Tuesday, January 22, 2013

Talent Retention And Displacement

In an attempt to stop brain drain, the same failed policies are recycled. Internships are hot right now. You can be sure that a bigger and better pool of interns will help businesses. The labor is free or very cheap. You can try out an employee with little risk. The problem is measuring the program's efficacy:

One of the biggest challenges in designing social programs is to make sure you’re not just rewarding people for doing what they were already planning to do.

When designing, say, a mortgage-interest tax deduction to promote homeownership, you want to encourage people who otherwise would rent to buy, not just give a tax break to people who would buy homes anyway. You also don’t want to keep the number of people doing the subsidized activity the same, and just change who is doing it. Economists refer to that phenomenon as “displacement.”

I don't know how much actual cost goes into a concerted effort to cull more or better interns. Retaining someone who would have stayed regardless isn't a win. How do we know that the scheme has worked?

Displacement is the main reason I favor attraction strategies over brain drain plugs. Talent born elsewhere is better for economic development than hiring locals. Don't impede outmigration. Seek birthplace diversity:

We …find a positive and robust correlation between birthplace diversity and productivity. This association is particularly strong for the diversity of immigrants, especially for skilled immigrants in richer countries. Expanding the diversity of skilled immigration by one standard deviation (e.g., from Iran to Ireland, or Ireland to US) increases long-run real income by a factor of 1.2 to 1.5.

Stopping brain drain decreases birthplace diversity. It undermines productivity. In essence, Richard Florida's advice is harmful:

Dear Atlantic Cities,
My home state of Iowa is surrounded by states with bigger cities acting as bigger magnets for its college graduates. Within a few years of graduation, nearly all of my friends and acquaintances had fled the state, and a few years later I joined them. It seems unlikely, particularly in that context, that Des Moines is ever going to "catch up" to Chicago, or even Minneapolis or Kansas City.
What should these states do, from an urban future-centric perspective? Are they simply obsolete as polities, should they just be decertified and folded into neighbors which won the city race?
-Matt Kuhns, Lakewood, Ohio

Richard Florida: Matt, you've hit upon what urbanists sometimes call the giant urban sorting machine. The problem for cities like yours is that young people are the most likely to move. A 25-year-old college graduate is three to five times more likely to move as someone in their 50s. Many cities think they can lure young people back as they get older and have families, and while this may work to a certain extent, the simple math suggests they can never recoup their losses of young people.

What can they do? As I argued long ago, Number 1 is to try to stem the losses. Figure out ways to retain that age group. I'm not saying that only that group matters, but if they cannot be kept or captured it will be hard to stem the sorting problem, as you describe. In fact, this is exactly the problem both Boston and Silicon Valley confronted a half century ago — talented young people were leaving Cambridge (MIT, Harvard, etc.) and Stanford for better jobs, etc., elsewhere. This is why university leaders (not mayors and economic developers) decided to support high-tech development. It could provide a source of employment for these new grads.

Stemming the "sorting problem" is a lot like discouraging a high school graduate from going to college. Everyone loses. Struggling cities should do the opposite of what Richard Florida recommends.

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