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Jerome Lyle Rappaport

Jerome Lyle Rappaport
Founder and Board Member
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Edward Glaeser

Edward Glaeser
Professor of Economics at Harvard University
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Stephen P. Johnson

Stephen P. Johnson
Executive Director of Phyllis and Jerome Lyle Rappaport Foundation
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Greg Massing

Greg Massing
Executive Director for the Rappaport Center for Law and Public Service
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Alasdair Roberts

Alasdair Roberts
Professor of Law and Public Policy at Suffolk University Law School
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Joseph Curtatone

Joseph Curtatone
Mayor, City of Somerville
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Tim H. Davis

Tim H. Davis
Independent Research Consultant
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Scott Harshbarger

Scott Harshbarger
Senior Counsel, Proskauer Rose LLP
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Vivien Li

Vivien Li
Executive Director of The Boston Harbor Association
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Guest contributors

Monika Bandyopadhyay
Suffolk University Law Student

David Barron
Harvard Law School and former Deputy Counsel for the Office of Legal Counsel in the US Department of Justice

Linda Bilmes
Senior lecturer in public policy at the Harvard Kennedy School. Assistant Secretary of Commerce during the Clinton Administration.

Brandy H.M. Brooks
Director, Rudy Bruner Award for Urban Excellence, Bruner Foundation

Felicia Cote
Rappaport Fellow, Harvard Law School/Harvard Kennedy School.

Amanda Eden
Suffolk University Law School student

Sara Farnum
Student, Suffolk Univ. Law School

Kristin Faucette
Student at Suffolk University Law School

Benjamin Forman
Research Director, MassINC

Arthur Hardy-Doubleday
JD/MBA student at Suffolk University Law School and the Sawyer School of Business

Theodore Kalivas
Boston Green Blog, Dukakis Center for Urban & Regional Policy

David Linhart
Student, Boston University School of Law

Antoniya Owens
Research Analyst, Mathematica Policy Research, Inc.

Susan Prosnitz
Senior Advisor, TSA, Washington, DC

Ben Thomas
Boston Green Blog, Dukakis Center for Urban & Regional Policy

Matthew Todaro
Student at Boston College Law School

Alexander von Hoffman
Senior Researcher, Joint Center for Housing Studies

Brett Walker
Student, Boston College Law School

Margarita Warren
Student at Suffolk University Law School

The Information Economy Powers Wage Increases

Tuesday, October 26th, 2010
By Edward Glaeser

What large county in the United States experienced the largest increase in weekly wages during the generally bleak 12 months between early 2009 and 2010? It’s a long, narrow island with some very tall buildings, and many observers thought the recession would wreck its finance-based economy.

Yes, the wonder county of 2009 appears to have been New York County, that is, the borough of Manhattan, where wages grew by a stunning 11.9 percent, according to the Bureau of Labor Statistics. National wages rose only by an anemic 0.8 percent, and only 19 areas had wage growth above 3 percent.

Most counties detailed by the bureau showed wage declines over the year. The biggest loser was San Mateo County, in California, where wages dropped by 17.7 percent. While California’s unemployment rate remains at 12.4 percent, the idea-intensive economy around San Francisco Bay, like Manhattan, appears to be holding up quite well.

Santa Clara County, which contains Silicon Valley, experienced 8.7 percent wage growth from 2009 to 2010. San Francisco County had 5.4 percent wage growth. These two counties were third and fifth on the list ranking areas by wage growth.

The success of these areas is particularly remarkable because they started off with higher wages. Typically area incomes revert to the mean, but in the recent recession, at least some places that started with higher earnings have gotten richer over time. This matches a post-1990 pattern in which the incomes of initially richer areas have risen more quickly.

As a result, the earnings gap between the nation and either Manhattan or Santa Clara County has become enormous. The weekly wage in Manhattan now averages a stunning $2,404 — 170 percent higher than the national weekly wage of $889 and 45 percent higher than the impressive $1,655 weekly wage in Santa Clara County. (Of course, the median wage, the point at which half of workers earn more and half less, would be significantly lower, as the Wall Street salaries draw the average upward.)

Far from knocking New Yorkers down, the recession seems to have made them more prosperous, on average.

The bad news is that more money has been earned by fewer people. The rise in the incomes of these coastal cities has not been accompanied by increases in the number of employed people. Employment in Manhattan dropped by 1.7 percent over the year and employment in San Francisco fell by 3.1 percent.

The national drop was 2.1 percent, and only 22 counties (of the 320 ranked in this report) managed to increase employment in the Bureau of Labor Statistics list.

Another source of worry is that the rise in earnings was led by New York City finance, which experienced a whopping 22.7 percent increase in weekly earnings from 2009 to 2010.

Many of us hoped that the recession would provide an opportunity for New York to become a little less reliant on its dominant industry, but that doesn’t seem to have happened. At least, there has also been substantial wage growth in Manhattan’s professional and business services (10.9 percent), manufacturing (9.9 percent) and other services (18.1 percent).

These wage gains are only the latest bit of evidence confirming that America’s economic future depends on its information-intensive cities. Our country is never going to be able to compete with Asia as a producer of ordinary manufactured goods. If the products are old, then they will be produced where costs are lowest. Our economic eminence depends on continually coming up with new ideas in software, biotechnology and finance.

One implication of this is that our future will never seem as certain as it did when America had enormous dominance across vast markets for manufactured goods. In those days, we could be pretty sure that incomes would continue to rise if we just kept doing what we were doing. Now we need to hope that the uncertain process of American innovation will continue forward on its jerky path.

A second implication is that America’s future depends on its schools. This recession has also emphasized the enormous handicaps facing less-skilled Americans. Only 39.5 percent of adult Americans without a high school degree currently have a job, according to the bureau, while 73.1 percent of adults with college degrees are employed. If we want the United States to be strong, we must make sure that we have more college graduates and fewer high-school dropouts.

The final implication is that cities remain vitally important to our economy. That importance reflects the fact that places like Wall Street and Silicon Valley create skills that are even more valuable than those taught in our schools. Globalization and new technologies have made knowledge ever more valuable, and we are a social species that acquires skills by hanging around other smart people.

Cities, like New York, succeed by being places where people can acquire the knowledge that is so critical for innovation. 


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