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Recent Research: State TBED investments influence high-tech job growth

September 28, 2017
By: Jonathan Dworin

Do state policies focused on growing opportunity through science, technology, innovation and entrepreneurship work? Which approach has more success: encouraging technology commercialization and entrepreneurship or building and filling incubators and research parks?  To try to answer these questions, new empirical research looks at the effectiveness of sustained state investments in technology-based economic development activities on high-technology job growth.

For decades, many states have created, funded, dropped, and restarted technology-based economic development (TBED) programs to correct network and market failures across the innovation system. While the need for innovation, tech entrepreneurship and the higher-paying jobs resulting from both is widely recognized, the collective value or impact of sustaining a portfolio of state TBED policies and programs has received little empirical analysis. New research published in the Journal of Social Science Research does precisely that and suggests that long-term, historical investments in state-level policies that support entrepreneurship may have helped to accelerate the development of high technology industries.

For State investments in high-technology job growth, authors Kevin Leicht of the University of Illinois and J. Craig Jenkins of Ohio State University developed a model to test whether the state-led, technology-based economic development programs established in the late 1970s and early 1980s had an impact on future growth in high-technology industries and occupations. The authors hypothesized that those programs with a greater duration should have stronger capacities, legitimacy and resources, which in turn should have translated into high-technology job growth. Using data from the BLS’ Current Employment Statistics Survey, the authors defined high-tech employees as those with jobs in the 31 industries where both R&D workers and technology-oriented occupations are more than twice the national average.

Leicht and Jenkins assess two policy frameworks advanced by proponents of technology-based economic development. A “technopole strategy” seeks to plan and support the growth of high-tech industries in specific locations. The authors suggest that elements of this centralized strategy include high-technology business incubators that provide subsidized R&D space; research parks; subsidized space for high-tech businesses (including seed accelerators); and, technology development programs at universities and/or government industry research consortia.

The less centralized “entrepreneurial strategy” seeks to decrease barriers to starting a small business by supporting the development of local networks, entrepreneurs, and partnerships. The authors include among the elements of the entrepreneurial policy framework:

  • public venture capital programs (providing startup, intermediate and commercialization financing for private entrepreneurs);
  • small business innovation research programs (or SBIRs), state-level programs to attract more federal funding into small businesses; 
  • technology grant and loan programs, which provide grants and subsidized loans for the development of new products; and,
  • technology deployment and transfer programs, which focus on promoting the adoption of innovative technologies.

Using a multifaceted criteria system to establish the study sample, Leicht and Jenkins found Georgia, Pennsylvania, New York, and Ohio exhibited the longest record of accomplishment in supporting high-tech policies.  The authors explain in the report that due to the lack of consistent data across states or historical information, they could only factor in the presence of a policy or program and not tie them to funding levels. They describe this methodology as “at best, a blunt instrument in a fragmented policy and data collection field.” It is worth mentioning that although the authors use and cite SSTI materials, SSTI did not have any role in shaping the study’s methodology or results.

Leicht and Jenkins developed a model to assess the impacts of TBED programs on changes in high-tech employment over two decade-long periods between 1981 and 2000. To separate the effects of the technopole and entrepreneurial strategies, the authors also controlled for variables such as federal R&D funding, research universities, population density, access to major transportation systems, and the presence of Fortune 500 corporate headquarters and private venture capital firms.

Ultimately, Leicht and Jenkins found evidence that entrepreneurial policies promote high-technology job growth in regional contexts where there is considerable high-tech employment already, while two policies – SBIR and technology deployment policies – had direct, additive effects on high-tech job growth regardless of agglomeration and location factors. Although precise annual expenditure data would give a more exact measure of job creation in cost/benefit terms, the authors estimate that one additional year of commitment to technology deployment policies yields about 1,300 additional high-tech jobs and one additional year of SBIR commitment yielded 1,976 additional jobs.

The authors’ findings suggest that entrepreneurial programs tend to work best for rural (low population density) states, where those policies may help states play “catch up.” Conversely, the authors find limited evidence that technopole strategies support high-technology job growth net of other factors, though these policies can be effective when coupled with existing high-technology advantages.

For those who have closely followed the technology-based economic development field, Leicht and Jenkins’ findings speak to a commonly heard refrain: it is oftentimes the small and incremental steps, not the massive recruitment/relocation deals, which spark transformative economic development. "You don't have to necessarily put a huge amount of money into these investments, and most states don't," Leicht said in an interview with Phys.org. "But you have to just keep doing it and plugging along and allow for a lot of failure, and in most cases, you'll get something for it."

Leicht and Jenkins conclude by postulating that TBED policies would be more effective if public discourse reflected the reality of their existence. The authors suggest that publicizing the successes of technology-based economic development initiatives could lead to a wider awareness of their capabilities and extend them in ways that could broaden economic opportunity and the accessibility of good jobs.