THE U. S. TODAY IS A TALE OF TWO KINDS OF CITIES
ECONOMY WHILE TECH HUBS BOOM, OTHERS ARE LEFT BEHIND
As the U. S. economy was still reeling from the body blow of the Great Recession, Seattle’s was about to take off.
In 2010, Amazon opened a headquarters in the littleknown South Lake Union district — and t hen expanded eightfold over the next seven years to fill 36 buildings. Everywhere you look, there are signs of a thriving city: Building cranes looming over streets, hotels crammed with business travellers, tony restaurants filled with diners.
Seattle is among a fistful of cities that have flourished in the 10 years since the Great Recession officially began in December 2007, even while most other large cities — and sizable swaths of rural America — have managed only modest recoveries. Some cities are still struggling to shed the scars of recession.
In Las Vegas, half-finished housing developments, relics of the housing boom, pockmark the surrounding desert. Families there earn nearly 20 per cent less, adjusted for inflation, than in 2007.
In the decade since the recession began, the United States as a whole has staged a heartening comeback: The unemployment rate is at a 17- year low of 4.1 per cent, down from 10 per cent in 2009. Employers have added jobs for 86 straight months, a record streak. Last year, income for a typical U.S. household, adjusted for inflation, finally regained i ts 1999 peak.
Yet the rebound has been uneven. It’s failed to narrow the country’s deep regional economic disparities and in fact has worsened them, according to data analyzed exclusively for The Associated Press. A few cities have grown much richer, thanks to their grip on an outsize share of lucrative tech jobs and soaring home prices. Others have thrived because of surging oil and gas production.
But many cities in the U. S. South and Midwest — from Greensboro, N. C., to Janesville, Wis. — have yet to recover from the loss of manufacturing j obs that have been automated out of existence or lost to competition from China, before and during the recession. Like others, they have fewer jobs and lower household i ncomes than before the downturn. Those disparities complicate the rosy picture painted by most nationwide economic data.
“There’s definitely a pattern of the coasts pulling away from the middle of the country on income,” said Alan Berube, an expert on metro U. S. economies at the Brookings Institution. “There are a large number of places around the country that haven’t gotten back to where they were 15 years ago, never mind 10 years ago.”
That said, for all the economic might the top- flight cities have gained in the past decade, many city officials and business leaders have become concerned that their success is running up against limits.
Surging home prices and rents have made housing unaffordable for many. With cities like Seattle and San Francisco choked with traffic, engulfed by homeless people and requiring everlarger incomes to live comfortably, quality of life may be at risk.
In the Western U. S., inflation reached nearly three per cent in October compared with a year earlier, according to government data. By contrast, inflation rose just 1.5 per cent in the Midwest and New England.
“It’s the first time I have noticed a persistent spread between inflation in one area and the rest of the country,” says Steve Cochr a ne, an e c onomist at Moody’s Analytics who has studied regional economics for 25 years.
Last year, nearly as many people moved out of Silicon Valley — defined as northern California’s Santa Clara and San Mateo counties — as moved in, according to a report by Joint Venture Silicon Valley, a civic group. It was the first time since 2010 that the number of arrivals and departures have been roughly equal.
The trend isn’t entirely surprising given that commuting times in San Francisco have lengthened by 40 minutes a week in the past decade, the report said. The price of a typical San Francisco home has reached an eye-watering US$1.2 million, according to Trulia, an online real estate data provider.
Housing costs, inflated by local regulations restricting homebuilding, can act as a barrier to opportunity. They make it harder for people in poorer areas to move for better opportunities. With fewer people able to move to places with more jobs and higher pay, the national economy tends to suffer, economists say.
Among the 100 largest metro areas in the U. S., San Francisco experienced the biggest gain in median household income in the decade after the recession began. Adjusted for inflation, it jumped 13.2 per cent, according to data compiled by Moody’s Analytics.
San Jose, Calif., which is part of Silicon Valley, enjoyed the second- largest increase, at 12.7 per cent, followed by Austin, Texas, with 8.8 per cent.
By comparison, median household income in the 100 largest metro areas fell 2.7 per cent on average. And the income gap between the 10 richest and 10 poorest metro areas widened in the past decade, Moody’s data shows.
