Arnold Kling  

The New Geography of Jobs

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That is the new book (due out May 5) by Enrico Moretti. My review can be summed up as:

Wow.

In a very competitive 2012 book market, this vaults to number two on my list (The Righteous Mind is still number one). Without referring to Charles Murray, Moretti blows Coming Apart totally out of the water, replacing Murray's moralistic sociology with solid economics.

I have written some long posts about books, but I could not possibly cover this book in a blog post. I almost don't know where to start. Excerpts and comments below the fold. By the way, there are some flaws, in my view.

Also , Bryan should be worried. Moretti comes down very hard in favor of the benefits of education, notably college education, and those of us who are on the skeptical side of that debate will have to pay attention to his analysis.

p. 89


For waiters, the place to be is Las Vegas...even waiters working in normal establishments do well in Sin City. The typical waiter makes $18.20 an hour, tips included--the highest average hourly wage in any large metropolitan area.

This poses a question that Moretti addresses but cannot satisfactorily answer. Is this higher wage a rent or a compensating differential? A compensating differential means that you have to pay somebody more to do the same job in a different location. I can see workers in Alaska earning a compensating differential (and people who love Alaska would enjoy a lot of producers' surplus). And, personally, I can't stand Las Vegas, so you would have to pay me a huge compensating differential to get me to move there. But is Las Vegas really the worst place in the country to be a waiter?

On the other hand, can this be a rent? A return to some unobserved skill difference? To an ability to restrict competition? It seems unlikely.

Apropos recent discussions, on p. 56-57 Moretti writes,


Tens of thousands of people work in the United States as yoga teachers...This number is expected to grow rapidly in the foreseeable future...part of a vast web of non-tradable jobs....In the United States, two-thirds of all jobs are in this sector. Most of the 27 million jobs created over the past two decades have been in the non-tradable sector.

Let's be careful here. One of my tropes is that all economic activity involves outsourcing. I would say that all jobs are in the tradable sector. That is the whole idea of thinking of the economy in terms of patterns of sustainable specialization and trade.

Still, I understand the distinction Moretti is making. Many service jobs are embedded only in local trade. Every city needs to have an export sector. You can think of this export sector as providing the "foreign exchange" that enables the city to import and the profits with which to support the local service sector.

Moretti sees a pattern in American geography. Cities that export innovative products and services are thriving. They also have more jobs and higher-paying jobs in the non-locally-tradable sector. Meanwhile, cities that (used to) export manufactured products are declining.

Again, one wonders why workers in the non-tradable sector do not move out of declining cities and to thriving cities fast enough to reduce the differences in employment opportunities and wages. Moretti looks at the issue, but he does not settle it. He does, without mentioning him by name, give some support to the Matthew Yglesias hypothesis.

The worst passage in the book is on p. 21-22:


In the fall of 1978, manufacturing employment reached its peak, with almost 20 million Americans working in factories...Then suddenly the engine stopped.

I object to this characterization. First, you need to be careful to distinguish manufacturing production workers from white-collar manufacturing jobs. Second, you need to look at the share of employment, not the total number of workers. If you look at it that way, the decline began well before 1978, and it was anything but sudden.

But don't get the wrong idea. I agree with much of the book, and I found many insights. Also, the way he goes about illustrating his points is captivating. He takes on Richard Florida's "cultural creatives" theory by describing Berlin, where the culture is avant-garde but the economy does not produce enough exports to sustain itself (it gets by on tourism and government transfers). Moretti describes the change in job structure through the lens of a Philip Roth novel, and this approach works well.

Moretti weaves together many important phenomena--economic growth, education, inequality, and trade. I have not seen any advance hype for it. As far as I am concerned, it deserves plenty. Definitely read it.



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COMMENTS (17 to date)
Andy writes:

Tipping in Vegas is a cultural thing that I don't think can be explained by economics. People go to Vegas to spend money and have fun. And much of the time, the money you're spending doesn't look like money, so it's easy-come, easy-go. When someone is winning they will often tip really big - that's something that just doesn't happen most places. I don't have the data, but I would expect that 3 and 4 figure tips are a lot more common than other places, which would tend to drive the average up.

David R. Henderson writes:

@Andy,
Good point. You’ve explained the demand side. But prospective waiters presumably know about this fact. So why don’t wages get competed down? Oh, wait. They do. But the minimum wage law won’t typically allow the wage for tipped to be less than half the legal minimum. So that limits the competition. So we should expect to see rationing of waiters’ jobs in Vegas. Do we? I don’t know.

mark writes:

Idk if "rent" is the right term because Vegas is pretty unregulated. I would say it is just a different market and this is its clearing price.

1) Frequency of dining out is much higher because that is much more Vegas's business than elsewhere. So you make it up on volume. See my last paragraph in this regard.

2) Many dining establishments are consolidated with other functions - lodging, entertainment, etc. - in a manner different from, say, LA - creating some consumer savings of money and time) which they are willing to redirect.

3) People come to Vegas with a "spend" mindset as opposed to dining out in the generic town. I guess you could call that a rent but it is not the waiters' rent alone.

