What makes a competitive city in the 21st century? There is increasing evidence that some of the assumptions that surfaced in the last decade about the rise of the “creative class” and the golden age of cities might not have told the whole story when it comes to what kinds of urban environments will thrive in the emerging economy. For one thing, the largest urban metro areas are decreasing in population, a side-effect of rising housing prices. As the success of the United States’ largest cities drives up prices, smaller cities are emerging with a competitive advantage.
That analysis appears to be supported by a new study by Jed Kolko, Chief Economist at the Indeed Hiring Lab. Kolko wanted to know where salaries are the highest for American workers. The obvious answer would be places like New York and San Francisco. But those cities are also mighty expensive. So, what happens when you adjust those salaries based on cost of living? Kolko calculates adjusted salaries for U.S. metros by comparing Indeed’s job listing database of salaries with cost-of-living data from the U.S. Bureau of Economics, a metric that includes housing costs as well as costs of goods and services, including transportation. A new picture of urban success emerges.
The highest adjusted salaries in the United States are not in the regions that are home to Silicon Valley or Wall Street, but in smaller cities where the cost of living is relatively low. The Brownsville metro area, in fact, comes out on top in Kolko’s list of top adjusted salaries. Fort Smith, Arkansas is No. 2. Toledo, Laredo, Rockford, and Modesto are all top destinations for high adjusted salaries. In other words, the Rust Belt and the Rio Grande Valley—it’s not exactly a who’s who list of places experiencing the flowering urban renaissance.
When looking at only large metro areas, your salary will go furthest in places like Birmingham, Memphis, Cincinnati, and Louisville. Kolko zeros in on tech salaries and finds that the (relatively) best paid technology workers are not in Silicon Valley, but in Boston, Washington D.C., and Columbus. A tech job in San Antonio is a better gig than a tech job in Austin, according to this study, and adjusted salaries are lowest in precisely those super attractive places like Honolulu, Miami, New York, and suburban Connecticut.
Kolko’s study includes a plug-in that allows you to compare metros’ adjusted salaries. Stacking Dallas-Fort Worth up against some of the usual competitor metros shows that, despite recent escalations in housing prices, DFW is still relatively affordable except when compared against cities in the Deep South and, curiously, Boston:
DFW salaries are. . .
11.8 percent higher than the New York Metro
7.7 percent higher than the Los Angeles Metro
5 percent higher than the Seattle Metro
5.3 percent higher than the Denver Metro
2.4 percent higher than the Chicago Metro
2.4 percent higher than the San Jose Metro
1.2 percent higher than the Minneapolis-St. Paul Metro
0.3 percent lower than Phoenix Metro
1.9 percent lower than the Atlanta Metro
2.3 percent lower than the Boston Metro
4.3 percent lower than the Charlotte Metro
What is going on here? This new study seems to contradict an argument often made in this space that denser cities with better urban bones are more competitive in a new economy that thrives by attracting young, educated professionals for whom things like quality of life and connectivity are important factors in deciding what kind of place they want to live and invest in.
On CityLab, Richard Florida, who coined the concept of the “creative class” (before being forced to walk his enthusiasm back a bit to focus on what he now calls the “new urban crisis”) tries to parse the data. As Florida sees it, the data shows that America’s cities, like the larger economy, are undergoing a process of differentiation and specialization.
“The difference boils down to how different kinds and sizes of cities have come to specialize in different kinds of industries and occupations. Highly skilled, talent-driven industries and jobs concentrate in bigger places, while jobs and industries requiring less-skilled workers gravitate to smaller places.”
Put less generously: just as there is a huge income inequality gap in the United States, cities are also self-sorting into the haves and the have-nots, the affordable places and the places that are out of reach unless you have a high paying job (preferably in tech or finance). Considering this, one data point I would like to have seen included in this study is the availability of jobs. The relative affordability of Rust Belt cities may be a feature of a region where good jobs are hard to come by. Large metros may be less affordable, relatively speaking, but they are also the places where you can find jobs. Affordability may not equate with livability. People may not live in expensive cities because they are willing to endure a relatively lower adjusted income for the benefits of living in a major metro—they may seek out jobs in expensive cities because there are few options for finding jobs that pay well.
There is another way to read this data. Over time I could see this specialization trend expressing itself not only in terms of class and job category, but age as well. As cities become increasingly unaffordable, they will become bastions for the young. Professionals with families will flee to more affordable environs, and the old Jane Jacobs dream of a diversified neighborhood of many kinds of people, workers, families, and generations sharing a single community will become a receding dream. That is, unless public policy steps in to determine how to stabilize urban affordability—a tough task, particularly since, as Florida argues, much of what driving the new urban gap are large corporate interests:
“This in turn shapes the glaring inequality between highly paid tech workers and finance types and everyone else: This has come to be a defining feature of the new urban crisis.
“For Kolko, this can be explained in terms of the divergence between worker and corporate interests. As he frames it, even though workers, or at least most workers, are better off financially in smaller cities, companies are willing to pay significantly more for certain kinds of talent that is located in big cities. While workers and people care about the amount of the money they have left over to live on after paying for their housing, companies care about where they can find the talent they need.”
That sounds like a self-perpetuating cycle. As talent concentrates in large metros, increased jobs and wages offered by companies competing for that talent drives up demand for housing, and the cost of living rises. Rinse and repeat.
Eventually, some companies and workers may flee costly large metros for the relatively affordable metros, like DFW, that offer good job prospects. But how long before the cycle that has made San Francisco and New York increasingly unaffordable repeats itself in Dallas?