Enrico Moretti. The New Geography of Jobs. Houghton Mifflin Harcourt, 2012, pp. 294, $28.00 If you worked in a bookstore, but had dreams of possibly going to law school and eventually buying a home close to the city where you resided, where would you rather live: Nashville, Tennessee, or the Boston suburbs? Each individual, based [...]
Enrico Moretti. The New Geography of Jobs. Houghton Mifflin Harcourt, 2012, pp. 294, $28.00
If you worked in a bookstore, but had dreams of possibly going to law school and eventually buying a home close to the city where you resided, where would you rather live: Nashville, Tennessee, or the Boston suburbs? Each individual, based on his own personal preferences, would have to weigh the choices carefully. If one absolutely could not live without access to country music, Nashville would be the logical choice. Similarly, a Boston Bruins fan might prefer to live in southern New Hampshire than in a small town in Tennessee. But if one were more concerned solely with one’s long-term economic prospects, what city would be a better choice? Indeed, is there a clearly better choice? And what data would one employ to make that decision?
In The New Geography of Jobs, Enrico Moretti (University of California, Berkeley) contends that, when it comes to prosperity, where you live matters more than you might think. “America’s new economic map,” writes Moretti, “shows growing differences, not just between people but between communities.” He calls this divide the Great Divergence, and argues that it has its roots in the 1980s when the character of different American cities began to be defined by the educational levels of their residents. Indeed, he posits that, at the same time that American communities are desegregating along racial lines, they are becoming more segregated in terms of education and income. Moretti’s argument is that, “the growing economic divide between American communities is not an accident but the inevitable result of deep-seated economic forces.” Think of the differences between Boston and Silicon Valley, on the one hand, and Detroit and Bakersfield, California, on the other.
If one has been paying even scant attention to American demographic trends, one would certainly realize that, over the past ten to fifteen years, cities like San Jose, Seattle, and Austin have become attractive destinations for graduate-educated professionals. Oklahoma City, Cleveland, and Flint, Michigan, are not typical destinations for the same demographic. What explains the difference? In a word: innovation. According to the author, cities that have become centers of innovation, broadly construed, have become magnets for educated professionals whose presence in a city has a positive multiplier effect on those in the service industries around them. Indeed, Moretti posits that, “the best way for a city or state to generate jobs for less skilled workers is to attract high-tech companies that hire highly skilled ones.” In other words, innovators are the new engines of economic growth. Human capital is what matters.
In the book’s fourth chapter, Moretti first notes that there is no obvious explanation in terms of natural advantages to explain why innovative companies are located in particular locations. “As it turns out, in the world of innovation, productivity and creativity can outweigh labor and real estate costs.” Three forces, collectively known as the forces of agglomeration, are responsible for the aforementioned Great Divergence, the process that is separating American communities from each other in terms of education and income.
These three forces are: thick labor markets, specialized service providers, and, in the author’s opinion, most important, knowledge spillovers. Put simply, innovation hubs such as the Bay Area remain so because those with special skills move and remain there, because of the close proximity to venture capitalists, and because skilled innovators in a city enhance innovation and prosperity. Innovation, it turns out, is actually a fairly local phenomenon. “In the end, geographical proximity to venture capitalists still matters. Skype and cell phones have not changed this simple fact. This is one of the reasons that the world of high tech is and will remain geographically concentrated.” Where you live and work and, more importantly, whom you interact with, matters deeply for both a city’s and an individual worker’s economic prospects.
Earlier in the book, Moretti directly challenges Friedman’s world-is-flat theory, by noting that the opposite of a flattening world is occurring. “In innovation, a company’s success depends on more than just the quality of its workers—it also depends on the entire ecosystem that surrounds it. This is important, because it makes it harder to delocalize innovation than traditional manufacturing.” Indeed, one of the highlights of Moretti’s work is his willingness to challenge shibboleths on both the left and the right. While he calls for more government financial support for scientific academic research, and private R&D through tax credits, he also rightly calls out those who falsely claim that greedy bankers killed blue-collar jobs by pointing to the real, structural culprits responsible: globalization and technological progress.
If Moretti’s thesis about the divergence of American communities is valid, then what can, or should, be done to remedy the situation? Specifically, he notes two different policy approaches that will help the United States continue to lead in innovation and economic prosperity: drastically reform the immigration system to allow for more college- and graduate-educated workers to come to the United States and, alternatively, increasing human capital at home through spending programs that would revamp secondary education and greatly increase higher education.
Overall, The New Geography of Jobs is a well-written and engaging work of scholarship. Moretti does an excellent job at making complex economic concepts accessible. The work does, however, contain a strong bias toward Silicon Valley and northern California. Perhaps this is due to, at least in part, the author’s position in the Economics Department at Berkeley. As the debacle surrounding the Facebook IPO demonstrates, innovation hubs are not without potential pitfalls. I do not mean to suggest that Silicon Valley will be displaced anytime soon. Rather, it suggests that one should always be skeptical of any overarching thesis regarding American economic trends. Moretti is correct in pointing out that long-term economic trends matter more than the short-term policy thinking that dominate contemporary policy discussions would have us believe. “Our ethos of immediate reward and our almost structural inability to take responsibility for long-term problems is leading us to underinvest in our future.” Sobering thoughts indeed.
In conclusion, The New Geography of Jobs is filled with interesting data and is well worth consideration. Intuitively, one feels as if Moretti is largely correct in his assessment about the diverging fortunes of American cities. A larger question, and one beyond the scope of his work, is whether the people in those cities with large salaries are truly happy and doing work that they love, or whether they are there because of nearly insurmountable student debt. Whatever the case may be, it is very likely the case that Boston, New York, and Seattle won’t be displaced anytime soon.
Jonathan Eric Lewis (c) 2012