Attracting and Retaining the Skilled

UC Berkeley’s Enrico Moretti has published an excellent piece in the Wall Street Journal.

“Since 1980, data show that the economic success of a city has been increasingly defined by its number of highly educated workers. Cities with many college-educated workers and innovative employers started attracting more of the same, and cities with a less educated workforce and less innovative employers—such as traditional manufacturing—started losing ground.

He continues

My research shows that scientists and software engineers are not the only ones who thrive as a result. Using data on nine million workers in 320 U.S. metropolitan areas, I found that for each new innovation-job in a city, five additional jobs are created—not only in professional occupations (lawyers, teachers, nurses) but also nonprofessional occupations (waiters, hairdressers, carpenters). For each new software designer hired at Twitter in San Francisco, there are five new job openings for baristas, personal trainers, therapists and taxi drivers. The most important effect of high-tech companies on the local economy is outside high-tech.”

Moretti calls this the “local multiplier effect”.   Those mayors who can deliver high quality of life will be able to attract and retain the skilled and then will enjoy the tax base benefits that Moretti sketches.    The city competition for the skilled does not have to be a zero sum game if  mayors implement policies that “grow more local” skilled people.  Here then, we must embrace the Heckman Agenda and also change the rules that govern local public schools to allow them more flexibility in educating kids.    Since the RBC has a taste for “doom and gloom”,  this case study of Detroit by George Galster will interest you.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

23 thoughts on “Attracting and Retaining the Skilled”

  1. Matthew Kahn: The city competition for the skilled does not have to be a zero sum game if mayors implement policies that “grow more local” skilled people. Here then, we must embrace the Heckman Agenda and also change the rules that govern local public schools to allow them more flexibility in educating kids.

    I have to say that it is news to me that high schools now grant scientific and engineering degrees.

    1. Katja, I think that’s an unwarranted snark. Also, I think the underlying thought of Kahn’s is correct.

      A significant percentage of students who go away to college return home after college, at least for some time. If the local high schools can kick-start excellent education for some of their students, then there will be a returning cohort group of “home town excellence” to further the successes of the city in many fields, both financial and cultural. This, I think, was his point about not having to be a zero-sum game, unlike the policies of many cities that use financial incentives to lure already-established talent (and businesses) from their current home.

      1. My impression was that Kahn’s point had more to do with good schools being a way to attract these desirable professionals to move to one’s town, hence his post title,”attracting” the skilled. The idea is to lure them. I agree with you though that investing in the people you already have is also a good idea. I think a main factor in kids’ returning or not is, can they find a decent job? So, we end up in the same place anyhow.

        While I am not fond of snark, nor do I agree that Katja was indulging in it, I do understand the impulse. Prof. Kahn often has that effect around here, but, we should also remember that it is good to have someone different around, so long as he is at least semi fact-based. Maybe we don’t give him enough love!!! After all, he can’t help it that he’s an optimist and believes everything economic theory says. Maybe it’s a professional bias. And hey, maybe he goes out for coffee a lot. Viva la difference, or what-all.

        1. On second reading, the post doesn’t even tackle the original location of the people filling these new jobs. We don’t know where they come from. They could be local or not.

      2. Ken, I readily confess to the snark, but I don’t feel particularly apologetic. That’s what Matthew has to expect when he’s trolling his readers: if you look closer, the paragraph is a half-baked jumble of ideas that don’t quite hang together. He’s talking about autonomy for local schools about the importance of early childhood education. But somehow, this is to be done by cities and their mayors, except that they generally don’t have the money to fund early childhood education on a large scale (especially the poor ones, where it’s most important); and while the idea of giving teachers more autonomy is a sound one, putting city politicians in charge would have the opposite effect.

        More seriously, and what I was alluding to, America’s lacking [1] tertiary education system is a separate issue from any shortcomings that our high schools have. Germany and Norway also have middling school systems, for example, but their tertiary education is doing just fine. Boosting secondary education can do only so much to fix the various and sundry shortcomings of the tertiary systems (expensive universities, neglected community colleges, and a largely non-existent VET system [2]).

        Unlike what the WSJ article proposes, the European solution to a lack of engineers has not been to have them play musical cities, but to grow more by virtue of making tertiary education at least affordable and often completely free (the German/Austrian/Swiss “Mittelstand” that James talks about below has a particularly voracious appetite for engineers). The Nordic countries in particular have put an increased emphasis on creating a skilled labor force so as to be able to deal with increasing levels of automation and outsourcing of manual labor (while the US has become one of the countries that manual labor is being outsourced to). And unlike what Matthew talks about, that’s primarily the role of tertiary education. While the high school dropout rate could use improvement, almost nine out of ten Americans do have a high school diploma or GED, yet for the majority of them, that doesn’t get them a credentialed tertiary education afterwards. High schools aren’t the bottleneck for the creation of more engineers (and generally, skilled labor).

