In the February 20, 2008 Issue:

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 Not All Is Rosy for Middle Class, Silicon Valley Index Shows
According to the latest index from JointVenture Silicon Valley, 2007 looks like a pretty good year compared to 2006 when you look at many standard measures of economic performance. There were 28,000 new jobs created, a 1.5 percent increase in population, and 21 percent growth in solar and wind energy installations. Water use also dropped 6 percent, venture capital investments were up 11 percent, median household income rose, and city revenues were up 37 percent.
 
A closer look at some of the socio-economic indicators in the Silicon Valley Index, first published in 1995, suggests all is not good for the sustainability of the Valley’s economy, however. Foreclosure rates were four times higher than the previous year, high school graduation rates dropped, and reading proficiencies dropped.
 
Receiving special attention in this year’s Index are the challenges facing middle-wage earners trying to keep or find employment opportunities with growing salaries or maintaining benefits. The number of these workers in the Valley - defined as earning $30,000 to $80,000 - dropped by 60,000 individuals during the 2002-2006 period. Lower-wage jobs increased from 22 percent to 27 percent of the total workforce during the same period while higher-wage jobs held nearly steady.
 
The local employment environment, the JointVenture Silicon Valley observes, is experiencing a restructuring that:

As Silicon Valley remains a model of aspiration or measurement used by many regions of the country, it may be worth reviewing the index to see how the core science and technology occupations and office and clerical positions are being downscaled in either number or salary or both.
 
The 2008 Silicon Valley Index is available at: http://www.jointventure.org/publicatons/siliconvalleyindex.html

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Great Plains at Center of Mounting Brain Drain
The agricultural states that lie east of the Rocky Mountains are at the center of an escalating decline in population, far exceeding that of other regions of the country. Of particular concern is the effect of population loss among young, educated workers on the states’ economies, resulting in a brain drain that could leave the region lagging the rest of the nation for many years to come.
 
A number of areas cry “brain drain” whenever they see statistics for where graduates go after finishing college. Often, those arguments are made without looking at the more useful measure of net migration, the result of considering in-migration as well as out-migration.
 
One look at the map of the U.S. Census Bureau Population Estimates for 2006, published in a recent issue of The Economist, graphically illustrates where brain drain is really occurring. And, brain drain is mainly on the plains. The extent of population loss stretching from eastern Montana to west Texas leads the country. The Economist article states that certain areas of the Great Plains are more sparsely populated now than they were in the late 19th century when the government declared them to be deserted. A shrinking agricultural base and industrial farming, technological advances and the region’s failure to attract new businesses are most likely causes for the rapid net out-migration, according to The Economist.
 
States across the Midwest and Northeast also experiencing significant population loss – especially among younger residents – have employed several measures over the years aimed at reversing brain drain and enticing graduates in emerging fields, such as life sciences. Past initiatives or proposals have included tuition loan forgiveness plans, financial incentives, improving the quality of life, and eliminating the state income tax for younger residents. 
 
In the Midwest, for example, facing an estimated 150,000 skilled worker shortage by 2012, Iowa lawmakers passed the Generation Iowa bill last year. The bill established a 15-member commission to advise and assist in retention and attraction efforts across the state.
 
The Generation Iowa Commission released its findings last month in Road Map to Recruit and Retain Young People to Iowa. The group's report outlines several recommendations across five categories, including reducing student loan debt, expanding career pathways, and aggressively marketing the state. Gov. Chet Culver also announced 60 new Iowa Student Internship Awards last month in the fields of bioscience, advanced manufacturing and information technology, with the goal of transitioning college student interns to full-time employees.
 
Many of the states located in the Plains, anticipating long-term consequences if their trends of declining demographics continue, are actively working to lure back graduates that have left the state, while also recruiting new residents by promoting the region’s emerging technology base and low cost of living. The following examples highlight recent efforts from government agencies and nonprofit organizations to stem brain drain across the Plains.

