The NYCEDC Innovation Index: A Closer Look
Take an in-depth look at each of the metrics by visiting our interactive Innovation Index at http://www.nycedc.com/economic-data/innovation-index
The Economic Research & Analysis (ERA) team at New York City Economic Development Corporation (NYCEDC) updates their Innovation Index in order to quantify and monitor the status of innovation in New York City. NYCEDC is interested in innovation because it has long been at the forefront of economic analysis. While some economists argue that innovation is crucial for economic growth, others claim that it is only a natural by-product of a healthy economy.[i] No matter the exact role of innovation in the City, it remains a topic that researchers who are interested in a healthy economy should track. ERA took a “deep dive” into this index for the August 2016 Economic Snapshot, analyzing growth in innovation between 2003 and 2015.
So, how innovative is New York City, and what does “innovation” entail? Broadly speaking, innovation can be defined as a “good or service that is new or significantly improved.”[ii] The process of pinning this concept to a number or metric is difficult, as there are countless ways that innovation can manifest in an economy. In order to get at a more comprehensive method to measure innovation, ERA broke innovation into several inputs and outputs; the inputs include metrics that contribute towards the creation of innovative products; the outputs include metrics that track economic growth.
As a whole, innovation was up over 38% between 2003 and 2015 (see Figure 1). Output growth led the way being up 45%, while input growth was up 31% over this time period. This trend, however, was not consistent throughout the entire duration of the index. In the first half of the index, inputs grew slower than outputs, while the reverse trend occurred in the second half of the index.
To capture all of the metrics that contribute towards the inputs of innovation in New York City, ERA analyzed the following clusters:
- R&D: R&D spending at City institutions compared to national averages from the National Science Foundation
- Finance: Venture Capital spending from PwC MoneyTree and federal funding for Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTF)
- Human Capital: Employment in Science and Engineering (S&E) professions from the Bureau of Labor Statistics, including these sectors’ share of total private employment, and graduate/post-doc enrollment in S&E disciplines as logged by the National Science Foundation
Of these input clusters, finance grew the most at 80% due to large deals for companies, including WeWork who raised $433 million in Series E funding in a single deal in 2015. Human capital, defined as the skills possessed by the labor force, also witnessed strong growth of 18%. While the number of graduate and post-doctoral students in S&E professions grew by 5% between 2010 and 2015 (1,480 individuals), the actual number of S&E employment in NYC grew by 14% (25,550 individuals), indicating that students are migrating to the City for employment. Approximately 44% of the STEM workforce is foreign-born, further suggesting that a large portion of labor in the innovation economy is imported from abroad.[i]
ERA looked at outputs measured by the below metrics:
- Intellectual Property: Patents issued to New York City inventors and national averages from the United States Patent and Trademark Office, and university licensing income from AUTM
- Gross City Product: High-tech industries’ share of total New York City Gross City Product (GCP), and GCP per worker in the high-tech industries
- Entrepreneurship and Employment Dynamics: Employer churning from the United States Census, quarterly workforce indicators, late stage SBIR/STTR grants, late stage VC funding measured by PwC MoneyTree, and market share of New York City-headquartered companies listed on NASDAQ and NYSE exchanges
Of these outputs, the IP cluster had the strongest growth, expanding over 55% since the start of the index. Over 3,700 patents were granted in 2015 in New York City alone. Patents are import for incentivizing growth by granting inventor up to 20 years of ownership on the invention. Workers in the high-tech industries have also become more productive over the years, as the amount of output produced per worker steadily grew at a compounded annual rate of 2.2% between 2003 and 2015. Real GCP exceeded $26 billion in 2015 for the high-tech sectors, which is more than double the 2003 value.
The final output measure is entrepreneurship, which looks at three factors: employee churn, market share of companies headquartered in New York City, and advanced-stage project funding (as a proxy for entrepreneurial success). This is the only cluster within the Innovation Index that has not grown since 2003, falling 4.8% as a result of declines in the employee churn and market share metrics. This churn can be looked at as a positive, however, since having a certain amount of “creative destruction” is good for an economy. Besides this decline, the inputs and outputs of this index have been consistently trending upwards, highlighting a strong and vibrant future for the innovative economy in the City.
Explore these metrics further by visiting our interactive Innovation Index here: http://www.nycedc.com/economic-data/innovation-index.
[i] Joseph Schumpeter History of Economic Analysis New York: Oxford University Press; Thomas K. McCraw, Prophet of Innovation: Joseph Schumpeter and Creative Destruction Harvard University Press.
[ii] OECD Innovation definition, available at: https://www.oecd.org/site/innovationstrategy/defininginnovation.htm.
[iii] American Community Survey Microdata, 2014.