Data: Asset Relativity (and the Case of Bay Area Housing)

“…“If you take the U.S. as a whole,” says Edward Glaeser, chairman of Harvard’s economics department, office attendance is “down about 19%, relative to pre-pandemic levels.”That average masks some startling variations among major cities. While Houston sits squarely on the mean at 19% and Los Angeles is “looking pretty good” at 21%, New York and Boston are both down 32%. “And then you go to San Francisco,” Mr. Glaeser says with an almost unseemly gusto. “San Francisco is still down 52%. The tech hub is the most extreme.” The impact of virtual work was very different “at different parts of the education distribution,” Mr. Glaeser points out—and that may exacerbate economic and social inequality. He cites data from the Bureau of Labor Statistics: The share of people with advanced degrees who were working remotely in May 2020 was 68.9%, compared with only 15% of remote-working high-school graduates and 5.2% of high-school dropouts. “This was a fairly elite phenomenon.”…”

Tunku Varadarajan, "Can America’s Cities Make a Post-Pandemic Comeback?"Wall Street Journal, May 27, 2022, https://www.wsj.com/articles/big-cities-will-suffer-if-workers-stay-home-remote-labor-young-old-finance-college-11653664888

Can America’s Cities Make a Post-Pandemic Comeback?

Before Covid came to America in January 2020, only 5% of the U.S. labor force worked remotely all the time. Within a few months of the pandemic setting in, however, nearly every American who could work from home was doing so. Today remote work is a white-collar norm.

“If you take the U.S. as a whole,” says Edward Glaeser, chairman of Harvard’s economics department, office attendance is “down about 19%, relative to pre-pandemic levels.” That average masks some startling variations among major cities. While Houston sits squarely on the mean at 19% and Los Angeles is “looking pretty good” at 21%, New York and Boston are both down 32%.

“And then you go to San Francisco,” Mr. Glaeser says with an almost unseemly gusto. “San Francisco is still down 52%. The tech hub is the most extreme.”

These figures are based on data drawn from Google Maps, which tracks users’ comings and goings by monitoring the location of their phones. “They’re pretty good, a reliable indicator,” he says. But numbers from Kastle Systems, a Falls Church, Va., property-management company that provides swipe technology for clocking into fancy office buildings, are disconcerting. “Those numbers are down by over 50%” in America’s top 10 cities, Mr. Glaeser says. “They’re telling you that in the highest end of the commercial real-estate market, the picture is more severe.”

Mr. Glaeser has mixed feelings about the long-term effects of all this. The perspective of the economist “tends to be one that favors choice, rather than thinking there’s only one way to live or work,” he says. “For many workers, some form of hybrid will be desirable.” Some, perhaps those in the later stages of their careers, may settle only for going fully remote. He doesn’t think it’s “absolutely necessary” that every employee get back into an office. “But I will say that it’s going to be very difficult for cities if it doesn’t happen.”

Mr. Glaeser, 55, is arguably the foremost economist who studies cities. It’s a growing tribe, he says in a Zoom interview from his office on the Harvard campus, to which, he’s keen to stress, he’s been going in person since August 2021. The “hallmarks” of the urban economic models he studies involve space—“recognizing that people and firms make choices about where to locate.” Zoom and hybrid work may be here to stay, he allows. “But for most of us the most important interactions of our lives will occur in the real world and, consequently, location remains absolutely critical.”

The way Mr. Glaeser tells it, cities are among mankind’s finest creations—engines of entrepreneurship, inventiveness and economic growth. His intellectual inspiration as an urban economist is Alfred Marshall (1842-1924), who formulated the hypothesis that Mr. Glaeser says has been central to his own career. “Great are the advantages,” Marshall observed of cities, “which people following the same skilled trade get from near neighborhood to one another. The mysteries of the trade become no mystery but are, as it were, in the air.”

That explains why young people are drawn to cities—and why, in Mr. Glaeser’s view, in-person work is vital in the early stages of a career. Cities—and face-to-face contact at work—have “this essential learning component that is valuable and crucial for workers who are young,” he says. The acquisition of experience and improvement in productivity, “month by month, year by year,” ensures that individual earnings are higher in cities than elsewhere.

Mr. Glaeser commends a “superb paper,” published in the Review of Economic Studies in 2017, that documents how people learn by working in big cities. The authors show that workers in Madrid earn 55% more than those in rural Spain. “These wage benefits don’t appear magically when workers come to Madrid or Barcelona,” Mr. Glaeser says. “Instead, a new worker in the big city earns only about 10% more than a worker in a mid-sized city.” After 10 years, that earnings gap grows to 35%.

“The sort of young people who don’t want to come back to the office,” he says, “don’t really know what they’ve missed.” They think that the experience of “working from a Starbucks is all there is, and that they’re having just as much career development as they would have if they were surrounded by mentors.” They aren’t. He cites a study that finds remote workers face “a 50% reduction in their probability of being promoted.”

Mr. Glaeser describes the pandemic as a direct and withering assault on cities. “If you take the definition of urbanism,” he says, “a city is the absence of physical space between people. A city is density, proximity, closeness.” Social distancing amounted to “the rapid-fire deurbanization of the world.” Americans went from willingly paying a “hefty premium, whether we were an advertising company on Madison Avenue or an ordinary 22-year-old who just wanted to be in New York, to all of a sudden wanting to have no one around us whatsoever.”

The world did connect virtually, “which essentially changed the rules of the game.” However exhausting we find Zoom and other technologies, we’d have incurred greater economic or health damage without them: “We would have either gone ahead and not social-distanced, in which case we would have had more deaths, or we would have lost more economically—lost more from our productivity.”

