Economic Development

In Defense of Economic Development

Never let a crisis go to waste, apparently, when it comes to taking potshots at economic developers:

“One silver lining to our COVID-19 response is a forced re-evaluation of the value of our economic development dollars and the organizations they support.”

Michael Hicks, Time to rethink economic development spending

Count me in support of clear-eyed evaluation and improvement–we could all do with less of this nonsense for example–but a silver lining?

Before we indict an entire profession, let’s maybe back up a bit and start by examining its purpose: What is economic development?

I am approaching twenty years in this field and it’s a question I never get tired of debating. When I was teaching at UT-Austin I would open every semester with it, and it’s the icebreaker I use for most workshops, board retreats, community meetings, and other engagements for clients. Pro tip: Watch the clock when you go all philosophical with an icebreaker. People have strong feelings and like to hear themselves talk engage, especially if you have multiple self-anointed experts consultants in the room.

Economists have been arguing about it for a few centuries now, but it’s one of those rare questions that can anchor a colloquium, a happy hour at an IEDC conference, and a family argument during the holidays in equal measure. Most people, like Dr. Hicks, seem to have strong feelings about what economic development means and what we can, or should, do to influence it. Or whether we have any influence over it at all.

For practitioners, I think the debate is partially fueled by the fact that we lack a canon. That’s not a dig at certification. It’s just the reality that most economic developers I know entered the field by accident, really. Very few major in economic development in college (if you can find it), get an entry-level job at a city or a chamber of commerce, earn their CEcD designation, and away they go. Most of us back into the economic development field from a different career path, such as real estate, politics, local banking, or marketing. Maybe you served on the board of an economic development organization and were asked to step in temporarily during a staff vacancy and then never left. That’s not uncommon.

For me, it was a detour in the form of a cross-country adventure on the way to what I thought would be a career in research or academia. I moved from North Carolina to California after college for a one-year fellowship in a county economic development office, fully–okay, mostly–intending to return to UNC-Chapel Hill for a PhD. But I enjoyed it so much that one year turned into two years, a PhD in economics turned into a master’s in public affairs, and here I am, twenty years later.

Take a poll at your next economic development conference and you’ll see what I mean. Extra credit: See how many consultants you can get to admit that they still intend to get that PhD, someday. Start with the ones who list “coursework toward a PhD” on their bios–they are easy targets.

I can tell you exactly when my fate was sealed, though I didn’t know it at the time of course. In college, I was enamored with Marxist development theory and the historical figures who had argued about it most forcefully–riding the long wave with your everyday household names like Kondratiev, Trotsky, Mandel. To be clear, I was not the guy in the Che t-shirt annoying you in your econ class. That guy annoyed me too. I was a double-major in economics and history, writing about Faulkner’s struggle with the “duality of the Southern Thing,” as Patterson Hood would put it. I got interested in Russian literature in high school–have I mentioned yet I didn’t date much?–so when it was time to pick a focus for my econ degree, Marxism seemed like an interesting counterpart. Also, the math was easier.

But then I read Development as Freedom by Nobel Prize-winning economist Amartya Sen while I was studying under the wing of Sandy Darity and it shifted my attention from theory to the applied world. Sen’s compelling arguments for seeing economic development through the lens of human capital and outcomes measured in political participation, empowerment, and quality of life appealed to my sensibilities. I also admired his points about the interdisciplinary nature of true, lasting economic development, emphasizing that no single metric could tell a complete story about the state of an economy. No silver bullets, in research or in practice.

Sen wasn’t the first to make the argument, but for whatever reason that book resonated with me more than others, presenting a clear, accessible rationale for economic development with a moral compass. It made the connection to public service for me, which, I know now, is why I was drawn to development economics in the first place. Even after all these years, Development as Freedom is still my favorite academic treatment of modern economic development.

At the risk of speaking on behalf of a very large group of professionals, I also think it’s what binds us together. We don’t have a canon and we come to the field through different gates. But for the local economic developers I know it’s public service that keeps them in it, whether or not they want to admit it or call it that. I’ve heard a cynical jab at economic developers, saying we go into the field because we can’t hack it in the business world. I’m sure that bothers some people, but it shouldn’t. Economic developers I know have the experience and the skills to excel in the for-profit world, but they choose economic development because it offers something most private sector jobs can’t: an opportunity to focus exclusively on a bottom line that is measured in community improvements.

Do we need to continue advocating for smarter decisions about economic development incentives, or at the very least a cost-benefit analysis before a decision is made? You bet.

Are economic developers a bit melodramatic at times? No doubt.

“You’re either growing, or you’re Detroit.”

