Category: Economics

  • Fixing California: The Green Gentry’s Class Warfare

    Historically, progressives were seen as partisans for the people, eager to help the working and middle classes achieve upward mobility even at expense of the ultrarich. But in California, and much of the country, progressivism has morphed into a political movement that, more often than not, effectively squelches the aspirations of the majority, in large part to serve the interests of the wealthiest.

    Primarily, this modern-day program of class warfare is carried out under the banner of green politics. The environmental movement has always been primarily dominated by the wealthy, and overwhelmingly white, donors and activists. But in the past, early progressives focused on such useful things as public parks and open space that enhance the lives of the middle and working classes. Today, green politics seem to be focused primarily on making life worse for these same people.

    In this sense, today’s green progressives, notes historian Fred Siegel, are most akin to late 19th century Tory radicals such as William Wordsworth, William Morris and John Ruskin, who objected to the ecological devastation of modern capitalism, and sought to preserve the glories of the British countryside. In the process, they also opposed the “leveling” effects of a market economy that sometimes allowed the less-educated, less well-bred to supplant the old aristocracies with their supposedly more enlightened tastes.

    The green gentry today often refer not to sentiment but science — notably climate change — to advance their agenda. But their effect on the lower orders is much the same. Particularly damaging are steps to impose mandates for renewable energy that have made electricity prices in California among the highest in the nation and others that make building the single-family housing preferred by most Californians either impossible or, anywhere remotely close to the coast, absurdly expensive.

    The gentry, of course, care little about artificially inflated housing prices in large part because they already own theirs — often the very large type they wish to curtail. But the story is less sanguine for minorities and the poor, who now must compete for space with middle-class families traditionally able to buy homes. Renters are particularly hard hit; according to one recent study, 39 percent of working households in the Los Angeles metropolitan area spend more than half their income on housing, as do 35 percent in the San Francisco metro area — well above the national rate of 24 percent.

    Similarly, high energy prices may not be much of a problem for the affluent gentry most heavily concentrated along the coast, where a temperate climate reduces the need for air-conditioning. In contrast, most working- and middle-class Californians who live further inland, where summers can often be extremely hot, and often dread their monthly energy bills.

    The gentry are also spared the consequences of policies that hit activities — manufacturing, logistics, agriculture, oil and gas — most directly impacted by higher energy prices. People with inherited money or Stanford degrees have not suffered much because since 2001 the state has created roughly half the number of mid-skilled jobs — those that generally require two years of training after high-school — as quickly as the national average and one-tenth as fast as similar jobs in archrival Texas.

    In the past, greens and industry battled over such matters, which led often to reasonable compromises preserving our valuable natural resources while allowing for broad-based economic expansion. During good economic times, the regulatory vise tended to tighten, as people worried more about the quality of their environment and less about jobs. But when things got tough — as in the early 1990s — efforts were made to loosen up in order to produce desperately needed economic growth.

    But in today’s gentry-dominated era, traditional industries are increasingly outspent and out maneuvered by the gentry and their allies. Even amid tough times in much of the state since the 2007 recession — we are still down nearly a half-million jobs — the gentry, and their allies, have been able to tighten regulations. Attempts even by Gov. Jerry Brown to reform the California Environmental Quality Act have floundered due in part to fierce gentry and green opposition.

    The green gentry’s power has been enhanced by changes in the state’s legendary tech sector. Traditional tech firms — manufacturers such as Intel and Hewlett-Packard — shared common concerns about infrastructure and energy costs with other industries. But today tech manufacturing has shrunk, and much of the action in the tech world has shifted away from building things, dependent on energy, to software-dominated social media, whose primary profits increasingly stem from selling off the private information of users. Servers critical to these operations — the one potential energy drain — can easily be placed in Utah, Oregon or Washington where energy costs are far lower.

    Even more critical, billionaires such as Google’s Eric Schmidt, hedge fund manager Thomas Steyer and venture firms like Kleiner Perkins have developed an economic stake in “green” energy policies. These interests have sought out cozy deals on renewable energy ventures dependent on regulations mandating their use and guaranteeing their prices.

    Most of these gentry no doubt think what they are doing is noble. Few concern themselves with the impact these policies have on more traditional industries, and the large numbers of working- and middle-class people dependent on them. Like their Tory predecessors, they are blithely unconcerned about the role these policies are playing in accelerating California’s devolution into an ever more feudal society, divided between the ultrarich and a rapidly shrinking middle class.

    Ironically, the biggest losers in this shift are the very ethnic minorities who also constitute a reliable voter block for Democratic greens. Even amid the current Silicon Valley boom, incomes for local Hispanics and African-Americans, who together account for one-third of the population, have actually declined — 18 percent for blacks and 5 percent for Latinos between 2009 and 2011, prompting one local booster to admit that “Silicon Valley is two valleys. There is a valley of haves, and a valley of have-nots.”

    Sadly, the opposition to these policies is very weak. The California Chamber of Commerce is a fading force and the state Republican Party has degenerated into a political rump. Business Democrats, tied to the traditional industrial and agricultural base, have become nearly extinct, as the social media oligarchs and other parts of the green gentry, along with the public employee lobby, increasingly dominate the party of the people. Some recent efforts to tighten the regulatory knot in Sacramento have been resisted, helped by the governor and assisted by the GOP, but the basic rule-making structure remains, and the government apparat remains highly committed to an ever more expansive planning regime.

    Due to the rise of the green gentry, California is becoming divided between a largely white and Asian affluent coast, and a rapidly proletarianized, heavily Hispanic and African-American interior. Palo Alto and Malibu may thrive under the current green regime, and feel good about themselves in the process, but south Los Angeles, Oakland, Fresno and the Inland Empire are threatened with becoming vast favelas.

    This may constitute an ideal green future — with lower emissions, population growth and family formation — for whose wealth and privilege allow them to place a bigger priority on nature than humanity. But it also means the effective end of the California dream that brought multitudes to our state, but who now may have to choose between permanent serfdom or leaving for less ideal, but more promising, pastures.

    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.

    This piece originally appeared at U-T San Diego.

     

  • The Cities Creating The Most Middle-Class Jobs

    Perhaps nothing is as critical to America’s future as the trajectory of the middle class and improving the prospects for upward mobility. With middle-class incomes stagnant or falling, we need to find a way to generate jobs for Americans who, though eager to work and willing to be trained, lack the credentials required to enter many of the most lucrative professions.

    Mid-skilled jobs in areas such as manufacturing, construction and office administration — a category that pays between $14 and $21 an hour — can provide a decent standard of living, particularly if one has a spouse who also works, and even more so if a family lives in a relatively low-cost area. But mid-skilled employment is in secular decline, falling from 25% of the workforce in 1985 to barely 15% today. This is one reason why middle- and working-class incomes remain stagnant, well below pre-recession levels.

    Over the past three years, high-wage professions have accounted for 29% of new jobs created, while the lowest-paid jobs (under $13 an hour) have grown to encompass roughly half of all new jobs. Net worth-wise, as a recent Pew study notes, the wealthy — the top 7% — are thriving due to the rebound of the stock and bond markets; the bottom 93%, whose wealth is more tied up in their homes,  is still feeling the hangover from the cratering of housing prices in the recession.

    No surprise then that about a third of all Americans now consider themselves lower class, according to another Pew study, up from a quarter before the recession.

    But middle-income employment has not vanished everywhere.  An analysis of the distribution of new jobs since 2010 by Economic Modeling Specialists, Inc. found a wide disparity among the states. Between 34% and 45% of all new jobs have been mid-wage in Wyoming, Iowa, North Dakota, Michigan and Arizona. The worst performers: Mississippi where only 10% of new jobs have been middle-income, followed by New York, New Hampshire, New Jersey and Virginia, all with 14% or less. (Note: I use the terms “mid-skill” and “middle-income” interchangeably; recent research suggests pay is a reasonable proxy for skill.)

    Generally speaking mid-skilled employment is expanding the most in states with strong overall job growth, and less in high-cost, high-tax states, with the notable exception of Mississippi. The EMSI data also suggest that states with expanding heavy industries such as oil and manufacturing generate more positions for mid-level workers such as machinists, truck drivers, welders and oil roustabouts. At the same time, the states with a bifurcated combination of low-wage industries, like hospitality or retail, and high-paid professions, like software engineers or investment bankers, tend to have fewer opportunities for middle-income workers.

