Premeditated Thought

Running out of Engineers

The immigration debate needs to be reframed. Read this excerpt from today's New York Times (the rest of the article is worth reading too):

Japan is running out of engineers.

After years of fretting over coming shortages, the country is actually facing a dwindling number of young people entering engineering and technology-related fields.

Universities call it “rikei banare,” or “flight from science.” The decline is growing so drastic that industry has begun advertising campaigns intended to make engineering look sexy and cool, and companies are slowly starting to import foreign workers, or sending jobs to where the engineers are, in Vietnam and India.

Now reread the excerpt, and, instead of Japan, say United States or Germany or whatever developed and maturing country happens to be your home in place of Japan. 

Japanese, the article states, are acting like Americans and opting for either more lucrative careers in finance or medicine, or for more creative jobs.  Salaried manufacturing or tech jobs are apparently not as personally fulfilling or enticing.

the country has slowly begun to accept more foreign engineers, but nowhere near the number that industry needs.

While ingrained xenophobia is partly to blame, companies say Japan’s language and closed corporate culture also create barriers so high that many foreign engineers simply refuse to come, even when they are recruited.

As a result, some companies are moving research jobs to India and Vietnam because they say it is easier than bringing non-Japanese employees here.

Japan’s biggest problem may be the attitudes of affluence. Some young Japanese, products of a rich society, unfamiliar with the postwar hardships many of their parents and grandparents knew, do not see the value in slaving over plans and numbers when they could make money, have more contact with other people or have more fun.

Since 1999, the number of undergraduates majoring in sciences and engineering has fallen 10 percent to 503,026, according to the education ministry. (Just 1.1 percent of those students were foreign students.) The number of students majoring in creative arts and health-related fields rose during that time, the ministry said.

Consider this in the context of our immigration debate.  If we cannot attract talent here, companies will increasingly hire offshore.  Eventually, the engineers we hire offshore will mature and start their own companies.  We have three basic options: incent more Americans to study engineering and the sciences, import talent, or watch our tech industry gradually move offshore.

In years past, tech companies were accused of undercutting salaries by hiring immigrants at lower costs.  My experience tells me otherwise.  When I initiate a job search, ninety percent of the resumes I receive are from India or China (o.k., some are from native-born Indians or Chinese, and I can't tell these apart).  It's not that I am hiring an immigrant in the U.S. to save costs - in fact, costs can be hire if we have to do green card sponsorship.  We hire immigrants in the U.S. because they are the most qualified to do the job. 

In fact, headcount budgeting has changed over the past few years.  In the last three years or so, we are increasingly a "full-time equivalent" budget.  That is, we are told we can hire, say, ten people.  But that comes with the following caveat: you can hire 10 people in the U.S. (immigrant or not), or 15 people offshore.  It is left to the manager's discretion how to balance distance and quantity.

In other words, we offshore for two reasons: that is where the talent is, and we can get more for our money.  We hire onshore for one reason: it is more productive (usually) to have talent in close proximity to talent.  The more we hire offshore, the less the proximity argument drives onshore hiring.

In the past, because of educational and career opportunities, the U.S. imported vast amounts of talent.  Xenophobia, fears of terrorism, and "protectionism" - a euphemism in this case if ever there was one - cannot be allowed to destroy this economic lifeline.

Urban Energy

Anya Kamenetz, writing in Psychology Today ("The Laws of Urban Energy"), tackles the question of the flat vs. spiky world:

John Gordon used to cry tears of frustration on his morning commute. A Web designer in suburban Maryland, he had to drive for an hour to get to the office park where he worked. "You park, you go in, you're at a cubicle," he recalls. "I interacted with five people on a given day." After only a year, Gordon decamped to Astoria, Queens, where he now works. "I'm on my feet more, so I deal directly with people. I've gotten work while standing in line at the store. It's invigorating," he says. "I'm constantly in touch with the best design in the entire world everywhere I go. I get so much inspiration from something like a funky, homemade, misspelled sign for a Cypriot soccer club."

