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What Tech Talent Shortage? Microsoft Trims 18,000 Employees From Payroll

Like manufacturing before it, the Innovation Economy has reached a turning point, with jobs moving to places where labor is cheaper.
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Microsoft corporate building in Santa Clara, California. (Photo: Ken Wolter/Shutterstock)

Microsoft corporate building in Santa Clara, California. (Photo: Ken Wolter/Shutterstock)

The Tech Economy is dying. And by that, I mean the Innovation Economy (to stick with Enrico Moretti's terminology in his book The New Geography of Jobs) is dying. The "Innovation Economy" is an epoch, following on the heels of agriculture and manufacturing. Moretti focuses on the transition between manufacturing and innovation, neatly summed up with the fall of Detroit and the rise of Silicon Valley (San Francisco-San Jose MSA). Paraphrasing Moretti, the Manufacturing Economy converged (decline of Detroit) and the Innovation Economy diverged (ascendance of Silicon Valley). In geography's terminology, converging economic activity diffuses from a few places to everywhere. Diverging economic activity concentrates in a few places (Richard Florida's Spikytown). For a diverging economic epoch, you must move where the jobs are located. For a converging economic epoch, your job moves away from you to a location where labor is cheaper.

For a diverging economic epoch, you must move where the jobs are located. For a converging economic epoch, your job moves away from you to a location where labor is cheaper.

For employment associated with economic divergence, wages don't matter because the employer must attract labor to the new geography of jobs. In the regional market, demand for talent outstrips supply. Higher wages (relative to elsewhere) lured workers to Detroit and then Silicon Valley. Economic epochs, diverging and converging, inform national migration patterns. The Great Migration responded to the "The Great Divergence" of manufacturing. Migration also responded to The Great Convergence of manufacturing, as the economically dislocated in the Rust Belt rushed into the Sun Belt. We continue to misunderstand the brain drain from the former epicenters of economic divergence (e.g. Pittsburgh and Cleveland).

The geographic pattern of sprawl is the spitting image of the economic divergence of manufacturing. As labor flooded into cities producing automobiles or forging steel, wages rose. Sure, thank union organizing. But the concessions gained didn't erode profit margins to the point of bankruptcy or factory relocation (as if there was a choice). The captains of industry were captive to physical geography. The working class, if the race was right, got 40 acres and mule. There they would dwell (beyond the reach of the tax man) while urban legacy costs mounted to accommodate the influx of labor.

When the manufacturing economy in the Rust Belt collapsed, blue collar didn't lead the way to the more cost effective (economic converging) South. There wasn't, nor has there ever been, a giant sucking sound pulling jobs where labor would follow. No one moves for economic convergence. Remember that when I write about the LeBron James migration. The folks who fled Pittsburgh after the collapse of manufacturing in the 1980s were white collar. My father was an engineer at General Electric in Erie, Pennsylvania. He got out. The line workers didn't.

What would economic convergence for innovation look like? Microsoft lays off 18,000:

The first step to building the right organization for our ambitions is to realign our workforce. With this in mind, we will begin to reduce the size of our overall workforce by up to 18,000 jobs in the next year. Of that total, our work toward synergies and strategic alignment on Nokia Devices and Services is expected to account for about 12,500 jobs, comprising both professional and factory workers. We are moving now to start reducing the first 13,000 positions, and the vast majority of employees whose jobs will be eliminated will be notified over the next six months. It’s important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas. My promise to you is that we will go through this process in the most thoughtful and transparent way possible. We will offer severance to all employees impacted by these changes, as well as job transition help in many locations, and everyone can expect to be treated with the respect they deserve for their contributions to this company.

Those words should send chills down the spine of anyone who grew up in the Rust Belt. They should unnerve Seattle, erstwhile home to Boeing headquarters. This is what the convergence of the innovation economy looks like.

Available online, Enrico Moretti has what looks like a presentation of his book argument. Apropos the Microsoft news (PDF):

How the Innovation Economy Reshapes Communities: A Tale of Two Cities

*Seattle economy looks pretty good today: largest concentration of software jobs in the world
*In 1979, Seattle was more similar to Detroit
*That year, Microsoft moved from Albuquerque to Seattle
*Albuquerque had more high tech than Seattle
*From that point on, Seattle kept growing, Albuquerque stagnated

"Seattle kept growing, Albuquerque stagnated." Instead of labeling this shift (as Moretti does) as diverging geographies, I'll offer that this is The Original Sin of Innovation Economy convergence. The geography of federal laboratories and defense contracting ceased to matter. Bill Gates and Paul Allen pulled a LeBron James. They went home with their superstar talent in tow. The Age of Return Migration. Like Miami, Albuquerque couldn't hold onto a big fish itching for a smaller pond. Like Miami, Albuquerque was the college degree that both James and Gates lack.

Miami and Albuquerque are talent refineries. Rust Belt cities such as Seattle and Cleveland are sites of talent production. Raw talent—crude—goes to Big Diverging City to become a value added product. The endgame, the cash-out of the journey, is an Odyssey. Not only can you go home, you should go home. LeBron Migration.

Bill Gates as the archetypal LeBron James is a tight narrative. The data don't support it. After Gates took his company back to Seattle, the wages kept getting higher. Admittedly, this fact vexed me. I can't cry epochal convergence without labor costs undermining innovation profit margins.

Tech labor costs have been undermining innovation profit margins for at least a decade, if not longer. A critic of former Microsoft CEO Steve Ballmer claimed that Ballmer financed higher wages at the expense of the company. However, he limited his observation to just Microsoft. Microsoft isn't the Tech Economy. The Tech Economy isn't the end all, be all of the Innovation Economy. Conceivably, the gutting of the Microsoft labor force by 18,000 will prove to be the exception instead of the rule.

The gutting of tech company workforces is already the rule, not the exception. My wife has been working in tech sales for over 15 years. I've watched her survive multiple layoffs and purges of entire divisions. The trial reminds me of my father trying to stay ahead of manufacturing convergence. He didn't retire on his terms. He couldn't break through the glass ceiling and join the elite. My family moved a lot, within General Electric. My wife and I move a lot, from tech company to tech company. The occupation pays well. We feel no sense of job security. This year might be the last good year of wages. Fight. Toil. Move. Whatever it takes.

I write. I research. I work. I don't know what next year will bring. It has been like that all my life and I was born in 1969. I empathize, Seattle.