    This pattern becomes clearer if we look at metropolitan areas, the level at which most economic activity takes place. Mark Schill at the Praxis Strategy Group crunched the data for us on employment trends over the five years since the recession in the 51 metropolitan statistical areas with over 1 million people. It’s not a pretty picture. Three years since employment hit bottom, the U.S. still has 2 million fewer mid-income jobs than at the onset of the financial crisis in 2007; half of that deficit is in the largest metro areas.

    But the pain is not evenly distributed. There are eight metro areas that boast more mid-level jobs today than in 2007. The list is dominated by Texas cities, led by Austin-Round Rock-San Marcos, which has added 17,000 mid-skill jobs — an increase of 7.6%  – among the 95,000 new jobs generated in the region. The largest numeric increase is in Houston-Sugarland-Baytown, which has 60,810 more mid-skilled jobs, up 7.4%. The Houston metro area also has easily led the nation in overall job growth since 2007, adding a net 280,000 positions.

    Texas metro areas also come in third and fourth: in San Antonio-New Braunfels, middle-income employment rose 3.4%; in Dallas-Ft. Worth-Arlington , 3.1%. Nearby Oklahoma City comes in fifth with 2.1% growth in middle-income employment, sharing the merits of relatively low costs and a strong energy economy.

    The working class and  the endangered middle class may be favored topics of discussion in the deepest blue regions, but for the most part these metro areas have failed to bolster their middle-skilled labor forces. Los Angeles-Long Beach leads the league with the biggest net loss of mid-skilled jobs since 2007, down by 112,300, or 6.1%. Chicago had the second-largest numerical decline, some 102,100, or 7.6%, followed by New York, which lost 82,350 such jobs, 3.4% of its total in 2007. In contrast, notes economist Tyler Cowen, Texas has not only created the most middle-income jobs, but a remarkableone-third of all net high-wage jobs created over the past decade.

    The loss of manufacturing jobs is clearly part of the problem here; despite the recent resurgence in the industrial sector, the U.S. still has 740,000 fewer middle-skill manufacturing jobs than in 2007. Chicago and Los Angeles remain the nation’s largest industrial regions, but they are also among the most rapidly de-industrializing areas in the country. New York City, once among the world’s leading industrial centers, with roughly a million manufacturing workers in 1950, is down to around 75,000. In contrast, industrial employment has been expanding in the Houston, Seattle and Oklahoma City metro areas, and recently even Detroit.

    In contrast, New York, Chicago and L.A. have seen job gains in such low-wage areas as hospitality and retail, as well as a smaller surge in high-end employment — notably in information and business services. But the welcome growth in these positions is not enough to make up for the big hole in middle-class employment. Since the recession, for example, New York has lost manufacturing and construction jobs at a double-digit rate while hospitality employment grew 18% and retail 10%. Los Angeles and Chicago showed similar patterns, but actually did worse in higher-wage sectors, like professional business services.

    Another major area of lost middle-class jobs has been construction. The U.S. is still down 1.2 million middle-skill construction jobs since 2007 and 125,000 in real estate. These losses have inflicted the most pain in the boom towns that grew fastest in the early 2000s. The biggest loser of mid-skill jobs in percentage terms is Las Vegas-Paradise, Nev., which has suffered a staggering 16.1% loss in such jobs since 2007. It’s followed by Riverside-San Bernardino-Ontario, Calif. (-10.6%); Sacramento-Arden-Arcade-Roseville, Calif., (-10.4%); Tampa- St. Petersburg- Clearwater, Fla. (-9.7%); and Phoenix-Mesa- Scottsdale, Ariz. (-9.3%).

    Whether in the biggest cities, or Sun Belt boom towns, the issue of increasing middle-income employment should be as much of a priority for policymakers as attracting glamorous high-wage jobs or helping the poor. America’s identity has been built around the idea that hard work, particularly with some study for a particular skill, should be rewarded with decent pay. Boosting employment in mid-skill professions, from construction and manufacturing to logistics and energy, is critical to achieving this goal.

    If we fail to stem the erosion of middle-income jobs, we will be faced with a continued descent into a Latin American style society divided largely between an affluent elite and multitudes of the poor, with a thin layer in the middle. This promises miserable consequences for most Americans and the future of our democracy.

    Note: An early version of this table listed incorrect figures in the 2013 total jobs column.

    Middle-skill Employment in U.S. Metropolitan Areas
    Metropolitan Statistical Area Name 2013 Middle Skill Jobs 2007-2013 Change % Change % Change Rank 2013 Location Quotient 2013 LQ Rank
    Austin-Round Rock-San Marcos, TX 248,988 17,485 7.6% 1 0.93 41
    Houston-Sugar Land-Baytown, TX 878,038 60,810 7.4% 2 1.00 17
    San Antonio-New Braunfels, TX 310,920 10,316 3.4% 3 1.07 3
    Dallas-Fort Worth-Arlington, TX 959,326 29,178 3.1% 4 0.98 23
    Oklahoma City, OK 198,944 4,113 2.1% 5 1.05 8
    New Orleans-Metairie-Kenner, LA 177,207 2,676 1.5% 6 1.05 8
    Nashville-Davidson–Murfreesboro–Franklin, TN 263,022 2,309 0.9% 7 1.02 12
    Salt Lake City, UT 221,892 476 0.2% 8 1.07 3
    Denver-Aurora-Broomfield, CO 390,661  (2,824) -0.7% 9 0.96 31
    Indianapolis-Carmel, IN 274,996  (3,143) -1.1% 10 0.98 23
    Boston-Cambridge-Quincy, MA-NH 700,371  (9,683) -1.4% 11 0.90 46
    San Jose-Sunnyvale-Santa Clara, CA 233,796  (5,012) -2.1% 12 0.78 51
    Louisville/Jefferson County, KY-IN 199,292  (4,669) -2.3% 13 1.04 10
    Charlotte-Gastonia-Rock Hill, NC-SC 267,840  (6,888) -2.5% 14 0.98 23
    Pittsburgh, PA 358,823  (9,301) -2.5% 15 1.03 11
    Rochester, NY 147,269  (4,325) -2.9% 16 0.97 28
    Raleigh-Cary, NC 153,838  (4,854) -3.1% 17 0.93 41
    Baltimore-Towson, MD 391,208  (12,532) -3.1% 18 0.95 34
    Washington-Arlington-Alexandria, DC-VA-MD-WV 764,805  (25,078) -3.2% 19 0.80 50
    San Diego-Carlsbad-San Marcos, CA 492,724  (16,382) -3.2% 20 1.09 2
    New York-Northern New Jersey-Long Island, NY-NJ-PA 2,336,777  (82,350) -3.4% 21 0.88 48
    Columbus, OH 272,821  (9,829) -3.5% 22 0.95 34
    Buffalo-Niagara Falls, NY 159,658  (5,770) -3.5% 23 0.99 20
    Richmond, VA 193,104  (7,081) -3.5% 24 1.00 17
    San Francisco-Oakland-Fremont, CA 583,934  (21,618) -3.6% 25 0.87 49
    Seattle-Tacoma-Bellevue, WA 543,988  (21,651) -3.8% 26 0.97 28
    Minneapolis-St. Paul-Bloomington, MN-WI 507,261  (20,643) -3.9% 27 0.91 45
    Portland-Vancouver-Hillsboro, OR-WA 337,705  (19,386) -5.4% 28 1.02 12
    Hartford-West Hartford-East Hartford, CT 179,653  (10,578) -5.6% 29 0.95 34
    Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 789,395  (49,105) -5.9% 30 0.95 34
    Atlanta-Sandy Springs-Marietta, GA 692,336  (44,530) -6.0% 31 0.95 34
    Los Angeles-Long Beach-Santa Ana, CA 1,731,419  (112,332) -6.1% 32 0.96 31
    St. Louis, MO-IL 393,900  (27,502) -6.5% 33 0.98 23
    Kansas City, MO-KS 302,025  (21,222) -6.6% 34 0.98 23
    Memphis, TN-MS-AR 192,693  (14,600) -7.0% 35 1.02 12
    Detroit-Warren-Livonia, MI 517,098  (39,268) -7.1% 36 0.93 41
    Orlando-Kissimmee-Sanford, FL 304,724  (23,533) -7.2% 37 0.95 34
    Cincinnati-Middletown, OH-KY-IN 302,932  (24,111) -7.4% 38 1.00 17
    Chicago-Joliet-Naperville, IL-IN-WI 1,249,263  (102,122) -7.6% 39 0.94 40
    Jacksonville, FL 200,324  (16,482) -7.6% 40 1.06 6
    Virginia Beach-Norfolk-Newport News, VA-NC 298,352  (25,147) -7.8% 41 1.19 1
    Miami-Fort Lauderdale-Pompano Beach, FL 706,788  (60,373) -7.9% 42 0.97 28
    Milwaukee-Waukesha-West Allis, WI 237,871  (20,489) -7.9% 43 0.96 31
    Cleveland-Elyria-Mentor, OH 304,167  (27,158) -8.2% 44 0.99 20
    Birmingham-Hoover, AL 162,440  (15,437) -8.7% 45 1.07 3
    Providence-New Bedford-Fall River, RI-MA 206,473  (20,670) -9.1% 46 0.99 20
    Phoenix-Mesa-Glendale, AZ 578,767  (59,101) -9.3% 47 1.02 12
    Tampa-St. Petersburg-Clearwater, FL 365,043  (39,371) -9.7% 48 1.02 12
    Sacramento–Arden-Arcade–Roseville, CA 259,792  (30,200) -10.4% 49 0.92 44
    Riverside-San Bernardino-Ontario, CA 431,892  (51,373) -10.6% 50 1.06 6
    Las Vegas-Paradise, NV 234,340  (44,849) -16.1% 51 0.89 47
    Total 23,210,895  (1,045,210) -4.3%      
    Source: EMSI Class of Worker – QCEW Employees + Non-QCEW Employees + Self-Employed
    Analysis by Mark Schill, Praxis Strategy Group