        Of course, the school system is still an important issue, but also not something that’s easily solved with a couple of soundbites and cure-all proposals [3]. I’ve been reading Amanda Ripley’s “The Smartest Kids in the World”, and it has been thoroughly depressing (well, if you’re American or South Korean).

        [1] Obviously, America has some of the best universities in the world, but that does not help those that can’t attend MIT, Harvard, Stanford, etc. But our great universities can educate only a small percentage of the population.
        [2] In an ideal world, if there was one thing I could change about our tertiary education, it would be pouring funding into the community college system so that (1) community colleges could accommodate a great many more students and (2) the first course of study at a community college would be free. This would have the dual purpose of establishing an accessible VET system and creating a second option to enter the four year college/university system via transfers (with the added benefit of only having to pay for two years of a Bachelor’s degree, not four). With some luck, it might even create some competition for four year colleges and universities and require them to bring their tuition fees down insofar as they are essentially offering vocational training with a BS/BA label.
        [3] The biggest underlying problem that we have there is inequality. Aside from the big issue of poor urban schools, it makes it hard to attract good teachers (we can still count on the ones who don’t care for money and are willing to put up with the current system, but we can get only so many of those). Good teachers are one of the key ingredients for a successful school system, and we have built an economy where we can’t afford to pay them what we would have to so as not to lose them to other opportunities. Teaching is at the low end of the remuneration scale for somebody with a graduate degree, after they’ve usually piled up a small mountain of debt to acquire said degree. Earn $50k as a teacher in a system that constantly handicaps you and where there’s a 50/50 chance you’ll give up after five years or earn $100k in Silicon Valley? Decisions, decisions …

        1. What Katja said. Also, you can’t blame the secondary schools for the lack of STEM personnel. Nor the tertiary schools, for that matter. If you’re a really good student, you have many career options that pay a whole lot better than STEM jobs. Corporate America isn’t interested in paying the market price for labor in any market, except the executive suite. This is why they salivate over H1-B visas, and have “Drivers Wanted” signs on every big truck in America.

    2. “Here then, we must … change the rules that govern local public schools to allow them more flexibility in educating kids.”

      Let’s get real here. The places that attract educated people ALREADY educate their kids well.
      Allowing more “flexibility” in educating kids primarily means that the moron belt of America will teach even less science or world history and geography, and will produce an even more Talibanized youth.

      Matthew’s model for the average struggling city appears to be that it is populated by intelligent well-meaning folks who would love to educate their kids but that damn federal government stops them from doing so. My model for the average struggling city (especially the part that would control the schools) is that it is populated by ignorant bigots who, left to their own devices, would do everything they can to perpetuate the current Republican Party’s war on science (and difference, and the rest of the world).

  2. This would be good news if those baristas and cab drivers were making a living wage and had enough stability to plan for the future.

    Wake me up when that happens.

  3. Does the reverse also happens, though maybe more slowly?
    Every time a company outsources a skilled job five other jobs disappear?

  4. Dozens of cities and even national governments have tried to emulate Silicon Valley. How many have succeeded? Cambridge, England certainly - growth is contrained by planning and ultimately nimbyism, not potential, so it has a world-class electronics industry (ARM, Dolby, etc.) without any actual electronics factories. Sophia-Antipolis near Nice, possibly. These few clusters depend on factors outside the control of local and regional government; initial luck and self-reinforcing external economies of networking. So count me sceptical that it´s enough to ensure a high quality of life to attract skilled jobs. More a recipe for retirement cities, which create service jobs too, but that´s not what Matthew has in mind.

    1. I’m a Silicon Valley engineer, and I was recently approached by a recruiter who was trying to get me to take a job in Phoenix, AZ.

      Even when I considered and then temporarily set aside the fact that Joe Arpaio would be my sheriff and Jan Brewer would be my governor, I couldn’t figure out what was in it for me to make the move. With the exception of the tech corridor in Massachusetts, Los Angeles, and San Diego, I would be extremely reluctant to take a job anywhere else in the country. Because if I got laid off from that job, it would be difficult to find another job in the area, and employers prefer not to pay relocation costs whenever possible.

