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Is Silicon Valley Bad for the American Worker?

October 13, 2016, 8:59 PM UTC
Thomas Trutschel Photothek — Getty Images

Ever since the Great Recession, analysts and economy-watchers have been looking for a culprit to blame for America’s slow-to-recover job market.

One popular scapegoat: Silicon Valley.

That’s the target of an article published in the Wall Street Journal on Thursday which argues that the recent tech boom has created lots of distractions, but “not enough jobs.” Writers Jon Hilsenrath and Bob Davis allege that while “the technology revolution has delivered Google searches, Facebook friends, iPhone apps, Twitter rants, and shopping for almost anything on Amazon, all in the past decade and a half” it hasn’t delivered many jobs.

For instance, Google and Facebook have a combined market value of double that of Microsoft, yet they collectively employ only third of the employees of the software giant.

The implication is that America’s most innovative and important industry is enriching a few Americans, and that wealth is not filtering down to average Americans. They argue that, “The gap between what the tech boom promised and then delivered is another source of the rumbling national discontent that powered the rise this year of political outsiders Donald Trump and Bernie Sanders.”

Setting aside the argument of whether or not Donald Trump’s rise is primarily motivated by economic anxiety (polls show wealthy Americans support him at higher rates than the poor), it’s an odd time to be making this argument. After all, the unemployment rate has fallen to 5%, below its post-war average. Meanwhile the Census Bureau has reported that median income in 2015 grew by 5.2%, the largest increase in the history of the Census Bureau’s survey.

To be sure, the American economy has a ways to go before it recovers from the damage wrought by the Great Recession, as median pay remains below its peak in 2007. But the Journal article never explains why this should be specifically blamed on the tech industry.

It’s true that the technology sector employs fewer people for dollar of revenue than others, and that this is a concerning trend for those who believe that power and wealth should be more easily distributed through society. But there’s nothing particularly unique about the technology industry shifting jobs overseas, or the fact that tech workers are seeing a lower share of profits today than they were a generation ago. In fact, if you look at the top companies in terms of profit per employee, you’ll see a mix of industries. Sure, Apple comes in at the top, but the second most efficient company is 21st Century Fox, yet we don’t hear much about the dearth of employment in media.

Furthermore, Hilsenrath and Davis don’t address the solutions to the thinning out of job opportunities in the technology sector that have been proposed in recent years. Back in 2013, futurist Jaron Lanier published an entire book discussing the problem of concentrated power in Silicon Valley and why profits and benefits from their activities aren’t being captured by the broader public. He pointed out, however, that companies like Facebook and Google aren’t valuable at all without the participation of users, meaning that with the right legal and financial structure, these companies could be forced to compensate users, in small micropayments, for the value users add to those products.

But 2013 was a very different climate employment-wise than 2016. Although there remains too much underemployment in America, the employment situation is generally pretty good in terms of the number of jobs. More jobs would certainly drive up wages and living standards, but it helps to identify that the problem is that wages have lagged behind productivity growth, not that the technology sector is uniquely a sector that relies on much capital but little labor.

So what could help reverse this problem? There are plenty of good ideas on the right and the left that are worth trying. On the supply side, we should seriously consider a recent proposal by former Obama Administration official Cass Sunstein to ditch unnecessary regulations, while state and local governments should work hard to eliminate zoning requirements that slow growth in some of our most vibrant cities. On the demand side, there’s reason to believe that higher minimum wages helped contribute to wage gains last year. What’s more, passing laws that strengthen unions in non-tradeable businesses like retail and hospitality could do much to strengthen the bargaining power of those workers.

But here’s the big picture: If we really want to get the economy working for all, as Clinton and Trump claim, we need to take a holistic approach to the problem of sluggish wage growth and stagnant living standards. Just picking on Facebook or Google or Twitter or any one else in Silicon Valley is not going to do it.