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Fed paper analyzes ‘creative class’ strategy

The economic development strategy focused on building a metropolitan economy by promoting a bizO-Metcalf_Richard_BizOwell-educated “creative class” of worker gets a cautionary look in a recent working paper from the Federal Reserve Bank of Atlanta.

The “creative class” strategy, as it’s called in the paper, is another “fad” in the economic development field, like tax increment financing, industrial parks and enterprise zones, the paper says.

The city of Albuquerque has embraced the strategy, or a version of it, by promoting “a new era in economic development – one of innovation created and perpetuated by entrepreneurs as its leaders,” according to its website.

“Current strategies that many community leaders and policy makers pursue – to increase local BA+ degree attainment – will not necessarily provide the broad ‘silver-bullet’ returns to the lower end of the labor market that many hope,” the paper says. “Growth in BA+ attainment is not a tide that lifts all ships.”

BA+ is used as shorthand in the paper to refer to all college degrees at the bachelor’s level and higher. The working paper’s author, Stuart Andreason, believes the creative class strategy and BA+ strategy – “talented worker attraction” – are close to the same thing.

The starting point for the paper, which is posted in two versions at www.frbatlanta.org, is the unprecedented growth in college-educated people from 1990-2010.

“During the period, bachelor’s degree or higher attainment proportions rose significantly – 7.9 percentage points – from 20.3 percent in 1990 to 28.2 percent in 2010,” it says.

In addition to illustrating the broad shift to a knowledge-based economy, the increase can have major implications for the quality of life in places where it has been concentrated.

“A significant amount of economic and sociological research literature suggests that individuals who have higher levels of educational attainment are paid more, less likely to be unemployed, less likely to be in poverty or homeless, less likely to be in the penal system, healthier, more likely to have health insurance and more civically engaged,” the paper says.

The 7.9 percentage point increase hasn’t been universal. The working paper identifies 78 “leader metros” – Colorado Springs and Fort Collins in Colorado among them – because of their higher-than-average increases. A handful of metros saw shares of the college educated shrink from 1990-2010.

The Albuquerque metro does not show up anywhere in the working paper, indicative of its likely standing in the middle of the pack of 283 metro areas.

The Santa Fe metro shows up at No. 6 in a 1990 ranking of metropolitan areas with the highest rates of BA+ attainment at 35.7 percent. The Santa Fe metro is made up of Santa Fe and Los Alamos counties, thus includes the highly educated workforce at Los Alamos National Laboratory.

Santa Fe disappears from the 2010 top rankings, as does No. 5 College Station, Texas. Santa Fe’s drop from the top rankings isn’t explained, but College Station’s drop is attributed to the influx of new foreign-born residents between 1990 and 2010.

Home to Texas A&M University, described as one of the largest universities in the country, College Station’s share of the BA+ crowd fell from 35.8 percent in 1990 to 32.1 percent in 2010. The actual number of college-educated people didn’t fall, but rather the number of less-educated people rose disproportionately.

Population growth in general, and immigration in particular, is the prevailing explanation for metros that registered either drops or small increases in the percentage share of the college educated in 1990-2010. Another contributing factor might be the absence of a major university in many metros.

The concentration of the BA+ crowd had grown far more intensive by 2010 than it was in 1990. The biggest shares were found mostly in college towns, led by 49.9 percent in Lawrence, Kan., where the University of Kansas is based; and 49 percent in Columbia, Mo., where the University of Missouri is based.

Major metros with high concentrations of college-educated people include Washington, D.C., at 46.8 percent, San Francisco at 43.4 percent and Boston at 43 percent. Major metros, especially the so-called 24-hour cities, are generally magnets for college grads because of the scope and scale of job opportunities.

The white paper says the college-educated segment of populations in smaller and mid-sized metros tends to grow organically and is self-perpetuating. The presence of a major university typically plays an important role in the organic growth. Geographic location and traditional economic base are less important.

In terms of economic and job growth, there’s no single outcome for a metro having a population loaded with college graduates. Local governments and policymakers assume it’s a good thing, but the working paper says research doesn’t necessarily bear that out.

The paper compares the percentage shares of the college educated in metros against the four labor market measures of earnings growth, unemployment, poverty and income inequality. The assumption going in was that high educational achievement would correlate with improvements in the four labor measures.

“Most of the 78 leader metros experienced improvement on just one or two labor market outcome measures,” it says. “No metropolitan area sustained improvement on all four of the labor market outcome measures and some leader metros experienced no positive changes in these outcome variables.”

In simple terms, the basic finding is a low level or sometimes lack of trickle-down benefits from the college-educated strata of a metro population to the less-educated, more blue-collar working class. Of the four labor market measures, the lowest impact was in reducing the poverty rate.

One of the conundrums of economic development, especially in the context of growing a knowledge-based economy, is that the advantage goes to “a smaller group of workers within a metropolitan area that have high levels of educational attainment and skills,” the paper says. The upshot is more income inequality.

On the other hand, data also suggest that, in some metros, economic growth precedes growth in the percentage share of college grads – not the other way around – the white paper says.

“Especially in the context of economic development and social policy, far too many assumptions have been made about how summing individual benefits leads to place-based benefits,” it says. “There are fledgling theories like the creative class theory, which, despite its popularity, in practice has little rigorous testing.”

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