Why do some cites and metros grow faster and better than others? It's a subject of considerable, often heated debate. Some say that growth is a product of innovation and productivity that comes from the density of talent and business clustering. Others counter that growth is powered more by resources, home-building and extractive industries and continues to be driven by sprawling suburbs and metros in the Sun Belt and Plains.
Sometimes debates like these need a referee. That's where a new report on America's "Best-Performing Cities" released earlier this year by the Milken Institute comes in. The Institute has no dog in this show and its "Best-Performing Cities index" is a comprehensive and objective metric of metro economic performance (it uses the more commonly recognized term "cities" to reflect metro economies). Milken's index represents an "outcomes-based" accounting of short and long-term changes in economic output, high-tech industry, jobs, and wages. The rankings cover the 200 largest metros with a separate index for the 179 smaller metros.
The table below, from the report, provides the rankings for large metros. Four of the top five metros are noted high-tech knowledge economy centers. San Jose tops the list, high-tech hot spots Austin takes second and Raleigh third, and Washington, D.C., comes in fifth place. The top 25 also include metros with robust energy economies, such as fourth-place Houston and Lafayette, Louisiana.
Milken's Best-Performing Cities index also provides a broad-based, objective metric which can be used to gauge the key factors that are associated with the growth and development of U.S. metros. And this is what I did with the help of my Martin Prosperity Institute colleague Charlotta Mellander, who ran correlations between the Milken rankings and key factors like population, density, human capital (percent of adults that are college graduates), the share of knowledge, professional, and creative workers, key occupations, and other measures. As usual, I note that correlation does not imply causation and other factors may come into play. While I report here the results for the main index, which covers the 200 largest metros, we also analyzed smaller metros and they follow the same general pattern.
First off, there is a clear connection between talent, human capital, and skill and metro performance, according to Mellander's analysis. Milken's Best-Performing Cities index is positively associated with education measures as the share of college grads (.37) and the share of the labor force made up of knowledge, professional, and creative occupations (.40). This is line with many studies that show a close connection between human capital or skill and the economic growth and development of metros.
What's even more interesting is that when we look inside the black box of talent, human capital, and workforce skill, we find three specific clusters of occupations that matter. Mellander's analysis finds positive correlations between Milken's Best-Performing Cities index and the share of metro workers in science and technology (.41), management and business (.30), and arts, culture, and media (.24).
Mayors and economic developers, especially in slower-growing cities or metros, have long asserted and in many cases tied their cities's futures to "meds and eds" — medical and educational institutions — in generating jobs and rebuilding their cities's economies. But Mellander's analysis finds no statistically significant association between those occupations and Milken's Best-Performing Cities index. Perhaps meds and eds are not the panacea they've been thought to be.
What about size and density — how do they factor in? The short answer: Both matter, but to a lesser extent than talent, skill, and occupational mix. Mellander's analysis finds more modest associations between Milken's index and metro population (.20) and density (.21).
A growing chorus of commentators claim that the improved performance of cities and metros is a contributor to growing economic inequality. But Mellander's analysis finds no statistically significant association between Milken's Best-Performing Cities index and income inequality (measured by the Gini coefficient). While the economic fortunes of metros and are diverging as a result of "The Big Sort," it is less clear that these same forces are contributing to the growing economic inequality of metros. In related research, Mellander and I find that economic inequality within metros is only partly associated with the structure of the labor market or what economists dub "skill-biased" technical change (wage inequality, for example, explains only 15 percent of overall income inequality within metros), but is more closely related to the enduring legacy of race and the erosion of key pillars of the post-war social compact, namely de-unionization and lower tax rates.
When all is said and done, ideas, talent, skills, and density remain key factors in the growth and development of America's metros. America's best-performing metros, according to the our analysis of the Milken Institute's objective accounting, tend to have larger levels of educational attainment and college grads, and higher levels of knowledge workers, especially large clusters of talent in science and technology, business and management, and arts, culture, and entertainment. Energy and resource based metros have also performed well as the U.S. economy has rebounded. The most notable of these do more than pump stuff out of the ground; they have combined their substantial resource endowments with technology to sustain their prosperity. Houston, which has one of the largest concentrations of IT workers and software engineers in the country, is a case study of how resources and ideas can go together to generate growth.
A better way to think about growth is not ideas versus resources, but as ideas and resources. In fact, a great strength of American economy is its ability to combine resource and ideas, and to use the wealth generated from its resource endowments to underwrite more-enduring knowledge-based institutions. This can be seen in cities and regions from Pittsburgh to Denver and Houston, to name but a few. It goes beyond specific cities and metros, actually, and is a fundamental feature of what economic geographers dub America's "spatial division of labor," or the combined economic power that its variety and system of cities brings.