality. In media-centric New York, information accounts for barely 4% of jobs, less than half that of financial services and one-third that of the huge business service sector.

In most other areas, including those experiencing strong growth, information jobs constitute an even smaller part of the economy. In New Orleans, Warren, Mich., and Detroit, such jobs account for less than 2% of employment . Still, the growth of this sector is a promising one for  economies that have long been dominated, like New Orleans, by the generally low-paying hospitality industry, or in the case of the Michigan cities, the volatile and often chronically hurting manufacturing sector.

The increase in information jobs, however welcome, should not be sold as a universal elixir for  creating widespread prosperity. Over time, strong regional economies are those that rely on diverse employment sources rather than one.  Growth in high-tech and media jobs can wow impressionable reporters and earn economic developers bragging reights, but they can do only so much to lessen the recession’s impact on the vast majority of workers and the broader regional economy.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

Photo by Angelo Amboldi