The Impact on Communities of 'The New Geography of Jobs'

The Impact on Communities of 'The New Geography of Jobs'
Enrico Moretti
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In his book, The New Geography of Jobs, Enrico Moretti analyzes the emergence of what he calls the "innovation" economy, which emerged in the 1980s and is transforming cities and communities across the United States. The hallmark qualities of the innovation economy are its tendency toward geographic clustering and its favoring of highly educated people, which can create sudden, intense housing demand in particular cities. Moretti analyzes the causes and effects of the country’s movement away from manufacturing, arguing that its demise does not spell economic doom for the U.S., but rather demonstrates how the new economy rewards creativity, a quality still alive and well.

However, Moretti acknowledges that the innovation economy has sent communities and cities across the U.S. onto vastly different economic trajectories, largely incidental to where “star” innovators have chosen to locate their startups. In today’s economy, these innovators have the capacity to trigger long-term economic growth that attract human capital and wealth for years to come. He explains that in order to adapt to this new landscape, policymakers should find ways to support the mobility of the workforce, so that workers can overcome "spatial mismatch" and apply their skills where they are most needed.

Major findings:

  • Termed “the Great Divergence,” Moretti marks the 1980s as the period in which American cities became defined by their residents’ levels of education; today, human capital is the best predictor of salary level for both individuals and communities.
  • New technologies tend to require highly skilled workers, reduce the need for people with medium-level skills, and do not affect lower-skilled professions. Thus the innovation sector has disproportionately impacted the middle-class workforce and “hollowed-out” the middle.
  • The innovation sector has an economic multiplier effect three times that of manufacturing; every highly-skilled job supports many more lower-skilled jobs in sectors like the service industry, and increases wages for workers at all levels of the income scale.
  • The unemployment insurance system should offer cost of living allowances to encourage the unemployed to relocate to cities with more jobs; this would alleviate unemployment in areas of high unemployment as well as support economic growth in areas with low unemployment rates.
  • Curtailing new residential development in order to prevent gentrification increases housing costs; cities in need of more affordable housing should allow more urban housing development.
  • Due to the complexity and serendipitous nature of the labor force in the innovation economy, there are no silver bullet solutions for cities that are experiencing economic stagnation. Policymakers should, however, see to create an environment in which startups and young entrepreneurs can thrive.