Source: At least one speaker at every economic development conference

Is there a lot more work to do over the next twenty years to justify public investment in “groups who add nothing to the national economy,” as Dr. Hicks put it? If you agree that economic development, by virtue of being funded by taxpayer money in most cases, is a public intervention into the market and therefore should target a market failure and have clear public benefits, then we have to confront where we are falling short, especially when it comes to achieving outcomes for existing residents.

To illustrate, consider the anemic growth in median household income in many of the fastest growing county economies over the last twenty years. Of the 250 largest counties ranked by population, here are the top twenty ranked by gross domestic product (GDP) growth:

Source: BEA (GDP), Census (MHI)

Austin’s economy–economic development’s sweetheart–has more than doubled in value since 2000 while median household income has increased by only two points, after adjusting for inflation. In more than half of those counties real incomes at the median have actually declined.

Same thing here except we’ll use jobs, the preferred metric for most state and local economic development organizations, instead of GDP:

Source: BEA (Emp), Census (MHI)

While my economic development friends in Texas might be proud of the clean sweep of the top five, it’s largely the same story. Further, very few fast-growing counties have closed earnings gaps, fueling displacement in communities with increasing housing costs. For example, average earnings for Black workers in Travis County (Austin) were 60% of White earnings in 2000. By 2019, the gap had only closed by three points. In Nashville, where I live now, that gap has widened by five points.

Increasingly, economic developers are shifting the conversation from the traditional focus on short-term measures–jobs, capital investment, tax base–to longer-term considerations of sustainability, equity, and human capital. Entrepreneurship, too. But the politicians and board members they report to will have to embrace a new way of thinking as well, or we will continue to provide fodder for critics of the field.

Many economic developers across the country are working tirelessly right now on behalf of local businesses and workers to figure out a way forward when we can safely reopen for business.

It’s wrong to denigrate them, especially now.


The Californians Are Coming, the Californians Are Coming

Receptions can be frosty in Portland, Seattle, and, increasingly, Austin, but nobody has absorbed transplants from California quite like Las Vegas and Reno.

One out of ten California residents moving to another state in 2011-2018 relocated to the Las Vegas or Reno areas–about 270,000 in all–according to my analysis of IRS migration data. Las Vegas and Reno combined for nearly three times the number of Californians moving to the Seattle area and more than four times the Austin area.

Here are the top twenty destination counties for people leaving California, ranked by the number of exemptions claimed on tax forms, which we can use to estimate the number of people, with the usual caveats:

Of course, many of the counties at the top of that list are heavily populated and we would expect to see large numbers of people moving to them from California and everywhere else. It’s interesting, but not too revealing, given places like Chicago and New York are on it. California license plates don’t stand out in Chicago like they do in Portland.

So, here’s another look comparing the number of people moving from California to the total residential population of the destination county, in effect, identifying places where transplants might be more conspicuous:

Several smaller counties are on this list–Mohave, Yuma, Onslow, Yavapai, etc.–which I assume must have something to do with snowbirds or retirees and military bases. However, many places are on both lists, such as Reno, Las Vegas, Boise, Austin, Honolulu, Portland, Seattle, and Phoenix. Prime destinations for Californians, nominally and relatively.

The influx of Californians to the Reno area is remarkable. The population of Washoe County is only about 472,000, much smaller than most of the other leading counties on the first list.

Data Releases

15 Markets Tech Recruiters Should Be Watching

Approximately 148,000 software developers were employed in the San Francisco-Silicon Valley corridor in 2019, according to new data from the Bureau of Labor Statistics, representing about one out of every ten software developers employed in the U.S.

The highest-earning developers in San Francisco and Silicon Valley are now commanding wages above $200,000 (top 10%), average home prices are north of $1 million, and average rents are well above $3,000 per month. As a result, companies have been expanding footprints in other markets and some key investors have turned their attention and their money to the “rise of the rest.” But where should they look?

As noted in our earlier look at musicians, the BLS data covers full-time and part-time employees; self-employment could increase these figures considerably. That said, of the thirty metro areas with 10,000 or more employed software developers in 2019, the greatest concentrations of jobs were found in the San Jose metro area, with a location quotient of 7.50, followed by other well-established tech hubs in Seattle (3.72), San Francisco (2.78), Raleigh (2.34), Washington DC (2.32), Austin (2.28), and Boston (2.06).

We are all familiar with those leading tech regions by now from reading the ubiquitous best-of lists. Still important to keep track of as regional analysts or chamber of commerce employees, but well covered ground. So, let’s play recruiter. Many recruiters have access to sophisticated data platforms (Indeed, Emsi, etc.) for “real-time” analytics on labor supply and demand conditions based on company job postings and candidate resumes, but publicly available data can yield valuable insight, too.

