The New Geography of Jobs  by Enrico Moretti
Published in May 2012
Moretti's The New Geography of Jobs is the perfect companion to Bill Bishop's fine book The Big Sort: Why the Clustering of Like-Minded America is Tearing Us Apart .
Where Bishop talks about the social and cultural impact of the geographic clustering by education and skills, Moretti explains the economic outcomes of this trend.
We are habituated to thinking about U.S. inequality across people. By education, race, and ethnicity. The 1%. Moretti convincingly demonstrates that the inequalities that matter most in early 21st century America are the differences across places.
An individuals standard of living is increasingly determined by where she lives, not just what she does. Wages are higher, and unemployment lower, for workers living in an "innovation cluster" than for comparably educated workers outside of these privileged places.
What is an innovation cluster? Think of any place where knowledge industries and specialized workers gather into a dense ecosystem.
Silicon Valley, Seattle, Boston and Austin may be the best known innovation clusters, but we have examples outside of technology. Pittsburgh has remade itself from a manufacturer of steel into a center of higher education and medical services. Media and finance in the NYC area. Research and health care in the Raleigh-Durham area. Music in Nashville. Film and TV in Los Angeles. Energy in Houston.
Moretti finds that innovative industries have large multiplier effects on local employment and wages. For every 1 technology, biotech, or finance job created by an innovation sector business, 5 additional (non-innovation industry) jobs will be created.
The reason for this multiplier effect is that jobs in innovation industries create high revenues per employee, meaning that innovation workers are highly productive. Software engineers, genetics researchers, and brand managers need the services of lawyers, waiters, accountants, plumbers, hair stylists, baristas, and retail sales people.
The New Geography of Jobs is also an explicit rebuttal to Richard Florida's argument that cities should invest in cultural amenities in order to drive economic growth. Moretti finds that cultural amenities follow rather than draw innovative industries. A concentration of artists and musicians will not result in a concentration of highly productive knowledge industries. The high tech scene is growing much faster in Salt Lake City than in New Orleans.
Moretti is less clear on what policies levers cities should utilize to attract highly productive innovation industries. A density of quality postsecondary educational institutions is a necessary but not sufficient condition to incubate an innovation cluster. Nor can cities use tax breaks and land giveaways to ensure innovation industry growth. Knowledge companies require highly trained workers, and the best place to find these people are in cities where they are already working.
Why doesn't everyone move to a high wage city? As Moretti shows, you don't need to be a software architect or biotech researcher to benefit from living near a Google or a Genzyme. For the answer to that question please turn to The Rent Is Too Damn High  by Matthew Yglesias and The Gated City by Ryan Avent.
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