New Geography

Category: Economics

  • The Rise of the Executive Headquarters

    Headquarters were once a defining characteristic of urban economic power, and indeed today cities that can still brag of the number of entries they boast on the Fortune 500 list of largest American firms. Yet as urban centers increasingly lost headquarters, boosters started to downplay them as a metric, particularly with the rise of the so-called “global city” concept. Today the HQ is back into the urban mix, but increasingly as what I would call the “executive headquarters” which brings bragging rights to a city but not much in terms of middle class jobs.

    The corporate headquarters in a downtown skyscraper took a beating during the 70s, 80s, and 90s as America’s inner cities went into decline. Why locate in a decaying, lawless, dysfunctional urban setting that seemed destined for the scrap heap when the shiny suburbs beckoned?  Indeed, companies increasingly vacated downtowns for massive suburban office campuses, frequently in idyllic, pastoral settings where employees would exist in a cocooned bubble without any but approved distractions such as on site gyms, dry cleaning, cafeterias, and daycare.

    Tom Wolfe, writing of the early 90s recession in New York, presciently pointed out the one thing that continued to hold urban allure for many CEOs, namely the lavish lunch:

    Eight years before 9/11, financial services and commercial real estate were superseded as driving forces in the New York economy by the restaurants appearing in boldface in Zagat’s. The exodus of corporations from New York during the near-depression of 1992-95 was stanched by a single thing: lunch. The C.E.O.’s would do anything rather than give up the daily celebrations of their eminence at eateries in the town where the wining and dining were as good azagats. (I know, I know; just read it out loud.) The case could be made that any post-9/11 federal appropriations to prop up business in New York should go first to the places where you can get Chilean sea bass with a Georgia plum marmalade glaze on a bed of mashed Hayman potatoes laced with leeks, broccoli rabe and emulsion of braised Vidalia onions infused with Marsala vinegar.

    Many CEOs might prefer to be close to home, but others enjoyed hobnobbing with their peers and getting treated like royalty at the Four Seasons.

    Yet even as many corporate headquarters were leaving and as Time magazine published its “Rotting of the Big Apple” cover in 1990, it was clear major change was already afoot. The cleanup had begun in the mid-1980s and by the 90s Americas biggest cities were on the way back.

    How could the urban center be coming back while headquarters bled away? The answer was the rise of the global economy and the services based “global city”. Saskia Sassen and other writers pioneered the analysis of this new entity.  In this world the complexities of the global economy generated demand for new forms of financial and producer services needed to manage and control the far flung networks of the global corporation. These highly specialized services providers were subject to clustering economics and concentrated in large urban centers like New York, London, and Chicago where they provided a new type of urban economic vitality.

    Sassen specifically says, “The key sector specifying the distinctive production advantages of global cities is the highly specialized and networked intermediate economy rather than corporate headquarters. In developing this argument, I am responding to a very common notion that the number of headquarters is what specifies a global city.”

    This not only provided an explanation for why urban centers could economically rebound while simultaneously losing headquarters, but from a civic marketing perspective it provided a justification for pooh-poohing the loss of HQs as much ado about nothing.  Headquarters were yesterday’s news anyway.

    Except that they weren’t. In recent years we’ve seen increasing evidence of the return of the corporate headquarters to the global city, a phenomenon I identified in 2008.  Today the “back to the city” theme for corporations is much written about, and the headquarters is once again conveniently seen as a signifier of urban strength.

    But in most cases this is not the old monolithic headquarters of yore, with their thousands of employees. Rather this takes the form of an “executive headquarters.” That is, a headquarters consisting largely of the C-suite and a small number of other very senior leaders and support staff.

    These have been around for a while, but traditionally existing to serve the desire of the CEO to live in a particular city. Men’s Wearhouse established headquarters in Fremont, CA for example, but most of the corporate employees are located in Houston. Lincoln National moved its executive headquarters to Philadelphia from Ft. Wayne, IN but the distribution of employment was barely affected. Both were CEO living preference driven.

    The people in “executive headquarters” are precisely those who most need proximity to the global city service providers that increasingly form a key part of company operations. Also, recruiting executive talent and proximity to airports play a role. And when companies want to think in a totally global manner, they can want to have their main office physically separate from any particular operating location.

    There are numerous examples. In Chicago alone, MillerCoors moved its top staff from Milwaukee. Mead Johnson Nutrionals established an executive headquarters in the suburbs away from its main Evansville, IN base. Boeing’s move to Chicago from Seattle can be seen in the same light. And just recently agribusiness giant ADM announced it was moving its HQ from Decatur, IL to Chicago.

    The Mead Johnson case is instructional. According to press reports at the time:

    Working in a large city will make it easier to conduct business throughout the world. Mead Johnson makes Enfamil and similar products and about half of its sales come from overseas. Having offices near Chicago, for instance, will place executives in close proximity to global-business consultants, leaders in the field of nutrition and an international airport.
    …
    Between 40 and 60 people will work in the corporate offices, most of them in new positions. Evansville will retain the company’s operations in research and development, U.S. sales and marketing and information management, as well as a bulk of the finance and human-resources departments, Paradossi said. Mead Johnson’s liquid products will continue to be made in Evansville, he said.

    Note the stated reasons for the move, as well as the small number of people involved.  The ADM move is similar, with only about 100 jobs initially. This suggests that while headquarters are in some cases coming back to the global city, they aren’t brining many jobs.  Also, many second tier business centers like Indianapolis continue to see their downtown job base hollowed out apart from hot sectors like technology.

    The executive headquarters is one more example of the increasing bifurcation of America’s elite cities. A handful of top executives gather in America’s capitals of capitalism while the good paying core of the old headquarters – including many upper middle class positions – remain in more workaday cities. This but one example of the “growth without growth” model in which cities dispense with “old fashioned” notions like population and job growth in favor of higher per capita GDP and income in which parts of cities thrive by becoming downtown versions of the exclusive gated subdivision.

    A few cases have gone beyond this, with even more wholesale moves back to the core. United Airlines moved 3,000 to the Chicago Loop from Elk Grove Village. And Google is moving 2,500 people from Libertyville as a result of the Motorola Mobility purchase. (This unit is already being sold to Lenovo, however). These more substantial moves could bring more bread and butter jobs.

    But as a recent column in the Economist noted, investors are putting huge pressures on companies to slim down bloated overheads. This does not bode well for bringing middle-skilled jobs to expensive headquarters locations. Additionally, the rise of telecommuting the and 1099 economy, just in time offices, co-working spaces, etc. are transforming the way people work and putting further pressure on the traditional HQ.  Office floor plates are expensive, and increasing numbers of people no longer want to spend their days toiling away in the salt mines of cubicle farms anyway.

    Where does this lead?  If there’s one thing the last few decades have shown it’s that the only constant is constant change.  With unpredictable market dynamics and various iterations of the cycle of reincarnation (centralizing vs. decentralizing, etc), even the shift to selected downtowns may bring fewer benefits to the urban economy than imagined, and could ultimately accelerate the bifurcation between a small elite population and largely poor communities around them.

    Aaron M. Renn is an independent writer on urban affairs and the founder of Telestrian, a data analysis and mapping tool. He writes at The Urbanophile.

    Boeing Chicago photo by J. Crocker.

  • No Joke: It Couldn’t Get Much Better In Fargo

    This week the coastal crowd will get another opportunity to laugh at the zany practices of those living in the frozen reaches of the Great Plains. The new television series “Fargo,” based on the 1996 Coen brothers movie, will no doubt be filled with fearsome violence mixed with the proper amount of Scandinavian reserve and wry humor — the very formula that made the original such a hit.

    Yet how much will “Fargo” the series resemble the real places? Probably not much. For one thing the series only uses Fargo as a kind of marker; the action actually takes place in Bemidji, Minn., a small town of 12,000 over two hours away. I know distances are seen differently in the northern Plains, but the whole idea seems a bit of a stretch. Located in forest and lake country, many locals would not even consider the Minnesota town part of the Plains.

    Less known to the sophistos who will watch the show is that Fargo, a metro area with over 200,000 people, and the state of North Dakota have been enjoying a sustained boom for a decade. This resurgence — in demographics, economics and real estate — follows decades of relative decline and an almost sullen sense of isolation that drove many people out of the state.

    In a state where the unofficial motto seems to be “it could be worse” — not a bad notion given the often miserable weather — things couldn’t be much better. North Dakota leads the nation in virtually every indicator of prosperity: the lowest unemployment rate, and the highest rates of net in-migration, income growth and job creation. Last year North Dakota wages rose a remarkable 8.9%, twice as much as Utah and Texas, which shared honors for second place, and many times the 1% rise experienced nationwide.

