SALT LAKE CITY — Is Utah’s booming tech sector showing early signs of being victimized by its own success?
Findings from a just-released biennial report from the Milken Institute do, at first blush, read like another list of plaudits for the state’s high-flying success with high technology business endeavors.
But a closer look reveals ongoing, ultra-low unemployment may be exacerbating an already critical shortage of the specialized tech talent that has helped fuel the success of Utah’s tech and innovation industries.
Provo/Orem lost it’s No. 1 ranking from two years ago but still came in as the national runner-up to San Francisco in Milken’s Best-Performing Cities 2020 report released Wednesday morning.
And Utah cities, overall, performed well in Milken’s rankings, which conducts its assessments based on a formula that combines job and wage growth statistics with high-tech driven gross domestic product figures. Joining Provo among the best performing large U.S. cities was Ogden/Clearfield in the 22 spot, and Salt Lake City tied for 25th.
Among smaller cities in the country, Logan and St. George earned their way onto the top 10 list coming in at No. 3 and No. 4, respectively.
But Milken researchers underscored that while the Provo area led the nation in job growth from 2013-18 and came in at No. 3 in wage growth from 2012-17, the most recent 12 months for which data was available told a somewhat different story.
“As the regional job market expands, its growth momentum has slowed in the last 12 months (ranked 29th),” Milken researchers wrote. “In the same period, Provo-Orem’s unemployment rate dropped to 1.7%. The topline employment figures strongly suggest that the tight labor pool constrains the region’s strong economic growth.”
The report also notes that Utah quality-of-life perks may give the state an edge in ongoing competition with the bigger tech-centric regions of the country, if the so-called Silicon Slopes can address the talent pool issue.
“Compared with other famed innovation centers like the Bay Area, Silicon Valley, Boston, and Los Angeles, Provo-Orem ... is relatively new and has a limited breadth,” the report reads. “However, the region offers an unparalleled lifestyle and amenities in the mountain region, where it is still close to major venture capital and angel fund networks on the West Coast. A quicker buildup in promoting, nurturing, and training talent will lead to more robust technology-driven growth.”
Ogden and Salt Lake City earned props from researchers who highlighted the different economic portfolios each area brings to the table.
While both metros have their own growing tech presence, the report authors noted the Ogden area continues to benefit from Hill Air Force Base-related investment, including a new $35 million facility that specializes in software development for fighter jets. And, Salt Lake City’s well-established industrial banking sector which, like the tech realm, pays wages well in excess of the state’s average.
Statewide, the number of unfilled tech sector jobs remains high, but is down a bit from a year ago.
Data from the Utah Department of Workforce Services shows 5,576 current tech job openings in the state, down from 6,311 from the same time a year ago.
And, the state hit an all-time record low unemployment rate in December of 2.3%.
Natalie Gochnour, associate dean in the David Eccles School of Business and director of the Kem C. Gardner Policy Institute at the University of Utah, said that combination of factors could lead to downward pressure on another state record, a decadelong run of relatively unfettered economic growth.
“There’s a rule in economics that markets correct,” Gochnour said. “And, we’ve had a very hot job market that has now resulted in the lowest unemployment rate in our state’s history. The way that works is you can’t sustain high job growth rates with very low unemployment.”
But, Gochnour noted Utah is also in the midst of a streak of significant in-migration being driven in large part by job seekers, which is helping offset those mutually exclusive data points.
“We do have an important sort of relief valve which is in-migration,” Gochnour said. “People are moving here for jobs and, by my count, we’ve had five years of consistently strong in-migration.”
Gochnour said she expects elevated wage growth — 4.5% this year as noted in the 2020 Governor’s Economic Report, up from 3.7% in 2019 — as well as strong job growth across multiple sectors including tech, construction and health care in the coming year, which should also help create some balance to the historically low unemployment figures.
From a tech-centric perspective, wage growth is likely to play a role in Utah’s ability to retain homegrown talent as well as continue to pull prospects in from other regions.
Even with an average wage for Utah tech sector employees that is nearly double what workers in other industries earn, a 2018 state report highlighted disparities in Utah’s tech worker earnings when compared to other U.S. tech hubs.
The Department of Workforce Service report noted that Utah tech wages are simply not holding their own, even when adjusted for cost-of-living differences, against what can be earned in other markets like San Francisco and San Jose in California; Raleigh, North Carolina; Austin, Texas; Seattle; or New York.
One example: A tech worker in Utah with a science-focused degree is likely to accumulate about $92,000 in annual purchasing power, whereas, after adjustments, a similar professional in Raleigh will have over $110,000 each year to spend, and a Seattle-based worker would be enjoying over $126,000.
“Salt Lake/Provo wages rank low in nearly every education category when placed against our comparative areas,” the report read. “(Data) suggests that greater compensation for higher-educated IT workers is often found elsewhere.”
Gochnour noted the state’s highly diversified economic portfolio would also help buoy backslides in any particular sector.
“I was just looking at four of the areas that got ranked (in the Milken report),” Gochnour said. “They all got highlighted for different reasons. The financial cluster in Salt Lake City, federal defense presence in Ogden, the IT/tech cluster in Provo and ... Logan, which I think of as a manufacturing and agricultural cluster.
“Four large cities in close proximity to have that much diversity is really special, and powerful, for our state.”