Place Really Matter$

We are in the midst of a massive economic, political, and cultural transformation in the United States. Some analysts see the difference as the growing split between red states and blue states. Others identify “haves” and “have-nots” and think that rising income inequality is the cause. Berkeley economist Enrico Moretti makes a compelling argument, grounded in evidence and research, in his new book The New Geography of Jobs. He believes that a geography of innovation, based on high-tech employment hubs, is reshaping America. Moretti claims that there are three different Americas: wealthy areas around innovation cities, with high standards of living and thick labor markets (San Jose, Boston, Austin, San Diego, New York); poor and moribund cities without innovation and little chance of improvement (Detroit or Cleveland); and metropolitan regions that could go either way (the rest of the country).New Geography of Jobs

Cities and their surrounding metropolitan regions are critical to understanding the larger national economy, Moretti asserts, and the data supports him. He believes that international trade and competition will continue to matter tremendously to the US economy. Accordingly, he sees little promise in a future for American low-tech manufacturing, with some opportunities for high-tech manufacturing. Most Americans work in service jobs, he reminds us. Most service jobs are local and safe from international competition.  Dentists, roofers, and yoga teachers, for example, will always be local jobs.

Driving our economy in its new directions are highly skilled technological innovators. The companies that employ them – innovation companies, such as Microsoft, Apple, Google, and Amazon – are creating tremendous wealth. Not only do innovation companies change global markets, they also have a profound impact on local economies. Because of labor concerns and the difficulty in attracting and retaining talented employees, innovation companies are located in a limited number of cities.  Thanks to the multiplier effect, the regions that are home to innovation companies see profound positive consequences much greater than one would expect. Salaries in almost all jobs are higher across the board, regardless of whether the job is in high tech or not, regardless of whether the employee has a college degree or not. The metropolitan regions that are able to attract and retain innovation companies are wealthier than the rest of the country and growing wealthier than the rest of the country faster. This, Moretti asserts, is the wedge between two Americas.

The differences between innovation hubs and non-innovation hubs are striking, ranging from health care to education to life expectancy. Innovation cities tend to share similar social characteristics, as noted by Richard Florida and anyone interested in loft-living and iced lattes. They are left-leaning, tolerant to gays and lesbian, and usually very close to with institutions of higher education. Moretti’s analysis leads him to believe that these are consequences of innovation, not its causes. High quality institutions of higher education cannot create innovation cities, either. Instead, it is the presence of enough innovation companies to support a thick labor market of talented people that makes for an innovation city. That is an important point because it means that innovation cities cannot be planned into existence through urban renewal and social practices.

What helps increase innovation and wealth? Moretti argues for policies that increase labor mobility, such as vested health insurance and housing policies that make it less expensive to move. He believes that the United States should ease restrictions for highly educated immigrants. And while he does not believe that education can create innovation, he sees an educated populace as essential to the development and enhancement of innovation.

Moretti’s book is well-written, well-argued, and important. With possible implications across the board – including what higher education should and should not do – The New Geography of Jobs is the sort of economics that should be widely read, digested, and discussed.

David Potash

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