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Sunday, Jun 4, 2023


For years, Angelenos have been told by academics and media gurus to look toward Silicon Valley as a model for economic development. Yet although that area remains a wonder of technological innovation, a closer look suggests that depending totally on the digital economy brings its own set of problems.

At a time when cities like Los Angeles have been held up as the epitome of economic inequity, there has also been a growth in class divergences within Silicon Valley. High-tech growth, it now appears, is no more egalitarian than other industries, such as entertainment, and increasingly displays characteristics more associated with the garment industry than the squeaky-clean “industry of the future.”

A look at wage trends reveals the true picture. Since the late 1980s, the wages of middle- and lower-income Silicon Valley residents have stagnated; only the top 20 percent has registered significant gains. There’s a widening gap between the valley elite the venture capitalists, investment bankers, professional managers and salespeople and the general workforce. The ratio of top corporate to production worker salaries skyrocketed from 42:1 in 1991 to 220:1 by 1996. Top executive salaries rose 391 percent while those of rank-and-file workers dropped by 6 percent.

“A large portion of the people in the valley are having a hard time keeping up with the changes,” explains Chris Benner of Working Partnerships USA, a San Jose labor advocacy group. “There’s a new kind of segregation between the globally integrated, high-productivity part of the valley and the other side that is labor-intensive, locally developed and that does less well.”

It is these workers, mostly Latino and Asian, who have done the least well in the current boom even as the area’s per-capita income has grown considerably faster than the national average. The reasons for this disparity relate partly to the impact of the stock market, and who gets those options, but also to a restructuring of the valley’s industrial structure. In the 1970s and 1980s, larger firms still tended to do much of their own manufacturing; these jobs increasingly are either shipped abroad or subcontracted to local firms, many of them smaller companies.

These firms now employ roughly half of the valley’s manufacturing workforce and depend on thousands of occasional contract workers. In this sector, competition is intense; even amid the ’90s boom, wages have tended to stagnate.

There is also a racial component to much of this: The contractors often tend to be immigrants who, on occasion, use exploitative methods more associated with East Asia or garment sweatshops than sleek high-tech firms. Some even talk about the rise of what one expert calls “Silicon sweatshops.”

This growth of contracted work has spread even to fields such as software. As in manufacturing, this process allows companies to pay for specific projects without investing long term in their own workforce. Overall, some 40 percent of Silicon Valley’s workforce is temporary or contract employees, including many highly skilled professionals. They labor without benefits, sick leave, vacations or retirement.

Although the more elite workers are better paid, their job security resembles that of workers in the contract sweatshops of the garment industry in Los Angeles or New York.

More ominous, and familiar to Angelenos, has been a low-paid service sector; these people predominate in the nearly one-third of valley residents with incomes under $15,000 a year. For every job created in this decade for general managers and executives, computer scientists and engineers, there is more than one generated in lower-paying service fields, such as sales clerks, janitors, receptionists and cashiers.

The prospects for these workers to ascend into the elite Silicon Valley economy are not good. Barely half of the Latinos who comprise nearly 30 percent of the 12th grade students in the area graduate from high school, much less go to college. To feed its need for highly skilled workers, the valley does not, and perhaps cannot, go to the indigenous population. Like L.A. animation and Internet firms, Silicon Valley must search the nation and the world for talent.

This growing class chasm cannot be obscured by media hype forever. The political ramifications are already being felt, as long-dormant unions begin to agitate on economic issues such as the living wage. Labor in Santa Clara County now represents a force that can, and does, overcome the much-ballyhooed power of the high-tech “community.”

This class-based battle will intensify in the years ahead. For one thing, the valley’s labor leadership is ahead of the curve compared to their less far-sighted counterparts elsewhere. They have leaders like Amy Dean, the articulate head of the South Bay Central Labor Council. As one of the AFL’s youngest bosses at 35, Dean has helped lead groups like janitors and health workers to big contracts and is now targeting what she calls the “core information industry” through the organization of a new union-run temporary agency called Together @work. She hopes the group will become a kind of hiring hall for high-tech workers, with standards and benefits thrown in.

For Los Angeles, this means not that Silicon Valley successes should be ignored, but that it’s time to realize that the inherent conflicts within even successful capitalism don’t disappear whether the economy is based on digits or sewing machines.

Business Journal columnist Joel Kotkin is a senior fellow with the Pepperdine Institute for Public Policy and a research fellow at the Reason Public Policy Institute.

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