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Metro Areas Are Where It's At -- If You Want Work

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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If you live in a metropolitan area of a million people or more, the U.S. economy looks pretty healthy. If you don't, it looks terrible. There are of course lots of caveats and exceptions here -- some metro areas are doing better than others, some parts of metro areas are doing better than others, things are going pretty well in college towns outside of big metro areas. But overall, this is as good a description as any of the nation's great economic divide:

Large Metros Are Where the Job Growth Is
Year-over-year employment growth, third quarter 2016
 
Sources: Indeed, Bureau of Labor Statistics

That's from the latest crunching of numbers from the Quarterly Census of Employment and Wages by Jed Kolko, chief economist at jobs website Indeed and a frequent purveyor of interesting data to this column.

Other data released this week emphasized the regional disparities in job growth. LinkedIn, in its monthly workforce report, said that the Seattle; Austin, Texas; Denver; and Portland, Oregon, areas gained LinkedIn members at the fastest pace over the past 12 months while the Hartford, Connecticut; Providence, Rhode Island; Norfolk, Virginia; and Pittsburgh areas were the biggest losers. The Brookings Institution's Mark Muro and Sifan Liu, meanwhile, found that five big metro areas -- San Francisco; San Jose, California; Austin; Dallas; and Phoenix -- accounted for 28 percent of job growth in technology from 2010 through 2015.

So high-end white-collar jobs (tech jobs generally pay pretty well, and LinkedIn appeals mostly to "knowledge workers") continue to concentrate in a limited number of big metro areas. Still, Dallas and Phoenix don't immediately spring to mind as tech hubs -- and other metro areas showing double-digit growth in tech employment since 2010 include Charlotte, North Carolina; Indianapolis; Madison, Wisconsin; and Jacksonville, Florida. In LinkedIn's report, the Charlotte; West Palm Beach, Florida; Tampa-St. Petersburg, Florida; Nashville, Tennessee; Las Vegas; and Dallas areas all were in the top 10 for job growth. And the metro areas with the fastest job growth in Kolko's survey were Deltona-Daytona Beach, Florida; Provo-Orem, Utah; and Boise, Idaho.

What we're seeing, I think, are the "agglomeration effects" described by University of California at Berkeley economist Enrico Moretti in his book "The New Geography of Jobs" -- which my colleague Noah Smith wrote about this week and I wrote about last year -- running up against the difficulties of building new housing in the most in-demand cities. That is, the logic of knowledge work calls for concentrating as many people as possible in one place, but the logic of real estate makes that impossible. You can see an indication of this in another chart from Kolko:

Big Cities Are Where Wages Are Rising Fastest
Year-over-year wage growth, third quarter 2016
 
Sources: Indeed, Bureau of Labor Statistics

Wages are rising fastest in the urban counties of large metro areas, but employment growth is fastest in the outer suburbs, where there's more room to grow. To some extent this is a missed opportunity: Moretti and the University of Chicago's Chang-Tai Hsieh wrote a paper a couple of years ago, which I have cited repeatedly, arguing that by keeping more people from moving in, housing regulations in the San Francisco, San Jose and New York areas had reduced U.S. gross domestic product by 9.5 percent. Still, in a political-economic sense it can't be all bad that congestion and high prices in Silicon Valley and New York are driving good jobs to Jacksonville and Madison and Nashville. Spreading the wealth is good, right?

Still, that wealth isn't really spreading beyond the million-plus-population metro areas. This has political consequences. Last year's presidential election broke down to a remarkable extent along metropolitan lines: The bigger your metro area, the more likely you were to vote for status-quo candidate Hillary Clinton.

The divide also raises all sorts of questions of what to do about it. The standard answers in recent years have mostly involved going with the flow -- accept that economic activity is going to keep moving to big metro areas, and make it possible for more people to move there by building more housing and subsidizing (or at least not penalizing) those who move in search of economic activity. I think this is mostly right -- and moving has certainly been a key part of how Americans have adapted to economic change in the past -- but I get why a lot of people don't jump at the chance. Do you stay in your declining small town where housing is cheap and your parents can babysit, or do you try for a $100,000 job in Silicon Valley where child care costs $17,000 a year per kid and your $2,250-a-month two-bedroom is a 90-minute drive from work?

Understandably, given that he owes his presidency to people outside of large metropolitan areas, Donald Trump has been trying to go against this flow. On the positive side, there's been much talk, and some action, about bringing back manufacturing jobs -- which are more likely to be found on the fringes of or outside of big metro areas than white-collar work is. Infrastructure spending and, yes, throwing more people in prison could also create jobs in places where few are being created now.

Then there's the Trump administration's refusal to release funding for the electrification of Silicon Valley's commuter rail line. There are multiple political reasons for this, but I'm going to propose that it's a way to temper employment growth in a region that already has gobs of jobs. Which gets at the perversity of going against the flow. Powerful economic forces are steering job creation toward the big metro areas. Fight too hard against those forces, and you might just end up with fewer jobs, period.

  1. Why am I listing some cities with their states and some without? Because I'm following official Bloomberg News style, that's why! The assumption is that readers all over the world have heard of Seattle and Denver, but might still be a little puzzled by Austin (I would bet that sometime in the next decade we will switch to writing Austin without the "Texas") or wonder whether I'm talking about Portland, Oregon, or Portland, Maine.

  2. The metric is "population gain per 10,000 members."

  3. "Technology" jobs defined as employment in software publishing, data processing and hosting, computer systems design and web publishing/search.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net