Tuesday, August 8, 2017

Size Does Matter (When It Comes To Skill And Talent)


Hello Everyone:

Does size matter?  Okay, before you start getting all sorts of thoughts in your heads, allow Blogger to clarify the question: does size matter when it comes skills and talent?  This is the question that Richard Florida ponders in his CityLab article "When It Comes to Skills and Talent, Size Matters."  It is no surprise that the glamour cities: Los Angeles and New York are larger than life magnets for finance, media, entertainment, and creative industries.   While knowledge and tech cities like: San Francisco, Boston, Washington D.C., and Seattle have greater than average concentrations of talent, technology, and knowledge industries.  Mr. Florida writes, "Just 20 metros of 360-plus metros across the country have fully formed knowledge and creative economies, as a new kind of winner-take-all urbanism defines our economic landscapes." (http://www.citylab.com; May 28 2015; date accessed Aug. 8, 2018)

However, what are the reasons behind this new and increasingly unequal skill and talent landscape?  The reasons can be found in a new study by the National Bureau of Economic Research, titled The Comparative Advantage of Cities, written by Columbia University and University of Chicago economists Donald R. Davies and Jonathan I. Dingel. (http://www.nber.org; date accessed Aug. 8, 2017). The study is a deep dive below the surface of why the glamour, knowledge and tech hubs are outsized magnets for workers with skills and talent.  Mr. Florida reports, "It focuses on two measures of skill-one based on level of education and the other based on the occupation and kind of work people do."  Although most economists typically gauge skill or human capital by level of education, Mr. Florida argues that "...occupation provides a more refined measure of actual relevant workplace skill."  The study examined the skill spread across 270 metros, 9 levels of education, and 22 occupational categories (eg the STEM professions, Social Services, Custodial) across 19 different industries (eg educational services, health care, or manufacturing).  Here are a couple of important points.

Educated people gravitate to bigger cities and metros

The study revealed that talent and skill, without a doubt, are concentrated in larger cities and metropolitans. In essence, the larger cities are magnets for better educated people, typically with graduate and professional degrees.

This pattern is true for those with high school diplomas, bachelor degree, those with advanced and professional degrees, that "makes up more than 85 percent of population. Only at the extreme tails of the distribution, with people with less than a high school education or a Ph.D, does the relationship between weaken."

Why is this the case?  The study points to several reasons for this: larger cities and metropolitan areas are the epicenter of large concentrations of unskilled immigrant labor (Mr. Florida notes, "U.S.-born people with less than a high school degree are less likely to live in big cities."). Yet, larger cities and metropolitan also have great concentrations of poverty and disadvantage.  But larger cities offer better pay and opportunities, and social services for lesser-educated demographic groups.

Conversely, "larger cities have smaller-than-predicted concentrations of the most highly educated Americans-..."  This trend is driven by the spread out locations of professors and middle- and high-school teachers.  While colleges and universities are located around the United States, academic jobs are hard to come by.  Academics, like workers in every profession, go where the jobs are: Mr. Florida recalled holding professorships in Buffalo (SUNY Buffalo), Columbus (Ohio State University), and Pittsburgh (Carnegie Mellon).  Other than academia, Ph.Ds in other professions and industries are more geographically concentrated.

High-skilled occupation and industries concentrate in bigger cities and metros

The plethora of research demonstrates that the "...U.S. Labor market has become more homogenous and spread out across places."  The studies concluded that "...this dispersal of job opportunities-that fact that people can get the same sorts of jobs in most places-is a significant part of the decline in the number of Americans who are moving around."  (http://www.citylab.com; Feb. 2, 2017; date accessed Aug. 8, 2018). Be that as it may, "...that belies the fact that the most high-skilled and high-paying jobs, and the most advanced, highest value industries are strikingly concentrated and geographically uneven."

If you click on the (http://www.citylab.com; July 6, 2017), you can check out "Industries' population elasticities and skills intensities" chart generated by Donald Davis and Jonathan Dingel for NBER.  The chart compares the skill levels of 19 industries (the X axis) to population movement-ie workers's tendencies to relocate to bigger metropolitans (the Y axis).  If you pay close attention to the upper right-hand corner of the chart-you can see the industries that both highly skilled and geographically concentrated: eg finance, technology, and company management.

Richard Florida reports, "Overall, we see a similar pattern across entire industries."  The largest industries attain their maximum size in New York.  There are three exceptions: manufacturing (second largest Los Angeles), mining (10th-largest Houston), and forestry, fishing, hunting, and agriculture (13th-largest Seattle).  In general, what the chart presents "is that higher-skilled industries tend to pull from larger places, rather than demonstrating a kind of specialized form of industry."

Another chart, also viewable at http://www.citylab.com; July 6, 2017, makes a similar comparison, this time the occupations provide a snapshot of where the talent is (as opposed to specific industries).  "This chart compares the skill levels of 22 key sets of occupations (along the X axis) to the population elasticities-in other words, their tendency to locate in bigger metros (on the y axis)."  Once again, pay attention to the upper right hand corner of the chart-presenting which occupations that are both highly skilled and geographically concentrated.

Staying on the upper right hand corner of the chart, we find the computer and mathematical professions-are the foundation of the STEM professions: i.e. computer science, software, artificial intelligence, and machine learning industries.  Also in that quadrant are architecture (yay), life science, arts and entertainment, sports and media, legal, financial, and business occupations.  In short, "highly skilled occupations that make up the knowledge, professional, creative class."  Coincidentally, they are also the very professions that are not only concentrated in larger metropolitan areas, but  also power innovation and economic growth across the metropolitans.

This brings up the question, "What kind of occupations are more spread out?"  Taking a look at the highly skilled professions, we find that education and library occupations, health care workers, and community and social services are the among the more portable professions.  Essentially, "the eds and meds" professions follow the population.  Among the less-skilled professions: fast growing jobs in food preparation and service, healthcare service support, and traditional working class jobs in production (i.e. factory work), maintenance, construction, and transportation follow the population.

No surprise that the study concluded that "highly skilled occupations are overwhelmingly located in large metros. As the authors point out, 19 of the 22 occupations attain their maximal size in New York, while Los Angeles leads in production (manufacturing) and San Francisco leads in architecture and engineering."  Fresno, the capital of California's heartland, leads the way in farming, fishing, and forestry.

What can we take away from The Comparative Advantage of Cities, published by the National Bureau of Economic Research?  The take away is a "new shift in our economy where the larger cities with big pools of high skilled talent garner extreme concentrations of industries and occupations."  This is the driver of the winner-take-all urbanism and growing geographic inequality of winner and loser cities and metropolitans of today.