    The once dreary predictions of demographic decline — epitomized by the proposal two New Jersey academics to turn the area into a “Buffalo Commons” — have been reversed. North Dakota now lures many college graduates from out of state and keeps more of its own as well. Today more than half of North Dakotans aged 25-44 have post-secondary degrees, among the highest percentages in the nation, and well above the roughly 40% number for the rest of the country.

    Many will ascribe the state’s rise primarily to the energy boom. To be sure the fastest growth in North Dakota and other Plains states has been in the areas closest to the oil and gas finds. But over the past decade, the population of the Plains has expanded by 14%, well above the national average and far faster than the Midwest, the Northeast or California.

    This Plains resurgence is taking place even in areas far from energy development. Fargo, for example, is six hours hard driving from Williston, the center of the Bakken range. Yet despite this the area’s population has been growing, up 20% in the last decade, twice the national average. Since 2010, over 8,000 more people have come to the Fargo metro area, which extends to the Minnesota city of Moorhead, than have left. In fact, the small cities of the Dakotas have been growing faster than the nation for well more than a decade, before the recent energy boom took off.

    The growth in Fargo has come not so much from energy, but an expanding industrial and technology sector. STEM employment is up nearly 40% since 2001, compared to 3% nationally. It also leads all other U.S. metro areas in the growth in the number of mid-skilled jobs, providing good wages to people with two-year or certificate degrees. Between 2009 and 2011, mid-skilled employment grew 5%, roughly 10 times the national average. No surprise then that the population with BAs in Fargo has grown 50% in the last decade, well above the 40% rate for the rest of the country.

    Yet perhaps nothing illustrates the dramatic changes in Fargo better than its downtown area. Twenty years ago, when I first visited the city, downtown was torpid on a good day. Storefronts were old, funky and often empty. The local hotels ranged between acceptable to sorry.

    But in the past decade downtown Fargo has seen a crush of new investment; property values have more than doubled since 2000. Mid-range apartment complexes are sprouting up, all pitching themselves to millennial professionals who value a more pedestrian-oriented environment. The founder of Great Plains Software, now Microsoft Business Systems, Doug Burgum, has proposed to build a 23-story office tower downtown. Not surprisingly, it would be the tallest building in the state.

    Some are rightfully skeptical about some of these ambitious plans given the low cost of development on the periphery and the region’s basically non-urban mindset. But the feel has certainly changed, with several high-end restaurants, huge numbers of bars (befitting the German and Scandinavian roots of the area’s population), offering a rising number of local brews. There’s even a boutique hotel, the Donaldson, founded by Burgum’s ex-wife Karen, decorated with Plains art, and run by a friendly, highly professional staff.

    The people even look different than a decade or two ago. The bars and restaurants now host a more attractive group of young professionals and meandering divorcees. The change is so striking that I have been pitching friends in L.A. to produce a North Dakota version of the “Real Housewives” reality series.

    None of this is likely to be revealed in the new “Fargo” TV show. After all, the place has one of the lowest crime rates in the country, a full third below the national average; with only 11 murders since 2000, it’s hardly the Baltimore of the “Wire” or “Treme.” But murder sells better than contentment, or at least makes for more riveting entertainment about the place, unless I can find buyers for my “Housewives” idea. But unlike in the past, Fargo residents don’t have to cringe about this latest Hollywood assault and its impact on their image. Things are good enough that they can afford to laugh; it certainly could be a lot worse.

    This piece originally appeared in Forbes.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Hotel Donaldson photo By jeffreykreger

  • Concentrated Wealth or Democracy, but Not Both

    In many uncomfortable ways, American politics now resemble those that arose late in the Roman Republic. As wealth and land ownership concentrated in few hands, a state built on the discipline of soldiers who tended their own farms became ever more dominated by fractious oligarchs. As property consolidated into huge slave-owning estates, more citizens became landless and ever more dependent on the patronage of the rich generals and landowners who increasingly seized control of politics.

    In much the same way, as the wealth has concentrated in America, so, too, has the power exercised by those with money. The wealthy have always played an outsized role in our politics, but today, emboldened by Supreme Court rulings easing controls on contributions, oligarchs are dominating the electoral map in ways that have not been seen at least since the abuses of the Nixon years.

    Perhaps the most notable, or infamous, example is the Koch brothers, David and Charles, billionaire industrialists whose role in conservative politics has made them the ultimate “bogeymen” for crusading liberal journalists concerned with the growing power of the ultrarich on our political system. Campaigning against the Kochs has become standard issue for Democrats such as Senate Majority Leader Harry Reid.

    What makes the Koch brothers such great targets is that they come from an industry – energy – that itself is held in the lowest esteem by the progressive activist community and its media allies. Although they tend to be libertarian in their social views, the Kochs are notably, and not surprisingly, skeptical about climate change policies that might impact their vast oil and gas holdings as well as their industrial companies, which, in the words of former New York Times columnist Frank Rich, “spew” such unhappy products as Lycra and Dixie cups. The Kochs’ ties to the Tea Party have led reliably liberal commentators to suggest that the moguls have played the supposedly grass-roots Tea Party for “suckers.”

    As they rail against the Kochs, few progressives note that the balance of oligarchic politics are increasingly shifting toward the Democratic Party. This, of course, includes the predictable Hollywood figures, such as Dreamworks’ Jeffrey Katzenberg and a large section of Wall Street, notably financier George Soros, long a major source of funding for President Obama.

    These well-heeled progressives have had little to fear from an administration that, despite its occasional populist outbursts, has adopted an economic policy that has exacerbated an already yawning gap in income growth between the wealthy and everyone else. Indeed, Obama, for all his populist rhetoric, retained close ties to firms like Goldman Sachs, staffing his administration with people from, and associated with, that most-detested of Wall Street firms. Indeed the ultrarich so backed the ostensibly left-wing president that, at his first inaugural, notes sympathetic chronicler David Callahan, the biggest problem for donors was finding sufficient parking space for their private jets.

    An examination of campaign contributions shows that the vast majority of America’s wealthiest households may already tilt in this direction. Among the .01 percent who increasingly dominate political giving, three of the largest contributions, besides the conservative Club for Growth, backed by Republican oligarchs, went to groups such as Emily’s List, Act Blue and Moveon.org. Liberal groups accounted for eight of the top 10 ideological causes of the ultra-rich; seven of the 10 congressional candidates most dependent on their money were Democrats.

    This ideological shift among the rich, particularly the new rich, in what author Chrystia Freeland has dubbed an “age of elites,” is critical to understanding contemporary political conflict. There have always been, of course, affluent individuals who backed liberal or Democratic causes, out of a mixture of philosophy and self-interest but, for the most part, the wealthy backed Republicans. This has begun to change.

    Perhaps most ominous for the Right, the biggest growth in oligarchic politics has been from the very group – the so-called “high tech community” – that has flourished under the current easy-money regime. Once primarily middle-of-the-road Republican, the tech oligarchs have moved “left” in their politics, particularly on social and environmental issues. Many also have profited, or attempt to, through “green” energy investments. The leading tech companies, mostly based in the Silicon Valley, routinely send over four-fifths of their contributions to Democratic candidates.

    For the political parties, which are losing influence with every election, the rise of the oligarchs in politics represents a mixed blessing. To be sure, the tens of millions poured into the coffers of party candidates is welcomed, but at the same time, the oligarchs have become so powerful that they have altered, likely for a long time, the nominating and electing process.

    Republicans, for example, must deal with the likes of casino billionaire Sheldon Adelson, whose millions kept the quixotic, and seemingly pointless, Newt Gingrich campaign alive in the most-recent presidential primary campaign. The Koch brothers and others have also supported the supposedly grass-roots Tea Party, whose opposition to the Republican establishment has roiled GOP politics since 2010 and ended up with the nomination of some weak candidates.

    This year, it may be the Democrats’ chance to lament the rise of the oligarchs. At a time when economic growth and inequality are primary issues to most Americans, the presence of oligarchs all but guarantees that other issues – notably, environmental issues or social concerns like gay marriage – dominate the party’s fundraising. After all, it’s hard to imagine a party increasingly dependent on the wealthy seriously advocating, for example, for the equalization of capital gains and regular income taxes.

    Nobody better epitomizes the rise of economic royalist politics in the Democratic Party than San Francisco-based hedge-fund billionaire and green-energy investor Tom Steyer. Steyer has pledged to work against any Democrat who dares express the slightest skepticism about the need to diminish use of fossil fuels, no matter the economic cost. This could prove particularly tough on Democrats from energy states, like Louisiana, Texas, the Dakotas, Colorado and Montana, who historically have supported the fossil fuel industry as a prime generator of high-wage employment, including thousands of unionized blue-collar jobs.