    This story originally appeared at 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.

  • Housing: Bubble Trouble or Staying the Course?

    There is a lot of speculation that residential real estate markets are in a bubble. Certainly there is cause for concern: The rates of gains in prices over the past year are unsustainable, and a bit disturbing. We are seeing multiple offers on a huge percentage of homes that are sold, and buyers are racing to make offers.

    Sustained strong real estate markets are usually driven by household formation, or an increase in the percentage of the population that owns a home. Neither is happening.

    Household formation drives a real estate market by increasing demand for modest homes and pushing existing homeowners up the ladder. It isn’t happening now because our young people, at the age when we would expect them to start households, can’t do so. The economy has crushed them. They are unemployed or underemployed, burdened with college debt, and living with their parents. They will not be a source of strength for the real estate markets until job growth is far higher than it is now. End of story.

    Home ownership rates aren’t increasing either, thank goodness. Policy can only push home ownership so far, and then things go bad, really bad. A too-high home ownership rate was a significant contributor to our recent recession, and to its extraordinarily slow recovery. In spite of headlines, the continuing decline in home ownership is good economic news.

    The home ownership percentage peaked at about 69 percent just prior to the recession. Since then, it’s fallen to about 65 percent. Based on history, we think about 64 percent is a sustainable rate. Given the ongoing changes in how homes are financed, the sustainable rate may fall below 64 percent. In any event, growth in the home ownership rate is not and will not soon be a source of demand for homes.

    Then there are the stories. We hear lots of stories about behavior that sound like stories we heard in previous bubbles.

    Still, we don’t think we’re in a bubble. We’d prefer a more orderly market — that’s for sure. We also don’t expect to see continued price increases at last year’s pace.
    The demand driving real estate markets comes from investors. This is something that had to happen. When the home ownership rate is too high, home ownership needs to be moved from unqualified residents to investors.

    It took investors a while to see this, and government at every level did its very best to slow or stop the process. Eventually, though, investors couldn’t continue to ignore the situation, and economic incentives overwhelmed government efforts to stop the process. Investors were flush with cash, and they had few alternative investments. Interest rates were at record lows, and home prices were low, often below construction costs.

    So the investors stepped in, all at once, and in a big way. We’ve seen reports of some investment firms bidding on 200 homes a day in Florida.

    You have to ask: How long can this go on? The answer is in the economic models used by investors. Their models look at interest rates, expected rents, capital gains, and price. Interest rates have ticked up, and markets are concerned about tapering of QE3. Still, we don’t see any reason for a sustained significant upward move in interest rates. We also don’t see any sign of a softening in rents, and thus the expect capital gains.

    So, purchase price is the key to how long we’ll see strong investor of demand. That is, given interest rates and expected rents and capital gains, there is a price below which Investors will purchase houses and above which they will not purchase houses. Call this the critical price. For simplicity, we’re assuming — unrealistically — that all markets are the same. In reality, there is a critical price for every neighborhood or even every home.

    The situation is clearly self-limiting. The investors all use very similar models. Once they hit the critical price, they will all exit the market. Since they are all using very similar models, they will all abandon markets at about the same time.

    Then what happens? I think we’ll have a new floor at the critical price. If the price falls, the investors will jump back in. Since we don’t see any other strong source of demand, it’s hard to see why the price would continue to increase above the critical price. So prices are likely to again be stable.

    While investors do not always behave in rational ways — in particular they exhibit herd behavior — we are inclined to believe that they will not bid the price up significantly above a price supported by fundamentals: rents, interest rates, incomes, and the like. So, we built a simple model to see where we are.

    Below is a chart that shows actual market prices based on the Case-Shiller survey, represented by the blue line, and our estimate of a price based on fundamentals, by the red line. According to this model, there is some room for continued gains:

    That is not to say that prices couldn’t fall. Our model is based on current economic conditions, and it is not forward looking in any way. If the fundamentals change, our model’s estimate of value will change. Specifically, if interest rates increase or if income falls (because we go into another recession) we would expect to see prices decline. If job creation suddenly accelerates, we’d expect to see prices increase.

    So, while we don’t think that real estate markets are in a bubble, the current rate of price increase will probably not continue for long, either. The very good news is that, absent some unexpected negative economic shock, we don’t see any reason for another price decrease within the forecast horizon.

    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.

    Flickr Photo by thinkpanama

  • Taking Flight from Asia

    Viewed from a 50-year perspective, the rise of East Asia has been the most significant economic achievement of the past half century. But in many ways, this upward trajectory is slowing, and could even reverse. Simply put, affluence has led many Asians to question its cost, in terms of family and personal life, and is sparking a largely high-end hegira to slower-growing but, perhaps, more pleasant, locales.

    The Asian Century may have arrived, but many Asians – disproportionately entrepreneurial, well-educated and familial – are heading elsewhere. In the United States, they have surged past Hispanics as the largest source of immigrants and now account for well over a third of all newcomers. But that’s just the tip of this wave: Recent Gallup surveys reveal that tens of millions more – 40 million from the Indian subcontinent and China alone – would come if they could. This is far more than the 5 million in Mexico who would still like to move here.

    For the most part, these highly urbanized Asians are headed to places that may not be exactly pastoral, but are decidedly less-crowded places, either in the suburbs of great cities or, increasing, to sprawling low-density regions such as Houston, Dallas, Charlotte and Phoenix. In large swaths of Los Angeles County’s San Gabriel Valley, parts of the southeastern Orange County as well as the Santa Clara Valley, six cities, including tony San Marino, already are majority Asian, and many, including several in Orange County, are either there or well on the way.

    For the most part, these primarily suburban places, widely disdained by the dominant media and academic classes, appear to seem awfully nice to Asian immigrants. Nationwide over the past decade, the Asian population in suburbs grew by almost 2.8 million, or 53 percent, while their numbers expanded in core cities by 770,000, or 28 percent. In Southern California, the shift is even more pronounced: In Los Angeles and Orange counties – the nation’s largest Asian region, the suburbs added roughly five times as many Asians as did the core city. There are now roughly three Asian suburbanites for every core city dweller in our region.

    This is not just an American phenomenon. Asians, by far the fastest-growing large ethnic group in Canada, constitute a majority in many Toronto suburbs, like Markham, Brampton, Mississauga and Richmond Hill. The same pattern is seen in areas around Vancouver, such as Richmond, Greater Vancouver, Burnaby and Surrey. Asians, who, following New Zealanders, constitute a majority of newcomers in Australia, also tend to settle in suburbs, particularly newer ones.

    It’s most important to understand the reasons these people leave their homelands. Historically, people immigrate from places where there is a perceived lack of opportunity. Yet, many of the Asian countries seeing people leave – places like Singapore, Taiwan and China – have enjoyed consistently higher economic growth rates than any of the destination countries. What these immigrants increasingly understand is that, as their country’s GDP has surged, their quality of life has not and, in many ways, has deteriorated.

    These are the sometimes subtle but important things that tend to be ignored by geopoliticians and urban ideologues, attracted by the density and transit-richness of the Asian cities. “Everyday life,” observed the great French historian Fernand Braudel, “consists of the little things one hardly notices in time and space.” And, by these measurements, life in the United States, Canada or Australia is simply better than that in most Asian countries.

