Why jobs require cities

By Felix Salmon
February 2, 2012

Many thanks to Mark Bergen for finding me this data; I asked him for it because I thought that maybe we could learn something from the way in which China has managed to keep employment growing steadily through some extremely turbulent economic times.

industry.jpg

What you’re looking at here is total Chinese employment from the All China database. Primary industry is commodities, basically, including agriculture; secondary industry is manufacturing; tertiary industry is services.

It comes as little surprise to see that agricultural employment has been falling steadily for 20 years. But it is surprising to see that if you take out the services sector, total Chinese employment has been going nowhere, and basically falling, for the same amount of time.

Caroline Baum, using a different data source, says that China lost 15 million manufacturing jobs between 1995 and 2002; according to these figures, employment in “secondary industry” was flat in those years, going from 156.6 million to 156.8 million before starting to rise again and reaching 218.4 million in 2010. (It’s worth pausing here to appreciate the sheer scale of this chart: each horizontal line is another 100 million workers.)

Meanwhile, the services industry — tertiary industry — has been on fire: it now employs 263 million people, more than are employed in secondary industry, and has doubled since 1992. All this, remember, in a country with more or less flat population growth, thanks to the one-child policy.

Of course it’s hard to find work in the services industry if you’re a rural peasant: tertiary industry is a fundamentally urban thing, which brings me to my second chart.

rural.jpg

It comes as no surprise to see that urban employment is growing incredibly fast — 13.7 million urban jobs were created in China in 2010 alone. What does come as a surprise is to see that urban jobs are still in the minority in China — which means that there’s a lot of room for growth going forwards.

In the U.S., we had a huge construction boom in the aughts, which was concentrated on building bigger suburban and exurban residential houses. That’s good for homebuilders and makers of granite countertops, but it doesn’t really boost the economy more broadly. The Chinese construction boom, by contrast, is building cities and roads and crucial infrastructure, which allows the service economy to keep on growing at a torrid place.

Realistically, there is very little chance that global manufacturing employment is going to increase in future at a rate which will provide jobs for a growing global population. If we’re going to find jobs in the U.S. and the rest of the world, they’re going to have to be found in exactly the area where China is finding them — tertiary industry, or services.

How do you create service-industry jobs? By investing in cities and inter-city infrastructure like smart grids and high-speed rail. Services flourish where people are close together and can interact easily with the maximum number of people. If we want to create jobs in America, we should look to services, rather than the manufacturing sector. And while it’s hard to create those jobs directly, you can definitely try to do it indirectly, by building the platforms on which those jobs are built. They’re called cities. And America is, sadly, very bad at keeping its cities modern and flourishing. 1950s-era suburbia won’t cut it any more. But who in government is going to embrace our urban future?

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Comments
27 comments so far

“I thought that maybe we could learn something from the way in which China has managed to keep employment growing steadily through some extremely turbulent economic times.”

You are saying that we should fudge the numbers? I suppose if it works for Jack Welch, works for China, why shouldn’t it work for the US?

“If we want to create jobs in America, we should look to services, rather than the manufacturing sector.”

Well, yeah… Manufacturing is increasingly automated. That seriously limits your potential for job growth in that sector.

“Services flourish where people are close together and can interact easily with the maximum number of people.”

This is a sound principle, but doesn’t justify your conclusion. I live a five minute walk from banks, barbers, health services of various stripes, fitness centers, real estate offices, convenience stores, a printer, a silk-screen printer, several bars, more restaurants than I can count, jewelers, a library, lawyers, a church, and a really nice coffee shop.

That’s suburbia. Smart suburbia. Cities are large, dirty, inefficient, and offer only a small fraction of the convenient services that you can find in a suburban town. When we lived in the city, there was almost nothing within a walkable distance. You had to either drive or take the bus to get ANYWHERE, and while car trips weren’t terribly long in distance, they were S-L-O-W. Fifteen minutes would get me to the grocery store, or the bank, or some decent restaurants. But fifteen minutes from my suburban home gets me to half a dozen different suburban communities with infinitely more options.