    With Steyer pledging some $100 million to his anti-oil campaign, centered on opposition to the Keystone XL pipleline, the party is running against the popular grain. According to a recent Washington Post poll, the project is favored among the public by a margin of roughly three to one.

    So, Democrats find themselves pressured to oppose something favored by a large majority, all for an issue – climate change – that barely rates as a priority among voters far more worried about their jobs and families than carbon emissions. Just as well-financed Tea Party extremists have led the Republicans to nominate some lamentable candidates, Steyer’s efforts could undermine Democratic prospects – at least outside the solid coastal precincts – by forcing party figures further toward the gentry version of the Left.

    Ultimately, the biggest issue revolves not around the politics of the oligarchs but their overall potential to dominate our entire political culture. As Supreme Court Justice Louis Brandeis suggested in the last century, “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”

    The founders, too, understood this basic truth. James Madison embraced the ideal of dispersed property – “the possession of different degrees and kinds of property” – as necessary in a functioning republic. Thomas Jefferson, admitting that the “equal division of property” was “impractical,” believed “the consequences of this enormous inequality producing so much misery to the bulk of mankind” that “legislators cannot invent too many devices for subdividing property.”

    It’s time we started listening to Brandeis and the founders. Until we address this issue of concentrated economic power – be it in the hands of oil barons or tech types – our politics will continue to devolve like those of Rome in the late Republic, undermining the last vestiges of citizen-based politics. Whether or not it results in the rise of an actual Caesar, this could be a sad day for what is left of our old Republic.

    This story originally appeared at The Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Photo by Peoplesworld.

  • America’s New Brainpower Cities

    Brainpower rankings usually identify the usual suspects: college towns like Boston, Washington, D.C.,  and the San Francisco Bay area. And to be sure, these places generally have the highest per capita education levels. However, it’s worthwhile to look at the metro areas that are gaining college graduates most rapidly; this is an indicator of momentum that is likely to carry over into the future.

    To determine where college graduates are settling, demographer Wendell Cox analyzed the change in the number of holders of bachelor’s degrees and above between 2007 and 2012 in the 51 metropolitan statistical areas with over a million people (all saw gains). For the most part, the fastest-growing brain hubs are in the South and Intermountain West (which excludes the states on the Pacific Coast). Some of these places are usually not associated with the highest levels of academic achievement, and for the most, they still lag the national average in college graduation rates.

    But times are changing, and educated people are increasingly heading to these metro areas, notably in the South, were job growth has been robust and the cost of living is far lower than in the San Francisco Bay Area, New York or Los Angeles. This includes New Orleans, which ties for first place on our list with San Antonio. The New Orleans metro area’s population of college graduates grew by 44,000 from 2007 to 2012, a 20.3% increase, nearly double the national average of 10.9%. (The percentage of college grads in the U.S. stood at 19.4% in 2012, up from 18% in 2007.)

    New Orleans’ story, of course, is unique; the jump certainly is partly due to the return of evacuees to the city after Katrina, and some scoff that the region is destined to return to its historical pattern of exporting its educated young. But right now the American Community Survey data seems to indicate otherwise, as does the decision in recent years by numerous technology, videogame and media businesses to establish operations in the metro area, including General Electric, Paris-based Gameloft and the satellite communications company Globalstar, which in 2010 moved its headquarters from Silicon Valley to Covington, a prosperous suburb of the Crescent City.

    What is happening in New Orleans, where I have worked as a consultant, is unique, but it also follows a broader pattern that we see in other areas. Unable to afford to settle long-term in traditional “brain centers,” educated people are increasingly looking for places that have strong economies but also many of the cultural and natural amenities associated with the traditional meccas for the educated. With housing prices that are half to a third of Silicon Valley or San Francisco, New Orleans offered educated workers, particularly younger ones, many of the things they look for, but at an affordable cost.

    “For $65,000 a year in San Francisco you get a shared apartment and no car,” says long-time New Orleans tech entrepreneur Chris Reed. ”Here, you get great restaurants and clubs, and you get to have a car and your own nice apartment. It’s a no-brainer.”

    Other cities with some of the same characteristics are also winning in the race to bring in more educated workers. Nowhere is this more true than in Texas, which is home to four of the top 12 metro areas on our list. Tops is co-first place San Antonio, which had a net gain of 76,000 college-educated people since 2007, or 20.3%.

    Like New Orleans, the San Antonio area has traditionally lagged behind in attracting educated people; nearly one resident in six does not have a high school diploma. But the old Texas town also has many amenities that appeal to educated workers, notably great food and a good nightlife scene. In addition, it boasts one of the fastest-growing regional economies in the country, with expanding tech and energy businesses, something that may have a particular appeal in this still weak recovery.

    “When the buzz starts … and hipsters start to get wise to the neighborhood assets that are here, once the hipsters get wind of it – you’ll have to beat them away with a stick,” says economic geographer Jim Russell.

    Austin places third, which should come as no surprise — the area is home to the main campus of the University of Texas, boasts a thriving music scene and a strong technology infrastructure. Nor should the rapid growth of educated residents in sixth-ranked Houston, up 16% since 2007, which also enjoys low costs, an increasingly attractive cultural scene and one of the fastest growing hubs of dense urban living in the country. Dallas, also a fast-growing area, lands in 12th place on our list, boosting its college graduate population by 13%, or 175,000.

    One of the more surprising metro areas in our top 10 is fifth place Louisville, Ky.-Ind. The home of Humana, it has a thriving health care sector, and also is strong in the food industry and logistics. It has seen a 16.2% increase in the number of educated residents.

    Strong growth has also occurred in the Intermountain West, led by Denver (seventh) and Salt Lake City (eighth). Both areas have been beneficiaries of the migration of people and companies from California. This may also explain the growth of 11th place Phoenix, an area that has made remarkable strides since the disastrous days of the housing bust and is once again attracting migrants in larger numbers than any large metro area outside Texas.

    So if these areas are leading the race to capture “talent,” who is lagging behind? Not surprising at the bottom of the list are a series of Rust Belt cities with relatively weak economies, led by last place Detroit, where the number of college-educated residents rose 4.1%. Its followed by Providence,  Cleveland and Cincinnati.

    Boston, long styled as the “Athens” of America, ranks 47th on our list. Over the past five years Boston has gained some 98,000 college educated people, an increase of 7.2%, well below the national average. Beantown, of course, can always claim it has the highest “quality” brains but even in terms of percentage gains of people with graduate degrees it ranks only 41st .

    The data show the universe of educated people is not becoming more “spiky” as some suggest, but is spreading out. This is true not only in terms of percentage growth, but in absolute numbers. Since 2007, for example, the Houston and Dallas metro areas have added more BAs than San Francisco-Oakland, and nearly twice as many as Boston. As a result, these and other such cities are gaining a critical mass in brainpower not widely recognized in the Eastern-dominated media.

    At very least, we can say that the conventional wisdom favoring the traditional “brain” cities seems flawed. There will always be areas with more educated people per capita than others, if for no other reason than historical inertia and lack of migration, particularly among the less educated. But the clear pattern now is for brainpower, like population and jobs, to continue dispersing, largely to the South, the Southeast and the Intermountain West, with ramifications that will be felt in the economy in the decades ahead.

