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Tuesday, December 20, 2011

Industry Clustering


Different 'economic bases' are attracted to different packages of amenities. Similar firms tend to cluster in the same metropolitan labor because they are seeking the same amenities. Specifically, labor-intensive work requiring skilled workers often co-locate.

Innovative industries are characterized with a high rate of 'churn', with high employee turnover, as new firms are created, staff up, and either grow explosively or implode.

Locating within a metropolitan area that possesses an existing pool of skilled labor represents a competitive advantage because it makes hiring cheaper and simpler. Also makes firms more efficient, because the incentive to 'conserve' an expensively assembled labor force is less--the 'assembly cost' of acquiring replacement workers are lower.

Metropolitan 'sector' growth stops when the existing pool of skilled labor is becoming depleted, and the competition for limited workers causes wages begin to rise. While rising wages initially draw in skilled workers from outlying areas, that pool is also finite. Additionally, the high level of skill required takes years to develop, so the 'lead time' for developing additional workers. Requires educational programs to anticipate the demand for technical skills in advance of the rise of wages.


(What of Capital Intensive Industries?)