Posted Wednesday, Jan. 18, 2012, at 12:18 PM
Nominal wages vary dramatically from place to place in the United States, so why doesn't everyone pack up and move to high-wage metropolitan areas and get rich? Here's one theory:
Part of the problem is that the country’s largest industries are in decline. In the past, it was perfectly clear where young people should go for work (Chicago in the 1870s, Detroit in the 1910s, Houston in the 1970s) and, more or less, what they’d be doing when they got there (killing steer, building cars, selling oil). And these industries were large enough to offer jobs to each class of worker, from unskilled laborer to manager or engineer. Today, the few bright spots in our economy are relatively small (though some promise future growth) and decentralized. There are great jobs in Silicon Valley, in the biotech research capitals of Boston and Raleigh-Durham and in advanced manufacturing plants along the southern I-85 corridor. These companies recruit all over the country and the globe for workers with specific abilities. (You don’t need to be the next Mark Zuckerberg to get a job in one of the microhubs, by the way. But you will almost certainly need at least a B.A. in computer science or a year or two at a technical school.) This newer, select job market is national, and it offers members of the mobile class competitive salaries and higher bargaining power.
Many members of the immobile class, on the other hand, live in the America of the grim headlines. If you have no specialized skills, there’s little reason to uproot to another state and be the last in line for a low-paying job at a new auto plant or a burgeoning green-energy cluster.
That's all true, but I don't think it really explains it. Those highly paid Silicon Valley workers with specialized skills hire maids, they get their hair cut, they eat at restaurants, their cars need repairs, they get lab work done when they go to the doctor, they shop in stores, they hire plumbers, they order Chinese food, etc. They participate, in other words, in the vast sector of the economy that consists of services that can't be traded across long distances. And in general, if you're selling services like that—whether as a fancy surgeon or a lowly maid—you're better off selling them to richer clients. And if you look at it, you'll see that cities like San Jose, Boston, San Francisco, and Washington DC have median wages that are much higher than the national average even though the median person in all those places doesn't have a college degree. So why isn't everyone flocking to these high wage dynamos? To make a long story short, it all has to do with housing costs and land use regulations and it's a much bigger deal than people realize. My forthcoming ebook The Rent Is Too Damn High is all about this, but as a simple illustration note that Chicago, Detroit, and Houston all experienced explosive population growth during these periods. San Francisco's population is not exploding, it's just becoming a very expensive city.