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At the Heart of Texas: Cities’ Industry Clusters Drive Growth

Austin–Round Rock: Government and High Tech at the State’s Center

At a Glance

Austin Area Map

Population (2014): 1.9 million
Population growth (2006–14): 29 percent
Median household income (2014): $63,603
National MSA rank (2014): No. 35*
Kauffman Startup Activity Index rank (2015): No. 1*
*The Austin–Round Rock metropolitan statistical area (MSA) encompasses Bastrop, Caldwell, Hays, Travis and Williamson counties. The Kauffman Startup Activity Index, a measure of business creation in the 40 largest U.S. metropolitan areas, is further explained in the Appendix.

  • Austin’s political and educational influence arose from its position as the state capital and home to the University of Texas.
  • Today, the region is a major high-tech hub for both the state and the U.S. and home to numerous large and small technology companies.
  • Fueling Austin’s rapid economic expansion is its young and well-educated workforce.
  • Austin’s employment growth appears little affected by the slowdown in the state economy attributable to low oil prices, and the area will likely experience continued solid growth in the near term.

HISTORY: A Government, Education and Technology Hub

Austin was established in 1839 as the capital of the Republic of Texas. The city became the westernmost railroad station along the Houston and Texas Central Railway in 1871, and with no other railroad towns for miles in most directions, it became a trading center.[1]

Austin’s status as Texas’ political center remained uncertain until 1872, when the city was chosen as the permanent capital in a statewide referendum. In 1881, it was selected as the site for the new University of Texas.

Oil-boom growth in the early 20th century largely bypassed Austin, and the city fell from its fourth-place population ranking in Texas in 1880 to 10th place in 1920. Completion of two dams in the early 1940s greatly aided the area’s subsequent growth.

Expansion of Austin’s key education and government sectors supported the region in the 1950s and 1960s. Buoyed by chamber of commerce efforts to expand the economic base and by a flourishing research program at UT, major technology firms such as IBM, Texas Instruments and Motorola began locating in the area in the late 1960s and early 1970s. Austin gradually emerged as a high-tech center. Among the 180 major employers in the Greater Austin area in 2014, about 70 were high-tech firms.[2]

INDUSTRY CLUSTERS: Hotbed for High Tech

Cluster concentration is measured by location quotients (LQs), which compare the metro-area and U.S. economies. Growth in a cluster is measured by the percentage-point change in employment share between 2006 and 2014.[3]

Chart 1.1 displays the composition of industry clusters in Austin–Round Rock. The top two quadrants—“mature” and “star”—display industry clusters with a larger share of employment relative to the nation (LQs exceeding 1). These clusters are vital to the metro-area economy and can be expanding rapidly (star) or growing slowly (mature). Clusters shown in the bottom two quadrants—such as retail and health—are smaller relative to the nation (LQs below 1). These less-concentrated clusters are labeled either “emerging” if they are fast growing or “transitioning” if they are slow growing.

Austin Thrives as a High Tech Hub

The underpinnings of Austin’s economy are government, which includes UT, and the technology industry. Computer manufacturing boasts four times the concentration in Austin than in the U.S. due to the significant presence of manufacturers of personal computers and related parts such as Dell, Apple, Advanced Micro Devices and Applied Materials.

Dell, with 13,000 local workers, and IBM, with 6,000 employees, are among the area’s largest employers.[4] Additionally, a sizable footprint from numerous hardware, software, computing and systems design companies—including tech giants Samsung Electronics, Intel and Hewlett-Packard—make the concentration of Austin’s information technology and telecommunications cluster 2.6 times that of the nation.[5]

As the state capital and home to the flagship UT campus—a highly regarded research institution—Austin’s government sector is large. Both state government and the university are top area employers.

Other concentrated clusters include publishing and information, defense and security, mining and energy, biomedical, and business and financial services. Growth in the private education sector has been the fastest among the clusters, expanding by nearly 80 percent from 2006 to 2014 and complementing UT’s presence (Chart 1.2). The defense and security and business and financial services clusters take the third and fourth spots among rapidly growing clusters.

