Google goes where Obama can't on worker pay

The Pak Banker - - Editorial5 - Chris Far­rell

On Nov. 29, Pres­i­dent Barack Obama an­nounced a two-year pay freeze for non-mil­i­tary fed­eral work­ers. And on Dec. 3 the govern­ment prob­a­bly will say that the U.S. un­em­ploy­ment rate is stuck at 9.6 per­cent, ac­cord­ing to the me­dian es­ti­mate of 57 econ­o­mists sur­veyed by Bloomberg News, which will trans­late to ane­mic pay gains.

Not at Google Inc. The search-en­gine be­he­moth, look­ing to stem the de­fec­tion of key work­ers to other hot Sil­i­con Val­ley em­ploy­ers, an­nounced last month that its work­force of about 22,000 em­ploy­ees will get a 10 per­cent wage hike start­ing in 2011. (Imag­ine, when will the av­er­age em­ployee feel it's a rea­son­able gam­ble to walk into the boss' of­fice and de­mand a 10 per­cent raise or threaten to walk?)

"Google has to pre­empt the de­sire for its tal­ented em­ploy­ees to seek work else­where," says Richard Florida, di­rec­tor of the Martin Pros­per­ity In­sti­tute at the Uni­ver­sity of Toronto. "I've seen tal­ented em­ploy­ees flee the pre­vi­ous em­ployer of the moment for the next em­ployer of the moment --just ask Mi­crosoft."

With about $33 bil­lion in cash and short-term in­vest­ments, and a stock-mar­ket cap­i­tal­iza­tion of al­most $180 bil­lion, Google can af­ford to throw money and shares at its em­ploy­ees. Yet the sig­nif­i­cance of Google's across-the-board pay raise ex­tends far be­yond cor­po­rate com­pe­ti­tion. It re­flects a war for brains and tal­ent that is heat­ing up through­out the in­for­ma­tion technology ecosys­tem.

Web-based search-en­gine com­pa­nies, mo­bile In­ter­net providers, ap­pli­ca­tion de­vel­op­ers, wire­less com­pa­nies and other in­no­va­tive com­mu­ni­ca­tion firms are jock­ey­ing for po­si­tion in grow­ing, and profitable, mar­kets. And while the im­plo­sion of hous­ing, the bank bailouts, and the di­vi­sive pol­i­tics of fis­cal and mon­e­tary pol­icy re­ceived most of the head­lines since 2007, those years also marked the ac­cel­er­a­tion of the in­for­ma­tion-in­ten­sive cre­ative econ­omy.

Google's growth and shared pros­per­ity serve as a punc­tu­a­tion point. "I have been con­vinced for some time that we are go­ing through a ma­jor re­struc­tur­ing of the econ­omy that is much big­ger than the dif­fi­cult time we are go­ing through right now," says Erik Bryn­jolf­s­son, di­rec­tor of the MIT Cen­ter for Dig­i­tal Busi­ness.

Cer­tainly, com­pared with most parts of the econ­omy, in­no­va­tion is flour­ish­ing in the com­mu­ni­ca­tions and in­for­ma­tion ecol­ogy.

That growth is show­ing up in jobs and wages. From Oc­to­ber 2009 to Oc­to­ber 2010, the num­ber of jobs in com­puter sys­tems de­sign and re­lated ser­vices rose by 7.5 per­cent, ac­cord­ing to the Bureau of La­bor Statis­tics. Telecom­mu­ni­ca­tions em­ploy­ment was up (0.9 per­cent), as was data pro­cess­ing, host­ing and re­lated ser­vices (0.5 per­cent), com­puter and pe­riph­eral equip­ment (0.7 per­cent), and com­mu­ni­ca­tion equip­ment (0.7 per­cent).

The split shows up in geog­ra­phy as well. Work­ers in the most cos­mopoli­tan cities are see­ing wage gains. For in­stance, the av­er­age weekly wage in­crease for all pri­vate in­dus­try work­ers in the U.S. from the first quar­ter of 2009 to the first quar­ter of 2010 was 1 per­cent, ac­cord­ing to the BLS. Yet av­er­age weekly wages in tech-heavy San Fran­cisco over the same time pe­riod in­creased 5.4 per­cent. The gain in in­for­ma­tion­rich Washington was 2.8 per­cent. New York City saw an 11.9 per­cent in­crease, with the biggest pay earned in fi­nance (22.7 per­cent) and pro­fes­sional busi­ness ser­vices (10.9 per­cent).

"This isn't about in­for­ma­tion technology," says Paul Saffo, a long-time Sil­i­con Val­ley con­sul­tant and a man­ag­ing di­rec­tor at Dis­cern In­vest­ment An­a­lyt­ics. "This is about knowl­edge work."

It's in­trigu­ing to note that al­most a cen­tury ago an­other pay raise sig­naled a com­ing trans­for­ma­tion of the U.S. econ­omy. Henry Ford an­nounced on Jan. 5, 1914, that he would dou­ble his fac­tory work­ers' wages to $5 a day. (He also re­duced daily hours worked from 9 to 8.) Ford Mo­tor Co., like Google, had good busi­ness rea­sons for its move: The Model-T assem­bly line was a bru­tal place and in 1913 Ford had to hire 50,448 peo­ple to main­tain a work­force of 13,623, ac­cord­ing to Richard Ted­low, busi­ness his­to­rian at the Har­vard Busi­ness School.

Pay­ing work­ers a bet­ter wage than they could get else­where en­cour­aged loy­alty. But the $5 wage also marked the pas­sage to­ward a mass-pro­duc­tion econ­omy where fac­tory work­ers were work­ing class on the job but mid­dle class at home, once they shared in the re­mark­able pro­duc­tiv­ity bounty of man­u­fac­tur­ing. And since smoke­stack Amer­ica was such a dom­i­nant part of the econ­omy, the ben­e­fits spilled into in­dus­tries out­side man­u­fac­tur­ing.

Fast for­ward to to­day: The wealth of the emer­gent knowl­edge econ­omy or cre­ator econ­omy is largely be­ing pock­eted by em­ploy­ers and em­ploy­ees in the cre­ative in­dus­tries.

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