Jobs and Cities are Correlated

There are many ideas that economists agree upon. One such agreement is about the importance of foreign trade in helping economic growth. Another point of agreement is that cities are engines of growth and job creation. 

The fuel that powers these engines to turn out jobs is the principle of division of labour. Division of labour in turn is dependent on the extent of the market.  

Among the first few thinkers who observed this reality was Adam Smith in his book, the wealth of nations – 

“In the lone houses and very small villages which are scattered about in so desert a country as the Highlands of Scotland, every farmer must be butcher, baker and brewer for his own family. In such situations we can scarce expect to find even a smith, a carpenter, or a mason, within less than twenty miles of another of the same trade.”

Cities make it possible for a person to specialise in one task alone and be able to make a living out of it. In fact, there are many jobs that will never exist outside cities. Think of all the construction workers, entrepreneurs and taxi drivers that can operate in cities alone.  In a situation where cities and jobs are closely related, growing cities can help in creating jobs.  

Cities as Labour Markets

Another way to look at cities is from the viewpoint of urban economist Alain Bertaud. Cities are primarily labour markets. When cities become large and ensure constant growth, labour markets expand with them. This expansion impacts two more factors. Job creation and labour productivity. This means more number of jobs and at higher salaries. This positive outcome helps in making the case for improving urban infrastructure and freeing up land restrictions so that our cities may grow and new ones may emerge. 

Case of Bengaluru

Bengaluru was not always the boomtown of India. As pointed out by economist Edward Glaeser in his book Triumph of the City, the path to becoming India’s equivalent of Silicon Valley goes back to at least 45 years. The government in 1976 instituted programs to improve infrastructure, electricity supply, road transport and other utilities to attract IT companies. 1984 saw the advent of IT companies like Infosys who could capture the existing engineering talent pool and multiply jobs by becoming a multination behemoth. This story needs to get replicated in many other cities of India waiting to uncover their own comparative advantage in manufacturing and other sectors. At the same time, Bengaluru needs to expand rapidly to deliver quality public transport and land usage to increase its existing contribution to job creation.         

Case of Indian Cities

Developing nations like India have unfortunately fewer cities than developed nations. The Global Metro Monitor Report (2018) composed by Brookings Institution, maps cities and their nominal GDP as on 2016 – 

The size of the circle depicts the nominal GDP of different metropolitan regions. Blue dots signify cities that are in the top 20% of their respective region. 

India compared with its Asian peers has fewer cities with smaller economic contributions. China’s GDP is about 5 times that of India’s. As the map shows, it also has far more cities than India does. An important component of job creation lies in expanding and improving our current cities and laying down the path for newer ones to emerge. Indian policymakers must reflect on this.