The impact of virtual work was very different “at different parts of the education distribution,” Mr. Glaeser points out—and that may exacerbate economic and social inequality. He cites data from the Bureau of Labor Statistics: The share of people with advanced degrees who were working remotely in May 2020 was 68.9%, compared with only 15% of remote-working high-school graduates and 5.2% of high-school dropouts. “This was a fairly elite phenomenon.”

But now that the threat from Covid has abated, will employees go back to work in their city offices? Those who ask the question range beyond employers who yearn to have them back, and include everyone from city mayors to the humblest vendors of coffee and hot dogs who ply their trade on urban sidewalks.

Service workers in the retail, leisure and hospitality sectors accounted for 32 million American workers in 2019—or a fifth of the American labor force. They may be hit particularly hard. “Those workers thrive by providing services to people that come to big offices,” Mr. Glaeser says. He had believed that the pandemic would be “absolutely catastrophic” for them. “As it turns out, any decrease in labor demand was shielded by the trillions of dollars that flowed out in federal largess.” As that money dries up, the effect is likely to be acute.

There’s an irony in all this. “There tends to be a very strong correlation with political beliefs,” he says. “The difference in mobility—people moving around—was very clear early on between red and blue. There was much more Covid fear in blue states, where there were also more knowledge workers.” Although liberals also profess concern about economic inequality, the effects of remote work are “probably more problematic for upward mobility in blue states than red states,” he says. “The well-heeled in San Francisco not going to the office is bad for demand for urban services, which are provided by less-well-educated San Franciscans.”

How would Mr. Glaeser make the case for a nationwide return to the workplace? “If I were making it to Mayor Adams of New York or Mayor Wu of Boston, it would be pretty easy.” The job would be one of civic and moral “suasion,” as well as talking up the vital importance of cities. “The city depends upon being a thriving place, where people buy and sell to each other, and interact with each other. It’s terrible for a city that many of its key urban office markets feel like wastelands during the daytime.”

Cities, Mr. Glaeser says, must recognize their “traditional function of providing economic opportunity, even more so helping poor people become middle-income people.” He’d recommend making it as easy as possible for businesses to reopen and offering “permit holidays” for new businesses in currently dormant downtown areas. Most of all, he’d like America’s urban mayors to tackle crime, which increased alarmingly during the pandemic. Homicides in 2021, he points out, were up 44% “in major American cities” compared with 2019.

He would be “more circumspect” in making the case to a business owner. “I would say, ‘I understand that a lot of your employees don’t like coming in, so let’s look at some data.’” He points to an article in Nature that examines the impact on more than 61,000 Microsoft employees of working remotely over the first six months of 2020. “Firm-wide remote work,” the study found, “caused the collaboration network of workers to become more static and siloed, with fewer bridges between disparate parts.” Employees found it much harder to acquire and share information. Mr. Glaeser would counsel employers to ask themselves whether they were “causing long-term problems for the company by not bringing people together into the office.”

Which raises another question: “Can they get their workers to come back? Certainly. They can use their wage power to get anyone to come back.” There’s a price at which “almost all of us will come into the office—the question is, just how much?” But there has, he says, been a great “clarifying” that has led us to think about “the nature of work, and the nature of offices.” And he thinks the pace and incidence of return will differ by the task an employee performs.

He cites the example of his own workplace. “I consider it incredibly important to have a community of scholars in this building,” he says, “one that is there and available for our graduate students, that runs into each other in the halls and is a living, breathing community.” By contrast, he doesn’t think the support staff “who work on our financials” need to be in the building. “They need a little bit of time to onboard, and then it’s really OK for them to go home.”

Remote connection has been calamitous for education, Mr. Glaeser says: “The unmitigated disaster that remote learning has been for American children—and children throughout the world—has been confirmed in study after study, and particularly for the most disadvantaged kids.” College instruction has suffered too. Delivering a lecture to 100 students on Zoom, he says, is “just a bad movie, a really bad movie. None of the magic that comes from live lecturing and live interaction with students is there when you’re doing it via Zoom.”

As for individual employees, Mr. Glaeser would tell them that his own return to his Harvard office nine months ago was “just fantastic for my mental health”: “I have been a much happier person for being around young people again, for being around my colleagues. And that has been not only productive but also joyful.”

Nor will further urbanization ride to the rescue here. Officially, China has only a 64.7% urbanization rate, compared to over 80% in the U.S. You might think, therefore, that China has plenty of room to move people from farms to cities. But in fact, this is purely an artifact of how China defines urban population. In China, only people who live in cities with populations of larger than 100,000 are considered “urban”. In the U.S., that number is just 2500. So lots of China’s “rural” population isn’t even close to what Americans would consider “rural”. In fact, when economists try to estimate China’s “Lewis Turning Point” — the point where a country no longer has surplus agricultural population to shift into urban manufacturing industries — they agree that China either reached it a while ago, or is reaching it right about now.China’s productivity slowed down at a much lower income level than other East Asian countriesNow, as the experience of Taiwan, Korea, and Singapore show, it’s possible to dip and then recover, at least somewhat. But China’s productivity growth slowed so much earlier than that of its regional peers that even a modest re-acceleration would leave it significantly behind. In other words, just because China has “room” to catch up with the rich countries doesn’t mean it will.

