OC LEADER BOARD

In our last Leader Board piece in the April 19 print edition of the Business Journal, we shared good news and bad news.  

On the good news front, our Chapman-UCI Innovation Indicator showed that California is not only continuing its dominance in creating innovation industries, but is widening the gap over the ballyhooed Texas economy.

As for the bad news, Orange County is not sharing California’s juggernaut in growing and sustaining innovation industries. This point is brought home by our findings that California increased the number of innovation jobs by 45% from 476,000 in 2005:1 to 691,000 by 2020:1, while OC remained virtually the same at 69,000 innovation jobs over the same 15-year period (see Table 1).

OC’s stagnation is in sharp contrast to San Diego’s growth rate. With OC stalled between 2005:1 to 2020:1, San Diego increased the number of its innovation jobs from 65,000 to 97,000. That increase of 50% was roughly equal to the average growth of 45% for all six of California’s innovation hubs.

This sharp contrast in the growth of innovation jobs explains why OC’s overall rank of No. 7 out of 22 innovation hubs in the nation in 2005:1 dropped to No. 9 in 2020:1  in the Chapman-UCI Innovation Indicator series.  Meantime, San Diego retained the No. 4 place.  

These changes in rank are based on the overall Chapman-UCI Indicator score that combines the three measures of innovation: establishments, jobs, and wages. For OC, that score decreased from 3.38% in 2005:1 to 3.31% in 2020:1. San Diego, however, increased sharply over the same period from 4.03% to 5.74%.  

Even more disconcerting for OC, its score of 3.38% in 2005:1 was higher than the average of 3.05% for all 22 hubs in 2005:1. But by 2020:1, its score of 3.31% had fallen below the overall average of 3.69%. This contrasting growth pattern between OC and San Diego was confined largely to innovation industries.  

Total job growth between 2005 and 2020 in OC increased 13.4% from 1,313,000 in 2005 to 1,490,000 in 2020.  That compared to SD’s total job increase of 18.6% from 1,055,000 to 1,251,000. Subtracting SD’s faster growth in innovation industries from the total leaves its total job growth net of innovation virtually the same as the Orange County’s.

So, if job growth, excluding innovation jobs, is roughly the same, why is San Diego generating so many more innovation jobs?  

This question is vitally important since these occupations include not only jobs in software and semiconductors but also high value-added jobs in aerospace, scientific research and technology services. The high value-added character of these innovation industries is reflected by the fact that the average wage paid in California is $208,000 for an innovation job versus $76,000 for all jobs. More importantly, these are the kinds of jobs that are filled by graduates of Orange County’s excellent engineering schools at Chapman, UCI, and CSU Fullerton.

In partnership with the CEO Leadership Alliance, our research team created the Chapman-UCI Innovation Indicator to broadly measure the components of growth in innovation industries. In addition to job growth, our Indicator includes growth in the number of establishments and wages paid. Analyzing those components in the Indicator reveals interesting growth patterns.

Table 2 shows that San Diego pushed its percentage of innovation jobs from 6.2% to 7.8%. While San Diego’s job-making machine was in full gear, stagnating job growth in OC reduced its proportion of innovation jobs to 4.6%.

Over the same 15-year interval between 2005:1 and 2020:1, OC’s percentage of innovation establishments dropped slightly from 1.6% to 1.5% while San Diego increased its percentage of innovation establishments from 1.6% to 2.1%.

Perhaps the major reason for San Diego’s rise in the overall Chapman-UCI Innovation Indicator ranking is the sharp increase in the percentage of innovation wages as a percent of total wages. As shown in Table 1, San 
Diego shot up from 11.9% to 20.0%, moving its rank up from No. 5 in 2005:1 to No. 4 in 2020:1.

While there are many moving parts to the story, it’s clear in analyzing the data shown in Table 2, San Diego has outperformed OC in every metric associated with the growth of innovation industries. Perhaps most alarming for OC is that San Diego left OC in the dust not only in creating more innovation jobs but higher-paying jobs as well. In 2005:1, San Diego and OC paid almost the same in annual wages. By 2020:1, however, the average wage per innovative worker in San Diego increased to $175,000 versus $144,000 in OC. Clearly, the innovation jobs created since 2005:1 in San Diego have a higher value-added than those in OC.
We suspect that these structural differences between OC and San Diego in the number of innovation establishments and jobs being established and the wages being paid are explained by the type of innovation industry clusters being formed in the two counties.  

Our research team will delve into these structural differences and report on our findings at the Chapman Update Forecast that will take place on June 16.

Editor’s Note: Jim Doti is president emeritus and professor of economics at Chapman University; Ken Murphy is assistant professor at Merage School of Business, University California, Irvine; Raymond Sfeir is professor of economics at Chapman University, and Marshall Toplansky is clinical assistant professor at Chapman University.