Thursday, January 06, 2011

End Of Migration

The Great Recession signaled the end of a long economic cycle. I argue that we can define, in part, the era in terms of migration. The very act of reshuffling the US population fueled the boom of many Sun Belt cities. The growth seemed to feed on itself and ultimately proved unsustainable. The result is a new landscape of failed cities:

A traditional city in decline is one that has suffered a sustained population drop, leaving behind empty houses, apartment buildings, offices and storefronts. Cleveland and Detroit, for instance, suffered from the erosion of manufacturing and the loss of residents, who left in search of jobs.

Instead of eroding a particular industry, however, the housing bust left a glut of homes because of overbuilding and the foreclosure crisis. Follain argues that the future of these cities is threatened in similar ways to that of Rust Belt cities.

"Long-vacant neighborhoods are going to develop, and we can imagine what can happen," he said, including potentially higher crime and lower property taxes.

The picture painted is a bit crude. People just didn't leave Cleveland and Detroit in search of jobs. Many left those cities for the suburbs. Also overlooked is the collapse of inmigration. Still, the shift in economic geography is striking. Cities associated with the dominance of manufacturing declined along with that sector. Likewise, we expect cities associated with the dominance of migration (e.g. construction jobs) to suffer a similar fate. The macroeconomic climate no longer favors metros such as Las Vegas and Miami.

I think this bodes ill for regions such as Silicon Valley and San Francisco. There is much more to these economies than a swelling population. However, they are dependent on the influx of talent. There is trouble in paradise:

But the growth comes with caveats. The population increase locally has largely been fueled by births and foreign immigration—and not through domestic migration, according to data from California's Department of Finance, which released new county-by-county population and migration figures last month. That means more people are still leaving for other states nationwide than coming in.

That is something of a red flag, say economists. Migration figures and population data are closely watched here because of how those affect the local work force. Executives of Silicon Valley tech companies and local leaders are fond of saying that the Bay Area's most important asset is its people, and they would like to see the talent base constantly renewed.

Both the Bay Area and Silicon Valley have attracted the well-educated and entrepreneurial in droves. As a result, these regions do a lousy job renewing the talent base organically. There was no need to stress improved local education because other countries and regions supplied the human capital. That's a precarious position with the war for talent heating up.

Future pathways of foreign born talent are difficult to divine. Immigration policy is notoriously capricious. Emerging markets are increasingly attractive. Domestic talent flows seem to be more predictable. We expect smarter cities to get smarter. That should reassure some in Silicon Valley.

Hidden under the aggregate numbers, talent is agglomerating in unexpected places:

“The whites who live in Scranton are disproportionately stupid low-class whites”. So said blogger Half-Sigma, citing “Wikipedia”. Commenter Joe Walker wrote: “the younger, better educated whites [have probably] moved [from Scranton] to places like New York City”. This does seem an attractive theory to explain the trends seen here (albeit able to easily devolve into Chicken-or-Egg-ism). But is it true? ...

... Among young-adults, Scranton-Metro is better-educated than Boise Metro. Half-Sigma’s theory, that “stupid” Scranton loses droves of its smart youth, is wrong.

Boise is one of the darlings of the migration economy. Scranton is a Rust Belt loser. How can Scranton be smarter than Boise?

The above assertion is tenuous. It is also representative of Rust Belt demographics that are still dealing with the legacy of industrial decline. The population of young, college educated adults is growing in the part of the United States that many think of as a backwater or, more commonly, flyover country. How we imagine Scranton and Boise is yesterday's news, despite the fixation with the latest Census data.

Over the last decade, a number of Rust Belt cities have sported impressive gains in educational attainment. In hindsight, this was an indicator of the demise of the migration economy. Contrary to what Richard Florida predicts, talent was flocking to some of the most inexpensive places in the United States. Creative Class theory does a good job of explaining the economic geography of the past 40-years. It will do a lousy job of predicting the future.

