Tech Businesses Are a Small But Important Piece of the Region’s Economy
It’s actually quite hard to define and measure the “technology sector.” Some people use very broad definitions which include almost any business that uses sophisticated technologies to deliver products and services, ranging from steel mills to hospitals. But when most people think of “technology businesses,” they’re thinking of businesses that primarily deliver cutting-edge products or services such as new drugs, medical devices, or sophisticated computer equipment and software.
Although it’s difficult to obtain job creation data for many of these more narrowly defined technology businesses, data from the U.S. Bureau of Labor Statistics are available on four types of technology industries which the region has been working to grow for some time. Two represent the core of the life sciences sector: pharmaceutical and medicine manufacturing, and medical equipment and supplies manufacturing; two represent the core of the information technology (IT) area: computer and electronic product manufacturing, and computer systems design.
In 2009, these four industries employed just over 20,000 workers in the Pittsburgh metro area. That’s a lot of jobs, but a relatively small part of the economy – only about 2% of the total private sector jobs in the region. They are, however, very high-paying jobs; average annual pay is around $60,000 in the first three industries, and it’s around $77,000 in the computer systems design industry. That’s significantly higher than the $44,000 that the average private sector worker in the region makes.
These businesses are typically quite small. Those 20,000 workers are employed by over 1,150 separate businesses, i.e., there are fewer than 20 workers per firm on average. The computer services businesses are the smallest – an average of 10 employees per firm – while the medical equipment and supplies firms have an average of over 30 employees per firm. The small size of the firms is partly a result of the relative youth of these sectors in the Pittsburgh region, but also reflects the fact that cutting-edge products are most often developed by entrepreneurs in small startup firms.
Despite two decades of regional efforts to grow the information technology and life sciences sectors, Pittsburgh is still not among the top 10 regions in the country in employment in any of these four industries.
The largest of the four is computer systems design; our region had over 800 firms employing over 8,400 workers in 2009, but 28 of the 36 large regions for which data are available had more jobs in that sector than Pittsburgh did, including both Columbus and Cleveland.
Close behind in terms of jobs is computer and electronic product manufacturing; we had 150 firms employing over 8,100 workers in 2009, but half of the 32 large regions for which data are available had more jobs in that sector than we did, including places like Baltimore and Milwaukee.
The medical equipment and supplies industry is smaller than the others – 108 firms employing over 3,400 workers in 2009 – and at least 13 regions have more jobs than that, including Denver and Indianapolis.
The pharmaceutical industry is extremely small here – only 7 firms employing about 300 people, fewer than most regions in the country.
How did the technology sector fare during the recession? The computer systems design industry actually added over 700 jobs, a 10% increase. However, the other three sectors lost a combined total of over 1,600 jobs between the end of 2007 and the end of 2009, more than offsetting the gains in computer systems design jobs. In addition to losing jobs, we also lost 5 medical equipment companies and 3 computer and electronic product manufacturing companies, which will make it particularly difficult to get those jobs back during the recovery.
The relatively small size of our IT and life sciences sectors means that we need to focus more attention on them, not less. In the future, opportunities for job creation will increasingly come from businesses in these and other technology sectors. In fact, the medical equipment and computer products sectors now represent more than one out of every 8 jobs (13%) in our region’s shrinking manufacturing sector.
We have a rich resource of cutting-edge ideas in both IT and life sciences at Carnegie Mellon, Pitt, and UPMC, but we need to work harder to ensure adequate startup capital, technical assistance, facilities, workers, and ongoing financing to enable entrepreneurs to turn those ideas into successful and growing companies.
(A version of this post appeared as the Regional Insights column in the Sunday, September 5, 2010 Pittsburgh Post-Gazette.)