Tech hubs such as New York and San Francisco have put the United States on the map in the past years with breakthrough technologies and innovations not seen anywhere around the globe. From Silicon Valley to the Cornell Tech, San Francisco and New York are redefining technology and leading the world to a new era of technological transformation.
The COVID 19 pandemic has put a dent on these tech ecosystems as companies felt the brunt of this outbreak with layoffs spiking faster than any other time in recent years. Despite the resilient nature of tech hubs¹ such as New York and San Francisco, COVID 19 pandemic is threatening the success achieved in these technology hubs. A recent Gartner report found that the coronavirus disruption could create uncertainties in the tech and venture industry as investors become worried.
The tech industry is a pillar of the U.S. economy where one of every four new office space using jobs created were in the technology industry. As COVID-19² has shown, current tech solutions do not always solve for the long-term and do not always maximize on all the technologies at their disposal. As a result, if we want an equitable and distributed recovery post-COVID, we will need to ensure more hubs in more places are thriving and poised to take on big challenges such as sustainability.
Here is one observation I have made: The pandemic has paused tech momentum but not derailed it. Analysis of tech job cuts reported since March 2020 shows that approximately 90% of the reductions were to non-technical functions such as marketing, administration and sales. This further reinforces the importance of tech talent to support and foster innovation, even during tough economic times.
Despite the negative implications of this pandemic on tech ecosystems in the United States, the good news is that companies are changing their approaches in response to the COVID 19 crisis. Just to mention, tech companies including Twitter have implemented work from home policies moving into 2021 and could see the rise of more remote workers³.
To create and grow in the midst of this pandemic, technology companies need support in the strengthening of local innovation systems. These systems depend on a special combination of policies, capital and openness to global talent. They also require a certain type of culture. One that supports failure with an ability to rebuild.
Tech will once again lead our economic growth in the years ahead. The disruption COVID-19 has caused proved that technology will have an even larger role in business and society. These new opportunities are likely to spawn fresh start-ups, just as after this economic downturn.
The Cost of COVID 19 Outbreak
Tech hubs are feeling the effects of COVID. In San Francisco and New York, tech companies are weighing in on a number of new taxes that affect the tech industry⁴, including a CEO tax on executives earning at least 100 times the median income of their average worker. Another proposal would tax stock-based compensation.
The COVID 19 pandemic currently has claimed the lives of more 300,000 people in the United States alone. This has blown a major hole in the budgets of cities across the country. In #Sanfrancisco, the shortfall is estimated to be over $800 million this year. San Francisco and New York are both scrambling to plug budget deficits .
Changes to payroll and gross receipts taxes are also under consideration. The business communities in New York and San Francisco tech hubs warn the taxes will push out jobs and hurt companies already struggling to weather the economic storm brought on by the pandemic.
Though the pandemic adds a level of uncertainty that feels unprecedented, this is not the first time the business community has threatened lost jobs amid a tax battle and the research paints a more complicated picture than the rhetoric.
Both cities are considering taxes that target big business and wealthy executives to fill their gaps. New York and San Francisco have been exploring legislation that taxes the top salaries at the highest paying companies in the city to fund coronavirus relief programs⁵ right away and affordable housing down the line.
Tech Talent remains Strong in this Pandemic
Concentration of tech industry in cities ultimately comes down to talent. The U.S. has a shortage of engineers, data analysts, and other knowledge workers needed to power the #technologyindustry. Those workers tend to gravitate toward places like New York or San Francisco⁶ with amenities and like-minded people.
Companies tend to cluster around those talent bases and value the knowledge exchange that occurs when workers bounce between startups and large tech firms. The pandemic does not appear to be significantly changing that underlying trend;at least not yet.
Zillow compared web traffic to for-sale listings in urban, suburban, and rural areas in April 2019 and April 2020 and saw no significant change. The data do not provide any early evidence for an overall shift in search behavior away from urban cores. Of course, that was early on in the pandemic, before some companies announced long-term plans to keep workers remote.
A survey of Bay Area tech workers found about two-thirds would consider moving if they had the option to work remotely. Only 18% said they would consider moving out of California.
