I recently read Universal Resilience Patterns in Labor Markets, - an article published earlier this year in Nature Communications by members of MIT Connection Science and the Max Planck Institute for Human Development. The article analyzed the resilience of labor markets in US cities using a framework inspired by biological ecosystems.
Biological principles have long been an inspiration for the study of sociotechnical systems, - that is, systems that deal not only with complex technologies and infrastructures, but also with the even more complex issues associated with human and organizational behaviors, such as firms, industries, economies, and cities. For example, a 2016 Harvard Business Review article, The Biology of Corporate Survival, applied evolutionary biology principles to analyze why businesses are disappearing faster than ever before.
“[T]he typical study of urban labor at equilibrium obfuscates responses to out- of-equilibrium disruptions,” notes the Nature article. “Cities are the innovation centers of the US economy, but technological disruptions can exclude workers and inhibit a middle class. Therefore, urban policy must promote the jobs and skills that increase worker pay, create employment, and foster economic resilience.”
In the late 1990s, some predicted that the Internet would lead to the decline of cities, because it would enable people to work and shop from home, be in touch with their friends over e-mail, and get access to news and entertainment online. But, instead of declining, urban centers have flourished in the intervening years. Cities have continued to generate the greatest levels of innovation, economic growth and good jobs, and thus attract a disproportionate share of the world’s talent.
The reason is network dynamics. The Internet’s universal reach and connectivity has led to increasingly powerful network effects, which gave rise to platform economies, superstar companies, and unicorn startups. Network dynamics have also applied to urban areas, giving rise to the winner-take-all city. In cities around the world, the demands for high-skill jobs have significantly expanded over the last few decades, with the earnings of the college educated workers needed to fill such jobs rising steadily. Talent has become the linchpin asset of the knowledge economy, making capital highly dependent on the high-skill workers capable of navigating our increasingly complex business environment.
But, how resilient are these urban labor markets? Will they able to adapt to major disruptions like Covid-19? Are they capable of handling technological disruptions and a changing work environment? What are the key qualities of resilient urban labor markets?
“[M]ost automation research relies on occupation-level estimates of technological exposure,” write the authors. “But, labor markets are heterogeneous systems in which skills, jobs, geographies, and sectors all interact. Accordingly, models built on empirical skills data may better capture worker mobility and better identify the sources of urban adaptability through the interdependencies of workplace skills. Analogous strategies predict resilience to shocks in ecological systems (e.g., changing acidity or temperature levels) from the density of mutualistic interdependencies between species - independent of population dynamics at equilibrium.”
A biological ecosystem is a community of living organisms which interact with each other and with their environment as a system. They’re controlled by factors external to the ecosystem, such as climate and topography, as well as by internal factors like the types of species present and competition for resources. Being dynamic systems, ecosystems are subject to periodic disturbances.
Ecosystems in similar environments but with different pools of species can end up adapting to disturbances in very different ways. Mutualism, - i.e, the interaction between two or more species where they each benefit, - plays a major role in the evolution of an ecosystem. The density of mutualistic interdependencies between the species in an ecosystem is a good predictor of its resilience to shocks like changing climate conditions, independent of the population dynamics at equilibrium.
“How strong is the analogy between labor market resilience and the resilience of ecosystems?,” ask the authors. Using a theoretical framework that resembles the mathematical models used to study ecological mutualism, they analyzed the overlap of skill requirements in occupations within an urban labor market. Their theoretical framework demonstrated that the economic resilience of cities is universally and uniquely determined by the connectivity within a city’s job network.
“As with mutualistic ecosystems, labor markets in cities that employ workers in occupations with overlapping skill requirements create positive spillover effects that can bolster the resilience of the labor market,” explains the article. “For example, if employment decreases for some occupation, then other similar occupations could support displaced workers without costly retraining. Therefore, as in ecological modeling, the density of connections between occupations within a city could indicate greater economic resilience to shocks, including unemployment shocks, the automation of workplace tasks, or other major disruptions. Essentially, city’s with more connections between occupations will be more resilient to labor shocks.”
To validate the theoretical framework, the authors then applied their mathematical models to predict the labor market resilience of US cities following the unemployment shocks of the Great Recession, and compared their predictions to the actual peak unemployment rates across US cities from December 2007 to June 2009. Using publicly available data from the US Bureau of Labor Statistics, - including the O*Net database of occupations and skills, the Standard Occupational Classification, and the Local Area Unemployment Statistics, - they created a detailed job map for each city that included the numbers of specific jobs, their geographical distributions, and the degree of skills overlap between the jobs in the area.
Their analysis revealed that size and diversity played a role in the resilience of cities. But, while larger cities generally experienced lower unemployment rates, a city’s total employment in 2007, just before the onset of the recession, was not a good predictor of its subsequent peak unemployment rate. After controlling for size and diversity, the analysis empirically confirmed that US cities with greater job connectivity experienced lower peak unemployment rates during the Great Recession, as predicted by the theoretical framework.
“As complex interdependent systems, urban labor markets are more than the sum of individual occupations or sectors,” says the article in conclusion. Policies that promote labor connectivity not only promote economic resilience but can also benefit workers and grow labor markets. Cities that increased job connectivity from 2010 through 2017 saw a corresponding increase in their total wages. “Thus, policy makers may be able to grow their local labor market through targeted investment in the companies and industries that employ workers of embedded occupations which increases the overall job connectivity of the city.”
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