Innovation and Urban Inequality Go Hand in Hand

The urban revival of the past two decades has led to a striking contradiction. As high-tech talent and industry have moved back to many cities, increasing their economic output and lowering unemployment rates, these cities have become increasingly unequal. Now a new study documents in meticulous detail the extent to which rising innovation and deepening economic segregation in cities are two sides of the same coin.

The study, by economists Enrico Berkes of Northwestern University and my University of Toronto colleague Ruben Gaetani, uses sophisticated statistical modeling to parse out the connection between innovation and economic segregation. The study makes use of the researchers’ database of more than 2 million geographically coded and referenced patents (which I previously wrote about here) for U.S. metros (measured as commuting zones), going back more than 40 years. In this study, they specifically compare patent data to measures of economic segregation across census tracts—including measures of segregation along the lines of income, education, and occupation—for the period from 1990 to 2010. Their models include a wide range of variables to control for population, income levels, industry differences, and political and economic factors over this period.

Their baseline finding is as remarkable as it is disturbing: The level of patenting, or what the researchers call “innovation intensity,” is responsible for more than half (56 percent) of the variation in economic segregation among cities. Furthermore, this innovation intensity is responsible for fully 20 percent of the entire increase in economic segregation that occurred in the two decades between 1990 and 2010. Indeed, they find that economic segregation has increased considerably more than income inequality over this time frame.

A large share of the skyrocketing inequality in America over the past two decades results from the divergence of income between, rather than within, neighborhoods or census tracts. And most of the increase in this spatial dimension of inequality occurs within, rather than between, cities or commuting zones. In other words, urban economic segregation—defined as inequality across metros or neighborhoods—accounts for the majority of the widening spatial inequality in the United States. High-tech innovation is a major force, if not the major force, behind this divergence, the study argues.

Rather than being associated with patenting activity in general, economic segregation is tied to just a few knowledge-based high-tech industries, the researchers found. These include fields such as information technology, electronics, pharmaceuticals and medicine, and chemicals, which often require the most specialized and highly educated workers. By contrast, less knowledge-intensive industries, like textiles, are negatively associated with economic segregation. The rise in economic segregation is fundamentally connected to the growing concentration of knowledge-based industries and occupations in cities.

The link between innovation and segregation is not just a consequence of inequality per se, but of the way Americans increasingly sort into different geographies by knowledge, education, occupation, and income. It is driven by the clustering of the affluent and advantaged knowledge workers who power innovation in the first place. As they cluster together in distinct communities to gain access to knowledge networks and startup ecosystems, to reduce their commutes, and to take advantage of a wider variety of urban amenities (from better schools, libraries, and museums to more and better coffee shops, art galleries, and restaurants), they drive up housing prices and drive less affluent and less advantaged people out.

In fact, the study finds that roughly two-thirds of the increase in economic segregation stems from the extreme clustering of knowledge and creative workers in response to “localized, occupation-specific, residential amenities”—the kinds of amenities that are not only clustered but increasingly required for these workers to do their jobs, like “third places” where freelancers can work and cultivate professional networks.  

The study sheds additional light on the fundamental contradiction that stands at the heart of today’s system of urban knowledge capitalism. The same clustering of knowledge and talent that powers innovation and economic growth also generates the divides that tear cities apart. Those divides have led to an anti-urban, anti-innovation, anti-immigrant backlash from many on the right, and an anti-tech-industry backlash from many on the left.

Finding ways to mitigate innovation-spurred economic segregation is crucial. The researchers briefly list a number of familiar responses to this quintessentially urban problem, including improving public transit, making housing more affordable, and improving educational opportunities. Whatever the fix, a growing chorus of urban theorists is making the case that the problems of the modern city are inextricable from their remarkable innovation and growth.