The new geography of jobs by Enrico Moretti

The new geography of jobs by Enrico Moretti

Despite all the hype about the ‘death of distance’ and the ‘flat world’ where you live matters more than ever. Where you live greatly affects all aspects of your life. From your career to your finances, from the kind of people, you meet to the values your children are exposed to. As Americas’ cities grow apart, it is more important than ever to understand the new geography of jobs.

Research indicates that for each manufacturing job lost, 1.6 additional jobs are eventually lost outside that sector in the affected communities. These losses include barbers, waiters, carpenters, doctors, cleaners, and retailers.

From a point view of a city, a high-tech job is more than a job. Indeed, my research shows that for each new high-tech job in a city, five additional jobs are ultimately created outside of the high-tech sector in that city; both in skilled occupations (lawyers, teachers, nurses) and unskilled ones (waiters, hairdressers, carpenters).

American factories produce the same output as China, more than double that of Japan and several times that of Germany & Korea. The US manufacturing sector alone is larger than the entire UK economy and it is growing. Since 1970, US manufacturing has doubled its output and keeps expanding over time.

Technological improvements and investments in new and more sophisticated machinery are also one reason for the disappearance of manufacturing jobs. Com[ared to 1950, today GM needs four times fewer workers for each car it produces. Those workers who do have a job in manufacturing are now more productive than before and therefore earn higher wages, but there are far fewer of them.

This is another of the intriguing paradoxes of economic growth: increases in productivity lower prices for consumers and raise wages, but they ultimately end up killing jobs.

Right now there are about 141 million workers in the US. About 112 million work in the private sector, the rest is various forms of governmental jobs.

Facebook apps have directly created at least 53,000 new jobs and have indirectly created at least 130,000 more jobs in related business services. These are not trivial numbers and together they put the total value of salaries and benefits associated with Facebook at over $12 billion.

The growth of the software sector is also impressive. You might not realize it, because most of the media coverages focus on the outsourcing of software jobs to places like Bangalore. But the data tell us that US jobs in software have actually grown by 562% over the past 2 decades - not as explosive as the internet sector, but still 32 times greater than the rest of the labor market.

With an impressive 300% growth in employment for over 20 years, life science research is another pillar of the innovation sector.  The Bureau of Labor Statistics put biomedical engineers at the top of the list of the 20 occupations expected to grow the most of the next 10 years, with a predicted growth rate of 72%. Medical scientist, biochemists, and biophysicists rank near the top.

I found that workers who live in cities where the number of college graduates increases experience faster salary gains than workers who live in cities where the number of college graduates stagnates. There are three reasons for the relationship between the number of skilled workers in a city and the wages of their unskilled neighbors. First, skilled and unskilled workers compliment each other: an increase in the former raises the productivity of the later. In the same way that working with better machines increases a worker’s productivity, working with better-educated collages increases the productivity of an unskilled worker. Second, a better-educated labor force facilitates the adoption of newer and better technologies by local employers. Third, an increase in the overall level of human capital in a city generates what economists call human capital externalities.

The geographical sorting of individuals with different educational and income levels is likely to exacerbate the longevity differences resulting from these disparities. The reason is simple: poorly educated individuals who live in a community where everyone else has low levels of education are likely t adopt less healthy lifestyles than poorly educated individuals in a community where there is a mix of educational and income levels. Economists call this a social multiplier effect.

What is the city with the highest divorce rate in America? It is Flint, Michigan where 28% of all adults reported being divorces in 2009. With a local economy ravaged by the closer of auto manufacturing plants, declining wages and a disappearing middle class, Flint, together with other Rust Belt cities, have long been in a state of economic decline.

In the world of innovations, productivity and creativity can outweigh labor and real estate costs. Walmart saw three important competitive advantages to a San Francisco location, which economists refer to collectively as the force of agglomeration: thick labor markets (that is, places with there is a good choice of skilled workers trained in a specific field),. The presence of specialized service providers, and most important, knowledge spillovers. These forces ultimately determine the location of innovative workers and companies and therefore shape the future of entire communities. These forces are stronger and they will affect each and every American worker in the years to come.

