The downside of Silicon Valley's focus on ultra high-end skills

Silicon Valley’s wealth may be concentrating in firms that only hire people with ultra high-end skills. It’s just not their path to success to do otherwise.

Facebook’s purchase of mobile messaging platform WhatsApp illustrates what’s going on.  

With a staff of around 50 people, WhatsApp created a product that Facebook priced at $19 billion. This is very serious money. How serious?

-- Why, for just $13 billion Facebook could have ordered a supercarrier, similar to the Gerald R. Ford carrier built for the U.S. Navy.

-- Pacific Gas & Electric has a market cap of about $20 billion. This is the company that keeps the lights on in Silicon Valley.

-- And then there’s Walter White of Breaking Bad. But he only made $80 million selling his product.

Facebook occupies the former campus of Sun Microsystems, a company that employed about 34,000 before it was acquired by Oracle for $7.4 billion in 2009.   

Facebook is an entirely different company from Sun. It doesn’t need an army of support personnel to maintain and service equipment. With 6,000-plus employees, it operates relatively lean for a firm with a $170 billion plus market cap.  

The people who work for Facebook are probably doing very well. But Silicon Valley’s prosperity “is not widely shared,” according to the latest annual Silicon Valley Index, released this month.

“The gaps and disparities are more pronounced than ever,” according to this study of the Valley economy. It went on say:

     "These are the hard facts: our income gains are limited to those with ultra high-end skills. Median wages for low- and middle-skilled workers are relatively stagnant and the share of households with mid-level incomes has fallen in Silicon Valley more than in the state and nation. Disparities by race are more persistent than ever. We also saw a sharp increase in homelessness."     

The “ultimate measure of success,” wrote the authors of the Silicon Valley Index, “is a steady increase in real income, raising the standard of living for all of our residents.”

Part of Silicon Valley’s problem is its cost of living. But in the aggregate Silicon Valley is doing well, with 1.423 million jobs, a gain of 3.4% last year. Software employs 27,000 in Silicon Valley, increasing nearly 6% last year; Internet and information services, which employs 35,000, grew 20% last year.

Semiconductor employment, however, at nearly 51,000, fell 10.4% from 2007 to 2013.

Facebook is not an idle observer to the income disparity issue cited in the report. It is doing all it can, through its lobbying group, to influence a critical jobs policy in Washington. It wants an increase in the H-1B visa cap so it can hire without restrictions.

Facebook wants more H-1B visas, as do many others in their growing sectors. But how do they reconcile that with U.S. workers who have been replaced by H-1B workers? And will the growing income inequity, discussed in the Silicon Valley report, shrink if the H-1B cap is raised?

According to the report, in 2006, 40% of the households in Silicon Valley earned between $35,000 and $99,000. In 2012, this fell to 35%.

Meanwhile, the percentage of households earning $100,000 or more increased from 39% in 2006 to 45% in 2012.

The percentage of households earning less than $35,000 was at 21% in 2006 and 20% in 2012.

The WhatsApp acquisition may or may not be a good strategic move for Facebook. But if people feel increasingly left behind in this economy, they may begin to see Facebook as an out-of-touch firm living on another planet. That will be an odd place for a social networking firm.

Copyright © 2014 IDG Communications, Inc.

It’s time to break the ChatGPT habit
Shop Tech Products at Amazon