Great creative class debate continues

Larry Littlefield has a new essay entitled, "Labor Scarcity, Business Location and the Creative Class."  His focus on talent shortage and concentration hits at a key element of the shift to a creative economy. 

I agree with lot's of whats he argues. The central theme - that talent is driving urban growth - is at the very core of my own work.  The remaining issue then is to explain why talent concentrates some places and not others.  There is the classic Lucas-Jacobs human capital externalities effect, and clearly talent attracts talent. I have fashioned adaptive agent models with Robert Axtell of George Mason, Brookings and Santa Fe which show the power of this effect. But it is clear that talent is mobile and that human capital levels have diverged significantly by region according to the research of Berry and Glaeser.  My recent paper with Charltotta Mellander, "The Creative Class versus Human Capital" (posted to this site earlier this week) attempts to parse this out for the Swedish case and finds that three factors - universities, amenities and the diversity of consumer services, and diversity - play complementary roles in accounting for the geographic concentration of talent. We are now replicating these models for the United States and should have results in a couple of months.

Littlefield is right about "prosperity leaders" Austin and Raleigh-Durham. These two regions are also leaders on my creativity measures, ranking  2 and 3 in terms of creative class concentration and 1 and 6 on my creativity index.  We may define amenities differently but to my accounting, even though none of these places are New York or London, all of them offer substantial natural and constructed amenities. Austin is an outdoor athletes' paradise and boasts one of the most authentic music scenes in the world. Raleigh-Durham was voted by Rolling Stone to be one of the nation's best music scenes as well. Ann Arbor is a classic college town, and it too scores off the chart on my creativity measures. I taught at Ohio States and have been long been struck by Columbus's authentic urban neighborhoods (I lived in German Village),  its lifestyle amenities, openness to young people and immigrants, and vibrant gay scene.

I have long argued that universities act as key hub institutions of the creative economy. My piece "The University and the Creative Economy" (available at creativeclass.org) shows how communities with large universities have substantial advantages across all 3 Ts. And my research with Mellander shows that the university is significantly associated with both human capital and the creative class.  I am on record on this blog and elsewhere, as saying that the future of the Detroit metro lies in more in Ann Arbor's talent and technology base  as opposed to a refurbished Renaissance center downtown of casinos, stadiums, and office towers.

A debate is ongoing between “creative class” proponent Richard Florida and Joel Kotkin, prophet of suburban and exurban growth. Florida, seeking to explain the revival of some older cities, asserts that educated, talented, creative young people like such places, and that if communities attract such people, business will follow. Kotkin has responded that the young follow jobs, not the other way around, although he himself had earlier asserted that the most desirable environment for business-desirable workers is exurban “nerdistans” characterized by a lack of economic diversity and, therefore, income transfers.

For years, businesses have been in a position to dictate to even the most highly educated and skilled workers where they would go to obtain the limited number of jobs. But now, for the first time in 40 years, it is businesses that have to think of where to locate to attract and retain qualified workers.

To be sure, a business can always attract labor anywhere by paying enough money, but that would mean either lower profits or higher prices. So the location where new labor force entrants prefer to go, and where younger cohorts want to live, has become a major key factor in businesses’ decision-making.

Right now the two most prosperous regions in the United States are Austin, Texas and Raleigh-Durham, North Carolina. Each boasts huge numbers of university students – at Duke, North Carolina and North Carolina State in Raleigh-Durham and at the massive University of Texas at Austin ... Fidelity Investments has just agreed to relocate extensive operations from Boston to Raleigh-Durham, following several other companies moving to that area. Meanwhile, Ann Arbor, Michigan, home of the massive University of Michigan and Columbus, Ohio, home of the equally massive Ohio State University, are faring much better than other Midwestern Metros. The former just attracted the second “Gogleplex” planned by Google. Apparently, businesses have concluded that the best way to attract college graduates is to locate in the places where lots of them graduate.

None of these places, unlike those identified by the U.S. Census Bureau, have the kind of urban amenities touted by Florida, but in Austin and Raleigh-Durham the ever optimistic real estate industry is bent on creating them, inventing walkable “downtowns” with high density living in places that never had them, to keep the kids in town and bring the empty-nesters back. Meanwhile, good news for Boston: as it’s real estate market has tanked, its economy (aside from construction and retail sales) has started to pick up.

Then there is New York City, which combines high taxes with low school spending and high housing prices. Nonetheless, thanks to its extensive and increasingly popular colleges and universities, mass transit system, parks and free cultural events, and existing concentration of young people supporting the market-provided services they prefer, the city and region continue to attract the young, ranking first among MSAs in total net migration of young, single, college-educated people attracted with a high positive net. The in-migration has continued despite 9/11 and a recession, pushing up average educational attainment in the city despite the low attainment of those who come through the city’s own schools. The educated and otherwise skilled and ambitious young will seemingly put up with anything in order to live there, even being treated as cash cows.

Given labor scarcity, I agree with Florida that business will have to follow skilled labor, unless it is willing to pay enough to attract it where it does not want to go. But its location appears to be as much about agglomeration per se than about any particular urban form. Otherwise the Philadelphia MSA, which has a walkable urban form, would be doing better than Raleigh-Durham, which is only now trying to create one. A large concentration of students appears to be an asset, except that, again, it hasn't been for Philadelphia, which has cheap suburban housing for when the parenting phase is available, and has not been recently for Boston, which has a shortage of such housing.

It appears that such an agglomeration is hard to screw up, because otherwise New York City would have done so. It may also be hard to create.

Read the whole thing here.