Unexpectedly Intriguing!
August 8, 2005

Given the importance of employment growth to the U.S. economy, and how seeking certain kinds of job growth affects public policy, the Federal Reserve Bank of St. Louis' Christopher H. Wheeler's recent study of Employment Growth in America: Exploring Where the Good Jobs Grow (available online as a 2.5MB PDF document) seeks to answer a very interesting question: "What kind of environment attracts better jobs?" To answer this question, Wheeler studied the growth of high-paying and low-paying jobs in a sample of 206 metropolitian areas in the U.S. for the twenty years covering 1980 through 2000.

Noting that "the growth of high-paying employment is also associated with lower rates of crime, higher property values and rising educational levels," Wheeler classifies these high-paying jobs as "good." Meanwhile, he notes that "low-paying employment or even employment in general tends to show a much weaker association with these outcomes," and therefore classifies these jobs as "bad."

Having noted Wheeler's distinction, here are his summarized results (emphasis mine):

  1. The growth of good jobs is strongly associated with the education level of the work force. Higher fractions of a city’s labor force possessing some postsecondary education, but particularly a bachelor’s degree or higher, correspond to significantly higher rates of good-job growth.

  2. Two measures of industrial composition display significant associations with rates of good-job growth: the share of total employment engaged in Finance, Insurance or Real Estate (FIRE) and the fraction of good jobs accounted for by manufacturing. Rates of good-job creation tend to be higher in metropolitan areas with a larger presence of FIRE, but lower in metropolitan areas with a larger fraction of good jobs in manufacturing.

  3. In recent decades, good-job growth has tended to be faster in markets with lower rates of union membership and low wage levels, suggesting that producers have flocked to labor markets with relatively low labor costs, broadly defined.

  4. There is some evidence that the presence of certain amenities — including bars, movie theaters, eating and drinking establishments, and live-performance venues - corresponds to faster rates of good-job growth, although the associations tend to be small. Similarly, cities with a large college or university community, quantified in terms of total employment in these institutions, also tend to display faster good-job growth. However, this association, too, tends to be small. The amenity that seems to be most important is a warm climate. Cities with higher average January and July temperatures grew faster between 1980 and 2000 than cities with colder climates.

  5. Employment growth does not show a strong association with some basic measures of local government finance and expenditure, including total tax revenues, property tax revenues per capita and per-resident expenditures for highways, education, public welfare and police protection.

Wheeler's study largely reinforces common sense. The growth of high-paying jobs tends to occur where more highly educated or highly skilled people live, where the cost of doing business is low, where people enjoy living (in warmth, apparently!) and where the cost of supporting government isn't burdensome. Surprisingly, Wheeler found the influence of the availability of entertainment options and universities to be small, at best, upon the growth of high-paying jobs.

Overall, it seems to be an easy lesson to learn. The question remains as to why so many civic leaders fail to do so - endlessly chasing new stadiums, light rail transit systems or other grandiose plans that never seem to deliver on their economic growth promises. Then again, perhaps that's why so many cities are failing....


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