Sunday, February 28, 2010

US Manufacturing Talent Shortage

I already referenced the talent shortage in China, citing an article in the Financial Times. The New York Times published a similar story that adds some useful detail. Now I'm reading about the same problem, but in the United States:

For many industrial companies, the recession has not eased the skills shortage. Siemens, the German engineering group, has about 600 vacancies for engineers in the US, up from 500 on last year, according to Jim Whaley, president of the Siemens Foundation, which promotes technical education in the US.

Manufacturers said the biggest shortages were for engineers and skilled floor workers.

“It’s difficult to find people for assembly, machining and motor-winding positions – jobs that require maths skills and the ability to read technical blueprints,” said Ron Bullock, owner of Bison Gear, a manufacturer near Chicago with 225 employees.

An aging workforce is a big reason why there is a lack of available talent and the situation is expected to get much worse as the economy continues its recovery. The real issue is one of labor mobility. Jobs aren't going overseas or in short supply because of a production slowdown so much as the demand for talent is shifting towards the highly skilled.

Picked up via Civic Analytics, the data junkies at FiveThirtyEight take on the myth that America doesn't make anything anymore:

There is a common theme across the internet: US manufacturing is dead and it's never coming back. Well, there's a big problem with that analysis: it's not true. In fact, as the chart above indicates, it's actually false. Note that since 1960, the index of industrial production has risen from a little below 30 to its current level of about 100. And note the increase is continual -- meaning the number didn't just hover around 30 for most of that time only to spike up in one big move. The index has continually risen over that entire period.

The compelling analysis slays a few bogeymen, including the perennial demons of free trade and outsourcing. Driving the impressive productivity gains (more goods, less people) is a better educated workforce. More from the same 538 post:

Going back to the recent post on employment remember that in this recession the unemployment rate of specific groups was heavily influenced by education level. In fact, according to the BLS, higher education levels (college graduates and above) were remarkably untouched in the latest recession while lower education levels (high school graduates, high school with some secondary education) had higher rates of unemployment. Lower levels of education are typically associated with manufacturing and construction employment -- the two areas of jobs that account for the largest percentage of job losses in this recession.

This helps to explain the seeming paradox at Siemens. How did the company have so many openings during a year when unemployment was skyrocketing across the country? The college graduates kept their jobs and Siemens was faced with the same talent shortage it had before the Great Recession hit. Meanwhile, manufacturing continued to shed less productive positions. Many of those jobs won't come back even after a full recovery.

I keep hearing about the coming clean tech revolution. Where is your region going to find the employees to staff these companies? The war for talent escalates.

Mesofact Migration

Most Livable Pittsburgh still raises a few eyebrows. Hipsburgh is a running local joke. That's today. In 1985, the world doubled over laughing at the Steel City sitting on top of Rand McNally's "Places Rated Almanac". Something must have been horribly wrong with the metrics.

Geographic stereotypes are powerful. A computational biologist explains:

Or, imagine you are considering relocating to another city. Not recognizing the slow change in the economic fortunes of various metropolitan areas, you immediately dismiss certain cities. For example, Pittsburgh, a city in the core of the historic Rust Belt of the United States, was for a long time considered to be something of a city to avoid. But recently, its economic fortunes have changed, swapping steel mills for technology, with its job growth ranked sixth in the entire United States.

These slow-changing facts are what I term “mesofacts.” Mesofacts are the facts that change neither too quickly nor too slowly, that lie in this difficult-to-comprehend middle, or meso-, scale. Often, we learn these in school when young and hold onto them, even after they change. For example, if, as a baby boomer, you learned high school chemistry in 1970, and then, as we all are apt to do, did not take care to brush up on your chemistry periodically, you would not realize that there are 12 new elements in the Periodic Table. Over a tenth of the elements have been discovered since you graduated high school! While this might not affect your daily life, it is astonishing and a bit humbling.

Samuel Arbesman is the mind behind the mesofacts paradigm. I read Arbesman as the flip side of Jared Diamond. For Diamond, world history is about cataclysm, dramatic change. Arbesman is interested in the transformations that slip by us unnoticed, hence the Pittsburgh analogy.

Diamond-like cataclysms dominate truth games. Pittsburgh is brain drain, the exodus of the 1980s. This legacy acts like a wall to in-migration. That wall is reinforced each and every time the population numbers decline. Something must be wrong and you dismiss Shittsburgh.

Another way to look at mesofacts is through urban planning. The temporal scale of redevelopment starts at the hand-off between one generation and the next. Blog-wise, we want our cities to be great next week. We won't know how good your idea is until we see the results 20-years from now. However, students of mesofacts wouldn't be so encumbered.

How do we better identify incremental changes that will prove to be significant?

Tomorrow, I will tackle that question.

Saturday, February 27, 2010

Neo-Rust Belt Chic: Whole Foods Pubs

I'm passionate about beer and drinking culture. The US history of such things is rich enough to justify a college-level geography course dedicated to the subject. And when it comes to the queer and odd, Pennsylvania is tops. Perhaps Lew Bryson might write a book about it.

For connoisseurs, PA booze laws are a scourge. But the craft brew revolution has quietly morphed the legal landscape. You can find evidence of this transformation in every state. There will be no remake of "Smokey and the Bandit" because you can get Coors east of Texarkana. Still, beer geeks feel lost in the Dark Ages in Pennsylvania.

Working around the restrictions has resulted in a few quirks. I also think it generates considerable parochial charm. In my continuing quest to recast Rust Belt liabilities as core assets, behold the grocery store pub:

With its soft lighting and easy chairs, the Whole Foods establishment looks more like a coffee lounge than Wegmans’ 63-seat pub, where the bar top is Cambria natural quartz stone, surrounded by solid cherry and cherry veneers. Two flat-screen TVs offer patrons something to watch when they’re not gazing into each other’s eyes.

The food-service component has enabled Wegmans and Whole Foods to buy restaurant liquor licenses that allow them not only to dispense beer, wine, and — in Wegmans’ case — spirits for consumption on the premises, but also to sell six-packs of beer for carryout.

Two per customer is the rule, said Nick Hays, spokesman for the Pennsylvania Liquor Control Board. Otherwise, state law generally limits six-pack sales to bars.

Cases (the equivalent of four six-packs) are the minimum at distributors. Sen. John C. Rafferty Jr. is pushing for an overhaul of the state’s beer laws to allow distributors, supermarkets, convenience stores, and bars and taverns to sell anything from a six-pack up to a case of beer.

There are no plans for pubs at the Wegmans stores in Cherry Hill and Mount Laurel — the law in New Jersey does not permit supermarkets to own restaurant liquor licenses.

In this era of globalization, the matter of state borders would seem to be a moot point. Concerning alcohol, there's a surprising variety of contexts for the dedicated tourist. Even the most liberal states have legacies on the books that result in a unique drinking geography. But a supermarket pub?

In Greater Pittsburgh, there are a few well-known prototypes of the phenomenon. Most famous is D's Six Pax & Dogz in (on?) Regent Square. There's some interesting history there with nearby (across the street?) dry Wilkinsburg. This is one of the few places in all of SW PA to purchase a six pack of hard-to-find gourmet microbrews. Thus, it acts as a magnet for this niche demographic.

Perhaps supermarket pubs will undermine D's business, but I'd bet the established waterholes will continue to pack in the beer hunters. Social drinking and food shopping under one roof is, as far as I know, a cultural frontier. Ironically, the offering is progressive and could drag open moderate drinking back into the mainstream.

I can't imagine such a mash-up happening in any other state. Cheers, Pennsylvania!

Friday, February 26, 2010

Rural Rules Of Attraction

From shrinking cities to rural outposts, the going is tough. Redeveloping these forsaken places is a tremendous challenge requiring the intrinsic motivation one finds in any successful entrepreneur. Reimagine Rural is a blog equal to the task and today's post offers a few stories of inspiration for small town innovation:

[Sheena Lindahl] described herself as an average high school student who always wanted to go to New York City, despite being afraid of it. Facing her fears (a common theme throughout the day), Sheena enrolled at New York University and hopped on the bus for NYC - even though she didn’t have the money to pay for the semester. Through determination and hard work, she consistently overcame every obstacle put in her path. Today she’s a Gen Y entrepreneur rock star. She’s definitely someone every young person in the audience can aspire to become.

