That’s the title of my new article with Kevin Stolarick and Charlotta Mellander just out in the Journal of Economic Geography.

Here’s the abstract:

The geographic clustering of economic activity has long been understood in terms of economies of scale across space. This paper introduces the construct of geographies of scope, which we argue is driven by substantial, large-scale geographic concentrations of related skills, inputs and capabilities. We examine this through an empirical analysis of the entertainment industry across U.S. metropolitan areas from 1970 to 2000. Our findings indicate that geographies of scope (or collocation among key related entertainment subsectors and inputs) explain much of the economic geography of entertainment even when scale is controlled for, though our regressions over time suggest the role of scope is decreasing. Furthermore, we find that the entertainment sector as a whole and its key subsectors are significantly concentrated in two superstar cities—New York and Los Angeles—far beyond what their population size (or scale effects) can account for, while the pattern falls off dramatically for other large regions.

The full article is here.

A new study (PDF) from the Bureau of Labor Statistics provides important insight on states where workers toil the longest hours and make the most money. The study by Dante DeAntonio uses data from the Current Employment Statistics – a monthly survey of more than 400,000 U.S. business establishments – to provide estimates for employment, hours, and earnings for all 50 U.S. states. Catherine Rampell summarized some key findings of the study earlier this week over at Economix.

Take a look at the map of the hardest-working states in terms of hours worked. Nevada tops the list with an average of 37 hours per week. Wyoming, Louisiana, Texas, Kentucky, and Alabama all average more than 36 hours per week. At the opposite end of the spectrum are Montana, the Dakotas, Hawaii, and New Hampshire which average less than 33 hours per week.

Now look at the map of the highest-earning states in terms of average hourly earnings. The top earner is D.C. followed by Connecticut, Massachusetts, New York, New Jersey, Washington, Alaska, California, and Maryland. The lowest-earning states are South Dakota, Mississippi, Arkansas, Oklahoma, and West Virginia.

What’s most striking is there’s virtually no overlap at all between the two maps.

So, I decided to take a closer look at some key economic and demographic factors that might be behind the variation in state earnings and working hours. With the help of Charlotta Mellander, we ran a series of scatter-graphs and performed a simple correlation analysis. I remind readers of the usual qualifiers: Our analysis is based on correlations which point only to associations between variables and do not identify causality. Still, some patterns are striking.

First and foremost, we find a total lack of  correlation between hours worked and earnings across the 50 states – there was no statistical significance at all for the correlation between these two variables.

Second, we find that when it comes to state earning power, working smarter trumps working harder across the board.

The connection between human capital and economic development has been theorized and documented empirically by economists like Gary Becker, Robert Barro, Robert Lucas, Edward Glaeser, and many others. Human capital (that is, the percentage of a state’s workforce with a bachelor’s degree and above) is closely associated with earnings – the correlation being .65. We ran a scatter-plot for these two variables. Connecticut, Massachusetts, New York, Washington, and New Jersey all stand way above the line, while Mississippi, Montana, and the Dakotas fall far below it.

Earnings are also closely associated with the kinds of work that states specialize in. The correlation between creative class jobs and hourly earnings is .79. The line on the scatter-graph runs quite steeply upward. Clearly, the transition to smarter, more knowledge-based state economies has a big effect on earnings levels.

On the other hand, state earnings are negatively correlated with blue-collar, working-class jobs (-.67). The slope of the line is steeply negative. Interestingly enough, industrial states like Michigan, Illinois, Ohio, and Indiana all stand above the line. Below the line are states like Mississippi, South Dakota, Oklahoma, Idaho, and West Virginia.

Some believe that immigrants pose an economic burden on states – that they drive wages down and consume high levels of public services. Our analysis suggests this view is wrong. We find that state earnings are  positively associated with the percentage of immigrants (.64). There appears to be a geographic component to this. Northeastern states – Connecticut, Massachusetts, New York, and New Jersey – all stand above the line, while California, Texas, Nevada, Arizona, and Florida stand below it. This may also reflect the industrial and employment structures of these state economies.