Some experts predict a slight deconcentration of tech within the municipal boundaries of cities like San Francisco and NYC but do not expect those jobs to travel far from the tech hubs where they were formed.
Companies might shift to towns surrounding those metros where they can still tap the talent pool⁷ that gravitates to premier cities. Tech companies and workers will move to the NYC and San Francisco, which offers many similar amenities but a relatively lower cost of living.
Remote Work Models Saving Economic Downturn
Tech leaders are realizing that many jobs can be done just as efficiently from home, which could allow them to pay lower salaries in less expensive cities. Estimates show that 37% of U.S. jobs can be done entirely remotely.
Microsoft and Amazon were among the first to shift their tech workers remote when coronavirus cases began emerging. Other tech companies up and down the West Coast quickly followed suit. In the months that followed, several announced new, permanent work from home policies.
Twitter and Square will allow employees to work from home indefinitely, even after the pandemic subsides. Facebook expects about 50% of its workforce to be remote in the next 5–10 years. Other companies are giving up their physical offices altogether.
Companies will set up smaller, premium headquarters in major tech hubs with #remoteworkers distributed in nearby regions. These high-end boutique headquarters will continue to be in superstars cities. The headquarters is going to be like a brand enhancement.
Across the country, other companies have similarly embraced a permanent state of flexible or all-remote work. That has had a significant ripple effect, as many technologists take the opportunity to relocate to other places with a lower cost of living. In turn, the price of rentals in some of the nation’s biggest tech hubs, including San Francisco and New York City, have fallen noticeably.
The rise of remote work, coupled with tumbling rents, have led some to declare that the big tech hubs are a thing of the past. However, this new data shows that a significant portion of those who have left fully intend to come back in which case, we could be primed for a significant tech-hub revival once the pandemic passes.
While that is good news for the #techhubs that rely on technologists for their very survival, it could also mean that rents and the cost of living in these places will start rising yet again.
Models San Francisco and NYC are using to Recover Tech Jobs
1. Innovative Disruptions
To ensure creativity, NYC and San Francisco are bringing together key ingredients, such as a diverse range of stakeholders and tested-methodologies. Innovative technologies⁸ are accelerating as both tech hubs encourage collaboration during this time with companies investing and hiring remote workers to continue with business innovation.
Start-up founders and CEOs are using available resources to ensure that more innovations come on board to keep the momentum going. From Fiver, to Weebly and Square Space, companies in these tech hubs are taking advantage of remote collaborations to scale operations.
2. Collaborations with Government
Local governments in #newyorkcity and San Francisco are collaborating in light of this pandemic as companies negotiate with local agencies about issues such as tax reliefs, stimulus packages and addressing obstacles as the pandemic continues.
3. Flexible Business Models
Tested approaches and structured sessions help hubs quickly recognize and take advantage of their capabilities. A strategic, consultative approach helps build consensus and develop solutions that fit an ecosystems’ specific needs. Tapping local decision makers from within ecosystems ensures solutions are backed by local influencers. This strengthens the support of new initiatives, speeds the deployment of any available resources, and helps ensure results.
4. Business Scaling
Ideas that scale have the best chance at both backing and survival. As research shows, most small businesses fail and few become sizable enterprises. Scalable businesses are the most likely to have an economic impact, contributing to jobs and value creation. Robust, growing businesses are also more likely to catch the eye of other investors and entrepreneurs, further fueling the ecosystem.
Targeting scalable ideas can help bring circularity into businesses at their earliest stages and show that businesses can be profitable and sustainable. Hubs that keep these factors in mind can better create resilient enterprises with circularity at their core.
NYC and San Francisco will Bounce Back in 2021
There is no doubt that this pandemic has held back business investments and with more companies scaling back, there is optimism about a stronger and better 2021 where tech companies will reinvent themselves and forge ahead with a new strategies.
With the support of the U.S government during the COVID 19 pandemic, businesses have weathered through the storms despite the negative implications such as declining revenues and layoffs. Despite the reduced injection from venture investments, McKinsey reports that VC funding will return in 2021 as businesses recovery begins.