Tech Employment Drives Increased Wages…Just Like Other High-Paying Jobs

When Amazon started looking for a home for its second headquarters (“HQ2”), cities across North America vied to be selected. They offered tax breaks and other incentives, seeking the prestige of a high-profile corporate headquarters and the promise of economic stimulation. Proponents of a tech influx argued that higher tech-sector wages would translate into greater demand for local workers outside of tech. As a result of this increased demand, workers in “nontradable” industries that are necessarily local, such as healthcare, food service and cleaning, could see more jobs and better wages as well. Critics, however, argue that large concentrations of tech workers are associated with increased housing prices and other costs of living, which might offset any wage gains to workers in nontradable industries and lead to an overall decline in their real wages. A tech influx, therefore, could mean displacement of longtime residents or a lower quality of life for non-tech workers.

Tom Kemeny of the Queen Mary University of London and Taner Osman of the University of California, Los Angeles, studied this tension between the promise of prosperity from new tech-sector jobs and the concerns about declining real wages. Kemeny and Osman considered employment, price and wage data from 349 U.S. metropolitan areas between 2001 and 2015 and studied whether growth in tradable tech jobs leads to an increase in real wages for workers in local nontradable industries. They also examined whether the increase was due to the growth of tech by comparing wages under the growth of tradable employment in tech sectors to non-tech sectors. Finally, inspired by anecdotes about tech workers frequenting “high-originality” or “creativity-intensive” establishments, the researchers looked at whether particular types of nontradables — fine dining, coffee shops, mindfulness retreats, etc. — disproportionately benefitted from the wage increases. Kemeny and Osman concluded that an increase in tech employment corresponded to a modest increase in real wages, but they found little evidence to support that the tech sector is uniquely positioned to offer wage growth in nontradables and were unable to draw conclusions about “high-originality” establishments disproportionately accruing wage benefits.

More specifically, increased high-tech employment corresponded to a statistically significant increase in real wages in nontradable industries, but the substantive effects were modest. Kemeny and Osman’s models estimate that for a given metropolitan area, a 10 percent increase in high-tech employment generally led to just over a 0.1 percent increase in real wages for workers in nontradable industries, adjusted for location-specific rent prices and national non-housing prices. All models used in this result controlled for metro-specific unemployment levels, metro-specific shares of workers over 25 with a four-year degree or higher, and nationwide economic events. Certain models also incorporated state and federal wages, but this did not significantly affect the results.

Yet, this effect is not significantly different than that of increased employment in non-tech sectors, such as manufacturing and finance, on wages in nontradable industries. Given that the average tech employee earned more than the average non-tech tradable counterpart, Kemeny and Osman expected that effects on nontradable wages would be greater in the case of tech workers; however, the research did not support this hypothesis. Only after removing other high-paying non-tech tradables — finance and insurance, in particular — from consideration did they observe a modest difference between the wage effects from technology and the wage effects from other tradable jobs. Their final test examined whether benefits of wage growth accrued disproportionately to high-wage nontradables or to the type of establishment tech workers reportedly favored. The authors saw no clear relationship between wage percentile and amount of wage growth and no statistically significant variation along measures of “creativity,” “originality” or “innovativeness.” They attributed their difficulties with doing so to the granularity of sub-sectors in the available data and the methods of measuring such qualities.

While this research suggested that increased high-tech employment did lead to higher wages for nontradable workers, the effect was quite small: just over a 0.1 percent increase in nontradable wages for a 10 percent increase in tech employment. Furthermore, the effect was not substantially different from what a city would see with an increase in employment in other high-wage, tradable industries. As city governments consider incentives to lure big tech, they should keep in mind the conclusions of this study, evaluating other high-paying industries also seeking homes or considering other, perhaps more appropriate, uses of city funds to improve well-being.

Article source: Kemeny, Tom and Taner Osman. “The wider impacts of high-technology employment: Evidence from U.S. cities,” Research Policy 47(9). (2018): 1729-1740.

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