Now for the bad news about the 'new' economy

California study shows the downside of a high-tech economic base: less

From New Mexico to Virginia, and many points in between, technology is the sought-after engine for economic transformation.

But hang on. There is some grit in this gilded "new economy" that should temper the enthusiasm for becoming part of the digital revolution, say a number of analysts. And it should prompt development of new public policies and institutions to widen the revolution's benefits.

In many respects, the technology industry lies at the core of America's remarkable economic expansion of the 1990s. It has not only single-handedly fueled more than 25 percent of the nation's real economic growth, according to the Department of Commerce, but also has added more than a million jobs in the last five years.

Yet beneath those impressive statistics are some worrying trends now showing up in California, a place that has already established the kind of technology-reliant economic base many regions and countries are seeking.

"There might be a just a little too much euphoria out there in looking at technology and economic development," says Ross DeVol of the Milken Institute, a Los Angeles-based economic think tank that prides itself on having neither liberal nor conservative leanings. "I'm a big advocate of what the technology sector can do, but there are some problems festering down below," he adds.

Mr. DeVol is putting the final touches on a study that makes the allure of attracting technology firms to any region or municipality almost irresistible. After crunching economic data for all the major metropolitan areas in the United States for most of the 1990s, he concludes: The tech sector is the single greatest factor in determining the relative economic growth of cities.

With more dependence on the technology sector, though, comes heightened wage gaps, less job tenure and security, and greater risk of unemployment for workers in their 50s, once thought to be the prime years for income and security, according to several other recent studies from California.

The most recent report on California's "new" economy, by the Silicon Valley-based Working Partnerships USA and the Economic Policy Institute in Washington, concludes that "working families in the state are confronting dramatically increased insecurity in employment and earnings."

It notes, for instance, that while the economy here is humming along, there is massive job turnover. Some 45 percent of California workers have worked for their employers for less than two years, well below the national average.

In addition, between 1994 and 1998, the real median wage for all workers in the state declined. And for male workers over 55 that become unemployed, it takes a lot longer to find a job now than it did in the 1970s, despite today's low unemployment rate.

Other recent studies have shown the wage gap between the high and low ends of the income scale widening in California. While immigration certainly is a major factor, it explains at most 40 percent of the widening gap.

Basically, a technology-driven economy generates lots of job turnover, puts a premium on up-to-date training, and relies heavily on contract and contingent workers. Much of the increased job mobility is a plus, say economists. For professionals at the high end of the wage scale, changing employers and starting businesses is a sign of the technology sector's vitality.

Yet there are also a growing number of lower-paid workers who even in this thriving economy can't find the type of permanent jobs that were common a generation ago. Today's technology firms are creating fewer of those jobs, partly to stay fast on their feet in a competitive environment and partly because temporary workers are usually cheaper.

Underscoring the growth of temporary workers in the state, the Working Partnerships study finds that the California industry with the largest net job growth over the past five years was not technology or entertainment, but temporary employment agencies.

And one of the unmistakable features of non-standard employment, including temporary workers, is that such jobs offer less in health-insurance and retirement benefits, says Lonnie Golden, an economist at the University of Pennsylvania.

The liberal Working Partnerships argues these shortcomings require a new "social contract" between business, government, and labor to replace the one born after the Great Depression. While it doesn't recommend resurrecting the programs of the New Deal, it does call on government to take a lead role in "promoting shared prosperity."

Many conservative economists argue that the market, if left alone, will ultimately work out the kinds of shortcomings that are emerging during this period of economic transformation.

The most important task for policymakers is to work with the private sector to create "lifelong learning centers" that continually train workers to keep them competitive in a fast-moving job environment, says DeVol of the Milken Institute.

Mr. Golden of Pennsylvania State University says the apparent growth of the nation's temporary, contingent work force begs the need for wholly new public policies ranging from health insurance to who qualifies for unemployment insurance.

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