According to a new study pulling numbers from 250 economic regions in Sweden, Norway, and Finland, it all depends on what kind of jobs are created.
It’s the biggest chicken-and-egg dilemma of economic development: Do jobs follow people or do people follow jobs?
Traditionally, it was thought that people follow jobs. We move for money, right? Accordingly, cities shelled out big incentive packages in order to lure companies and factories. But with the rise of the knowledge economy, the opposite notion has gained sway: Highly skilled and talented people—the knowledge and professional workers, artists, musicians, and media workers that comprise the creative class—have the ability to pick where they want to live and then create and attract companies.
A new study published in the journal Regional Studies takes a fresh look at this eternal question, examining it in light of the kinds of work people do—knowledge and creative work versus more traditional blue-collar and service jobs. A team of economists led by Stein Østbye of the Arctic University of Norway looked at some 250 economic regions across the Nordic nations of Sweden, Norway, and Finland, examining the degree to which the availability of jobs (or job density) attracts people and vice versa by comparing growth rates of both population and jobs. There are two big takeaways from the study.
When it comes to the entire economy, it seems, people follow jobs, not the other way around. Overall, a higher rate of job density growth results in statistically significant increase in the growth rate for population density, but a higher growth rate of people density does not lead to a statistically significant change in job density. Interestingly, the study finds that both people and jobs are attracted to natural and cultural amenities as measured by the bohemian index (a measure of artistic and cultural workers). Here the study notes that such amenities increase the attraction of places for both people and industries.
But when it comes to high-paying knowledge, professional, and creative jobs—the ones that drive the economy and innovation—the opposite is true: Jobs follow people. After isolating and examining creative class workers, the study findings reverse, as the density of skilled work follows the density of skilled people.
And there’s more. Once knowledge-economy jobs are taken out of the picture, the remaining less-skilled main sector jobs no longer attract people (as is the case in their overall model). Here again, even these less-skilled jobs follow people. These two kinds of jobs follow one another, main jobs follow smart jobs and vice-versa, creating a cumulative cycle of economic growth. The two go together and reinforce one another. The study finds that creative class jobs follow a one-way causation with higher education, but also follow a circular causation from other jobs.
In other words, the chicken-and-egg dilemma makes little sense when it comes to urban economic development. People attract jobs and jobs attract people. Creative-class jobs attract less-skilled jobs, and vice-versa. The end result is the kind of geographic inequality we see today, where a relatively small share of cities and metros attract a disproportionate share of high-skilled jobs and top talent. In the United States, for example, just five percent of all metros (19 out 364 metros) have dynamic and fully-formed knowledge-based economies, with high concentrations not just of knowledge industries and creative talent but of all key industries and talent, according to a 2015 study.
Here is where the analysis gets really interesting: What can be causing this dual result where jobs attract people overall, but people attract jobs when the economy is split out into both the smart high-skilled sector and the less-skilled main sector? The reason, according to the study, is the prevalence of high-skilled smart jobs in some locations essentially acts to crowd out and deter less-skilled jobs in those locations.
The key factor is the competition for land. Skilled people and skilled jobs are able to outbid other industries and other forms of talent for these key locations, pushing less-skilled people and less-skilled jobs into other locations. As knowledge-based economies grow in these places, less-skilled people and more basic industries are pushed out.
This situation is made worse, as a growing chorus of urbanists have argued, by land-use policies that restrict the development in these increasingly valuable locations. This creates exactly the kind of geographic inequality we see today in the United States, the United Kingdom, and across the world. That inequality in a key factor in the populist uprisings that helped produce both the Brexit and the election of Donald Trump.
The study suggests that policymakers need to take this seriously. While economic logic leads to the clustering of high-skilled jobs and talent in expensive places, policies that appear to favor these privileged places and classes are bound to trigger backlash. What we need are a new set of urban policies which can mitigate the adverse consequences of geographic inequality, help bolster the fortunes of sagging places and less advantaged groups, and reknit the fraying social compact.