A look at “The New Geography of Jobs” by Enrico Moretti

The New Geography of JobsThe New Geography of Jobs by Enrico Moretti
My rating: 5 of 5 stars

The “New Geography of Jobs” by Enrico Moretti is a book well worth reading despite the fact that it is a few years old. Moretti tackles issues of the economic divisions that exist in the country, how they developed, and why the trend is likely to continue under current conditions. Moretti describes the geographic clusters that have produced great jobs for the highly educated, while leaving some areas of the country (flyover country?) behind. How did these clusters come into being, and why are they not easily replicated? Moretti tackles those subjects with great and understandable analysis.

The implications of these economic developments in the United States have exploded onto the political scene, with the economic divisions Moretti highlights becoming the cultural and political divisions that have divided the country so seriously. Moretti refers to the “Great Divergence” and sees the trend-line of economic inequality increasing.

“This Great Divergence is among the most significant developments in recent American economic history. As communities grow apart, the U.S. population is becoming more and more segregated, not across urban neighborhoods but across cities and regions. With every passing year, college graduates are increasingly settling in cities where many other college graduates already reside, while high school graduates are increasingly settling in cities where many other high school graduates reside.”

Moretti, Enrico. The New Geography of Jobs (p. 102). Houghton Mifflin Harcourt. Kindle Edition.

That dichotomy really has had a broad (and negative) impact, which we are seeing the tangible results of. The geographic divisions have indeed, in my view, deepened and hardened our cultural differences.

“This has tremendous economic implications, but also social and political ones. A country that is made up of regions that differ drastically from one another will end up culturally and politically balkanized. Moreover, the concentration of large numbers of poorly educated individuals in certain communities will magnify and exacerbate all other socioeconomic differences.”

Moretti, Enrico. The New Geography of Jobs (p. 104). Houghton Mifflin Harcourt. Kindle Edition.

Moretti certainly has that right. He talks about the economics driving the “great divergence,” and how those economics work. We often talk about how the supply chain influences business decisions on where to locate. Moretti highlights the “human supply chain,” showing us how the innovation sector, relying on “human capital,” has tended to concentrate geographically. 

“This trend reflects deep changes in the global technological landscape and the United States’ comparative advantage in the world economy and is therefore unlikely to go away anytime soon. It is almost as if, starting in the 1980s, the American economy bifurcated. On one side, cities with little human capital and traditional economies started experiencing diminishing returns and stiff competition from abroad. On the other, cities rich in human capital and economies based on knowledge-intensive sectors started seeing increasing returns and took full advantage of globalized markets.”

Moretti, Enrico. The New Geography of Jobs (p. 106). Houghton Mifflin Harcourt. Kindle Edition.

As the traditional U.S. business hubs have faltered(manufacturing, steel production, auto production) these innovation hubs have driven economic growth, and contributed to this great divergence. Those hubs are concentrated geographically, and Moretti brings us the dynamics of why that is. Some of the facts brought forward are counter-intuitive, but upon examination make good sense. (Outsourcing traditional jobs from U.S. does not impact some “innovation hubs,” who continue to provide logistical support to the offshore enterprises, as well as non-innovative job classifications doing substantially better within the confines of an innovation hub than outside of it)

Moretti has written a book that is understandable to non-economists, without technical jargon. In discussing how these innovation hubs develop geographically Moretti gives us the example of Wal-Mart.

“But when Walmart set out to enter e-commerce twelve years ago, it did not choose to locate its Internet division, Walmart.com, in Bentonville. Nor did it choose Bangalore, where costs are even lower. Instead it chose Brisbane, California, just 7 miles from downtown San Francisco, one of the most expensive labor markets in the world. (It also happens to be an area that is politically hostile to Walmart, which makes it hard for the company to open many local stores.) What sense does this make, given how aggressive Walmart is in keeping the costs of every division under control? Has Walmart betrayed its own business model? No. As it turns out, in the world of innovation, 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 forces of agglomeration: thick labor markets (that is, places where there is a good choice of skilled workers trained in a specific field), the presence of specialized service providers, and, most important, knowledge spillovers. Although not much discussed, these forces ultimately determine the location of innovative workers and companies and therefore shape the future of entire communities.”

Moretti, Enrico. New Geography of Jobs (pp. 123-124). Houghton Mifflin Harcourt. Kindle Edition.

As discussed this book gives us some of the underlying economics, and the impacts of those economics. The economic divide is becoming starker, with the highly educated widening the economic gap between themselves and those without higher levels of education.

“But whatever Americans’ self-perception is, differences in income levels are growing. As we have seen throughout this book, this increase has a strong geographical component. But it is also skill-based. Table 4 shows how the hourly wage of full-time male workers has changed since 1980 depending on their level of schooling. The wages of men with less than a high school education and of those with just a high school education today are lower than they were in 1980. By contrast, the wages of college graduates have increased significantly. The gain is even larger for workers with a master’s degree or a PhD. The “college premium”—the wage gap between those with high school and college educations—is the measure that labor economists most commonly use to track changes in labor market inequality, because it best captures the difference between the typical skilled worker and the typical unskilled worker. This premium was relatively small in 1980—only 31 percent—but has been growing every year since then and is now more than double its 1980 level. This difference is even higher when you account for other aspects of compensation, as college graduates tend to have better employer-paid health insurance and more generous pension contributions.”

Moretti, Enrico. The New Geography of Jobs (pp. 222-223). Houghton Mifflin Harcourt. Kindle Edition.

As we feel the impacts of political polarization and the vast cultural divide in America and wonder how we came to be in this position this book helps shed important light on the subject. Moretti has written an outstanding book which I recommend highly.

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