Noah Smith, "Does China have hidden reservoirs of growth potential?,"Noahpinion, May 5, 2022, https://noahpinion.substack.com/p/does-china-have-hidden-reservoirs

Does China have hidden reservoirs of growth potential?

Within the last year, I’ve noticed a distinct souring on the topic of China’s growth prospects among the commentariat. This makes sense, of course. Between seemingly never-ending Covid lockdowns, a protracted crash in the vast real estate sector, Xi’s weird crackdown on internet companies, and the fear of Russia-like sanctions in the event of a conflict, there are now a lot more reasons to worry that China’s amazing catch-up growth story is drawing to an end. In fact, these new stumbles come on the heels of longer-term trends that have relentlessly pushed down China’s growth prospects — slowing productivity growth, reduced opportunities for copying Western technology, and rapidly aging demographics.

This is obviously an important question for multinational companies who are thinking about curbing or even abandoning their investments in China:

China witnessed $17.5 billion worth of portfolio outflows last month, an all-time high, according to most recent data from the Institute of International Finance (IIF). The US-based trade association called this capital flight by overseas investors "unprecedented," especially as there were no similar outflows from other emerging markets during this period. The outflows included $11.2 billion in bonds, while the rest were equities.

With so many reasons to leave, why stay? The answer is: Sheer market size. The most important reason to be invested in China switched long ago from cheap labor costs to market access. Even if the Chinese government takes various steps to limit foreign companies’ market access and support home-grown competitors, even a tiny sliver of a billion consumers equals vast riches. So obviously, the question of whether the Chinese market will continue to grow is an important factor for investors.

Despite the darkening outlook on the China growth question, pockets of optimism remain. Some of these come from the people I call “obligate longs” — people whose job it is, in essence, to reassure Western businesspeople that investing in China is safe and attractive. But some optimism comes from less directly interested parties — for example, from my fellow Substack blogger Adam Tooze, and from Bert Hofman of the National University of Singapore.

Demographics

One of their main arguments is that China’s demographic crisis is not nearly as severe as people think. For example, here is a slide from Hofman’s talk showing that if China were to simply raise its retirement age to 65, its labor woes would essentially vanish:

Color me very skeptical. Here are the UN’s projections for China’s population age 15-64:

But having seen firsthand the effects of forced early retirement in Japan (where the retirement age was 60 for many workers for a long time), I’m skeptical that a lot of these 61-year-olds are actually retired. Many of them probably go to work at much more low-paying jobs after being forced to quit their career job. They’re still in the labor force, they’re just not earning nearly as much. So the labor force bump from Hofman’s projection might be illusory.

It still might be true, of course, that keeping those folks in their career jobs for a few years longer will raise national productivity by a substantial amount. Old workers certainly have a big accumulated stock of knowledge about the companies and industries where they’ve worked for decades. But as Adam Ozimek suggested in a recent presentation, it’s also possible that doing this will cause Chinese companies to ossify — top-heavy with older management, these companies might fail to embrace new technologies and new business models. Ozimek’s own research shows a negative correlation between population aging and productivity:

In other words, productivity probably peaks at some point in a worker’s life. So keeping elderly managers in the top spots in China’s companies might not be the best idea for growth, whatever the official labor force numbers say.

Conversely, there’s the question of how many young workers China has. And we see that this number has already fallen by quite a lot:

So to sum up, China’s demographics probably are just as much of a headwind as everyone thinks they are.

Nor will further urbanization ride to the rescue here. Officially, China has only a 64.7% urbanization rate, compared to over 80% in the U.S. You might think, therefore, that China has plenty of room to move people from farms to cities. But in fact, this is purely an artifact of how China defines urban population. In China, only people who live in cities with populations of larger than 100,000 are considered “urban”. In the U.S., that number is just 2500. So lots of China’s “rural” population isn’t even close to what Americans would consider “rural”.

In fact, when economists try to estimate China’s “Lewis Turning Point” — the point where a country no longer has surplus agricultural population to shift into urban manufacturing industries — they agree that China either reached it a while ago, or is reaching it right about now.

Productivity

Tooze and Hofman emphasize the fact that China still has only a little over 1/4 the per capita GDP of the U.S., and so still seems to have plenty of “room to grow”. But there are a great many countries in the world that fail to grow fast despite having plenty of room. In the past, China has fulfilled its potential; in the future, this may change.

The key here is productivity. You can build a lot of physical capital, but once you’ve built a certain amount, how rich you are relative to top countries like the U.S. depends entirely on how efficiently you use your resources of labor and capital.

And here, China has not been looking so amazing in the last 15 years or so. The Lowy Institute has a long and highly informative article with a great section on productivity (which Tooze links to). Here’s one of their graphs:

Now, as the experience of Taiwan, Korea, and Singapore show, it’s possible to dip and then recover, at least somewhat. But China’s productivity growth slowed so much earlier than that of its regional peers that even a modest re-acceleration would leave it significantly behind.

So what’s the positive case for a productivity acceleration here? Tooze and Hofman tout the country’s rising tertiary (college) education levels:

Finally, Tooze touts Xi Jinping’s industrial policy, covered in depth in a recent Economist article. Basically, the idea here is that Xi is going to force China’s economy to divert resources away from industries like real estate, internet, and finance, and toward industries like semiconductors, artificial intelligence, robotics, electric vehicles, and the internet of things, and that this will result in big productivity gains.

