Economic advancement or social exclusion? : less-educated workers, cost-of-living and migration in high-tech regions

Abstract

Several high-tech regions today show signs of displacement and exclusion of low-skill workers from the employment and wage benefits of a booming economy. Whether high-tech activities are responsible for these trends or if the ex ante characteristics of the region could predispose its residents to exclusion, in the absence of high-tech growth, are issues that regional scientists have left largely unexplored. Understanding what low-skill and high-skill workers undergo in the presence of this activity, and how that compares to the reality of those who reside in regions whose economy is not dependent on knowledge-intensive sectors, provides a backdrop for policy makers to evaluate industry-choice decisions in the interest of economic growth and social equity in regional development. To provide that backdrop, I empirically answer: How are the benefits of high-tech development distributed between less- and more-educated workers? How does this distribution compare to that of regions that do not follow an education-intensive development path? Are social equity and sustained growth possible under these conditions? Through regression analysis across 50 regions in the United States during the 1990s, I show that shifts in regional economic-base composition towards a greater concentration of high-tech activity cannot be held on its own responsible for exclusionary patterns in these regions.

(cont.) As high-tech activity increases in a region it attracts workers of all skill levels, causing employment upsurges that are more substantial for college graduates than for high-school graduates. This shift in economic-base composition yields wage drops for low-skill workers but only when migration and cost-of-living are taken into consideration. Conversely, shifts in the composition of the region's workforce towards a more-educated labor pool resulting from migration flows lead to an employment-growth shrinkage for all skill groups, this adverse effect in supply being stronger on high-skill labor than on low-skill labor. As the proportion of college graduates increases, it deters high-skill workers from entering the region, slowing down growth in their supply, their wages, and overall growth in an economy based in this input. Once cost-of-living and migration are taken into consideration, an increase in this proportion yields wage drops for high-school graduates and a small wage gain in college graduate wages, causing greater wage inequality between more- and less-educated workers and more- and less-educated regions.