While a symbol herself, what struck me most about her presentation was how NYC served as the symbol that inspired her. She was going to “make it” in New York City, and that thought drove her.

Although unintentional, I’m afraid that young people in the audience may also interpreted NYC as a symbol for success. In other words, they have to go off to the big city to achieve their dreams of entrepreneurial success. Maybe that’s just my interpretation, and I know Sheena didn’t intend it. But as a rural community fanatic, I worry about the constant messaging that preaches this idea.

I think Mike Knutson (the brains behind Reimagine Rural) overlooks the essence of Lindahl's archetypal story. Moving somewhere, not just NYC, to "make it" is fundamentally an entrepreneurial act. It's not the people born and raised in the Big Apple who make it great. It's the people who run through brick walls to get there and stick.

If you want entrepreneurship in your community, then you need more in-migration. Retention is all about making it easier to stay, lowering the barrier. Lindahl would do anything to move to New York. You don't often see the same determination to remain in your hometown. On the contrary, there tends to be a sense of entitlement. I Will Stay If ...

The mantra should be, "I will move there regardless." How many people are moving to your neck of the woods without a job in hand? There are rural outposts that fit that description. They are few and far between, but do exist.

Sticking around is a form of inertia. Ironically, the Rust Belt is home to some of the most inert populations in the entire United States. It's also a source of this country's most dynamic talent. People stopped coming to the Midwest to make it big. That's the biggest reason for the mega-region's dramatic decline.

Thursday, February 25, 2010

War For Talent: Desperation

Over the past few days, I've read more than a few articles detailing either expected or occurring talent shortages. In Canada, foreign-born students graduating from university in Quebec are promised fast-track citizenship. Of particular interest are students from India who might feel unwelcome in Australia given the recent nativist backlash against foreigners. However, Quebec residents aren't necessarily behind the initiative. Seems that institutions of higher education stand to benefit from the policy, but there is no guarantee that the new citizens will stay.

While Canada is looking ahead in anticipation of acute talent shortages, for China the future is now:

After 14 months of year-on-year declines, the value of China’s exports finally increased in December. According to the General Administration of Customs, China’s foreign trade figures for January recovered to 2008 levels. Then confirmation this month that China had pipped Germany as the world’s largest exporter reinforced confidence that the country’s factories are back.

The workers they rely on, however, are not back, in spite of ever greater inducements for them to return. Galanz was seeking 1,250 workers for a range of posts paying between Rmb1,700 ($249, £161, €184) a month for entry-level positions and Rmb2,800 for more skilled technicians.

“We haven’t found anyone today,” Ms Liu admitted, clutching flyers that smacked of desperation. They boasted of complimentary food for the first month of employment, cooling herbal teas on hot days, free dorm rooms with en suite washrooms and hot water, and computer, library and leisure facilities. ...

... Early Light has had to source workers from as far afield as Xinjiang, in China’s far north-west. A riot at the toy factory in July, pitting Han Chinese workers against their Muslim Uighur colleagues left two of the latter dead and was the spark for an even worse bloodletting in Xinjiang’s capital, Urumqi, where an additional 200 people died in inter-communal clashes.

Back in Guangzhou, companies such as Fortunique are adapting to the more challenging human resources environment by turning to temporary workers who, Mr Hubbs says, “are not looking for a career in the factory”. Temps account for just over 10 per cent of his factory’s 400-strong workforce and provide a “short-term shot in the arm when you need it”.

At the other end of the talent spectrum, the American entrepreneur has begun hiring university engineering graduates for supervisory positions previously filled by older workers with experience on the manufacturing lines.

“We want to review how we do things and how we can do things with less hands,” Mr Hubbs said. “We think we can do that with better educated university graduates who come in with a fresh approach.”

The Hubbs solution is a good microcosm for the evolution of industrial labor in the United States. Productivity went when way up while the numbers employed went way down. The strategy suggests increasing stress on the already small pool of university graduates.

Despite the still high rates of employment, the talent shortage is already upon us.

Dubuque Dreams Pittsburgh

To make up for my lazy pasting of the ACCD press release in my blog, I'll try to track the stories about the Pittsburgh visits. First up, Dubuque:

Think Pittsburgh and what comes to mind? Most people envision steel mills and smokestacks, but that is the old Pittsburgh.

The new Pittsburgh was voted America's most livable city in 2007, ranked as a Top 10 city for job growth, ranked No. 1 in a study of farmers markets and community gardens per capita, had the third-lowest crime rate among the top 50 U.S. metros and ranked No. 3 as an art destination.

What gives? The Dubuque Chamber of Commerce is organizing a trip for city and business leaders to find out. It's the first of what could be an annual Intercity Leadership Visit to a U.S. city to study how others have overcome challenges Dubuque is facing.

What gives? Pittsburgh? Again, there's the surprise factor at the heart of the narrative. I'd bet that Pittsburgh residents are surprised to learn that the city has so much in common with Dubuque. There is even an incline in this Iowa community. No, industrial Iowa isn't an oxymoron.

The perception of place informs the brain drain problem. Dubuque? Who would move there? Rust Belt communities are struggling to figure out how to get on the map of outsiders in a positive light. Attractive shrinking city is definitely an oxymoron.

Irish Economic Refugees

Brain drain is real. It is a problem. Noreen Bowden of GlobalIrish responded to my post about disaggregating migration data, putting the dire situation in stark terms. In a post of her own, Bowden links to stories about the lack of choices facing graduates. It humanizes the numbers, as opposed to offering a cost-benefit analysis. People want to stay, but they can't.

The other side of the issue is that the Irish economy is reeling, unable to absorb the prolific talent it has produced. At this juncture, what can the policymakers do? At stake is Ireland's relationship with its emigrants. There might be a more constructive way to manage the exodus. Right now, there is a lot of anger and finger-pointing.

I see an opportunity to build a bridge (instead of burning it) to the expatriate economy. I've mused about the connection between Limerick (Ireland) and Lodz (Poland). The idea is to strategically target potential pathways of brain circulation. For example, where is clean tech blossoming? The Irish government could help its homegrown talent move there with eye towards that innovation eventually cycling back to the country once the economy begins to improve.

The out-migration is going to happen regardless. Now is a good time to increase investment in expatriate services, not cut back. Brain drain doesn't mean that there won't be a return on the investment in education.

Wednesday, February 24, 2010

TechBelt Advantage

Albeit vague, some movement on the TechBelt front can be found here. I expect we'll hear something more substantial in the near future. In terms of deliverables, what can the initiative offer?

A blog post from Richard Florida about the benefits of high-speed rail could be applied to the TechBelt. Florida links to a white paper from his Martin Prosperity Institute concerning HSR service for Ottawa. Three advantages:

First, it expands the labour pool available to employers, bringing talented workers from nearby centres within commuting distance and thus expanding the quantity and quality of available employees. So, for example, high-speed rail would enable a company in Toronto looking for a mobile user-interface designer to draw on talent living in Kitchener-Waterloo, London, and Kingston. In economic terms, an effective transportation system improves productivity because it helps allocate labour inputs more effectively.

Second, high-speed rail expands the size of the job market available to workers. Because it increases the distance that commuters can travel for work, it allows them to seek employment across what were once multiple, separate labour markets. This is particularly important in an era when self-employment, contract-oriented work, and part-time work are all risingi , meaning that workers are searching for jobs more frequently than ever. Eliminating the need to move to a new home to follow economic opportunity saves significant financial and social costs.

Third, faster connections extend the benefits of other expensive, productivity-enhancing infrastructure across the entire mega-region. International airports, major research universities and reference libraries are all more financially viable and internationally competitive when they serve a larger population. High-speed rail allows them to build the scale they need to achieve world-class excellence and also spreads their high costs across a wider population.