    In contrast, urban Asia, although rich and often colorful, has become an increasingly difficult place both for everyday life and for families. A nice salary might be satisfying, but is unlikely to be large enough to buy a house or apartment in places like Taipei or Hong Kong, where the cost of even a tiny apartment equals more than twice – adjusted for income – what would be sufficient to purchase a house in Irvine, and four times as much as an even larger residence in Houston, Dallas or Phoenix. Not surprisingly, most Asians in America feel they are living better than their parents, compared with their counterparts at home. Only 12 percent would choose to move back to their home country.

    Beyond housing, life in hyperurbanized Asia does not buy much happiness. Prosperous Singapore, for example, is one of the most pessimistic places on the planet, while ultradense South Korea has been ranked as among the least-happy nations in the Organization for Economic Cooperation and Development, ranking 32nd of 34 members. The country also suffers from among the highest suicide rates in the higher-income world.

    This reflects the often-ignored impacts of dense urbanization, including rising obesity, particularly among the young, who get less exercise and spend more time desk-bound. The air is foul, particularly in Beijing, no matter how much money you have. A healthy bank account does not exempt one from emphysema.

    Others complain about the dangers of a political system where wealth can always be confiscated by the state; no surprise, then, that a new survey shows roughly half of China’s millionaires are looking to move, primarily to the U.S. or Canada. During 2010-11, the number of Chinese applying for a U.S. investor visa, which requires a $1 million investment in the country, more than tripled, to more than 3,000. Repression of political thought and, particularly, against religion, also ranks as a major cause for leaving the homeland.

    The family – the historic centerpiece of cultures from India to Korea – may constitute the biggest victim of the hypercompetitive, ultradense Asian lifestyle. Hong Kong, Singapore and Seoul suffer among the world’s lowest fertility rates, with rates around 1. Meanwhile, Shanghai’s fertility rate has fallen to 0.7, among the lowest ever reported, well below China’s “one child” mandate and barely one-third the rate required simply to replace the current population. Due largely to crowding and high housing prices, 45 percent of couples in Hong Kong say they have given up having children.

    For those who do want to start a family, it increasingly makes sense to immigrate. This is evident in rising emigration from China’s cities, Hong Kong and Singapore, where roughly one in 10 citizens now lives abroad, often in lower-density communities in Australia, Canada and the United States.

    The nature of those immigrating is critically important. We are long past the days when the average Asian migrant is a physical laborer or a small-scale merchant. Now, the more typical newcomer is a student or a highly qualified professional. In Australia, Asians, notably from India, China and Taiwan, make up the vast majority of immigrants who qualify for entry under skills-oriented criteria.

    This pattern also can be seen in the United States. Asians now constitute a majority of workers in Silicon Valley. They also tend to concentrate in what may be best described as the country’s largely suburban nerdistans – magnets for high-tech workers – places like Plano, Texas, Bellevue, Wash., Irvine and large swaths of Santa Clara County.

    Does all this mean Asia is about to experience a precipitous decline? Not at all. But it is also increasingly clear that the dense model of development adopted on much of that continent – exacerbated by a mass movement to cities – is not, in a larger social sense, truly sustainable. Societies that become difficult for families, and exact too much stress on their residents, are destined to suffer maladies from ultrarapid aging, shrinking workforces and a host of psychological maladies.

    These strains will become more evident over time. Already, most Asian societies, from Japan and China to Singapore and Taiwan, are experiencing less growth, linked in part to financial pressures from a rapidly aging society. The economic motivations for staying in Asia will likely decline, accelerating the flight both of financial and, more importantly, human capital.

    Every society relies on the resourcefulness of its people, particularly the young. The loss of skilled individuals and, especially, families suggests we may have already witnessed the peak of the half-century-long Asian ascendency, well before the American era has even come to its oft-predicted demise.

    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.

    This piece originally appeared at The Orange County Register.

    Singapore skyline photo by Bigstockphoto.com.

  • Middle-Wage Jobs That Have Survived, and the States That Are Fostering Them

    Middle-skill jobs are in the same camp as green jobs, STEM jobs, and other groups of occupations that garner lots of attention: They can be defined many ways, by many rubrics. Regardless of the definition, however, it’s clear that middle-skill, or middle-wage, jobs have been in decline for years.

    New research from the Federal Reserve indicates the share of middle-skill jobs in the workforce has dropped from 25% in 1985 to just above 15% today, part of the hollowing-out effect that David Autor of MIT has documented. And as our chart above shows, middle-wage jobs — those that pay between $13.84 and $21.13 per hour, as defined by the National Employment Law Project — sustained much deeper cuts during the 2008-2009 recession than high- and low-wage jobs.

    But not every middle-skill, middle-wage job is now extinct because of automation and offshoring. A subset of mid-wage manufacturing jobs (along with jobs in energy, health care, and other sectors) are among the healthiest post-recession occupations in the U.S. Furthermore, in a handful of states (Wyoming, Iowa, North Dakota, Michigan), mid-wage fields account for more than or close to 40% of all new jobs since 2010.

    Mid-Skill or Mid-Wage?

    For our analysis, we used middle-wage jobs instead of middle-skill jobs (i.e., those that require less than a bachelor’s degree but more than a high school degree). This is because some occupations that the BLS has assigned a mid level of education (e.g., registered nurses) often require a higher level of education by employers.

    This methodology is similar to the one used by Autor is his 2010 study. For a brief synopsis of why Autor used wage to approximate skill, see here.

    Share of New Jobs in Mid-Wage Category

    In the U.S., a quarter of all new jobs since 2010 fall in the mid-wage range. That’s a slightly smaller share than high-wage jobs (29%), while almost half (46%) of new jobs have been low-wage.

    ShareNewJobsbyWage

    No state has stood out more than Wyoming, where 45% of new jobs since 2010 have been mid-wage — well ahead of Iowa (37%), North Dakota (36%), and Michigan (35%). Texas (25%) and California (23%) have created the most total new middle-wage jobs in the nation, but they’re in the middle of the pack in terms of the share of all new jobs.

    State-MidWage-ShareAt the bottom, Rhode Island is the only state that’s lost middle-wage jobs the last few years. Coincidentally, it’s also seen a decline in high-wage jobs, meaning all of its job growth has been in occupations that pay $13.83 or lower.

    Meanwhile, Mississippi (10%) and New York (13%) have the lowest share of new mid-wage jobs among states that have seen job increases.

    Generally, states with higher cost of living are at the bottom in mid-wage job growth, with the exception of Mississippi. (It’s worth noting 80% of new jobs in Mississippi have been low-wage).

    State Name 2013 Jobs New Jobs Since 2010 (Total) New Jobs Since 2010 (Mid-Wage) Share of New Jobs Since 2010 (Mid-Wage)
    Source: QCEW Employees, Non-QCEW Employees & Self-Employed – EMSI 2013.3 Class of Worker
    Wyoming 319,672 7,607 3,411 45%
    Iowa 1,689,811 58,987 21,902 37%
    North Dakota 492,918 71,607 25,970 36%
    Michigan 4,391,882 214,075 74,536 35%
    Arizona 2,805,158 155,430 53,115 34%
    Alaska 388,436 9,790 3,296 34%
    New Mexico 913,612 13,215 4,315 33%
    Oklahoma 1,786,664 66,837 21,153 32%
    Minnesota 3,007,618 128,418 39,433 31%
    Pennsylvania 6,215,891 123,999 37,616 30%
    Vermont 356,643 10,494 3,158 30%
    Hawaii 742,002 27,637 8,262 30%
    Kentucky 2,038,143 72,485 21,562 30%
    South Carolina 2,085,991 83,597 24,601 29%
    Wisconsin 2,989,657 60,737 17,661 29%
    Louisiana 2,143,399 64,696 18,736 29%
    Ohio 5,585,543 159,403 44,960 28%
    Indiana 3,160,881 146,127 40,050 27%
    Kansas 1,530,232 35,131 9,471 27%
    Colorado 2,668,013 153,362 40,122 26%
    Nebraska 1,059,262 28,648 7,430 26%
    Texas 12,485,450 904,317 226,927 25%
    Tennessee 3,061,383 144,846 34,657 24%
    Utah 1,408,139 112,919 26,974 24%
    California 17,523,783 913,413 208,707 23%
    Massachusetts 3,679,152 149,301 33,836 23%
    Oregon 1,908,085 66,034 14,817 22%
    North Carolina 4,564,124 202,606 45,008 22%
    Georgia 4,449,841 182,068 40,297 22%
    Montana 511,880 18,730 4,122 22%
    Maryland 2,881,471 103,598 22,439 22%
    Nevada 1,260,218 47,951 10,160 21%
    Idaho 724,549 26,236 5,250 20%
    South Dakota 472,376 12,811 2,476 19%
    District of Columbia 775,185 23,111 4,378 19%
    Washington 3,379,817 140,985 26,352 19%
    West Virginia 789,978 22,278 4,134 19%
    Arkansas 1,302,641 15,044 2,652 18%
    Illinois 6,243,694 178,096 30,999 17%
    Missouri 2,988,014 62,799 10,803 17%
    Maine 672,708 2,998 508 17%
    Delaware 453,952 12,810 2,133 17%
    Florida 8,370,099 373,274 61,868 17%
    Alabama 2,084,701 22,075 3,605 16%
    Connecticut 1,831,478 44,701 7,161 16%
    Virginia 4,175,545 133,765 19,079 14%
    New Jersey 4,211,361 104,096 14,478 14%
    New Hampshire 702,271 13,694 1,877 14%
    New York 9,602,939 325,490 43,591 13%
    Mississippi 1,255,654 22,961 2,236 10%
    Rhode Island 503,723 5,140 -46
    Total 150,645,641 6,080,429 1,502,652 25%

