What it takes for a city to jump into the knowledge economy

Size matters.
Size matters.
Image: REUTERS/Mike Blake
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What does it take for a city to jump into the knowledge economy? A new study found one key factor: a population of at least 1.2 million.

Physicist Inho Hong from the Center for Humans & Machines at the Max Planck Institute for Human Development in Germany looked at the industry composition of 350 US metro areas between 1998 and 2013. He and his team found that 1.2 million people is the threshold between economies based on manual labor and those based on knowledge and innovation.

Hong and his colleagues were trying to figure out whether all urban areas follow the same path as they grow, a concept they borrowed from biology. Their data analysis suggests the answer to that question is yes. In smaller cities, manual industries, like mining and agriculture, tend to account for a bigger share of the economy. Jobs in those sectors grow more slowly than the population. Bigger cities, meanwhile, rely more on industries such as management and professional services, in which jobs outpace population growth. Once a city reaches a certain number of people, the balance starts tipping towards the knowledge-based jobs.

The chart below shows how the importance of different industries shifts depending on population size. The researchers looked at the contributions of specific industries to a location’s economy compared to the national average: Smaller cities have higher concentrations of primary industries, like farming and mining. Larger cities have higher concentrations of industries like computer science and technology.

The findings, which were published in scientific journal Science Advances in August, are the same regardless of historic, demographic, and geographic differences across cities, the authors said.

In addition to more white-collar, higher-paying jobs, a bigger population leads to a more diversified economy, which in turn leads to innovation, said Hyejin Youn, one of the authors and an assistant professor at Northwestern University’s Kellogg School of Management. “You have opportunities to meet with people who have absolutely very different backgrounds and have intensive interactions possible due to the geographic proximity,” said Youn.

It’s unclear whether the study’s findings apply during the pandemic. Innovation often requires several levels of communication, including non-verbal cues that are now limited due to physical distancing guidelines and the switch to online video conferences.