TECHNOLOGY AT WORK

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Citi GPS: Global Perspectives & Solutions February 2015
The Concentration of New Work and the Rise
of Innovation Cities
While it is clear that the arrival of digital technologies have created new employment
opportunities, new work has become relatively concentrated over time. As a result,
most people who have not followed the new jobs have not directly seen the benefits
of their emergence.
New work tends to concentrate in skilled
cities as industries become more
knowledge-intensive
The concentration of new work largely stems from the shift towards tech industries
and finance, where knowledge transmission is particularly important. The
continuous renewal of prominent clusters like Silicon Valley is largely the result of
workers frequently switching jobs, leading to the creation of new companies and
industries.
For example, about a year after Shockley Semiconductor Laboratory was founded
in 1956, several of its engineers left and created a new company: Fairchild
Semiconductor. Two of these would go on to form Intel in 1968. In the same way,
frequent job-hopping and the pool of skilled workers has recently attracted a new
generation of companies leading the digital revolution: Google, Facebook, eBay and
LinkedIn, are all based in Silicon Valley. Similarly, Instagram, Dropbox, Uber,
Internet Archive and Twitter are all located or began in San Francisco.
The concentration of new work has led to
divergence across cities and regions
The consequences of the concentration of new jobs and industries are particularly
evident in America, where cities have fared very differently over recent decades. In
his recent book The New Geography of Jobs, Enrico Moretti nicely illustrates the
divergence across US cities, using the example of Visalia and Menlo Park — two
cities that are about a three hour drive apart. Although the cities were not identical,
they had similar crime rates and schools of comparable quality as recently as the
1960s. 87 Workers in Menlo Park were on average slightly better educated and
earned somewhat higher wages. Today, the two cities are worlds apart. While
Visalia has the second lowest percentage of college educated workers in America,
half of Menlo Park’s residents have a college degree, and the city still keeps
attracting new tech companies, including Facebook.
In The World Is Flat, Thomas Friedman famously argued that the digital age would
make location irrelevant. 88 Yet so far the opposite has been true. The digital age has
in fact been a chief driver of the Great Divergence between cities. According to a
recent paper by Thor Berger and Carl Benedikt Frey, cities with larger pools of
skilled workers before the advent of the Computer Revolution of the 1980s have
been in a much better position to take advantage of new technologies, leading to a
substantially faster shifting of workers into new occupations. 89
Older manufacturing cities are being taken
over by new economic powerhouse cities
Meanwhile, old manufacturing cities such as Buffalo, Cleveland or Detroit have
become increasingly associated with urban obsolescence as new economic
powerhouses are replacing old ones. The growth of cities like Shenzhen, where the
iPhone is assembled, almost perfectly mirrors the decline of US manufacturing
locations. In short, the restructuring of global supply chains, enabled by
improvements in information technology, and the rise of skilled innovation cities, has
changed the world of work significantly. While nations have been converging, cities
in the rich world have been diverging.
87 Moretti (2013).
88 Friedman (2005).
89 Berger and Frey (2014a).
© 2015 Citigroup