Siz­ing up tech’s in­flu­ence

Ex­perts dis­agree on how to mea­sure the sec­tor’s boom­ing growth

Los Angeles Times - - MONDAY BUSINESS - By An­drea Chang an­drea.chang@la­times.com

Nearly ev­ery­one be­lieves that tech in Los An­ge­les is boom­ing.

But mea­sur­ing that growth is a murky busi­ness, with no con­sen­sus among the city’s of­fi­cials, econ­o­mists, en­trepreneurs and ven­ture cap­i­tal­ists on where to begin, what re­gions to in­clude or what even con­sti­tutes a tech job.

Among the points of con­tention: Should Uber and Lyft driv­ers be counted as tech work­ers? Does aerospace fall within the tech in­dus­try? Should com­pa­nies in Or­ange County, such as Broad­com and Bl­iz­zard En­ter­tain­ment, be in­cluded?

“There’s no well-de­fined tech sec­tor,” said Jerry Nick­els­burg, an eco­nomics pro­fes­sor at UCLA. “There’s clearly a large and vi­brant tech­nol­ogy sec­tor that runs across many tra­di­tional sec­tors in Los An­ge­les — that is clear. What that trans­lates to in terms of em­ploy­ment and in­come — that’s a lit­tle less clear.”

Fig­ur­ing it out has be­come es­pe­cially im­por­tant as hun­dreds of start-ups emerge and as tech gi­ants in­clud­ing Google and Ya­hoo ex­pand their South­land op­er­a­tions. Econ­o­mists say a ro­bust tech econ­omy is im­per­a­tive for L.A. in an in­creas­ingly con­nected and in­no­va­tion-fu­eled world, and although it’s im­pos­si­ble to say how much it could grow, the think­ing th­ese days is the big­ger, the bet­ter.

So track­ing the in­dus­try, they say, can help chart a course for the fu­ture.

Get­ting an ac­cu­rate han­dle on the in­dus­try’s size and di­rec­tion, for ex­am­ple, would help the city al­lo­cate the right re­sources, such as train­ing pro­grams and of­fice spa­ces, to sup­port its growth. It’s also use­ful for mar­ket­ing: Tout­ing L.A. as an inf lu­en­tial tech hub — with the num­bers to back it up — is help­ing to at­tract work­ers and com­pa­nies from Sil­i­con Val­ley, and it’s keep­ing lo­cal en­gi­neer­ing grad­u­ates in the city.

“As our tech econ­omy con­tin­ues to grow, so too must our tools for mea­sur­ing our suc­cess,” Mayor Eric Garcetti said. There are more tech jobs, in­vest­ments and new com­pa­nies in the city than ever be­fore, he said, and the in­dus­try is “be­com­ing a cor­ner­stone of our lo­cal econ­omy.”

Fur­ther­more, re­ly­ing on a nar­row set of num­bers, with­out wider con­text, could lull peo­ple into think­ing that growth in the L.A. tech sec­tor is health­ier than it ac­tu­ally is.

In re­cent months, sev­eral groups have tried to crunch the num­bers, cre­at­ing a patch­work of re­ports, es­ti­mates and pro­jec­tions. They’ve looked at a wide range of met­rics: start-up for­ma­tion, ven­ture cap­i­tal dol­lars, com­mer­cial real es­tate ac­tiv­ity, job num­bers and wages.

The most highly pub­li­cized study came from the Los An­ge­les County Eco­nomic Devel­op­ment Corp., which in Oc­to­ber re­leased a com­pre­hen­sive jobs re­port on the city’s bur­geon­ing tech scene for the first time.

“Un­der­stand­ing the con­tri­bu­tion of L.A.’s high-tech sec­tor is crit­i­cal,” the LAEDC said. “In­no­va­tion and the ca­pac­ity to trans­form our world will set the win­ners apart from the losers in to­day’s global econ­omy.”

It found that there were 368,580 high-tech jobs in 2013, more than 9% of all jobs in L.A. and al­most 17% of all pay­roll wages, a re­sult of tech po­si­tions be­ing more highly paid. Much of that growth came from the high­tech ser­vices sec­tor — in­clud­ing soft­ware and In­ter­net com­pa­nies — which in­creased 13.5% from 2003 to 2013.

Although the re­port pro­vides a sweep­ing look at the tech econ­omy, some have crit­i­cized it for be­ing too in­clu­sive. Among the in­dus­tries that the LAEDC clas­si­fied as high-tech: ar­chi­tec­tural ser­vices, aerospace prod­ucts, and petroleum and chem­i­cal prod­ucts man­u­fac­tur­ing.

