Silicon Valley Losing Its Middle Class

The effects of a sub-prime mortgage crisis, financial market volatility and a shifting global economy are disproportionately affecting midwage technology workers in Silicon Valley.

In 2006, only 46 percent of the jobs in Silicon Valley were midwage, paying between $30,000 and $80,000 a year, down from 52 percent in 2002, according to the 2008 Index of Silicon Valley, sponsored by Joint Venture, a public-private partnership, and the Silicon Valley Community Foundation, a nonprofit.

Meanwhile, the percentage of higher wage jobs remained relatively stable at 26 to 27 percent, while low-wage jobs grew from 22 to 27 percent in the same period.

"This is real. We don't know if it is a long-term trend yet, but there are a lot of reasons to believe it will be. Only time will tell," said Hancock.

However, the picture is more complicated than a depleted middle class. The region's 541,300 midwage jobs were distributed across 523 occupations in 2006, half of which lost and half of which gained jobs. The vanishing jobs had been among workers who had been in the lowest parts of the white-collar work force, including secretaries, clerks and customer service representatives. Meanwhile, blue-collar roles such as electricians and plumbers and white-collar jobs such as computer support technicians showed gains.

Joint Venture CEO Russell Hancock argued that in forcing companies to build themselves and compete differently, globalization played a part in the diminished middle class presence in Silicon Valley.

"Globalization has forced our companies to compete in a new and different ways—to be dynamic, flexible, lean. You'd once start a company and hope it would grow, become a GM. But the new model is driven by different regions with different cost structures and startup activity and they're very lean and flexible. Companies are getting smaller, focusing on core competencies and they're not generating midrange jobs as much," said Russell.

Back-office jobs are expected to continue to be contracted out, while high-end work such as research, design and intellectual property are likely to continue to flourish in the region.

Still, the overall picture of Silicon Valley is a healthy one. The population in the region grew 1.5 percent in the past year; it added 28,000 jobs at a time when overall employment growth slowed in the rest of the country; and the region continued to increase its share of U.S. patents, with 47 percent of those granted in California and 12 percent of those in the nation coming out of the region.

According the report, the Valley has also diversified. Previous innovators in the region were single technologies—transistors, semiconductors, the circuit and the PC—one dimensional when compared to today's relatively diversified portfolio, with IT at its center.  

"Information technology is our bread and butter, and it's not played out yet. We've still got innovation to come in mobile devices, handheld computing and wireless infrastructure," said Russell.