The evidence is mounting that, as in the novel A Tree Grows in Brooklyn, your mental garden buds, blooms, and proliferates when cross-pollinated with the many other flowers and fruits crowding the urban jungle. People come up with more and better ideas and produce more results from those ideas by finding more collaborators as well as critics.

For the past decade or so, a pop-sociology debate has been raging between "Flatworlders" and "creative class" boosters. Flatworlders, so-called after Thomas Friedman's book The World Is Flat, argue that information technology erases distance, distributing the tools of innovation equally to everyone. Creative class types, like Richard Florida in The Rise of the Creative Class, say nope—there's something unique and special about actually being in a city that gets the intellectual juices flowing. They argue that environments like Gordon's multinational neighborhood provide more avenues for social contact and for creative collaboration and feedback.

The article triumphs the virtue of face-to-face communication, accidental meetings, and informal exchanges at the deli.  The article is not so much a rebuke to the suburbs and urban sprawl (though it is that as well) as much as it is a warning against counting on technology to eliminate the need for proximity.

Economic Revivals and Net-Migration

Yesterday  morning I awoke at 7:30 to find out Broadway stage-hands had gone on strike at midnight.  That event would rarely register in my consciousness, except that in twelve hours I was supposed to meet a friend at Spring Awakening.  (Aside: if its soundtrack is supposed to be so good, where are its fans among indie music partisans?  Sorry, but based on the snippets I've heard, musicals are still forced to pander to late majority innovation adapters, keeping it staid and irrelevant.  Still, I was curious about the hubbub.)

With plans with my theater-crazy friend in doubt and still pre-caffeine, I scrambled to beat the tourists to alternative plans.   Eventually I found myself to nytheater.com's review of "A Glance At New York," a revival of an 1848 vaudeville hit first performed at this years Edinburgh Fringe Festival.  (The reviewer, Martin Denton, says "I'm not sure that I've ever seen any work of theatre this Brechtian and this postmodernly deconstructionist accomplish its artistic goals so effectively.")  It's just 50 minutes long; if you're in New York with an hour to kill and $20 to spare, I promise you an interesting theater experience.

Today, wanting to learn more about the play, I googled "A Glance at New York."  And that's where my worlds collided.  The characters in the play comprise different New York stereotypes, including the poorest of Irish immigrants.  My internet search led me away from mid-nineteenth century immigration to the current problem of migration in upstate New York.

In August, The New York Federal Reserve Bank in Buffalo published this report about brain drain in upstate New York.  The standard narrative is that the rust belt, the high plains, and other economically depressed areas suffer a net out-migration as its most educated and ambitions residents look to greener pastures.  The report questions this narrative.  Among its findings:

Compared with U.S. states, upstate New York’s net outflow of college-educated workers reflects a lack of a “brain gain” rather than an unusually large “brain drain.” College-educated adults are not moving to the region fast enough to stem natural out-migration flows.

Research suggests that job opportunities and local amenities influence choice of location. While regional amenities such as a favorable climate, cultural offerings, and family and social networks are attractive forces, they may not be enough to attract college-educated workers if good job opportunities do not exist. Similarly, job prospects may not be sufficient to sway a relocation decision if a region is not perceived to be a desirable place to live. Both factors are important policy considerations.

The report cites some interesting statistics:

• Out-migration from upstate is on par with the median of the United States (13.4% in upstate vs. 13.5% nationwide.  California is lowest, Alaska highest).  The correlation between out-migration and economic growth was called into into question in general.  By contrast, economic growth does seem to correlate with in-migration.
• States with the strongest net inflows of the educated population are mainly in the South and West, including Nevada, Arizona, and Florida. While out-migration rates for these states tend to be about average, in-migration rates are at least three times as great.
• If upstate New York were a state, it would have the nation’s lowest in-migration rate, 9.3 percent.  (Louisiana is lowest, Nevada highest.)

