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January 22, 2019

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Chase for talent pushes tech giants far beyond the West Coast

Apple

Tamir Kalifa / The New York Times

The current Apple campus in Austin, Texas, Dec. 13, 2018. This generation’s biggest technology companies — including Apple, Amazon and Google — are aggressively opening offices outside of their West Coast roots.

SAN FRANCISCO — This generation’s biggest technology companies — including Apple, Amazon and Google — have long been tied to their hometowns. Now these giants are increasingly outgrowing their West Coast roots.

Driven by a limited pool of skilled workers and the ballooning cost of living in their home bases of Silicon Valley and Seattle, as well as President Donald Trump’s shifting immigration policies, the companies are aggressively taking their talent hunt across the United States and elsewhere. And they are coalescing particularly around a handful of urban areas that are already winners in the new knowledge-based economy, including New York City, Washington, Boston and Austin, Texas.

This eastward expansion accelerated Thursday when Apple said it would build a $1 billion campus in Austin, expanding its presence there to more than 11,000 workers and becoming the area’s largest private employer. The decision followed Amazon’s highly publicized selection of New York City and Arlington, Virginia, last month for new offices that would house at least 50,000 employees. Google, too, is shopping for more real estate in New York that could enable it to more than double its workforce of 7,000 in the city.

“They’re expanding out,” said Mark Zandi, chief economist at Moody’s Analytics. “Tech talent is in very short supply. So if these tech companies want to grow and flourish, they need to find talent in other parts of the country.”

The chase for tech talent has been global for decades, and Silicon Valley’s older companies have had big offices all over the world for years. Intel, for example, has far more employees in Oregon than it does in California. Hewlett-Packard, which split into two companies three years ago, has had large outposts in Idaho and Oregon.

Amazon, Apple and Google are now increasingly adopting the same strategy as they hire for growth and pursue the brightest minds in new technologies, in an effort to outmuscle one another. Over the past two years, Amazon’s workforce has doubled to 613,300 employees; Google’s parent, Alphabet, has increased its head count by 35 percent, to 94,300; and Apple has grown nearly 14 percent, to 132,000 workers.

Many of the companies are trying to cozy up to top engineering schools in cities like Pittsburgh, where Google recently opened an office and where Uber has had a center, or Zurich as they search for hard-to-find talent in artificial intelligence and other emerging technologies. Cambridge, England, now hosts several AI research outposts for U.S. tech companies, including Amazon, Microsoft and Apple.

Like Cambridge, England, some cities in the United States have also become known for a particular area of tech expertise, in what has become a modern remake of the country’s industrial era, when cities came to specialize in the production of cars, steel and coal.

The Seattle area, home to Amazon and Microsoft, is known for experts in cloud-computing services thanks to Amazon’s leadership in that field. Pittsburgh is known for AI because of Carnegie Mellon University’s computer science program. Cambridge, Massachusetts, is associated with robotics, thanks to the Massachusetts Institute of Technology. And New York is often where cutting-edge work on financial services technology is done.

The search for talent outside Silicon Valley and Seattle has also been prompted by issues in the companies’ hometowns, which have not built enough housing to keep up with their growing workforces. San Francisco, San Jose, Oakland and Seattle are the four most expensive major cities in the country based on home values, according to data from Zillow. The median home in San Francisco is valued at almost $1.4 million and more than $733,000 in Seattle. Questions also abound over the quality and funding of the areas’ public school systems.

“Every day as a CEO, you have employees coming to you saying, ‘I don’t make enough to buy a house for my family,’ and you already feel like you are paying through the nose,” said Glenn Kelman, chief executive of Redfin, the real estate site based in Seattle. “Almost everyone is looking at other affordable places where you can open an office.”

Some economists said the Trump administration’s tougher immigration policies could also restrict the tech giants from importing skilled workers from abroad to their West Coast headquarters. The Trump administration has increased the red tape in applying for H-1B visas for highly skilled workers and has denied petitions more often. Over a five-day window this April, employers submitted petitions for more than 190,000 specialized work visas, but only 85,000 can be granted annually.

That has helped push some tech companies into building major outposts in Canada, particularly in Toronto and Vancouver. Edward Glaeser, a Harvard economics professor, said that even if H-1B workers were to come through in abundance, it would still make sense to put them in cheaper cities, like Austin. He said, “$100,000 goes a lot further in Austin than in Silicon Valley.”

Yet even as the tech companies move beyond the West Coast, their choices to converge on cities or towns that are already highly educated, wealthy and well employed do not spread the wealth.

More than 44 percent of all digital-service jobs in the United States were located in just 10 metro areas last year, including Seattle, San Francisco and San Jose, as well as New York, Washington, Los Angeles and Boston, according to research by Mark Muro, a senior fellow at the Brookings Institution. From 2015 to 2017, only nine metro areas increased their share of the nation’s tech workforce, including the West Coast tech hubs, as well as Austin and Denver.

“The tech industry concentrates in very few markets,” said Amy Liu, director of the Metropolitan Policy Program at the Brookings Institution. “Our biggest concern is how do we make sure more cities, particularly midsized cities in the middle of the country, can be players in the tech economy?”

Amazon, which has about 45,000 people at its Seattle headquarters, has also opened 16 tech hubs in the United States. About 85 percent of those satellite employees are in six booming, highly educated urban areas — the Bay Area, Washington region, New York, Boston, Los Angeles and Austin. Each has at least 1,000 workers.

(The bulk of Amazon’s North American workforce is made up of the more than 250,000 people who are dispersed in the company’s roughly 110 warehouses around Canada and the United States and who make less money than their white-collar colleagues.)

Apple, which has been criticized by Trump for not creating more domestic jobs, said Thursday that its plans for Austin included a new 133-acre campus that will initially have 5,000 workers in engineering, research and development, operations and other functions. It will ultimately be able to accommodate up to 15,000 workers.

Apple already has about 6,000 workers in Austin. The company said it applied for a $25 million grant from Texas, payable over 15 years, as well as property-tax rebates from Williamson County.

A person familiar with Apple’s decision to expand outside Cupertino, California, where it just opened a new $5 billion headquarters, said the move into Austin was partly driven by the extreme housing prices in the Bay Area, as well as its aim to find more talent and add more diversity and military veterans to its workforce.

The company added that it also planned to open 1,000-worker operations in Seattle, San Diego, and Culver City, California, and to add hundreds of employees in Pittsburgh, Boston, New York and Boulder, Colorado, over the next three years.

Some economists said what was most remarkable was that it took the tech giants this long to aggressively expand beyond the West Coast.

“In a sense, what we’re seeing is tech becoming a normal industry,” Glaeser said, “an industry that’s not located in one incredibly expensive place.”