    Educational Attainment: BAs & Higher
    Corrected (2015-05-07)
    Major Metropolitan Area 2007 2012 Change Change % Rank
    Atlanta, GA    1,151,723     1,243,122       91,399 7.9% 45
    Austin, TX       382,119        477,058       94,939 24.8% 3
    Baltimore, MD       589,874        677,837       87,963 14.9% 14
    Birmingham, AL       187,094        214,201       27,107 14.5% 17
    Boston, MA-NH    1,271,193     1,369,597       98,404 7.7% 47
    Buffalo, NY       207,907        231,718       23,811 11.5% 34
    Charlotte, NC-SC       348,923        401,116       52,193 15.0% 13
    Chicago, IL-IN-WI    1,984,496     2,190,424     205,928 10.4% 40
    Cincinnati, OH-KY-IN       393,076        419,714       26,638 6.8% 48
    Cleveland, OH       380,479        405,731       25,252 6.6% 49
    Columbus, OH       367,811        419,136       51,325 14.0% 20
    Dallas-Fort Worth, TX    1,155,069     1,330,312     175,243 15.2% 12
    Denver, CO       595,437        708,325     112,888 19.0% 6
    Detroit,  MI       786,153        819,347       33,194 4.2% 51
    Hartford, CT       276,002        305,100       29,098 10.5% 39
    Houston, TX       972,615     1,157,627     185,012 19.0% 6
    Indianapolis. IN       333,079        377,189       44,110 13.2% 24
    Jacksonville, FL       221,907        258,893       36,986 16.7% 9
    Kansas City, MO-KS       410,109        460,391       50,282 12.3% 32
    Las Vegas, NV       257,886        293,001       35,115 13.6% 23
    Los Angeles, CA    2,458,215     2,720,654     262,439 10.7% 36
    Louisville, KY-IN       195,760        233,566       37,806 19.3% 5
    Memphis, TN-MS-AR       197,292        222,813       25,521 12.9% 26
    Miami, FL    1,058,815     1,186,398     127,583 12.0% 33
    Milwaukee,WI       308,214        337,253       29,039 9.4% 42
    Minneapolis-St. Paul, MN-WI       774,669        881,581     106,912 13.8% 21
    Nashville, TN       287,154        355,630       68,476 23.8% 4
    New Orleans. LA       172,965        216,970       44,005 25.4% 1
    New York, NY-NJ-PA    4,433,180     4,836,321     403,141 9.1% 43
    Oklahoma City, OK       210,720        237,329       26,609 12.6% 28
    Orlando, FL       379,636        409,263       29,627 7.8% 46
    Philadelphia, PA-NJ-DE-MD    1,204,380     1,377,684     173,304 14.4% 18
    Phoenix, AZ       709,284        818,434     109,150 15.4% 11
    Pittsburgh, PA       456,717        513,838       57,121 12.5% 30
    Portland, OR-WA       479,207        549,825       70,618 14.7% 16
    Providence, RI-MA       301,591        320,262       18,671 6.2% 50
    Raleigh, NC       278,754        324,318       45,564 16.3% 10
    Richmond, VA       244,277        280,650       36,373 14.9% 14
    Riverside-San Bernardino, CA       469,381        519,680       50,299 10.7% 36
    Rochester, NY       205,014        226,912       21,898 10.7% 36
    Sacramento, CA       403,140        435,485       32,345 8.0% 44
    Salt Lake City, UT       193,167        229,140       35,973 18.6% 8
    San Antonio, TX       300,114        376,445       76,331 25.4% 1
    San Diego, CA       631,996        722,819       90,823 14.4% 18
    San Francisco-Oakland, CA    1,251,139     1,414,393     163,254 13.0% 25
    San Jose, CA       527,167        592,703       65,536 12.4% 31
    Seattle, WA       814,902        918,119     103,217 12.7% 27
    St. Louis,, MO-IL       521,047        586,547       65,500 12.6% 28
    Tampa-St. Petersburg, FL       496,826        544,121       47,295 9.5% 41
    Virginia Beach-Norfolk, VA-NC       284,924        317,741       32,817 11.5% 34
    Washington, DC-VA-MD-WV    1,658,902     1,885,862     226,960 13.7% 22
    Total  34,181,501   38,352,595  4,171,094 12.2%
    Outside MMSAs  20,152,010   22,389,927  2,237,917 11.1%
    United States  54,333,511   60,742,522  6,409,011 11.8%

     

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Graduation image by BigStockPhoto.com.

  • Good Jobs Often Not Matter of Degrees

    If there’s anything both political parties agree upon, it’s that our education system is a mess. It is particularly poor at serving the vast majority of young people who are unlikely either to go to an elite school or get an advanced degree in some promising field, particularly in the sciences and engineering.

    Historically, education has been a key driver of upward mobility and progress in our society. But, increasingly, its impact on boosting incomes has slowed, or even reversed, and, for many, the attempt to get a four-year degree ends in debt and widespread unemployment or underemployment. Worse still, many don’t make it. Indeed, according to a 2010 report by the Public Policy Institute of California, young adults in California are less likely to graduate from college than were their parents.

    These failures make things even worse for workers with only a high school education, as they must compete for even low-wage jobs with people who either have been in college or have graduated. So, we now see college graduates working in jobs as humdrum as barista or even janitor. This has even led to some pretty dubious lawsuits against schools by disgruntled graduates who feel they were misled by post-graduate employment claims.

    The worst performance is at the grade-school and high school levels, particularly in California. Blame funding, teachers unions or demographics, but our state’s basic education system has been deteriorating for decades. California was ranked 48th in 2009 for high school attainment. In 2000, it ranked 40th. In 1990, it was tied with Illinois for 36th place.

    Clearly, if we are to advance as a state, and a country, we need to develop a new perspective on education. It’s not just a matter of money, as progressive journalists,teachers unions, education lobbyists and advocates for various ethnic and political causes all insist. Money should be spent but more emphasis needs to be placed on how it is spent. After all, America boosted per-pupil spending on public elementary and secondary education by 327 percent from 1970-2010 (adjusted for inflation) with no rise in student test scores.

    As for the effectiveness of college, a recent Rutgers University report found that barely half of college graduates since 2006 had full-time jobs. And it’s not getting better: Those graduating since 2009 are three times more likely to not have found a full-time job than those from the classes of 2006-08. Since 1967, notes one 2010 study, the percentage of underemployed college graduates has soared from roughly 10 percent to more than 35 percent.

    What we need to do is rethink the notion, supported by President Obama and others, that the solution to our education woes primarily is “more.” More what? What are the job prospects for the new crop of ethnic-studies majors, post-modern English graduates and art historians, for example, particularly those from second-tier institutions? These kind of liberal-arts degrees are, as the New York Times recently reported, that tend to earn graduates the least, while those degrees that pay the most are largely offered by schools aimed at technology, mining and other “hard skills.”

    First, we need to understand that educational differences and capabilities exist and cannot be easily adjusted simply by forever lowering standards. Our most competitive institutions need to make sure that people leave with the highest degree of critical skills. Grade inflation at Harvard may not produce unemployables, but it does weaken the value of the degree and, even worse, suggests that one can not expect too much knowledge, or reasoning capacity, from graduates. Indeed, many employers complain about the lack of “soft skills,” such as communication and critical thinking, as much as they do about applicants’ lack of harder skills such as math and science.

    This suggests that even those of us who teach at more selective universities cannot just rest on laurels. Schools have to focus more on developing actual skills – notably in presentation and research – even among the brightest students. Instead, all too often, as the Manhattan Institute’s Heather McDonald has pointed out, political education – usually, but not always, tending toward the progressive left – actually predominates over learning how to think critically and express ideas coherently.

    More important is the need to put greater effort in lifting students who may not be ideal for a classical liberal four-year education. This may include a greater emphasis on skills with practical applications, such as nursing, rehabilitation, technical and scientific areas of specialization. It also includes expanding innovative programs, such as at LaGuardia College in New York, that helps high school dropouts to get their diplomas.

    Although some of these students will still seek four-year degrees, for many, the best opportunities for employment do not require more than a two-year degree, or simply a certificate. This may be particularly critical for the roughly 40 percent of students who attend college but don’t finish.

    These include many fields where employment has been growing, notably, in energy, manufacturing and – with the resurgence of the housing market – construction. But the biggest shift may be as a result of the current energy revolution, which, notes the president of the engineering and electronics conglomerate Siemens, Joe Kaeser, “is a once-in-a-lifetime moment.” Cheap and abundant natural gas, in particular, is luring investment from European and Asian manufacturers and sparking demand not only for geologists and engineers but also machinists, rig operators and truck drivers.

    The workforce in many of these fields is rapidly aging, and the demand for new, updated skills, particularly involving computers, has soared, leaving manufacturers desperate for necessary workers.

    There is already, notes a recent Boston Consulting Group study, a shortfall of some 100,000 skilled manufacturing positions. In this respect, millennials – which I have called “the screwed generation” – may have finally caught a break. By 2020, according to the consultancy BCG and the Bureau of Labor Statistics, the nation could face a shortfall of about 875,000 machinists, welders, industrial-machinery operators and other highly skilled manufacturing professionals.

    This already is the case in parts of the country now enjoying the energy and manufacturing renaissance. In training facilities in the New Orleans area, where some of the new trade school students have migrated after receiving four-year degrees, and near Columbus, Ohio, you can see many young people preparing for positions not only in medical fields, but as technicians, machinists, plumbers and electricians.

    Businesspeople almost everywhere decry such labor shortages, but rarely lament a lack of English post-modernist scholars. As I saw on a recent trip to Houston – in many ways the country’s most economically dynamic city – developers enjoy high demand by are stymied by a lack of skilled labor. In some cases, companies are beginning to invest not only in community colleges but also looking to recruit high school students into these professions.