Policy makers may draw various conclusions from this report.  Most obviously, upstate suffers from low rates of in-migration.  Some of the causes of this cannot be controlled, such as the weather, and will be a constant handicap.  However, policy makers can make upstate a more desirable place to do business. 

In addition policy makers may decide that upstate needs to lower out-migration as a stopgap before business conditions improve and economic growth recovers.  Given the handicap of upstate's weather, a joint focus on in- and out-migration solutions is warranted.

Paying Immigrants More?

Ok, no ethnic jokes.

Polish companies are paying immigrant German construction workers more than they pay native Poles. 

Apparently, according to NPR-member station WNYC, eastern Germans, unable to find work in Germany, are finding construction jobs in Poland paid in German rates and currency.  Why would Poland do this?  Two reasons.  First, Poland faces a labor shortage of construction workers.  Those who have not found work in Poland have moved on to greener Euro-pastures.  Second, even though Polish companies are paying higher wages, they are getting even more back in efficiencies.  The German construction firms have better technology that more than compensates for the higher wages.

So who's happy and who's not?   The German workers are clearly happy because they now have jobs, albeit in a foreign country.  The Polish firms hiring them are happy because projects are cheaper and shorter duration.  For Polish workers, its a wash in the short term.

In the long term, as native Polish construction companies learn from the Germans, the German workers will face increasing wage pressure from a rising labor pool.  The Polish workers may or may not benefit from higher wages.   Clients of construction companies will continue to benefit from reduced project cost and duration.  So, in this case, the long term loser seems to be the biggest short term winner.

UN of Talent - But no Canadians or Americans?

Ok, it's been a long time since I last blogged. Chalk it up not so much to blog fatigue as to questioning my motives.  More on this later.  But a recent Globe and Mail Report (hat tip: CreativeClass blog) sparked my interest.

Microsoft, faced with stricter immigration policy in the United States, looked to Canada to open a new office. 

Canada's more lenient immigration policy has just become a major competitive advantage in attracting high-paying, brainy jobs. The proof is on the office wall of the development centre, still under construction in the south of Richmond. Tacked on the wall is a world map, with dozens of coloured stickers, each pointing to the home town of one of the newly hired software programmers. There are a smattering from South America and Africa, a generous dusting through Europe and clusters in the Middle East, the Indian subcontinent, Southeast Asia and China. There are none in Canada or the United States.

While this is undoubtedly good for Canada and bad for the United States, I can hear the populists screaming at Microsoft's inability to find even one non-immigrant to fill a position (though the map, of course, does not prove all the new hires are in fact immigrants).  This in a nut-shell is the immigration debate: pro-immigration advocates will point out that the new office will create jobs both directly and indirectly (as the ne immigrants spend money).  They will also point out that this is better than having Microsoft open an office in Beijing or Bangalore or Budapest.   Anti-immigration populists will say that Microsoft is hiring lower-priced foreign talent and displacing Americans (or Canadians). 

Which do you believe?

Frederick Young, I'm Calling You Out

This letter was printed in the April 30 edition of Information Week:
 

As a longtime professor and the first IT person at Carnegie Mellon University, I'm very much opposed to more visas ("Bill To Increase H-1B Visas Makes A Comeback In Congress," April 19). In fact, allowing any foreign IT workers lowers the U.S. level of accomplishment by discouraging young people in this country from pursuing IT education.

As professor of electrical and computer engineering, I knew and worked with many foreign students and can tell you they were never as well prepared as our own, had little physical understanding, and lacked creativity.

Those who want to increase the number of foreign workers are looking for cheap labor and aren't helping our national security. If they want more good IT professionals, let them pay better wages! If they cut their CEO salaries, they could make it worthwhile for American students to go into technical fields once again.

Dr. Frederick J. Young
Professor of Electrical
Engineering (Retired)
Carnegie Institute of Technology
Pittsburgh

One only look at the number of foreign-born CEO's in Silicon Valley to see the folly and bigotry behind Young's statement.  These entrepeneur's will create companies - and jobs - somewhere.  As Americans, we want them to create those jobs here.  We should do everything we can do as a country to draw the most talented people in the world, wherever they are born, to work here.  If the talent is not here, if the entrepeneurs are not here, the jobs will not be here.  People like Young fail to realize how much foreign-born talent has added to the U.S. economy.  We should be welcoming these people with open arms, not telling them to set up shop elsewhere.

