ECON 1 Lecture Notes - Lecture 19: Knowledge Spillover, Great Divergence, Path Dependence
#19 Tuesday 4/10 (NGOJ)
Three Reasons
1) Thick labor markets
2) Ecosystem
3) Knowledge spillovers
Advantages for Thickness
● Better matching between D and S, allows the firms to find the perfect worker and become more
productive and the workers to find the perfect firm that values their skills so are less likely to leave
● Example: dating sites
● It matters for specialized workers and firms, who have specialized needs, not so much for unskilled
workers
● The thicker the market, the more productive are workers and firms. The more firms and workers, the
thicker the market
● Self reinforcing → great divergence
● It’s hard to jump start the process of thickening the market
Ecosystem
The ecosystem is a symbiotic relationship between firms and service providers.
● Examples:
○ IP lawyers
○ Specialized lab services
○ Specialized repair services
○ Venture capital
● The more firms in a city, the more providers. The more providers, the more firms
● Self reinforcing → great divergence
Knowledge Spillovers
● We learn from each other
● This matters most for highly skilled workers. Knowledge spills over from skilled workers to other skilled
workers
● Productivity of a worker depends both of her human capital (her education, experience, training, etc.)
and the human capital of other workers in the community
● Example: coworking
● Physical proximity still matters, although we can communicate with people who are very far away at
virtually no cost using conference facilities and technology, because having engineers/researchers
together exchanging ideas is key to generating new ideas
● Self reinforcing → great divergence
Document Summary
Three reasons: thick labor markets, ecosystem, knowledge spillovers. Better matching between d and s, allows the firms to find the perfect worker and become more productive and the workers to find the perfect firm that values their skills so are less likely to leave. It matters for specialized workers and firms, who have specialized needs, not so much for unskilled workers. The thicker the market, the more productive are workers and firms. The more firms and workers, the thicker the market. It"s hard to jump start the process of thickening the market. The ecosystem is a symbiotic relationship between firms and service providers. The more firms in a city, the more providers. This matters most for highly skilled workers. Knowledge spills over from skilled workers to other skilled workers. Productivity of a worker depends both of her human capital (her education, experience, training, etc. ) and the human capital of other workers in the community.