Christine Cooper, the au­thor of the re­port, de­fended the method, say­ing the non­profit used stan­dard clas­si­fi­ca­tions of tech jobs. She noted that peo­ple of­ten for­get that the sec­tor spans a much broader net than just the Snapchats and star­tups on the Westside.

“That’s very ex­cit­ing, but that’s just a small por­tion,” she said.

The LAEDC con­cluded that, over­all, L.A. tech is thriv­ing. But there are some who say the city needs stronger job growth.

The Cal­i­for­nia Cen­ter for Jobs and the Econ­omy said the tech-heavy Bay Area has far out­paced L.A. County in to­tal job growth since 1990.

And when Chris Thorn­berg, prin­ci­pal at Bea­con Eco­nomics, pulled L.A. County pay­roll data for “‘tech’ sec­tors as best I could,” he con­cluded that in the last two years, the county added just 1,600 tech jobs out of more than 200,000.

Mean­while, Mark Suster, man­ag­ing part­ner at Santa Mon­ica ven­ture cap­i­tal firm Up­front Ven­tures, prefers to fo­cus on the start-up land­scape, from where he said the vi­brant growth is re­ally com­ing. A bet­ter method, he in­sists, is to look at the hun­dreds of new com­pa­nies pop­ping up around the re­gion and the in­vest­ment dol­lars f low­ing in to sup­port them.

To that end, Up­front teamed up with re­search firm CB In­sights to con­duct its own study, find­ing that 2014 was a record-break­ing year for the greater L.A. area. Two bil­lion dol­lars in ven­ture cap­i­tal was in­vested across 194 deals, up 25% from 2013; based on firstquar­ter data this year, the re­gion is on pace for a new record in 2015.

“The real mea­sure of the fu­ture econ­omy is how many tech start-up jobs you have,” Suster said. “We’ve had a demon­stra­ble im­prove­ment in the last five years.”

At UCLA, econ­o­mist Wil­liam Yu has fo­cused on an­a­lyz­ing just the in­for­ma­tion sec­tor, posit­ing that growth in those jobs — which in­clude soft­ware com­pa­nies, data pro­cess­ing and com­mu­ni­ca­tions, broad­cast­ing, en­ter­tain­ment and In­ter­net com­pa­nies — can be used to form an ac­cu­rate ref lec­tion of tech health over­all.

His re­search found that in­for­ma­tion sec­tor em­ploy­ment in L.A. County from 2005 to 2013 rose 17%, the ninth-high­est in­crease in the U.S. That’s im­pres­sive and shows that tech is do­ing well, he said, but he’d like to see even more en­trepreneur­ship in the sec­tor.

“This is the fu­ture of the econ­omy,” Yu said. “It is high skill, high knowl­edge, high ed­u­ca­tion and ex­port-ori­ented, and usu­ally it will cre­ate a big­ger eco­nomic mul­ti­plier ef­fect.”

That trickle-down ef­fect is at the core of the tech econ­omy’s im­por­tance.

In 2013, high-tech com­pa­nies in L.A. County paid wages that were on av­er­age 68% higher than work­ers in other in­dus­tries, the LAEDC said.

A swell of aff lu­ent, typ­i­cally young work­ers trans­lates to looser spend­ing at restau­rants, shops and other busi­nesses. Such work­ers pay more for apart­ment rents and, even­tu­ally, homes. The think­ing is that al­most ev­ery­thing — the city, mer­chants, com­pa­nies, real es­tate — wins.

By 2022, pro­fes­sional and busi­ness ser­vices in L.A. County are ex­pected to see job gains of 105,900, led by a growth of 57,800 jobs in pro­fes­sional, sci­en­tific and tech­ni­cal ser­vices, ac­cord­ing to the state’s Em­ploy­ment Devel­op­ment Depart­ment.

To bol­ster the tech econ­omy, en­trepreneurs say ad­di­tional lo­cal late-stage in­vest­ment is es­sen­tial. Ma­ture tech com­pa­nies in the city should look to ac­quire smaller ones. And the re­gion needs to at­tract more out-oftown tal­ent and re­tain tech work­ers al­ready here.

“It’s clear that L.A. still has more room to grow,” Suster wrote in the CB In­sights-Up­front Ven­tures re­port. “But given the tail­winds that are driv­ing re­cent growth in L.A., it’s hard to bet against the re­gion’s con­tin­ued suc­cess.”

Ge­naro Molina Los An­ge­les Times

GOOGLE boosted its South­ern Cal­i­for­nia pres­ence three years ago by open­ing a cam­pus in Venice, where it leased space in the Binoc­u­lars Build­ing.

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