Deportation Order (The Economist, April 26) extends my point.  Citing research from the UC Berkely professor AnnaLee Saxenian, it argues that immigrants tend to stay where they move and set up headquarters for multi-nationals there.  Yes, an Taiwanese in Silicon Valley is likely to have satellite offices in Taiwan, but the company will be based in Silicon Valley.  Consider what would happen if that same Taiwanese were welcomed in Toronto instead of Silicon Valley.

Earlier research by Saxenian shows that in 1998. a quarter of all high-tech Silicon Valley companies were run by Chinese or Indian immigrants. That does not include the likes of Intel, founded by a Hungarian immigrant.   These companies alone accounted for 58,000 jobs, not including the trickle down affect it has on the surrounding businesses such as restaurants, dry-cleaners, and home-building.

It is a shame that Young, with his bigotry and short-sitedness, should be given a pulpit simply because he has a Doctor before his name.  I will remind him that the highest title a man can hope for in America is Mister.  Apparently, he does not warrant it.

The War for Talent

Deloitte Consulting released a survey in February (hat tip: Deborah Perelman at eWeek) that showed employee retention has moved up to the second slot on employers' agendas, right behind health care costs, which topped the list for the eigth straight year.  Perelman reports 

75 percent of respondents identified the ability to attract, motivate and retain talent as a top five priority, up from 69 percent in 2006 and 56 percent in 2005. This growth was even more pronounced among respondents whose company revenues exceed $1 billion; 77 percent of respondents in this category identified the issue as a top five priority, slightly higher than the control of health care costs (73 percent).

Given the supposed business-friendly nature of the current White House, its interesting to note that the two top concerns are both areas deeply impacted by public policy.  The current low threshold on H1b visas choked American companies of a vital source of talent.  If the companies cannot easily bring the talent here, they have no choice but to move those jobs to where the talent is, be it Bangalore or Beijing.

Don't think this is simply a matter of employeeing a foreign worker overseas or here.  Everytime we create a job in the U.S., regardless of who fills that job, that worker spends his or her money here and creates other jobs.  One estimate I heard years ago (during Boeing layoffs) is that every relative high-paid Boeing job created three additional lower-paid jobs in the Seattle area.

In addition, once a company has to go overseas to attract talent, they will want to create a viable work-site.  This leads to more jobs being created off-shore.  While the tight labor market seems like a blessing to the talented, it is also a long-term warning sign that America needs to compete globally in the war for talent.

Location, Location, Location

An article was posted in tomorrow's New York Times (ok, wise guy, you tell me what to say.  It is 10 PM on Saturday February 10, and yet the on-line byline claims the story is published on February 11)... Sorry.  Let's start again.

G. Pascal Zachary writes in "When It Comes To Innovation, Geography is Destiny" (New York Times, February 11) that despite global competition in technology, Silicon Valley has retained its hegemony when it comes to bringing great ideas to market.

Google’s astonishing rise and Apple’s reinvention are reminders that, when it comes to great ideas, location is crucial. “Face-to-face is still very important for exchange of ideas, and nowhere is this exchange more valuable than in Silicon Valley,” says Paul M. Romer, a professor in the Graduate School of Business at Stanford who is known for studying the economics of ideas.

In short, “geography matters,” Professor Romer said. Give birth to an information-technology idea in Silicon Valley and the chances of success seem vastly higher than when it is done in another ZIP code.

No wonder venture capitalists, who finance bright ideas, remain obsessed with finding the next big thing in the 50-mile corridor between San Jose and San Francisco. About one-quarter of all venture investment in the United States goes to Silicon Valley enterprises. And, according to a new report from Joint Venture: Silicon Valley Network, a regional business group, the percentage has risen, to 27 percent in 2005 from 21 percent in 2000.

