The New Geography of Jobs: Book Review
Enrico Moreti, an American-Italian economist, is known for his research in the area of economic geography. His book, The new geography of jobs, is a must read for anyone interested in learning about the mostly unexplored area of economic geography. He very articulately explains the growth story of the United States and how growth disparity among the different regions is responsible for the rising income inequality.
In the developed world today, only a few cities are responsible for economic growth. While these cities thrive and prosper, others decline and crumble. What can be held responsible for this uneven economic growth?
What makes some cities flourish and others to decline? Moretie argues that the 21st century economy is very different from the economy we knew three decades ago. Technological growth, not manufacturing, is the main driver of growth in the modern economy.
In the USA, in the past few decades some coastal regions – like New york and California- have become very rich and the economy is booming. However, this progress is at the cost of development of other regions, which continue to lag in comparison. This divergence is too stark to ignore. On some of the social indicators, these ignored regions are as backward as any middle income country in eastern Europe. A few parts of the US enjoy an advantage over others because of their location and readily available workforce. According to the author,the income inequality in the US today is more the inequality between the regions. If a particular sector of the economy does well it is also good for the cluster around it. A waiter in the developed part of the economy- like California- is much better off than the backward part of the economy- like Mississippi.
This was most evident in Silicon Valley where the state aided University of California system provided the much required supply of productive labour to the booming tech sector in the mid eighties. This forced other tech conglomerates to shift their operations in California, in search of quality labour. There is ample research showing that tech companies work best when they are in each other’s proximity. This is happening when other parts of the United States are diverging further away from these developed regions. In Detroit, which was once the global manufacturing hub and one of the largest and richest cities in the United States, the economy declined as companies moved their manufacturing units outside the United states. The economy of Detroit could not keep up with the dynamic nature of the economy. Changing times required the economy to focus more on the innovation sector, as opposed to manufacturing. Today, Detroit is one of the most impoverished cities in the US.
The author was prescient in pointing out the antipathy this diverging economy is causing towards the establishment elites. The 2016 and 2020 elections saw this same region vote overwhelmingly for Donald Trump, in whom they saw a person that can take on the establishment.
The author offers some policy proposals that may help bridge the economic disparity between these regions, which includes government investment in basic Research and Development which might lead to high tech jobs years later, reducing the cost of education for those wanting to take up research would spur the economy in the long run amongst others. It has been observed that rising housing prices have proven to be a big impediment to those willing to migrate to hightech cities. The government can fix these problems by amending the laws that are responsible for these problems.
Although,there is one point that the book fails to explain- income inequality within the developed region of the economy. For years, wages have stagnated despite the fact that labor productivity has improved significantly. If the geographical imbalance is causing income inequality, then what explains the wage stagnation, in the relatively more prosperous region of the economy?
Prasad Kulkarni
SY B.Sc. Economics