In fact, I think it’s no exaggeration to say that this is the main hope for continued Chinese growth. But I also think that what Xi Jinping is trying to do is qualitatively different from the (occasionally successful) industrial policy drives that other countries have undertaken. He’s not just promoting the industries he likes; he’s trying to supercharge their growth by smashing the industries he doesn’t like. The idea seems to be that the economy’s industrial structure is like a tube of toothpaste, and if you squeeze one end, capital and labor and human ingenuity will spurt out the other end. Industrial policy is usually about picking winners; Xi wants to pick losers too.

I am skeptical that this will work. Sure, Xi can probably get a little mileage from pumping up the industries of the future (though even there it will depend on competence in execution, which is generally the exception rather than the norm). But I don’t think most of the untold millions of Chinese people who are forced to quit building and financing apartment buildings are going to start successful, innovative companies in AI and robotics. They just don’t know how to do that.

And I think Xi already sort of realizes that. Already, in the face of slowing growth, the government is trying to partially back away from its crackdown on internet companies. But at this point the damage has probably been done, not just to that industry but to entrepreneurship everywhere. It’s going to be harder, going forward, to get innovative entrepreneurship in any sector other than the ones Xi explicitly supports.

So while it’s conceivable that Xi will be able to pull off some totally novel industrial policy magic, the chances don’t look great — unless you’re one of those people who think that the Chinese government is just operating on another level from every other government that has ever existed, which is a thing that some people do think.

Anyway, to sum up, the continued bull case for Chinese growth rests to a large degree on optimistic assumptions about two things:

1. China’s ability to counteract extremely unfavorable demographics by having old people stay in their jobs longer, and
2. Xi Jinping’s ability to invent whole new and wildly successful forms of industrial policy.

I don’t think I quite buy this case just yet.

Corporate giants are setting deadlines, but millions of Americans will likely never return to a five-days-a-week office regime. Nick Bloom, a Stanford University economist, anticipates 25% of work will be done from home after the pandemic ends... Office occupancy rates, which were running at 99% before the pandemic, now range from 30% to 50% across several major U.S. cities, according to Kastle Systems....As well as changing daily routines, remote work is helping redraw the economic map. Hundreds of thousands of Americans have fled coastal cities like New York and San Francisco for more affordable locations in southern or mountain states... Some of the hottest pandemic housing markets have been in cities like Boise, Idaho and Phoenix—which between them have more than 100,000 additional workers compared with before Covid. Local employers are having to compete with big-city wages....Government aid helped even the country’s lowest-paid workers bolster their savings. Still, the decades-long trend that’s seen wealth concentrate at the top persisted during the pandemic. The richest 1% of Americans enjoyed a surge in their net worth, driven by the rapid rebound in stock and housing markets...there’s also been an unprecedented surge in entrepreneurship. Before Covid, Americans typically filed about 290,000 new business applications a month. But the figure surged in 2020—and it’s remained well above pre-pandemic levels into 2022, with about 415,000 filings in March.

Reade Pickert, Alexandre Tanzi and Jacqueline Gu, "How Covid-19 Transformed the U.S. Economy,"Bloomberg, April 29, 2022, https://www.bloomberg.com/graphics/2022-us-economy-pandemic-recovery/

How Covid-19 Transformed the U.S. Economy

Covid-19 arrived as an emergency. It’s turned into a catalyst for lasting economic change.

The pandemic now in its third year has redrawn the map of the U.S. economy, reshuffled its labor force, and reupped the toolkit available to its policy makers. All of those shifts appear likely to outlast the health crisis that triggered them.

American workers are on the move, as the economy tilts away from its historic coastal strongholds. They’re also more likely to be found at home during office hours, after a remote-work revolution.

Companies are scrambling to hire—but they’re investing in machines too, with automation and e-commerce gaining ground. Entrepreneurship is on the rise. Politicians have discovered the power of direct payments, which shored up household and business finances in the pandemic, and may be back next time there’s a downturn. Consumers are grappling with the biggest jump in the cost of living for generations.

What all of this means for already-sharp income and wealth divides is a key question for the post-pandemic era. The richest have pulled further ahead. Work-from-home advantages skew to educated professionals. Low-income workers are winning pay raises in a tight labor market—but inflation is eating away at their gains.

One thing is clear: there’s no going back to the American economy as it was in early 2020 when Covid hit.

Following is a roundup of pandemic changes that look like they’re here to stay.

Remote Revolution

Corporate giants are setting deadlines, but millions of Americans will likely never return to a five-days-a-week office regime. Nick Bloom, a Stanford University economist, anticipates 25% of work will be done from home after the pandemic ends. And A survey found the average U.S. employee values two to three days of remote work each week as much as a 6% pay hike—and that many would seek a new job if required to come back to the office permanently.

Workers who want to stay home have a powerful bargaining chip. Since firms are struggling to attract or retain employees, they’re under pressure to offer remote-work options. And the tight labor markets may persist after the pandemic, with the population growth rate at a record low.

Ultimately, the remote revolution could help the U.S. offset those difficult demographics, says Bloom. There are significant segments of the population, from the disabled to those looking after young kids or retirees, who wouldn’t take a job that requires five days of commuting—but are willing to work from home.

“That's a very positive effect,” says Bloom. “But it's going to take time.”

Moving Inland

As well as changing daily routines, remote work is helping redraw the economic map. Hundreds of thousands of Americans have fled coastal cities like New York and San Francisco for more affordable locations in southern or mountain states.

Wall Street financiers have been heading south to Florida, and tech companies are increasingly looking inland. More than four in ten listings for higher educated white-collar jobs at West Coast tech firms are outside the region, according to an analysis by the Conference Board, a sharp increase since 2019.

