Thursday, August 17, 2006

Ideas + Companies = In-Migration

On Tuesday, the Pittsburgh Tribune-Review had a front-page story called "Population Corrosion Continues for Metro Pittsburgh." It cited migration statistics from the newest version of the Census Bureau's American Community Survey, showing that the Pittsburgh Region ranked 419th out of 492 metros in attracting new residents. Only 1.6% of the people here in 2005 had moved into the region from another state or country in the previous year, compared to 3% nationally and 5% or more in regions like Atlanta, Las Vegas, Phoenix, and Raleigh.

The low rate of in-migration to the Pittsburgh Region has been the subject of news stories and general community lamentations for many years. Can we ever expect to become a destination, rather than a departure point?

Silicon Valley Like Pittsburgh?

Last Saturday, the Wall Street Journal had a story called "Boomtown Redux: Job Market Heats Up in Silicon Valley." The story noted that Silicon Valley had lost 185,000 jobs -- one out of every five -- between 2001 and 2005. (And you thought Pittsburgh was the only place that had ever lost that many jobs in a short period of time.)

Census Bureau figures show that Silicon Valley has been experiencing significant population outmigration as a result of these job losses, just as Pittsburgh did in the 1980s when it had huge job losses. In fact, Silicon Valley has lost more people to outmigration in recent years than Pittsburgh has. Between 2003 and 2004, Silicon Valley lost 34,000 people to net domestic migration, whereas Pittsburgh only lost 7,600. The American Community Survey data cited in the Tribune-Review story show that Pittsburgh had twice as many people who had moved from another state between 2004 and 2005 as Silicon Valley did. (Silicon Valley had three times as many international immigrants during that period, though, which gave it a higher ranking on overall in-migration.)

But the Wall St. Journal article goes on to say that economists now expect a net inflow of people into Silicon Valley for the first time in six years. It cites several individuals who picked up and left Virginia, Rhode Island, and Minnesota to make a new start in Silicon Valley.

Where are the jobs coming from? The Journal article says that the biggest source of all the new jobs isn't the large companies -- it's the thousands of small and mid-sized companies and start-ups located there. The article quotes Sean Randolph, President of the Bay Area Economic Forum, as saying "People keep saying Silicon Valley is dead, and it's never true. There's an immense infrastructure for research and development here that helps push Silicon Valley continually up the skills curve."

Pittsburgh Like Silicon Valley?

Pittsburgh also has an "immense infrastructure for research and development." It has two major research universities (one of which was named one of the "New Ivies" by Newsweek this week) and one of the two largest academic medical centers in the country. It has dozens of major corporate R&D centers.

What the Pittsburgh Region has lacked is the entrepreneurial climate to turn the ideas developed through this research into the companies that will create the jobs that will attract skilled workers to the region, the way Silicon Valley does.

But turning back to the past week's newspapers, there are some very hopeful signs on the entrepreneurial front in Pittsburgh. A story in today's Pittsburgh Post-Gazette reports that fourteen new companies were started in the past year using technologies developed at Carnegie Mellon, the largest number ever. Ten of them are located in the Pittsburgh Region. That builds on the announcement last year that the University of Pittsburgh ranked sixth in the nation in the number of start-up companies created in 2004.

And several older startup companies obtained significant angel or venture financing over the past week, which will accelerate their growth dramatically. The biggest winners were Plextronics, which obtained $13.1 million in venture financing, and Cohera, which obtained $6.8 million.

And on top of that, the Pittsburgh Region was ranked one of the top 10 regions in the country to locate a business by Expansion Management magazine.

What Does Pittsburgh Need to Do?

That's a lot of good news. But we need even more startups, and even more funding for existing startups, if we're going to create the critical mass of startup firms we need to become a major destination for talented workers, who in turn will help to spawn even more startup firms. That will require a continued regional focus on helping entrepreneurs get started and on providing the kind of early-stage capital, particularly angel funding, that those entrepreneurs need to grow.

Can we ever catch up to Silicon Valley? Well, we have one major advantage it doesn't have -- affordability. The biggest downside of Silicon Valley for prospective migrants is its housing costs. The Wall St. Journal article cites one man who left a job as CIO of a Minnesota company to join a startup in Silicon Valley, and paid $1.4 million for a home -- three times the price he sold his house for in Minnesota. The median cost of a home in Silicon Valley is now $940,000, four times the national median price of $231,500. In Pittsburgh, median housing prices here are half of the national median, meaning you can get a house here for 1/8 the price in Silicon Valley.

That means that if we can accelerate the conversion of our idea infrastructure into the kinds of companies and jobs that Silicon Valley has, our affordable quality of life should make our in-migration rate soar.


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