Introduction to Moretti: The New Geography of Jobs

Cities with solid base of human capital attract more quality employers that pay high wages

Cities with limited human capital stuck with dead end jobs and low wages

The Great Divergence is one of the most important developments of the past three decades

The Great Divergence

1980s – cities began to be defined by educational levels

Cities with lots of college-educated people attracted more

Cities with less educated people lost better educated population

Workers sorting among cities along educational lines

Origins

Great Divergence (GD) has led to divergence of productivity among regions

And diverging productivity produces diverging wage rates

Consequence 1

Educational divergence affects not only the worker but also the community at large

Consequence 2

GD is the result of long-term economic forces

Knowledge industry now drive wage gains Depends on educated workers and tends to

agglomerate Initial allocation of educated workers

matters; future will build on the past Cities failing to attract educated workers

will fall further behind

Causes

Globalization, technological change, and immigration are shaping the U.S. job market

Effects not uniform; help some cities, hurt others.

Trends

U.S. economy shifting from producing goods to innovation and knowledge and the key ingredient is human capital

For first time, physical capital is not scarce, but creativity is scarce.

Innovators will capture the largest share of income growth

Big Picture

Includes all high technology But any job that creates new ideas and new

products qualifies as innovative The innovative create things the world has

not seen before

Innovation

Innovation matters for two reasons:◦1) Innovation > productivity > wages

Services jobs also benefit, not just innovation jobs

◦2) Innovation jobs have large multipliers One well paying innovation job can support

five service-sector jobs due to the induced effect

Multiplier 3 times larger than manufacturing

Innovation Matters

Policy implication: best way to create new less skilled service jobs is to attract well-paying high tech jobs.

Innovation Matters

With innovation, not everyone wins Three Americas:

◦ Brain hubs◦ Declining cities◦ Cities in the middle

America’s innovation growth engine is creating growing inequality among regions

Innovation

Wasn’t supposed to be this way The New Economy meant that due to

technology (internet), geography doesn’t matter

People can share knowledge no matter where they live

The New Economy?

Implication: good jobs in Silicon Valley and Boston will eventually shift to lower cost areas

Innovation hubs will become less concentrated, disperse across the country

High cost cities will decline, low cost cities will growth

Consequence: convergence

The New Economy?

Facts don’t support the New Economy view Innovation success depends not only on

individual workers, but also on community ecosystem

Much harder to disperse innovation than manufacturing

Innovators thrive when located around other innovators

The Facts

Innovation environments occur at work but also socially

Interactions with other smart people makes us smarter and more innovative

Once a city attracts innovative workers, easier to attract more innovative workers

Growing inequality reflects a geographic divide, the Great Divergence

The Facts

What is driving these trends? Why is divergence increasing? Despite talk about the ‘flat world’ where you

live matters now more than ever Where you live affects your earnings,

finances, the kind of people you meet, and values you encounter

All related to the new economic geography of jobs

Next

All these issues are related to the new economic geography of jobs

Next

Real pay of the average American worker is in decline

Regions with lots of highly educated people attract more, while cities with a less educated workforce have lost ground.

Divergence in productivity among regions Divergence in wages among regions

Propositions

Real Pay in Decline?

Highly educated regions attract more?

Divergence in productivity?