Where technology and economics collide

Donald Trump’s election win, many speculated, must be due to geographic inequality and the increasing concentration of economic activity in a handful of big coastal cities. It was tough to escape the woeful tales of small-town and Rust Belt voters in the final months of 2016.

But as Jed Kolko, chief economist at Indeed.com, pointed out last September, the economy isn’t actually becoming more concentrated. Something much more insidious is happening. Economic opportunity is becoming more concentrated, but Americans’ ability to move to take advantage of that opportunity is declining. Consequently, the rising average incomes in big coastal cities are being offset by those cities’ declining share of the population.

Economic concentration is flat even as inequality rises

Kolko’s analysis shows that America’s metropolitan areas are becoming more unequal, with per capita income rising faster in a small number of already affluent metro areas. This accords with the basic intuition that the growth sectors of the American economy — high tech, finance, biomedical devices — are largely concentrated in a few large coastal areas, while the plethora of manufacturing centers that dotted much of the country decades ago have declined.

What’s interesting, however, is that this has not led aggregate economic activity to be more concentrated in those affluent cities.

How can New York get richer without growing its share of the overall national economy? The answer is that these same affluent metro areas contain a shrinking share of the country’s overall population. When Detroit was at the cutting edge of high-tech innovation, the city was also a boomtown. Between 1920 and 1940, Wayne County grew from 1.1 million people to just over 2 million. Santa Clara County, in the epicenter of Silicon Valley, has grown at a much slower pace — adding a bit under 300,000 people between 1990 and 2010. Brooklyn has added a similar number of people in the past 20 years, but the borough’s recent growth still leaves its population below the 1940 level.

The growth of Rust Belt industries was fueled by massive influxes of people — the Great Migration of African Americans from the South, most famously — who flocked to new factory towns in search of better-paying jobs. Today, instead of heading to the metro areas that offer the highest wages, Americans are generally moving to places like Atlanta, Dallas, and Nashville, where economic opportunities are mediocre at best.

Nobody goes there anymore; it’s too crowded

The reason for this is not too mysterious.

The price of a house — especially one in a neighborhood that’s considered to have good public schools — in the suburbs of Boston, Washington, or San Francisco is prohibitive. Young people of all kinds move to the central cities of the great coastal metropolises despite the rent squeezing, making do with roommates and cramped apartments. But middle-class grown-ups face vicious trade-offs between space, commuting time, and money.

If you happen to earn a good living with specialized skills in a locally dominant industry, the math generally works out. New York bankers and Silicon Valley engineers pay exorbitant housing costs but make commensurate salaries.

A mere dental hygienist, high school math teacher, chef, hairstylist, or physical therapist would also earn a higher average wage in the Seattle area than in the Sunbelt. But in most cases, the difference isn’t enough to compensate for the higher cost of living. The result is that Americans as a whole are “moving to stagnation,” voluntarily accepting lower pay in lower-productivity places in order to avoid the bite of housing costs.

We could fix this with more concentration

The problem in a literal sense is that high-wage coastal cities are adjacent to oceans and thus have fewer dimensions of freedom in which to sprawl without creating untenable commuting conditions.

America does, however, possess the technological capacity to construct large numbers of dwellings on relatively small parcels of land. It happens to be the case that across most of the land in America’s suburbs — and even in America’s central cities — it is illegal to construct the attached rowhouses and small-scale duplex and triplex apartments that historically provided the bulk of America’s cheap housing stock. And where rowhouse neighborhoods exist and have become inordinately expensive, it is almost universally illegal to knock them down and replace them with large apartment buildings.

Former industrial spaces are sometimes converted to residential use, but in the overall context of extremely constrained supply, those new units are invariably high-end luxury housing, and lead many local residents to make the false inference that new construction causes high housing prices.

America also possesses the technological capacity to build the new rail lines, bus lanes, and congestion pricing systems that would make it possible for more people to commute through a given space.

We have largely chosen, however, not to deploy any of these state-of-the-art housing or transportation technologies, preferring to rely on detached single-family homes and unpriced car commuting. That naturally leads the population to migrate to sprawl-friendly geography despite relatively low pay. But if the situation turned around and we allowed more people to move to the most affluent areas, we would find that even as geographic concentration increased, opportunity and prosperity would be more widespread.