Regions, Neighborhoods, and Where the Economy Happens - Wednesday Wrapup, Feb. 3, 2021

Right-sizing job creation investments; why talent, more than location, drives corporate decision-making; and some links on the minimum-wage debate and working from home.

Busy week so this will be a short one.

A couple of wonky white papers caught my eye this week. Bear with me as I break them down.

Both of them deal with our way of looking at the world.

1. How Regions and Neighborhoods Reflect Economic Reality

The first is from Tim Bartik at the Upjohn Institute for Employment Research. Bartik is a top researcher in regional economic development, incentives, and local and regional talent development. His newly released white paper on “Long-Run Effects of Local Demand Shocks on Employment Rates,” makes the case for targeting job creation incentives at “distressed” regions, noting that for every 10 new jobs created, an average of 3 would go to local unemployed residents in distressed regions, compared to 2 in non-distressed regions.

While it is a secondary part of the analysis, the paper’s focus on “regions” vs. cities or counties is a crucial part of the recommendation. Political boundaries like cities and counties don’t capture how people really live and work. They are either too large (people live in neighborhoods); or too small (people work in regional labor markets that don’t account for city and county lines).

Job creation subsidies focused at the city or county level are narrowly targeted. People are willing to travel for good-paying work and often have little concept of county lines when going about their daily lives. Even if suburban jobs are taken by city residents (or vice versa), those jobs may be backfilled with workers living within the city limits. White collar professionals are always adept at property tax arbitrage, working with municipal tax codes to find the biggest house for the lowest annual bill.

At the same time, distressed neighborhoods can exist within prosperous regions. So, blanket proposals that ignore pockets of poverty among prosperity are too broadly targeted. Infrastructure, transit, and training programs targeted at the neighborhood-level combined with geographically agnostic job creation programs at the “commuting zone” level can work in tandem.

The challenge here is political decisions are made at the city and county level.

2. What Drives the Economy - Industries or Talent?

Similar to the definitional issues of region, county, and neighborhood, there’s also confusion around how businesses and people generate economic activity.

Traditionally, economists focused on businesses. What businesses produced was the most important part of regional economics. A region’s industry cluster (textiles, international finance, automotive production) became that region’s destiny. Competitive advantages in industries built on themselves. It was costly to move operations, and costs increased as businesses got bigger. Where they started tended to be where they stayed.

As the business world becomes more flexible, though, the fixed investments of offices and factories are less relevant. This is especially true in the technology space. Software development skills, for example, apply to many different business problems across sectors. A financial institution and retail chain might have similar needs for designing a user interface for an e-commerce platform.

People, not businesses, possess skills. And, as the vast work-from-home experiment of the past year shows, people are much more mobile.

Economic development experts have known this intuitively for some time. Campaigns focused on “talent attraction” are becoming more popular. An international group of economists from Oxford, Sherbrooke and Boulder, Colorado, published a working paper last month that provides some statistical backing to this talent-centric idea. They find that “functions” or clusters of skilled occupations provide greater regional productivity gains than industry clusters over the previous 30 years. This is because “the costs of geographic fragmentation” have fallen.

It’s time to update our thinking. Regions will compete for talent now, and not just corporate headquarters.

3. Link Drop

“Young and Ambitious? Move to New York, Not Austin” Bloomberg Opinion

Conor Sen makes a case for recent grads to take advantage of the lowered rents in New York City and the office environments they provide. Young career professionals, especially, need the networking opportunities that only an office can provide, Sen argues. He speculates that Miami and Austin may become hubs for remote work, while office activity remains in the bigger cities. If this is the case, he has a point. While mid-career professionals might enjoy the flexibility of remote work, they can also draw on a decade of relationships formed in coffee meetings and hallway conversations, which is difficult to replicate on Zoom.

“The Great Minimum Wage Debate,” CityLab

Urbanist Richard Florida writes about the push for a national $15/hour minimum wage. I wrote in a previous post about the research on minimum wage and its effects on job losses. Minimum wage increases have little or no effect on job losses - up to about 60% of the median wage. This article breaks down some of the regions where the new $15/hr wage would fall in terms of median wages.