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December 09, 2005

Communities of Technological Practice

Virginia Postrel writes about what I think of as AnnaLee Saxenian's key insight--that Silicon Valley's unique success and power arises not out of the hunger of its entrepreneurs and capitalists but out of its footloose, job-hopping, talkative engineers. The key productive resource--the rapid spread of news and information--is a sociological and not an economic factor:

In Silicon Valley, Job Hopping Contributes to Innovation - New York Times : By VIRGINIA POSTREL: FOR four decades, through booms, busts and bubbles, Silicon Valley has maintained an amazingly innovative business environment. Companies and technologies rise and fall. Hot start-ups morph into giant corporations. Cutting-edge products become mature commodities. Business models change. Through it all, the area remains creative and resilient - and more successful than other technology centers, notably the Route 128 area around Boston.

What makes Silicon Valley special? Thanks to some new data, economists have finally been able to test statistically some popular explanations. In her influential 1994 book "Regional Advantage: Culture and Competition in Silicon Valley and Route 128" (Harvard University Press), AnnaLee Saxenian, an economic development scholar at the University of California, Berkeley, argued that Silicon Valley's innovative edge comes from two unusual characteristics. First, talented employees move easily and often to new employers, far more so than people elsewhere. "The joke is that you can change jobs and not change parking lots," one of her interview subjects said. Second, instead of vertically integrating, Silicon Valley computer makers rely on networks of suppliers. They also design open systems that can flexibly accommodate all sorts of new components. "The system's decentralization encourages the pursuit of multiple technical opportunities through spontaneous regroupings of skill, technology and capital," she wrote.

Many people, especially in Silicon Valley, found Professor Saxenian's argument convincing. But while her research was careful, it depended on interviews and had no large-scale statistical backing. Perhaps her subjects' impressions were unreliable. After all, the argument that Silicon Valley's job hopping fosters innovation contradicts economists' common assumptions. "It didn't feel right to me," James B. Rebitzer, an economist at Case Western Reserve University, said in an interview. When employees jump from company to company, they take their knowledge with them. "The innovation from one firm will tend to bleed over into other firms," Professor Rebitzer explained. For a given company, "it's hard to capture the returns on your innovation," he went on. "From an economics perspective, that should hamper innovation."...

In a forthcoming article in The Review of Economics and Statistics, Rebitzer and two economists at the Federal Reserve Board, Bruce C. Fallick and Charles A. Fleischman, empirically test the claim that Silicon Valley employees move more often than computer industry employees in other places. (The article, "Job Hopping in Silicon Valley," is available at http://www.federalreserve.gov/research/staff/fallickbrucex.htm

The two Fed economists... use data from the Current Population Survey.... To Professor Rebitzer's surprise (though not his co-authors'), it turns out that Silicon Valley employees really do move around more often than other people. The researchers looked at job changes by male college graduates from 1994 to 2001. During that period, an average of 2.41 percent of respondents changed jobs in any given month. But, they write, "living in Silicon Valley increases the rate of employer-to-employer job change by 0.8 percentage point." "This effect is both statistically and behaviorally significant - suggesting employer-to-employer mobility rates are 40 percent higher than the sample average."...

Posted by DeLong at December 9, 2005 09:49 AM