Earnings were also higher in states with higher concentrations of gay people (.55). Some might say that higher earning states attract more immigrants or gays. But my own view is that openness affects wages by enabling states to better compete for more highly educated and highly skilled workers across demographic, ethnic, and racial categories.

Smarter states also work less. Working hours are negatively associated with state human capital levels (a correlation of -.59) and also with creative class work (a correlation of -.33). Working hours are, however, positively associated with blue-collar, working-class jobs (.4).

How do work effort and earnings affect the happiness and well-being of states? Interestingly enough, it appears that hours worked play a bigger role. The correlation between state well-being and earnings is less than .3 (.29), while the association between it and hours worked is more than .4 and negative (-.45).

Our analysis reinforces a simple fact that working smarter, and not working harder, is what brings higher earnings to states. In contrast to the view, held by some, that immigrants drag down wages, states with higher levels of immigrants have higher earnings. So do states with higher levels of gays and lesbians. It’s hard to say exactly what’s causing what here – if immigrants or gay people are attracted to richer states that offer more opportunity and higher wages, or if they are part of an economic system that generates higher earnings. My own view is that more open and tolerant states are better able to compete for a wider range of talented and skilled workers across the board. And, smarter states not only generate higher earnings, they afford a greater level of happiness and well-being to their residents.

It’s time to get over the notion that simply working harder brings wealth and economic development. The structure and composition of jobs matter greatly. At a time when job creation is at the top of the agenda, this is something policy-makers need to factor into their thinking about exactly what kinds of jobs we wish to create.

Here’s the abstract for a new paper on said with Charlotta Mellander and Kevin Stolarick.

Economists have argued that individuals choose locations that maximize their economic position and broad utility. Sociologists have found that social networks and social interactions shape our satisfaction with our communities. Research, across various social science fields, finds that beauty has a significant effect on various economic and social outcomes. Our research uses a large survey sample of individuals across US locations to examine the effects of beauty and aesthetics on community satisfaction. We test for these effects in light of other community-level factors such as economic security and employment opportunities; the supply of public goods; the ability for social exchange, that is to meet people and make friends; artistic and cultural opportunities, and outdoor recreation; as well as individual demographic characteristics such as gender, age, presence of children, length of residence, income and education levels, and housing values. The findings confirm that perceived beauty or aesthetic character of a location has a positive and significant effect on perceived community satisfaction. It is one of the most significant factors alongside economic security, good schools, and the perceived capacity for social interaction. We also find community-level factors to be significantly more important than individual demographic characteristics in explaining community satisfaction.

The full paper is over at the MPI site, here.

Guess what country has just said a big, fat resounding “no” to industry bailouts? Sweden, that’s right, Sweden. The land of the big state, socialism, and social democracy. My colleague Charlotta Mellander writes:

It’s interesting how differently the financial crisis is being met by governmental authorities in North America and Scandinavia.  With Saab on the brink of bankruptcy, GM – which owns Saab – turns to the Swedish state asking for support, approximately in the same manner in the  US. And the Swedish government says – NO. No tax money will be spend on saving the car industry. The message is that if a company can’t make it on its own then tax money shouldn’t be  to bail it out. I must say I’m kind of surprised – but in a positive way. I didn’t think they’d have the  courage to say no to such an “institution.”

Here’s a report from Sweden’s The Local:

The Swedish government said on Wednesday it would not intervene to take over Saab. Enterprise Minister Maud Olofsson slammed Saab’s US owner General Motors for “abandoning” the struggling Swedish car maker. General Motors has warned that the unit would go under without official help. “Voters picked me because they wanted nursery schools, police and nurses, and not to buy loss-making car factories,” Enterprise and Energy Minister Maud Olofsson told Swedish public radio.

Can we get her to be our new Commerce Secretary?