Kansas
The Kansas Technology Enterprise Corporation (KTEC) launched an initiative last month focusing on professionals and investors in bioscience and information technology with ties to the state. The Come Home to Kansas initiative also targets non-residents and entrepreneurs looking for opportunities in technical fields. With a strong foundation of bioscience and technology companies, KTEC hopes to match professionals with Kansas bioscience and information technology employers who are struggling with recruitment through a job portal and website that promotes the state’s assets. The website features resources to connect entrepreneurs to funds and start-up assistance alongside information on the housing market and cost of living data.

Montana
An established program in Montana continues to build a network of support for entrepreneurs in high-technology fields. TechRanch was formed in 2000 with the goal of creating more high-paying jobs to retain Montana graduates. The organization consists of three programs -- the Bozeman Technology Accelerator, the TechRanch Entrepreneur Network, and the Bootstrap Montana Loan Program. Collectively, these programs have assisted in the formation of more than 60 companies across the state, many of which have gone on to secure government grants and license technologies, according to TechRanch.
 
Nebraska
Hoping to establish an entrepreneurial culture in southeast Nebraska, the Inventors, Investors and Entrepreneurship Club continues to hold monthly networking sessions at the University of Nebraska-Lincoln Kimmel Education and Research Center. The sessions serve to recruit younger people to the rural areas of the state to start new businesses. The initiative is part of a larger, regional effort being organized by River Country Economic Development Corporation that focuses on sharing the resources of the business community and services that are available to help start-up companies.
 
North Dakota
In 2006, University of North Dakota (UND) students established what it calls the first venture capital fund to be completely managed and operated by students (completing all due diligence, making the final investment decision, and negotiating the deal's term structure). Dakota Venture Group, which was seeded by a private donation, operates independently from the university, and five students that serve as managing directors handle all aspects of the investing process. The fund is viewed as a learning opportunity in equity investing for students that also provides a foundation for establishing young companies started by UND students and alumni within the region.
 
Oklahoma
Lawmakers are looking to the aerospace industry to grow new, high-tech jobs and recruit younger workers. Two bills introduced during the 2008 legislative session would provide tax incentives to graduates who work in aerospace or engineering for at least five years and support the aerospace industry through the creation of the Oklahoma Aerospace Institute focusing on education, training, research and economic development (see the Feb. 6, 2008 issue of the Digest).
 
Oklahoma is expected to experience a shortage of about 200 aerospace engineers and 400 electrical engineers by 2014, according to an article in The Oklahoman. At the same time, enrollment for aerospace engineering programs has increased. Between 2001 and 2005, enrollment in bachelor degree programs grew by 55 percent and by nearly 130 percent in master’s programs, the article states.
 
South Dakota
A joint partnership launched in 2006 between the Department of Labor, the Department of Tourism and State Development, and the Governor’s Office, Dakota Roots aims to grow the state’s workforce by linking former South Dakota residents with local business opportunities. After one year, the initiative has built a labor pool of approximately 1,400 individuals, servicing 241 participants from 40 states. The idea is there are many individuals and companies looking to return to the state, but they need assurance that opportunities for business creation and high-paying jobs are available. The program enables individuals to register their skills and interests to be matched with the needs of local companies and provides assistance to businesses looking to relocate to the state.

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Iowa Researcher Finds Limits to the Economic Impact of Ethanol
In recent years, Iowa, like many midwestern states, has experienced a boom in ethanol production. Iowa's natural competitive advantage in growing and processing corn has helped it to move to the forefront of the emerging biofuels industry. The state provides numerous incentives and assistance programs through its Department of Natural Resources to help spur the creation of ethanol-related companies and jobs. A new report by Iowa State University economist David Swenson, however, argues that even if these programs are successful at building a strong ethanol industry, the overall economic impact of this success would be smaller than predicted.
 
Swenson argues in The Economic Impact of Ethanol Production in Iowa that many projections of the economic impact of corn ethanol suffer from improper input-output modeling and frequently overestimate the number of jobs that could be created by the industry. He found that the ethanol boom that occurred between 2000 and 2005 did not lead to the creation of many construction jobs. Instead, much of that construction work was undertaken by out-of-state firms that brought specialized workers with them.
 