The best design, in my opinion, is what you see in some of the Toronto suburbs. A rich city center, accessible by public transportation from the suburbs (especially light rail). Yet each suburban community is designed to be walkable, with the services appropriate to daily life.

Posted by TFF | Report as abusive

I don’t understand how you turned a correlation into causation.

The income and quality of life disparity between rural and urban China is huge, hence the migration to cities. The US, luckily doesn’t have as big of a difference so there’s less economic incentive to move to cities.

“Of course it’s hard to find work in the services industry if you’re a rural peasant: tertiary industry is a fundamentally urban thing”

I don’t think there’s any real evidence for this. If you believe in economies of scale, then having a larger population base to service should mean less service workers per capita. It’s more likely that service jobs maintain their scale vis-a-vis the population at large, but for your statement to be true, there would have to be less efficiency, hence the need for more people to service an equivalent population base.

I think the link story goes: cities are wealthier -> more people move to the cities; the Chinese are wealthier and have more disposable income -> more service workers

Posted by bzhou | Report as abusive

What is Mark Bergen’s data source? Thanks.

Posted by ejfox | Report as abusive

bzhou took the words right out of my mouth. At best, your chain of logic is speculative and unproven; at worst, terribly wrong. And the China data you present is urban and rural; it seems to say nothing about suburbs and exurbs. And I would hazard a guess that China’s growing services industries look nothing at all like those in the US, so even that comparison may be apples to oranges.

Posted by Curmudgeon | Report as abusive

Your conclusion is wrong, the data is questionable and the assumptions drawn from it seem to go more with pushing a particular ideology than following logic. You also completely ignore the political differences between the West and China, which allows China to make long term plans without ripping them up every four years.

Why did Chinese manufacturing jobs fall by 2002? Nothing to do with the end of the 90s boom then! But wait, isn’t that the period in which the urbanisation project began? Building jobs aren’t manufacturing jobs, are they?

The UK tried moving from manufacturing to services in the 1980s and that created financial crisis after financial crisis, culminating in todays debt fuelled consumer bust. It’s now widely accepted in the UK that following the service mantra was a mistake, and that the UK would have been better off following the German model of increasing investment in education so as to support technical manufacturing of specialist high end machinery, moving manufacturing from making basic goods such as nails, screws and washers and from iron and steel production into more demanding, technical manufacturing. I remember the old British Steel company going on a big publicity drive because of their prowess in making rolled steel. The Germans on the other hand made machines that made machines.

Who’s got all the money now? The manufacturers, not the service industry countries: they’re the ones with the debts.

Posted by FifthDecade | Report as abusive

TFF I have no idea where you lived but where I do it’s the exact opposite and it’s accelerating. No one wants to live in exburbs or suburbs for that matter, especially those of us that are younger. If you have great public transportation, concentrations of what you need, all within walking distance..including your job, what else do you need?

I’m interested in the data but, intuitively, it makes sense. Urban centers cry for more services as more populous areas don’t provide for the space to do service oriented work, and city jobs tend to pay more in general. So more restaurants, cleaners, shops, cafes, etc. Frankly in the suburbs you can’t live without a car. In a well transit serviced city (think Boston or NYC NOT Dallas or Orlando)there’s no need for a car at all. That’s a beautiful lifestyle, from my experience.

Posted by skyman123 | Report as abusive

Despite Felix’s unshakable belief that there is an ongoing and unstoppable flight to the cities, 2010 US Census data shows just the opposite: http://www.msnbc.msn.com/id/43848700/ns/ business-forbes_com/ .

Posted by Curmudgeon | Report as abusive

China is exporting services too

WuXi, China’s Biggest Contract Medical Researcher is 5 Times more Profitable than its US Rivals

And I read recently of a US aged care provider operating in China – the one child policy and labor mobility means there are often no kids to look after Mum &/or Dad. The company has taken Americans to China to train the locals in modern aged care.

