The New Geography of Jobs
May 10, 2018
Implications for Growing BC’s Knowledge Economy
In his 2012 book, The New Geography of Jobs, Enrico Moretti, Professor of Economics at the University of California, Berkeley, looks at the knowledge-based economy in the United States, its economic significance, its geographic focus in cities Moretti calls “Brain Hubs,” and the elements that contribute to the creation and perpetuation of these Brain Hubs.*
Moretti’s research is empirical and thorough. Although US-oriented, his conclusions also apply in Canada.
Moretti makes a number of significant points about what he refers to as “Innovation Jobs:”
Jobs in the innovation sector are not easily defined, because innovation takes many forms. Of course they include the high tech sector: information technology, life sciences, clean tech, new materials, robotics and nanotechnology. But jobs in innovation also include parts of the labour market outside science and engineering…What they all have in common is that they make intensive use of human capital and human ingenuity.
He also estimates that “about 10 percent of all jobs in the US belong to the innovation sector.”
Moretti also provides evidence that innovation clusters are geographically discrete as well as self-perpetuating. Once established, an innovation centre can grow and create jobs and wealth, but places which have no innovative characteristics go into decline – losing jobs and wealth: hence the New Geography of Jobs.
Moretti analyzed 11 million workers in 320 cities across the United States to conclude that
…for each new high-tech job in a metropolitan area, five additional local jobs are created outside of high-tech in the long run.”
Take Apple for example. It employs 12,000 workers in Cupertino. Through the multiplier effect, however, the company generates more than 60,000 additional service jobs in the entire metropolitan area, of which 36,000 are unskilled and 24,000 are skilled.
Moretti notes that the multiplier effect of traditional manufacturing jobs is 1.6; tech jobs however, have a much higher multiplier effect, due to the following factors:
- Tech workers are very well paid and so have a much higher than average disposable income.
- Tech companies require more companion services from other companies than more traditional industries—services such as graphic design, marketing, engineering, business consultants, and security guards.
- High-tech firms attract other high tech firms and their co-location serves to make all firms more innovative, productive, and successful.
Moretti also found that, once a community with a high concentration of skilled and educated workers is established, this community benefits from a self-reinforcing trend in increased productivity as interactions between smart and innovative people foster even greater creativity. He attributes this to the following factors:
Skilled and unskilled workers complement each other. In the same way that working with better machines increases a worker’s productivity, working with better-educated colleagues increases the productivity of less skilled workers.
- Better Technology
A more skilled and flexible workforce enables employers to start using new and better technologies to enhance productivity.
- Knowledge Spillovers
When people interact, they learn from each other. This process helps those who interact with more educated peers to be ultimately more productive and creative. This provides a financial windfall that people collect simply because they are surrounded by many educated people. In economic jargon this is called Human Capital Externalities and it is thought to be one of the key factors influencing economic growth.
Perpetuating Brain Hubs
Once a community has established high-tech businesses, those companies attract other innovative companies, support services, and more “smart people.” The resulting economic growth becomes self-reinforcing, focusing innovation resources in and around these Brain Hubs.
Moretti suggests this happens for three reasons:
- Thick Markets
Smart people are attracted to smart environments and more educated people tend to be more mobile, so a concentration of interesting and innovative companies will attract smart, creative people. The result is a “thick market” with high numbers of people looking for good jobs and high numbers of companies wanting to fill jobs with smart people. In this environment, even if someone loses a job, he or she will have a much better chance of getting a good, new job quickly.
- Supportive Ecosystems
Groupings of high-tech companies establish services and support systems that help these companies. New market entrants also begin to flourish. Soon the presence of the support ecosystem makes a Brain Hub an obvious place to start a new business. Components of a support ecosystem include venture capitalists, business mentors, technical specialists and services (high-tech manufacturing, for example), legal, marketing, and PR services.
- Knowledge Spillovers
In a Brain Hub, there are many opportunities for smart people to interact and positively influence each other. These interactions happen in professional settings, but also in social events attended by founders, executives, and employees of these companies.
Brain Hubs have excellent universities and colleges and often also have teaching hospitals. We know that bright people are attracted to work and socialize with one another and having many smart people interacting and creating alongside one another appear to be a significant factor in establishing and maintaining a Brain Hub. Moretti also notes that some Brain Hubs have grown up around a company or group of companies that have acted as an anchor for growth: Microsoft in Seattle, for example.
The Importance of Education
Moretti consistently highlights the importance of a well-educated workforce and of quality interactions between individuals being a driver for innovation and economic activity. He criticizes the US system for failing to sustain enough high quality education and research to support an innovation economy.
Differences in educational levels are associated with huge differences in salary.
…college graduates in Brain Hubs make between $70,000 and $80,000 a year, or about 5% more than college graduates in the cities that are losing jobs.
Moretti notes that, if it is not possible to grow educated talent, a country needs to attract that talent. He argues that the key issue to address is the type of immigrant it is important to attract to support innovation.
…immigrants are almost 30 per cent more likely than non-immigrants to start a business and they account for one quarter of all venture-backed public companies since 1990 and one quarter of all high tech firms with over $1 million in sales.
He suggests that unskilled immigrants place a drag on the local economy and take jobs from unskilled domestic workers. But skilled immigrants contribute significantly to economic growth.
There are three reasons for this. First, high-skilled immigrants do not compete directly with low-skilled Americans. In fact, the two complement each other, which means that an increase in the former group is likely to raise the productivity of the latter group. Second, firms are apt to respond to an inflow of highly skilled immigrants by investing more and this new investment may further raise the productivity of low-skilled workers. Third, skilled immigrants generate important spillovers at the local level, since an increase in the number of highly educated individuals in a city tends to strengthen the local economy, thus generating local jobs and raising natives’ wages.
Moretti also argues that
It is in America’s self-interest to radically reform its immigration policy to favour immigrants with college degrees, master’s degrees and PhDs.
Moretti concludes that the gap between Brain Hubs and cities that have not adapted to an innovation economy will continue to widen and create social and economic difficulties. More importantly, he observes that “what happens in the innovation sector determines the salary of many Americans, whether they work in innovation or not.” He also notes that “in the coming decades, successful societies will be the ones that can attract and nurture the most creative workers and entrepreneurs.”
Innovation Boulevard Conclusion
Innovation Boulevard functions as a Brain Hub and the projects being pursued by Innovation Boulevard are intentionally attracting smart people, fostering collaboration between those people, and creating opportunities for positive interactions between Brain Hub participants.
*Enrico Moretti, The New Geography of Jobs, Houghton Mifflin Harcourt, May 22, 2012
Knowledge Note prepared by Innovation Boulevard CEO, Louise Turner, 2018.