Austin Job Gains

Recreation and food services, which round out Austin’s base clusters—those with LQs greater than 1—are important to the local economy. An Austin slogan, “Live Music Capital of the World,” is a nod to the numerous live music venues.

The health cluster, which employs over 7 percent of Austin’s workforce, has also grown significantly in recent years. The second- and third-largest private employers in the city are the Seton Healthcare Family, with 10,900 employees, and St. David’s HealthCare, with 8,300 employees. Though the concentration of health industry workers remains below that of the U.S. (the LQ is 0.82), cluster employment has increased 47 percent since 2006.

Austin’s star and mature clusters pay considerably higher wages than their less-concentrated counterparts (Table 1.1). Computer manufacturing, information technology and telecommunications, and business and financial services boast some of the region’s best-paying jobs. In fact, the average wage for computer manufacturing was around $122,800 in 2014, more than double the Austin average of $54,100. Overall, Austin residents employed in the base clusters earn a third more on average than those employed in less-concentrated clusters, $69,158 versus $50,676.

Moreover, wages in Austin’s top three most-concentrated clusters—computer manufacturing (LQ of 4.3), information technology and telecommunications (LQ of 2.6) and defense and security (LQ of 2.3)—were significantly higher than the national average for those clusters in 2014.

Table 1.1: Annual Earnings in Austin Higher than U.S. Average in Several Dominant Clusters
Cluster Austin   U.S.
  2006 2008 2010 2012 2014   2014
Computer manufacturing 131,343 119,873 130,238 130,009 122,831   105,968
Information technology and telecommunications 107,654 104,378 106,652 106,401 99,768   96,631
Defense and security 85,028 80,165 83,691 85,690 88,538   59,588
Business and financial services 82,730 81,244 87,090 87,779 87,734   92,957
Biomedical 85,520 78,293 77,114 83,974 91,505   91,463
Publishing and information 74,872 76,407 78,568 76,988 80,812   82,107
Government 48,257 48,793 50,534 48,584 51,557   51,726
Mining and energy 87,932 76,810 85,291 87,201 84,773   76,815
Construction 52,963 52,188 50,271 50,652 53,790   55,041
Recreation and food services 21,711 21,591 21,391 21,980 22,430   23,870
Industries with location quotient >1 69,812 66,530 67,740 68,543 69,158  
Industries with location quotient <1 53,350 49,513 49,699 50,452 50,676  
Average earnings (total) 53,710 52,334 53,132 53,603 54,104   51,361
NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings data are in 2014 dollars.
SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations.

DEMOGRAPHICS: Young, Highly Skilled Talent Pool

The Austin metro area’s strength is its young and well-educated workforce—its median age is nearly four years lower than the U.S. median and it ranks No. 1 in college education among the major Texas metros (Chart 1.3).

Austin has educated population

Austin is 15th among the 150 biggest U.S. metros, and it has one of the most educated talent pools in the country, according to a study by WalletHub.[6] Over 41 percent of adults (25 years or older) in the metro area have at least an undergraduate degree, compared with 27.8 percent in Texas and 30.1 percent nationally in 2014. This is one reason the metro area has attracted many high-tech companies and boasts a median household income of $63,603, superior to that of the state and nation.

Austin’s population is predominantly non-Hispanic white at 53.2 percent; Hispanics make up 32 percent of the area’s inhabitants, less than their share in Texas. Foreign-born residents constitute 14.9 percent of the metro population, lower than their share in Texas but higher than the national average.

EMPLOYMENT: Strong Rebound; Unrelenting Growth

Employment declines in Austin during the Great Recession were steep at 3.1 percent (24,100 jobs). However, the area was the first major metro to bounce back, regaining all lost jobs in 26 months. In November 2015, total nonfarm employment was 22 percent over its previous peak, in September 2008.