In Pittsburgh, Google can have talent density on the cheap. Northern Appalachia has a glut of college educated people. That's why global software companies locate in downtown Youngstown. Cleveburgh has a quality of workforce that few regions in the world can match. And unlike Silicon Valley and the Bay Area, Pittsburgh doesn't have to import human capital. The whims of politicians concerning immigration matter little. Rust Belt cities are very good at developing people.

In a bizarre way, Ohio is well ahead of Texas:

In an area with unemployment at 10 percent or higher, it is surprising that Garvey sees his biggest obstacle in finding workers. But he argues that that's true all over the country.

"The biggest challenge a company our size faces – and companies much, much larger – is not raising capital for a $3 million tool. It's finding the skilled operators to run equipment on the off shifts," he said. "The qualified operators want to work 9 to 5 Monday through Friday."

This is an argument for improved training, better schools and so on. But it's much more than that.

"The labor component of manufacturing is being squeezed and squeezed to the point where it's going to be insignificant," Garvey said.

Garvey is exploring technologies to allow remote operation of machines and production processes that would give a manufacturer the capability to operate around the clock and around the world.

He doesn't envision such operations across acres of production lines. Manufacturing is moving away from "big box" factories and toward localized, massively customized shops.

In Garvey's manufacturing world, intelligence matters more than whether a shop is union or not, and whether taxes are lower at the plant than in the next jurisdiction.

In other words, the need for talent trumps policy. The assertion that Sun Belt states somehow got it right is false. Darlings such as North Carolina are struggling. Mapping prosperity reveals shocking patterns:

Are you better off now than you were ten years ago?

On this [map], the darker the blue the larger the decline in median household income. North Carolina looks like a rust-belt state.

North Carolina looks like a Rust Belt state because parts of it were similarly dependent on manufacturing. That's the case throughout the Sun Belt. All the people moving to North Carolina glossed over those difficulties. The rise of Charlotte overshadowed the decline in parts of the state where manufacturing (particularly textiles) once thrived.

Much of the brain power that fueled Sun Belt growth came from the Rust Belt. There was little demand for home grown talent. If college graduates stopped coming, then North Carolina would be in a world of trouble. Brain gain in Scranton suggests that this pipeline has been slowing over the last decade. The new geography of innovation puts research and development right next to where knowledge workers are traditionally produced. The Research Triangle should be just as concerned as Silicon Valley.

I'm still amused that talent attraction expert Joe Cortright went to Akron to champion Portland. Portland should be learning from Akron, not the other way around. Cortright on a learning expedition would have been more appropriate. Why is Akron succeeding in dramatically increasing educational attainment rates? We know why Portland is generating a talent dividend. College graduates are moving there in great numbers. Will that remain the case in the post-migration economy? I wouldn't bet on it.


Josh said...

This is a very very interesting, and coming form Columbus, Ohio I hear endless talk of the "Brain Drain" that the state is suffering from.

Why though do you see this pattern ending? And if this cycle is over does that mean good ramifications for midwestern "Rust Belt" cities?

Patrick M said...

I'm sorry but you clearly don't understand North Carolina very well.

First, just as James Carville once famously described PA as "Pittsburgh and Philadelphia, with Alabama in the middle," there are three North Carolinas.

There is the increasingly suburbanizing (and in some cases, urbanizing) Triangle and Charlotte metro areas, which are fast-growing for a lot of reasons. Growth has slowed (but not stopped) with the recession, and more so in Charlotte than the Triangle.

Second, there is the Tier 2 metro area of the Triad, and the smaller metropolitan areas of Wilmington, Asheville, and Fayetteville. Manufacturing losses hurt more here because there are not many other industries to absorb workers.

Third, there are the rural hinterlands, which especially east of I-95 and not quite to the coast, experience grinding poverty and low social indicators across numerous variables. These places are in trouble. But so is the Alabama part of PA, and most of rural America.

Your comparison of Rust Belt cities to Sun Belt STATES picks and chooses attributes among the three North Carolinas to make comparisons. The loss of manufacturing is a problem in the rural areas and the Triad (where Ed Cone runs his very good blog).

