Tuesday, October 26, 2010

Where are the Wage Gains? Cities at the Heart of the Information Economy

Another gem by Ed Glaeser in the New York Times' Economix Blog:

Santa Clara County, which contains Silicon Valley, experienced 8.7 percent wage growth from 2009 to 2010. San Francisco County had 5.4 percent wage growth. These two counties were third and fifth on the list ranking areas by wage growth.

The success of these areas is particularly remarkable because they started off with higher wages. Typically area incomes revert to the mean, but in the recent recession, at least some places that started with higher earnings have gotten richer over time. This matches a post-1990 pattern in which the incomes of initially richer areas have risen more quickly.


The bad news is that more money has been earned by fewer people. The rise in the incomes of these coastal cities has not been accompanied by increases in the number of employed people. Employment in Manhattan dropped by 1.7 percent over the year and employment in San Francisco fell by 3.1 percent.


These wage gains are only the latest bit of evidence confirming that America’s economic future depends on its information-intensive cities. Our country is never going to be able to compete with Asia as a producer of ordinary manufactured goods. If the products are old, then they will be produced where costs are lowest. Our economic eminence depends on continually coming up with new ideas in software, biotechnology and finance.

One implication of this is that our future will never seem as certain as it did when America had enormous dominance across vast markets for manufactured goods. In those days, we could be pretty sure that incomes would continue to rise if we just kept doing what we were doing. Now we need to hope that the uncertain process of American innovation will continue forward on its jerky path.

A second implication is that America’s future depends on its schools. This recession has also emphasized the enormous handicaps facing less-skilled Americans. Only 39.5 percent of adult Americans without a high school degree currently have a job, according to the bureau, while 73.1 percent of adults with college degrees are employed. If we want the United States to be strong, we must make sure that we have more college graduates and fewer high-school dropouts.

The final implication is that cities remain vitally important to our economy. That importance reflects the fact that places like Wall Street and Silicon Valley create skills that are even more valuable than those taught in our schools. Globalization and new technologies have made knowledge ever more valuable, and we are a social species that acquires skills by hanging around other smart people.

This is the hope for Portland, that investments like those by Intel, Solar World and Vestas will lead to a regional economy based on technological innovation and high-tech manufacturing. By creating a critical mass of focused human capital, it is hoped that we will be able to crate and sustain a comparative advantage in such activity. It is a gamble for sure what with huge investments being made by China in specific human capital, but seems to me about as good a bet as one could make. What can government really do to engineer this? Not a lot, except make sure the fundamentals are right: education, R&D and infrastructure.

Read the entirety of Glaeser's article here.

1 comment:

Marvinlee said...

"If we want the United States to be strong, we must make sure that we have more college graduates and fewer high-school dropouts." I agree on reducing high school dropouts. But, perhaps fewer but higher quality college graduates with skills to fill our most critically important needs would do more for GDP than simply more quantity.