Pacific Standard. Smart Journalism. Real Solutions.

Posted: 06 Jul 2013 08:49 AM PDT

Jobs follow talent. Investment follows talent. Workers own the means of production. The Creative Class rules the world. Richard Florida’s utopian geography seduces the upwardly mobile. But don’t expect to freelance your way to prosperity. Most of us still slave to the old economic paradigm. But over the last decade, this old economic paradigm has undergone a dramatic transformation.

Using the lens of migration, I will describe how the economy has changed from an era of manufacturing to the celebrated age of innovation. I contend the Innovation Economy has peaked with the last financial crisis and global recession serving as a break. I call the emerging epoch the “Talent Economy.”

Who moves to improve? During the heyday of the Manufacturing Economy, the less affluent moved from rural areas to industrial cities. The trend currently grips developing countries such as Pakistan, as people from all over that country cram into Karachi. The rest of the world is experiencing its own Great Migration.

The dominant migration pattern of the Innovation Economy differs greatly from that of the Manufacturing Economy. As both Richard Florida and, more saliently, Enrico Moretti have noted, the move to improve has become an upper class preoccupation. The greater your educational attainment, the more likely you are to leave your hometown and end up in one of the few Creative Class winners (e.g. San Francisco). Moretti says the Innovation Economy is diverging. Florida says the world is spiky. Both are describing the same talent geography.

The goal for any place in a spiky world is talent attraction. Since only a handful of places are sufficiently attractive, the rest are left to obsess about retention. Don’t go to Austin. We have our own cool cities here in Michigan. Real estate developers start salivating. What would happen if Rust Belt cities did a better job of keeping their own graduates? Better yet, what if other cities did a better job than Silicon Valley in attracting talent?

As more places compete for the same innovative talent, the price for their services will go up. Facebook will have to outbid everyone else for the best and brightest. As labor costs become a greater concern, as they did in manufacturing, the old winners look like the new losers. Silicon Valley is the new Detroit, a victim of its own tremendous success.

As usual, Google is ahead of the curve. The company didn’t rest on its Mountain View perch and wait for talent to show up for work. It went to where the talent is being produced:

Google's logo on a former leather tannery in Kitchener, a relic from the region's past as Canada's shoemaking capital, provides a vivid illustration of the way that, when a company starts to slip, the best talent goes elsewhere. BlackBerry aims to reverse its fortunes with radically new smartphones and equally innovative software that runs them. It introduced the phones to the public last week to strong reviews.

Steven Woods, the director of engineering for Google in Kitchener, said that the search engine company established an operation here about eight years ago and expanded into the tannery building in 2011 as part of a broad plan to absorb foreign talent and sensibilities.

Most of the company's other new operations were put in major metropolitan centers, including New York, London and Tokyo.

"Waterloo is different," Mr. Woods said, sitting in a scaled-down version of Google's Silicon Valley office, down to a gourmet, no-charge cafeteria. "It's got this amazing university which has long been one of our top three recruiting universities for Google as a whole, worldwide," said Mr. Woods, who earned a doctorate at Waterloo.

"Waterloo grads do well at Google, they do very well."

Emphasis added. The University of Waterloo isn’t just another source of talent. It’s a member of a globally elite group. The Talent Economy is diverging. There are a handful of winners. Another one is Los Angeles:

As has been discussed ad nauseum, LA is as well situated as any city in America in terms of the quantity and quality of technical talent that graduates from its universities – 2,900 engineers graduate locally each year, more than any other market. And there has recently been an increasing emphasis on keeping that talent within the ecosystem, rather than seeing it flee to other markets. Where LA is failing relative to its two largest competitors – San Francisco and New York – is in attracting outside talent to relocate to its sunny shores.

This trend was first brought to my attention by TenOneTen Ventures Managing Partner David Waxman, who had turned to LinkedIn as a source of data to investigate the state of LA's technology recruiting prowess. Together, we compared the top three current cities for alumni of the nation's top ten engineering universities, according to US News and World Report. The process was repeated for the Ivy League. We also noted the top non-university employer for alumni of these schools with the goal of understanding the impact that recruiting may have on the distribution of top talent.

Emphasis added. Concerning tech talent attraction, San Francisco (i.e. Silicon Valley) and New York rule the roost. You can view the chart for the top 10 engineering universities here. The most common destination for graduates depends on the location of the university. I’ve discussed ad nauseum, that retention isn’t a problem. San Francisco and New York are the problem. If there is brain drain, those two places deserve the blame.

Another column of the chart lists the top employer of engineering graduates. Google owns six out of 10 talent production markets, including Pittsburgh and Boston. As detailed above, that’s not just a result of outmigration to Silicon Valley:

As in Pittsburgh, the Cambridge site began as a small operation near a major university that soon outgrew its space, turning into a name-brand presence designed to retain bright graduates who might have set their sights on Silicon Valley.

The Google Boston site — sometimes referred to as Google Cambridge, with its address in Boston’s brainy neighbor — relies on a proximity to MIT. The school is a powerhouse supplier of Google candidates and plays the role that many experts say Carnegie Mellon will take here as graduates jockey to get an interview with one of the country’s most distinctive employers.

The Google aesthetic knows no borders: Regional offices are colored in the vibrant hues that mark its signature website and the perks combine fraternity (foosball! free food!) with functional (401(k)s, stock options).

Months after Google announced plans to expand its Boston presence to a 60,000-square-foot space along the Charles River, competitor Microsoft said it would lease 136,000 square feet in a building that shares a subway stop with the Google office.

“One comes and then the other comes,” said Mr. Anderson, who as a venture capitalist backed Pittsburgh-based ForeSystems, a tech business later acquired by Marconi.

But Google welcomed the new neighbor, said Steve Vinter, engineering director at Google Boston.

“I’m not worried about losing a candidate to Microsoft,” he said. “I’m worried about the three candidates who leave for Silicon Valley.”

Emphasis added. Silicon Valley is in a talent dogfight with the likes of Boston and Pittsburgh. Add suddenly wise to the game, add Los Angeles to the mix. Look at the chart again. Locating your innovation company in the city where the talent is produced is a competitive advantage. This is the reason for Silicon Valley bellyaching about immigration reform. It’s losing the war for talent.

The Talent Economy is about talent production. Idea makers are more dear than ideas. Silicon Valley can’t rely on talent attraction like it use to do. New York seems to understand this and is shifting attention to talent production, copying Pittsburgh. New York isn’t trying to be the next Silicon Valley. It’s trying to be the next Pittsburgh or Boston, easily the two best talent production clusters in the United States if not the world.

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