From the standpoint of diaspora economic geography, the first two highlight the strategic position of Youngstown. The Mahoning Valley is the talent hub for the TechBelt. A residence there can effectively access both the Cleveland and Pittsburgh labor markets. The returning expatriate might have a job in one city with the trailing spouse employed in the other.

The third benefit speaks to attracting business. Youngstown's talent shed is huge. It includes not only Greater Pittsburgh and Cleveland, but also Columbus (many Mahoning Valley expats live there) and even Erie.

All of the above is already practically available, no additional infrastructure is needed. Just the same, I'd welcome better transport links between the three major TechBelt airports. The idea is to diversify the offerings, meaning the region can leverage the comparative advantage of each member city.

As for economies of scale, scarce venture capital and startup executive talent could be addressed via the casting of a wider net. More from Mike Madison:

The talent pool, and by that I mean the tier of managers needed to grow and run companies, is notoriously thin in Pittsburgh. Pittsburgh is home to some smart people interested in *first* opportunities, but it struggles to attract a larger corps of people to expand that pool, and it struggles because of the relative lack of *second* opportunities. If the job that you move here for doesn't pan out, then what will you do next? Other regions have more of those second opportunities than Pittburgh does.

Ideally, the TechBelt could expand the geography of "second opportunities". What was once characterized as a loss (i.e. entrepreneur moves from Pittsburgh to Cleveland) is now a win. Spatially, it spreads the risk.

Blog Release: Pittsburgh Redevelopment Model Popular

From the Allegheny Conference on Community Development:

Pittsburgh Prepares to Host An Unprecedented Seven Regional Benchmarking Visits in 2010:
Interest in Region Ignited by Global G-20 Publicity

(PITTSBURGH – February 24, 2010) The Pittsburgh Summit 2009 is now a part of history, but it continues to ignite interest in our region. No fewer than seven Chambers of Commerce from across the United States have scheduled benchmarking visits to Pittsburgh this year, a number of them choosing to visit because of the global attention the region received as a result of the summit. Advance teams from Cincinnati (Ohio) and Baton Rouge (La.) arrived in town this week for preliminary visits, along with yet another delegation from Korea, this time from the Seoul Metropolitan Government, which is preparing to host the Group of 20 in November.

Pittsburgh is always a popular destination for regions across the country interested in benchmarking best practices, but the level of interest this year is unprecedented,” said Barbara McNees, president of the Greater Pittsburgh Chamber of Commerce. “The enormous publicity the region received due to the G-20 summit has sparked widespread interest in our region’s story of economic, environmental and quality of life transformation.”

The visiting chambers will be examining the region's transformation to a diverse economy driven by innovation, with an emphasis on education, transportation, riverfront development, brownfield reclamation, entrepreneurship, and the role of arts and culture in economic development. Each of the chambers will bring dozens of public and private sector leaders from their communities.

The city visits begin in April with the arrival of a delegation from Kansas City (Mo.). Later the same month the Nashville (Tenn.) Chamber will arrive. The Lexington and Louisville (Ky.) chambers are expected to bring a group numbering several hundred in May, followed by visitors from Dubuque (Iowa). The Mobile and Cincinnati chambers will be here during separate visits in June, and the full Baton Rouge delegation will arrive in September.

The Greater Pittsburgh Chamber is an affiliate of the Allegheny Conference on Community Development, which co-chaired The Pittsburgh G-20 Partnership with Allegheny County, the City of Pittsburgh, and VisitPittsburgh. With the support of about 100 for profit and not-for-profit organizations, the Partnership welcomed leaders from the G-20 countries in September 2009 and more than 3,000 journalists from around the world. Resulting news coverage featured Pittsburgh’s transformation story in almost 7,000 print, broadcast, and online stories in the United States alone.

Tuesday, February 23, 2010

Last Eight Months: Atlanta 3, Ohio 0

Atlanta is crowing about poaching business from Ohio. If you can ignore the chest-thumping, then the article is worth a read. The relocation geography is interesting:

In all, 43 Midwestern companies have established headquarters, warehouses, distribution centers, factories, branch offices or testing labs across the region since 1999, according to the Metro Atlanta Chamber. Ohio alone has shipped 20 of those companies or their units down Interstate 75. Only three other states -- California, Florida and Texas -- have been more generous toward Atlanta. ...

... The state’s economic development department, for example, runs business-recruitment offices in Pennsylvania and California but not Ohio. Gant and Ken Stewart, the state’s economic development commissioner, travel extensively. Stewart, reluctantly, acknowledged he has visited Ohio “a few times” since becoming commissioner in January 2007.

Georgia probably doesn't need an office in Ohio. The pipeline to Greater Atlanta is active enough. If anything, the story helps to debunk the Rust Belt-to-Sun Belt mythology. Businesses coming from California, Florida and Texas by far outweigh those from the entire Midwest. But the draining of Ohio garners all the headlines.

When businesses leave Georgia, where do they go? I'd guess that there is a lot of churn within the Sun Belt. There is probably a lot of movement within the Rust Belt. Companies can and do move from south to north. Those exceptions deserve some publicity just from the standpoint of understanding why such a migration occurs.

Monday, February 22, 2010

Oregon Talent Exodus

Concerning Oregon's murky future, economic development experts are engaging in a battle of paradigms. The first salvo was fired by Jack Roberts. He draws a distinction between advocates and detractors of Michael Porter's cluster theory. I'm not sure that is the heart of the controversy. More fundamental is the chicken-or-egg problem. Which comes first, talent or business?

The two are not mutually exclusive and I don't intend to reinforce a false dichotomy. In his defense, Joe Cortright makes that point. In fact, Cortright makes ten of them. Two that resonate with my blog:

4. Utterly missing from Jack and Tim's prescription for improving Oregon's economy is raising levels of educational attainment. There are two things you have to do: (1) better educate Oregon's children, at all levels, but especially by improving post-secondary education, and (2) retaining these smart kids and attracting others. There is no one who is more mobile in our society that a 24-year-old with a bachelors degree. If we do not have a place that offers a quality of life that is attractive to them, they will move elsewhere: That is precisely the problem that many large, declining metro areas in the East and Midwest face. It is also why, despite our niggardly investment in higher ed, that Portland has managed to improve its educational attainment. Want to be friendly to business and have higher incomes? Improve the education level of your population. ...

... 9. Jack doesn't believe that I would ever ask what makes Oregon (or any place) attractive to large firms. In fact, that's a central part of my business: understanding what drives business growth and location decisions. I work with firms and economic development groups and site locators around the country. The number one answer to that question, according to all of them is: Does a community have a ready supply of talented – especially young – workers, and is it a place to which it would be relatively easy to attract more? If Jack doesn't understand that, he probably shouldn't be doing economic development work. A key part of Eugene-Springfield's problem is that while it educates lots of young adults, it does a relatively poor job of hanging on to the best and brightest after they graduate.

Ignoring the inflammatory rhetoric, the talent available matters. But Cortright has his workforce development equation backwards. Attraction, not retention, is the problem. An article about Google's makeover of Mountain View reviews the tradition:

Historically, company towns have grown up around organizations with large manufacturing operations that can support thousands of local workers. To attract top executives to often less-than-ideal locales, the companies donated large sums to cultural institutions.

“The main reason Ford put money into the Detroit Symphony Orchestra is to make it plausible to recruit executives to Detroit,” Professor Davis said. “It was a human-resources move as much as it was philanthropic.”

But the technology companies that grew amid the striking scenery and balmy weather of the Bay Area have not felt the same imperative. As they grew, they turned inward, putting their resources into employee perks like stock options and free lunches.

Funding the symphony orchestra wasn't about enticing executive talent to stay. As for retaining brains, Silicon Valley is far from a model community. If Cortright doesn't understand this, then he shouldn't anoint himself a "talent attraction expert". His remarks about retention suggest that he doesn't understand migration. His recommendations for Akron were ill conceived.

Want to improve the education level of your population? Attract more brains like Colorado has. Struggling to attract talent like Ann Arbor, Michigan? Improving the quality of life won't help. Neither will Joe Cortright.