    Mid-Skill, Mid-Wage Occupations on the Rise

    The list of still-vibrant middle-wage jobs is long, and most typically require on-the-job training, work experience, or short-term certificates and degrees that community colleges specialize in. This includes customer service representatives (up 6%) and heavy/tractor-trailer truck drivers (up 7%), two occupations that have each added more than 118,000 estimated jobs since the start of 2010. Both offer solid, mid-tier earnings ($14.91 and $18.14 median hourly earnings, respectively).

    Other examples of strong mid-wage occupations:

    • Machinists have the best combination of total jobs added from 2010 to 2013 (nearly 50,000) and percentage job growth (14%). This occupation is just one of several on-the-rebound production fields: computer controlled machine tool operators (17% growth since 2010), welders (11%), and inspectors, testers, sorters, samplers, and weighers (8%) have also performed well post-recession.
    • The fastest-growing mid-wage jobs are clustered in energy fields, specifically oil and gas: roustabouts (38% growth since 2010), oil, gas, and mining service unit operators (38%), helpers of extraction workers (28%), and extraction workers, all other (22%). Next in percentage growth since 2010 are computer controlled machine tool operators (17%).

    These occupations are the cream of the crop in terms of recent job growth, and there are dozens of other viable mid-wage professions.

    Joshua Wright is an editor at EMSI, an Idaho-based economics firm that provides data and analysis to workforce boards, economic development agencies, higher education institutions, and the private sector. He manages the EMSI blog and is a freelance journalist. Contact him here.

  • Shenzhen II?: The New Shanghai Financial Free Trade Zone

    Less than 35 years ago, China established its first special economic zone in Shenzhen, a prefecture (Note) bordering Hong Kong. This model is about to be expanded with the establishment of a new financially oriented free-trade zone in Shanghai, which could prove a major breakthrough in that city’s quest to become East Asia’s financial capital. The “China (Shanghai) Pilot Free Trade Zone (FTZ)” is located in eastern Pudong, the Shanghai’s suburban district (qu) that includes the huge new Pudong business district, across the river from the central business district in Puxi. 

    The potential here for rapid growth can be seen by reviewing the success of the Shenzen special economic zone (SEZ), When founded, the SEZ contained little more than a fishing village, but soon was transformed into a manufacturing and trading center, propelled by a less constrained regulatory environment. Foreign investment soared. The success of the Shenzhen model led to expansion of the zone and other special economic zones were established around the country. Shenzhen’s prosperity extended into neighboring Pearl River Delta prefectures such as Guangzhou, Dongguan, Foshan, Zhuhai and Zhongshan. Investment friendly policies were applied virtually across the nation in the years that followed. Today, for example, Apple makes many of its tablets in Chengdu, the capital of Sichuan, 1200 miles (2000 kilometers) inland via China’s larger equivalent of the US interstate highway system.

    Yet the economic advances of the special economic zones were anything but inevitable. Chinese leader Deng Xiaoping faced strong opposition from some high government officials, who were intent on limiting the scope of the Shenzhen experiment. Some even hoped to shut it down altogether (see Ezra Vogel’s Deng Xiaoping and the Transformation of China). Moreover, the economic advance of China involved, as the late Nobel Laureate Ronald Coase and Ning Wang relate in How China Became Capitalist  much more than conscious economic policy. Coase and Wang characterize the government’s light handed policies as permitting the “marginal revolutions” in individual entrepreneurship, township and village enterprises (locally owned enterprises) and private farming. These, and the special economic zones, were the driving forces in the Chinese economic miracle.

    And, as is predictable, not everyone is happy with the results of China’s transformation. There is persistent criticism of the inequality of income that has developed in China over the period. Yet, sitting on the sidelines, it is easy to second-guess the results of national economic policies, which do not always produce the intended outcomes. Suffice it to say that since 1980, China, one of the poorest nations in the world, has pursued policies, both of commission and omission, that have together lifted more people from poverty than ever before in history (See: Alleviating Poverty: A Progress Report). There is probably not a more important domestic objective for governments.

    Shanghai’s New Financially Oriented Free Trade Zone

    In the past the free trade zones focused principally on manufacturing. The new Shanghai free trade zone is the first to specialize in finance. The zone stretches along the Pacific Coast from north of Pudong International Airport, south through the large new town of Nanhui and across the Donghai Bridge to the new deep water port, which is an important component of the Port of Shanghai, now the largest in the world, and is designed to focus on finance. Initially, it will cover 11 square miles (29 square kilometers), but Hong Kong’s South China Morning Postsuggests that it might eventually be expanded to cover all of the Pudong New Area. This would expand the area to 467 square miles (1,210 square kilometers), an area nearly as large as the San Francisco-Oakland built up urban area.

    According to The Wall Street Journal “China’s government said it would turn a new free-trade zone here into a laboratory for remaking the country’s financial sector…” The Journal continues: “Financial-sector changes are at the heart of the experimentation in the zone: letting the market, rather than regulators, set interest rates and allowing firms to convert money more freely from yuan to foreign currencies and move the money overseas.”

    The Chinese based Global Times characterized the new free trade zone as an important step in China’s economic reform and the internationalization of the yuan. 

    As in the case of Shenzhen, government officials are characterizing the establishment of the new “Pilot Free Trade Zone” as an experiment. The Journal reports that the project is championed by new Premier Premier Li Keqiang, just as Shenzhen was championed by Deng Xiaoping. Should the zone be successful, it would not be surprising to see other such zones established. Perhaps, it will lead to an eventual liberalization of financial regulation across the nation, which is critical for China’s future development.

    Shanghai American Chamber of Commerce president Kenneth Jarrett responded positively to the announcement, telling China Daily: "One thing significant about the zone is its relationship to China’s economic reform agenda. Because there are a lot of talks about the need to rebalance the economy and make it more market-oriented, the FTZ (free trade zone) is a signature piece for the whole process."

    Yet, this will be far from a total free-market paradise. The government has announced a list of restrictions, including industries in which foreign investment will not be permitted and industries in which investment will be limited to joint ventures with Chinese companies.

    Chinese sources emphasize the evolutionary nature of the restrictions. According to Shanghai Daily, “The list is a temporary version for 2013 and the zone regulators will update the list every one or two years to better facilitate liberalization policies testing in the free trade zone.”

    Differing Views

    The new free trade zone move comes as analysts increasingly suggest the need to liberalize its financial sector. The Pilot FTZ could lead China’s financial sector toward greater integration into the globalized economy. This would strengthen China’s integration with the world, and could pose a major challenge to established financial centers, such as New York, London, Hong Kong and Singapore, In an editorial, The South China Morning Post (SCMP) speculates that the reforms begun with the Pilot FTZ could eventually undermine Hong Kong’s position as Asia’s financial center. The SCMP further notes that “The ultimate effect” of the Pilot FTZ “could be to help speed up economic reform nationwide. And that might be the bigger threat to Hong Kong.”

    If the skeptics are right, the restrictions and slowness of reform could limit the effectiveness of the zone and the challenge it poses to Hong Kong and other global financial capitals.  Such a view may be naïve. Other views are that reforms could lead to far more important consequences both in Asia and the World,.

    The most significant impacts could be on the United States, at least if former International Monetary Fund economist Arvind Subramanian is right. In his controversial book, Eclipse: Living in the Shadow of China’s Economic Dominance, Subramanian predicts that China will replace the United States as the world’s dominant economy by 2030 and that the yuan could replace the dollar as the principal reserve currency by that time. This could become more plausible if the financial liberalization apparently at the heart of the Pilot FTZ effort proceeds with dispatch.

