Regional development and synergies

A new study based on Norwegian and Nordic data shows that access to workers with a higher education plays a key role in generating local economic growth. The study also 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.

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Foto av Susanne Hætta for kbnn:

Graduate jobs

Do people follow jobs or do jobs follow people? And why is understanding this interaction important to the development of Northern Norway? We know that one of the main problems holding back regional development is a shortage of skilled workers, as was pointed out by the Business Cycle Barometer for Northern Norway in 2006 and 2018.

Skilled workers and graduate jobs can act as drivers of regional development, so there are two alternative strategies that immediately come to mind:

1) measures aimed at companies designed to create graduate jobs

2) measures aimed at individuals to attract people with a higher education

In 2010 the government appointed a commission to study what could be done to help spread graduate jobs around the country. Its conclusions were published in NOU 2011: 3. In parallel to this, a University of Tromsø project supported by Sparebank1 Nord-Norge started supplementing the work being done at the national level by the government commission on measures to spread graduate jobs across the country.

The research paper presented here is a result of that project, which was carried out by an international team of researchers from the Nordic countries, including experts on regional economics from the universities of Tromsø, Umeå and Jyväskylä.

In order to understand trends in the geographic concentration of graduate jobs, the researchers analysed the interaction between access to workers and jobs on a regional basis, by looking at the location decisions of people and companies. There are many international studies of this kind.

CARLINO-MILLS STUDIES – do jobs follow people, or do people follow jobs?

Within regional economic research, few questions have received as much attention as this one, going back to at least the start of the 1970s, when an article was published entitled “Migration: Chicken or Egg?” (Muth, 1971). But it was only after Carlino and Mills published an article in 1987 that interest really took off. Their article is the most cited article from 1987 within its field (Regional Science). Since then, a large number of studies have been published that essentially use the same approach as Carlino and Mills. These studies are therefore often referred to as Carlino-Mills studies. The study presented here is one of them. To the best of our knowledge, it is the only such study based on Norwegian data, as well as the only one based on data from several Nordic countries (Norway, Sweden and Finland).

Why has this question received so much attention?

There are numerous reasons for this, but three of the most important ones are that the answer to it can shed light on whether:

1) growth is primarily driven by the supply side or demand side of the labour market

2) cause and effect relationships operate in both directions, making it possible to create self-reinforcing processes that amplify the effects of regional policy

3) it is best to focus on measures aimed at companies or at individuals

Hoogstra et al. (2017) provides a relatively recent literature review, including a so-called meta-analysis of 64 Carlino-Mills studies. A very high number of the studies are from the United States, but there are also many from Europe.



References:

Carlino, G.A., Mills, E.S. (1987) “The determinants of county growth”. Journal of Regional Science, 27, 39–54. doi:10.1111/j.1467-9787.tb01143.x

Hoogstra, G.J., van Dijk, J., Florax, R.J.G.M. (2017) “Do jobs follow people or people follow jobs? A meta-analysis of Carlino-Mills studies.” Spatial Economic Analysis, 12, 357–378. doi:10.1080/17421772.2017.1340663

Muth, R.F. (1971) “Migration: Chicken or egg?” Southern Economic Journal, 37, 295–306. doi:10.2307/1056181

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.”

What does this study tell us?

The economic logic behind this is that a high concentration of graduate jobs and skilled workers pushes up property prices and generates growth. Even in China there are studies indicating that cities are too small from the point of view of optimal efficiency (see e.g. Au and Henderson, 2006). What does that mean for small cities like Tromsø and Bodø – or even Oslo, for that matter? On the other hand, we can question whether efficiency is so important that this is something that we need to worry about. As Richard Florida writes, perhaps what we need is a new set of political tools to overcome the disparities that arise from geographic, economic and educational inequality. These tools must help to maintain standards of living in regions that have fallen behind and amongst disadvantaged groups. If they achieve that, we can repair the social contract between the various layers of society and put a check on populist politics.

Whereas in 2002 Florida would probably have highlighted the fact that our study shows that measures aimed at people with a higher education promote growth, today he would probably place greater emphasis on the synergies we found between different types of workplaces, and on the fact that measures designed specifically to establish a wide range of workplaces promote growth at the same time as potentially helping to reduce social conflicts and being more sustainable in the longer term.


References

Au, C.-C., Henderson, J.V. (2006). “Are Chinese cities too small?” Review of Economic Studies, 73, 549–576.

Boschma, R.A., Fritsch, M. (2009). “Creative class and regional growth: Empirical evidence from seven European countries.” Economic Geography, 85, 391–423.

Carlino, G.A., Mills, E.S. (1987). “The determinants of county growth.” Journal of Regional Science, 27, 39–54.

Florida, R. (2002). The Rise of the Creative Class. New York: Basic Books.

Florida, R. (2017). The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class – and What We Can Do About It. New York: Basic Books.

Massey, D.S. (1990). “Social structure, household strategies, and the cumulative causation of migration.” Population Index, 56, 3–26.

Østbye, S., Moilanen, M., Tervo, H., Westerlund, O. (2018). “The creative class: do jobs follow people or do people follow jobs?” Regional Studies, 52, 745–755.

Storper, M., Scott, A.J. (2009). “Rethinking human capital, creativity and urban growth.” Journal of Economic Geography, 9, 147–167.

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