Is your city on the wrong side of the Great Divergence? Better fix it if you want jobs and talent

Wed, 2016-03-02 06:00 -- Doug Peeples

Have you wondered why some American cities attract the talent they need to be successful, while others lag far behind? The 1980s saw the beginning of a virtuous circle (or vicious circle if your city was on the losing end). Cities with more college-educated people started attracting more high-end jobs, which attracted more smart people which attracted more good jobs and around and around.

The article cited below concludes that this self-fulfilling prophecy is likely to continue, with the rich getting richer and the poor getting poorer. But it also holds out hope that cities currently on the outside can push their way into contention. One idea: more attention to affordable housing. Another possibility: Cashing in on the fact that not everyone wants to live in a mega-city.  – Jesse Berst

"A handful of cities with the 'right' industries and a solid base of human capital keep attracting good employers and offering high wages, while those at the other extreme, cities with the 'wrong' industries and a limited human capital base, are stuck with dead-end jobs and low average wages. This divide -- I will call it the Great Divergence -- has its origins in the 1980s, when American cities started to be increasingly defined by their residents' levels of education. Cities with many college-educated workers started attracting even more, and cities with a less educated workforce started losing ground."

That quote was pulled from a Chicago Tribune article discussing The New Geography of Jobs, by UC Berkeley economist Enrico Moretti. He says the Great Divergence is growing faster and deeper. And he confirms what everyone in the smart city sector already knows – the “innovation sector” is the strongest, most successful part of the economy. Innovative companies and people are migrating to cities such as New York, San Francisco, Seattle, Boston and Austin -- and those cities will continue to grow jobs while others may not.

Tip #1: Pay attention to housing
Yet even those tech centers may struggle unless they find places for all those talented people to live. Rents are high and housing is scarce in many cities -- even many cities that aren't so large. One example: With a population of about 609,000, Portland, Oregon is in a housing crisis. Homes to buy are hard to find and expensive and apartment rental rates are escalating to the point people are being forced out.

Your city may be doing fine economically, but with changes in housing policy and regulation it could probably do better. A paper Moretti co-wrote with Chang-Tai Hseih from the University of Chicago entitled Why Do Cities Matter? Local Growth and Aggregate Growth made the case that lightening up on construction constraints can reverse a downward trend and improve GDP (gross domestic product).

In their words, "Most of the loss was likely caused by increased constraints to housing supply in high productivity cities like New York, San Francisco and San Jose. Lowering regulatory constraints in these cities to the level of the median city would expand their work force and increased U.S. GDP by 9.5%." Of course, those aren't the only cities experiencing extreme housing shortages.

Tip #2: Not everyone wants to live in a big city
The Tribune article also offered a ray of hope for cities that are not tops destinations for the innovation sector. While populations in larger cities are expected to grow for several more years, James Fallows, an author for The Atlantic said he found something different -- a movement "of people with first-rate talents and ambitions who decided that someplace other than the biggest cities offered the best overall opportunities."

So maybe your city doesn't need to -- and maybe shouldn't -- always try to compete with or emulate the biggest cities. Of course the right businesses and job opportunities matter for cities that want a strong, sustainable economy. But if Fallows is right, your city may want to consider doing what it can to accommodate the talented people who don't want to live and work in a big city.

Related articles…
Who will keep your smart city humming? Skilled, talented people (and Cisco's on it)
Want to attract investment? What you can learn from Asia's top 2 cities
Smart cities: one way to beat a sluggish economy?

Doug Peeples is a Portland, Oregon-based writer specializing in technology and energy. Follow @smartccouncil on Twitter.