Lessons from D.C. and Portland

Recent articles about Washington D.C. and Portland Oregon once again highlight the essential role that education attainment is playing in defining what places are doing best in post Great Recession America. You can find the D.C. story in a New York Times article by David Leonhardt. Portland’s story is told in a Matthew Yglesias’ article for Slate.

Leonhardt writes:

Washington may have the healthiest economy of any major metropolitan area in the country. The unemployment rate was 5.7 percent in June, compared with 9.3 percent in Chicago, 9.6 percent in New York and 10.3 percent in Los Angeles. The average housing price in the region is more than 10 percent above the 2009 nadir, while nationwide prices remain near a decade-long low.

… Some of the local prosperity, of course, is not worth celebrating. It stems from what economists call rent-seeking — tapping into the economic value created by someone else, rather than creating new value. …  Still, Washington’s good times are not all — or even mostly — about rent-seeking. The region has two legitimate economic lessons to offer the rest of the country.

The narrower of the two is a reminder that, for all its unpopularity, a Keynesian response to an economic crisis really can make a difference. The Washington area’s households and businesses have cut back in recent years, too, but their frugality has been offset by steady government spending. If anything, government has helped fill the void, with the District of Columbia’s having received more stimulus dollars per capita than any state, …

Washington’s second lesson is arguably even more important. If you wanted to imagine what the economy might look like if the country were much better educated, you can look at Washington. …  About 47 percent of the region’s adults have a bachelor’s degree, more than any other major metropolitan area in the country, according to the Census Bureau. In an economy ever more organized around knowledge, Washington’s employers — from biotechnology and Internet companies to retail and health care — have an easier time finding workers who fit their needs. Especially in bad times, employers can have more confidence they are hiring someone they will want to keep.

How do we know that education matters more than stimulus or rent-seeking? Other highly educated regions, like Boston and Minneapolis, join Washington near the bottom of the unemployment ranking and the top of the household-income ranking.

In many ways that metro Portland is on the list of places doing well in post Great Recession America is even more surprising. Portland has been a place where young talent has concentrated––largely for quality of place reasons––but with a relatively weak economy. No more! Those talent concentrations are now paying off. Yglesias writes:

But in relative terms, the turnaround is striking. National unemployment is still about two percentage points higher today than at its post-dot-com peak in 2003, while Portland’s unemployment is one point lower. What’s even more impressive is that while high unemployment is driving the national labor-force participation rate down, the Portland area’s participation rate is now growing. In the aggregate, Texas is where people have been moving to get jobs, but if you like overcast weather and independent coffee shops, greater Portland’s not a bad alternative.

… The truth is that local economies are buffeted by an awful lot of luck over the short term. … Relatively strong performance today is not so much a new thing as a return to form—Portland had a better-than-average economy in the 1990s, too. What’s coming through today are strong underlying fundamentals. Über-hip Portland and its supersquare opposite, Washington, D.C., are probably doing well for the same underlying reason. Portland has an above-average share of college graduates and a below-average unemployment rate. The D.C., Boston, and Minneapolis areas have even more college graduates and even stronger local labor markets.

That the slow, boring work of improving a local area’s educational attainment is the best path to prosperity is rarely what people want to hear—Portland Mayor Sam Adams, to his credit, has put a lot of emphasis on reducing the city’s dropout rate—but it’s what the data show. Different kinds of urban planning fads come and go, and different local industry mixes are sometimes beneficial at different times. But over the long term, cities are first and foremost made up of people. The cities with large numbers of skilled workers will either attract employers from outside or else lay the groundwork for homegrown success. (emphasis added) The unfortunate news for local officials in places that draw the short straw is that more economically dynamic cities will also tend to attract the most skilled workers. Even if you do a better job of educating your local population, that’s no guarantee they won’t just move elsewhere when they graduate.

There are important lessons that Michigan policy makers can and should learn from these two growing metros. Primarily that college attainment matters most in creating prosperous places in an American economy increasingly knowledge-based. The places where that economy is centered is big metropolitan areas anchored by vibrant central cities. So that economic growth priority one for the state is preparing, retaining and attracting talent.

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