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The Most Innovative Jobs In The U.S. Are Clustering In A Handful of Cities

Image via Hardik Pandya on Unsplash

The United States has a total area of 3,796,742 square miles. That makes it the third or fourth-largest country in the world by land area, depending if you count overseas territories. So what's the point? Despite its size, the U.S. is facing a dilemma of sorts. 

According to a new report from The Brookings Institution, regional divergence in the U.S. innovation sector "has reached extreme levels." The innovation sector, composed of 13 of the nation’s highest-tech, highest R&D industries, is vital to the U.S. economy. The innovation sector accounts for 3% of U.S. jobs, but generates 6% of the country’s GDP, a quarter of its exports and two-thirds of business R&D expenditures. The industries, such as software, pharmaceuticals and semiconductors, consist of workers with degrees such as science, technology, engineering and mathematics.

The report found that job gains in the innovation sector are becoming highly concentrated to a handful of "superstar" metropolitan areas. Boston, San Francisco, San Jose, Seattle and San Diego captured more than 90% of all new jobs in the innovation sector from 2005 to 2017. These cities' share of the nation’s innovation sector employment increased from 17.6% to 22.8% during this period. 

One-third of the nation’s innovation sector jobs are now in just 16 counties, with more than half concentrated in 41 counties. The hardest hit cities, in terms of losing innovation sector jobs over this period, include Chicago, Philadelphia, Dallas and Los Angeles. 

The report discusses some of the negative externalities as a result of innovation sector jobs clustering to a few cities. The most obvious is housing. A separate report from PropertyShark found that California is home to 73% of the nation’s priciest zip codes. The Bay Area alone is home to 55 of the nation's 125 most expensive zip codes. 

One of the other negative externalities the report focuses on is what it calls the "sorting of workers." This happens as college-educated workers are moving to a handful of cities, leaving those metro areas they've moved from with weaker talent pools. This can cause areas of underdevelopment, which in turn, can lead to broader social issues.

So what does The Brookings Institution suggest as a solution to this issue? They believe the U.S. government should counter this divergence by selecting eight to ten new “heartland” metro areas that can be transformed into "regional growth centers." The report provides a list of 35 metro areas that are ideal candidates for transformation. Madison, Wisconsin, the greater Minneapolis, Minnesota region and the greater Albany, New York region are listed as the most eligible locations. At an estimated cost of $100 billion over ten years, The Brookings Institution points out that it is "substantially less than the 10-year cost of U.S. fossil fuel subsidies." 

As Market Crumbs wrote yesterday, technology companies are expanding, but are increasingly heading to New York City. Doing so doesn't solve any of the issues The Brookings Institution identifies in its report. If the government takes their advice and tries to develop these regional growth centers, there is sure to be plenty of debate as Amazon's search for its HQ2 last year showed what happens when governments try to attract corporations. 

Leftover Crumbs

  • RIP "Tall Paul." Paul Volcker, who served as Chairman of the Federal Reserve from 1979 to 1987, has passed away. "Tall Paul," who was 6 feet, 7 inches tall, served under U.S. Presidents Jimmy Carter and Ronald Reagan. Volcker was widely credited with ending the high levels of inflation experienced in the U.S. throughout the 1970s and 1980s. Under Volcker's leadership, the Fed raised its federal funds rate to a record 22.36% in July 1981 to fight soaring inflation. Volcker was 92 years old. 

  • They won't be sending each other Christmas cards. After losing out on the U.S. Department of Defense's $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract, Amazon has accused U.S. President Donald Trump of exerting "improper pressure," which led to Microsoft winning the contract. In a complaint filed yesterday, Amazon contends Trump's "repeated public and behind-the-scenes attacks" on Amazon founder and CEO Jeff Bezos affected the DoD's ability to fairly select a winning bid. Amazon is requesting the Pentagon reevaluate the proposals and make a new award decision. 

  • Another great investment for SoftBank. SoftBank, which is WeWork's largest investor, has sold back its stake in dog-walking startup Wag back to the company. The price of the deal is reportedly below the $650 million valuation Wag landed when SoftBank invested in the company nearly two years ago. As part of the deal, SoftBank is also giving up its two seats on Wag's board. "We are amicably parting ways with SoftBank and SoftBank will no longer have Board representation," Wag CEO Garrett Smallwood said. "We thank the Vision Fund for their support in the company to date."

  • Have we hit peak beer? Alcohol consumption in the United States fell for the third-consecutive year in 2018, according to IWSR Drinks Market Analysis. Beer appears to be the culprit as sales fell 1.5% last year. Beer's decline appears to be accelerating as sales have fallen 4.6% between October 2018 and October 2019, according to Nielsen. As Market Crumbs previously wrote, this isn't your grandparents' beverage market anymore. Consumers are ditching beer in favor of spiked seltzer, canned wine, pre-made cocktails and premium liquor. 

  • This should be good for trade talks. Apple has "deep concerns" that two former employees will flee to China with trade secrets. Federal prosecutors are requesting the two former employees be monitored as they present flight risks. Both men were previously arrested but subsequently released on bail. Prosecutors allege one of the former employees took files relating to Apple's self-driving car program, while the other is alleged to have taken 2,000 files that include "manuals, schematics, diagrams and photographs of computer screens showing pages in Apple’s secure databases."