Enrico Moretti on Rich Cities and Poor Cities

Instead of thinking of rich countries and poor countries, rich regions an poor regions, this article by Enrico Moretti recommends thinking about rich cities and poor cities. Here are some of the highlights–the striking outcomes and the paradox that distance still matters in a wired world. One element of the story, at least in the U.S., is the rise of industries in which human capital is more important than physical capital. Highly educated people–who are the key resource for those industries–often want to congregate in interesting cities. (That claim is the main point of Richard Florida’s book The Rise of the Creative Class.)

The economic map of America today does not show just one country – it shows three increasingly different countries. At one extreme are America’s brain hubs – cities like Seattle, Raleigh-Durham, Austin, Boston, New York and Washington DC – with a thriving innovation-driven economy and a labor force among the most creative and best paid on the planet. The most striking example is San Francisco, where the labor market for tech workers is the strongest it has been in a decade. At the other extreme are cities once dominated by traditional manufacturing – Detroit, Flint, Cleveland – with shrinking labor force and salaries. 

In 1980, the salary of a college educated worker in Austin was lower than in Flint. Today it is 45 percent higher in Austin, and the gap keeps expanding with every passing year. The gap for workers with a high school degree is a staggering 70 percent by some estimates. It is not that workers in Austin have higher IQ than those in Flint, or work harder. The ecosystem that surrounds them is different.

In China, Shanghai has reached a per capita income close to that of a rich nation. Its students outperform American and European students in standardized tests by a wide margin. Its public infrastructure is better than that of many American cities. But agricultural communities in western China have made much less progress.

Despite all the hype about exploding connectivity and the death of distance, economic research shows our salary, productivity and creativity increasingly depends on the place where we live.

Video conferencing, e-mail, and Skype have not made a dent in the need for innovative people to work side by side. In fact, that is more important than ever. Thousands of well-educated innovative workers are now moving to San Francisco and Silicon Valley, many attracted by jobs in social networking. They will produce software intended to create virtual communities that erase distance and allow us to share ideas and information from any corner of the world. Ironically, in order to do that successfully, all this talent must concentrate into a single location. Research shows that our best ideas still reflect the daily, unpredictable stimuli that we receive from the people we come across and our immediate social environment.