      Recruiters and employers elsewhere in this country seem to have a strange notion that they can somehow hire qualified engineers (I won’t speak to other occupations) who will stick with the company for a reasonable amount of time without paying them as much as they can get in places like the California Bay Area or the Boston area. And they rationalize this by telling themselves (and me) that the overall cost of living will be lower.

      Sure, state taxes and rent will be less in Phoenix than in Santa Clara. But with those higher state taxes and rent comes a big heaping portion of getting to live in the California Bay Area instead of in Phoenix, Arizona.

      1. It’s interesting that some states point to one number where they cost less, but leave out everything else you have to spend money on.

        Example: I live in San Francisco, and every time I visit relatives in northern Florida, where I grew up, I have this same discussion — “Move back here! You won’t have to pay state income tax! You can buy a house!” So on one visit I sat down with my cousin the financial planner and we ran all the numbers — the salary I could expect in Florida, all the costs of house ownership, including an annual allowance for repairs, the air conditioning bills between late April and late September, the better bennies at my San Francisco job that I would have to pay more to get in Florida — and it turned out even in pure financial terms I’m still a lot better off in the Bay Area.

        Not to mention that I get to live in San Francisco and not Jacksonville Florida.

    2. Another issue I have with this is, again, the issue of inequality. We have let the market dictate too much of what happens to people. I don’t agree that being high-skilled makes someone a better person than the next, and while some income gap is okay, we have gone way too far with it. So when someone says that if only we had more tech innovators, everything would be fine, I have to call b.s. We may already have too many tech “innovators,” judging by how often software gets needlessly updated and new-but-not-better gizmos get put out. And if you say, well, people wouldn’t buy them if they weren’t better, well, it turns out, no - they get basically forced to.

      We should be aiming all our smart/techy people at clean energy and cancer-curing. Those are risky areas but people actually need the products. People don’t need more apps and video games. And if those jobs bring prosperity to an area, maybe that’s just a reflection of where all the income growth of the last 30 years went.

    3. I think that the Israelis may have managed to hit it off, as well. And there’s also Seattle and Boston. DC Metro to some extent, if you view the NIH and the Pentagon as seed universities. (This is more true for the NIH.) But I basically agree with James. A high quality of life may be necessary, but is not sufficient.

      On the other hand, it is worth pointing out that the Southern states that invested in a decent or good university system are doing better than those that didn’t. NC, VA, and to a lesser extent TX (really Austin) and GA.

      And it is even more worth pointing out that staid boring Germany has done quite well with its economy, without any glam whatsoever.

      1. Ebenezer Scrooge is right; I should note that the Bay Area, Boston, San Diego, and Los Angeles shouldn’t be viewed as a limiting list for all tech, just the type of engineering that I do. The Durham research triangle area is definitely in the mix for biotech, for example.

      2. Israel is so small that the whole country can be considered one high-tech cluster.
        It´s true that Germany does a good job of spreading the butter across the country. However, it does have regional disparities, not just between East and West. The postwar growth of light industry in West Germany tended to happen in the South - Baden-Wuerttemberg and Bavaria - in small towns with a high quality of life, and not the battered Ruhr. German support of ridiculously inefficient pocket farming is linked to this. The farms are often part-time operations, the principal income coming from a work in a Mittelstand factory in the town.

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  6. Isn’t another way to say this just “professionals go to cities where there are more professional jobs”?

    1. I wouldn’t say it’s *another way* of saying it, I think Matthew’s point is that when you say that [truism], you should also recognize that a large number of non-professionals also benefit. The side effect of increasing professional employment is a general boost across all labor categories. “A rising tide lifts all ships.”

      1. Weren’t they making a claim like this about outsourcing back in the day? I seem to recall an argument floating around back in the early 2000’s that for every job outsourced something like 7 jobs at home were created. I could never get anyone to explain that dynamic to me or what those jobs were. Smells like the same kind of wishful thinking but targeted at school “reform”.

  7. This sounds like an implausible fetishization of high-tech, probably based
    on one of those correlation-that-isn’t-necessarily-causation mistakes.

    I would guess also that high-tech companies are distinctive in that they
    pay relatively high salaries to large numbers of fairly young people, in
    their 20s and 30s, and at that age people tend to spend fairly freely on
    expensive espressos and personal training. The same effect probably occurs
    in industries with the same age/salary profile, e.g. lawyers and finance,
    but then those are concentrated in cities which are thriving in all other
    ways, e.g. New York, L.A.

    Paying high salaries to people in their 40s and 50s won’t have the same
    local-stimulus effect, because they’re paying mortgages, feeding kids,
    saving for college tuition and retirement etc.

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