    History: Repeating Itself?

    The signs from China are not completely clear. Bob Davis and Lingling Wei have just published an analytical The Wall Street Journal article that notes that President Xi Jinping has “veered left on some political issues.” Yet, indications on the economic front could be the opposite. The article focuses on Lie He, Xi Jinping’s leading economic advisor, Liu He, who Harvard’s 2001 Nobel laureate Michael Spence calls “an example of Chinese pragmatism," Spence adds that  Liu "…thinks markets are important mechanisms for getting things done efficiently," but "they’re not religion to him."

    Deng Xiaoping famously talked of crossing the river by “following the stones.” This cautious approach uses seemingly glacial policy changes that gradually initiate major change.This is how China has evolved over the past 35 years. Again, the Chinese appear to be choosing caution. This is not fast enough for some analysts, but this may also be a development that could augur many changes, not only for China, but for all its primary competitors in Asia and elsewhere.

    —–

    Note: The alternate term “prefecture” is used to denote the local jurisdictions into which all of China’s land area is divided. These go by various terms, with “municipality” or “city” used most frequently. In each case, municipalities are more akin to metropolitan areas (or even larger areas), which include the built-up urban areas and substantial expanses of surrounding rural territory.

    Photo: Pudong, Century Avenue toward the China (Shanghai) Pilot Free Trade Zone (by author)

  • Cashing in on So Cal Culture

    Southern California has always been an invented place. Without a major river, a natural port or even remotely adequate water, the region has always thrived on reinventing itself – from cow town to agricultural hub to oil city, Tinsel Town and the “Arsenal of Democracy.”

    Today, the need for the region to reinvent itself yet again has never been greater. Due in large part to regulatory pressures, as well as competitive forces both global and national, many industries that have driven the Southland economy – notably, aerospace, garments and oil – are under assault. A high cost of living, particularly for housing, stymies potential in-migration and motivates industries to look elsewhere to locate or expand.

    As a result, virtually every key Southern California industry has been either stagnating or losing ground to competitors. More important, the area in the past decade has lost much of its appeal as a destination for both immigrants and young people, drying up a huge source of potential innovation.

    To put it in vaudeville terms, Southern California needs a new shtick. We must look to leverage our natural advantages (beyond just our climate) into a new economic paradigm that can withstand competition from the rest of the world and the rest of the country. This opportunity is best seen as the commercialization of culture. These include, as one recent Los Angeles County Economic Development Corp. report stated, “businesses and individuals involved in producing cultural, artistic and design goods and services.”

    This is not largely a matter of museums or concert venues. When it comes to the “fine” arts, Southern California is an increasingly respectable player, but cannot compete on equal footing with London, Paris, New York or Chicago, locales with far older endowments and, arguably, more people with refined artistic tastes. There is also growing competition from cash-rich wannabe cities, from Houston and Dallas to Shanghai, Beijing or Singapore. Fine art has always been for sale to the highest bidder.

    Where Southern California retains a decisive edge is in the popular arts – from casual fashion and industrial design to movies, television and commercials – which could provide the basis for a broad-based economic revival. This requires political and business leadership to shift from their obsession with downtown Los Angeles and dense building projects to a focus on nurturing long-term, sustainable employment.

    This demands that we do everything to maintain the quality of life, largely a matter of our region’s spread-out neighborhoods, that has always been our primary calling card to creative talent. Los Angeles, in particular, boasts by far the largest concentration of artists in the country. Overall, the “creative industries” account, according to a recent Otis Institute study, for roughly 337,000 direct jobs in the Los Angeles-Orange County region. Adding indirect employment, the study estimated these industries employed more than 642,000 people, more than the total employment of the Sacramento area.

    Each of these economic drivers deserves a closer look:

    Fashion

    Over the past quarter century, Los Angeles, with roughly three times as many establishments, has replaced New York as the nation’s garment capital. Most of these companies are small, but, together, the fashion industry across the five-county Southland region employs more than 100,000 people.

    In recent years, apparel manufacturing has been in decline, losing some 40,000 jobs. But there has been growth in such areas as clothing design and merchandising. The region has become the de facto capital for “fast forward” fashion, paced by firms such as Forever 21 Inc., Wet Seal and Papaya. Orange County, capital of the surfwear industry, is home to firms such as Oakley, Volcom, Hurley, Gotcha International, O’Neill, Raj Manufacturing, Mossimo and Stussy.

    These firms, and the businesses serving them, are expected to experience more growth in the coming years, according to the U.S. Bureau of Labor Statistics. Aided by the “onshoring” trend – returning jobs from overseas – and a demand for quicker product turnaround, the Southern California apparel industry seems poised to solidify its hold over the country’s fashions over the coming years.

    Entertainment

    This fashion industry derives much of its success from a link with Hollywood and the rest of the entertainment world. Accounting for more than 40 percent of all creative industry jobs, the entertainment complex is increasingly critical to the region’s resurgence. Much concern has been raised about the future of this key industry, whose growth has slowed, due in part to massive tax incentives from other states and countries.

    Despite this, the industry has been on something of an upswing recently, adding more than 4,600 jobs last year, a gain of 3.7 percent. At 129,700 jobs, employment in the industry is now at its highest level in four years but still tantalizingly below its levels in 2004 (132,200 jobs) and 1999 (146,300 jobs). Growth derives not so much from studio employment but from the ranks of independent contractors, now more than 85,000, well above the prerecession level. Nearly 80 percent of all new entertainment jobs are from the ranks of independent proprietors.

    Digital Arts

    The stabilization, and hopefully resurgence, of the entertainment sector could boost other industries, like digital media, hoping to play off the region’s extraordinary concentration of artists, specialists and story-tellers. Historically, Southern California, in large part due to a relative shortage of venture capital, has been playing catch-up with the Bay Area, and to a lesser extent, Seattle.

    The key to the future is combining other assets besides Hollywood, such as having the largest number of engineers – 70,000 – of any area in the country. Much hope has been placed on the rise of the much-ballyhooed “Silicon Beach” that follows the coastline, largely in Los Angeles, which some people claim is becoming a real competitor to Silicon Valley.

    Yet this is not the first time we have heard this story. Similar growth took place in past digital media waves, only to see reductions as the inevitable cratering takes place during market shake-outs. But employing the strong ties to the Hollywood creative community, there is the real prospect for the region to achieve a critical mass that will allow digital entrepreneurs to remain comfortably here rather than head up to Silicon Valley.

    Industrial Design

    Even as manufacturing employment has declined over time, improving recently to a level of mere stagnation recently, Southern California has maintain a leading position in industrial design. This field is expected to grow, both nationally and in the Southland.

    The area has maintained its leadership as center of automotive design, with studios such as the BMW Design Works, in Ventura, and Mercedes Advanced Design, in Carlsbad, as well as GM’s Advance Design Studio in North Hollywood. The fact that many international firms – for example, Hyundai (Fountain Valley), Kia (Irvine), Honda and Toyota – maintain their North American headquarters in the Southland provides a critical link to the expanding global auto market.

    Primacy in industrial design also extends into other product lines, such as furniture and household furnishings. If this design edge can be combined with automation and the onshoring of jobs, Southern California could enjoy a broad-based resurgence more sustainable than those of more-narrowly based economies, such as in New York or the Bay Area.

    Design of Life

    As we have seen over the past decade, local industries such as entertainment – not to mention fields like fashion, digital and industrial design – are going to be subject to enormous pressure from both home and abroad. China, for example, is building a massive $8.2 billion film studio in a concerted drive to replace Hollywood as the center of the world entertainment industry.

    If we lose our stranglehold on entertainment and other creative industries, there is very little hope for a regional resurgence. We lack the deep digital bench and funding sources of the Bay Area, or New York’s financial industry and its ability to dominate the news media. We can never be as cheap, or business friendly, as our emerging cultural rivals in the South, such as New Orleans, Nashville, Tenn., Austin, Texas, or Dallas, nor can we offer the kind of bargain-basement deals that desperate places, such as Detroit or Las Vegas, might offer to creative types.

    This means we have to focus on preserving and improving those very things – our cultural legacy and a predominately low-rise and flexible-work lifestyle – that differentiates us from far more congested, structured and often far-less pleasant locales like New York – and, even more so, China. In the past, this region has won the “design wars” by being itself, not by trying to create a faux vision that seeks to mimic Manhattan or Shanghai. Ultimately, Southern California can win only by playing the same aces that for generations have led the creative and the questioning to settle in our sun-drenched metropolis.

