The new thing about the Nordic study presented here is the emphasis on people with a higher education and graduate jobs, and their interaction with less-skilled people and jobs that don’t require a higher education – what we call “normal” jobs.
There are no previous studies of this kind based on data from several Nordic countries or on data from Norway, which means that this study provides a new perspective.
The study shows that access to workers with a higher education plays a key role in generating local economic growth. In addition, the study shows that the availability of normal jobs and graduate jobs are mutually supportive and create synergies that play an important role in sustainable regional development.
This implies that it is possible to stimulate local economic growth in several ways. It can be done by attracting people with a higher education (for example through selective measures aimed at individuals), or it can be done by stimulating the creation of normal jobs (selective measures aimed at companies), with the added benefit that the stimulus will be amplified by those normal jobs attracting graduate jobs, which in turn attract normal jobs. This interactive process therefore creates synergies.
Should we aim measures at companies or people?
The traditional belief was that measures aimed at companies – such as tax breaks for capital investments – make it attractive to establish a business venture in a particular location, and this went in tandem with the assumption that people would then follow the jobs.
Later it was thought that measures aimed at individuals – such as writing off their student loans – could make it attractive for them to live and work somewhere, and that this would have a positive impact on the availability of jobs.
But if it’s really true that jobs follow people and people follow jobs – in other words that the causal relationship works in both directions – we already have tools available to us. As far back as 30 years ago, several regional economists (see e.g. Massey, 1990) pointed out that the most efficient approach would be to stimulate companies if the “people follow jobs” effect is strongest, whereas if the “jobs follow people” effect dominates, one should focus on individuals.
But how can we find out which effect really does dominate, which would enable us to choose the most sustainable approach? If it is possible to quantify the effects, it will give us a basis for making sensible recommendations on policies that can create sustainable synergies within the framework of tight government budgets.
Digging below the surface
In order to explore this complex topic, we must leave behind the simple model of Carlino and Mills, which didn’t distinguish between the different types of workers and jobs, and move to one that does make a distinction between workers with and without a higher education on the one hand, and between graduate and “normal” jobs on the other. In the study that we are focusing on, graduate jobs and people with a higher education are called the “Smart Sector”, whereas normal jobs and workers without a higher education are referred to as the “Main Sector”.
Nevertheless, the study starts by using overall data for each region in the Nordic countries, to enable comparison with traditional Carlino-Mills studies based on data from other places. In the overall data, there is a strongly statistically significant “people follow jobs” effect. There is no significant “jobs follow people” effect. Based on that, the naive recommendation to politicians would be to focus on measures aimed at companies, and to ignore measures aimed at individuals.
However, after splitting the economy into the smart and main sectors, and looking at them individually, within each sector there is a “jobs follow people” effect (strongly significant in the smart sector, and weakly significant in the main sector), but no “people follow jobs” effect. In other words, graduate jobs follow skilled workers, and normal jobs follow less-skilled workers. Based on that, the naive recommendation would be the complete opposite: focus on measures aimed at individuals and forget about the ones aimed at companies.
How can we make sense of these seemingly paradoxical results?
The explanation lies in the interaction between the two sectors, in other words in the synergies generated by the diversity within the sectors.
Carlino-Mills studies focus particularly on regional changes in the workforce and jobs from the point of view of the labour market. But it is also possible to imagine other motivating factors that are important to households and companies. For example, in their American data Carlino and Mills (1987) found that since manufacturing industry requires lots of space, and land prices are high in heavily populated regions, manufacturing companies prefer locations where the property market is softer and prices are lower – in other words outside towns.
This is completely in line with our study. Like Carlino and Mills, we imagine that this happens because normal jobs, which require more space, get moved out of property hotspots with high prices to areas where prices are lower. One example of this is the brewery Mack moving its production facilities from Tromsøya to Balsfjord.
The same logic also holds good for households: it is plausible that people with a higher education follow jobs that don’t need a higher education due to housing needs.
Although our data doesn’t provide direct evidence to back up this speculation, it is consistent with our data. The well-known urban studies theorist Richard Florida also considers this to be plausible. He is particularly well known for his bestseller The Rise of the Creative Class
published in 2002, which was published in a revised and extended version in 2012. You can read more about Richard Florida and his influence in Norway in Arkitektnytt 08/2017.
In a blog post on the website citylab.com, he refers to our study:
“Here is where the analysis gets really interesting: What can be causing this dual result where jobs attract people overall, but people attract jobs when the economy is split out into both the smart high-skilled sector and the less-skilled main sector?
The reason, according to the study, is that the prevalence of high-skilled smart jobs in some locations essentially acts to crowd out and deter less-skilled jobs in those locations. The key factor is the competition for land. Skilled people and skilled jobs are able to outbid other industries and other forms of talent for these key locations, pushing less-skilled people and less-skilled jobs into other locations.”