 Cities with solid base of human capital attract more quality employers that pay high wages  Cities with limited human capital stuck with dead end jobs and low wages  The Great Divergence is one of the most important developments of the past three decades

 1980s – cities began to be defined by educational levels  Cities with lots of college-educated people attracted more  Cities with less educated people lost better educated population  Workers sorting among cities along educational lines

 Great Divergence (GD) has led to divergence of productivity among regions  And diverging productivity produces diverging wage rates

 Educational divergence affects not only the worker but also the community at large

 GD is the result of long-term economic forces  Knowledge industry now drive wage gains  Depends on educated workers and tends to agglomerate  Initial allocation of educated workers matters; future will build on the past  Cities failing to attract educated workers will fall further behind

 Globalization, technological change, and immigration are shaping the U.S. job market  Effects not uniform; help some cities, hurt others.

 U.S. economy shifting from producing goods to innovation and knowledge and the key ingredient is human capital  For first time, physical capital is not scarce, but creativity is scarce.  Innovators will capture the largest share of income growth

 Includes all high technology  But any job that creates new ideas and new products qualifies as innovative  The innovative create things the world has not seen before

 Innovation matters for two reasons: ◦ 1) Innovation > productivity > wages  Services jobs also benefit, not just innovation jobs ◦ 2) Innovation jobs have large multipliers  One well paying innovation job can support five service-sector jobs due to the induced effect  Multiplier 3 times larger than manufacturing

 Policy implication: best way to create new less skilled service jobs is to attract well- paying high tech jobs.

 With innovation, not everyone wins  Three Americas: ◦ Brain hubs ◦ Declining cities ◦ Cities in the middle  America’s innovation growth engine is creating growing inequality among regions

 Wasn’t supposed to be this way  The New Economy meant that due to technology (internet), geography doesn’t matter  People can share knowledge no matter where they live

 Implication: good jobs in Silicon Valley and Boston will eventually shift to lower cost areas  Innovation hubs will become less concentrated, disperse across the country  High cost cities will decline, low cost cities will growth  Consequence: convergence

 Facts don’t support the New Economy view  Innovation success depends not only on individual workers, but also on community ecosystem  Much harder to disperse innovation than manufacturing  Innovators thrive when located around other innovators

 Innovation environments occur at work but also socially  Interactions with other smart people makes us smarter and more innovative  Once a city attracts innovative workers, easier to attract more innovative workers  Growing inequality reflects a geographic divide, the Great Divergence

 What is driving these trends?  Why is divergence increasing?  Despite talk about the ‘flat world’ where you live matters now more than ever  Where you live affects your earnings, finances, the kind of people you meet, and values you encounter  All related to the new economic geography of jobs

 All these issues are related to the new economic geography of jobs

 Real pay of the average American worker is in decline  Regions with lots of highly educated people attract more, while cities with a less educated workforce have lost ground.  Divergence in productivity among regions  Divergence in wages among regions