Eric Von Berg - Newmark Realty Capital - 595 Market Street, Suite 2550, San Francisco, CA 94105 - for loan quote: 415 956 9922

July 31, 2012

The New Geography of Jobs - Enrico Moretti

Three years into our economic “recovery”, we are seeing some areas booming, while others continue to falter.
Here in Northern California for example, the declaration of bankruptcy by the city of Stockton stands in stark contrast to the strong recovery of the Bay Area tech and bioscience nodes only 70 miles away.
The New Geography of Jobs, by Enrico Moretti of U.C. Berkeley, provides an excellent big-picture analysis of the increasingly divergent outlook for our nation’s cities and delves into the reasons why this disparity is likely to widen.

In his book, Enrico Moretti outlines the many forces behind the agglomeration of talent at innovation hubs; Entertainment in Los Angeles, Software in Seattle, Finance in New York, and Biotech in San Diego, Boston, and the Bay Area. Although human capital is the economic hope of our nation, our universities and colleges are not producing enough graduates with the skills demanded by today’s employers, and those with the right skills are increasingly congregating in innovation hubs with deep labor markets.
In explaining the phenomenon of Silicon Valley to my lenders in the 1980’s and 1990’s, I would get a copy of the Sunday San Jose Mercury News and show them five sections of employment ads. By the year 2000, the Sunday Mercury News help-wanted section was larger than today’s entire edition. I could show multiple job openings for the most arcane of technical specialties. Now that employment ads have moved from newspapers to the Web, the attractive power of a deep labor market is magnified. The Web spotlights the world’s innovation hubs and the multiple job opportunities in a location generate the excitement that attracts young talent graduating around the world.

Dr. Moretti points to several demographic trends that exacerbate the divergence of our cities:
  1. As people become more educated they are becoming increasingly more mobile. People with advanced degrees are more likely to relocate than people with a four-year college education, who in turn are more mobile than people with only a high school diploma. People leave home to go to college and then often move again to attend grad school. This talent is not averse to moving once more to pursue a career.
  2. More and more people are marrying within their educational strata. Social networking and computer dating offers greater choice to potential couples, matching those with similar life experiences and ambitions. Especially, people with advanced degrees tend to marry each other.
  3. The more educated the women the more likely she is to continue to work after child birth.
  4. Couples with dual careers tend to remain in those areas with the greatest opportunities for both the husband’s and wife’s careers.
In prior generations people followed jobs. IBM could tell graduates to move to White Plains. GE could tell engineers to move to Ohio. Now, companies are following the talent. Employers in search of innovative talent are compelled to move their operations to these innovation hubs, and then offer high wages and generous benefits to compete with other employers attracted to this same hub.

The benefits of these innovation jobs are wide spread: These high wages result in greater spending – raising wage levels for the unskilled and non-technical workers in the area. Dr. Morreti estimates high tech jobs have a 5-times multiplier effect which compares to a 1.6 multiple for a manufacturing job. This spending attracts the amenities that attract new talent: And so a virtuous cycle ensues at these innovation hubs. Meanwhile a brain-drain occurs in the rest of the country. Stamford, CT ends up with five times the number of college graduates per 1000 residents as Merced, CA.

Dr. Moretti also provides an analysis of former innovation hubs, such as Detroit and Rochester, which have lost the magic that had once made them great. To remain competitive, Moretti writes, cities, companies and labor need to embrace disruptive change; creative destruction is the source of economic vitality and innovation.

Highly recommended, a compelling read!