    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.

    This piece originally appeared at The Orange County Register.

  • Twitter And The Real Economy Of Jobs

    With Twitter’s high-profile IPO, the media and much of the pundit class are revisiting one of their favorite themes: the superiority of the brash, young urban tech elite, who don’t need to produce much in the way of profits to be showered with investor cash.  Libertarians will celebrate the triumph of fast-paced greed and dismiss concerns over equity; progressives may dislike the easy money but will be comforted when much of it ends up supporting their candidates and causes.

    Lost amid this discussion is any sense of reality about the economy for the rest of us. To be sure, in large part due to the Fed, the Bay Area and Manhattan are awash in money. But these places are barely typical of their regions, much less the nation, and are not attuned to creating a prosperity that will benefit more than a slight percentage of our population.

    The focus on digital uber alles is endorsed by a new school of American economics that essentially cedes the future to information-based industries and considers tangible activities like fossil fuel production, manufacturing and construction passé. In the mind of its devotees, such as UC Berkeley’s Enrico Moretti, author of The New Georgaphy of Jobs, information industries, clustered in ultra-expensive, overwhelmingly white (and Asian) enclaves, are the lodestones of our economic future.

    But what about those lacking degrees from elite colleges? The economist Tyler Cowen suggests that the 85% of the population without the proper cognitive pedigree will need to adopt the survival strategies of the poor in Latin America, including a diet heavy in beans.

    Another suggestion is that they can cut hair, walk dogs, and work on the houses of the digerati; given the extraordinary housing prices in the places where the anointed live, how they will afford to live anywhere near them is a bit of mystery. Yet most now putative middle-class Americans are not likely to walk easily to go into that dark night of limited opportunity. There remain economies anchored to more mundane industries, such as energy, construction, manufacturing and logistics, that still offer paths of upward mobility to people who didn’t go to Harvard, MIT or Stanford. These industries also employ more engineers and scientists than the IT sector, and in the case of energy produce more economic benefit to local economies, according to a 2007 study by the Bureau of Economic Analysis.

    In contrast celebrated social media firms, overwhelmingly concentrated close to the venture capital spigot, are both geographically constrained and and employ shockingly  few workers. The darlings of the bubblicious tech boom — Twitter, Facebook, Zynga, LindedIn and Google — employ roughly 58,000 people combined; in contrast the old-line tech firm Intel employ 85,000 people, half in the U.S., while ExxonMobil provides livelihoods to 80,000.

    In term of profits, the supposed holy grail of business, it’s not even close. In Exxon’s disappointing last quarter it racked up $6.9 billion. By contrast Google earned $3.1 billion, while Facebook made $333 million and LinkedIn $3.7 million. Yet what the new tech oligarchs lack on the balance sheet, they seem to make up for with a combination of presumed potential and PR panache.

    The money that has flowed to tech companies in San Francisco has and the much more important Silicon V alley has transformed these geographies,  peninsula  into something resembling glorified gated communities, populated by those lucky enough to have bought earlier and, increasingly, by techno-coolies shipped in from abroad.

    With the cost of housing soaring, the Bay Area has lost domestic migrants until very recently. Meanwhile,  the strongest household growth is taking place in less glitzy metro areas like Houston and other Texas cities, Atlanta, Raleigh and Jacksonville. With the worst of the recession over, most new jobs, once again, according to Moody Analytics, are likely to be  created largely in Sun Belt locations such as Texas, Arizona, Georgia and even Nevada as well as the Great Plains and Intermountain West.

    The people who settle in these places are not, as often asserted dummies stuck at the low rung of the meritocracy; the cities with the fastest-growing college-educated populations are primarily in the Sun Belt and Intermountain West, such as Houston, Austin, San Antonio and Nashville.

    Although many of the new economists believe these areas are generating mainly “crummy” jobs, employment is expanding in higher-wage areas such as energy and manufacturing as well as services and even high-tech. What these unfashionable regions offer are good business conditions, reasonable housing prices and usually lower taxes. Increasingly these seem like the remaining future bastions of middle-class jobs and lifestyles while the coasts mint the most billionaires, many in tech and finance.

    Ideally America’s economy should benefit from both Twitter and wildcatters. But increasingly Silicon Valley, led by Google, has chosen to wage an economic war on competing sectors, notably the fossil fuel industry,  including producers of relatively clean, abundant and cheap natural gas. By doing this they also threaten America’s nascent industrial renaissance, and particularly the country’s heartland. These jobs may not replace all those lost in past decades, but they tend to be higher paying and offer communities, particularly in the Midwest and Southeast, opportunities that few previously thought possible.

    Tech boosters like Moretti tend to claim that jobs created by social media and software firms are more solid, and permanent, than those in more traditional sectors. This is absurd. Tech employment has become, if anything, more unstable than energy. Indeed between 2000 and 2008, Valley tech companies lost well over 100,000 jobs; even with the current bubble, Silicon Valley’s STEM employment, according to estimates by Economic Modeling Specialists Inc., has only now started to make up for what was lost in the last recession.

    Of course, energy, as well as manufacturing, suffer through cycles, although the opening of the developing world economies has created a vast, and likely permanent, long-term market. New technologies, including fracking and horizontal drilling, also suggest that resources may not erode as quickly as in the past.

    Rather than celebrate or at least coexist with the tangible economy’s power, the tech oligarchs , along with their allies on Wall Street and within the political-media class, seem intent on stamping them out. One manifestation of this alliance could be seen in the recent pronunciamento against the Keystone Pipeline signed by three prominent oligarchs: Bay Area hedge fund manager Tom Steyer, retiring New York Mayor Michael Bloomberg and former Treasury Secretary Hank Paulson, the designer of the TARP bailouts and first rescuer of Wall Street’s worst miscreants.

    But for some, like the politically connected billionaire Steyer, there’s more to this more than just misguided idealism. Steyer and his allies, such as Google and associated venture firms, have sought to profit mightily by backing renewable energy ventures dependent on regulations mandating their use and guaranteeing high prices.

    The price of this enlightened progressive profit-taking largely falls on working class Californians, and traditional industries, which get stuck with exorbitant energy prices. We can see similar phenomena in New York State, where grandees now finance  much of the anti-fracking movement, joined by academics,  Manhattan glitterati and gentry landowners. In contrast to Pennsylvania and Ohio, where new energy development is sparking manufacturing and opportunities in formerly destitute communities, the anti-fracking band seems destined to keep upstaters the economic equivalent of fat, dumb and pregnant.

    Perhaps we should call the new concert of tech, media and finance “Billionaires for Poverty.” Their approach — backed by the new economists –  leaves most Americans only the prospect of a dim future envisioned, with people huddled together, like our grandparents in small apartments, working at low wages with little hope of advancement. Perhaps some will be satisfied with a higher minimum wage, more digital gadgetry, and an expanded welfare state in lieu of a middle-class existence.

    Instead of waging a senseless economic war that is sure to expand class divisions perhaps the best economic model would be to encourage growth of both the tangible and digital economies.  According to my colleague Mark Schill of the Praxis Strategy Group, the tech and energy sectors employ roughly the same number of people, 2.4 million, and pay around the same average wages, slightly above $100,000.

    Texas has benefited by going after both sectors, something  California as well as New York have disdained to do. Indeed even in tech, Texas is gaining ground, since 2001 adding tech jobs at a much faster pace than than California. The Lone Star state could, at the current rate, equal the Golden State in this critical field within a decade or two.

    But there’s no real competition in the energy sweepstakes. Since 2001 Texas has added some 208,000 jobs in this field, and now employs over 580,000. In contrast California, whose fossil fuel resources may match or even exceed Texas’, has created barely 20,000, for a total of 185,000. Critically, IT work generally employs only college graduates, while the energy industry employs, often at high wages, not only geologists and other highly trained workers but blue-collar workers on rigs, driving trucks, or monitoring equipment.

    Providing broad opportunities for the mass of Americans — not enriching the few, even if they happen to be hip and cool — should be the primary objective in an economy in a democracy. The supremacy of the emerging digital economy may be OK for people at Twitter or Facebook, but how many of the rest of us want our children to grow up with little chance of reaping much from the economy except an updated app that allows them to stay in touch with their largely unemployed or underemployed “friends.”

    This story originally appeared at 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.

    Midwest drilling rig photo by Bigstock.