Once an ethanol plant is finished, it rarely requires many workers. A 50 million-gallons-per-year (MGY) ethanol plant requires only 35 direct workers, while the more intensive 100 MGY plants still only require 46 employees. In addition, the number of full-time employees required for these plants is expected to decline as the technology becomes more advanced.
 
Some of the other most frequent errors made in modeling the impact of ethanol pointed out by Swenson include:

Since corn production in Iowa – and any other state – is naturally limited by the availability of land and other resources, the number of ethanol plants a state can accommodate is finite. According to Swenson, even if Iowans were able to produce two billion bushels of corn, the state would still only require 55 plants averaging 90 MGY in size. In 2005, the state grew only 400 million bushels. In 2009, 42 ethanol plants will already be operational, and the state appears to be approaching its ceiling for ethanol production and employment.
 
Swenson does not propose ending state support for the biofuels industry, but he does suggest that some of the state’s justifications for its ethanol programs are based on misleading employment indicators. The overall impact may be smaller than expected in the state, even though Iowa has long been a national leader in biofuels production. For other states, with even less land dedicated to corn production and with less focus on ethanol, the employment impact may be even more limited.
 
The Economic Impact of Ethanol Production in Iowa is available at: http://ideas.repec.org/p/isu/genres/12865.html

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North Carolina Launches $1M Green Business Fund
The North Carolina Board of Science and Technology, for a long time serving mostly in an advisory capacity to Gov. Mike Easley, increasingly is more involved in the direct delivery of technology-based economic development programs. The latest addition to its growing portfolio of programs is a $1 million Green Business Fund to help small businesses commercialize promising green and alternative energy technologies.
 
Under the new program, the Board will provide grants of up to $100,000 to North Carolina-based small businesses with 100 or fewer employees. The award process will be competitive, with priority given to proposals that aid in the following:

The current solicitation for applications, set to close April 30, 2008, is the first for the program authorized by the North Carolina General Assembly during the 2006-2007 session. More information on the Green Business Fund is available at: http://www.ncscienceandtechnology.com/
 
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New Mexico Governor Signs Budget Bills, Vetoes Capital Package
New Mexico’s 2008 legislative session wrapped up last week, resulting in no final action on several TBED-related bills and leading Gov. Bill Richardson to call a special legislative session to address his health care reform agenda.
 
Gov. Richardson signed the General Appropriations Act of 2009 and the Junior Budget Bill with minimal vetoes but vetoed a Capital Outlay package, which included $2 million to the board of regents of Northern New Mexico for a proposed solar energy research park ($1 million less than requested) and $3.5 million for clean energy grants to public entities for innovative energy projects within the Energy, Minerals and Natural Resources Department. The legislature passed the capital bill again, giving the governor until March 5 to approve it with individual line-item vetoes, if he deems necessary.
 
Lawmakers approved $14 million last year for the state’s new Supercomputer – $11 million to purchase the computer and $3 million to set up gateways at the state’s research universities. This year, $2.5 million was appropriated for staffing and operating expenses for the New Mexico Computing Applications Center, the operating force for the supercomputer, with an additional $300,000 in the junior budget earmarked for the center.
 
The legislature stalled, however, on a measure designed to provide an economic development tool for the state relating to the supercomputer. HB 262, the Research Applications Act, would have set up operations of the supercomputer as a nonprofit entity, able to accept public and private investment so that businesses and organizations could pay the state to use the system.
 
An effort to relax state laws regarding stem cell research also failed to pass this session. SB 23, the Biomedical Research Act, would have allowed research on embryos that are slated for destruction at fertility clinics. The governor also asked lawmakers to approve $2 million for the University of New Mexico (UNM) to recruit researchers to the program.
 
A proposal to replace the Technology Research Collaborative with a Technology Development Authority and establish a $10 million technology development fund also died in session.
 
The fiscal year 2009 main budget bill signed by the governor includes $1.2 million for the Renewable Energy Efficiency program, $663,600 for the Spaceport Authority, and $276,500 for the Technology Commercialization program.
 
