CAPCOG On Economic Development: Advanced Industries In The Capital Area

There is a general understanding among Capital Area residents that the local economy is strong. One of the questions that flows naturally out of a period of robust economic growth is, “How long will this last?” A recent report issued by The Brookings Institute provides useful context for that question by examining what they’ve termed, “advanced industries.”

Generally speaking, the Brookings Institute’s group of advanced industries includes high value sectors in manufacturing, energy, and services that utilize high-skill workers. These are industries thought to drive innovation and advance the technological frontier.

When introducing their advanced industries series, the Brookings Institute lays out several justifications for studying the specific advanced industries they identify. The authors note that “From 1980 to 2013, [economic output in] advanced industries expanded at a rate of 5.4 percent annually—30 percent faster than the economy as a whole. Since the Great Recession, moreover, both employment and output have risen dramatically.”(1)  So one reason advanced industries matter is that they are highly productive sectors where new jobs are being created at great scale.

Another reason to pay attention to advanced industries is because these industries tend to pay high wages to workers. The same initial Brookings study notes that “In 2103, the average advanced industries worker earned $90,000 in total compensation, nearly twice as much as the average worker outside the sector.” (2) If we in the Capital Area are interested not just in job growth, but also in livable-wage job growth, a richer understanding of the advanced industries creating high-wage jobs seems prudent.

Also, Brookings’ most recent update in their advanced industries research shows that while the sector continues to grow in aggregate, that growth is becoming increasingly concentrated in certain metropolitan areas. In other words, the forces driving the growth of advanced industries are responsive to local economic conditions. This affords us the opportunity to look at advanced industries in the Capital Area in greater detail, with an eye toward understanding the existing landscape of advanced industries in our region and the factors influencing their growth.

To begin, advanced industries represent a sizable sector of the regional economy. The total value of economic output for advanced industries in the 10-county Capital Area was $27.8 billion in 2014—roughly a quarter of the region’s economic output. The sector is also growing in terms of employment. In 2005, there were 95,000 advanced industries jobs in the Capital Area, representing about 12 percent of all jobs in the region. By 2015, the number of advanced industries jobs had increased to over 131,000 and 13 percent of all jobs in the region. In the period between 2005 and 2015, advanced industries job growth accounted for 15 percent of all new jobs added in the region job growth.

Moreover, since the end of the Great Recession, advanced industries have been growing at breakneck pace. Between 2010 and 2015, the number of advanced industries jobs in the Capital Area grew by 37 percent.

Looking at advanced industries employment within the region, Travis and Williamson counties collectively accounted for about 123,000 (roughly 94 percent) of the region’s advanced industries jobs in 2015.

Advanced industries job growth in counties outside of Travis and Williamson has been slow, with only Bastrop and Hays counties adding more than 1,000 advanced industries jobs between 2005 and 2015. The distribution of advanced industries employment is important beyond county-level bragging rights.

One key to mitigating our region’s traffic congestion involves increasing the density of jobs of all skill levels in areas outside of Austin and Travis County.

In addition to an uneven spatial distribution of advanced industries employment in the region, the number of jobs varies starkly across sectors within the advanced industries designation. There are five industries that account for 90,000 (69 percent) of all advanced industries jobs in the region: Computer Systems Design; Management, Scientific, and Technical Consulting; Architectural, Engineering and Related Services; Semiconductor and Electronic Component Manufacturing; and Computer and Peripheral Equipment Manufacturing.

Moreover, nearly all of the employment growth in the Capital Area’s advanced industries is taking place in two sectors. Of the 36,000 jobs added between 2005 and 2015, the Computer Systems Design sector accounted for 19,000 of them, and Management, Scientific, and Technical Consulting Services accounted for another 11,000.

Reasonable minds can disagree as to whether or not the Capital Area’s advanced industry employment is diversified enough. On the one hand, decline or challenges in one of these industries would appear to have the potential to cause significant economic hardship in the Capital Area. On the other hand, these industries are broad enough that it is difficult to imagine, for example, what a sector-wide downturn in Computer Systems Design would really look like.

If the region has a diverse enough group of firms participating in these industries, that may be sufficient to insulate the region against sector-specific economic vulnerability.

Another question worth exploring, and one that also gets at the idea of sustaining employment growth, is whether or not the region’s higher education institutions are producing enough workers to supply these growing fields with workers.

Between 2014 and 2015, the Computer Systems Design sector grew by about 3,700 jobs.  During the 2014-2015 school year, higher education institutions graduated only 1,841 students from programs designed to serve Computer or Mathematics Occupations. This gap, between jobs and the number of degree completions in the region, highlights why so many of the computer and technology firms in the region recruit nationally so aggressively.

Alternately, employment in Architecture, Engineering and Related Services only  grew by 427 workers in 2015, while Capital Area higher education institutions produced 2,508 workers ready to enter that field. So, some fields clearly have more severe talent shortage issues than others.

The Brookings Institute’s most recent update ranks metro areas across the country on a range of advanced industries-related variables. The Austin-Round Rock Metro Area tends to rank favorably—somewhere in the top 20 out of 100  total metros, depending on the variable in question. It is no small accomplishment that the Capital Area’s economy competes so well against its national peers.

However, the data also show that there are also challenges to be addressed in the region. Can we facilitate advanced industries job growth in areas of the region where more employment is needed? Can we insulate ourselves from over reliance on a few key sectors? And can we train enough local workers to fill many of the advanced industries positions that are being created? How we answer these questions will go a long way toward determining the health of advanced industries in the Capital Area in the coming years.