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Expert: Silicon Valley Manufacturing Leads New Thinking

By Sharon Simonson

Want to know the source of Bay Area innovation? Look no further than its manufacturing base, argues Howard Wial, a senior fellow at the Brookings Institution and an associate research professor in urban economics at the University of Illinois, Chicago.

Silicon Valley San Jose San Francisco real estate“Manufacturing is the true genesis of innovation in the economy,” he says. “It is a myth in most cases that you can have research and development here [in the United States], and manufacture separately” and continue to find new and better ways for production.

When you examine the success of an industry’s innovation after offshoring, you find that participants are drawing from institutional knowledge and skills built in their past, he said. “Eventually they will atrophy, and they will not be able to stay on top of the game.”

Wial has completed extensive research on American manufacturing and is an expert on workforce development, innovation, productivity and competitiveness.

Strength in manufacturing employment also is positively correlated with job creation in professional services, Wial said. Some of the relationship is as simple as lawyers and other professionals working directly for the manufacturers; but some of it is not.

Job gains in professional services have led employment recovery in both the Silicon Valley and San Francisco metro areas, according to the state’s May employment report. Professional service employment reached an all-time high in the San Francisco, Marin and San Mateo counties’ metro area in April: adding 9,600 jobs year-over-year to reach 234,500, the metro’s largest industry by far.

In Silicon Valley, 40 percent of the region’s total job gains in the last year have been in professional and business services including scientific and technical services. At the end of April, there were 188,500 business and professional jobs in Santa Clara and San Benito counties, the largest industry segment, followed by manufacturing with 156,000; 10,400 new professional and business service jobs were gained in the last year; no new manufacturing jobs were added.

Nationally, manufacturing employment fell nearly nonstop from 1979 until 2010, from not quite 20 million jobs to 11.5 million, 8.5 percent of the U.S. jobs base, according to “Locating American Manufacturing: Trends in the Geography of Production,” by Wial, Susan Helper and Timothy Krueger. At the end of 2010, manufacturing represented 17.5 percent of the Silicon Valley employment base, more than twice its national allocation.

Since then, manufacturing has seen nascent recovery—with exceptional strength in Silicon Valley. Nationally, manufacturers added 350,000 jobs, or 2.7 percent, from Jan. 1, 2010, though December 2011. But in Silicon Valley, manufacturing employment grew 4.1 percent in the same time and continued to grow slowly until leveling off at 156,000 in the last year, according to the most recent state of California data.

The “very high tech” manufacturing jobs in Silicon Valley are the highest paying in the country—$165,796 on average. And, while 16 percent of the manufacturing jobs in the country at large are considered “very high tech,” a whopping 75 percent of the manufacturing jobs in Silicon Valley are.

While not strongly noted for its manufacturing-jobs base, the San Francisco-Oakland-Fremont metro area also benefits from a relative abundance of “very high tech” manufacturing jobs—32.7 percent of all 116,097 manufacturing jobs in that region. Manufacturing employment in San Francisco has fallen 3.3 percent since 2010—against national and Silicon Valley gains.

“There could always be something new that could happen and change everything, but based on what we know from the past, if we don’t have a resurgence of manufacturing, we will see a slow bleeding away of our ability to innovate,” Wial said.

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