  • Viewing McJobs From the Flip Side

    The headline read, “We Have Become a Nation of Hamburger Flippers: Dan Alpert Breaks Down the Jobs Report.” Seems that Alpert, the managing partner of New York investment bank Westwood Capital, LLC, was unhappy that most of the jobs created in July were for low-wage workers.

    Albert wasn’t alone. Plenty of people have been complaining that most of the recently-created jobs have been for low-wage workers. These people have apparently forgotten who it was that lost jobs in the Great Recession: It was low-wage workers. College educated people were hardly impacted at all, especially those that headed households and had several years of work experience.

    The recession hit less educated, and therefore low-wage, workers far more than it hit high-human-capital workers, and the discrepancy persists, even as analysts complain about hamburger-flipping jobs.

    The July unemployment rate for college graduates was only 3.8 percent, down from 3.9 percent the previous month. By contrast, the unemployment rate for people with less than a high school diploma was 11 percent in July, up from 10.7 percent in June, even though more than 270,000 of these workers left the workforce.

    The July unemployment rate for high school graduates without any years of college was unchanged from June at 7.6 percent, while unemployment for those with some college fell from 6.4 percent in June to 6.0 percent in July.

    So, even though we are hearing some complaints about the composition of new jobs, college educated people and people with some college were apparently better off at the end of July than they were at the beginning of the month. The less educated were not better off. Indeed, it looks as if many were worse off.

    The disparity is worse if you look at labor force participation rates. The rate for people with less than a high school education is only 45 percent. Over half don’t even try to find work.
    The labor force participation rate climbs as education increases. It’s 59 percent for high school graduates, 67.3 percent for people with some college, and 75.5 percent for college graduates.
    We need more hamburger-flipper jobs.

    With an unemployment rate of only 3.8 percent for college graduates, it seems that it would be difficult to fill many more of these jobs. Given the relative unemployment rates, it’s unavoidable that hamburger-flipper jobs will continue to dominate new job numbers.

    I calculated how many jobs it would take to create a three percent unemployment rate for everybody. We’d need 870,000 jobs for people with less than a high school education, 1,689,000 high-school-graduate jobs, 1,116,000 for people with some college, and only 417,000 college-graduate jobs.
    That’s assuming no change in labor force participation rates. The numbers gets a lot larger if you want to improve labor force participation rates.

    Suppose the target was a three percent unemployment rate, and labor force participation for everyone was at the 75.5 percent rate that it is for college graduates. In that scenario, we’d need to create 7,783,000 jobs for people without a high school diploma, 15,421,000 jobs for people with a high school diploma, 8,165,000 jobs for people with some college, and still only 417,000 jobs for college graduates.

    A lot has been made of the increasing income inequality in America. Part of it is due to higher wages for higher education. Another major reason is that the percentage of those who are working is smaller among lower-educated people, and bigger among those with more education. We could go a long ways toward reducing American’s inequality by putting more of our least advantaged people to work.
    I’d say we need a lot more hamburger flipping jobs, and I’m not about to complain because we are creating lots of them.

    Flickr photo by Jeremy Brooks

    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 article ran in the Orange County Register.

  • Exporting Metros

    If there’s one thing that people of pretty much every political persuasion agree on, it’s the need to boost exports. This is true not just at the national level, but also the local one. The balance of world population and economic growth is outside the United States. McKinsey estimates that there will be an additional one billion people added to the global “consuming class” by 2025.  An economy focused solely on a domestic American or North American market is missing a huge part of the addressable market, dooming it to slower growth.

    Exports have also long been seen as a key part of economic growth in the city. Jane Jacobs noted how cities develop import substitutes. That is, cities develop replacements for goods and services they formerly imported, and subsequently start exporting these to other places. So exporting, both to domestic and to foreign destinations, is critical for cities.

    The US Department of Commerce recently released foreign export totals by metropolitan area for 2012. The data series goes back as far as 2005. A number of metro regions are exporting power houses.  There are 31 metro areas that export more than $10 billion in goods and services every year.  Here is the top ten:

    Rank

    Metro Area

    2012

    1

    Houston-Sugar Land-Baytown, TX

    110,297,753,116

    2

    New York-Northern New Jersey-Long Island, NY-NJ-PA

    102,298,029,869

    3

    Los Angeles-Long Beach-Santa Ana, CA

    75,007,521,224

    4

    Detroit-Warren-Livonia, MI

    55,387,305,415

    5

    Seattle-Tacoma-Bellevue, WA

    50,301,690,645

    6

    Miami-Fort Lauderdale-Pompano Beach, FL

    47,858,713,857

    7

    Chicago-Joliet-Naperville, IL-IN-WI

    40,567,953,537

    8

    Dallas-Fort Worth-Arlington, TX

    27,820,946,540

    9

    San Jose-Sunnyvale-Santa Clara, CA

    26,687,656,696

    10

    Minneapolis-St. Paul-Bloomington, MN-WI

    25,155,739,576

    Table 1: Dollar Value of Exports, 2012

    Unsurprisingly, bigger cities have more exports, but it’s not a perfect correlation. Energy and chemicals intensive Houston ranks #1, and places like #5 Seattle (home to Boeing and Microsoft) and #6 Miami (the hub of Latin American trade) punch above their weight.

    But perhaps a better measure of the export intensity of an economy is exports per capita. Here’s a map of US metro areas for that metric:


    Map 1: Export dollar value per capita, 2012.

    Here are the top ten metros in America among those with a population greater than one million:

    Rank

    Metro Area

    2012

    1

    New Orleans-Metairie-Kenner, LA

    20209.1

    2

    Houston-Sugar Land-Baytown, TX

    17778.0

    3

    Seattle-Tacoma-Bellevue, WA

    14160.9

    4

    San Jose-Sunnyvale-Santa Clara, CA

    14087.7

    5

    Salt Lake City, UT

    13764.1

    6

    Detroit-Warren-Livonia, MI

    12904.6

    7

    Cincinnati-Middletown, OH-KY-IN

    9312.0

    8

    Portland-Vancouver-Hillsboro, OR-WA

    8881.9

    9

    Memphis, TN-MS-AR

    8522.5

    10

    Miami-Fort Lauderdale-Pompano Beach, FL

    8304.9

    Table 2: Top Ten Large Metros, Dollar Value of Exports Per Capita, 2012

    Here we see that some top exporters like Houston, Seattle, and Miami continue to rank well.  But some smaller metros crack the list like #1 New Orleans (another major petroleum center) and #7 Cincinnati (which has a major GE aircraft engine plant).

    And lastly, here’s a look at the growth in total exports from metro areas over the time period for which data is available:


    Map 2: Percent change in total exports, 2005-2012.

    There was extremely wide variability in the growth rates of exports among metro areas. Here is the top 10 for large metro areas:

    Rank

    Metro Area

    2005

    2012

    Percent
    Change

    1

    San Antonio-New Braunfels, TX

    2,346,954,123

    14,010,234,128

    496.95%

    2

    New Orleans-Metairie-Kenner, LA

    4,857,754,172

    24,359,505,265

    401.46%

    3

    Salt Lake City, UT

    3,912,555,433

    15,989,999,420

    308.68%

    4

    Houston-Sugar Land-Baytown, TX

    41,747,920,224

    110,297,753,116

    164.20%

    5

    Las Vegas-Paradise, NV

    716,805,170

    1,811,480,065

    152.72%

    6

    Birmingham-Hoover, AL

    796,241,450

    1,939,217,017

    143.55%

    7

    Washington-Arlington-Alexandria, DC-VA-MD-WV

    6,058,364,485

    14,609,712,467

    141.15%

    8

    Raleigh-Cary, NC

    974,832,168

    2,308,052,342

    136.76%

    9

    Miami-Fort Lauderdale-Pompano Beach, FL

    20,382,947,257

    47,858,713,857

    134.80%

    10

    Providence-New Bedford-Fall River, RI-MA

    2,667,670,867

    5,830,785,377

    118.57%

    Table 3: Large metro top ten, Percent change in total exports, 2005-2012.

    San Antonio is the champion, but Houston and New Orleans score well again.  A few unexpected metro areas like Birmingham and Providence, traditionally viewed as economic laggards, appear on the list though these are growing admittedly from small bases. What this does show is that even long struggling metros have a major opportunity to improve themselves through focusing on export growth.

    While there’s a general nod of approval in the direction of boosting exports, few urban strategies seem to focus on it. Rather, sexier items like subsidized real estate development is generally front and center. But given the positive results even struggling cities like Providence have seen with exports, this type of more basic economic blocking and tackling would seem to be a better place to focus.

    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.

    Great Lakes Freighter photo by BigStockPhoto.com.