San Jose: Economy

Major Industries and Commercial Activity

The rapid expansion of high-technology industries triggered uninterrupted growth in the Silicon Valley—San Jose and Santa Clara County—from the 1950s through the early 1980s. The 1985 recession, however, left a stagnant economy, pointing to a need to diversify the economic base of the area. Studies indicated that high-technology companies had to move toward decreased reliance on the defense industry. By the early 1990s businesses in San Jose and Santa Clara County showed less than 20 percent of their budgets devoted to government contracts. The city was encouraged by a 1992 study that reported the nation's beleaguered semiconductor industry claimed 43.8 percent of the world market, up from a low of 36.9 percent in 1988.

By 1997 the nation was riding the wave of a booming New Economy—involving the creation of new companies that put the Internet to use to change the way business is done. High technology had become a major factor in the economic growth of U.S. cities, and San Jose was at the center of it all. By 2000 San Jose was a mecca for hot startup companies and venture capital dollars. San Jose, and in particular the Silicon Valley region, is a hotbed of technology and technological innovation. The area has received more patents than any other technology region in the United States. Technology businesses centered here continue to grow and expand in the twenty-first century, as does the growth of service and support businesses to the industry.

Incentive Programs—New and Existing Companies

Local programs

The city of San Jose adopted a Local Preference Policy in May 2004. The policy works to encourage local companies to work with other local companies and the city to promote further job growth for residents and to keep "more of the City of San Jose's spending within the regional economy." The Local Preference Policy goes hand in hand with the Small Business Opportunity Program, which works to smooth the process for small businesses of selling their products and services to the city.

A variety of loans, bonds, and special funds are available to local businesses in San Jose. Among them are the Development Enhancement Special Fund, which helps businesses secure loan funds for expansion, working capital, inventory, or other qualified business expenses; Industrial Development Bonds offer financing options for manufacturing firms that are job-generating; the Lenders for Community Development program provides access to small business loans and lines of credit; and the Revolving Loan Fund makes funds available to small businesses for a variety of uses.

The San Jose Silicon Valley Chamber of Commerce works to develop and maintain the metropolitan area economy. Their particular focus is on aiding small and medium-sized companies involved in international business. The chamber's international trade program includes seminars, networking events, and exhibitions. The San Jose Downtown Association also works to stimulate and improve business conditions. The SBA/CiscoSystems/San Jose Entrepreneur Center provides services to entrepreneurs and small businesses.

State programs

An 18-square mile state-designated Enterprise Zone offers businesses operating in the zone significant tax savings and other financial benefits. The zone consists of San Jose's downtown area and benefits retail, commercial, and high-tech businesses located there. Benefits of operating in the Enterprise Zone include Sales and Use Tax Credits; Hiring Tax Credits; Net Operating Loss Carryover and Net Interest Deduction for Lenders programs; and a Business Expense Deductions program. San Jose is also a designated Foreign Trade Zone, which allows companies to reduce, delay, or eliminate customs fees on imported goods. The Silicon Valley Export Assistance Center offers state and government programs that assist companies who wish to export goods.

Job training programs

The Silicon Valley Workforce Investment Network works with local businesses and residents. The network's one-stop system offers resources for job seekers, as well as services to businesses that include pre-employment screening, access to qualified applicants, training programs, and assistance with employee transitions.

Items and goods produced: missiles; rocket boosters; computers; atomic electrical equipment; fruit, vegetable, and fish cans; dairy products; chemicals; aluminum; paint; fiberglass; matches; medical equipment

Development Projects

In 2003 and 2004, more than 240,000 square feet of retail space was added in downtown San Jose. The Neighborhood Business Districts (NBD) program was established as part of an effort to boost retail business in San Jose's older neighborhoods; its efforts have resulted in 40 new restaurants and retail stores opening among the districts by early 2005. CIM Group's Central Place was approved in early 2005; construction on the downtown mixed-use highrise housing project will begin in fall 2005.

A massive plan for the redevelopment of North San Jose, or the Innovation Triangle, is on the ballot for city council to vote on in spring 2005. The North San Jose 2030 plan calls for a redevelopment of the approximately 42 million square feet of industrial space in the Innovation Triangle, which is currently home to more than 1,200 multinational companies. The plan cites that the space is currently "functionally obsolete," and calls for renovations as well as an additional 26.7 million square feet of new research and development space and office space, 32,000 new housing units, and 1.4 million square feet of retail space.

A $2.8 billion expansion of the San Jose International Airport was underway in 2005, with phased completion dates and expansions and improvements ranging from new concourses and parking garages, terminal and roadway improvements, and an Automated People Mover. When completed in 2015, the airport will serve 17.6 million passengers annually, up from 11.5 million.

Economic Development Information: San Jose Silicon Valley Chamber of Commerce, 310 South First Street, San Jose, CA 95113; telephone (408)291-5250

Commercial Shipping

Nearly half of the traffic at San Jose International Airport is business related, which makes the facility an important factor in the Silicon Valley economy. Revenues from freight shipments average more than $10 million annually; cargo handled at the airport in 2004 exceeded 5 million pounds. Four air cargo carriers and several air freight services maintain facilities at the airport. Two major rail freight lines and a number of motor freight carriers also operate in the metropolitan area.

Labor Force and Employment Outlook

According to San Jose's Office of Economic Development, more than 85 percent of the region's new jobs come from companies that are less than 10 years old. A well-educated and abundant work force coupled with the great quantity of high-level jobs created annually combine to create a shortage of qualified employees in the region. With more than 7,000 technology companies, the technology industry is responsible for employing more than 300,000 people.

The following is a summary of data regarding the San Jose metropolitan area labor force, 2004 annual averages.

Size of non-agricultural labor force: 859,900

Number of workers employed in . . .

natural resources and mining: 100

construction: 41,700

manufacturing: 170,100

trade, transportation and utilities: 130,000

information: 32,700

financial activities: 35,000

professional and business services: 165,900

educational and health services: 94,500

leisure and hospitality: 69,800

other services: 24,900

government: 94,700

Average hourly earnings of production workers employed in manufacturing: $17.21

Unemployment rate: 6.2% (January 2005)

San Jose: Economy

Largest employers Number of employees
County of Santa Clara 14,800
Cisco Systems 13,400
City of San Jose 7,200
IBM Corporation 6,400
San Jose Unified School District 3,360
Hitachi 2,900
Agilent Technologies 2,880
Xilinx 2,600
Adobe Systems 2,000
Good Samaritan Health System 1,850
KLA Tencor Instruments 1,850
Novellus Systems 1,800
Cadence Design Systems, Inc. 1,760
Sanmina-SCI 1,750

Cost of Living

San Jose suffers from a severe shortage of affordable housing and is among the most expensive cities to live; conversely, San Jose residents also have the highest disposable income in the nation.

The following is a summary of data regarding key cost of living factors for the San Jose area.

2004 (3rd Quarter) ACCRA Average House Price: $766,310

2004 (3rd Quarter) ACCRA Cost of Living Index: 170.8 (U.S. average = 100.0)

State income tax rate: Ranges from 1.0% to 9.3%

State sales tax rate: 6%

Local income tax rate: None

Local sales tax rate: 1.25%

Property tax rate: Average 1.1% of full cash value

Economic Information: San Jose Silicon Valley Chamber of Commerce, 310 South First St., San Jose, CA 95113; telephone (408)291-5250; fax (408)286-5019; email info State of California, Employment Development Department, 800 Capitol Mall, MIC 83, Sacramento, CA 95814