Manhattan Institute

The Tech Economy’s Untold Story

Job growth is shifting from media-favored “superstar” cities to more sprawling metro regions and the suburban periphery.

The decisions by Amazon and Google to expand into the New York area have led some pundits to claim that the nation’s high-tech economic future will be shaped in dense urban areas. “Big cities won Amazon and everything else,” proclaimed Neil Irwin of the New York Times. “We’re living in a world where a small number of superstar companies choose to locate in a handful of superstar cities where they have the best chance of recruiting superstar employees.” Yet the trends in job creation, particularly in technology, are not nearly as favorable to the “superstars” as some urbanists imagine. If one looks at data, not press releases, a more nuanced picture emerges, with much of the fastest growth—including in tech—shifting dramatically not to the elite, dense urban centers but to more sprawling regions and the suburban periphery.

As Ali Modarres, Director of Urban Studies at the University of Washington at Tacoma suggests, not all tech jobs are created equal. “Second wave” tech firms like Amazon tend to be short-term employers, where young workers earn their spurs before heading elsewhere. Of course, Amazon also has its warehouses, mostly in the exurbs, where workers labor in often Dickensian conditions, while Apple builds virtually everything in grim Chinese factories plagued by on-the-job suicides. Such practices contrast with those of more traditional tech firms—those involved with semiconductors, computers, network equipment, and aerospace—which rely on long-term employees. These firms, Modarres suggests, thus have different priorities when it comes to siting and corporate planning.

Second-wave workers, particularly coders and those involved in media-centric work, for example at Google, may prefer an urban location. “The new economy, epitomized by Amazon, neither requires nor offers loyalty to its employees,” Modarres notes. “They need the largely youthful ‘creative class’ to give a few stressful years of their lives to innovate, pad their CVs and leave for the next job, hopefully in less expensive places. They work hard, live fast, and burn out in a few years, ending up often in more suburban and other less-costly areas.” These urban habitués are usually short-timers. Demographer Wendell Cox, looking at the nation’s 53 largest metros, found that residents in their urban cores remained there, on average, for just 2.4 years, while suburban and exurban residents stay seven to eight years. The second-wave model is ideal for the young and restless but not for those entering middle age.

Companies that make and sell an actual physical product or service, such as Intel, tend to locate in the suburban periphery, or in more affordable metros. Apple already has more than 6,000 employees in Austin—roughly half the number projected to work at the company’s new spaceship headquarters in Cupertino—which includes its hardware-engineering division. The kind of talent that is often cited as a reason to locate in core cites varies as well. While no location competes with Silicon Valley when it comes to engineers per capita, some of the largest centers for technical professionals include Houston, Bakersfield, and Dayton, as well as Boston and San Diego. Overall, most so-called superstar cities have fewer engineers; Los Angeles is barely at the national average, and New York ranks below.

Different imperatives are at work if you’re looking for engineers as opposed to coders. Engineers tend to be long-term employees who seek to buy houses and raise families; they want to move to affordable locales. Engineering-oriented companies have thus been leaving expensive urban centers like New York, Los Angeles, and San Francisco. Amid the recent tech boom, California has seen the departures of such legacy firms as Bechtel, Jacobs Engineering, Occidental Petroleum, Toyota, and Nissan. Most recently, McKesson, a pharmaceutical distributor with the sixth-highest revenues on the Fortune 500 and a mainstay of downtown San Francisco, decamped to suburban Dallas.

These patterns are already having an effect on the tech sector, which remains more robust in Silicon Valley than in San Francisco, where computer and math-related employment growth has plummeted from third nationally, between 2010 and 2016, to 25th today. In 2017, Orlando and other rising Sun Belt upstarts, including Las Vegas and Atlanta, paced the big gainers for such jobs. Perhaps more surprising, Midwest cities like Cleveland and Kansas City are growing up to twice as fast as the national average in this critical field, and far faster than self-described “tech hubs” like Washington, Los Angeles, Boston, or San Diego. New York presents itself as a major node of the tech universe, yet its computer-related jobs growth was only 0.8 percent in 2017—40th out of 53 metros. New York’s appeal is less for manufacturing innovators than for “softer” segments of the information economy like media, entertainment, and advertising, which is why media-centric firms like Google locate there.

According to data from the EMSI consultancy, this movement away from superstar cities toward more affordable locales like Houston, Dallas, Jacksonville, Orlando, and Nashville is happening in other industries, too, such as finance and business services. Cost of living is a huge factor. Wages may be higher in superstar cities, but when you figure in the costs, not even including taxes, incomes in Nashville, Minneapolis, Detroit, Columbus, and Houston are higher than in Seattle, let alone in New York, Los Angeles, and San Francisco.

Simply put, the geography of jobs, even high-paying ones, may be shifting, but not entirely in the ways that the mainstream narrative suggests. Overall job growth in the big urban centers—outside of Seattle, Amazon’s home base— generally has slowed. New York, Los Angeles, and San Francisco last year enjoyed job growth of barely 1 percent—50 percent below Sunbelt cities like Nashville, Orlando, Dallas, and Houston.

“The new information peddling economy,” notes Modarres, “creates nomadic labor pools, who have to embrace placeless-ness to survive. They move where their skills take them.” These itinerant workers may not earn enough to settle permanently in an elite urban core. Urban-core residents, Cox notes, are only a third as likely as their suburban counterparts to have children.

As millennials age, followed by a smaller succeeding generation, the potential pool of nomads may shrink. Since 2010, notes Cox, Indianapolis, Des Moines, Kansas City, and Columbus have all enjoyed higher rates of millennial population growth than New York, Chicago, Boston, San Jose, San Francisco, or Los Angeles. These millennials, many now in their thirties, are increasingly looking for affordable, family-friendly environments.

Increasingly, then, the job market embodies two basic models: one based on middle-class, middle-income jobs, and another that lives off youthful energy and produces both high-end and lower-end employment. The media celebrate superstar-city economies but ignore how the vast majority of new employment occurs in lower-cost cities and suburbs, which now generate roughly 80 percent all jobs and most population growth. Suburbs also are seeing a strong influx of the educated, those earning over $75,000, and those between the ages of 30 and 44.

This makes elite cities more dependent on their “sex appeal” for a relatively narrow, if influential, sliver of well-educated, younger, and childless workers. In retrospect, less glamorous cities that bid on Amazon’s HQ2, like Indianapolis or Columbus, probably never had a chance, given Jeff Bezos’s commitment to the nomadic model. They may well be justified in thinking that they were “swindled”—or, as the Los Angeles Times put it, “played for suckers” to force the eventual winners to offer richer incentive packages. Each New York Amazon job will cost city taxpayers nearly $50,000.

Some “sucker” cities, though, could wind up as long-term winners. New Yorkers may find out that subsidizing Amazon has its downsides, as it has in Seattle, exacerbating high costs and, due to the nature of the employment, doing little to stem the flight of the middle class. This dynamic may be inevitable for urban superstars anyway, but other cities may not want to assume the super-high prices, congestion, “woke” politics, and massive inequality that attend the arrival of thousands of temporary, temperamental, young creative types working on the more glamourous—but also more fleeting—side of the innovation economy.

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