We’re missing a crucial piece of the manufacturing story, again.

Headlines on the state of U.S. manufacturing are picking up again, which can only mean one thing: We must be approaching an election.

Automation. Trade agreements. China. Trump. Each provides a crucial storyline for the narrative in 2020. Well, maybe not that last one given the thorough debunking by Caroline Freund, Jonathan Rothwell, and others of the suggested link between manufacturing and the 2016 election results. But why let truth get in the way of a good story, as Twain put it. And, really, who wouldn’t want to hear from Twain about the state of affairs today.

Automation, trade policy, and foreign competition are all important aspects of the story, but there are others not getting their due. Of course, some lack of nuance in reporting should be forgiven. It can be difficult to get past the magnitude of top-line statistics that show the loss of about 2.5 million manufacturing jobs since 2002, according to data from Emsi, an Idaho-based labor market analytics firm. Details can get buried under the weight of that lede.

But look beneath those top-line statistics and an interesting story starts to emerge. One that Lawrence Mishel, Susan Houseman, and even people at the Congressional Research Service have tried to call attention to recently without much luck, at least not in the form of stories in the mainstream media. And that’s a shame because while it might not rise to the level of political fodder, this underappreciated aspect of the story could have far more important implications for labor market policy and the future of work in communities relying on manufacturing for a significant portion of local employment.

That missing piece of the story is the shift in payroll jobs from manufacturing companies to staffing firms. Yes, outsourcing has been a prominent feature of the narrative since at least the 1970s; it’s not a new storyline. But consider what’s happened during our record-setting period of economic growth since the last recession. The number of production workers on payrolls of manufacturing companies grew by less than 1% per year during 2009-2018. By contrast, the number of production workers employed by staffing or temporary help firms (NAICS 5613) increased by 72%. Put another way, we’re approaching the point where 1 out of every 12 production workers in the U.S. is now employed by a staffing firm, an increase of nearly 60% since 2009, according to my analysis of Emsi data.

That still pales in comparison to the 6.5 million production jobs at manufacturing firms, but outsourced labor is gaining ground. Manufacturing companies account for about 70% of all production jobs in the U.S. economy, but only an estimated 51% of net new production jobs created during 2009-2018. Staffing firms added 43% of those new jobs.

Mishel’s analysis does an excellent job of explaining another important aspect of this story: the wage gap. The median wage for production workers employed by manufacturing firms is about 35% higher than the median wage for production workers at staffing firms, which is just $26,690 annually, according to the Bureau of Labor Statistics (2018). Even at the 90th-percentile wage for the most skilled or experienced workers, the gap is still more than 30%. Mishel summarizes what a continuation of this trend could mean for how manufacturing is viewed through the lens of economic and workforce development policy:

“Contrary to some claims, there is a sizable manufacturing compensation premium…[but] there has been severe pressure on manufacturing firms to reduce pay and they have done so by reducing wages and by using staffing services firms as intermediaries. The result is that the compensation premium in manufacturing is substantially lower in recent years than it was in the 1980s. This suggests that those who advocate policies to expand manufacturing cannot take the pay premium for granted. Rather, they should create and promote policies to support compensation levels and the overall quality of jobs in manufacturing.”

Mishel is right, of course, but it’s a double-edged sword. On the one hand, the shift of jobs to staffing firms is eroding the wage premium. On the other hand, there is some evidence that suggests staffing firms may be keeping people out of long-term unemployment. During the decade of the 2000s in Michigan, for example, the manufacturing industry averaged about 44,000 employee separations per quarter, according to my analysis of Census data. Sixty-two percent of those separations resulted in persistent non-employment, defined as two or more quarters; 34% of those separated workers transitioned to other jobs. That ratio has since flipped. In 2017, 54% of manufacturing employee separations resulted in workers moving to other jobs and 43% resulted in persistent non-employment.

Lack of detailed industry data makes it difficult to say how many of those separations in Michigan resulted in workers transitioning from jobs at manufacturing companies to jobs at staffing firms, much less how many of those employees were production workers versus other types of occupations. But we do know based on averaging the most recent five years of available data, 2013-2017, that 23% of manufacturing employee separations in Michigan resulted in workers transitioning to jobs at companies classified in the parent industry for staffing and temporary help firms (NAICS 56 Administrative, Support, Waste Management and Remediation Services), up from an average of 18% in the early 2000s.