Sunday, February 21, 2010

Geography Of Economic Gloom And Doom

As I noted yesterday, Seattle looks to Cleveland to lift its civic pride. Chris Briem provides Detroit some cause to do the same. Via Aaron Renn's Twitter feed, the Cleveland leadership explains where it looks in order to feel better:

Ken Johnson: "If we don't do something soon, I think we'll be worse than Youngstown." ...

... Since [Michael Polensek] took office, Cleveland has lost about half of its population. He predicts this year's federal census "will be like the shot heard round the world." A decade ago, Cleveland's population was 478,403. Today, Polensek thinks it might be 325,000.

"We're out of time," he said. "We need something dramatic or Cleveland will be like East St. Louis or Gary."

Most cities have a self-esteem problem, "I wish we were more like X, but at least we aren't Y." When musing about Pittsburgh, I tend to value the outsider opinion. A bunch of cities (including Cleveland) are trying to follow in Pittsburgh's footsteps.

As locals know all too well, Pittsburgh is far from perfect. There have been numerous missteps and past glory weighs heavily on the present. In the Rust Belt, the relative status tends to be temporal instead of spatial.

Cleveland is struggling to bury its history and the hyperbole about Gary, East St. Louis and Youngstown isn't helping matters. Perhaps the lament will shock resident readers into action. I think it unlikely. The senior members of City Council sounding the alarm are the problem. Shaking up Cleveland starts there.

Upswing In Downtown Pittsburgh

The story of downtown Rochester's revival goes through Nashville, San Antonio, and Pittsburgh:

Pittsburgh joins such cities as Nashville, Tenn., and San Antonio as examples of downtown revival. But in Pittsburgh, the work is ongoing and retail remains the city's Achilles' heel, [Mike Edwards (CEO of the Pittsburgh Downtown Partnership)] said.

"We don't have a defined retail district, which is one of our objectives this year. But, as most experts will tell you, retail follows rooftops."

And in that area, Pittsburgh lags other cities its size, with only 5,000 downtown residents. The strong market is office space, with 45 million square feet downtown, 92 percent of it occupied, and a work force of 140,000.

Once again, Pittsburgh is a model for urban redevelopment. I think it is a good one for Rochester to follow. That city also seems to be on the rise, in relatively good position as we make the turn upwards from the bottom of the Great Recession.

Saturday, February 20, 2010

Disaggregating Brain Drain

Population decline. Net out-migration. Low rates of educational attainment. Brain drain. The numbers don't live up to the publicity. Out of Ireland:

The economy has the highest number of graduates in the 25-34 population in the EU-27, with the exception of Cyprus. That proportion (and its average quality) may depreciate somewhat if recovery does not take hold and emigration accelerates. But so far the outflow through emigration has been hyped while ignoring the mix. First, net inward migration has turned negative mainly because immigration (people coming to Ireland) has collapsed rather than due to a surge in emigration (people leaving). Second, a high proportion of those who have left are low-skilled and worked in construction where employment has more than halved. Construction, by its very nature, is a highly labour-intensive and low-productivity industry. Workers tend to be mobile, and emigration from this sector will not particularly dilute the quality of human capital in Ireland. Moreover, the nascent recovery of the international-traded sectors will keep many of our graduates at home. Longer-term, investment in education must remain the salient priority.

The part I put in boldface cuts to the chase. The recent Irish exodus has been much exaggerated. People are leaving the country. However, well-educated talent is still a relative economic strength in Ireland.

Obviously, this is a complex issue. We’ve heard very little of ‘brain drain’ with this upsurge of emigration, because the model of “brain circulation” has largely displaced the concept of permanent loss in migration thinking. We know from the boom that networks of well-educated Irish people can be an asset for our economy, no matter where they live, and many of them may eventually return if there is a return to substantial growth.

In terms of economic costs, emigration’s toll may not be all that harsh. Obviously, in the short term, emigration is a tried-and-true safety valve; sending off surplus labour will save social welfare money, and relieving the pressure on the unemployment rate will certainly make our economic performance look better on paper. And each unemployed person who leaves is one fewer potentially angry voter when it comes to election time.

But involuntary emigration carries very high potential human costs, and any analysis that does not take those into account is not looking at the full picture. Davy might call it ”hype”, but the concern over rising emigration rates reflects Ireland’s long experience with a phenomenon many of us thought was gone forever.

I'll try to add something to the discussion. What qualifies as "involuntary emigration"? You might want to stay but don't feel you can. That isn't an economic refugee. I would look at the traditionally stuck populations, who are usually native and a few rungs down on the socio-economic ladder.

Galway is full of the young and geographically mobile. It has been for more than a decade. Look at the native working class there. Are they emigrating in surprising numbers?

Seattle Jeers Cleveland

A Northeast Ohio expatriate tells his now fellow residents in Seattle to buck up:

Seattleites tend to have a "grass-is-always-greener" view of the world. And they like to complain. You know, the folks who talk about how great it is in Portland or San Francisco or Vancouver, but for whatever reason have picked Seattle as their home.

I've got something to say to those folks. Sure, Seattle has some problems. But there are certainly a lot worse places on the planet.

Show some hometown pride, Seattle. After all, how would you like to have Cleveland's nickname?

"The Mistake on the Lake."

Move to Seattle. We're not Cleveland. That kind of self-defeating thinking won't help. But I'd bet it makes Seattlelites feel better. From now on, I'll call the Pacific Northwest the Schadenfreude Economy. Way to aim high, Seattle.

Burgh Energy Report: Anti-Globalization

The mood swing towards protectionism is impacting Pittsburgh's burgeoning energy industry. Good news for Westinghouse announced earlier this week has informed a backlash:

The reactor project will create thousands of construction jobs at the site, near Augusta, Ga. And Mr. Obama said that building the reactors would create about 800 permanent jobs.

But according to Westinghouse, the company that designed the reactors’ central components — including the reactor vessel and part of the giant heat exchangers called steam generators — can be obtained only from steel mills in Japan and South Korea, which are certified for the work.

The company said design changes it was already considering would, if adopted, allow American steel makers to compete for contracts. Westinghouse is based in Pittsburgh, but is owned by a Japanese company, Toshiba.

Thomas M. Conway, vice president for the steelworkers union, said that American taxpayers should not bear the burden of loan guarantees that would create jobs abroad. The Energy Department now has $18.5 billion to offer in guarantees for the construction of new nuclear plants. Mr. Obama is seeking to triple that number.

“If we’re going to start shoveling a lot of money at nuclear, and nuclear is part of America’s plan to get less oil-dependent, then we need to build it ourselves,” Mr. Conway said.

The jab about Westinghouse's foreign ownership stood out to me, reminding me of V&M Star's (steel pipe) expansion in Youngstown. If you have been following that story, then you know about the proposed tariffs on similar Chinese products. The American steel industry is seeking relief from alleged dumping. This plays well in Ohio, a state hard hit by the dramatic decline in manufacturing jobs. Ironically, V&M Star is a French company. How long before folks start grumbling about that fact?

Back to nuclear reactors. United Steelworkers squaring off against the likes of Westinghouse speaks to Pittsburgh's complicated economic identity (something well beyond the grasp of Forbes magazine). The NYT article about the union grievance also explains the globalization of the energy industry. The autarkic ideal of resource independence is a foolish and unobtainable goal. Few populists understand even the basics of international political economy. We can't put the genie back into the bottle, nor should we want to do so.

In the long run, protectionism will hurt Pittsburgh.

Friday, February 19, 2010

America's Best Housing Market: Pittsburgh

The never-ending lists from Forbes are not all that popular in the Rust Belt. Pittsburgh is on top of a recent one concerning best housing markets, but it comes off as a backhanded compliment:

"Manufacturing cities like Pittsburgh have suffered so much for the last two, three, four years that there’s still a population base in that region, and now those areas are sort of attractive," says James P. Gaines, research economist at the Real Estate Center at Texas A&M University. "Home prices are so low, some service-level jobs can be created, so it's not surprising perhaps that there's been a revitalization of some of those communities."

