Table of Contents
Smart Labor #
Dartmouth economist Matthew Slaughter suggest that outsourcing is not a zero-sum proposition, because overseas workers are generally a complement to rather than a substitute for U.S. workers: for every job outsourced by American multinationals, nearly two new jobs are created in the United States.
When a company successfully brings an innovation to the market—anything from the iPad to a new drug—it can often charge a price that is significantly higher than production costs. Economicsts call this an economic rent. .. The economists Natarajan Balasubramanian and Jagadeesh Sivadasan ... found that both employment and labor productivity grow significantly in the year after a firm successfully patents its first innovation and that these positive effects persist for years afterward.
A Tale of Two Cities #
In 1979, Seattle was not an obvious choice for a software company. ... It was closer to today's Detroit than to Silicon Valley. ... Just a few years earlier (to Microsoft's moving from Albuquerque), The Conomist had labeled Seattle the "city of despair." In an article on the alarming decline of the local economy, ...
Microsoft did not directly help Jeff Bezos start his company, but its presence triggered the creation of an entire high-tech cluster in the region.
Forces of Attraction #
Walmart saw three important competitive advantages to a San Francisco location, which economists refer to collectively as the forces of agglomeration: thick labor markets (that is, places where there is a goo choice of skilled workers trained in a specific field), the presence of specialized service providers, and, most important, knowledge spillovers. Although not much discussed, these forces ultimately determine the location of innovative workers and companies and therefore shape the future of entire communities.
There is something phenomenal about the three forces of attraction. They are responsible for turning a collection of individual workers and firms into an integrated creative commons that is much larger than the sum of its parts.
This generates what economists call localized economies of scales. The term economies of scale usually refers to the ability of companies to become more efficient as they grow in size. For example, large car manufacturers are more efficient than small ones. But instead of applying to a single company, these economies of scale apply to all the companies in a geographical area.