That’s heating up many local economies, and bringing drawbacks of its own. Some of the hottest pandemic housing markets have been in cities like Boise, Idaho and Phoenix—which between them have more than 100,000 additional workers compared with before Covid. Local employers are having to compete with big-city wages.

There's about eight states that have accounted for the bulk of the shift, says Mark Vitner, senior economist at Wells Fargo & Co., listing Texas, Tennessee and the Carolinas among them. Businesses have been “chomping at the bit” to relocate to places that had a less stringent Covid policy, he says.

Labor's Moment?

Job openings are near record highs, and states from Georgia to Utah have all-time low unemployment rates—quite the turnaround since the spring of 2020, when more than 20 million Americans lost their jobs in a matter of weeks. Labor markets may not always be this tight, but slower population growth and immigration should prop up demand for workers.

And there are some key industries where that demand is booming, and likely lasting. Transportation and warehousing may be the best example. Employment is up more than 600,000 from February 2020, as a long-term shift toward e-commerce accelerated in the pandemic.

Those new jobs aren’t coming at the expense of bricks-and-mortar retail, where employment has climbed back above pre-pandemic levels. Transportation and warehousing has been a haven for many workers who lost jobs in leisure and hospitality, where employment is still well below what it was in 2019. They’re often better paid, too.

With so much switching going on—about one in five adults quit their jobs last year—Erica Groshen, senior economics adviser at the Cornell University School of Industrial and Labor Relations, says there’s reason to hope for a broader rethink among employers, which could bring more stability for workers.

“There's been a very strong emphasis over the past 20, 30 years to containing costs and particularly personnel costs,” she says. “Personnel management strategies might shift a little bit more toward wanting to provide long-term careers to people.”

The energization of U.S. unions could help, too. This month, workers at Amazon’s warehouse on Staten Island in New York City voted to unionize, an historic victory for the labor movement.

“We could have more worker voice in the workplace than we have had for a while,” Groshen says.

More Robots

One fear for many U.S. workers is that they’ll lose their jobs to robots. Labor shortages and rising wages have pushed businesses to invest in technology that automates routine tasks.

Restaurants and bars, for example, are switching to app-based or digital ordering. McDonald’s Corp. has been rolling out kiosks where customers tap in their orders, and says it’s looking into automation of frying and grilling too. Hilton has expanded a system of contactless check-in via mobile phones. And United Parcel Service Inc. said automation initiatives, like label application, have freed up 1,200 people inside their buildings this year.

That kind of technology can augment human labor as well as simply replacing it. Still, Daron Acemoğlu, an economist at the Massachusetts Institute of Technology, says he’s worried that the shift will end up limiting job opportunities for people without degrees, and making America’s income and wealth gaps even worse.

“Most firms will not reverse their automation decisions once they have installed robots or self-checkout kiosks,” Acemoglu says. “The increased automation in many consumer-facing industries might mean even fewer decent jobs for low- education and some semi-skilled workers.”

Have Some Cash

In response to the pandemic, the government sent out direct payments to Americans on a scale that had never been tried before—three rounds of checks adding up to as much as $3,200 per adult, and even more for families with children.

Their delivery, via the Internal Revenue Service, proved smoother than other parts of the relief package like expanded unemployment benefits, which got snarled in bureaucracy. That’s one reason why the tool will likely be deployed again in future downturns, says Claudia Sahm, director of macroeconomic research at Jain Family Institute and a former Federal Reserve economist.

“If you want to deliver economic support, this is a really good way to do it, because you can actually get the money out,” says Sahm. There’s room for refinement, she says, with more debate likely next time about the timing and size of direct payments.

But the policy also has its critics, who blame the handouts for fueling inflation and adding to the national debt.

Wins for the Wealthy

Government aid helped even the country’s lowest-paid workers bolster their savings. Still, the decades-long trend that’s seen wealth concentrate at the top persisted during the pandemic.

The richest 1% of Americans enjoyed a surge in their net worth, driven by the rapid rebound in stock and housing markets.

Go It Alone

Companies received support, too -- one reason why the pandemic didn’t turn into the conflagration of small businesses that some had feared. Many were indeed forced to close their doors. But there’s also been an unprecedented surge in entrepreneurship.

Before Covid, Americans typically filed about 290,000 new business applications a month. But the figure surged in 2020—and it’s remained well above pre-pandemic levels into 2022, with about 415,000 filings in March.

That’s partly due to government support for household finances, which shored up demand for goods and services. The broader re-think of working life triggered by Covid also helped persuade many Americans to take the leap into self-employment.

The entrepreneurial spirit was alive across the country, with almost three-quarters of U.S. counties reporting an increase in the number of businesses, according to a study by the Economic Innovation Group. Professional services and freight trucking were among the fastest growth areas.

Inflation Is Back

The pandemic recovery has finally brought the boogeyman out of the closet. After decades when inflation was subdued, often dropping below the Fed’s target rate, it’s now running at the fastest pace in 40 years.

That means most Americans have never seen the kind of price increases they’re confronted with today. Even workers getting better-than-before pay raises now have to weigh them against the rising cost of living.

Already, resurgent inflation is threatening Democrats’ prospects in midterm elections this year, and pushing the Fed onto an aggressive path of interest-rate increases to stifle it. It’s an example of how the pandemic has injected new uncertainties into economic life.

“The economy as a whole is more robust than I think we'd ever imagined,” says Justin Wolfers, professor of public policy and economics at University of Michigan. The flip side, he says, is “that maybe—and these two things can both be true—prosperity is more fragile than we might have imagined.”