I read the article a few times to make sure I understood the analysis. It's bogus. Gaines has no idea what is going on in Pittsburgh. Neither does Forbes.

With positive publicity like this, who needs a smear campaign?

Brain Drain Rhetoric Heats Up In Ohio

Midterm campaigning is upon us. Along with it is an increase in the discussion of brain drain. Out in front of this favorite political red herring is Ohio:

John Kasich says that if you want to see a movie star, go to Hollywood.

The former congressman, currently running for governor, said if you want to find a successful, job-creating, charitably giving Ohioan, go to Naples, Fla.

The joke Kasich told Wednesday illustrated one of the largest issues facing Ohio: The consistent departure of young people and families, a so-called "brain drain."

"They go anywhere they think they can have a better chance," he said. "We're losing our seed corn."

This misleading message is popular with voters. I wouldn't vote for Kasich. He's offering bad ideas about economic development.

There is a way to more constructively beat the brain drain drum. Exhibit A, Congressman Tim Ryan:

The Bridgestone/Firestone project came together only after the company struck a deal that included a $68 million public financing package from the state, county and city. There are also federal stimulus dollars involved, for nearby infrastructure repairs.

The 260,000-square-foot new tech center along South Main Street maintains the company’s 110-year presence in the city. Though it still manufacturers racing tires locally, Firestone merged with Bridgestone in 1988 and moved it’s Rubber City headquarters to Nashville four years later.

More importantly, as Congressman Tim Ryan put it - it helps place a stopper over the so-called Brain Drain.

“Young people who have left this community want to come back here, and to see these jobs open up, these high-tech, well-paying jobs open up here, gives these young people an opportunity to come back to where they grew up.”

Implicit in the message is talent retention, but the boomerang angle is much more promising in terms of effective policy. Politicians don't like to talk about attracting outsiders. Luring expatriates home is a palatable compromise.

I'm reminded of Joe Cortright's sloppy analysis of the talent landscape in Akron. He offered a better mousetrap for retention, not realizing that the problem is attraction. He bought the hype and I'd bet so did most of his audience. Kasich is banking on it.

Wednesday, February 17, 2010

Advocating Brain Drain

I'm still looking to carve out some time to finish a juicy blog post about talent migration and Oregon that I tried to write while very sick last Sunday. Perhaps next Monday I'll post it. Meanwhile, my wire is hopping with lots of activity. You can find here a quick summary of the debate about whether or not brain drain is bad. One of the linked research papers (warning - big .pdf file) starts out:

Fear of the brain drain seems to dominate many discussions of foreign aid and national policy in developing countries. Should aid donors and government budgets subsidize formation of skills, when skilled workers might then leave for rich countries? Could poor countries possibly obtain a positive return from brain drain? We argue that the answer could be yes. This is contrary to most of the perceived wisdom and definitely contrary to remarks and comments in the media.

I'm breathless typing that. The policy discussion needs to be a lot more open than it currently is. That's also true for domestic brain drain concerns. The case for retention is a given. Uncontested. Wrong.

In discussing advocacy for brain drain, I'm not rehashing my critiques of the overstatement or even erroneous claims about talent out-migration. (For example, see Michigan) I tend to take a softer approach, searching for benefits from the inevitable. More aggressive is the active promotion of relocation. I think it could work. It is definitely better than all snake oil claims of brain drain plugs being peddled across the country.

Diaspora Economic Development: Youngstown

San Francisco-based Revere Data is opening an office in downtown Youngstown. There are a few threads running through this piece of good economic news for the Mahoning Valley. The Business Journal introduces its readers to the story with the return home of native talent thanks to the positive publicity. I'm going to take a slightly different approach, tracing how Revere ended up in Youngstown:

[Revere CEO Kevin O’Brien] said the company selected the city because of an Ohio connection with a Revere employee, Brian Hill, originally from Ashtabula and whose parents live in the Youngstown area.

Youngstown wasn’t even on the radar screen until Hill convinced him to take a look at the region, O’Brien said. When the company started its due diligence, the principals were attracted to the low cost of doing business, the educated work force, access to world-class universities in northeastern Ohio, and a “tax-friendly” business environment.

Revere also received job-creation tax credits from the state of Ohio, which O’Brien cited as very helpful in kick-starting the Youngstown office.

“It [Youngstown] wasn’t something that was on the top of my mind, to be honest with you,” O’Brien said. “It’s a very people-friendly, business-friendly environment.”

The low cost of doing business in the city will enable Revere to relocate jobs from India to the city. “We’ve given notice to some of our folks over there that we intend to move positions to Youngstown.”

Local knowledge was able to entice a non-Rust Belt company to open shop in Ohio. This is one of the upsides to exporting talent. The Youngstown advantage doesn't mean anything unless you hear it from someone you trust.

Your state can improve the business climate all it wants. Go ahead and slash those taxes. Companies won't rush to relocate. Knowledge of an opportunity is much more important than information about an opportunity.

Tuesday, February 16, 2010

Burgh Energy Report: Mahoning Valley Steel

Steel is making a big comeback in Youngstown. Yesterday, V&M Star made official its expansion of operations in the Mahoning Valley. Why there? Proximity to all the shale gas in the Marcellus Play:

Investing in the Youngstown area made sense because technology has improved to a point where gas companies are now able to tap into vast reserves such as the Marcellus Shale, said Skip Herald, managing director of V&M’s North American operations. The new hot mill would be able to produce tube from as 2 3/8 inches in diameter to 7 inches in diameter.

Demand for these products has increased over the years, he said. “We’ve seen high growth potential over the last several years and we continue to see that demand in the near future.”

He noted that natural-gas exploration is expected to boom over the next decade, as clean energy technology ramps up across the country and elsewhere. And, many of V&M’s customers such as Exxon Mobil, BP and Shell step up their investments in the market. “Based on this change in the market, we see greater demand for small diameter pipes” that are needed to drill in places such as the Marcellus Shale.

The Marcellus Shale extends along the Appalachian range from northeast Pennsylvania and into parts of Ohio, West Virginia and Virginia.

V&M Star has been exploring a $1 billion investment for about two years, considering multiple sites in the United States (e.g. Texas and Oklahoma) and one in Brazil. I understand this news as a substantial bet on natural gas extraction in the region. But you wouldn't know anything about it if you only engaged Pittsburgh-based media.

To offer a critique for Northeast Ohio-based media, coverage of the shale gas boom has been sparse and Westinghouse's growth in Cranberry is off the radar (people who live in Greater Youngstown do commute to Northern Pittsburgh for work). There is scant evidence of TechBelt thinking in terms of regional economic development. Local journalists are dropping the ball.

Saturday, February 13, 2010

War For Talent: Silicon Valley

Labor protectionism is ascendant. A microcosm of this mood swing can be found in this BBC News story tracing the liberalization of immigration in the United Kingdom. The journalism is excellent and the associated broadcast is worth a listen. It raises the question, "Is there a limit to the benefits of attracting foreign-born talent?"

We know through experience that a nation's tolerance for newcomers falls far short of infinite. Some periods are more xenophobic than others. The populism stemming from the latest financial crisis threatens to derail global geographic mobility at a time when many wealthy countries can least afford it.

The best American example of this policy paradox is Silicon Valley. This region's dependence on foreign-born talent is renown. The economic implosion of California (the birthplace of US immigration law) is now revealing systemic neglect of local human capital:

Foreign-born talent, particularly in science and engineering, has been a linchpin of the Valley's success in past decades, but that dynamic is at risk, Hancock believes.

Fully 60 percent of the Valley's science and engineering workforce was born outside of the United States, mostly from India, China and Korea, according to the Index.

But "some who have lived and worked here for years are beginning to 'go home,'" observes Tom Friel, retired board chair of the executive search firm Heidrick & Struggles.

"This is a troubling trend, exacerbated by our dysfunctional national immigration policy agenda, and if not addressed will have significant negative impact on our future as a region."