The junior budget bill provides funding for several projects at the New Mexico Institute of Mining and Technology, including $150,000 for the Small Business Innovation Research outreach program, $50,000 for student outreach in science and engineering, and $28,000 for a statewide initiative to provide training on the supercomputer for middle and high school students.
 
Gov. Richardson also signed the General Obligation Bond Act, which requires voter approval for several university capital projects, including $17 million to the UNM Health Sciences Center cancer research and treatment center and $4.5 million for the UNM Health Science Center neurosciences research building.

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Recent Research I
Companies Can Prevent IP Leaks, But Should They?
Research-based companies draw much of their advantage in the market from their investment in technology development and the knowledge capital they have accumulated over time. Since this knowledge represents potential revenue, many companies jealously guard their intellectual property (IP) with non-compete clauses and other legal contracts with their employees. No company, however, can completely stop the outward flow of information. One of the most important means by which information can escape is through the movement of employees from one job to another. Reputations for Toughness in Patent Enforcement: Implications for Knowledge Spillovers via Inventor Mobility, a recent paper by Rajshree Agarwal, Martin Ganco and Rosemarie Ziedonis, states that a company’s reputation for intellectual property enforcement can significantly reduce the value lost through employee movement.
 
In their examination of IP enforcement and "job hopping" in the semiconductor industry, Agarwal et al. find that a firm's reputation for litigiousness plays a major role in the decision-making process of ex-employees. A strong reputation can effectively prevent former employees from appropriating the firm's knowledge capital and transferring it to another company or using it to create their own firm. This is particularly true when the new employer is smaller and unable to fund a legal dispute.
 
There can, however, be consequences to maintaining a tight grip on intellectual capital. The exchange of tacit and formal knowledge is at the heart of successful clusters and innovation networks. Agarwal et al. cite a 1994 study that found 71 percent of entrepreneurial founders commercialized ideas they had encountered or discovered while working at other companies. Restricting the flow of ideas out of high-tech companies could have a profound impact on regional entrepreneurship.
 
Another study, The Knowledge Spillover Theory of Entrepreneurship by Zoltan Acs, David Audretsch, Pontus Braunerhjelm and Bo Carlsson, lays out a knowledge spillover theory of entrepreneurship, a theory which centers on the idea that "knowledge created endogenously via R&D results in knowledge spillovers."
 
There appears to be a link in between regional investment in R&D and entrepreneurship, which Acs et al. cite as evidence that at least of portion of research investments spill over to new entrants. While this spillover may appear to be lost value to a firm, it is an essential ingredient in building strong regional industries and in introducing new sources of product and service innovation. As researchers and other employees leave existing businesses to start new companies, they are capable of bringing new technologies to market that might not otherwise have been commercialized within the context of the original company.
 
The authors conclude that when incumbent firms appropriate all of the results of their research, there is no knowledge spillover and consequently a reduction in associated entrepreneurial activity. This could negatively impact regional development, including the creation of firms that provide services and supplies to existing companies. New firms are also a source of product and service innovations for existing companies through licensing and mergers and acquisitions. Building a reputation for strong IP enforcement may seem tempting for companies that draw much of their competitive advantage through internal research, but this urge must be balanced with a more complete view of how innovation occurs.
 
Read Reputations for Toughness in Patent Enforcement: Implications for Knowledge Spillovers via Inventor Mobility at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1083263
 
The Knowledge Spillover Theory of Entrepreneurship was published in the November 2007 issue of the Journal of Management Studies. Purchases may be made through: http://www.blackwell-synergy.com/loi/JOMS?open=2007#year2007

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Recent Research II
Study Finds Growth Greatest When S&E Employees Mix with Diverse Degree Holders
A consistent claim in many competitiveness reports and economic development strategies is the need to increase the number of scientists and engineers in a given geographic area. But are there other factors, when coupled with the presence of scientists and engineers, that influence local long-term employment growth more than others?
 