    This practical approach may offend people to whom it seems reminiscent of the infamous “tracking” system, which was used to steer even the most academically gifted minority students into manual professions. Still, stuffing more students into a system that, in the end, fails to prepare young people for the future, and lands them in debt, makes little sense. Today a record 1-in-10 recent college borrowers has defaulted on student debt, the highest level in a decade. And, with wages for college graduates on a downward slope, one has to wonder how many more will join them.

    Some “progressives” believe the solution lies in subsidizing even more the current system. In reality, such an approach will only continue the current failures, with fewer students graduating with needed skills and more years of wasted effort. Shifting the financial burdens from parents and students and onto business and the taxpayer does not seem the best way to boost public support for education.

    Instead of bailing out the current system, we need to find ways to change our educational focus from the elite level to the certificate program, in ways that serve the needs of both the economy and the next generation. For the talented students I so often encounter at Chapman, this means greater rigor, more serious reading and opening themselves to conflicting ideas. But, for many others, the focus should be on practical skills that can lead to middle-class jobs. We have to learn to appreciate that there’s nothing wrong with a son or daughter, rather than aspiring to become a doctor or lawyer, instead, earning a good living as a plumber.

    This story originally appeared at The Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Graduation photo by Bigstock.

  • The Part-Time, Freelance, Collaborative Economy

    Are we becoming a part-time economy? Maybe. A collaborative economy? Possibly. A freelance economy? Definitely. Here’s the evidence:

    The Part-Time Economy- Involuntary part-time work is at a historic high, and the workforce participation rate is at a near-historic low. The number of unemployed people is higher, and the number of jobs in the economy is lower, than five years ago. During this weak recovery, more people have left the workforce than have started a new job, and a high percentage of the jobs that are being created are low-wage and part-time.

    This is a catastrophic situation, both in personal and in national terms. On the personal level, people need work to pay the bills, save some money for their non-working years (if they ever arrive) and, I would argue, to stay connected to society by being and feeling useful. It has long been noted that Americans are prone to defining themselves in terms of their work, through which they find a sense of identity, purpose and self-worth.

    On the national level, the country needs more citizens working more hours to pay taxes and to start to alleviate our unsustainable debt and unfunded liabilities.

    For this miserable state of affairs, some blame the Affordable Care Act. Others say it is a temporary phenomenon, due to the lousy economy and low economic growth. Still others blame technology and/or globalization for displacing jobs, or the rising share of profits that go to capital instead of to labor. And finally, some say the shift to part-time is a myth.

    According to a report from the Federal Reserve Bank of San Francisco, recessions always drive up part-time work, but what is different this time is that the part-time employment rate has remained higher for many more months than in past recessions. Also, states the report, the US labor market has recovered only about three-fourths of the jobs lost during the recession and its aftermath. In other words, general labor market slack is the key factor keeping part-time employment high.

    My conclusion? Many more people would be working, and working more hours, if not for the four horsemen of recession/depression: high taxes, overregulation, a weak currency and political (policy) uncertainty. When things crashed some five years ago, I wrote that the effects would be with us for years: slow growth at best, high unemployment and underemployment, underinvestment by businesses, and an overhang of debt. Sorry to say I was right, and that what I most feared has come to pass: a “recovery” that leaves tens of millions behind.

    How are millions coping?

    The Collaborative Economy- A modern version of the “pooled resources” strategy practiced through the ages by affinity groups — families, tribes, etc. — has been updated for the 21st century through the use of technology. Those outside of traditional economies once banded together to survive, and then thrived, becoming part of new mainstreams. This is happening again today. We are seeing peer-to-peer sharing not only of content, but of goods and services, transportation, space and money.

    Platforms that are hallmarks of this new economy include well known sites like Etsy, eBay, Craigslist, Kiva, and Kickstarter, as well as Rent the Runway, Lyft, Uber, and Airbnb. Apps and the internet are the new middle men of collaboration, connecting individuals. This economy also empowers entrepreneurs and hobbyists.

    Sharing is the New Buying, a report by CrowdCompanies.com and VisionCritical.com, breaks individuals down into three categories, based on their level of participation in the collaborative economy. A shrinking majority of us (61% of Americans) are still in a category the report calls “non-sharers,” not yet having dipped into this realm. A smaller portion (23%) are “re-sharers,” using some of the more popular and more established services like eBay and Craigslist. But then there is a smaller, rapidly emerging group (16%) known as “neo-sharers.” These are the people who are early adopters of sites like Etsy, Lyft, and Kickstarter, engaging in more niche forms of collaboration.

    The poor employment environment is one of the engines driving this trend, but once people become engaged in it, they may never go back to the traditional ways of doing things.

    The Freelance Economy- One in three Americans, roughly 42 million, are estimated to be freelancers. By 2020, freelancers are expected to make up 50% of the full time workforce. Independent work is becoming more common across all generations.

    As Jeff Wald writes in Forbes, the freelance economy is exploding at exactly the same moment that businesses are undergoing a major shift. Talent is moving from a fixed cost (and one that’s historically been one of the largest of a business) to a variable cost, with companies staffing up and down as needed.

    The booming online staffing industry is also accelerating the growth of the freelance economy. This $1 billion industry grew 60% last year.

    The online work marketplace oDesk recently announced that it hit $1 billion in work brokered between businesses — many of them small — and solopreneurs, freelancers who moonlight, and in many cases earn their entire living, online.

    While it’s unlikely the majority of businesses will ever become completely freelance or remote — core staff need to work in proximity at any company of a certain size; local service-based businesses need people on site, though those can be freelancers — it’s entirely plausible that more than half of the American workforce will one day log in or show up every day as independent contractors.

    A surprisingly large percentage of working freelancers have day jobs to supplement their incomes. And for many, it’s soon going to be the only option. By 2020, more than 40% of the US workforce will be so-called contingent workers, according to a study conducted by software company Intuit.

    ***

    Following the recent economic downturn, the employment rate has recovered at a frustratingly slow pace, except in one area: temporary, contingent, and independent workers. Between 2009 and 2012, according the Bureau of Labor Statistics, the number of temporary employees rose by 29%. A survey of the 200 largest companies found that temporary workers represented, on average, 22% of their workforce. Workers from all different industries, not just tech, are discovering that they’re able to be productive outside of the corporate office and without a long-term employer.

    Even with the economy and hiring improving, freelancing is likely to become a much bigger part of the employment landscape, regardless of what workers prefer. Employers like having the flexibility to expand and contract their workforce, and the supply of available workers currently exceeds demand in many fields. Elance, one of many online freelance hubs that matches freelancers with clients, recently announced that hiring by businesses through its site increased by 60% last year.

    Keep all this in mind every month when employment numbers are released by the Bureau of Labor Statistics; they’re missing the big story — the part-time, collaborative and freelance economy. This is what explains how the workforce can shrink while the unemployment rate also declines. Sure, a lot of people are retiring or collecting some sort of disability, but the big trend is that there is tremendous growth in freelance and independent contracting work, part-time work, and collaborative types of work that fly under the radar.

    Of the many repeating patterns I have discerned from decades of social and economic trend analysis, these are two of the most powerful: 1) what is outside the mainstream, if necessary or desirable, becomes mainstream, and 2) what is past is prologue.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Flickr photo by Antony Mayfield, Working in Intelligensia: Settled down to work in a coffee shop in Venice, California.

  • Era of the Migrant Moguls

    Southern California, once the center of one of the world’s most vibrant business communities, has seen its economic leadership become largely rudderless. Business interests have been losing power for decades, as organized labor, ethnic politicians, green activists, intrusive planners, crony developers and local NIMBYs have slowly supplanted the leaders of major corporations and industries, whose postures have become, at best, defensive.

    Increasingly, a search for inspiration about the region’s future must focus, first and foremost, on immigrants. As major companies disappear, merge or shift more of their operations elsewhere, the foreign-born represent a significant asset for our grass-roots economy. With many of the region’s legacy industries – from oil and gas to aerospace and entertainment – stagnating or declining, the area desperately needs new blood to avoid ending up like the older cities of the slow-growth Northeast or Midwest, albeit with much better weather.

    Amid a graying and, increasingly, marginal generation of regional business leaders, there have emerged new foreign-born dynamic figures. Some great examples: South African native and Tesla founder Elon Musk, who lives in Los Angeles and runs SpaceX, headquartered in Hawthorne and with more than 2,000 employees, and John Tu and David Sun, owners of Fountain Valley’s Kingston Technology, a leading independent memory-chip manufacturer founded in 1987 and now employing 4,000 people worldwide.

