Seattle was not always considered a tech hub. In 1971, The Economist labeled Seattle as the “City of Despair” with a 13.1% unemployment rate and around 5% of workers with bachelor degrees. Similar to Detroit, Seattle’s economy relied heavily on declining industries such as manufacturing and lumber. Moreover, crime was increasing and workers were leaving in droves. The city currently, however, is thriving with a 3.6% unemployment rate and over 39% of the adult population with bachelor degrees.
How did Seattle change so much? The economist Enrico Moretti in his illuminating book The New Geography of Jobs argues that Bill Gates’ decision to move the Microsoft headquarters to Seattle drastically altered the city’s economic trajectory. For one thing, the city became much more attractive to other tech entrepreneurs. Jeff Bezos who used to work at a Wall-Street firm in New York, decided to base the headquarters of Amazon in Seattle due to the city’s abundance of tech talent and private financing, resulting in thousands of new jobs. Moreover, former Microsoft employees generated jobs in Seattle by creating new businesses. Moretti estimates that former Microsoft employees, alone, created four thousand new businesses. The travel website Expedia, for example, was started by a Microsoft alumnus.
Other workers in Seattle indirectly benefited from the spending habits of high-tech workers. Adam Smith, the father of modern capitalism, stated that individuals acting in their self-interest can indirectly benefit society. Similarly, high tech workers spend their high salaries on real-estate agents to close on a new house, lawyers for financial maneuvering, doctors to diagnosis their back pain and baristas to order and sip their macchiatos. Indeed, Moretti estimates that Microsoft is indirectly responsible for creating 120,000 less-skilled service jobs (e.g. taxi drivers, real-estate agents, cleaners) and 80,000 college or advanced degree required jobs (e.g. doctors, nurses, and architects) in Seattle.
The former struggling Seattle was able to grow a thriving tech industry but current struggling cities and towns do not have the luxury of a homesick tech billionaire. To put alternative proposals on the table, the economist Noah Smith suggests that the federal government should significantly increase research spending among smaller, lower-ranked colleges. He argues that the additional research funding would allow lower-ranked colleges “to create new labs, hire new researchers and create more private partnerships and investment” in local towns and cities. The result of the college and private partnerships is that knowledge would spill over between both parties. As Moretti notes, research at colleges create the basic science from which private companies build new tech products and services.
Another proposal from economists is that the government can offer wage subsidies to encourage employers to hire local workers. Timothy Taylor pointed that the basic idea of employment subsidy programs is that “it’s better to pay people to work than it is to support them while they aren’t working”. It is not clear whether the criterion for wage subsidies should be based on geography, individual worker or firm. Edward Glaeser, Lawrence Summers and Ben Austin argue that wage subsidies should be targeted based on the employment rate of geographic areas. In geographic areas where employment is low, workers should receive higher wage subsidies to encourage employment while areas which have high employment should receive lower or no wage subsidies.
Though there are policy levers that the government can use to mitigate the growing geographic inequality, the self-perpetuating forces of high-tech workers and businesses accumulating in a handful of geographic areas are likely to make those areas even more attractive and will lead to further growth while declining areas are likely to continue in their decline. Even if we know that these policy proposals will work, it will require a certain level of consensus among voters to actually pass these proposals. Despite these significant challenges, I feel that Edward Glaeser and Lawrence Summers are right to say that we have to do something to make sure more residents have more jobs.