I think Andy is also in the right direction. Much of that is tips, which aren't bargained like wages. They are a function of dollar volume.

This points out a flaw I often see in classical economics modeling of labor markets. Wages are very different from commissions. Wages are bilateral and time based. Commissions are trilateral and size based - they are functions of the dollar size of what two others are buying and selling. Someone should always ask when they look at labor markets whether they wage-commission distinction is present. For example, much financial sector income can be understood as commissions on the size of financial things - transaction size, assets under management etc.

Foobarista writes:

One other Vegas item: I'd bet that tables turn over quicker in Vegas than in most places, for the simple reason that most people came to Vegas to gamble, not hang out in restaurants for leisurely meals. As a rule, waiters make more money from table turn-over than from individual tips (although relatively frequent fat tips of the Vegas variety definitely help).

Clay writes:

IMO, you guys are missing the biggest factor here. People go to Las Vegas to blow money on higher quality restaurants, and expect more attractive people to wait on them. Attractive people are drawn to work there, so there is more competition in this regard. More expensive restaurants, more attractive people=higher prices. There is a similar market for finance types in New York, programmers in Silicon Valley, etc. The best move there, and prices don't go down because it's a winner take all culture. Obese 40yo waitresses from here in the beautiful city of Toledo can't move there to make that kind of wage, but the more attractive can and do. Compare to a place like Los Angeles, where there are some areas like this, but others are very cheap and low quality.

Seth writes:

I would guess the average check is higher in Vegas (at least in the touristy parts) and there's a higher percentage or people spending other people's money.

drobviousso writes:

Foobarista - that's 1970's talk. Vegas is now seen by some as one of the three best cities in the US for eating out, after NYC and SF.

Anyway, I thought it was common wisdom that hot waitresses make more money than homely waitresses. I also thought that it was common wisdom that Vegas is loaded with hot women attempting to break into various hot-woman-centric careers. I guess you could test this out by seeing where LA lands on the tip scale.

David P writes:

I think that there are micro and macro arguments being made for/against college education. The micro argument tends to look at the individuals, whether or not it makes sense for individuals to pursue education, whether or not it will benefit them to get a degree, etc. The macro side is more about whether or not it benefits the economy overall. I think that both have their points, but like regular economics there is a vast chasm in between the two arguments that needs to be bridged.

Glen S. McGhee writes:

No one, not even Bryan, is denying the benefits of education.

The big question is whether it is a public good or not, and what will replace the de-coupled higher ed system that we now have. Ivar Berg showed that increased degree holding only resulted in higher entry level educational requirements. Clearly this is not sustainable.

And what would happen if everyone had degrees? Duh ..

Floccina writes:

The economic explanation is that women today have better options than marrying and staying with most of these low status men.

Thomas Sewell writes:

Waiters and Valets (and other "tipped" jobs) in Vegas are much more difficult to get than elsewhere.

If there was an option for the employees to pay hourly for the job (instead of being paid 1/2 minimum wage), you'd see prices equalize to a supply/demand balance, but the law creates a surplus of job seekers instead.

This leads to things like needing to have a "connection" to get a job some places, to places like the Rio requiring new valets to surrender all tips for the first 12 weeks of employment. There is also a hierarchy of these jobs, where the closer you are to the strip and the bigger gamblers/tippers, the more experience, better ability, better looks you must have.

Glen W Smith writes:

David R. Henderson writes:

@Andy,
Good point. You’ve explained the demand side. But prospective waiters presumably know about this fact. So why don’t wages get competed down? Oh, wait. They do. But the minimum wage law won’t typically allow the wage for tipped to be less than half the legal minimum. So that limits the competition. So we should expect to see rationing of waiters’ jobs in Vegas. Do we? I don’t know.


Actually, minimum wage laws only explain some of the supply side issue. Bigger factors include the desirability of the location (the very thing Arnold talked about), the distribution of the average (most likely those servers who make 18.00/hr or more represent about 30% of all Las Vegas servers as income in these jobs does not even come close to forming a bell curve) and the number of hours of work available to you. Also, some people in the server business are working a second or third job, a "bridge" job or are working their way through a training program or school. Finally, moving almost always costs more than expected, is mostly an upfront investment and is often the last resort.

Steve Sailer writes:

Which jobs in Las Vegas are unionized?

Insight writes:

@SS Food servers in LV are disproportionately very attractive young women, and with a frequency that people from other places (though probably not LV) might find surprising, are paying their bosses with sexual favors, or at least exercising supernormal skill in dangling the favors and not actually delivering them (much). Seriously.

blink writes:

You have certainly excited me about the book, and I hope you will have more to say about it. But it still weeks before mere mortals can see the book (and Amazon says May 22, not May 5), so your post is frustrating as well!

Jonathan writes:

Amazon says the book is out May 22. Does Arnold have a better connection?

John B. writes:

You say:


Without referring to Charles Murray, Moretti blows Coming Apart totally out of the water, replacing Murray's moralistic sociology with solid economics.

Could you please expand on this point? What does Moretti say? Details, please!

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