    Our new moguls increasingly are minted abroad. Pharmaceutical entrepreneur Patrick Soon-Shiong, the son of Chinese immigrants from South Africa, is now widely considered the richest man in Los Angeles, according to the Los Angeles Business Journal. But he’s not alone; five of the 13 richest people in the City of Angels are immigrants; in 1997 there was one, Australia’s Rupert Murdoch.

    Why are these immigrants so bright when much of our business leadership is dark grey? Part of it has to do with the nature of people who risk everything to migrate to another country. Overall they account for one out of every five U.S. business owners. They are three times as likely to start a new business than non-immigrants; in 2010 they accounted for almost one-in-three new firms, twice their share in 1995. Roughly 40 percent of the engineering-based firms started in Silicon Valley, notes the Kauffman Foundation, had at least one immigrant founder.

    Whether in high-tech, pharmaceuticals or running the local coffee shop, immigrants tend both to innovate and take risks. That’s because, as Kingston’s John Tu explained to me, they don’t have a choice. “The key thing about being an immigrant makes you flexible,” he said. “IBM, Apple and Compaq were inflexible. They told the memory customers to take it or leave it. We thought about the customer and the relationship with the employees. I guess we didn’t know any better.”

    Rise of the ethnoburb

    Most of the growth being generated by Southern California’s immigrants is taking place in suburban communities – what geographer Wei Li describes as ethnoburbs. Despite the hopes that more Southlanders can be lured into high-density, high-rise rental housing, immigrants, particularly Asians, here and elsewhere, continue to move further from the city core to areas where they can live with a degree of privacy and quiet virtually impossible in their homelands.

    This can be seen in the migration numbers. As foreign-born numbers have dropped in expensive and crowded Los Angeles and Orange County, the big growth has taken place in other areas, notably in fast-growing Texas cities such as Dallas and Houston, as well as numerous low-cost, pro-business states in the Southeast. The one Southland area that has continued to see a boom in foreign-born residents – the Inland Empire – has the lowest population density and house prices in the region.

    According to demographer Wendell Cox, the Inland Empire’s immigrant population has swelled by more than 50 percent, or more than 300,000 people, since 2000, roughly three times the increase in actual numbers seen in Los Angeles and Orange counties. Much of this growth is taking place not in the older cities such as Riverside and San Bernardino, as might be expected, but in generally more affluent, newer suburbs such as Rancho Cucamonga, whose foreign-born population soared a remarkable 61.6 percent over the past decade. Even Moreno Valley, on the edge of the urbanization, has more foreign-born residents than does San Bernardino.

    Even within the coastal counties, much of the growth in the Asian population, now the largest source of immigrants to the U.S., has been outside the densest, more-urbanized parts of the region. As the immigrant share of the population has declined in traditional immigrant strongholds such as the city of Los Angeles (down 5 percent) and Santa Ana (more than 11 percent), Cox notes, the immigrant population is shifting to more upscale suburbs. In Glendale, a major destination for both Armenian and Asian immigrants, more than 56 percent of the population is foreign-born, up 4 percent since 2000.

    Other popular immigrant destinations include once-heavily white suburban communities, such as Irvine, which is now more than 38 percent foreign-born, up almost 19 percent since 2000. Fullerton, like Irvine, favored largely by Asian migrants, saw its foreign-born population increase by 21 percent since 2000, now accounting for more than one-third of the city’s total.

    Other places that seem to be attracting immigrants include Santa Clarita, Palmdale and Lancaster, all communities further out on the periphery of the region.

    Harnessing entrepreneurial energy

    If Southern California’s future lies largely in the hands of newcomers and their offspring, how can we best respond to their needs? One way is by maintaining a large supply of single-family houses or townhomes. Today’s immigrants, particularly Asians, favor settling in ethnoburbs more than the dense Chinatowns, Little Indias and barrios that may strike many other Americans as somehow more colorful. Now, the best place to encounter immigrant food and culture is frequently at the strip malls of Monterey Park, the Hispanicized shopping complexes like Plaza Mexico, Irvine’s Diamond Jamboree Center or the amazing 626 Night Market at Santa Anita Park in Arcadia.

    Of course, immigrants are less interested in providing neighbohoods with local color than in moving to places with good schools, safe streets and parks – as most middle-class families prefer. This preference runs afoul of the kind of extreme land-use regimen being imposed on the region, including the Inland Empire, planning that seeks to promote the construction of high-density housing that, to be honest, many immigrants, particularly Asians, could enjoy at home, with far more amenities.

    Planners and some developers seem keen on this shift, thinking it will appeal to young childless couples and empty-nesters. What they ignore is that, without plentiful, and at least somewhat affordable, single-family houses, immigrants will continue to shift to other parts of the country, notably, the Southeast and Texas, where they can afford them.

    Perhaps even more important may be the economy. Immigrants are the ultimate canaries in the coalmine – they tend to gravitate toward opportunity. When Southern California’s economy was burgeoning in the 1970s and 1980s, immigrants also flocked here, buying homes and starting businesses. Few immigrant entrepreneurs reached the level of a John Tu or an Elon Musk, but many have launched small manufacturing firms that supported larger firms, engaged in international trade and started small service businesses.

    Unfortunately, the business climate in Southern California increasingly makes such enterprise ever more difficult, and may lead these entrepreneurs to relocate or expand where their efforts may be more appreciated. Not helping these businesses is an L.A. political climate dominated by a crony capitalist regime – not at all friendly to plucky startups of any kind – or by a Republican Party that still seems unable to make peace with the demographic realities of our region.

    The good news is, however, that these immigrants, and their kids, are still here. They have many reasons to stay, including the presence of ethnic media, churches, schools and shops not likely to be remotely as well-developed in places like Las Vegas, Phoenix, Atlanta or Nashville. But this does not mean they can be taken for granted. We need to recognize that they are our greatest asset, and, if we can appeal to their aspirations, they could help fashion a resurgence in this region.

    This story originally appeared at The Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Photo by LHOON

  • The Great Skills Gap Myth

    One of the great memes out there in trying to diagnose persistently high unemployment and anemic job growth during what is still, I argue, the Great Recession is the so-called “skills gap”. The idea here is that the fact that there are millions of unfilled job openings at the same time millions of people can’t find work can be chalked up to a lack of a skills match between unemployed workers an open positions. To pick one random example out of many, here’s the way US News and World Report put it last year:

    Some 82 percent of manufacturers say they can’t find workers with the right skills. Even with so many people looking for jobs, we’re struggling to attract the next generation of workers. The message about the opportunities in manufacturing doesn’t seem to be reaching parents and counselors who help guide young people’s career ambitions.

    We face two major problems – a skills gap and a perception gap. Today’s modern, technology-driven manufacturing is not your grandparents’ manufacturing, yet for many, talk of the sector evokes images from the Industrial Revolution.

    What’s interesting about this is that the “skills gap” continues to have tremendous resonance in public policy discussions I come across although it’s very easy to find many mainstream press articles that challenge it. So I want to take my shot at the problem.

    Is there a skill gap? In select cases I’m sure there’s a mismatch in skill, but for the most part I don’t think so. I believe the purported inability of firms to find qualified workers is due largely to three factors: employer behaviors, limited geographic scope, and unemployability.

    Employer Behaviors

    Let’s be honest, it’s in the best interest of employers to claim there’s a skills gap. The existence of such a gap can be used as leverage to obtain public policy considerations or subsidies. So there’s a self-serving element.

    But beyond that, several behaviors of present day employers contribute to their inability to hire.

    1. Insufficient pay. If you can’t find qualified workers, that’s a powerful market signal that your salary on offer is too low. Higher wages will not only find you workers, they also send a signal that attracts newcomers into the industry. Richard Longworth covered this in 2012. He explains that companies have refused to adjust their wages due to competitive pressures:

    In other words, Davidson said, employers want high-tech skills but are only willing to pay low-tech wages. No wonder no one wants to work for them….So why doesn’t GenMet pay more? In other words, why doesn’t it respond to the law of supply and demand by offering starting wages above the burger-flipping level? Because GenMet is competing in the global economy. It can pay more than Chinese-level wages, but not that much more.

    In other words, this company in question doesn’t have a skill gap problem, they have a business model problem. They aren’t profitable if they have to pay market prices for their production inputs (in this case labor). It’s no surprise firms in this position would be seeking help with their “skill gap” problem – it’s a backdoor bailout request.