There are other reasons China wants it people in cities. Costs less to satisfy basic needs – food, education, clothing, shelter etc and its easier to command and control city dwellers.

Posted by RightPaddock | Report as abusive

I knew it. The flight of jobs to China is due to American workers’ preference for living in the suburbs rather than in dormitories on the factory premises.

There was no “huge boom” in residential construction in the aughts, although construction had increased steadily since the early 90′s. Look at the actual data on housing starts.

Posted by skeptometric | Report as abusive

skyman, I live in the Boston area. Used to live 5 miles from the downtown, which translated into a 45 minute commute for my wife (on the bus) during rush hour. My job was in the suburbs, also ~5 miles, which typically took 30 minutes by car in the evening. (Just 15 minutes in the early morning without traffic.)

We then moved to the suburbs, roughly 15 miles away from both the downtown and my job. My wife’s commute switched to the commuter rail, more pleasant and no longer. Mine moved off the surface streets onto the beltway, again taking roughly the same time.

You never want to drive in or into Boston during rush hour (or really any other time), which makes living in the city a transportation challenge. Much easier to live on the periphery and commute in by rail.

Posted by TFF | Report as abusive

You really need to start giving props to Krugman for his work on economic geography if you’re gonna keep talking about cities and demand-driven agglomeration.

Posted by dbunn | Report as abusive

“…which allows the service economy to keep on growing at a torrid place.”

When you say “torrid” do you mean that it’s hot and dry, or full of difficulty? Surely not torrid in the romantic sense?

Dan

Posted by dcarmell | Report as abusive

Yes, if only we could get all those workers out of the suburban office campuses of Palo Alto, Santa Clara, Cupertino, and Sunnyvale, maybe they’d do something productive :)

What I think is interesting in the Chinese manufacturing employment numbers is that it is additional evidence that massive manufacturing job growth (as opposed to manufacturing output growth) just isn’t going to happen. Increased productivity through automation is simply too powerful of a trend, just as it was with agriculture a century ago. Which is good, because increased productivity makes society wealthier, and eliminating the need for work that tends to be unpleasant and dangerous is on the whole a good thing. We have to work out how to put that labor to use elsewhere, but that’s an opportunity as well as a challenge.

Posted by realist50 | Report as abusive

Some interesting thoughts there, Felix. But, as other commenters have noted, there isn’t enough data there to reach the conclusions you have. Then, nobody has mentioned the obvious missing point, so I’ll make it.

There are two types of services: those that require face-to-face interaction, and those who don’t. Those that require face-to-face interaction can be divided in two categories: those that most people want, and those that are required by only a few people. The kind of services that are found in cities but not in rural areas are usually face-to-face and needed by few people, for the simple reason that they need to be in a place where enough people can reach them to make the business profitable. It used to be the case that other services were also concentrated on cities because they are often easier to commute to, but as people have gradually become used to longer commutes, that isn’t so relevant any more. And services that used to be face-to-face are now possible to do remotely, thanks to new technologies. So again, there is less need to locate services in cities than there used to be.

On the other hand, if you think that oil prices will go up in the long run, then investing in cities, and offices in cities, could be a good long-term bet. It will make commuting easier in many cases (depends on the city, though, YMMV).

Alternatively, if oil prices get higher you could have more employees working from home. Of course, this assumes that you don’t worry that the economy is heading downwards in such a way or for a long enough time, that possible disruption in telecomms in the future is a concern for you.

Posted by Doly | Report as abusive

As someone who is actually working and living in Beijing, I would note that many of the Chinese “jobs” counted by the Chinese government are not “real” jobs…just efforts to keep the populace mollified by keeping them occupied doing pointless acitivities.

For example, Beijing has legions of elderly street-sweepers and crossing guards employed by the government simply to give them something to do, even though the street sweeping is pointless and the crossing guards are widely ignored.

