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November 20, 2018

What happens to small US cities neglected by technology giants?

What happens to small US cities neglected by technology giants?

The concentration of large technology-advanced firms, such as Amazon, in specific cities in the US results in regional divides in economic wealth and well-being. New research by the Brookings Insitute argues that smaller businesses in struggling areas need heavy investment in digital skills and require access to capital through bank loans and venture capital for start-up firms.

IZA author, Stijn Broecke argues that: “Changes in the demand for skills, driven by technological change, globalization, population aging, and organizational changes, have increased the return to skill and, thereby, wage inequality.”

The research also identified parts of rural America that lack sufficient broadband internet, a concern that needs to be addressed if divides are to be reduced. The authors suggest increased federal investment in ten midsize cities that are nearby smaller towns and can therefore act as economic drivers.

Clare Hendrickson from Brookings commented: “What’s increasingly clear after the 2016 election is that the forces that have been really good for the economy in the aggregate, like globalization and technological change, create shocks that are extremely powerful.”

Various plans have been proposed in an effort to reduce the vast economic regional divides. One proposal published by the Hamilton Project, authored by David Neumark of the University of California, Irvine, suggested a plan in which the federal government could subsidize the wages of new workers in extremely poor areas.

A second potential policy idea, authored by Steve Case, from venture capital firm Revolution, focuses on funding entrepreneurship in cities like Nashville and Columbus from capital firms in Silicon Valley to encourage the growth of regional firms.

Mark Muro, co-author of the research, says: “Whilst we many not know the complete and perfect solutions, we do know that we need to get started with the experiments.”

Read more articles on innovation and the future of work.