Amazon can’t resist pull of ‘superstar’ cities

In the end, even Amazon behaved according to this rule: In the modern tech economy, cities that already have wealth, opportunity, highly educated workers and high salaries will just keep attracting more of them.

Of all its options across North America, including Columbus, the company appears to have narrowed its choices to New York City and suburban Washington, for a huge expansion of high-paying tech jobs. The 11th-hour decision to split its “second headquarters,” as Amazon is expected to announce shortly, makes the pattern only more glaring.

Because of the pull of “superstar” cities, economists and policymakers fear what will happen elsewhere if the winners keep winning while many smaller communities are left behind. It’s possible Amazon executives genuinely believed a year ago that they might find a more surprising home. But, ultimately, the superstar magnet pulls them, too.

“It’s just absolutely hard-wired into technology economies,” said Mark Muro, a senior fellow at the Brookings Institution. “It’s not just a sort of interesting thing that happens — it’s inherent to the technology.”

Tech companies feed on highly educated and specialized workers, specifically dense clusters of them where workers and companies interacting with one another are more An Amazon employee gives her dog a biscuit as the pair heads into a company building in Seattle, where canines are welcome. Amazon is expected to put its coveted second headquarters in New York City and suburban Washington.

likely to produce new ideas. Washington and New York, as it turns out, are two of the most highly educated regions in the country, with already large pools of tech workers.

“In that sense, we look naive in even raising the question that this could have gone to a different kind of Midwestern, heartland place,” Muro said. “There wasn’t really an alternative.”

By choosing to go where high-skilled workers and other prosperous companies already are, Amazon will effectively ensure that more companies follow it in turn. Opportunity will concentrate further. This divergence, underway for about 30 years, has accelerated since the Great Recession.

Between 2010 and 2017,

according to Brookings, nearly half of the country’s total employment growth occurred in just 20 large metro areas (places that are home to about a third of the population). The Washington and New York regions alone accounted for about half of the net increase in business establishments across the country between 2007 and 2016, according to the Economic Innovation Group, which tracks economic inequality across the country.

“This is a very rational decision for Amazon to make in the micro; in the macro, it reinforces a really challenging trend for the U.S. economy,” said John Lettieri, the president of EIG. “The divide between prosperous and distressed

regions is growing wider. And it’s because of things like this.”

Part of what has changed is that the U.S. economy has become dominated more by companies like Amazon, which produce services instead of manufactured products, and thus employ software engineers instead of assembly line workers.

Drop a big Amazon headquarters into Washington or New York, economists expect, and the 50,000 workers there will be more productive than if the same 50,000 jobs were dropped into Indianapolis. Simply putting them in New York, near so many other tech workers, increases the likelihood that Amazon invents more services, connects to more markets, makes more money.

Those added benefits are so strong, economists say, that it’s worth it to companies like Amazon to pay more — a lot more — for office space and employee salaries in New York City.

“If you are in the business of making new things ... and it’s something that is unique, and it keeps changing and it needs updating, the most important factor of all is human capital,” said Enrico Moretti, an economist the University of California, Berkeley. “It’s not like making soap or like making textiles.”

Moretti’s latest research suggests that scientists who move from small to larger clusters of experts produce more inventions, a pattern that plays out regularly in Silicon Valley. Looked at another way, a majority of patents come out of the largest metro areas. If we spread their inventors evenly across the country, Moretti said, we’d probably have significantly less innovation in America.

In one sense, it’s good for the country that companies like Amazon are as productive as they are, where they are, thanks to these forces. But higher national productivity is no comfort to communities that aren’t gaining jobs. Reconciling the two sets of places is one of the country’s deepest economic challenges.

“This is too profound a structural shift to reverse,” Lettieri said. “It’s not going to reverse. That’s just the nature of the economy today.”