Sizing up tech’s influence
Experts disagree on how to measure the sector’s booming growth
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.”
GOOGLE boosted its Southern California presence three years ago by opening a campus in Venice, where it leased space in the Binoculars Building.