A Playground for Skilled Knowledge Workers

One of the reasons Silicon Valley continues to be a "magnetic field" for highly skilled technology workers is that it has industry clusters of interdependent firms that can cross-pollenate projects, people, and ideas. This enables workers to move from project to project, company to company, or venture to venture with great ease, while continuing to earn large salaries.

Another very important indicator for regional wealth creation is value added, or productivity per employee. In the year 2000 individual productivity increased by 7% to $127,100 on average per employee, compared with the U.S. average of $60,800. This extraordinary productivity is attributed to the integration of technology into the workplace as well as the long hours employees tend to work in Silicon Valley. Cisco exemplifies this integration by incorporating the Internet into nearly every facet of its operations. The company claims that its productivity per worker in 1999 was a staggering $688,000. By integrating the Web into its operations, Cisco saved an aggregate $825 million for the whole company through increased efficiency.

Figures 2-1 through 2-3 illustrate the extraordinary premium paid to knowledge workers in Silicon Valley relative to salaries in the rest of the U.S. (see Figure 2-1). This salary premium is accompanied by a corollary differential in increased productivity (value added) per worker in Silicon Valley relative to the U.S as a whole. The historic productivity differential will probably ensure continued premium salaries in Silicon Valley into the near future.

Figure 2-1. Average wage per employee, 1992 “2000.

Source: Joint Venture's 2001 Index of Silicon Valley .

Figure 2-2. Value added per employee overall.

Source: Joint Venture's 2001 Index of Silicon Valley .

Figure 2-3. Value added per employee by cluster, 2000.

Source: Joint Venture's 2001 Index of Silicon Valley .

Growth of the average annual wage in inflation-adjusted terms indicates job quality. From 1999 to 2000, the estimated average wage in Silicon Valley grew 9.2% while the national average increased 2%. The Valley's average wage is 84% above the nation's average.

As shown in Figure 2-2, the value added per employee overall has increased over the 1990s, and the differential between Silicon Valley and the rest of the U.S. has been increasing.

As shown in Figure 2-3, the value added by Silicon Valley clusters is higher than that of their national counterparts. This is especially pronounced in computers, semiconductors, software, and innovation services.

Given this widening differential compared with the rest of the U.S. in productivity, in these key sectors Silicon Valley will probably continue to attract highly skilled workers from many countries .