In addition, the percentage of foreign-born students earning science and engineering degrees in Silicon Valley has declined since 2003, dropping from 18 percent to 16.6 percent in 2007. The influx was hit first by tightened restrictions under Homeland Security after Sept. 11, Hancock said.

Friel stressed the importance of supporting education and training for the local population, "natural and immigrant alike," and doing whatever possible to keep the region attractive to talent from around the world.

At the same time, he said, "I don't think it's realistic or healthy to continue to rely on such a large inflow of engineering and science talent from abroad, particularly from Asia. This inflow has been the source of much of the Valley's historic edge in innovation, but conditions for these immigrants, support for their education, financing for their business ideas, have improved in their home countries and declined here."

Even as attracting and retaining top talent remains important to the region, California's investment in higher education is declining. While the total number of science and engineering degrees has leveled off, the percentage conferred to foreign students has been sliding in both the state and nation as a whole, the report notes.

"California state policy has become a hindrance to our innovation potential, not only because of our failure to invest but also because our government is not addressing important problems," Hancock said.

Friel added, "Many in the region, including some in our local and state leadership, somehow have come to believe that we occupy this position of leading economic region by divine right rather than hard work, prudent investment and sound policy.

"Nothing could be more wrong or more dangerous for our future in my view than this sense of entitlement and complacency.

"What we have been able to do historically, other countries and regions can also do and are beginning to show that they can and will."

This scenario is similar to that of Nevada or Florida, all the boomtown communities growing fat off of in-migration. Silicon Valley has been a net-migration loser for quite a few years. In terms of voting with one's feet, the dominant pattern is that life is elsewhere. As for schools, why spend more money on education when brains are so anxious to move in from China and India? Perhaps no region in the entire United States benefited more from US immigration policy than Silicon Valley.

Read the report yourself. The picture is dire if immigration to Silicon Valley were to dramatically decline for any reason. As for the domestic production of such talent, I'll point you towards Thursday's post. The hotbed of innovation par excellence was built on brain imports not only from other countries, but other states.

The marriage between local universities and regional economic development initiatives could undermine boomtowns accustomed to substantial in-migration of college graduates. The spillover from research is attracting the likes of Google. A new round of winners will be the cities that have invested heavily in deriving a talent dividend organically. It isn't a strategy that other places can simply adopt and quickly get back into the game.

There is substantial spillover from research universities into Silicon Valley (e.g. Stanford). That, too, is immigrant driven. The growing populist backlash is bad news. However, recent history suggests a more moderate response is the most likely outcome. Keep your fingers crossed, Silicon Valley.

Friday, February 12, 2010

Burgh Energy Report: Natural Gas Infrastructure

The shale gas revolution has a demand problem. Who is going to use all that energy? Until that question is answered, the Marcellus Play boom is more fantasy (or nightmare) than reality. A harbinger of things to come:

Nova Chemicals Corp. could supply one of its Canadian plants with natural gas from Marcellus Shale deposits in Western Pennsylvania through a proposed pipeline venture.

Nova and Buckeye Partners said they had signed a memo of understanding to develop a pipeline to carry mixed natural gas liquids from Pittsburgh to Nova's plant in Corunna, Ontario.

Until this morning, I had no idea that the community of Corunna even existed. You can read more about the Nova plant here. Currently, the raw resource supply comes from Western Canada and feeds the industry in Sarnia-Lambton's Chemical Valley (north of Detroit/Windsor along the St. Clair River). Instead of using a domestic source, Nova will import natural gas from Pennsylvania.

In other words, the United States will be exporting natural gas to resource-rich Canada. This bizarre twist adds some to clarification to the following comment from Chris Briem about the limits of the Marcellus Shale boom:

How new production will affect our relative prices in natural gas is really the big story that could develop from all this development. If we can just achieve parity in natural as prices it will be an improvement in our competitive position. Natural Gas is not the easiest to distribute. I know just enough on the expanding seaborne distribution of natural gas to appreciate that. But even landward distribution across the nation isn't the easiest and location matters to pricing. If we do boost local supply it really should translate to lower local prices which would be good for a number of industries. We still have a number of energy intensive local industries.

Closer is better, a new geographic comparative advantage is emerging. The pipeline illustrates how a Great Lakes economic union might operate. Talent, industrial know-how and natural resources are coming together in dynamic fashion. And all of it is headquartered in Pittsburgh.

Thursday, February 11, 2010

Geography Of Tech Talent

I hope to get to the Silicon Valley story later this afternoon. Meanwhile, Google helps to define the emerging geography of talent:

When it comes to recruiting and managing talent, [Steven Woods] is like the general manager of a baseball team, scouting and meeting with potential recruits and discussing possible roles they might play in the company. He speaks about a certain former intern who will be joining the company from the University of British Columbia as though he had just found a new all-star shortstop.

He's not just competing with RIM and Microsoft for talent, but also against other Google locations around the world, some in much warmer climates like Silicon Valley. Still, Google saw the value in setting up operations down the street from RIM.

"Google had this great insight, which of course sounds obvious -- but as Canadians we often know it's not obvious -- that people don't all want to move to California,'' Woods says.

Google, much like other technology giants before it, sees the University of Waterloo and the surrounding region as one of its top three recruitment centres for undergraduates, alongside the Massachusetts Institute of Technology (MIT) in Cambridge, Massachusetts, and Carnegie Mellon University in Pittsburgh.

At first, the above reads to me like a residual migration pattern. But Google is minding the rules of Spiky World. Companies are moving where the talent is located. We are also seeing more co-location of firms near major research universities. That means an expanding footprint in Boston, Pittsburgh and Waterloo.

Keep this in mind when I later discuss domestic migration and Silicon Valley. The tech talent labor market is on the verge of getting very tight, which is good news for Waterloo (and Pittsburgh).

Moving To Higher Tax States

Freedom Foundation of Minnesota released a report yesterday about relatively high taxes pushing people out of the state. I read it to discover if anything new is unearthed. Nope, don't bother wasting your time. The Star Tribune provides a handy summary:

"This is not a PR problem, it's a taxing and spending problem," Annette Meeks, a Republican appointee to the Metropolitan Council, said at a Capitol news conference. "People are heading for low-tax and no-tax states. Let's stop chasing them out."

Liberals, however, countered that the shift -- from a net gain through interstate migration to a net loss -- coincides exactly with the "no new taxes" reign of Republican Gov. Tim Pawlenty. It started the year he was elected, 2002, and has continued ever since.

Demographers noted that, far from being a sudden new shift, departure is the norm for Minnesota going back for decades -- only briefly interrupted in a major way by the blazing-hot economy of the '90s.

"My sense is that if people are leaving the state, it's not because of the taxes," said Will Craig, associate director of the University of Minnesota's Center for Urban and Regional Affairs. "It's because of the weather, and jobs. I know a guy who was in construction here, and now he's in Arizona," after the dramatic fall in homebuilding that started at mid-decade.

I don't understand why there is any controversy. Pick a time period and calculate the out-migration rates (NOT net out-migration rates) for every state. Settle on some tax metrics (income?) and see if lower tax rates positively correlate with lower out-migration rates. Then we might have some idea about taxes as a push factor.

From there, we could devise clever research questions that control for a variety of variables as we hone our analysis. Is there a tax effect discernible between domestic migration winners? The goal in this line of inquiry is to eliminate the climate advantage.

Or, look at who is moving to Minnesota. How much does tax regime explain that flow? However, I doubt the Freedom Foundation of Minnesota is interested in getting to the bottom of the shrinking tax base problem. They would likely lose their benefactor if they tried.

Wednesday, February 10, 2010


The Institute for Research and Education on Women and Gender invites original shorts from women filmmakers living in the Rust Belt region.

Buffalo, NY is indelibly marked by the booming birth and excruciatingly slow death of the manufacturing industry in the United States. Rust permeates our architecture, our politics and our economy, as well as our daily lives and the art that we create. This screening poses the broad question: Does this slow rusty death--this creaky slam of factory gates--engender a particular voice, sound, shape, color, environment, his/herstory, mood or texture? We will consider 3 to 10 minute films of any genre that provide some commentary on or offer some interpretation of life and/or art of and by women living in a Rust Belt city.

