The New Geography Of Jobs

1. The Great Divergence: America's Economic Map Is Becoming Increasingly Uneven

America's new economic map shows growing differences, not just between people but between communities.

Widening gap between cities. Over the past three decades, American cities have been growing apart economically. Some cities, particularly those with a strong innovation sector, are thriving with high-paying jobs and rising wages. Others, often former manufacturing centers, are struggling with job losses and economic decline.

Factors driving divergence:

• Concentration of skilled workers in certain areas
• Growth of knowledge-intensive industries
• Decline of traditional manufacturing
• Self-reinforcing nature of economic success

This divergence is reshaping not just the economic landscape but also social and cultural aspects of American communities. Cities with a high concentration of skilled workers tend to have:

• Better schools
• Lower crime rates
• Higher life expectancy
• More diverse cultural offerings

2. Innovation Hubs: The New Engines of Economic Prosperity

Innovation creates enormous social benefits, in the form of new drugs, better ways to communicate and share information, and a cleaner environment.

Rise of innovation hubs. Cities like San Francisco, Boston, Seattle, and Austin have emerged as centers of innovation, attracting highly skilled workers and innovative companies. These hubs are characterized by:

• High concentration of college-educated workers
• Presence of leading research universities
• Robust venture capital ecosystems
• Culture of entrepreneurship and risk-taking

Economic impact:

• Higher average wages for all workers, not just those in the innovation sector
• Increased productivity and economic growth
• Generation of new ideas and technologies that benefit society as a whole

The success of these innovation hubs is largely driven by the creation and commercialization of new ideas, rather than the production of physical goods. This shift from manufacturing to knowledge-based industries is reshaping the American economy and redefining what it means to be a prosperous city in the 21st century.

3. The Multiplier Effect: How High-Tech Jobs Create Opportunities for All

For each new high-tech job in a city, five additional local jobs are ultimately created outside of the high-tech sector in that city, both in skilled occupations (lawyers, teachers, nurses) and in unskilled ones (waiters, hairdressers, carpenters).

Job creation ripple effect. The presence of high-tech companies in a city doesn't just benefit those directly employed by them. It creates a multiplier effect that generates jobs across various sectors of the local economy.

Types of jobs created:

• Professional services (lawyers, accountants, consultants)
• Healthcare workers (doctors, nurses, therapists)
• Education (teachers, administrators)
• Retail and hospitality (store clerks, waiters, hotel staff)
• Personal services (hairdressers, fitness trainers, childcare workers)

This multiplier effect is particularly strong in the innovation sector, with each high-tech job creating about three times as many additional jobs as a traditional manufacturing job. This phenomenon helps explain why cities with strong innovation sectors tend to have lower unemployment rates and higher overall wages, even for workers outside the high-tech industry.

4. Forces of Attraction: Why Innovative Industries Cluster in Specific Locations

Being around smart people tends to make us smarter, more creative, and ultimately more productive. And the smarter the people, the stronger the effect.

Three key factors drive clustering:

1. Thick labor markets: Large pools of specialized workers
2. Specialized service providers: Access to legal, financial, and technical expertise
3. Knowledge spillovers: Informal exchange of ideas and information

Benefits of clustering:

• Increased productivity and innovation
• Easier recruitment of top talent
• Access to venture capital and other resources
• Synergies between companies and research institutions

The clustering of innovative industries creates a self-reinforcing cycle of success. As more companies and skilled workers are attracted to a location, it becomes even more appealing to others in the industry. This phenomenon helps explain why it's difficult for new innovation hubs to emerge and why existing ones tend to maintain their dominance over time.

5. The Inequality of Mobility: Education Levels Affect Willingness to Relocate

In total, almost half of college graduates move out of their birth states by age thirty. Only 27 percent of high school graduates and 17 percent of high school dropouts do so.

Education and mobility. Higher levels of education are strongly correlated with increased geographic mobility. This difference in willingness to relocate has significant implications for individual economic opportunities and overall economic inequality.

