STUDY CONNECTS TECH INDUSTRY TO INEQUALITY
Researchers examine effects of innovation-sector growth on economic segregation
Ruben Gaetani, an assistant professor of strategic management at the University of Toronto Mississauga, is conducting research with Enrico Berkes, a Northwestern University Ph.D. candidate in economics. Their preliminary study focused on U.S. cities has a startling conclusion — tech industry growth heightens inequality. The news comes as Toronto fights to become a global tech hub and also to reduce a growing income gap with wealth concentrating downtown and poverty growing on the fringes. The interview with Gaetani has been edited for length.
Your analysis of tech growth and equality indicators in U.S. cities between 1990 and 2010 found a “sorting effect.” What is that and how does it work?
When we measure changes in urban segregation, we must be careful in separating changes that originate from inequality and changes that originate from where people decide to live . . . While the former operates as a side effect of a more unequal income distribution, the latter — that we refer to as “sorting effect” — operates via people’s incentives to live close to other people with similar income, education and occupation characteristics. Understanding those incentives, and how they are related to the growth of the tech sector in a city, is the focus of our research.
What are the forces that push lowincome people out of districts with high-tech jobs and the amenities and upscale development they bring?
When a city develops a strong innovation-based economy, it attracts innovative companies that tend to locate close to each other. The reason is that proximity is the best way to access the key input of any knowledge-based company: ideas. High-education workers relocate in the same area to reduce the commuting distance from these new employment opportunities. This initial push increases the demand for local amenities — some of them critical, such as high-quality schools, others more frivolous, such as yoga centres, organic grocery stores and coffee shops — to which (as we estimate) workers in the knowledge economy are disproportionately sensitive. This process drives up rent, inducing low-income households to relocate to areas that offer fewer amenities but are more affordable. Our estimates suggest that twothirds of the overall effect can be attributed to this amplification coming from residential amenities.
Toronto is pursuing Amazon’s second headquarters. You forecast how landing that prize could affect some other cities. What did you find?
We use a quantitative model to simulate the effect of four bids for Amazon HQ2 on the city of Chicago. We find a consistent pattern in which high-income workers, attracted by these new employment opportunities, relocate towards areas that are, at the same time, easy to access from the new headquarters location and rich of natural amenities, which, in the case of Chicago, mostly coincide with the neighbourhoods in the waterfront. Segregation increases in all scenarios, but the increase is smaller if Amazon locates in the south side, since it attracts high-salary workers to currently low-income areas.
Toronto is embracing the tech economy with Sidewalk Toronto, Uber’s self-driving car lab and more, while also trying to fight income equality. Any advice for cities trying to achieve both those things?
Policy should never be focused on slowing down the growth of the innovation sector, but rather on attenuating its negative effects, some of which work through the channels emphasized by our research. Since commuting considerations are at the root of the initial relocation of households, an improvement in the public transit system can play an important role in limiting urban inequalities. This will also enhance the employment opportunities for households living in more geographically isolated neighbourhoods. Then, policy should focus on moderating the divergence in the quality of residential amenities, which requires a transfer of resources and, more importantly, political attention towards less-advantaged areas. In recent years, Toronto has embraced several projects in this direction. I would also like to add a word of optimism on how our study applies to the Canadian case. The extent to which we should be concerned about segregation depends crucially on the other social and institutional variables: the degree of inter-generational mobility, overall income inequality and health and educational gaps between the rich and the poor, among the others.
Along those dimensions, Canada appears to be in a better position than the United States. Of course, we have to be careful in managing the process, but we can afford risking more on the inequality side if that can take us to a robust and sustainable growth trajectory.