The Economic Impact of Technology-Based Industries in Washington State, 2000
Executive Summary
This report presents the third estimate of the magnitude of employment, business activity, and income stemming from a major segment of the Washington State economy-our "technology-based industries" -sponsored by the Technology Alliance. The industries included in this study are distinguished by a relatively high level of employment in scientific and engineering occupations. While primarily in the private sector, some important segments of these technology-based industries are public employers. All segments generate a significant fraction of their business volume out-of-state, and thereby contribute to the economic base of the state. As a group these industries have been growing rapidly, expanding their contribution to the state economy over the past several decades. They are expected to continue this rapid growth trajectory, and they will likely be an even more important component of the state economy in coming years (Washington State Office of Financial Management, 2001).
Defining Technology Based-Business
When we first undertook this study, we struggled with how to define exactly what is a "technology-based business." Unfortunately, what on the surface may seem like an "if it quacks like a duck" situation becomes much more complicated when one probes. We researched several different state, regional and national studies and came up with the definition that we felt was the most intellectually defensible and rigorous: industries included have at least 10% of their employment in research and development (R&D) related occupations. This means that we define as "high-tech" sectors that commit significant resources to the development of new technologies, new products and new kinds of services. Interestingly, our definition has recently been used by the Bureau of Labor Statistics staff as a current definition of high tech, so we feel that time has proven us correct. Moreover, by taking an approach to the definition of technology-based business that is consistent with our previous studies, we are able to provide some important analyses about the changes in Washington's technology economy during this unprecedented period of growth.
Why does it matter?
Industries meeting this test employed almost 286,000 people in Washington State in the year 2000. Compared to overall economic activity, there has been rapid growth in technology-based industries. Employment has expanded from 95,910 private sector jobs in 1974 to 274,989 private sector jobs in 2000, an increase of 187%. This compares to a statewide increase in employment of 160% over the same time period. In 2000 there were 10,246 public sector university and Federal research related jobs, bringing the total technology-based employment to 285,835. This means that total technology-based employment has grown from 6.7% to 10.8% of total state employment over the 1974-2000 time period, which indicates that technology-based industries have made a growing contribution to the economic base of the state.
This impact is even more impressive when looked at through multiplier effects that show a total of 1,014,000 jobs were created due to technology-based industries. This represents some 38% of total employment in this study period, an amount that has increased from 33% in 1995 and 35% in 1997. The economic impacts of the industries included in this study are relatively high due to the high wages paid in these industries. Technology-based industries support a total of 3.55 jobs for each direct job, compared to an average of 2.86 jobs in all industries. Labor income in technology-based industries averaged $61,330 in 2000, compared to a state average of $32,748, or 87% above the average. This figure excludes income associated with most stock options. Technology-based businesses contribute strongly to the export-base of Washington State, as more than 76% of their sales are out-of-state, compared to an economy-wide average of 40%.
The concentration of technology-based industries in Washington State is well above the national average. In 1997, the latest year for which data are available to make national comparisons with the definitions of technology-based industry used in this study, Washington State had employment in these industries 42% above the national average. Our very robust aerospace sector was the primary contributor to this high index; if we exclude aerospace, the Washington economy has a concentration in these sectors which is only 94% of the national average. Our strong computer services industry had a concentration 39% above the national average, while the very large engineering, architecture, research, and management consulting group of industries was 9% above the national average. The overall concentration of technology-based industries in Washington State increased in recent years, as growth overall up through 1997 outpaced national performance.
Research and development expenditures in Washington State, an important indicator of technology-based activity, outpaces the nation as a whole. We have especially strong levels of receipts to non-profit research organizations, and very high levels of funding to universities and industry for a state our size. Our rank in receipt of these funds was 8th, which compares to our position as the 15th most populous state. The University of Washington continues to be the largest recipient of Federal research funds of any public university in the United States, helping to propel us to the 10th largest recipient of these funds statewide. Also impressive are the positions of Washington State industry and non-profit research sectors, which rank respectively 7th and 3rd in the nation. These high levels of R&D investment help fuel the growth of technology-based industry in Washington State.