One thing is clear: We need more smart people in the weeds on this, focused on what this piece of the story means for workers and communities, especially in areas of the country specialized in, and therefore largely dependent on, manufacturing. On the policy front, what can we do to ensure that manufacturers have access to needed workers but at the same time protect temporary labor from further erosion of the wage premium and the uncertainty of contingent work? Can we strengthen the safety net in a way that boosts productivity for firms and positions temporary workers for higher-skill, higher-wage employment opportunities, assuming this trend will continue? What, if anything, are staffing firms doing to work together to address these challenges, particularly if they believe accelerating automation threatens their business model? Is our workforce development system prepared to respond?

Hopefully we won’t need to wait for the post-election explainers in 2021 for answers.

Data Releases

Brace yourself, San Francisco

San Francisco is approaching a milestone, and not everybody is going to be happy about it: Average wages in San Francisco are approaching parity with Silicon Valley.

Average weekly wages in San Francisco grew by double-digits for the third quarter in a row on a year-over-year (YoY) basis in 2019Q2, according to data released yesterday by the U.S. Bureau of Labor Statistics. The average weekly wage in San Francisco was $2,430 in Q2, up 15.5% (nominal) from a year earlier, which led all large counties by a mile (Seattle was next among counties with at least 500,000 jobs at 6.6%). In fact, San Francisco has now achieved that feat for two quarters in a row. It was the only large county to reach double-digit average weekly wage growth on a YoY basis in Q1 (10.2%); Hamilton/Cincinnati was next at 5.9%.

Wage growth in the Bay Area and Silicon Valley is hardly breaking news. We got the latest reminder just last week with the release of 2018 per capita income data. But yesterday was noteworthy because we could look back when we have more data available and realize that the first half of 2019 was the start of a new chapter in the story about economic geography in the Bay Area and Silicon Valley, one in which the center of gravity for higher earnings shifts from Santa Clara to San Francisco. Citylab followers and their favorite economists have speculated about that for some time. The evidence might be tilting in their favor.

The gap between the average weekly wage in Silicon Valley and San Francisco narrowed to about 7% in 2019Q2, a difference of less than $200. That’s the first time the wage gap in Q2 has been in the single-digits since at least 2001. Why is Q2 significant? It’s not surprising to see the average weekly wage in San Francisco approach or even slightly exceed the average weekly wage in Silicon Valley in Q1, or occasionally Q4, due to the timing of bonuses paid in finance. There are larger numbers of finance jobs in southern California given the size of those counties, but San Francisco has the most significant finance cluster on the West Coast (a jobs LQ of 1.44 and wages LQ of 1.59, for the economists). But the numbers quickly flip back in favor of Silicon Valley in Q2, Q3, and usually Q4. The last notable narrowing of the wage gap in spring or summer was in 2009, and before that in 2002–but not to single-digits.

To understand how quickly things have shifted in the Bay Area labor market, consider how San Francisco compares to New York, historically where you would find the nation’s most highly compensated workers, on average. San Francisco’s recent track record of ludicrous speed wage growth resulted in wage parity, at the average, with New York for the first time in 2016Q3. Less than three years later the gap was 15% in favor of San Francisco.

Will 2019Q3 be the turning point in the story when San Francisco surpasses Silicon Valley? We will find out on February 20.

Data Releases

Five observations on 2018 PCI data for counties

A few thoughts on today’s release of 2018 income data for counties:

1) Income growth in Silicon Valley and the Bay Area continued at a mind-boggling pace. Among large counties with 500,000 or more in population five of the top ten ranked by real (inflation-adjusted) per capita income growth in 2018 are in California, led by Santa Clara and San Mateo at 4.5%. A reference point to the U.S. can help make the point in a different way. Real per capita income (PCI) in the U.S. was up about 1.9% in 2018. Nine large counties experienced real PCI growth that was more than double the U.S. rate–five were in Silicon Valley or the Bay Area.

1.a.) Season 6 is amazing so far.

2) Tulsa ranked #1 among large counties. It was the only one to reach 5% in real PCI growth in 2018. In fact, most of the state of Oklahoma appears to be doing well, at least according to PCI growth as a measure of economic well-being. The state’s two large counties ranked in the top twelve nationally (OKC was 12th at 3.4%) and real PCI grew in every one of the state’s larger counties with 50,000 or more residents, led by Washington at 8.3%.