About the event:
For the fifth year in a row, the Institute for Research on Women and Gender presents a collection of recent original short work by women filmmakers. Taking as its broad theme the concept of the Rust Belt,this year's films will continue themission to confound narrow, mainstream perceptions of women's cinema in order to excite, provoke, and challenge. This is a cinema of the women, by the women and for everybody!

Deadline for screeners (to be considered for inclusion): February 10th, 2010
Deadline for completed work: March 5th, 2010
Theme: Rust Belt Reels
Format: DVD or MiniDV for screeners & MiniDV for exhibition

Event Date: March 25th, 2010
Venue: Market Arcade Film & Arts Centre
639 Main Street, Buffalo, NY.
Duration of Works: 3-10 mins

We prefer to consider work that has not yet been exhibited extensively in Western New York

Send Screeners to:

Ruth Goldman
Programmer, International Women's Film Festival
Institute for Research and Education on Women and Gender
UB Commons, 520 Lee Entrance, Suite 207
The State University of New York at Buffalo, North Campus
Amherst, NY 14228-2567

Tuesday, February 09, 2010

Texas Debt

When I write "Texas Debt", I don't mean king-sized arrears. The subject matter is what the state owes the Big Bad Federal Government. Via Growthology, the geography of unemployment taxes tells a fascinating tale:

Texas is one of the hard-hit states. Though its unemployment rate is a relatively low 8.3%, jobless claims have soared. In December, Texas paid 330,000 residents a total of $325.7 million, up from 228,000 people claiming $216.8 million a year earlier.

The state began borrowing from the feds in July to pay unemployment benefits and now owes Washington $1.6 billion, said Ann Hatchitt, spokeswoman for the Texas Workforce Commission.

So employers in the Lone Star State will have to pay at least $64.80 in tax per worker this year, up from $23.40 a year ago. This is the highest rate in 20 years.

Even the Texas Boom needs public support. My money must underwrite Lone Star State excesses. Call it a sprawl subsidy.

I kid. I haven't crunched the numbers. The unemployment tax problem looks like a bet on in-migration. There is also some shell game economics at work. Texas politicians are begging the Socialists in DC for money to save their jobs.

Tax Cut Boondoggles

Pittsburgh has had its share of boondoggles. We could debate which projects qualify. Anyone want to argue that Pittsburgh is boondoggle free? From boomtown to backwater, there are many monuments to government waste. No state is immune.

I want to expand our understanding of boondoggle to include tax cuts and other forms of paring government revenue. Pay no attention to libertarian orthodoxy. Not all tax cuts are created equal. Some are bad. I doubt Sarah Palin has enough room on her hand to cover all the nuances.

Clearly the city has been unable to pay for just its annual operating costs from concurrent tax revenues for most of the last decade. Many believe that the city's structural deficit can be traced to the 11/4 percentage point decrease in the city's wage tax in 1988. Supporters and opponents of that tax cut debate whether it was prudent given the fiscal realities of the city at the time. Both sides forget the intended purpose of that tax cut.

Going back to the Caliguiri administration, if not much farther, there was a clear concern with the out-migration of city residents to other parts of the country and suburbs within the metropolitan region. The future of the city seemed to be tied directly to a decrease in the wage tax and the retention of younger workers that are most affected by it.

The proposal put forth by the Masloff administration never was intended as a unilateral lowering of the wage tax but a more comprehensive tax-neutral program that included a complementary increase in property taxes. It was only at the last minute that the wage tax reduction was approved but follow-up legislation to increase the property tax was defeated. A fundamental error was not the tax reduction itself but the selective implementation of the mayor's original proposal.

It is ironic that what was thought of as a key policy to keep people from leaving the city — shifting taxes from wages to property values — is now the opposite of most tax reform proposals. The lack of a clear answer about what version of tax reform is best highlights the difficulty of sustainable urban public finances for Pittsburgh and other cities.

What may be surprising is that local police and fire department expenses per capita for Pittsburgh are not terribly out of line with other similar cities around the country. But the revenue to pay for those and other services is clearly lacking. And for Pittsburgh a key dilemma is how to deal with a legacy of debt incurred from a population that, for the most part, has retired or left for elsewhere in the state or farther.

I'll summarize. A tax cut was proposed to plug the brain drain. In 1988. How's that taxy slashy treatin' you, Pittsburgh? The supposed relationship between migration and taxes is retarded.*

*That's satire.

Actuaries Of Migration

Residents are fleeing Long Island. At least, that's the hype. Every community has a unique out-migration profile. General trends might apply to a large number of places (e.g. relocation from Rust Belt to Sun Belt). A finer look reveals the power of path dependency:

Lore has it, as Ellie Toczek tells the story, a friend of a friend moved a long time ago to The Villages. The friends from the Long Island community of Smithtown, N.Y., found The Villages so appealing they became the catalyst for what’s become an ongoing exodus from Suffolk County that included folks like Ellie and her husband Steve.

While Ellie laughed as she told the story, this tale revealed considerable insight about migration trends into The Villages, recently released Internal Revenue Service data showed. ...

... Then there are stories that involve folks like Ellie and her husband.

About two years ago, their son-in-law Michael Butt heard about a teaching opportunity with The Villages Charter School, Ellie said. The opportunity made sense to Michael and his wife Jessica since his parents Warren and Linda Butt lived in the Village of Lynnhaven.

Consequently, Ellie and Steven decided they wanted to be closer to their daughter and her family.

“We just followed the grandchildren,” Ellie said. “Now we just enjoy our lives tremendously.”

Conversely, cities such as Indianapolis suffer from a dearth of networks pointing people there. I bring up Indy because of the indignities it suffered thanks to the Colts playing in the Super Bowl. Via Aaron Renn's Twitter feed, I followed the bluster that is sometimes called "place smack". From The New Yorker:

And once I got past thinking I had any original thoughts about the irony of two sexagenarians singing about teenage wastelands, I noticed that everyone was caught up in the drama around the fate of New Orleans. It is a great sports story—a team that had never won a Super Bowl, that had been devastated by Hurricane Katrina, makes it to the Super Bowl and faces a quarterback from New Orleans. (On my only trip to Louisiana, back in the early nineties, I went out with some high-school teachers on a Friday night, and we stopped by the football game; Peyton Manning was running the offense.) But as a lifelong New Yorker working to overcome his Saul Steinbergian perspective on the universe, I wondered: But what about Indianapolis? What about its sense of place?

For help, I called my former colleague, Matt Dellinger, a proud Indianapolan based in Brooklyn. I expected a defense of the city, but at first he rattled off the nicknames used to belittle it: Indianoplace, Naptown. “We don’t have the same kind of—we did steal the team, after all,” he told me. I told Matt that if he—a writer working on a book about a highway running through Indiana—couldn’t suggest a narrative other than the void, I didn’t know who could, and he replied, “The pleasures of Indianapolis, and Indiana in general, are more subtle than your average news organization can figure out in a day.”

No one is going to move to the void, even if the taxes are low. I'm not disparaging Indianoplace. I empathize. After all, I celebrate Shittsburgh daily. Most of the Rust Belt is nowhere, which is why in-migration tends to be so anemic. If you are looking to poach talent, then best to look in other shrinking cities.

One of these days I need to do some research and figure out if scholars have studied chain migration for boomtowns in the United States. The modeling of this pattern might help regions figure out better strategies for attracting talent. How do you lure a person to a place he or she doesn't know?

Actuaries might have a working answer. Statistical technologies allow a person from far away to assess risk. You needn't know a person to functionally evaluate them. For example, an article about figuring out who might strategically default on their home loans:

On Monday, Loan Value Group L.L.C. of Rumson, N.J., introduced a program that it offers to lenders and mortgage servicers who want to identify borrowers most likely to engage in what’s come to be known as a “strategic default.” Once those lenders find the likely candidates, they can approach them pre-emptively with an offer of money that they would get later if they satisfy the terms of their loans.