A recent paper from Desmond Beckstead, W. Mark Brown and Guy Gellatly explores this question and examines the factors that influence the number of scientists and engineers in cities. In Cities and Growth: The Left Brain of North American Cities: Scientists and Engineers and Urban Growth, Beckstead et al. find that cities concentrated with diverse mixtures of people with degrees, combined with science and engineering employment, experience the highest rates of long-term employment growth.
 
The authors use census data on 242 Canadian and U.S. cities to track employment numbers from the early 1980s to the early 2000s. According to their research, the concentration of people in a city with a “cultural” background is comparatively less influential than the concentration of people with a broad range of degrees for effecting the employment growth of scientists and engineers. That is not to say some things such as openness and amenities do not have an impact – just that a diverse pool of human capital from many sectors has a larger impact. Even when controlling for other urban characteristics such as climate and housing prices, cities with larger concentrations of non-science and non-cultural jobs have a more vigorous growth of scientists and engineers.
 
The study also found that cities are not likely to experience sustained relative increases in the number of scientists and engineers over an extended period. Often, cities with larger numbers of S&E employees witnessed a slower growth in the number of scientists and engineers a decade or two later. Additionally, the authors report that cities with more immigrants, regardless of their educational background, encountered stronger growth of scientists and engineers in the 1990s.
 
From a policy perspective, this research may show practitioners need to take actions to improve a variety of sectors within a local economy, instead of concentrating strictly on the development of an arts scene or only on the attainment of people with a technological background. The maximum impact occurs when a diverse assortment of employed degree holders interact with each other.

Cities and Growth: The Left Brain of North American Cities: Scientists and Engineers and Urban Growth can be found at: http://www.statcan.ca/english/research/11-622-MIE/11-622-MIE2008018.pdf

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Useful Stats
Employment in S&E Occupations by Metropolitan Area in 2006
Using its Occupational Employment Statistics Survey, the Bureau of Labor Statistics estimates the number of employees in about 800 separate occupations for every metropolitan area in the U.S. In the most recent version of its Science and Engineering Indicators series, the National Science Board compiled a chart organizing the number of employees in S&E occupations in 2006, the most recent data available. As a whole, science and engineering occupations include all varieties of engineers, as well as scientists from the computer, mathematical, life, physical and social sciences.
 
SSTI has prepared a table showing the number of S&E employees and the percent of employees in S&E occupations for the 100 U.S. metropolitan areas with the largest number of employed people. For the U.S. as a whole, in 2006, just over 5.4 million had jobs in S&E occupations, which represents 4.1 percent of the working population. In the table, the metropolitan areas are organized by the size of their total employee base.
 
The metropolitan area with the highest concentration of S&E employees was San Jose, whose 126,000 S&E employees make up 14.1 percent of the total. The Durham, N.C., and Washington, D.C., metros were the only other two with concentrations greater than 10 percent. Other areas with high concentrations included the metros centered at Austin (7.9 percent), Seattle (7.8 percent), Boston (7.4 percent), Colorado Springs (7.0 percent), Madison (6.9 percent), Raleigh (6.9 percent), and San Francisco (6.9 percent). Within this list of the 100 largest, data were not available for the New York City (NY-NJ-PA) and Poughkeepsie (NY) metro areas.
 
SSTI's table is available at: http://www.ssti.org/Digest/Tables/022008t.htm
 
Appendix Table 3-6 in Science and Engineering Indicators 2008, “Employment and earnings in S&E occupations and non-S&E occupations,“ includes this S&E employee data for all metropolitan areas in the U.S. and can be found at: http://www.nsf.gov/statistics/seind08/pdf/at03.pdf

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SSTI Job Corner
A complete description of this opportunity and others is available at http://www.ssti.org/posting.htm.

The University of Toledo is seeking someone to serve as director of the University Clean Energy Alliance of Ohio (UCEAO) in the university's Department of Research. The director will be an experienced administrator who will serve as a major spokesperson in Ohio on advanced energy and who can move UCEAO from its present developmental stage to a robust organization that will provide leadership statewide. The incumbent will have significant professional experience in an energy-related field, as well as significant relevant administrative, leadership, and management experience. A bachelor's degree is required; an advanced degree or a Ph.D. is preferred.

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