Posted by mfw13 | Report as abusive

Felix, Could you do us a favor and branch this out into a chart of U.S. citizens moving into cities (census data) against GDP growth? We might find that they grow together and it would reinforce the idea that moving your citizenry into cities is a primer for growth.

Thank you.

Posted by DoubleDeuce | Report as abusive

TFF is describing Canadian (Toronto) suburbs because that isn’t the description of most USA suburbs. All of Metro Boston is a traffic nightmare during business hours.
Boston was always walkable. And it had subways and buses at frequent intervals and stops very close together. It is funny to hear the precious petals that live in suburbia and find modern cities “dirty”. Evidently physical condition is a very subjective attitude. I come from a picturesque (bordering on seedy, even squalid – depends on where you look) rural town and I am always amazed how clean and well maintained the cities like Boston and NYC are (also depending on where you look).

It’s also my experience that cities allowed for very rare types of businesses that would languish in suburbs and rural areas. Restaurants, bookstores or shops that catered to unusual tastes could live in NYC but would die further out. In the rural areas it seems to be very hard to keep any business alive except some basic services.

The bump in the chart from 1957 to 1962 must have been a five-year plan? I was surprised to see that the Cultural Revolution in the late 60s and early 70s didn’t seem to disturb the economy at all. I didn’t recall what happened that there was a sharp rise in the late 80s-early 90s.

But the suburban areas are most vulnerable to fuel cost shocks. US suburbs are dead without the private automobile. Most people – even in suburbs, don’t walk if they can help it. I live in a rural are and it is a ten mile round trip to get a gallon of milk.

Posted by paintcan | Report as abusive

@Doly, I work at home, and put far fewer miles on my (14-year old) car than anyone who commutes any distance (I do fly occasionally, however). I live 50 miles outside of Boston. Felix irrationally believes people want to live in cities. I (perhaps just as irrationally) exhort employers to recognize that many jobs can be reliably done without commuting to an office, wherever that office may be.

Posted by Curmudgeon | Report as abusive

China’s urbanization runs a risk, especially in the smaller cities that are now at the heart of Beijing’s urban migration push, of exacerbating the country’s social unrest. Without tackling the root causes of that disgruntlement through the reform of local government finances and governance, and most of all, of land rights, the influx of millions of migrants into towns and small cities will only put additional stress on the fault line that is trembling below. We have written about this at http://chinabystander.wordpress.com/2012  /01/20/small-cities-astride-a-social-fa ult-line/.

Posted by ChinaBystander | Report as abusive

“But the suburban areas are most vulnerable to fuel cost shocks.”

The distant suburbs, perhaps, as their (weak) rationale evaporates in the face of $5 gasoline. But the near-in suburbs could absorb $1/mile transportation costs without hugely skewing the cost of living there. As you note, it is the rural areas that are MOST vulnerable to fuel shock, as people easily log 5x the miles of your typical suburbanite and incomes are often much lower.

“All of Metro Boston is a traffic nightmare during business hours.”

Not true. Inside of Rt. 128 is pretty ugly (though there are pockets that are drivable if you know the side roads). Outside of Rt. 128 is only minimally congested.

Boston isn’t a particularly well-designed city, but there are many neighborhoods in and around the city from which you can commute effectively. You simply have to work around the quirks of the public transport map.

Posted by TFF | Report as abusive

Felix

Actually, the best way to make service jobs is through manufacturing. General Electric has a great high margin services business in maintaining jet turbofan engines for civil aviation over a ten to fifteen year period-but they wouldn’t have grown this to its present scale if they hadn’t built the engines in the first place.

Manufacturing is important to countries in three ways:
1) you can apply technology to it to make it more productive (generating surpluses, which, over time, enable countries to raise their standards of living)
2) you can wrap services around them per the GE example invoked above
3) you can invent whole new products/industries, through the collaboration of engineers and designers with shop floor expertise.

Cheerleading for more service jobs is fine-but the reality is that most of them involve frying burgers, stocking shelves at Walmart, or emptying bedpans.