To demonstrate, let’s start by filtering the BLS data as follows:

  • 10,000 or more employed software developers (30 markets)
  • LQ of 1.10 or greater (i.e. 10%+ more concentrated than U.S.)

My thinking here is that most recruiters probably have a threshold for critical mass. Our threshold of 10,000 is likely too small (or considered too small) to draw attention from many larger tech firms or recruiting agencies, but let’s go with that to see if it reveals any smaller areas that are flying below the radar. Let’s also abide by the rules of economic clustering and assume that the knowledge spillovers in markets with greater concentrations provide workers with skill advantages. Again, our threshold of 10% is probably too low, but let’s be conservative.

Now, as for pay, most regional comparisons would look at differences in average or median wages to get an idea of the “typical” worker. But let’s assume our Silicon Valley-based client is scouting locations for a satellite office and wants to know what to expect in wage demands from the highest-earning developers in other markets.

So, one more filter:

  • The high end of the wage scale for developers (BLS publishes the 90th-percentile wage) must be at least 20% lower than the 90th-percentile wage for developers in Silicon Valley.

Applying those filters, here is the list that emerges:

Indianapolis, Tampa, and St. Louis are not far behind, each with more than 10,000 employed developers, but a LQ of less than 1.10.

Some of these smaller and/or overlooked markets for tech talent may be dominated by one or perhaps a few larger employers, but they are worthy of closer examination if you are in the market for developers.

Data Releases

Sorry, Austin: Nashville Is the Real Music Capital

We can quibble about the “live” portion of Austin’s moniker, but when it comes to the concentration of musicians, agents, and related industry jobs, there is no debating it: Nashville is the music capital of the U.S.

According to new data from the Bureau of Labor Statistics (BLS), approximately 1,800 musicians and singers, or about one out of twenty in the U.S., were employed in the Nashville metro area in 2019, ranking third nationally. More musicians and singers were employed in New York (6,700) and Los Angeles (3,500), as you might expect given the size of those markets. But the greatest concentration, relative to how many musicians and singers are employed nationally, is found in the Music City. Musicians and singers are six times more concentrated in Nashville compared to the U.S., a location quotient of 6.34, for the economists. It’s less than half that in New York and Los Angeles.

The BLS data compiled from payroll records includes full-time and part-time workers. Self-employed musicians and singers might increase the total in Nashville by thirty percent or more.

Here’s the same table for agents and business managers, although BLS does not release full data for Los Angeles, presumably the top market, for what must be a confidentiality issue (i.e. if one company accounts for too large a share of all employees in the occupation).

Complete list of occupations for Nashville is linked here. Austin is linked here.


Coronavirus: Here’s what declining airline revenues could mean for state economies

While we wait for news on a financial assistance deal for the airlines I decided to model what the latest estimate from IATA Economics and others–a roughly 20% revenue decline for the year–would look like for states and metros with significant concentrations of jobs and economic activity in the airline industry. As you might guess, it’s not pretty.

The Scheduled Passenger Air Transportation industry (just passengers, no freight, for this exercise) contributes $124 billion to U.S. GDP and employs nearly 450,000 workers, according to Emsi, a labor market analytics firm. Average earnings per worker ($113,000) are very high, which means these jobs are critical drivers of other jobs in the labor market (i.e. a large multiplier effect). That’s great for the purpose of economic development in good times but can be catastrophic when that industry hits a down cycle. Current times certainly qualify.

Using Emsi’s model of the national economy, an estimated 20% decline in sales would result in losses of about 96,000 jobs and $10.7 billion in earnings in the Scheduled Passenger Air Transportation industry. Total losses to the U.S. economy would be nearly 928,000 jobs, $58 billion in earnings, and $12 billion in federal, state, and local tax revenue.

Here’s how the estimated 20% sales decrease could impact states with significantly larger concentrations of jobs in the industry compared to the U.S. economy as a whole:

Approximately two-thirds of job losses in the industry would happen in those fourteen states.

Metropolitan areas with major hubs, such as Atlanta or Chicago, would absorb most of those employment and earnings losses, of course, and the impacts would be dramatic. Projected employment declines in the New York, Chicago, Dallas, and Atlanta metropolitan areas would top 30,000, each. State and local tax revenue decreases would range from about $257 million in the Atlanta metro area to $479 million in New York. Places like Miami, Denver, Seattle, Minneapolis, and Charlotte would also be hit hard.

There are apparently several scenarios being discussed right now in terms of a rescue strategy for the airlines, and I’m sure the industry experts will continue to adjust their forecasts as new information is available. I’ll update this post as I see new estimates released. Also, please get in touch if you would like results (or other scenarios) for states or metropolitan areas I did not mention here.