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Technology and Tolerance

The Importance of Diversity to High-Technology Growth

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Document date: June 01, 2001
Released online: June 01, 2001

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report is available in its entirety, including ALL tables and figures, in the Portable Document Format (PDF).


Introduction

The rules of the economic development game have changed. Companies were the force behind the old game. Cities and suburbs gauged their status by the number of corporate headquarters within their borders. Economic developers used financial and other incentives to lure companies to their communities. Now, however, people are the center of the action. High human capital individuals—or as we like to call them, talent—are the key to success in this new era of economic growth. Their ideas and creativity are the most important ingredients in the economic success of a firm or region.

Firms have always located near their key factors of production. In the past, companies located near raw materials, good transportation, or low costs. So, it is not surprising that firms in today's knowledge-based economy are increasingly making location decisions based on where the talent pool is located. According to the managementconsulting firm, McKinsey and Company, the "war for talent" is the number one competitive issue facing companies in the United States and around the world, and it remains so even though the Internet bubble has burst.2 As Hewlett Packard CEO Carly Fiorina told a conference of governors recently: "Keep your tax incentives and highway interchanges, we will go where the highly skilled people are."

The Nobel prize-winning economist Robert Lucas argues that the driving forces in the growth and development of cities and regions can be found in the productivity gains associated with the clustering of talented people or human capital.3 Research by Harvard University economist Edward Glaeser and his collaborators provides ample empirical evidence of the close association between human capital and regional economic growth.4 Glaeser finds considerable empirical evidence that firms gather in particular regions to gain advantages from common labor pools—not, as is more frequently argued, to gain advantages from linked networks of customers and suppliers. Related research by Spencer Glendon finds that a good deal of city growth over the course of the entire 20th century can be traced to levels of human capital at the turn of the century.5 Places with talented people both grow faster and are better able to attract other talented people.

Not surprisingly, high-technology metropolitan areas contain more talent than other metropolitan areas. The statistical correlations between the percentage of the population with at least a college education and the strength of the high-tech economy are uniformly high and significant.6 (See Appendix A for a more detailed discussion).

What, then, brings talented workers to a particular metropolitan area? How do they make their residential decisions? What sets high-technology centers such as San Francisco, Boston, and New York apart from other metropolitan areas? Why have some metropolitan areas—many home to some of the nation's most prestigious university research centers and college graduates—been unable to attract a significant number of talented technology workers?

Our theory is that a connection exists between a metropolitan area's level of tolerance for a range of people, its ethnic and social diversity, and its success in attracting talented people, including high-technology workers. People in technology businesses are drawn to places known for diversity of thought and open-mindedness. These places possess what we refer to as low barriers to entry for human capital. Diverse, inclusive communities that welcome gays, immigrants, artists, and free thinking "bohemians" are ideal for nurturing creativity and innovation, both keys to success in the new technology.

This study examines the relationship between our measures of diversity and tolerance and high-technology success in the 50 most populated metropolitan areas in the United States.7

Endnotes

1. Richard Florida is Heinz Professor of Regional Economic Development and Director of the Software Industry Center at Carnegie Mellon University. Gary Gates is a Research Associate at the Urban Institute in Washington D.C.

2. Chambers, Elizabeth G., et al, 1998. "The War for Talent," The McKinsey Quarterly. Number 3.

3. Lucas, Robert E., 1998. "On the Mechanics of Economic Development," Journal of Monetary Economics, p. 38-9. Lucas says: "If we postulate only the usual list of economic forces, cities should fly apart. The theory of production contains nothing to hold a city together. A city is simply a collection of factors of production—capital, people and land—and land is always far cheaper outside cities than inside... It seems to me that the 'force' we need to postulate account for the central role of cities in economic life is of exactly the same character as the 'external human capital'...What can people be paying Manhattan or downtown Chicago rents for, if not for being near other people?"

4. Glaeser, E.L., 2000. "The New Economics of Urban and Regional Growth". In Gordon Clark, Meric Gertler, and Maryann Feldmen (eds). The Oxford Handbook of Economic Geography. Oxford: Oxford University Press , 83-98. Glaeser, E.L. 1999. "The Future of Urban Research: Non-Market Interactions," working paper, Harvard University. Glaeser, E.L. 1998. "Are Cities Dying?" Journal of Economic Perspectives, 12: 139-160. Glaesar, E.L. 1997. "Learning in Cities," NBER working paper, 6271. Glaeser, E.L., J.A. Sheinkman, and A. Sheifer, 1995. "Economic Growth in a Cross-Section of Cities." Journal of Monetary Economics, 36, 117-143.

5. Glendon, Spencer, 1998. "Urban Life Cycles," working paper, Harvard University.

6. The analysis indicated a Pearson correlation between the Milken Tech Pole and the population with a college degree at 0.72. The Spearman rank order correlation was 0.60—that is the relationship between the rank number of a region on the Tech Pole and the rank on the percentage of the population with a BA or above. Interestingly, talent explains more than 50% percent of the variation in hightechnology concentration.

7. We combine any MSAs that are also part of a Consolidated Metropolitan Statistical Area (CMSA) as defined by the U.S. Census Bureau. As a result, the following areas are constituted as a single metropolitan area: San Francisco: San Francisco, Oakland, San Jose Los Angeles: Los Angeles, Anaheim, Riverside Miami: Miami, Fort Lauderdale New York: New York, Bergen County, Newark, Middlesex County, Nassau County, Suffolk County, Monmouth County


Note: This report is available in its entirety, including ALL tables and figures, in the Portable Document Format (PDF).



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