In my mind, rather than being somehow extrinsic to the creative process, the venture capitalists are part and parcel of a broad ecosystem and are themselves fundamental to Silicon Valley's dominance.  The VC's provide more than money.  They provide the crucial matchmaking function for great ideas looking for experienced managers.  The ideas, talent, money, and managers are all brought together in one great stew that is difficult to recreate.  This gives the Valley a self-reinforcing gravitational pull.

Superstar Cities: Inequality, Part III

Recently it was reported that more people are leaving cities such as New York, San Francisco, and Seattle  than are moving there.  Where are they going?  To Phoenix, las Vegas, Riverside CA, and, uh, Plano.  This is based on census data that ingores natural increase/decrease or international migration.  It seems that people on the whole are drawn away from cities that seem to be doing especially well economically.  Richard Florida has fun with this argument on his blog.

Not so fast.  What Barone [ Michael Barone, U.S. News and World Report ] fails to consider is that these overall trends mask a deeper demographic shift...

...As Harvard economist Edward Glaeser has shown, the human capital levels of U.S. regions are diverging, and highly-educated, highly-skilled people are becoming more concentrated. New York City attracted more than 250,000 college graduates between 2000-2005, according to a recent New York Times report.  Another indicator of this trend is the rise of what Wharton real estate expert Joseph Gyourko has dubbed "super-star" cities, places  like San Francisco, Los Angeles, San Diego, Seattle, Boston, Austin, Raleigh-Durham, and Nassau-Suffolk, NY,  which have had 40-plus years of housing appreciation  that far outdistances the national average. Even though Brooklyn and Queens have lost total population, the New York Times recently reported that housing values have gone up another 25 percent in 2006, at a time when most economists say the U.S. housing market is cooling and the overall bubble has burst.

Just like the winners and losers of globalization and the education gap in marriage, a growing disparity in cities will divide them into superstars and also-rans.  Just like people marry similarly educated people, they also want similarly educated people as friends.  Creative people want to hang out with creative people.  As the skilled and educate cluster in superstar cities, this becomes a self-reinforcing trend. 

If this is happening as Richard Florida claims it is, the opposite end of the spectrum can't be pretty.  Cities like Las Vegas, by implication, are populated by an increasing under-skilled and under-educated workforce as compared to the superstar cities.

The irony in all this is that globalization, made possible through leaps in communication, was to supposed to free us from location.  It turns out it is pretty hard to have a beer with someone over the internet. 

Sharing The Globalization Pie

The January 22 Economist presents some interesting data about the winners and losers of globalization.   The lion's share of globalization's benefits flow to the owners of capital through bigger markets and lower costs.  The biggest loser is labor, due to more competition.  Lower costs, leading to slower inflation, benefit everyone.   

The Economist cites data that the United States economy gains $1 trillion per year from freer trade.  At the same time, the government spends just $1 billion helping trade-displaced workers.  This shows that there is room for negotiation between those who argue free trade benefits the economy and those who argue that individual workers must be protected.  Resorting to protectionist measures will hurt the overall economy, or at least prevent it from realizing the benefit of free trade.  But neglecting the plight of individual workers who are on the wrong side of the globalization equation will lead, as the Economist points out, to a populist revolt.  And who wants to live in a society so sharply divided between haves and have-nots?

The second interesting fact presented by The Economist, as shown by the graph to the left, is that the U.S. spends just 0.16% of GDP on training and job search programs.  Denmark spends almost 2% of GDP on such programs.  (The United States also differs in how it insures displaced workers, with its focus on finding a new job quickly even at the expense of lower wages.  Many European countries focus more on wage insurance.  Such programs are apparently too new for The Economist to draw any hard conclusions on which way is better.)

Put these facts together: (1) that the US is spending just 0.1% of the benefit of free trade on active labor market programs, (2) we are downright miserly compared to other countries, and (3) we stand to lose in a populist revolt.  I hope this leads to some bipartisan cooperation.