The Price of Innovation for Silicon Valley’s Workers

October 30, 2018

If we want tech growth to create widespread prosperity, we need to shift the rules that determine who reaps the benefits.

By Bob Brownstein, Strategic Advisor

Google is planning to build Silicon Valley’s biggest tech campus in downtown San Jose. It’s a project that business leaders have predicted will be a huge economic boon for the Bay Area’s largest city. But will it really benefit most Silicon Valley residents? Twenty years of data give good reason to be skeptical.

Two decades ago — when Google was run out of a garage in Menlo Park — I co-wrote a report finding that the then-nascent tech economy was contributing to instability and insecurity among low-wage workers. This year, we conducted a follow-up study looking at how workers in Silicon Valley have fared in the years since.

What we discovered was surprising: even though Silicon Valley has recorded the strongest per capita economic growth in the nation, nearly 9 in 10 jobs here pay lower real wages today than they did in 2001. The tech economy is not just failing low-wage workers. It’s now shortchanging nearly all workers.

Why is this happening? We found that the tech industry has adopted business models which let shareholders, executives, and the very upper echelons of tech workers capture an outsized share of the wealth generated by the sector’s growth. For instance, social media platforms or search engines derive a large portion of their profits not from the activities of the company itself, but rather from the network of people posting and searching.

These network effects lead to monopolistic ‘winner-take-all’ markets. An initial slight advantage can result in one or a few firms dominating an entire market, bending the rewards of production towards investors and executives. Those gains have come at the expense of workers and local communities — if workers had kept as much of the wealth they created in 2016 as they did in 2001, each worker would have been paid an extra $8,480 that year alone.

Google exemplifies these trends. Larry Page and Sergei Brin founded Google 20 years ago with technology developed on a National Science Foundation-funded research project. Since then, it has grown into an $800 billion company that accounts for 90 percent of internet searches.

Yet as it has grown, the tech giant has shifted towards hiring more contract workers instead of full-time employees. Contractors often have lower wages, fewer benefits and more job insecurity. Bloomberg reports that contractors now make up the majority of Google’s global workforce.

Meanwhile, Google has driven up the cost of living near its Mountain View headquarters, pricing more and more residents out of their homes. RVs line Mountain View’s streets and many workers face longer commutes after being forced to move further away.

This happens over and over again in Silicon Valley. A small number of firms end up dominating entire markets, funneling enormous rewards towards investors and away from everyone else.

If we want tech growth to create widespread prosperity, we need to shift the rules that determine who benefits from innovation. The data we’ve studied tells us that simply bringing a big tech company into town does not create prosperity. But there are ways we can make sure that communities get a share of the wealth.

For Google’s proposed mega-campus, that could start with a community benefits package. In exchange for selling the tech giant some of San Jose’s most valuable public land, grassroots groups — including the Silicon Valley Rising coalition that we’re part of — have called on Google to negotiate a community benefits agreement to invest in affordable housing, prevent displacement, ensure family supporting jobs for construction and service workers, and address other needs while giving the community a role in enforcement.

Such an agreement would be a promising step towards compensating the public for their contributions and ensuring that Google’s growth benefits not just wealthy investors, but also the broader public.

Addressing economic inequality and financial insecurity brought by the growth of the tech sector will take a range of solutions, but steps like a community benefits agreement can put us on the right trajectory. If the next wave of innovation is going to bring advances — not just in technology, but in the lives of working families — then people need to be equal partners in shaping how tech grows in our communities.

Bob Brownstein is the Strategic Advisor at Working Partnerships USA and a co-author of the new report, “Innovating Inequality: How tech’s business models concentrate wealth while shortchanging workers.”

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