Should Cities Specialize? When each city focuses on one industry, does that make the nation more productive, or hurt workers who can’t afford to relocate?

UPDATED JULY 23, 2013 9:21 PM

Should Cities Specialize?

DEBATERS

People Don’t Just Follow the Money

SPENCER CREW, AUTHOR, “FIELD TO FACTORY”

The New Yorkers who move South might be on to something: A low-paying job in Atlanta can buy a better life than a higher-paying one in New York.

Local Economies Are Only Part of the Story

ISABEL V. SAWHILL, BROOKINGS INSTITUTION

Educational resources and the stability of families have far more effect on how well young people do later in life.

Resources and Services Define a City

SUKKOO KIM, ECONOMIST, WASHINGTON UNIVERSITY

The loss of diversity caused by the convergence in local institutions and cultures may signal a move toward a more cohesive nation in time.

INTRODUCTION

The economies of American regions havebecome more alike, but economic mobility stillvaries widely among cities.

Is it fruitful for cities to specialize in one major industry – biotech in Boston, manufacturing in Detroit, media in New York? Or does that hurt workers who can’t afford to relocate, locking many out of the middle class?

People Don’t Just Follow the Money

Spencer Crew, the Robinson professor of American, African American and public history at George Mason University, is the author of, among other books, “Field to Factory: Afro-American Migration 1915-1940” and “Black Life in Secondary Cities.”

JULY 23, 2013

New data show that economic prospects are much better in New York City than in Atlanta, but a wave of recent migration is going against that current: the many black New Yorkers moving to the South, including to Atlanta. Why would so many people move from a region where it appears to be harder to get ahead?

The New Yorkers who move South might be on to something: A low-paying job in Atlanta can buy a better life than a higher-paying one in New York.

My sense is that economic mobility is not the deciding factor. For many, cost of living may matter more. Although economic mobility is higher in New York City, it is still much more expensive to live there than, for instance, in Atlanta. In particular, if we look at people retiring from northern cities like New York or New Jersey, their pensions and retirement incomes stretch a lot further when they move to less expensive locations.

Even for younger people who hope to find work, upward mobility is not the only factor. It’s also about economic stability and quality of life. If you look at the cost of housing, food and other expenses, a low-paying job in Atlanta may allow you to have a better life than a similar job in New York.

While statistics about climbing the economic ladder certainly are important and should be factored in the discussion, they are not the entire story. Even if workers in Boston and New York have the best odds for advancement, the pace of life in Charlotte or Atlanta might be less hectic – and that could be a smart trade-off for some. Other factors driving migration could include having friends and family in the new city, to provide a support system.

Why people relocate is always a complicated equation. We have to look beyond the economic statistics to get the best understanding of why people move.

 

Local Economies Are Only Part of the Story

Isabel V. Sawhill is a senior fellow at the Brookings Institution and a co-director of the Center on Children and Families.

JULY 23, 2013

The recent Harvard-Berkeley study which was reported on in The Times shows that intergenerational mobility varies across cities and towns across the United States. Some areas, like San Francisco and Seattle, have high rates of mobility while others, like Atlanta and Detroit, have lower rates. What this means is that a child’s shot at the American Dream depends on where they grew up.

The economic base of a community matters for mobility because it can provide jobs and tax revenues to support services.

Educational resources and the stability of families have far more effect on how well young people do later in life.

But two other factors stand out: education and family structure. We have long known that education is the ticket to upward mobility. We have also known that children who grow up in a two-parent family are less likely to be poor, more likely to do well in school, and less likely to get into trouble with the law or have a baby as a teenager. The study confirms the importance of both schools and families.

While parents need jobs, they also need child care and good schools. Voters and their elected officials must be willing to dedicate resources to these purposes rather than to simply keeping taxes low. So children from lower-income families tend to do better in places where there is a lot of civic engagement and a willingness to spend money on schools, transportation, child care, and the other supports needed to raise the next generation.

That said, economics is only part of the story. Young men and women without college degrees are now drifting into parenthood and into short-term relationships that don’t last. They are having children that they never intended to have, often with more than one partner. These children are not getting the kind of parenting that produces upward mobility in well-educated two parent families. As President Clinton once said, government doesn’t raise children; parents do.
Bottom line: we need both responsible parents and civic-minded communities to give the next generation a boost up the ladder.

 

Resources and Services Define a City

Sukkoo Kim is an associate professor of economics at Washington University and a research associate at the National Bureau of Economic Research.

JULY 23, 2013

Regions and their cities look more similar than ever before in American history. Distinct identities associated with places are fading. Yet, just as we value the variety in the foods we eat, we seem to cherish the idea of diversity in our cities. After all, who wants to travel to a different city and experience the sameness of her hometown? But that seems to be our growing reality. Are these developments healthy? To the consternation of some, the answer might be yes. The de-specialization of cities is likely an efficient response of firms and workers to changing economic conditions.

The loss of diversity caused by the convergence in local institutions and cultures may signal a move toward a more cohesive nation in time.

The debate on whether these trends are healthy or unhealthy hinges on the causes of why cities specialize. Long ago, Alfred Marshall proposed that cities specialize because of local external economies. Firms and workers of a particular industry or a set of industries locate near each other because they benefit from information spillovers or lower transactions costs. If this theory is right, then cities specialize for random reasons; it, however, cannot easily explain why cities became more similar over time.

For that reason, in my own work, I argue that the long-run trends in regional and urban economic structures are more likely explained by the growing importance of services. In the late 19th to the early 20th centuries, regions and cities became specialized due to regional differences in resource endowments. Places specialized to take advantage of the benefits of comparative advantage and trade. However, in the second half of the 20th century, as factors became more mobile and as geographic differences in resource endowments diminished, regions and cities became more alike. This homogenization increased as services, the least geographically specialized sector, came to have a more dominant role in the economy.

Finally, non-economic factors may also be at work. In the past, greater differences in local political institutions and cultures may have fostered geographic diversity. But not all of the diversity created by these factors may have been socially beneficial. Regional distinction has, in some areas, been as caused by institutions and social norms that hindered progress, so the loss of diversity may help create a more cohesive nation in time.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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