Tuesday, June 05, 2012

US Geography Of Economic Divergence

Not that the Rust Belt-Sun Belt (high tax-low tax) dichotomy ever made much sense to me, but US regional geography is in the process of exploding. Economist Enrico Moretti tackles the task of defining the emerging landscape in his book, "The New Geography of Jobs". I hope to read it myself over the course of my business trip to Cleveland this coming weekend. For now, I'll settle for digesting the reviews:

Not coincidentally, by 1990, Moretti writes, the difference between the Albuquerque and Seattle in the number of workers with a college education had grown to 14% and in 2000 to 35%. Salary levels followed. In 1980, college grads in Seattle “were making just $4,200 more than college graduates in Albuquerque; they are now making $14,000 more.”

The presence of many college-educated residents changes the local economy in profound ways, affecting both the kinds of jobs available to residents and the productivity of all workers. In the end, this results in high wages not just for the skilled workers but also for workers with limited skills. This is the most surprising part of the story.

The downside is that winners tend to become stronger, and losers tend to lose further ground. This “Great Divergence” is troubling, he writes. A country that is made of up regions that are drastically different from one another “will end up culturally and politically balkanized.” While communities in the United States have always differed from one another, with some hubs of wealth and others hubs of working-class families, the economic distance from top to bottom today has never been larger.

Richard Florida has carved out a career talking about how college graduates are sorting into a small group of talent pools. I don't see Moretti adding anything substantive to that narrative. I'll be looking for something more profound when I get access to the text. I think both Moretti and Florida are describing the United States before the last financial crisis.

In terms of housing prices, the deck is being reshuffled:

Housing price growth rates for the 61 MSAs that had a population of one million or more in 2000 show a large amount of variation.  While prices dropped by more than 50 percent in Las Vegas, Riverside, Sacramento, and Orlando, prices fell by less than 10 percent in Buffalo, Pittsburgh, Austin, and Oklahoma City. Some of the biggest declines have occurred in warm-weather MSAs that saw large increases in prices prior to the peak.  Some of the smallest have been in places where the economy has been less adversely affected by the downturn, such as Texas and Oklahoma.  Interestingly, there is quite a bit of variation in older northern MSAs.  While prices have fallen by about 50 percent in Detroit and about 30 percent in Cleveland, they are down by much less in Rochester, Pittsburgh, and Buffalo.

Emphasis added. Buffalo (#1) and Pittsburgh (#2) top the list for holding value. Those two cities stand in stark contrast with Cleveland and Detroit. Yet Moretti paints the Rust Belt with one broad brush stroke:

If you look at the economic map of America today, you do not see just one country. You see three increasingly different countries. On one hand there are cities like Seattle, San Francisco, Raleigh-Durham or Austin, with a strong innovation-based economy and workers who are among the most creative and best paid on the planet. At the other extreme are former manufacturing centers like Detroit, Flint or Cleveland, where jobs and salaries are plummeting. In the middle, there is the rest of America, apparently undecided on which direction to take.

Pittsburgh is a former manufacturing center. It's either an outlier or a sign of things to come. Perhaps neither here nor there, Richard Florida is putting his chips down on Pittsburgh as an icon of a different new geography. I'd like to know what Moretti thinks about Pittsburgh.

Within the Rust Belt, there is tremendous variation, whether you are considering housing prices or educational attainment. There is a great divergence. On the whole, I think former manufacturing centers (e.g. Greenville, SC and Chattanooga, TN) are doing better than most Sun Belt boomtowns. I don't know where that leaves the likes of Cleveland. I'll find out more this Saturday while on a Rust Belt Chic tour there.


Allen said...


Do you know how Moretti got those numbers? I poked around and didn't see anything. The reason I ask is that the current average difference in salary between ABQ and SEA is on par with what the cost of living difference is. That is, unless his differences take into account cost of living adjusts with salaries, there is zero gain in salary from the increase in college degrees.

Jim Russell said...

I don't know where he got the numbers. I'm also unsure about how to factor in cost of living adjustments.