    2. Extremely picky hiring practices enforced by computer screening. If you’ve looked at any job postings lately, you’ll note the laundry list of skills and experience required. The New York Times summed it up as “With Positions to Fill, Employers Wait for Perfection.” Also, companies have chopped HR to the bone in many cases, and heavily rely on computer screening of applicants or offshore resume review. The result of this automated process combined with excessive requirements is that many candidates who actually could do that job can’t even get an interview. What’s more, in some cases the entire idea is not to find a qualified worker to help legally justify bringing in someone from offshore who can be paid less.

    3. Unwillingess to invest in training. In line with the above, companies no loner want to spend time and money training people like they used to. I strongly suspect most of those over 50 machinists and such we keep hearing about learned on the job. Why can’t companies simply train people in the skills they need? When I started work at Andersen Consulting in 1992, we weren’t expected to have any specific skill. Instead, they were looking for general aptitude and spent big to train us in what we needed to know. In a sense, outside of some professional services fields, today’s companies, despite their endless talk about talent, don’t actually recruit talent at all. They are recruiting people with specific skills and experience. That’s a very different mindset.

    4. Aesthetic hiring. This one I think is specific to select industries, but in some fields if you don’t have the right “look”, you’re going to find it difficult. For example, the NYT Magazine just today has a major piece called “Silicon Valley’s Youth Problem” talking about this very issue. Hip, cool startups see their working environment and culture as critical to success. And that’s true, but those cultures aren’t very inclusive, which is why many Silicon Valley firms are continuously under fire for various forms of discrimination. When they’re trying to be the hot new thing, the last thing an app startup wants is some 55 year old dude with a pocket protector cramping their style, no matter how much of a tech guru he might be.

    Limited Geographic Scope

    You frequently see the skills gap phrased in terms of specific geographies. For example, a state. Rhode Island has X number of unemployed people and Y number of unfilled jobs. So what do we do to match them up?

    This type of thinking is too limited. I attended an hour brainstorming session on the Rhode Island skills gap a while back and not once did anyone suggest anything that crossed the state boundary. One person mentioned these technical high schools in Boston that produce grads with exactly the skills the market is needing. His idea was that Rhode Island needed to create these types of institutions. Not a bad idea, but I was struck that nobody thought about sending these Rhode Island employers who can’t find workers on the one hour drive to Boston to go hire some of those grads directly out of Boston’s high schools. Problem solved. And maybe while bringing some young, fresh blood into the state to boot.

    Similarly, no one ever suggested that an unemployed person in Rhode Island might seek work out of state. Realistically, America has often solved unemployment problems through migration. People need to be willing to move to where the job opportunities are. In fact, if you look at the highly educated people who might say telling people to move in order to find work is evil awful, they are actually the most mobile people there are. Clearly the highly skilled see the value in pursuing opportunity through migration. We need to extend the same opportunity to those who are currently stuck in place.

    Unemployability

    A third problem is that a significant number of adults in this country are simply unemployable. If you’re a high school dropout, a drug user, etc. you are going to find it tough slogging to find work anywhere, regardless of skills required.

    Watching the Chicagoland documentary and seeing what kids in these inner city neighborhoods face, a lack of machine tool or coding skills is far from the problem. Similar problems are now hitting rural and working class white communities where the economic tide has receded. Heroin, meth, etc. were things that just didn’t exist in my rural hometown growing up – but they sure do now.

    These aren’t skill problems, they are human problems. And the answer isn’t simply job training. These problems are much, most more complex and they are incredibly difficult to solve. They need to be tackled by very different means than a job skills problem.

    If you want more info that documents that there is no skills gap, google around and find plenty of economists crunching the numbers to show that’s the case. But I hope this gives you a sense of some of the trends that explain why there can be persistent unemployment with many job openings without recourse to a skills gap to explain it.

    Aaron M. Renn is an independent writer on urban affairs and the founder of Telestrian, a data analysis and mapping tool. He writes at The Urbanophile, where this piece originally appeared.

    Auto manufacturing photo by BigStockPhoto.com.

  • Taking the Main Street Off-ramp

    To some, the $19 billion paid by Facebook for the Silicon Valley start-up What’s App represents the ultimate confirmation of the capitalist dream. After all, these riches are going first and foremost to plucky engineers whose goals are simply to make life better for the public. Got a problem with that?

    Yes, actually. Sure, people should be rewarded, even lavishly, for their innovations. But $19 billion for 50-something people in a company with no profits and no prospects of having any, at least in the short term? Is this app worth more than Southwest Airlines, or Sony, or scores of other companies with thousands of employees and decades’ worth of profits? Put another way, the $19 billion makes Vladimir Putin’s now-defunct bailout of Ukraine seem puny. Ukraine, the homeland of What’s App’s CEO, if you don’t remember, is a country of 46 million people.

    Yet, this is the form of capitalism that we now have, one tilted so heavily to the few well-connected souls, whether on Wall Street or among the chummy “directors club” keiretsu of Silicon Valley. But the heart and soul of free enterprise – small and medium-size companies – remain in the doldrums. They are producing jobs at rates lower than those before the most-recent recession. According to the Bureau of Labor Statistics, firms with less than 50 employees are adding jobs at rates well below 2007 levels. Drivers of the recovery early in the prior decade, they have become laggards as larger firms have expanded modestly.

    Indeed, by 2013, smaller firms, those with less than 100 employees, added far fewer jobs than in the decade before. In previous recoveries, small firms led the way, but in the post-2007 recovery, these grass-roots companies continued to lose ground. In 1977, Small Business Administration figures show, Americans started 563,325 businesses with employees. In 2009, they started barely 400,000.

    This is not just a story of clueless mom-and-pops left behind by progress. Business start-ups, long a key source of new jobs – as a portion of all businesses – have declined from 50 percent in the early 1980s to 35 percent in 2010.

    Many people who once had decent incomes and may have owned, or hoped to start, a business have slipped to the economic lower rungs. Their decline is not widely mourned in the academic, financial or media worlds. Last year, one Financial Times columnist contended that the middle class, “after a good run” of some two centuries, now faces “relative decline” and even extinction. Not that this trend disturbed the author, who noted that “classes come and classes go” and that, when the middle orders disappear, about the only ones sorry to see them go might be the “middle classes themselves. Boo hoo.”

    Like the yeoman farmer, the artisan and the shopkeeper during the 19th century’s Gilded Age or in Victorian England, millions of smaller business entrepreneurs are threatened with what I call “proleterianization,” that is, a descent from the relatively secure, property-owning class to the permanently insecure masses, living paycheck to paycheck. This process is driven largely by powerful economic forces, such as technological change and globalization, but has been exacerbated by the actions of the political class.

    Much of the blame starts with Federal Reserve policy, which has been totally designed to favor high-risk investments – like What’s App – at the expense of the more modest savers along Main Street. The winners in the era of low interest rates and the Fed’s bond-buying binge have been venture capital firms, hedge funds and Wall Street investment banks. Capital has not been flowing to consumers, or smaller firms, noted one top former manager. The Fed has lost “any remaining ability to think independently from Wall Street,” asserts Andrew Huszar, who managed the Federal Reserve’s $1.25 trillion agency mortgage-backed security purchase program.

    Fed policy, through TARP, bailed out the big banks, which generally are loath to loan money to small businesses, but has done little for smaller banks, who generally do make such loans, and which have continued to contract. The rapid decline of community banks, for example, down by half since 1990, has hit small-business people most directly, as those institutions have been a traditional source of small-business loans.

    All these problems have been made worse by a tide of new regulations, notably the Affordable Care Act, which, like most top-down systems, most hurts the middle class. When Obamacare took effect in 2013, it was the small-business owners and the self-employed who suffered the brunt of health insurance cancellations and higher premiums. In addition, the ever-growing net of regulations, covering everything from labor to the environment, has placed a far greater burden on smaller firms than their larger counterparts.

    A 2010 SBA report found that federal regulations cost firms with less than 20 employees more than $10,000 a year per employee, while bigger firms paid roughly $7,500 per employee. The biggest hit to small business is environmental regulations, which cost small firms 364 more percent than large ones. Small companies spend an average $4,101 per employee on such regulations, compared with $1,294 at medium-size companies (20 to 499 employees) and $883 at the largest companies. This has come over a period when many of the key costs faced by the business-owning middle class – house prices, health insurance, utilities and college tuition – have all soared.

    Given these conditions, it’s not surprising that small-firm owners are about the most alienated large constituency in America, according to Gallup. Yet, their once-considerable clout has faded, particularly among Democrats, who have found new allies within Silicon Valley, much of Wall Street and, most of all, a growing, connected clerisy of government workers, academics, high-end professionals and much of the media.

