Multiplier Effects: Connecting the Innovation and Opportunity Agendas

My colleague Jonathan Rothwell already reviewed economist Enrico Moretti’s wonderful book, “The New Geography of Jobs,” but I wanted to jump in to highlight one particularly important point among the many Moretti makes. This concerns the matter of why everyone–including those of us worried about the fortunes of lower-income workers–should care about the innovation agenda we have made so much of here at the Metropolitan Policy Program.

On this issue, Moretti speaks pretty insistently to those who remain skeptical about the benefits the high-tech, high-pay innovation economy confers on the rest of society. Put simply, he says that not only do innovative industries bring “good jobs” and high salaries to the communities where they cluster but that their impact is “much deeper” than their direct effect.

And here Moretti deploys some fascinating original research on the nature and scope of “multiplier effects.”

Multiplier effects reflect the full impact of a single job as measured by its associated additional economic activity and along these lines Moretti notes that attracting a scientist or a software engineer to a city triggers a substantial chain of economic effects with special relevance to both skilled and unskilled workers outside of the tech industry. Yet what is fascinating is that Moretti goes beyond asserting the general existence of multipliers to insist that high-tech jobs have especially large multipliers that are especially favorable for regular working people. Here’s Moretti:

With only a fraction of the jobs, the innovation sector generates a disproportionate number of additional local jobs and therefore profoundly shapes the local economy. A healthy traded sector benefits the local economy directly, as it generates well-paid jobs, and indirectly as it creates additional jobs in the non-traded sector. What is truly remarkable is that this indirect effect o the local economy is much larger than the direct effect. My research, based on an analysis of 11 million American workers in 320 metropolitan areas, shows that for each new high-tech job in a metropolitan area, five additional local jobs are created outside of high tech in the long run.

[And] it gets even more interesting. These five jobs benefit a diverse set of workers. Two of the jobs created by the multiplier effect are professional jobs—doctors and lawyers—while the other three benefit workers in nonprofessional occupations—waiters and store clerks. Take Apple, for example. It employs 12,000 workers in Cupertino. Through the multiplier effect, however, the company generates more than 60,000 additional service jobs in the entire metropolitan area, of which 36,000 are unskilled and 24,000 are skilled. Incredibly, this means that the main effect of Apple on the region’s employment is on jobs outside of high tech.

Through this analysis, Moretti squares the circle between the economic value of super-productive, traded-sector innovation jobs and the well-being of everyone else.

As far as job creation is concerned, there is, in his view, no inherent contradiction between the interests of high-income workers and those of low-income workers.

The takeaway is critical: One of the best ways for a city or state to generate jobs for less-skilled workers is to develop and attract high-tech companies that hire highly skilled ones.