Christopher Mims, "How the Pandemic Broke Silicon Valley’s Stranglehold on Tech Jobs,"Wall Street Journal, March 12, 2022, https://www.wsj.com/articles/how-the-pandemic-broke-silicon-valleys-stranglehold-on-tech-jobs-11647061211

How the Pandemic Broke Silicon Valley’s Stranglehold on Tech Jobs

Silicon Valley, make way for Silicon U.S.A.

In a feedback loop that could transform the economic geography of the U.S., millions of Americans are moving, and companies are following them—tech companies in particular. In turn, this migration of companies and investment is attracting more workers to places that in the past usually lost talent wars. This is a reversal of a decadelong trend in the opposite direction. It could have big implications for which parts of the U.S. will prosper and for income inequality, and so possibly also for politics, innovation and America’s overall ability to compete.

For decades, the success of America’s so-called “superstar cities” was driven by the tendency of the nation’s most productive workers and firms to cluster in a handful of places such as Silicon Valley. Now, in the economic equivalent of the blink of an eye—the two-year span of the pandemic—that has begun changing.

Until very recently, evidence for this shift has been mostly anecdotal and preliminary. But a cornucopia of Research has yielded eyebrow-raising statistics documenting the scale and speed of this change in how people with jobs that can be done remotely work and live:

Nearly 5 million Americans say they have moved since 2020—and 18.9 million more are planning to do so—on account of remote work, according to a survey released this past week by Upwork, a platform connecting employers and freelance workers.

In the U.S., nearly a quarter of all full work days will happen at home after the pandemic ends, as opposed to 5% before the pandemic, according to survey data published in December that was gathered by economists at Stanford University, University of Chicago and the Instituto Tecnológico Autónomo de México.

A paper from researchers at Oxford Universify, the OECD Economics Department and Indeed, the job-postings site, found that as of December 2021, the proportion of job listings in 20 countries that mentioned the possibility of remote work had more than tripled from before the pandemic, to 8.5% from 2.5%. The same researchers also tracked how such postings changed as pandemic restrictions ebbed and flowed, and found evidence these figures are unlikely to budge after pandemic restrictions end.

Yet another paper published this past week, from economists at Stanford, MIT Sloan, Princeton University and other institutions, makes the case that the U.S. government has undercounted the share of Americans working remotely by 33 percentage points, and about half of all U.S. workers currently perform their jobs remotely at least some of the time.

Finally, research out this past week from the Brookings Institution provides fresh evidence that the rise of work-from-anywhere as both a technological and cultural phenomenon is driving a mass migration of capital, companies and workers. They are heading to a diverse array of cities that for decades saw their best and brightest drained away to places like the San Francisco Bay Area, New York City and Seattle. These new “rising star” cities include Atlanta, Dallas, Denver, Kansas City and St. Louis, according to Brookings.

“We knew remote work was feasible, and we knew job seekers wanted it, but it was the pandemic that made it an actual day-to-day experience, and once it happened it stuck,” she adds.

The surge in pandemic-induced remote work happened to coincide with another phenomenon, years in the making, according to data from Brookings: a decade or more of increased investment in tech firms clustered in cities outside regions that typically consume the lion’s share of investment and talent.

The result of the convergence of these two reinforcing trends is that, in 2021, six of nine rising-star cities all saw growth in the number of postings for tech jobs, a proxy for future employment in those cities. During the same period, postings in Boston, the Bay Area, New York and Los Angeles declined, according to data from Brookings.

Commentators and local boosters have been proposing for decades, perhaps wishfully, that this sort of thing might happen. From the “Silicon Prairie” to “Philicon Valley,” it’s been a slow build to the present inflection point, and some regional tech hubs are growing more quickly than others.

The movement of capital, talent and companies has typically been a relatively slow process, and can take decades, says Margaret O’Mara, a professor of history at the University of Washington and author of “The Code,” a history of Silicon Valley. The development of America’s existing superstar tech hubs are the clearest example of that—after all, the term “Silicon Valley” was coined a half-century ago.

“One of the secrets of Silicon Valley is time,” says Dr. O’Mara. “No mayor or county executive wants to hear that answer, which is why I don’t have a multimillion-dollar economic-development consulting career.”

The ascension of these new tech hubs is hardly an apocalypse for America’s superstar cities or the tech companies and tech workers in them, says Mark Muro, who conducted the research for Brookings. But it does seem to be the first full-year data in a shift that is just getting under way. Data in 2022 and beyond should show an even more profound shift in employment away from what have in the past been dominant cities for tech, he adds, especially as a number of tech companies, such as Oracle and Tesla, transfer workers as a result of moving their headquarters out of the Bay Area.

After the rise of remote work and the growth of more tech hubs, a third underlying trend could also be driving this geographic shift: the maturation of some of the technologies that for decades have underpinned Silicon Valley and other hubs, in particular the microchip and the internet itself.

The “silicon” in Silicon Valley is, after all, a reference to what microchips are made of. The first commercially available integrated circuit was produced in 1961 by Fairchild Semiconductor, in Santa Clara, Calif. The PC revolution and later the internet created the tech giants of today, mostly in and around the Bay Area and Seattle.

But the outsourcing of electronics manufacturing and the rise of cloud services have made it much easier to build a tech startup anywhere. The dispersal of the knowledge required to build companies, and the precipitous drop in the cost to launch a startup in the tech industry, are both hallmarks of what historians call a “mature” set of technologies. This doesn’t mean these technologies are done evolving, just that the rate of breakthroughs has slowed enough that companies built far from where they were first invented can now participate in their development.