3) The number of very high-income counties is growing, and the geographic concentration of those counties is shifting. In 2010 there were only five counties with PCI of $100,000 or more (in 2018 dollars). None were in California. Marin was the only CA county in the top ten; Santa Clara ranked 42nd. The number of counties with PCI of $100,000 or more grew from five in 2010 to nineteen in 2018. Three of the top ten were in California; Santa Clara went from 42nd to 15th. We now have one county with PCI of $250,000+ (Teton, WY), and New York may become the first large county to reach $200,000 when 2019 data is out.

4) I made this point over at the Capital of Texas Media Foundation research blog, where I write about Austin, but it’s worth repeating here. The pace of per capita income growth in some communities since the end of the last recession is astonishing. Twenty-two counties have seen real per capita income growth of at least 50% since 2010. Most of those counties have relatively few residents and are found in energy-driven local economies–10 of the 22 are in Texas and have fewer than 20,000 residents–but several large counties are on or are approaching that list as well, including Santa Clara (52%), San Mateo (48%), and SF (47%). Places like Denver (40%), New York (39%), and Seattle (38%) are not far behind.

5) It’s interesting how closely Los Angeles and Chicago are tracking. In 2018 PCI was about $62,000 in Los Angeles and Cook County, and it also grew at about the same rate that year (2.3%). In fact, it’s been very close since 2010, about 23% in Los Angeles and 22% in Cook. Both counties also experienced slight declines in population in 2018.

Data Releases

Which county is the most charitable in Tennessee?

The latest round of charitable contribution statistics, as well as a wide range of other useful data generated from 2017 tax returns, are now available from the IRS Statistics of Income (SOI) program. This annual data set is extremely useful for academic purposes, including studies of income inequality, concentration of wealth, and tax incidence. But there are also important practical uses, especially for non-profits and others engaged in fundraising. Zip code data is available, which can be used to target areas where taxpaying households are reporting greater levels of charitable giving (data is also available for states, metro/micro areas, counties, and congressional districts).

Here’s a summary of charitable contributions for Tennessee’s largest counties:

Summary data can be calculated in several ways. Here I’ve ranked large counties (100,000+ in population) by the share of tax returns reporting deductions for charitable contributions. For example, 38.1% of taxpaying households in Williamson County reported deductions for charitable contributions in 2017, which is by far the highest rate among all counties in TN and more than twice the statewide rate (16.8%). That shouldn’t be too surprising given the median household income in Williamson County of $103,543, which is also, by far, highest among counties in the state (Wilson is second highest at $66,123). Charitable contributions, calculated as a share of tax returns (.85) or as a share of total income (.53), and household income are positively correlated, as you might expect.

Here’s a look at which counties of any size exceed the statewide rate (16.8%) of tax returns with charitable contributions:

I’ve bolded two smaller counties, Fayette and Loudon, that join many of the largest counties in the state on this list. Fayette County, in particular, stands out at 25.8%, the second highest share of taxpaying households reporting charitable contributions.

Same idea here, but ranked by charitable contributions as a share of total income:

Shelby County tops this list at 3.6%, compared to the statewide rate of 2.4%. In other words, deductions for charitable contributions reported by taxpaying households in Shelby County in 2017 were equivalent to 3.6% of total income reported.

Finally, statistics are also available by income bracket. Here’s a look at counties that exceed the statewide rate (75.5%) of returns reporting charitable contributions among households with $200,000 or more in total income reported:

Shelby County tops that list at 82.4%, slightly ahead of Williamson County. Shelby County also ranks highly on charitable contributions as a share of total income among $200,000+ households that exceed the statewide rate of 3.7%:

Of course, not all charitable contributions (or income) are reported on tax returns. Further, tax deductions do not adequately reflect all charitable activity performed by residents of a community. Significant contributions are made in non-monetary ways.

That said, which county is the most charitable in Tennessee, based on this newly published data for 2017? I’m giving the nod to Shelby County, but its highest-income households need to step it up a bit to catch Hamilton. My second overall goes to Williamson, but I’m curious about its absence from that last table on high-income giving.

