Darin Buelow and Alex Dunlap
The appetite for engineers, software developers, cybersecurity experts, R&D technicians and other technology-related talent continues to grow. According to the U.S. Bureau of Labor Statistics (BLS), science, technology, engineering and math (STEM) occupations are projected to increase by 10.5 percent from 2020-2030, compared to 7.5 percent for non-STEM occupations. Computer occupations represent approximately two-thirds of the predicted STEM job growth from 2020-2030, and jobs in security and software development both have expected job growth of over 20 percent, according to BLS data. Additionally, a 15 percent surge in demand for engineers is expected as baby boomers retire.
Companies need and will continue to need this kind of talent in an ever-virtualizing world. Trouble is, many are unable to recruit STEM talent in sufficient numbers in the labor markets surrounding their existing locations. In some cases, the talent is there but has become increasingly expensive due to years of wage escalation; in others, suitable tech labor to support growth simply doesn’t exist in the area.
The acceleration of work-from-home and remote work options have prompted some companies to hire the tech talent they need nationally, regardless of proximity to a company office. However, many companies still want the opportunity for face-to-face collaboration and interaction between team members and therefore strongly prefer to place facilities in markets with a sustainable and affordable source of tech talent.
In looking for new locations, many firms “follow the herd,” opening tech centers in cities that have been attracting software, IT and engineering hubs for decades. Austin, for example, in 2020 (a year not generally associated with job growth) saw a 3.5 percent increase in tech industry jobs while the metro’s total jobs fell by 2.9 percent. Tech industry jobs total 17.1 percent of all jobs, compared to just 9.2 percent nationally, according to the Austin Chamber of Commerce.
The problem with this strategy, of course, is cost. Recent high-profile tech announcements in Austin may make other companies feel as though they are chasing increasingly scarce resources when recruiting quality STEM candidates. More competition can drive up costs; even pre-pandemic Austin experienced significant wage escalation and cost-of-living increases. The city’s average high-tech salary from 2015-2020 climbed from $104,671 to $136,541, a 30.4 percent increase. According to the Austin Chamber of Commerce, “over the last decade, tech payrolls are up 131 percent compared to 101 percent for all payrolls.” Austin’s population has grown 33.7 percent from 2010-2020, five times the national average. This, among other reasons, has caused housing and overall living costs in Austin from 2010-2020 to jump 20.7 percent and 17.8 percent, respectively, the 12th-highest increase of all metros in the U.S.
We can’t opine on whether the influx of investment has “kept Austin weird” but data reveals that it has made Austin expensive.
So, where’s next? How should CEOs direct their teams to look at the right statistics and data, so the company places its bets in the right talent markets? To answer this question, let’s explore what makes a vibrant location to find tech talent. In our experience, strong tech talent markets can demonstrate that they:
1. Have the workers with the target skills already present in the geography. This can be assessed by looking at the current STEM occupation location quotient (LQ). The U.S. as a whole will represent an LQ of 1.0, while every city’s LQ will be greater or less than 1, revealing that metro’s relative density of STEM occupations compared to the U.S. average.3
2. Will have a robust supply of the workers with the target skills in the future. This may be assessed by analyzing college graduates with STEM degrees, projected population growth, demographic trends and other factors.
3. Are attracting talent with the target skills to move to the geography. Indicators often focus on the inflow of talent; look for positive net migration statistics, especially among those with desired skillsets.
Without question, Austin hits the mark in all three of these talent market dimensions: Austin enjoys a STEM occupations LQ of 1.18, 19 percent five-year growth in graduates with STEM degrees, 11,382 total annual graduates with STEM degrees, five-year population change of 14.6 percent and approximately 134 people moving to Austin daily, as of Q1 2022.
Other cities with the positive attributes described above include Raleigh-Durham, Seattle and Salt Lake City. However, when looking at relocation or a new location, while it’s safe to choose a city that has all three attributes, CEOs should have their teams evaluate specific factors reflective of the organization’s unique needs. While a city may not currently have a positive LQ, it could score well in population growth and STEM graduates. Cities exhibiting these attributes include Sacramento, Oklahoma City and Dallas. Likewise, perhaps a firm is more interested in recruiting a lower number of experienced professionals, making current STEM LQ more important than population growth and new graduates. This type of deployment may wish to consider high STEM LQ cities like Huntsville, San Jose and Detroit.
The myriad of location options for companies to consider is itself revealing: It is difficult to say “this is the city to go to” without an understanding of the unique needs of the business. Every geography comes with pros, cons and a wide cost range that will affect each business differently when it comes to recruiting key STEM talent. A location decision should be evaluated on a case-by-case basis with a detailed understanding of a company’s specific talent needs, growth projections, cost objectives and risk tolerance. Firms should decide if they want to enter the established but potentially saturated markets, constantly competing with the big players for talent, or consider more emerging markets, knowing that they might grow more slowly. That is why an informed location decision should be based on data-driven decisions and analysis to enable business leaders to find the most suitable talent market for their future needs.