Some historians and economists have declared our current age the “fourth industrial revolution.” If that’s so, then in some ways it might be following the path of past industrial revolutions, says Dr. O’Mara. From England’s 18th-century Industrial Revolution—which quickly became America’s, after the requisite expertise and technologies were transplanted across the Atlantic—to the rise of Detroit, history is full of new technologies that started in one place, made those who lived there enormously wealthy, and eventually became global phenomena, leading to specialized hubs of knowledge and production all across the world.

While it’s impossible to precisely copy the formula that worked for the Bay Area and build the “next Silicon Valley,” regional tech hubs can prosper by finding their own niches, she adds.

Atlanta is a good example of these trends. While it was largely left out of the early decades of the rise of the PC and the internet, the presence of corporate headquarters and the Georgia Institute of Technology meant it had both demand for the products of enterprise tech startups and the talent to build them.

America’s ninth-largest metro area has quietly become an assembly line for tech unicorns, with five of its startups topping $1 billion valuations in 2021 alone, including Calendly, which streamlines the process of scheduling meetings, and Stord, which helps businesses with fulfillment and logistics. The result of successive waves of startup exits, followed by mentorship and reinvestment from startup founders, plus the proximity of potential customers in the headquarters of Fortune 500 companies like Home Depot and United Parcel Service, means that the city has built up all the elements necessary to churn out tech startups.

Combined with the relatively low cost of living and the availability of housing—both in sharp contrast to superstar cities—Atlanta has attracted workers in a way that gives it a talent pool ready-made for new startups, says Adam Steinberg, a serial entrepreneur in the Atlanta area and CEO of Fetch, a startup that allows individuals and small businesses to rent trucks and utility vans by the hour.

Mr. Steinberg went through the storied startup-accelerator program Y Combinator, where he was advised he would have better access to funding and talent if he moved his company to the Bay Area. But other variables, such as his existing professional network in Atlanta, being close to family and friends, and the fact that he could sustain his company longer on the same amount of investment because of Atlanta’s lower costs, kept him in that city.

The pandemic has made finding talent easier, he adds, because with the rise of the remote-first work culture across the tech industry, he can hire workers anywhere in the world.

Also, he felt that for a truck-rental company it was important to start in a city typical, in its layout and demographics, of most of America: “We figured if we could make it in Atlanta, we could make it anywhere.”

Nearly 5 million Americans say they have moved since 2020—and 18.9 million more are planning to do so—on account of remote work, according to a survey released this past week by Upwork….In the U.S., nearly a quarter of all full work days will happen at home after the pandemic ends, as opposed to 5% before the pandemic, according to survey data published in December that was gathered by economists at Stanford University, University of Chicago and the Instituto Tecnológico Autónomo de México....The surge in pandemic-induced remote work happened to coincide with another phenomenon, years in the making, according to data from Brookings: a decade or more of increased investment in tech firms clustered in cities outside regions that typically consume the lion’s share of investment and talent. The result of the convergence of these two reinforcing trends is that, in 2021, six of nine rising-star cities all saw growth in the number of postings for tech jobs, a proxy for future employment in those cities. During the same period, postings in Boston, the Bay Area, New York and Los Angeles declined, according to data from Brookings.

“…the 10 fastest growing counties last year accounted for nearly 80 percent of the national total, a testament not so much to the rapid pace of change in these places, but to the lack of significant growth in the rest of the nation. The bureau had previously called 2021 the slowest population growth year on record, with the nation growing by just 0.1 percent.....New York, Los Angeles, Chicago and San Francisco lost a total of over 700,000 people from July 2020 to July 2021, according to the Census Bureau. Meanwhile, Phoenix, Houston, Dallas, Austin and Atlanta gained more than a total of 300,000 residents....Despite the latest figures, many major cities are optimistic about growth. New York City lost more than 300,000 residents through June 2021, the census shows, which city planning officials said was consistent with their own analysis. But, they said, the city’s sharp population decline through mid-2021 resulted largely from temporary patterns earlier in the pandemic, including an uptick in residents fleeing to the suburbs and exurbs, fewer immigrants, deaths from Covid and lower birthrates. They said these patterns had most likely lessened or reversed during the second half of 2021, which is not captured in the data. “The city is on its way back,” said Arun Peter Lobo, the city’s chief demographer. “The initial indicators, at least for us, are in the right direction.”

Robert Gebeloff, Dana Goldstein and Winnie Hu, "Cities Lost Population in 2021, Leading to the Slowest Year of Growth in U.S. History,"New York Times, March 24, 2022, https://www.nytimes.com/2022/03/24/us/census-2021-population-growth.html

Cities Lost Population in 2021, Leading to the Slowest Year of Growth in U.S. History

Substantial population loss in some of the nation’s largest and most vibrant cities was the primary reason 2021 was the slowest year of population growth in U.S. history, new Census data shows.

Although some of the fastest growing regions in the country continued to boom, the gains were nearly erased by stark losses last year in counties that encompass the New York, Los Angeles and San Francisco metropolitan areas.

The pandemic played a role, as the number of people dying rose substantially and many Americans left cities for smaller places. But experts say that skyrocketing housing costs were also to blame, and that some of the changes are a continuation of fundamental shifts in American demographics that began before the pandemic, such as the steadily falling birthrate and steep drop in immigration.

