Innovating Inequality?

October 2018

Innovating Inequality?

How tech’s business models concentrate wealth while shortchanging workers

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20 years of data show that Silicon Valley’s business models exacerbate income inequality while enriching corporate shareholders, executives, and Wall Street:

  • Over the past two decades, residents of Silicon Valley have increased their per capita economic output by 74% — yet for nearly nine out of ten jobs, employers are paying lower real wages now than in 1997.
  • The share of middle- and high-wage jobs declined, while the proportion of workers in low-wage jobs increased by 9 percentage points.
  • Much of this increased concentration of wealth can be traced to aspects of the business models adopted by the tech industry, which give outsized rewards to a few at the price of increasing financial insecurity for the vast majority of wage earners.

This report was produced in partnership with UC Santa Cruz Professor Chris Benner and the UCSC Everett Program for Technology and Social Change. Read the longer companion report published by the Everett Program here.

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Silicon Valley workers are creating tremendous wealth, but keeping less of it.

The tech economy has meant declining wages, increasing inequality, and a shift towards low-wage jobs.

Despite nation-leading economic growth and productivity, Silicon Valley's tech economy is only benefiting the top 10%. Over the past 20 years, per capita economic output in Silicon Valley increased 74%, yet wages fell for nearly 90% of the workforce.

In fact, if labor’s share of GDP had been the same in 2016 as in 2001, the average Silicon Valley worker would have received an additional $8,480 in pay and benefits that year alone.

And while the share of middle and high-wage jobs declined, the percentage of workers in low-wage jobs increased by 9 points.

While a few big tech firms make billions, workers in supporting industries face low wages and sky-high living costs.

Tech’s business models concentrate wealth while shortchanging workers.

So why is such strong economic growth failing to lift wages even in the heart of the innovation economy?

  • The business models and “new rules” developed by the tech industry separate the production of value from the rewards for value. One consequence is that workers whose labor produces economic growth and corporate profits do not receive fair financial gains from that growth.
  • Instead, the financial gains accrue to a select club of venture capitalists, financiers, and executives, along with a small class of top-earning employees.
  • The disconnect between production and rewards is exacerbated by the winner-take-all, near-monopolistic nature of today’s leading tech sectors, where a few firms dominate an entire market (think Google in search, Facebook in social media, or Amazon in online retail).
  • This approach fails to share the industry’s enormous profits with everyone else who contributes to its success — including the vast majority of employees, subcontracted service workers, consumers who provide valuable personal data, and taxpayers who fund the research and development of core technologies.

Public policy and industry action can help tech growth create widespread prosperity.

The persistence of these trends helps underscore that they have structural roots, meaning that the problems underlying current tech markets and business models are not self-correcting; they will not be solved by private markets alone.

Just as public sector investments and collaborative processes have been critical for the economic dynamism of the region, so too must public sector policies and collaborative processes be developed to solve the problems created by this economic system.

The consequences of not acting are clear — growing inequality and insecurity, along with a dangerous politics characterized by xenophobia, racism, and intolerance that has spread across our country. This economic system undermines our democracy and our ability to live full and healthy lives.

Seeds of Solutions

The seeds of solutions are already beginning to sprout in the form of community- and worker-led policy and organizing innovations.

The report identifies a set of concrete steps to begin rewriting the rules and rewards of Silicon Valley’s business models so that tech companies:

  1. Respect workers’ voices and freedom to stand together.
  2. Adopt high standards for workers in subcontracted and supply chain firms.
  3. Increase the share of tech revenue and profits contributed to the common good.
  4. Partner with surrounding communities to address the impacts of tech’s growth.