The New Geography of Jobs by Enrico Moretti

Featured Guest Review: Q&A with Enrico Moretti

Q. What is the New Geography of Jobs?

A. If you look at the economic map of America today, you do not see just one country. You see three increasingly different countries. On one hand there are cities like Seattle, San Francisco, Raleigh-Durham or Austin, with a strong innovation-based economy and workers who are among the most creative and best paid on the planet. At the other extreme are former manufacturing centers like Detroit, Flint or Cleveland, where jobs and salaries are plummeting. In the middle, there is the rest of America, apparently undecided on which direction to take.

The difference between the three Americas was small in the 1980’s and has been growing ever since. My book explores this new geography of jobs, and especially its root causes and what it means for our country.

Q. In the last two years, American manufacturing has been doing very well. Even the car companies are hiring. But you seem pessimistic about the future of American manufacturing. What’s so wrong about manufacturing? And what is so special about the innovation sector?

A. The last two years have been good years for manufacturing employment. But they are the exception. The previous two years have been terrible. More in general, for the past 30 years, we have been losing an average of 370,000 jobs per year in manufacturing, and not just during recessions. This trend reflects the adoption of new technologies that make production of physical good increasingly automated. For example, for each car produced, GM today needs 70% fewer workers than in 1950. American manufacturing companies produce today more goods than in 1980, but they only need a fraction of the workers. I do not think these trends are likely to change in any significant way. By contrast, the innovation sector is growing, both in terms of jobs and salaries. For example, jobs in the Internet sector have been growing 200 times faster than the rest of the labor market. For all the talk about outsourcing, software is also growing. And it is not just high tech: Scientific R&D, pharmaceutical, digital entertainment, parts of marketing and finance are creating jobs.

Q. You write a lot about the importance of high tech and innovation for American jobs. But not everyone can work at Google or Apple. What about the rest of us? Where are the jobs for the average American supposed to come from?

A. This is the most important part of the story. You are right: The average American will never work for Google or Apple. But the rise of the high tech sector matters to all of us, including those who work outside high tech.

One important reason is that attracting an Internet company or a biotech company to a city results in significant job gains for workers in the local service sector–occupations like waiters, carpenters, doctors and teachers. I call this the multiplier effect. This multiplier effect is surprisingly large. My research shows that for each new high tech job in a city, five additional jobs are created outside high tech in that city. In essence, from the point of view of a city, a high-tech job is much more than a job.

Take Apple, for example. It employs 13,000 workers in Cupertino, but it generates almost 70,000 additional service jobs in the region. This means that, remarkably, Apple's main effect is not among high tech workers–it is outside high tech.

Most sectors of our economy have a multiplier effect, but the innovation sector has the largest multiplier: about three times larger than that of traditional manufacturing. An important implication for policy makers is that the best way for a city to generate jobs for less skilled workers is to attract innovative companies that hire highly skilled ones.

Q. The Great Divergence is an economic phenomenon. Are there any effects outside the realm of economics?

A. The economic differences between American communities have become so large that they are now generating a growing divide in many other aspects of our lives, including politics, family life and culture. Take health, for example. Health varies enormously across communities. The average man in Fairfax Virginia lives fifteen years longer than the average man in Baltimore, 60 miles away. This difference in health is truly staggering, and it is much larger than the difference between the US as a whole and some poor countries. The difference was smaller in the 1980's and it has been growing for three decades–driven by the growing differences in schooling levels and income levels between the two communities.

Q. Which cities will prosper in the future and which will decline?

Sixty years ago the rich areas in America were manufacturing centers, with an abundance of physical capital. Today human capital is the best predictor of a city success. A large number of highly educated workers in a city is associated with more creativity and a better ability to invent new ways of working. Economic research shows that cities with many college-educated workers tend to develop an innovation-based economy; and this brings even more well-educated workers there, further reinforcing their edge. It is a tipping point dynamic. By contrast, cities with few well-educated workers miss-out on the growth of high tech, and this further reduces their appeal. These self-reinforcing dynamics magnify the differences between winners and losers in an innovation-driven economy.

Q. Is geographical location more important than your college degree or which college major you choose?

A. Geographical location is increasingly important, although not as important as going to college. One of the most intriguing paradoxes is that our global economy is becoming increasingly local. Despite all the hype about exploding connectivity and the death of distance, where we live and work is more important than ever. Our best ideas still reflect the daily, unpredictable stimuli that we receive from the people we come across and our immediate social environment. Most of our crucial interactions are still face-to-face, and most of what we learn that is valuable comes from the people we know, not from Wikipedia. The vast majority of the world’s phone calls, Web traffic, and investments are still local. Telecommuting is still incredibly rare. Video conferencing, e-mail, and Skype have not made a dent in the need for innovative people to work side by side. In fact, that is more important than ever. At the same time that goods and information travel at faster and faster speeds to all corners of the globe, we are witnessing an inverse gravitational pull toward certain key urban centers. Globalization and localization seem to be two sides of the same coin. More than ever, local communities are the secret of economic success. As Yaniv Bensadon, an Israeli entrepreneur who recently moved his startup to Silicon Valley, put it, “It is true that things can be done anywhere on the Internet, but at the end of the day, it’s still a people business.”