Relational and Labor based Pathways of Local Economic Development: Do People Still Follow Jobs or do

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Relational and Labor based Pathways of Local
Economic Development Do People Still Follow
Jobs or do Jobs Follow People?

• Derik Andreoli and Andy Wenzl
• University of Washington
• Department of Geography
• December 6, 2004

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Introduction

• Classic economic base and neo-classical economic
  theory firm location drives population growth
• Labor-based approach Because the New Economy
  relies on labor and knowledge as primary inputs,
  labor garners an increasing share of pull
  factors influencing firm location.

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Relational and Labor based Paths of Local
Economic Development
Cumulative Causation/Path Dependency
Development of Fixed Investment Universities/Key
Firms/Defense Entrepreneurialism by Firms
Global Impetus/ Geopolitics
Increasingly Global Markets
Breakdown of Fixed Investment Primary factor of
production is Labor
Global Supply of Labor
Social and Institutional Frameworks Embedded
Knowledge Labor remains primary factor of
prod Increasing entrepreneurialism by labor
Learning Region?
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Stage 1 Impetus of Development

• Development in era of fixed investment
• Universities/Key Firms/ Defense Contracts primary
  actors
• Fixed Investment and Labor availability (via
  Universities) important factors.
• Both Labor and Fixed Capital factors are important

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Stage 2 Persistence

• Input and material costs fall (product cycle)
• Highly skilled and educated labor become
  increasingly important
• Labor as primary factor of production
• Labor becomes more important than Fixed Capital
  costs (Globally, subcontracting and offshoring of
  manufacturing functions increase, lessening the
  cost)

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Stage 3 The pull of labor and networks

• Social and Institutional Frameworks
• Embedded knowledge
• Fixed costs continue to fall, labor as the
  increasingly dominant factor of production
• Global supplies of labor encourage H1B visas.
• Creative Class ala Floridaunique to IT, or
  generalizable across occupations?

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Mobility of IT Firms and Labor

• Firms are bound by
• Previous, fixed investment
• Highly technical and skilled labor force
• As IT firms are increasingly free of fixed
  investment, and face friction only on the basis
  of previous investment, they choose to locate in
  stasis agglomerations, where highly educated
  labor exists. This fits very well with the model
  described by Hotelling.

• Labor bound by
• Social networks
• Familial ties
• Ability to gain employment in relevant field
  (i.e. existing tech agglomerations)

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Case Study Austin(aka Silicon Hills)

• The Austin technology producing cluster is what
  is because of historical processes that have
  unfolded at scales that range from global to
  local
• In this portion of the presentation I will
• Characterize Austins institutional situation
• Provide a historical perspective which explains
  1) why Austin is a tech-producing world leader,
  and 2) how Austins situation is the result of a
  mixture of controllable factors and global
  factors and, therefore, why Austins success
  cannot be easily duplicated
• Following this portion, Andy and I will outline
  some possibilities for future research

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Austins IT-Producing Complex

• Growth-pole firms in the semi-conductor, software
  development, and computer building industries
• UTCS (7th), UT Electrical and Computer
  Engineering Dept (top ten) (4,000 combined
  enrollment)
• High amounts of Venture Capital and Angel
  Investors (58 investments in start-ups in 2002.
  With minimum investments that range between
  100,000 and 1 million and maximum investments
  as high as 50 million, these venture capital
  firms, which manage nearly 3 billion in capital,
  have a huge impact)
• High number of networking organizations and
  conventions
• Wealth of private training institutions

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Employment quick facts

• In the Austin-San Marcos MSA, 93,249 jobs are
  reported in the major technology sectors with
  total earnings in excess of 9 billion, which
  equates to average yearly earnings of 97,434.
• Comparing the number of firms and jobs reported
  for the third quarter of 2002 to third quarter
  reports for 2000, we see that while there was a
  19 net loss of jobs in the computer sciences and
  software development industries, the total number
  of firms actually grew 5.
• This mismatch is the result of larger firms
  offshoring and outsourcing work, although
  increases in productivity have likely played a
  smaller role in the loss of jobs as well.

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Timeline

• 1940s WWII
• US govt invested in research aimed at creating a
  machine that could quickly calculate complicated
  ballistics equations
• Early Post-war Era
• Surplus computational power led to the deployment
  of computers to non-military uses
• Further RD efforts led to the creation of the
  first electrostatic computers and the creation of
  FORTRAN, the first programming language

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Timeline

• Early Post-War Era, continued
• 1950 India creates the IIT modeled after MIT in
  the US
• 1958 Jack Kilby (Texas Instruments, Dallas)
  Robert Noyce (Fairchild semi-conductor, Santa
  Clara) independently invent what we now call the
  integrated circuit (or chip)
• To this day, Austin and Silicon Valley are two of
  the largest semi-conductor producing regions in
  the world

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Timeline

• 1960s
• Mouse and GUIs are invented
• ARPAnet is invented
• 1966 UTCS
• 1967 IBM and Tracor
• 1969 Texas Instruments
• 1970s
• FTP and email are invented
• ACC founded
• 1974 Motorola opens its Austin facility

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Timeline

• 1980s
• Early 80s Research consortiums MCC and Sematech
  were founded in Austin and have since spun off
  numerous firms
• 1983 LAN technology was invented
• 1984 Dell
• 1985 Windows 1.0
• 1987 Windows 2.0

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Timeline

• 1990s
• 1991 India opens borders and IT-specific FDI
  floods in to take advantage of supply side cost
  reductions and to gain access to what at the time
  promised to be a high-growth market.
• Microsoft, Sun Microsystems, America Online,
  Google, Novell, Cisco, General Electric, Intel,
  and Austin headquartered corporations IBM, Dell,
  Motorola, Hewlett-Packard, and Texas Instruments

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Timeline

• 1990s, continued
• Around this time, personal computers became
  affordable and easy to use which led to
• Exponential growth in demand for programmers
• This demand was not met by supply resulting in
• Skyrocketing wages
• H1-B visas are increased first in 1998, then in
  1999, and again in 2000 and 2001

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Timeline

• Millenium
• 9/11 attacks, general economic decline and
  High-tech bubble bursts
• Demand for product decreases and firms are forced
  to cut costs
• Meanwhile, the undersupply of workers which was
  partially responsible for the establishment of
  offshore facilities provides a cheaper way to
  maintain production