    Progressive theorists, such as Ruy Teixeira, have suggested that, in the evolving class structure, the rise of a mass “upper-middle class” consisting largely of professionals, tech workers, academics and high-end government bureaucrats, allows Democrats to win without the support of shopkeepers or even industrial workers.

    Such people may turn to the GOP, or elements of the Tea Party, but neither of those groups really addresses their needs. Mainstream Republicans remain fundamentally loyal to those big-business and the money powers that still tolerate them. The Tea Party, sadly, now captive to the well-financed hard Right, has diverted its attention from crony capitalism to tired social issues like gay marriage and immigration. In doing so, the Tea Party has unwittingly alienated many small businesses, notably those owned by minorities, women and gays.

    This political calculus is devastating to the interests of smaller firms. Main Street may remain the symbol of the American Dream, and it represents “the human face” of capitalism. It is roughly three times as popular as unions, big business, banks and, of course, the political class itself.

    Yet, for all its popularity, Main Street increasingly is in danger of becoming an off-ramp from the American Dream. It may be celebrated in countless political speeches, but, for the most part, gets ignored in the legislative process, being unable to compete against better-organized, and better-funded, business, labor and issue-oriented lobbies.

    Main Streeters, to preserve themselves and provide for their children, need to develop, for lack of a better word, a kind of class consciousness. They must understand that, in today’s world, what’s good for Facebook, Google or General Electric may not necessarily be good for them. Indeed, policies that encourage shoving billions into the hands of the few – whether pinstriped Wall Street sharpies or hoodie-wearing techies – will not leave much on the table for those small-scale entrepreneurs now finding themselves increasingly on the fringe of American capitalism, looking in.

    This story originally appeared at The Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Facebook photo by BigStockPhoto.com.

  • East of Egan: Success in California is Not Evenly Distributed

    The New York Times ran a Timothy Egan editorial on California on March 6.  The essay entitled Jerry Brown’s Revenge was reverential towards our venerable Governor.  It did, however, fall short of declaring Brown a miracle worker, as the Rolling Stone did last August.  These and other articles are part of an adoring press’s celebratory spasm occasioned by the facts that California has a budget surplus and has had a run of strong job growth.

    Egan at least pauses in his panegyrical prose to mention that all is not perfect in California:

    Without doubt, California has serious structural problems, well beyond the byzantine hydraulic system that allows the state to flourish. For all the job growth, the unemployment rate is one of the highest in the nation. It has unsustainable pension obligations, a bloated public-employee sector led by the prison guard union. And it is so expensive to live here that clashes over the class divide are threatening to get nasty.

    That’s not the worst of it.  Before going there, though, let’s consider Brown’s most celebrated achievement, a budget surplus. 

    California has a budget surplus because of a temporary income tax on its highest earning citizens and because of large capital gains reaped during an amazing year for stocks.  The S&P 500 was up almost 30 percent last year, an event unlikely to be repeated.  California’s tax revenues are excessively dependent on a relatively few wealthy tax payers.  This makes revenues extremely volatile.  When these tax payers do well, Sacramento is flush with cash.  When the high end tax payers don’t do well, Sacramento has very serious problems.

    By increasing California’s reliance on a few wealthy tax payers, Brown’s tax increase made California’s revenues more volatile.  The ongoing bull stock market would have generated higher tax revenues for California without the tax increase.  It generated even more with the tax increase.  When a bear market comes, the state will again face deficits.  This is one reason that Standard and Poors ranks California’s credit as second worst in the country, only above Illinois.

    So far, to his credit and in stark contrast to what we saw in the dot-com boom under Gray Davis, Jerry Brown has, with the exception of his pet project, the high-speed train, effectively resisted the legislature’s knee-jerk impulse to increase long-term spending commitments.  What he has not done is perhaps more important: addressing California’s other financial issues, the ones that are contributing to California’s dismal credit rating.

    California has had several quarters of stronger-than-the-nation job growth, but is still 113,500 jobs below the level in 2007; in contrast Texas is 844,300 jobs above that number.  

    Nor can it be sure that growth will continue. Unfortunately, the day after Egan’s celebratory essay, California’s Economic Development Department announced that the state had lost 31,600 jobs in January.  That’s an initial estimate, and it will be changed, but it’s hard to tell which direction.  The data released with that estimate appear to be a bit of a mess and are internally inconsistent.  We’ve asked for some clarification.

    Regardless of the most recent data point, California’s job performance has been better than expected, and we should all be thankful for that.  However, comparison with the United States average is not the only metric.  Comparison with California’s potential is the correct metric, and there California is underperforming in a big way.  Given all of its advantages, California should be leading the nation in job creation and opportunity.

    California has been averaging about 27,000 new jobs a month over the most recent 12 months for which we have data.  It should be averaging at least 40,000.  This would be slightly more than Texas’ average of 33,900,.  But, it still represents only 3.2 percent job growth, well below Texas’ 3.7 percent job growth rate.

    The state is sitting over estimated oil reserves that are about four times as large as the Bakken Shield, a major contributor to North Dakota’s boom.  Any serious effort to tap that resource would generate huge numbers of jobs.  Many of those jobs would be high wage positions for less educated workers who were hurt the most by the recession.

    California has many advantages over North Dakota, or Texas for that matter, besides oil.  These are well known and include location between Pacific Rim producers and the world’s largest consumer market, ports, workforce, and climate.  Even without oil, we should be doing better.  Policy though, particularly environmental policy, is restraining the state’s job creation.

    Egan makes a big deal of migration.  Here is his first paragraph (emphasis is his):

    Let’s review. Just a few years ago California was a punching bag for conservative scolds — a failed state, profligate with its spending and promiscuous with its ambition. Ungovernable. And everybody’s leaving.

    Later, he returned to the topic:

    Third, the great exodus never happened. Since the dawn of the recession, the state has added about 1.5 million people — almost three Wyomings. And yes, 67,702 people moved from California to Texas in 2012. But 43,005 people moved from Texas to California. (Population growth is not necessarily a good thing, especially in this overstuffed state, but that’s another topic).

    This is really curious.  A whopping 57 percent more people moved from California to Texas than moved from Texas to California, which was the case for decades.  This is an argument that people aren’t leaving California?  California’s population is up 1.5 million?  California’s population growth is mostly a result of California’s fertile young people.  Census data show that California’s domestic migration has been negative for over 20 consecutive years.   It may not be The Great Exodus, but it’s a reversal of about a 150 year of migratory trend.

    Then there is poverty and unemployment.  Poverty, unemployment and lack of opportunity are why California’s domestic migration data is negative.  Lack of opportunity may be hard to measure, but we have lots of data on unemployment and poverty.   Some examples:

    • San Bernardino has the second highest poverty rate of any major U.S. metropolitan areas.  Only Detroit is worse.
    • California, with about 12 percent of the U.S. population, has 34 percent of U.S. welfare recipients.
    • Two California counties, the geographically separated Colusa and Imperial, have unemployment rates over 20 percent.
    • Thirty-one of California’s 58 counties have unemployment rates in double digits.

    The geographic distribution of California’s poverty is one reason many people fail to understand California.  Most of California’s poverty is concentrated in regions where the political class —or wayfaring editorialists — seldom venture.  It’s mostly inland, not where most of California’s elite live or travel.  If you stay on the 101 corridor, or hug scenic Route 1, it’s easy to avoid.  You can find it, but you have to have eyes that are open to it, and it helps if you get off the beaten path. 

    Egan wrote his piece in Santa Barbara, where life can be as good as it gets, particularly for the affluent and boomers who bought their homes decades ago.  But, the city of Guadalupe in Santa Barbara County could give him a taste of how the other half lives. Just take a look sometime: it’s about as hardscrabble a town as the Texas town in the movie “The Last Picture Show”.

    California’s poverty is harder to ignore along the 99, but is even more evident in roads like 33 which winds along the eastern side of the coastal range.  Go there, and you will find it hard to believe that you are still in the United States, much less California.  There you will find grinding, hopeless poverty more reminiscent of the Third World than the center of the economic jobs.

    A high speed train won’t help these people.  Neither will Silicon Valley tech jobs, even if they don’t shrink in the inevitable social media shakeout.  Neither will Sacramento, apparently.  Until we start doing something for the state’s huge and struggling working and middle class, and that means creating opportunity for them, we should refrain from congratulating ourselves and each other for our good work.

    Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org. A slightly different version of this story appeared in CLU Center for Economic Research and Forecasting’s September, 2013 California Economic Forecast.