Economix: Geography, Income and Religion

In response to my column on religion and income (and my follow-up post on Economix), several readers have asked whether geography plays a big role. As one reader wrote, “Jews (and Asians) live primarily on the coasts, where above average incomes are earned (and needed).” The implication here is that Jews and Hindus aren’t the most affluent religions largely because they’re the most educated; according to this view, much of their affluence instead stems from the fact that they tend to live in expensive, high-income metropolitan areas, like New York, San Francisco, Washington and Boston.

I think this argument mixes up cause and effect. New York and San Francisco are not expensive cities because of something in the local water or some random factor. They are expensive cities because a lot of people making high incomes live there. And the No. 1 reason those cities have so many high-income people is that they have so many highly skilled, highly educated and thus highly productive workers.

Yes, it’s true that not all of the cost-of-living difference stems from difference in productivity. If you took typical workers from an inexpensive city and told them to find new work in San Francisco, they probably would receive a raise — even though their qualifications would obviously have been the same in the two places. But even this difference stems in part from the higher productivity of urban workers.

Here is Edward L. Glaeser — Harvard professor, economic-growth expert and former contributor to this blog — writing in his recent book, “Triumph of the City”:

Recent research also finds that productivity is significantly higher for firms that locate near the geographic center of inventive activity in their industry…

Workers in big cities earn about 30 percent more than their nonurban equivalents, but people who come to urban areas don’t experience higher wage gains overnight.

Year-by-year, workers in cities have higher wage growth, as they accumulate the skills that make them successful.

Wage growth is particularly faster in cities with more skilled workers. Two decades of extra job-market experience is associated with 10 percent more wage growth in skilled metropolitan areas than in nonmetropolitan America, but only 3 percent more wage growth in less skilled metropolitan areas.

New Yorkers and San Franciscans aren’t richer because they happen to have chosen to live in expensive cities. New York and San Francisco are expensive largely because they have attracted so many highly productive jobs. As Mr. Glaeser and other economists have pointed out, nothing breeds productivity quite like education.

Article source: http://feeds.nytimes.com/click.phdo?i=fac189a362f85303e157383e06aeef1e