Eight of the 10 cities with the largest income gains are tech hubs with heavy concentrations of software architects, data analysts and cloud- computing engineers. They include Denver, Portland, Ore.; Provo, Utah; and Raleigh, N.C.
Most Americans haven’t received raises anywhere near that large. Data compiled by Brookings shows that 65 per cent of Americans who live in urban areas — defined as cities with populations above 65,000 — live in places where the typical household income is still below its 1999 level.
Max Versace, CEO of artificial intelligence startup Neurala, who arrived in Boston in 2001 from Italy, has watched the city transform itself into a boom town, filled with innovative companies working on robotics, AI and self-driving cars. Boston enjoyed the 11th-best income gain in the past decade, Moody’s data shows.
“I have never experienced a slowdown in Boston,” said Versace, whose company is based in Boston’s Seaport neighbourhood, a formerly rundown i ndustrial area now crowded with startups and high- end restaurants. “Boston is one of those bubbles — good bubbles — that have been saved by the two locomotives of computer sciences and biotechnology.”
The divergence between the richest and poorest U. S. cities predates the Great Recession. But it is historically unusual. For a period of 100 years ending in the 1980s, income gaps between richer and poorer cities narrowed steadily.
Economists cite three reasons why such convergence ended. The nature of hightech work, for one thing, makes it productive for higher- skilled workers to cluster in the same cities.
Elisa Giannone, an economist at the University of Chicago, said in past decades, highly paid professionals — doctors, say — might have congregated in cities with fewer physicians to capitalize on the lack of competition and earn more. Likewise, many companies that employed high-skilled workers would move to lower-cost cities to take advantage of cheaper labour.
But her r esearch has found both trends have been upended by the rise of highly skilled information technology work. People with such skills prefer to work in cities with their peers. The companies that employ them seem to care just as much about the right skills as they do about lower costs. What’s more, higher educated employees typically become more efficient when they cluster together and exchange ideas.
“It’s more beneficial and more productive to go where there are more people like me,” Giannone says, referring to how such workers think. “I don’t want to be left out.”
Jed Kolko, chief economist at Indeed, the job listi ngs website, calculates that one- quarter of tech job openings in the first half of this year were located in just eight tech hubs: Baltimore, Boston, San Jose, San Francisco, Seattle, Austin, Raleigh and Washington, D.C.
A second factor is swelling home prices and rents, particularly where regulations make it harder to build more. People in poorer areas often used move to wealthier cities to find better opportunities. Now, that option is increasingly available only to those with advanced skills or education.
Two public policy experts, Peter Ganong and Daniel Shoag, concluded in a paper last year that both janitors and lawyers used to fare better financially in New York City than in poorer cities, even accounting for the higher cost of living.
Now, because of rocketing home prices in richer areas, that’s no longer true. Lawyers can still come out ahead. But j anitors and other lower- skilled workers don’t.
“Skilled workers move to high cost, high productivity areas, and unskilled workers move out,” Ganong and Shoag wrote.
In the 10 cities with the fastest income growth, housing prices have soared by an average of 31.1 per cent in the past decade, Trulia found. That compares with a national average increase of just 5.1 per cent.
A final factor behind the diversion is that the industries and occupations in slower-growing regions were levelled by the recession. Manufacturing and mining are disproportionately located in red states. So are retail jobs. All those sectors have endured weak growth since.
Robin Brooks, an economist at the Institute of International Finance, a trade group, says those job losses have opened a gap between so- called red states, which voted for Donald Trump in 2016, and blue states.
About 61 per cent of blue state residents have jobs, compared with roughly 59 per cent in red states, Brooks found. That cuts against recent historical patterns: From the 1990s through the mild recession of 2001, there was no gap at all.
THERE’S DEFINITELY A PATTERN OF THE COASTS PULLING AWAY … ON INCOME. THERE ARE A LARGE NUMBER OF PLACES AROUND THE COUNTRY THAT HAVEN’T GOTTEN BACK TO WHERE THEY WERE 15 YEARS AGO, NEVER MIND 10 YEARS AGO. — ALAN BERUBE, BROOKINGS INSTITUTION