Austin’s rapid postrecession expansion has benefited from its outsized concentration of high-tech jobs—both in information technology and telecommunications and in business and financial services. From December 2009 to November 2015, employment in professional, scientific and technical services increased 63 percent, and payrolls in information services grew 40 percent.[7]

Even as Texas job gains slid with lower oil prices, Austin job growth remained vigorous. During the first 11 months of 2015, Austin augmented its payrolls at an annualized 4.2 percent rate. Unemployment in Austin was nearly a full percentage point below the Texas rate in 2015; it dropped 0.3 percentage points from December 2014 to November 2015. Austin is also a hotbed of entrepreneurial activity, taking the top spot among U.S. metro areas, according to the Kauffman Startup Activity Index.[8]

OUTLOOK: No Slowing in Sight

Austin’s economy is heavily dependent on the technology industry, with over 16 percent of its 2014 gross domestic product generated from the information services and professional and technical services sectors combined. Global semiconductor sales, which are considered a barometer for the technology sector, are expected to grow into 2016 and 2017, according to World Semiconductor Trade Statistics.[9] This bodes well for the Greater Austin economy.

Still, some of the area’s technology jobs are vulnerable because they are tied to the energy industry. Examples are those in the production of high-tech instruments and computer equipment for hydraulic fracturing of shale formations. In 2015, employment in computer and electronic product manufacturing was flat as oil prices remained at low levels.

UT’s presence provides stability and growth to the education, biomedical and health sectors. Also, the area’s vibrant and educated workforce will likely continue to attract employers, providing new growth opportunities.

In 2015, several large companies either expanded or began operations in the metro area, including Amazon, General Motors Co., Accenture and Google Inc.[10] Additionally, venture capital investment in the biotechnology sector increased from $25 million in 2011 to $101 million in the first half of 2015, according to the MoneyTree Report, pointing to expansion in the sector.[11]

Both the commercial real estate and housing markets in the metro area are healthy, although some analysts suggest that the luxury apartment market may be overbuilt and will likely experience weakness in coming months.

Austin–Round Rock Growth Outlook
Drivers Challenges
  • A positive growth forecast for global semiconductor demand will drive employment gains in Austin’s large technology sector.
  • The presence of the state government and the University of Texas should provide stability to the area’s economy.
  • Austin’s vibrant and educated workforce will further attract employers, fueling new growth.
  • Increasing venture capital investment in biotechnology will boost growth in the biomedical cluster.
  • The impact of low oil prices will adversely affect firms tied to the manufacturing of high-tech instruments and equipment used in hydraulic fracturing.
  • The area’s low unemployment rate will restrain job growth.
  • Rising rents and home prices will make living in Austin unaffordable for many entry-level employees, including innovators and hospitality workers, who are part of Austin’s base clusters.


  1. The history of Austin has been adapted from the Texas State Historical Association’s Handbook of Texas,
  2. Detail about the largest Austin metro-area employers is provided by the Austin Chamber of Commerce.
  3. Individual industry cluster shares do not add to 100 because some smaller industries (at the three-digit-or-higher NAICS level) are included in multiple clusters, while some industries are not part of any cluster shown. For instance, semiconductor and other electronic component manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. (See the Appendix for more information.)
  4. See footnote 2.
  5. The Information technology and telecommunications cluster includes firms categorized in NAICS code 334, computer and electronic product manufacturers.
  6. Data are from the “Most and Least Educated Cities in America” list published by WalletHub. The study ranked the 150 largest U.S. metros based on nine metrics, including the percentage of adult residents with a high school diploma, associate’s degree, bachelor’s degree, and graduate or professional degree or above; quality of public schools and universities; and the share of students enrolled in the top 200 universities in the U.S. See
  7. Employment data are from the Texas Workforce Commission and are seasonally adjusted by the Federal Reserve Bank of Dallas.
  8. Data are from the 2015 Kauffman Startup Activity Index, which is based on three indicators: the rate of new entrepreneurs starting businesses, opportunity share (a measure of the percentage of new entrepreneurs not coming out of unemployment) and startup density.
  9. World Semiconductor Trade Statistics’ December 2015 release projects that the worldwide semiconductor market will grow 1.4 percent to $341 billion in 2016 and increase 3.1 percent to $352 billion in 2017. See
  10. Detail about Austin-area relocations and expansions is from the Austin Chamber of Commerce,
  11. Data are from the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. See
At the Heart of Texas