Economist Enrico Moretti argues that the country’s jobs are moving to prosperous innovation hubs—at the expense of small towns and manufacturing cities.
In 1975, Bill Gates and Paul Allen founded Microsoft in the desert town of Albuquerque, New Mexico. By the end of the year, they had their first major client. Gates dropped out of Harvard to devote his full-time attention to the company. By 1978, fledgling Microsoft was exceeding $1 million in annual revenue.
But the two founders were looking to relocate, despite their first big client being based in Albuquerque. The two co-founders wanted to move back to Seattle, their hometown, and bring the company with them.
It’s easy to imagine the Seattle of today and think this decision was a no-brainer. But in 1979, Seattle was struggling.
The local economy of Seattle was dependent on manufacturing and lumber, two industries going out of style even back in the ‘70s. Unemployment was high. Jobs and people were leaving by the thousands. The crime rate was 50% higher than Albuquerque in some measures.
Things were so bad that the Economist dubbed Seattle the “city of despair” (ouch).
Imagine the Detroit of today, and you get a pretty good proxy for Seattle circa 1979.
With that background, it’s clear why some Microsoft employees objected to the move from Albuquerque. But a big change was coming for both cities, sparked in part by Microsoft’s move to Washington:
Before the move, the labor markets in Seattle and Albuquerque looked quite similar. In 1970, for example, the number of college-educated workers in Seattle was only 5 percent higher than in Albuquerque, relative to population … After the move, the paths of these cities started diverging in irreversible ways. By 1990 the difference in the number of workers with a college education had grown to 14 percent, and in 2000 to 35 percent with the explosion of the high-tech sector. It has now reached a staggering 45 percent.
Seattle today is home to superstar companies like Amazon, Starbucks, and Expedia. And in a bit of irony, Amazon founder Jeff Bezos is actually a native of Albuquerque—but he chose to locate Amazon near Seattle because of its status as one of the nation’s premier innovation hubs.
Albuquerque and Seattle have been on my mind because, coincidentally enough, my fiancee has visited both cities recently for professional conferences.
In Albuquerque, as is her custom, she asked the taxi driver on the way from the airport what there is to do in the city. He replied by pointing out the car wash station where they filmed Breaking Bad.
Fun bit of trivia, I’m sure, but was that really the best he could come up with?
In Seattle, there was no end to the things she could do. Seattle is home to dazzling sights and culture. She immediately wanted us to return for a fun, non-career-related trip.
How did the fortunes of these two cities diverge so greatly?
The economist Enrico Moretti might have an answer. His book, The New Geography of Jobs, tries to solve this conundrum.
What makes innovation jobs e.g. jobs in the high-tech, software, pharmaceutical, engineering, and research industries so valuable to a city?
How do we create more Seattles and fewer Albuquerques?
Innovation Jobs Create More Jobs for Everyone
In The New Geography of Jobs, Enrico Moretti argues that every time a company creates an innovation job, it also creates jobs in the non-traded (AKA can’t-be-outsourced) sector in the same city.
As he puts it:
Attracting a new scientist, software engineer, or mathematician to a city increases the demand for local services. This in turn means more jobs for cabdrivers, housekeepers, carpenters, nannies, hairstylists, doctors, lawyer, dog walkers, and therapists. These local service workers cluster around high-tech workers, supporting their personal needs.
As you can see from this example, these jobs run the gamut from low-skill jobs to professional work. It’s not all burger-flippers and baristas, in other words.
Based on Moretti’s research into 11 million American workers in 320 metro areas, he concludes that for each high-tech job created in a city, five additional non-traded, local-only jobs are created in the long run. On average, two of these jobs are professional—lawyers and doctors, for instance—while the other three are nonprofessional—store clerks, waiters, and personal assistants.
What’s more, people working in non-traded, primarily service-type jobs in these innovation hubs get paid more for doing the same work as folks living in non-hub cities.
What’s going on? Moretti’s answer is that creators and innovators working highly paid jobs, in part, have more money to spend on basic services, like haircuts and dog-sitting.