Factors influencing mobility:

• Access to information about job opportunities
• Financial resources to support relocation
• Marketable skills that transfer across locations
• Social and family ties

The lower mobility of less-educated workers contributes to persistent unemployment in economically struggling areas and exacerbates wage inequality. It also makes it more difficult for these workers to take advantage of better economic opportunities in other parts of the country, further widening the gap between thriving and struggling communities.

6. The Challenge of Revitalizing Struggling Communities

The fundamental challenge with policies such as the TVA is that for them to be successful, local policymakers must be able to pick promising companies to invest in. They need to be a little like venture capitalists.

Difficulties in economic revitalization. Many struggling communities, particularly those hit hard by the decline of traditional manufacturing, face significant challenges in reinventing their economies. Efforts to attract new industries or create innovation hubs from scratch often fall short.

Common approaches and their limitations:

• Tax incentives and subsidies: Can be costly and may not create sustainable growth
• Infrastructure investments: Necessary but not sufficient on their own
• Workforce training programs: Valuable but may lead to brain drain if local job opportunities are limited

Successful revitalization strategies often involve:

• Building on existing local strengths and assets
• Fostering partnerships between universities, businesses, and local government
• Creating an environment conducive to entrepreneurship and innovation
• Investing in quality of life improvements to attract and retain talented workers

The most effective approaches tend to be long-term, multi-faceted efforts that address both economic and social factors contributing to a community's struggles.

7. Human Capital: The Key to America's Economic Future

If human capital was the key to economic prosperity in the twentieth century, it is even more important in the twenty-first.

Importance of education. In the knowledge-based economy of the 21st century, human capital – the skills, knowledge, and creativity of workers – is the most critical factor in driving economic growth and prosperity.

Key aspects of human capital development:

• Quality K-12 education
• Accessible and affordable higher education
• Lifelong learning and skills upgrading
• STEM (Science, Technology, Engineering, and Mathematics) education

The United States faces significant challenges in maintaining its edge in human capital development, including:

• Stagnating high school graduation rates
• Rising costs of higher education
• Growing global competition for talent
• Persistent achievement gaps among different socioeconomic groups

Addressing these challenges is crucial for maintaining America's economic competitiveness and ensuring broad-based prosperity in the future.

8. Immigration Reform: Attracting Global Talent to Fuel Innovation

It is in America's self-interest to radically reform its immigration policy to favor immigrants with college degrees, master's degrees, and PhDs.

Importance of skilled immigration. Attracting and retaining highly skilled immigrants is crucial for maintaining America's leadership in innovation and economic growth. Current immigration policies often make it difficult for talented foreign-born individuals to stay and work in the U.S. after completing their education.

Benefits of skilled immigration:

• Increased innovation and entrepreneurship
• Job creation through startups and existing companies
• Enhanced global competitiveness
• Diversity of ideas and perspectives

Proposed reforms often include:

• Increasing the number of H-1B visas for skilled workers
• Creating a streamlined path to permanent residency for foreign graduates of U.S. universities
• Implementing a points-based immigration system that prioritizes skills and education

Balancing the need for skilled immigration with concerns about domestic job displacement and wage effects remains a complex policy challenge.

9. The Paradox of the Global Economy: Increased Localization of Innovation

Despite all the hype about exploding connectivity and the death of distance, where we live and work is more important than ever.

Local importance in a global world. While globalization has made it possible to communicate and collaborate across vast distances, the importance of physical proximity in driving innovation and economic growth has actually increased.

Factors driving localization:

• Face-to-face interactions that foster creativity and idea exchange
• Access to specialized talent pools and resources
• Local knowledge spillovers and informal networks
• Quality of life factors that attract and retain skilled workers

This paradox of increased localization in a globalized world underscores the continued importance of cities and regions as drivers of economic growth. It also highlights the challenges faced by areas that lack the critical mass of talent and resources needed to compete in the innovation economy.

The future of work will likely involve a combination of local clustering of innovative activities and global collaboration, with successful regions and companies finding ways to leverage both local strengths and global connections.

Last updated: August 11, 2024