Here's Exactly How Much Innovation Matters to the U.S. Job Market

100% of net new job growth comes from firms less than 5 years old.

“As it turns out, the dynamism of the U.S. high-tech companies matters not just to scientists, software engineers and stock holders, but to the community at large,” writes economics professor Enrico Moretti, the author of The New Geography of Jobs, in the Bay Area Council Economic Institute’s 2012 tech industry employment report. 

“While the average worker may never be employed by Google or a high-tech startup, our jobs are increasingly supported by the wealth created by innovators. The reason is that high-tech companies generate a growing number of jobs outside high-tech in the communities where they are located. My research shows that attracting a scientist or a software engineer to a city triggers a multiplier effect, increasing employment and salaries for those who provide local services.”

This is why entrepreneurship is the key to fixing America’s stalled economy.

It takes creativity to undercover new markets and create demand for new products, but that’s what we’re going to need to drive economic growth down the road, especially as legacy industries like manufacturing, brick-and-mortar retail, and financial services shrink over the next several decades in the face of shrinking demand and increased regulation.

This is where growth will be happening in the near-term.

“There’s an oversupply of innovation in America and an undersupply of rare, truly gifted entrepreneurs. To fix this, we need to make identifying entrepreneurs as intentional as we do finding kids with genius IQs, or recruiting the next football, basketball, and baseball stars.”

It sounds flippant, but this stuff matters in the big picture of the U.S. economy, as evidenced by the fact that former President Obama addressed the growing importance of the startup economy in his 2012 State of the Union address. 

"You see, an economy built to last is one where we encourage the talent and ingenuity of every person in this country,” Obama said. “That means women should earn equal pay for equal work. It means we should support everyone who’s willing to work; and every risk-taker and entrepreneur who aspires to become the next Steve Jobs. After all, innovation is what America has always been about. Most new jobs are created in start-ups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. Expand tax relief to small businesses that are raising wages and creating good jobs. Both parties agree on these ideas. So put them in a bill, and get it on my desk this year.”

According to the U.S. Bureau of Labor Statistics, there were about six million Americans working in high technology jobs as of 2012, up 3.3 percent compared to 2011, and that number is expected to grow by 16.2 percent by 2020. For computer and information technology occupations in particular, the market is expected grow by 22 percent by 2020, adding more than 750,000 jobs, while the market for computer systems design and related professionals is expected to increase by 47 percent in that time.

None of this is anything new, of course. According to the Bay Area Council Economic Institute, since 2004 employment growth in the tech sector has outpaced growth in the private sector as a whole by a factor of three-to-one, and this trend is on track to continue until at least the end of the decade. All this while employment for the country overall grows by just 13.3 percent. What’s more, the average tech industry worker earns between 17 and 27 percent more than a comparable worker in another field, meaning tech jobs are more valuable to the economy than those in other industries.

“A strong and vibrant technology industry is critical to supporting an economic recovery and¸ while the tech industry has weathered the downturn better than most, we can’t take its strength for granted,” says TechAmerica Foundation President Jennifer Kerber in response to the BLS job growth numbers. “Global economic and market forces continue to put the technology industry in a position of intense competition – a competition for innovation, where labor and intellectual property provide the foundation for growth. America can only realize the full promise of an innovation economy with smarter public policies focused on developing and attracting the best talent, investing in research and development, and growing and securing our information infrastructure.”