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Here’s a simple question for you…which metro areas did prospered the most during the past business cycle? (2000-2008) Were the winners the highly-educated communities that make up the Creative Economy? Or did someone else zoom ahead?
I asked myself these questions when I was preparing for a talk that I was giving at the Rochester Institute of Technology on innovation and economic development. Being a man of numbers, I calculated the gains in real-per capita income for all metro areas. Who do you think was #1, and who do you think was #366 (out of 366).
A bit surprising, isn’t it? The common themes are guns and oil. The big gains in the #1-ranked Houma region are mainly connected with the increase in oil drilling, since BLS data shows that wages in the mining/oil industry in Terrebonne Parish, where Houma is located, soared from $58K a year to $78K from 2005 to 2008. #2 Jacksonville (NC) is the location of Camp Lejeune. Fayetteville (NC). #5 Fayettville (NC) is home to Fort Bragg, one of the larget military bases in the world. #6 Killeen is obviously home to Fort Hood. #8 Odessa, Texas, is riding the oil boom.
Now let’s look at the metro areas which were the biggest losers in real per-capita income, 2000-2008.
Uh, oh. This is not the list you might have expected, in a world where brains and innovation are supposed to be important. There’s Silicon Valley at the top (or the bottom) of the list, where incomes didn’t recover from the popping of the tech bubble that peaked in 2000. But other tech-type metro areas, such as Raleigh and Austin were hit hard as well.
Brains and education did not seem to count too much in success in the last business cycle. Overall, the top ten cities, measured by growth in per capita income, had an average college graduate rate of 17.7% The bottom ten cities had a college graduate rate of 31.8%.
Is this inverse relationship between growth and education going to persist into the future? Impossible to say. My personal view is that the lack of rewards for education–which show up in the individual income statistics as well–is correlated to the lack of commercially-successful breakthrough innovations, which would immediate sop up all the excess college graduates.
To put it another way, innovative industries tend to locate where they can get a lot of college graduates. That means high education areas attract new companies, boosting growth.
But without innovation, the whole economic development dynamic changes. You can’t attract growing innovative companies because they are few and far between. For their part, companies are more likely to view cost as a main consideration in deciding where to locate. Goodbye San Jose and Austin, hello China and India.
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25 comments
Thanks for picking up on this. We’ve used it as a hook–as unfortunate as it may be–to get people here in Austin thinking more about the relationship between education, workforce development, and economic development. I posted about this as well a couple of weeks ago on my blog: http://civicanalytics.com/austin/austin-salaries.
Good point.
Obviously San Jose was going to drop from 2000, the top of the tech boom. I’m not sure what you hope to learn from this data, all it highlights is sectors that gained or lost and the metros most associated with them, such as the big drops in Michigan caused by the auto bust. Also, by highlighting relative changes and not absolute levels, you ignore the fact that San Jose is still one of the highest-paid metros, because it was so high-paid to begin with. Your education-innovation analysis is hopelessly outdated. Education has never been that important, the good news is that it’s basically getting ignored now in favor of experience, although experience is still measured very crudely. Further, your backwards-looking education-innovation clustering theory has been rendered irrelevant by the internet, where anyone can work with everyone from anywhere. Google has small teams that work all over the world and communicate electronically, many other companies do some version of this far-flung distribution of work. Education is made even more irrelevant as nobody can gauge the value of a degree from anywhere in the world, making employers focus even more on actual experience. Finally, your notion that innovation keeps the college-educated employed is hysterical. If these people are so smart, shouldn’t they be innovating while they’re having trouble finding work? Oh I see, they can’t innovate but they must wait for innovation to fall from the sky and keep them occupied, makes perfect sense.
If it was just San Jose, I’d agree with you.
I don’t see why the decline of other tech-heavy markets in parallel with San Jose causes you to disagree. If tech salaries were inflated during the boom, then we would expect to see income declines in tech markets.
I have two points of disagreement. First, is that it appears that the decline in tech markets is more likely due to inflated tech salaries returning to normal or market levels. Additionally, just noting that income in tech-heavy markets is down the most says nothing about the return by education level overall. How did markets with lots of biotech or finance perform?
Second, it is easier for markets with smaller starting income level to post higher growth rates. If an oil discovery or a new factory or a new company office is opened in a small market, that is going to have disproportionate effect on growth in that area. The discovery of $100b worth of oil in a small market with a per capita income of $15k is going to make a big splash in that market. Additionally, less developed economies tend to grow faster as they catch up to the rest.
I think the numbers you are seeing are the result of confounding factors, even if the results are consistent with other data. It would be interesting to see growth rates in the 10 most educated markets vs. the 10 least educated. It would also be interesting to see absolute increases instead of percentage increases.
“At right angles you people talk!” Tom Yoda-ed.
Mandel, you’re the very model of a 1960′s policy wonk. You look at numbers which summarize human lives, you see patterns, you ask if they’re _good_ patterns, and wonder what we might do to improve those lives. Ajay’s attitude is “I’m all right, jack!”