All of this means that when a big-time innovation employer like Microsoft decides to move its tens of thousands of employees to your neck of the woods, the rest of the economy benefits too. This creates a virtuous cycle where innovation hubs attract more people, which in turn attracts more employers and investment, which in turn attracts more people.
The Difference in Living Standards
According to Moretti, where you live has a large impact on your living standards—just not as much as you might think.
The difference between a rich person’s consumption and a poor person’s consumption is smaller than the difference in wages would suggest.
What Moretti found in his research is that “since 1980, the amount that the typical college graduate spends on housing has grown much faster than the amount the typical high school graduate spends.”
The difference, Moretti found, wasn’t explained by bigger or more valuable houses. The difference mostly came down to where college graduates tend to live e.g. “hubs” like San Francisco, New York, and Seattle. High school graduates tend to live in areas with a low cost of living—but conversely, less vibrant employment opportunities.
The net effect is that the highly educated in the U.S. spend about three times more on housing than high school graduates, and have less money to spend on other aspects of their lifestyles. Living standards, material wealth are closer than you might think.
I’ve railed before about the dangers of homeownership and how your mortgage can be your prison. But if you’re thinking agile, you’re probably already considering the ways you could game this asymmetry—getting the benefits of living in a creative hub without paying the exorbitant price for living accommodations.
We’ll get to that in a bit.
The Social Multiplier Effect
There’s a saying that you’re the average of the five people you spend the most time with.
It turns out there is some evidence for the truth of this saying. Moretti talks about the following natural experiment in The New Geography of Jobs:
Members of the Air Force Academy are randomly assigned to squadrons of approximately thirty individuals with whom they are required to spend the majority of their time … [economist and former Air Force officer Scott] Carrell and his coauthors have found definitive evidence that individuals who are assigned to a squadron where others are less fit tend to become less fit over time.
Moretti calls this the social multiplier effect.
Think about who you spend your time with. Are they making you a better person? Or are they dragging you down to their level?
Having lived in creative hubs like Chicago and New York City, I can tell you that the quality and variety of thinking and people you bump into is astounding.
If you’re surrounded by people who all think, act, dress, and sound the same, you might consider moving to a hub for the diversity benefits alone.
I can’t guarantee that you’ll become a better person for it (after all, location alone didn’t matter for the social multiplier effect to take root in the Air Force Academy example), but you’ll have a chance of increasing the breadth of your understanding about the world.
There’s a reason having a “small town mentality” can also imply close-mindedness.
4 Questions Inspired by the New Geography of Jobs to Jumpstart Your Career
1. Could you be an innovation worker? Creators, innovators, and artists take heart: Your cities need you. If you have any talent for innovative work, then Moretti’s research suggests you’re going to be well-situated for the hub-dominant world that’s coming.
2. If not, how could you create value for an innovation worker? There’s a reason industries like professional house-sitting and career coaching are taking off. Innovation workers need your help, and if you can add value to their lives, moving to a hub could make a lot of sense for you. When I worked as a technology attorney, I was basically supporting real innovators in their work—there’s a lot of demand and a lot of money in this side of things.
3. Can you live in a creative hub? The number one cost of moving to a hub is finding a place to live. Sam at Financial Samurai has a number of posts detailing how difficult/expensive it is to buy property in SF right now. But if there’s a lifehack here, it’s old-fashioned renting—either with roommates or a significant other. I know that when we lived in Chicago and New York, my fiancee and I saved money by living together and choosing off-the-beaten-path neighborhoods (make no mistake, a concrete box in NYC is still expensive as hell, but you get to live in, you know, New York City).
4. Who do you surround yourself with? This might be the biggest personal development takeaway from The New Geography of Jobs. The kind of people you surround yourself with matters. If you live and work with go-nowhere, do-nothing salary slaves, then don’t be surprised if you end up one yourself. While job hopping for job hopping’s sake doesn’t seem to work, moving to an innovation hub in order to work with like-minded individuals isn’t a bad idea. In the long run, you’ll have options—and that’s worth a lot to an agile-minded person.
Let’s get your take:
What are the pros and cons of living in a hub like Seattle or San Francisco? What about small towns/cities?
Top image adapted from the cover by Mariner Books