New York, Los Angeles, Chicago and San Francisco lost a total of over 700,000 people from July 2020 to July 2021, according to the Census Bureau. Meanwhile, Phoenix, Houston, Dallas, Austin and Atlanta gained more than a total of 300,000 residents. And there was also substantial growth in some rural areas and smaller cities like Boise, Idaho, and Myrtle Beach, S.C.

Population loss, particularly of working-age adults and their children, can separate extended families and lead to funding cuts and labor shortages in schools, health care facilities and other services that are essential to the residents who remain.

The pattern is a notable contrast from a decade ago, when large cities were growing, bolstered by a decades-long boom in immigration and the rising popularity of urban living. At that time, most of the counties losing population were rural or experiencing economic decline.

In the years immediately preceding the pandemic, those factors began to shift. Immigration slowed, urban housing costs rose, and suburban and exurban growth began picking up steam, trends that continued through the pandemic.

The virus wrought other changes. Because Covid-19 caused so many deaths, only 828 counties had more births than deaths in 2021, the figures show, down from more than 1,900 a decade ago.

And the rise of remote work made it less of a requirement for many workers to live in expensive cities to take advantage of high-paying jobs.

The decline in fertility started a decade ago during the Great Recession, and reflects the ways in which women and men of the Millennial generation are prioritizing education and work, delaying marriage and parenthood, and struggling to gain their economic footing as they deal with student debt, slow wage growth and steep housing costs.

Alison Grady and Ernest Brown, both 31, moved to Atlanta from Oakland, Calif., in March 2021 after nearly five years of living with roommates to save money on rent. Most recently, they had paid $1,500 a month for one room in a three-bedroom, 1,200-square-foot apartment that they shared with two friends.

The couple, who plan to marry and start a family, had wanted to buy a home in Oakland, but they found that houses in move-in condition started at $700,000, which was more than they could comfortably afford.

As they worked from home during the pandemic, and the virus and wildfires curtailed their social life, they spent more time in their cramped apartment and questioned whether it was worth it. They eventually decided to return to Atlanta, where they had met in 2014. They were able to buy a 1,000-square-foot, two-bedroom apartment for $315,000. And they no longer have roommates.

“The price of living in the Bay Area was so out of sync with the quality of life we were getting,” said Ms. Grady, a public health strategist.

Cities like New York and Los Angeles remain alluring, as evidenced by bidding wars for homes and big companies investing in office space. But many residents have been pushed away by a lack of affordable housing, as well as by pandemic-related changes to how they order their priorities.

Across the nation, counties with more modest housing costs gained in population, the data showed.

Five years ago, counties ranking above the 90th percentile for housing stress — a measure of housing costs as a share of income — accounted for a third of the nation’s population growth, suggesting that the high prices represented high demand.

But in 2021, those counties were net population losers, suggesting that costs have gotten out of hand.

In the Los Angeles area, for example, nearly half a million renters do not have access to an affordable unit, according to a 2021 report from the California Housing Partnership. For this group — including essential workers such as home health aides, janitors, child care professionals and medical assistants — homeownership can be all but impossible.

Regions where state and local governments do not make it easier to build affordable housing will face a troubled future, according to Dowell Myers, a demography and urban planning expert at the University of Southern California. There will be too few working-age adults to support a growing population of aging baby boomers. Jobs in nursing, utilities and other fields will go unfilled.

This demographic risk “is just deadly,” Professor Myers said. “We’re not building enough housing to keep our own kids.”

In Houston, like other growing Southern metro areas, the influx of relatively high earners has contributed to a real estate crunch that could erode the city’s reputation for affordability.

Kayli Thompson, 34, and her daughter, Analiese, 13, arrived in Houston last year from Ithaca, N.Y., where Ms. Thompson’s hours as a librarian were cut in half during the pandemic.

She was drawn to Houston by its stronger job market and warm climate. Still, relocating was a struggle. The rent money she set aside from savings, stimulus payments and a tax credit did not stretch as far as she had hoped. Her two-bedroom apartment costs $1,500 per month, nearly double her rent in Ithaca. She did not find a job right away, and received an eviction notice; in February, her church paid her rent.

Last month, she began working for a community newspaper, and she now feels the risk she took has paid off. She is delighted to be living downtown in a much more walkable neighborhood. When Ms. Thompson’s car broke down, it wasn’t as much the crisis it would have been in Ithaca.

“We’re happy,” Ms. Thompson said.

Gina Vargas, a 38-year-old consultant, joined the exodus from New York City in the spring of 2020. After 18 years in a city she thought she would never leave, she relocated to the Houston area, where she grew up, drawn mostly by the need to assist her aging parents.

The Houston she returned to was far different from the conservative place she remembered from her childhood, Ms. Vargas said. When her parents, an interracial couple, first moved decades ago to the working-class city of Pasadena, southeast of Houston, there had been a Ku Klux Klan meeting place near their home. Now, as a mixed-race Mexican American, she has felt welcomed into a cosmopolitan community, she said — though she noted there were more Trump flags.

And her New York salary has stretched a long way. Ms. Vargas was renting a one-bedroom apartment in Sunnyside, Queens, but she was able to purchase a three-bedroom house in a planned community in Cypress, 30 miles north of downtown Houston. She also bought a house for her parents, moving them to a more upscale neighborhood.

“The city is on its way back,” said Arun Peter Lobo, the city’s chief demographer. “The initial indicators, at least for us, are in the right direction.”The population estimates are the primary way the Census Bureau updates the population counts from the regular decennial census, which attempts to count every person living in every household and institutional setting. These estimates are largely based on administrative records, such as birth and death certificates and tax returns.