The New Geography of Jobs
By Arnold Kling
That is the new book (due out May 5) by Enrico Moretti. My review can be summed up as:
In a very competitive 2012 book market, this vaults to number two on my list (The Righteous Mind is still number one). Without referring to Charles Murray, Moretti blows Coming Apart totally out of the water, replacing Murray’s moralistic sociology with solid economics.
I have written some long posts about books, but I could not possibly cover this book in a blog post. I almost don’t know where to start. Excerpts and comments below the fold. By the way, there are some flaws, in my view.
Also , Bryan should be worried. Moretti comes down very hard in favor of the benefits of education, notably college education, and those of us who are on the skeptical side of that debate will have to pay attention to his analysis.p. 89
For waiters, the place to be is Las Vegas…even waiters working in normal establishments do well in Sin City. The typical waiter makes $18.20 an hour, tips included–the highest average hourly wage in any large metropolitan area.
This poses a question that Moretti addresses but cannot satisfactorily answer. Is this higher wage a rent or a compensating differential? A compensating differential means that you have to pay somebody more to do the same job in a different location. I can see workers in Alaska earning a compensating differential (and people who love Alaska would enjoy a lot of producers’ surplus). And, personally, I can’t stand Las Vegas, so you would have to pay me a huge compensating differential to get me to move there. But is Las Vegas really the worst place in the country to be a waiter?
On the other hand, can this be a rent? A return to some unobserved skill difference? To an ability to restrict competition? It seems unlikely.
Apropos recent discussions, on p. 56-57 Moretti writes,
Tens of thousands of people work in the United States as yoga teachers…This number is expected to grow rapidly in the foreseeable future…part of a vast web of non-tradable jobs….In the United States, two-thirds of all jobs are in this sector. Most of the 27 million jobs created over the past two decades have been in the non-tradable sector.
Let’s be careful here. One of my tropes is that all economic activity involves outsourcing. I would say that all jobs are in the tradable sector. That is the whole idea of thinking of the economy in terms of patterns of sustainable specialization and trade.
Still, I understand the distinction Moretti is making. Many service jobs are embedded only in local trade. Every city needs to have an export sector. You can think of this export sector as providing the “foreign exchange” that enables the city to import and the profits with which to support the local service sector.
Moretti sees a pattern in American geography. Cities that export innovative products and services are thriving. They also have more jobs and higher-paying jobs in the non-locally-tradable sector. Meanwhile, cities that (used to) export manufactured products are declining.
Again, one wonders why workers in the non-tradable sector do not move out of declining cities and to thriving cities fast enough to reduce the differences in employment opportunities and wages. Moretti looks at the issue, but he does not settle it. He does, without mentioning him by name, give some support to the Matthew Yglesias hypothesis.
The worst passage in the book is on p. 21-22:
In the fall of 1978, manufacturing employment reached its peak, with almost 20 million Americans working in factories…Then suddenly the engine stopped.
I object to this characterization. First, you need to be careful to distinguish manufacturing production workers from white-collar manufacturing jobs. Second, you need to look at the share of employment, not the total number of workers. If you look at it that way, the decline began well before 1978, and it was anything but sudden.
But don’t get the wrong idea. I agree with much of the book, and I found many insights. Also, the way he goes about illustrating his points is captivating. He takes on Richard Florida’s “cultural creatives” theory by describing Berlin, where the culture is avant-garde but the economy does not produce enough exports to sustain itself (it gets by on tourism and government transfers). Moretti describes the change in job structure through the lens of a Philip Roth novel, and this approach works well.
Moretti weaves together many important phenomena–economic growth, education, inequality, and trade. I have not seen any advance hype for it. As far as I am concerned, it deserves plenty. Definitely read it.