3 reasons why clusters emerge

According to research by University of California, Berkeley economist Enrico Moretti, the author of The New Geography of Jobs, there are three reasons clusters emerge  (from Stanford Graduate School of Business):

This is a very active area of research, but I think fundamentally, there are three major reasons why clustering takes place. One is the thick labor market effect. If you are in a very highly specialized position, you want to be in a labor market where there are a lot of employers looking for workers, and a lot of workers looking for employers. The match between employer and employee tends to be more productive, more creative and innovative in thicker labor markets.

It is the same thing for the vendors, the providers of intermediate services. Companies in the Silicon Valley will find very specialized IP lawyers, lab services, and shipping services that focus on that niche of the industry. And because they are so specialized, they’re particularly good at what they’re doing.

The third factor is what economists call human capital spillovers ― the fact that people learn from their colleagues, random encounters in a coffee shop, at a party, from their children, and so on. There’s a lot of sociological evidence that this is one of the attractions of Silicon Valley. You’re always near other people who are at the frontier, so you tend to exchange information. Sometimes it’s information about job openings. Sometimes it’s information about what you’re doing, what type of technology you’re adopting, what type of research you are doing. And this, as you can imagine, is important for R&D, for innovation.

So these three forces are crucial, and that means that localities that already have a lot of innovation tend to attract even more workers and even more employers. That further strengthens their virtuous circle.

So, why does this matter? Because, beyond the world’s technology hubs, everywhere you look there is a “startup hub” forming or some kind of cluster being created to help organize and coordinate a cities entrepreneurial activity. And, because governments are “giving money” to specialized funds that can manage it for them, accelerators a dime a dozen.


One thing is missing. I’ll tell you what I think it is on another post.

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