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Is Economic Growth Becoming Less Concentrated ?

By / 8.3.2017

It’s been well-documented that economic dynamism for many years has been concentrated geographically–in a few tech hubs like SF and NY, in the largest urban areas where young people flock, in coastal states. This geographical concentration appears to have been a major force underlying the 2016 election, where areas left behind by economic prosperity were willing to vote for Donald Trump.

However, the latest release from the BLS shows that nonfarm payroll employment increased over the year in 342 out of 388 metropolitan areas over the last year, suggesting economic gains are spreading across the country. Moreover, Amazon and other ecommerce leaders seem to be creating hundreds of thousands of jobs in outlying areas with cheaper real estate and good access to roads.

So we did a deep dive into the numbers. Using QCEW from 2007 to 2016, we compared the economic performance of big metro areas (employment over a million) with the rest of the country. Our measures were growth of private sector jobs and establishments. A new establishment reflects either a new business opening up, or an existing business expanding.

From 2007 to 2015, the big metro areas far outperformed the rest of the country. Indeed, the rest of the country  experienced shrinkage in both jobs and establishments.  Economic growth was very concentrated.

 

 

 

But 2016 was different. In 2016, the rest of the country actually created establishments faster than the big metro areas, reflecting growth of new businesses and expansions of existing businesses.  This is great news. The big metro areas still did somewhat better when it came to job growth, but the gap has narrowed enormously.

We get the similar results when we look at large and small counties (with 400K employment as the dividing line), or major tech hubs versus the rest of the country.

These results suggest that the economic pendulum may be starting to swing back, away from the biggest cities towards more evenly balanced growth, with some very interesting policy and political implications. More to come.