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Data Centers and Alternative Energy Show Why There's So Little Job Growth

|Includes: FSLR, GOOG, Microsoft Corporation (MSFT), SPWR

 

I've covered two industries over the last few years, data centers and alternative energy, which in spite of tremendous revenue growth, have done little to improve the overall job market. This has been particularly interesting to watch, because technology and energy have created so many jobs in the past. But this inability to create more jobs now is not occurring because of macroeconomic policy, but microeconomic reality.


The data center industry has boomed the last few years. Top line growth rates for both service providers and technology developers have exceeded 20% annually, with little correlation to changes in GDP growth. However, data centers are models of efficiency and productivity. A typical facility will employ just one permanent worker for every $2-$4 million in capex needed to construct it. Microsoft, for example, is building a $100 million center in Des Moines that will employ 25 people. Google's Council Bluffs data center two hours west cost $600 million and created about 200 jobs. Data center owners are adding millions of new square feet a year, but adding few jobs in the process.

 


While it's no secret that data centers attract lots of capital investment, but a modest number of jobs, alternative energy has many of the same issues. Often drowned out in lots of feel good talk about “green jobs”, there are huge discrepancies in job creation among various generation technologies. New solar plants require about $500,000 in capital per operating job created. Electric vehicle batteries, while great at generating all kinds of hype, are not as good at generating jobs. The Dow Kokam lithium ion battery plant in Midland, Michigan has attracted all sorts of politicians and tremendous media attention, but will produce just one operating job for every $1 million in capital investment. However, unlike capital-intensive solar and electric vehicle batteries, wind turbine manufacturing is remarkably labor-intensive.


Unlike solar manufacturing, which requires heavily filtrated clean rooms and expensive printing and cutting equipment, much like a semiconductor fab, wind turbine manufacturing requires a lot of people. The diameter of the largest turbine rotors has surpassed 400 feet, so the economics of production are very traditional, dependent on a lot of people converting raw materials into a large item, and difficult to export. This is very different than manufacturing a four inch solar cell using machinery from semiconductor plants.


In solar, American manufacturers like First Solar (NASDAQ:FSLR) and SunPower (SPWRA) are now starting to outsource production to Malaysia and the Philippines, in wind, Danish manufacturer Vestas is now outsourcing to the United States. Its new facility in Brighton, Colorado (just a few miles from Denver International Airport) will require 850 operational workers and $107 million in capital to construct. At roughly $120,000 in capital per worker, it will need eight times as many people per capital dollar as the Michigan lithium ion battery plant. Moreover, wind is not a futuristic technology, in April it produced 3% of the nation's electricity, compared to just 3/10ths of a percent five years ago.


Data centers and alternative energy are both poised to keep growing whether or not employment does. However, the Keynesian/Austrian/Austerian debate between a 1930s macroeconomic policy and a 1980s macroeconomic policy  ignores the microeconomic realities that exist in the 2010s.



Disclosure: No positions

Disclosure: No positions