While being fortunate or unfortunate had little to do with schooling, how these young workers reacted to their fortune largely depended on their education. Wozniak found out that among those who entered the labor market in bad times, a larger portion of the college graduate relocated to states with stronger economies while the majority of the high school graduates and high school dropouts did not move. This implies that the job market for a professional position is a national one, while the job market for manual or unskilled positions tends to be more localized so that people ignore good job opportunities in other cities.

The average American spends only 14% of her income on food and beverages, and 17% on transportation. Family budget - 3%; medical care - 6%; recreation -5%; education and communication - 6%. By far the largest item in the budget is housing, which accounts for 40% of spending. This means that most of the difference in costs of living among metropolitan areas reflect differences in the cost of housing, which in turn mostly reflect differences in the cost of land. Other differences arise from the price of local services - things like the haircut and restaurant meals- but these counts considerably less, because their share of the budget is smaller.

Just as with improvements in air quality, the effect of a strong labor market on a family ultimately depends on whether that family belongs to 70% of American who own their homes or 30% who rent. Homeowners in the strengthening labor market gain twice, both because of higher wages and because of higher property values. For them, the effect on well-being is larger than the increase in purchasing power because of the capital gains on their property. This highlights an unexpected conclusion: a significant part of the wealth created by America’s dynamic innovation sector accrues not just through the labor market but through the housing market.

The level of industrial developments in the Tennesse valley was so low that it did not matter too much whether an aluminum smelter, a steel factory or a chemical factory opened its doors. But today, the most important determinant of success for local communities is human capital, and making the right call is much harder.

When the researchers Michael Greenstone and Ada, Looney compared a college education with other financial investments, they discovered that it is difficult to find an investment that has a higher return. Investment in a college degree delivers an inflation-adjusted annual return of more than 15%, significantly larger than the historical return on stocks (7%) and bonds, gold, and real estate (all below 3%). College is where the smart investors should put their money.

During the 1990s, more than one million Soviet emigrants arrived in Israel, most of them highly educated. Given Israel’s size, this amounted to an unprecedented increase in human capital. Although the impact on local manufacturing was disappointing, the high-tech sector experiences a significant jump in productivity and innovation. The same pattern emerges in other cases of mass migration of skilled individuals. On July 1, 1997, UK handed over Hong Kong to China. COncerned about living under Chinese rule, thousands of HK residents, many of the wealthy and well educated, moved to Vancouver in the years proceeding the handover. While there were some inevitable cultural tensions early on and not all the Chinese remained, in the end, the city gained from this inflow in terms of both human and financial capital. The immigrants brought their saving, and the local economy received hundreds of millions of dollars in new investment. Many immigrants settled in towering condos reminiscent of the high-density high rises back home, thus dramatically accelerating the revitalization of downtown. These changes helped turn Vancouver into a culturally diverse global metropolis.

Today the contentious debate on immigration in America misses a key point: a via issues to highly educated immigrants does not necessarily mean one less job for an American citizen. On the contrary, it could mean many more jobs for Ameican citizen. While the foreign-born workers account for 15 % of America’s labor force, they account for a third of all engineers and half of all those with doctorates.

The effect of highly skilled immigrants is apt to be positive, esp. For low skilled Americans.  There are three reasons for this. First, high-skilled immigrants do not compete directly with low-skilled Americans. 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.

In their recent book, Harvard’s Goldin and Katz call the 20th century the human capital century. The American worker was so much better educated than the workers of other countries that he became the most productive, innovative and entrepreneurial in the world.

The two major trends of the 21st century -- increased globalization and increased localization - are reshaping our work environments and the very fabric of our communities.  They are also redefining America’s role in the world. Although we are no longer the dominant producer of material goods, we are striving to maintain our role as the dominant producer of knowledge and new ideas, To succeed, we need to regain our unity and refocus our priorities. Our unparalleled ability to attract and welcome the most creative individuals from all over the world, the dynamism of our workplace and the strength of our brain hubs give us a significant head start in this new global economy.