CityReads│What Determined Urban Industrial Renewal in the 21st C
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What Determined Urban
Industrial Renewal
in the 21st Century？
New industries mainly emerge in human capital abundant places and cities that specialize in industries that demand similar skills.
Berger, T., & Frey, C. B. (2015). Industrial renewal in the 21st century: evidence from US cities.Regional Studies, 1-10.
Source: http://www.oxfordmartin.ox.ac.uk/downloads/reports/Industrial_Renewal.pdf
picture source: http://www.123rf.com/
How do we create new work as old industries mature and decline? Joseph Schumpeter (1939) famously labelled the ‘creative destruction’ an essential fact about economic growth. But the falling pace of job reallocation and new firm formation has induced a debate about whether the age of Schumpeterian growth is over.
Where and why do new industries emerge? Why some cities have managed to reinvent themselves to take advantage of the digital revolution of the 2000s, while others have failed to create new industries.
This paper develops a novel approach to identify the creation of new industries associated with technological change that captures the ‘creative destruction’. Using revisions of the US Census Bureau’s Alphabetical Index of Industries, this paper systematically identifies industries that appeared for the first time between the year 2000 and 2010. Combining data on 1.2 million workers from the 2010 American Community Survey (ACS), this paper tests the hypothesis that new industries are more likely to emerge in skilled cities.
To capture systematically the appearance of new industries, this paper uses the 2000 and 2010 editions of the Alphabetic Index of Industries, constructed and used by the US Census Bureau to classify census respondents’ industry as reported in demographic surveys. First, a string match is performed between each individual title in the 2010 Index against titles in the 2000 edition, yielding 283 unique industry titles that appeared for the first time during the 2000s. Some new titles are, however, simply the result of reclassifications or the division of existing industries. So amanual review of the 283 titles was performed. Doing so, 212 new industry titles are eliminated,leaving 71 titles that are directly related to technological advances, most of which are related to digital technologies.
To analyze the characteristics of workers in new industries, industry titles from the 2010 Index are matched to the detailed industries reported in the 2010 ACS microdata samples. The sample is restricted to individuals aged 18–65 years, outside Alaska and Hawaii, who do not live in group quarters and with industry responses that can be matched with data from the Index.
To examine the link between new industry creation and skills across US cities, an OLS regressions are estimated. Dependent variable is the percentage of workers in city, who are employed in industries that appeared for the first time between 2000 and 2010. Explanatory variable is the percentage of the workforce with at least a bachelor’s degree in 2000. Control variables include the log size of each city’s population in 2000, average household income in 2000, income growth between 2000 and 2010, the fraction of the population that is black and foreign born, the share of employed workers working in manufacturing in 2000 and exposure to Chinese imports during the 1990s.
However, OLS estimates may still be biased if some omitted factor that drives the locational choices of skilled workers also is correlated with the creation of new industries. This paper therefore exploits the location of land-grant colleges, established in the 19th century, as an exogenous source of variation in human capital levels across US cities.
The land-grant colleges’ location was determined by economic considerations, with many established in rural areas. Moreover, because the land-grant program was federal, introduced more than a century ago, and largely focused on the agricultural and mechanical arts, so it’s an good instrument for estimate contemporary differences in human capital.
The importance of skill abundance to industrial renewal is documented in Fig. 1, showing a strong positive link between the percentage of college-educated workers in the year 2000 and the share of workers in industries that were created between 2000 and 2010, across US cities.
New industries tend to employ more skilled workers than existing ones and primarily locate in cities with an above-average supply of college-educated workers.
Overall, the magnitude of job creation in new industries is however strikingly small: in 2010, about 0.5% of the US workforce was employed in industries that did not exist a decade earlier, although there is substantial variation across locations. In skilled cities like San Jose, incorporating Silicon Valley, about 1.8% of workers are employed in new industries, compared with 0.2% in Grand Rapids.
While the mechanism underlying the link between human capital and new industry creation may reflect that skilled cities are better able to adapt to new technologies to reinvent themselves, it could also stem from skilled cities being more innovative. To shed some light on the relative importance of the ‘reinvention’ and ‘innovation’ hypothesis, this paper examines the extent to which new industries emerge as the result of local innovation rather than the implementation of new technologies invented elsewhere.
Crucially, controlling for local levels of innovation, measured by patenting rates, leaves the link between human capital and new industry creation intact. Thus, while there is a positive link between local innovation and industrial renewal, a continued robust relationship between skills and the creation of new industries suggests that industrial renewal mainly stems from skilled workers being better able to adapt to technological change
Finally, the analysis of the land-grant colleges data suggest that cities in the United States where skilled workers historically have located are also places that have experienced substantially more rapid industrial renewal in the 21st century.
This study examines the determinants of new industry creation and finds that new industries are more likely to emerge in human capital abundant places and cities that specialize in industries that demand similar skills.
Yet, the magnitude of workers shifting into new industries is strikingly small: in 2010, only 0.5% of the US labour force is employed in industries that did not exist in 2000.
Crucially, it is found that many new industries of the 2000s stem from the digital revolution, including online auctions, internet news publishers, social networking services and the video and audio streaming industry. Relative to major corporations of the early computer revolution, the companies leading the digital revolution have created few employment opportunities. While IBM and Dell still employed 431 212 and 108800 workers respectively, Facebook’s headcount reached only 7185 in 2013. Because digital businesses require only limited capital investment, employment opportunities created by technological change may continue to stagnate as the US economy is becoming increasingly digitized.
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