Posted by crocodilechuck | Report as abusive

Fair enough, so far as it goes, but to get a more urban society in America you need to make cities more family freindly. Make them a good place to bring up kids on an average wage.

For that you need to end ghettoisation, so make quality of education, home price and crime levels MUCH more even.

Good luck with that.

Posted by Dafydd | Report as abusive

Dafydd, this is largely a result of how we district and fund education in the US.

If you live in Brighton, you are part of the Boston Public School system. Your neighborhood school shares its funding with the rest of the BPS. Moreover, if you somehow succeed in building a strong school community, it will be ripped apart. New students will be bussed in from all over the city (often riding 30 minutes to an hour each way). Veteran teachers will demand transfers, bumping young and energetic teachers from their positions.

If you move half a mile west into Newton, you are part of an excellent suburban district. Students are bused in from Boston through the Metco program, however the numbers are strictly limited. The funding is local, and you can build a strong teaching faculty without having them forcibly transferred to a failing school ten miles away.

I personally believe that schools should be as local as possible — community involvement is ESSENTIAL to building strong schools. But the funding should be lifted to the state or federal level. Make sure the failing schools have the resources they need to improve, while allowing the successful schools the continuity necessary to sustain that success.

If you have kids, you either qualify for one of the exam schools, send your kids to private school, or you move out of Boston. That is a broken system. And while I cite Boston as an example, is the equation truly so different elsewhere in the US?

Posted by TFF | Report as abusive

I agree that schools are part of the equation of why people move to suburbs, but a lot of the appeal of the suburbs is nothing more than people wanting to have a bigger house and yard than are practical in the central part of a city.

My issue with Felix’s post is that he makes a bizarre assertion about urban vs. suburban productivity based on Chinese urban vs. rural productivity – which is a dramatically different dynamic because China is moving people out of a low-tech agricultural economy – and uses that to try to justify high speed rail, of all things. I assume by “investing in cities” he’s also pushing programs for dense, vertical development. As an addition to the housing mix of an area, fair enough. Some view that over time we’re going to empty the suburbs in any meaningful way and move people into neighborhoods that look like Manhattan or Brooklyn is silly, however. The simple fact is that most people, especially once they have children, prefer to live in a relatively spacious detached home with a yard. That means suburbs to provide the space. NYC is pretty unusual in the U.S. in having meaningful numbers of non-poor people who raise kids in multi-unit buildings, and Felix and many other writers have a narrow view based on this atypical situation. (NYC is also, of course, unusual for its sheer size and for having its main business district built on a difficult to access island. And even there, lots of people move to detached suburban homes.) So, he ends up advocating policies that largely ignore how most people want to live. (Ironically, I live in a high-rise condo and don’t drive my car on a daily basis, so I live pretty close to the way that he advocates. I don’t have any kids, however, and I also recognize that my preference for living in this manner is atypical.)

Posted by realist50 | Report as abusive

“people wanting to have a bigger house and yard than are practical in the central part of a city”

That is very important to me, to be sure. Space to garden, plant trees, grow flowers, and get a little grubby…

Smart design would have clusters of dense housing with walkable business districts, surrounded by broader areas of less-dense housing for the people who desire the space. All connected by efficient light rail, so the vast crowds of people streaming to the urban center can stay off the roads.

Posted by TFF | Report as abusive

TFF – I agree with your overall vision of city design, with 1 tweak. Light rail makes sense sometimes, but I think that buses, in combination with bus/HOV lanes, are an important part of the mix that sometimes make more sense. Light rail is more effective if high enough ridership is there, but run more risk of being white elephant projects if built in areas that don’t justify it. Buses are easier to redeploy if future growth follows unanticipated patterns.

I’m cynical about the bias of local politicians – more ribbon cutting photos from light rail than bus system expansions. It’s not a phenomenon unique to light rail – see convention centers and sports stadiums.

Posted by realist50 | Report as abusive
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