And Ajay and people who think as he does outnumber you. They will contribute more to politicians who share their views, they will outvote you. Likely they will outearn you — they will not understand your interests, or your modes of thought. And they will furnish the middle class for whatever sort of society the American republic builds in the 21st century, or perhaps for all time to come.
Welcome to the future, guy.
shupp, I’m not even sure what your comment is supposed to mean, that I and most everybody else don’t care about statistical trends and Mike is going to be ignored by us? Far from it, I pointed out the specific flaws in Mike’s metrics and analysis: you are the one apparently ignoring the holes in Mike’s post, since you cannot make a single specific argument about it. Always easier to just lump everyone into some imagined herd than make actual arguments, I suppose.
1960s policy wonk? Nah, then this blog would be full of proposals and suggestions for fixing the world. Truth is, I just try to look at the world as it is, without assumptions or political preconceptions.
Ajay,
I love your stuff. Don’t be a troll, though. Michael deserves better.
The hard data from Australia a decade ago was that there was no more certain relationship than that between socio-economic status and educational attainment.
The the loss of a causal link between education and se status (if that is what we are looking at) is a really interesting phenomena.
Is it a failure of education, or evidence of a failure of a civilisation?
Ha, I don’t think you know what a troll is. Please don’t use such terminology if you’re not even sure what it means, it just makes you look confused. The reason you’re confused about the “correlation” between education and income is because you’ve been looking at cooked data served up by schools and their pushers: here’s an example of how when you dig even a little bit, the lies fall apart. A failure of civilization? In that those who wasted the most money on education are entitled to higher income, no matter what? What a joke, that’s where the aphorism comes from that the C students boss the B students at work, while the A students teach.
This is an interesting post, but I think it's mostly just playing with numbers. It's saying that certain metro areas had decreases from their previous highs, and those metro areas tended to contain better educated people. What it DOES NOT say is that within each of those areas, more educated people were still no doubt more likely to be employed, and at higher salaries. So, in the end, one thing I know it does NOT mean is that we should abandon the notion that more education is a good thing, whether measured by individual incomes or metro areas.
Also, I don't buy the "guns and oil" argument. Certainly successful oil drilling drives up incomes, but how precarious is that? I mean, isn't that the area of La. where the geyser is spouting? As to guns, I believe that those same areas with big military bases are also WIRED areas: Fayetteville and Jacksonville, NC, and Manhattan, Kansas. Of course, the presence of the such large military installations may in fact drive up innovation, which is really the point the original author is trying to make.
As a general rule, I'm still OK with the byword of "find your regional competencies ""“ workforce-wise and "culturally" "“ and go with them, and go to school!
The results are consistent with a narrowing of the education gap in this period, which is what the Census income numbers show. I’d say that innovation and education are still the right long-term strategies for economic development–but they didn’t work in this period.
Lawton, OK is home to Fort Sill…
Measuring peak to trough?
2000 was definitely a peak. The next peak was either 2007 or 2008–it’s a judgement call.
[...] question has some important nuances. Take a look at the economic development of large metropolitan areas of the U.S. from 2000 to 2008. Why would areas with greater numbers of college graduates see less economic [...]
Ajay – A large part of the Ann Arbor, MI numbers, I’m willing to bet, are due to Pfizer closing a very large research plant circa 2005. It was a very prominent employer of Ann Arbor’s upper middle class, and there was little work anywhere else in the area for the type of specialists Pfizer employed, so a very large number of experienced, well-paid research scientists left Ann Arbor, likely driving a portion of those numbers. Ann Arbor has never had much manufacturing, and has been fairly insulated from the collapse of the auto industry. A fairly large part of the city’s economy is based around the University of Michigan, with various small tech businesses employing graduates. I think Ann Arbor fits to Mandel’s analysis, even if he didn’t mention it.
Mike, a very though provoking post. An even more interesting question would be, “what happened to innovation?”
Here is my hypothesis. In the wake of the tech-bubble bursting, the efficient allocation of capital was skewed by the “housing bubble.” I bet if you shorten your time horizon to 2002 – 2005, the largest income gains would be seen in So. Cal, FL, AZ, and NV. Flipping houses, pushing liar loans, installing granite countertops didn’t require innovation and didn’t reward education. Capital was drained from the innovation economy, making it more difficult for start-ups to acquire funding.
At the same time, you had a crop of recent graduates who entered college/grad school in the late 90s/early 00s in computer science to chase instant millions in the dot-com boom flood the market with highly educated, well qualified candidates just when the sector was contracting.
If we look at this data in 5 years, I bet you’ll see the big finance and housing boom hubs at the bottom of the list. The 00′s saw a crush of students majoring in finance and economics, going to b-school, etc. all in the hopes of landing making millions in hedge funds and on fixed income trading desks. We lost another decade of potential science and technology innovators to financial alchemy.
I’m not convinced that we’ve returned to an era of rational and effective capital allocation. We need to move from an era of financial engineering to one of mechanical, chemical, and bio-medical engineering.
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