Primarily, you could not be more wrong about NC importing college grads instead of producing them. The Research Triangle's two largest universities are UNC-Chapel Hill and NC State, which with extremely attractive in-state tuition to NC residents, pull NC's best and brightest to the Triangle.

UNC-Charlotte, UNC-Asheville, and UNC-Wilmington are also solid schools at a modest price.

I am a Northeast transplant to NC (from Mass via Wake Forest U) but in the classrooms at the undergrad level, it's 75% or more in-staters. If people like me stop coming, NC will be more than able to still fill the high-tech jobs in RTP, Downtown Durham and Downtown Raleigh with local grads.

But keep in mind that the relationships between schools and industry here are quite good. Once a student has interned at IBM, Glaxo, Motricity, or Bronto Software, they get connected to the employment networks here and are likely to stick around. The same goes for out-of-state students who attend Stanford in Silicon Valley.

Let's go back to the maps Ed Cone flagged. Yes, NC looks like a rust belt state on this map. But the urban crescent is light blue, which means it also looks like the Bay Area, or Seattle, or Connecticut's NYC commuter shed. Most metro areas would accept those comparisons happily.

Of course NC needs to do much to remain competitive. But your thesis about the end of migration is soft. Population grew here even through the recession, and even if migration stops, the institutions to provide the 21st century workforce are in place here and humming nicely, at least in the urban areas.

Jim Russell said...


Ohio isn't suffering from brain drain. Established perceptions die hard. But the endless talk hurts the state's brand.

The main point is that Ohio produces world class talent. The quality of the workforce is excellent. Just ask Honda. Ohio is a perennial favorite of Site Selection magazine.

Since no one outside of the Rust Belt is going to move to Ohio, how did the state cultivate such an attractive workforce? Why is Akron shooting up in terms of educational attainment rates?

You put a software company in real estate cheap Youngstown and you'll have no problem finding tech employees. You can draw from Columbus, Cleveland/Akron, and Pittsburgh. Not to mention the ample supply of brains already in the Mahoning Valley (or those looking to move back home).

News today that Google is doubling its footprint in Pittsburgh, another Rust Belt city experiencing big gains in the numbers of college educated residing there. Google is well aware of the positive migration to Pittsburgh of those with a degree. But that's not the big story. As a region, Pittsburgh produces a lot of the talent that the rest of the world (e.g. Google) wants.

It is a lot easier to move the company to where the talent is produced than to compete with other regions or like firms to attract talent. So, places such as NE Iowa get on the map because of the proximity to deep (and cheap) pools of talent.

Talent is the new oil.

Jim Russell said...

Patrick M,

As you remark, both Rust Belt and Sun Belt states contain multiple economic geographies. That's one of the points I am endeavoring to make. I'm well aware of the variance within state.

You underestimate the importance of talent migrating to North Carolina. However, the controversy is whether or not the college graduates will keep coming. That's not an issue for Rust Belt cities such as Pittsburgh. I doubt we can say the same about Rust Belt cities in Sun Belt states. But if there are a few exceptions, then I'd be interested in learning about them.

Anonymous said...

The Garvey quote describes the direction manufacturing is going in Dayton, away from the mass-employment places like the old Delphi/GM nexus towards the smaller tool & die/machine shop things. More diversified and customized.

rootvg said...

rootvg said...

Yes, Jim. Ohio produces world class talent...for San Francisco, Dallas, Houston, Charlotte, Raleigh and DC.

Jim Russell said...

Yes, Jim. Ohio produces world class talent...for San Francisco, Dallas, Houston, Charlotte, Raleigh and DC.

Exactly my point. If the talent market is getting tighter (debatable), then how might the economic geography change?

Sure, we can assume that the dominant migration patterns of the last 40 years will hold. But I'm assuming we are going through a major macroeconomic restructuring. That a new migration pattern would emerge isn't exactly a radical idea.