To identify those borrowers most likely to strategically default, Loan Value Group analyzes loans using about a dozen criteria. These include negative equity level (say a loan-to-home-value ratio of 115 or higher), income level and geographic location. Then, it uses similar criteria and behavioral economic theory to determine the necessary reward amounts for such borrowers.

In the case of talent attraction, the trick is to identify those who are most likely to move to your Rust Belt city. The next step is to incentivize ("necessary reward") the relocation. Successful poaching builds up trust equity in a target locale (i.e. sending region) and the migration pathway is established. Bringing it back to finance, you hear from a friend about someone who was offered money to stick with a mortgage. You approach your own lender about the program as an alternative to walking away from your home.

The analogy is crude, but I think that's how Indianoplace could get on the map for outsiders. You have to do more than make a cool city. You have to get the word out effectively. Please see The Villages and Suffolk County, New York.

Monday, February 08, 2010

Lone Star State Exodus

There is something rotten in Texas. The state's disdain for education is driving out brains at an alarming rate. The disturbing news:

Texas has 8 percent of the U.S. population but only receives 5 percent of federal research and development (R&D) funding and 5 percent of the nation’s venture capital investment. If Texas received just its population-based share (8 percent), that would mean an incremental $3.7 billion in R&D funding to the state. Additionally, Texas is currently a net exporter of high school graduates who attend doctoral-granting universities in other states. The state currently is experiencing a net loss or brain drain of nearly 6,000 highly qualified students per year and this number has increased by 54 percent in the last six years. Texas must develop more National Research Universities to remain competitive.

Under-appreciated native talent is finding the grass greener far from home given the lack of investment in human capital. Those who know Texas best are anxious to leave. Texas Tech is hoping to arrest this crisis, aspiring to be just the fourth Tier One university in the state (which would tie it with much smaller Pennsylvania).

The poor research climate is a major economic handicap. Much more public money is needed in order for Texas to compete nationally and globally. Low taxes significantly impede innovation, fueling the brain exodus.

2009 US Domestic Migration

The big story for 2009 migration was the decline of geographic mobility. Immigration should dominate the 2010 headlines. The Associated Press is offering its own analysis of US domestic migration and published some interesting results:

"People who move tend to be younger and have lower incomes," said demographer William Frey of the Brookings Institution. "Normally, if there is a big influx of young people, that could pull down the income of an area and if there is a big outflux of young people that can raise income in an area."

That appears to have happened in Collier County, Fla., which lost households to larger Florida communities such as Fort Myers and Miami as construction jobs and tourism jobs faded away in 2007 and 2008. But Collier County gained $729 million in total income from new, wealthier residents moving from suburban Detroit, Chicago, Minneapolis and Long Island.

The same thing happened at the state level. Florida, New Hampshire and Vermont lost households but gained income.

Both Florida and Vermont got income boosts from New York and New Jersey, just as Florida lost households to Georgia, and Vermont lost residents to North Carolina.

New Hampshire got an income boost from Massachusetts as it lost households to Florida.

The reverse was true for a handful of states. Iowa, Missouri, Louisiana, Virginia and West Virginia gained population but lost income from 2007 to 2008, indicating that wealthier residents left and poorer ones moved in.

I note a shift in focus from quantity to quality of migration. In terms of policy, the additional variable is welcome news. Shrinking cities (e.g. Pittsburgh) that are gaining income and raising educational attainment of the population often fly under the radar. Actual brain gain remains hidden from view.

Apropos of the financial crisis, the additional numbers can reveal migration bubbles (i.e. gains in households, decreasing income). Not all migration gains are equal:

"It's an interesting time right now because we're gaining population," said LSU sociologist Tony Blanchard. "However you have to look under the numbers and temper the excitement some because ... while we're gaining people in terms of bodies ... the average education of the population through this net migration is going down."

Population is going up along with the brain drain. The simple net-migration narrative completely misses this important piece of economic development. Such data do more to obfuscate than illuminate. I should take my own advice. The situation in Florida isn't as bad I thought it was. More brain drain hysteria and I swallowed it whole.

Sunday, February 07, 2010

Rust Belt Economic Geography

Just how much has Pittsburgh divested itself from steel? Albeit state-level data, I see an important redevelopment undercurrent:

In the United States, the biggest steel-producing states include Indiana, Ohio, Arkansas, Alabama, North Carolina, South Carolina and Texas, according to the United States Steel Manufacturers Association. And Pennsylvania remains a maker of steel, though at nothing near the level it was in Andrew Carnegie’s day.

The Pittsburgh Steelers are an anachronism. Yet, king steel remains entrenched in the Mahoning Valley in Ohio. The stunning contrast in economic fortune is wrapped up in the story of clinging too strongly to a community's past.

I'm still thinking about Chicago versus Pittsburgh. Like the Sun Belt (with the notable exceptions of southern industrial cities), Chicago rode the wave of in-migration. Increases in educational attainment and (by extension) income per capita are the result of talent attraction. Nowhere is that dynamic more apparent than Florida:

Business leaders said keeping university graduates in the state could help build the high-tech, high-wage economy Florida desperately needs.

"Today's students are tomorrow's business leaders in the state,” said Gabe Sheheane from the Florida Chamber of Commerce. “We need to remember that. The business community is behind that, to make sure that we provide the type of workforce that businesses need and make them want to come and locate in Florida."

The rush to the Sunshine State has abated, for now. The Florida exodus has been in place for awhile. The same is true where I live, Colorado. As long as people continue to move here, brain drain isn't a problem. A travel section article in the New York Times about Santa Fe is another example:

Countless people have followed that archetypal ramp into a new life. Santa Fe still holds out a promise of renewal, of exactly what Lawrence was looking for when he came to this area: a place that could change not only one’s external life but also one’s inner, spiritual life. “Touch the country,” he said of New Mexico, “and you will never be the same again.”

What is Santa Fe? A place of healing, since the tuberculosis sufferers started coming over a century ago. A spiritual mini-mecca for a semi-godless age. A sumptuous adobe haven for a few super-rich. A land of hope for thousands of illegal immigrants. A hothouse of talent and IQ, with an extraordinary concentration of Ph.D.’s, and more artists than any American city its size. (According to one report, 39 percent of the city’s economy is generated by the arts and culture.) On and on the list goes. It’s a city of trade and exchange, of markets, built at the crossroads of the old Camino Real and the Santa Fe Trail. Wealthy people fly here from New York to buy their Asian rugs, and opera lovers flock here in summer for the justifiably world-famous open-air productions at the Santa Fe Opera.

Rest assured, most of those Ph.D.'s aren't New Mexico natives. As for Pittsburgh, it built up human capital without a "promise of renewal" that defines the global Santa Fe beacon. Now would be a good time to remind my readers of some analysis from Federal Reserve Bank of Chicago concerning growth in the Great Lakes megaregion:

In considering educational attainment of the populations, the [table below] displays the ranks of Great Lakes metropolitan areas among 118 metropolitan areas in 1970 and 2006. The two local leaders in 1970 college attainment, Columbus, Ohio, and the Twin Cities also experienced the fastest employment growth. While Pittsburgh ranked low in college attainment in 1970, its gains in this metric since then have been the most rapid. Perhaps not accidentally, Pittsburgh’s growth in per capita income also outpaced other cities in the region.

Pittsburgh's talent dividend gains out-pace every city in this cohort, including Chicago. This growth couldn't be more organic. In-migration had almost nothing to with it. We could look at the success from a variety of angles. I'm still trying to think through all the implications. The talent dividend has been both a boon and a curse.

With such a formidable base of local talent production, imagine if Pittsburgh unleashed global ambitions as Chicago did. The region is undervalued and, given the dramatic rise in educational attainment, under-performing. I think the reason for this is the dominant image of steel. I'd bet most people who read the article about the global steel industry were surprised that Pennsylvania was not among the biggest producing states. The stereotype of a place is very powerful and can impede (or enhance) talent attraction.