Economic Development

Nashville: We need a common set of facts about equity and inclusive economic development

Equity is having a moment in Nashville. David Plazas is calling on business leaders to make a commitment to more inclusive growth and prosperity. Metro Council is passing symbolic resolutions. Mayor Cooper is promising a Nashville that works for everyone. How all of that goes from rhetoric to meaningful action remains to be seen, but declarative statements are a start. Two lines, in particular, caught my attention in Plazas’s piece:

“The prosperity of recent years has disproportionately benefited people with higher incomes, who own property, and who have technical or higher-level skills.”

“Meanwhile, wages have stagnated or fallen for long-term lower-skilled workers who have struggled to keep up, especially people of color.”

I’ve heard different versions of those points made many times since I arrived in Nashville two years ago. Anecdotal evidence abounds about where the benefits of “New Nashville” are accruing, and how growth is exacerbating the gaps between newcomers and existing residents, the “haves” and the “have nots.” But what does the data say? Are those claims accurate? And do they tell the entire story?

To be clear, I hope that Plazas and advocates continue to push our elected leaders to keep equity front and center of debate about economic development in Nashville. When Metro and its various stakeholder groups decide they are ready to have a serious policy, and not just tinker around the edges, I hope that equity will be its cornerstone. There are many good examples from other cities to draw from, including what we adopted in Austin.

But if and when that day comes we’ll need more than testimonials and anecdotal evidence. Clearly articulating goals, developing strategies, and evaluating progress will require data and a serious commitment to open dialogue, transparency, and accountability. As with any public endeavor, everybody gets a say; all experiences are valid. But Very Serious People should not go unchallenged publicly because of what I’ve heard described as “Nashville Nice” or some distorted view of defining “politics” as one’s inalienable right to dissemble when facts are readily accessible. This was part of our motivation behind launching the resident survey and publishing the data on Metro’s open data portal. I hope the Cooper administration and new Metro Council continue down that path.

So, in that spirit, let’s take a look at Plazas’s points. We’ll combine them here since they are somewhat related and restate the issue as follows: Are the benefits of Nashville’s economic growth disproportionately accruing to people equipped with the tools (i.e. education, skills, etc.) to take advantage of it? And, if so, is that exacerbating inequality? I can’t say for sure how Plazas would define or measure “benefit[ed],” but since he used terms such as income and skills it’s probably safe to assume that he was thinking, at least in part, about workers. Which means the question becomes: Have wages “stagnated or fallen” for workers with lower levels of educational attainment compared to those with higher levels?

Here’s a table showing growth in inflation-adjusted (real) average earnings for workers age 25+ in Davidson County by educational attainment and race/ethnicity for 2011-18. The data is from the Census Bureau’s Longitudinal Employer-Household Dynamics program.

Average earnings for workers in Davidson County with no postsecondary education grew faster than any other cohort during that time period. In fact, average earnings for workers with no high school diploma or GED grew about three times faster than average earnings for workers with a bachelor’s or advanced degree, according to Census estimates. Clearly, Nashville’s recent period of economic growth has produced gains for workers across the spectrum of education and skills, not just at the top of it.

But I don’t think that’s what Plazas was really trying to say. I think his point was directed more toward issues of equity and affordability–and, in that context, he’s absolutely right. Housing experts tell us that we should spend no more than 30% of earnings on housing costs to be considered affordable. Do that calculation using the 2018 figures in the table above and Plazas’s argument comes into focus. For example, average earnings for Black workers in Davidson County are equivalent to about $1,000 in total monthly affordable housing costs. The average rent in Nashville now exceeds $1,400 per month.

It’s the same story for Hispanic workers in Davidson County, as well as workers with no completed postsecondary education, on average. And the gaps are growing. Inflation-adjusted average rent in Nashville increased by 40% in 2011-18, compared to average earnings growth of only 5% for Black workers in Davidson County.

This is where the debate about inclusive economic development in Nashville, or any fast-growing city for that matter, should start. What combination of policies and strategies are going to effectively address these challenges resulting from economic success? In fact, we had a similar conversation in Austin this week with a group from Grand Rapids.

As any of my former students can attest, I feel very strongly–and very likely annoyingly so–about the importance of a call to action when developing a strategy. It’s an often overlooked feature in practice. But if you don’t have a compelling call to action it can be really difficult to get people engaged and participating in a serious way.

I’ll offer this for Plazas’s next one:

In 1998, when Nashville was a much different place, Black workers in Davidson County earned, on average, about 66% that of White workers. Today, despite twenty years of economic growth and opportunity, it’s 59%.