Second-Tier Cities Boast First-Rate Job Figures
Several places that lost out on Amazon.com’s new headquarters have lower unemployment and faster labor-force growth than the winners
The New York and Washington regions were the big winners in Amazon.com Inc.’s contest for its new headquarters project, leaving others behind because the two East Coast metro areas had the sheer scale to meet the company’s needs for 50,000 workers.
The decision highlighted a continuing shift of economic might toward big coastal power cities, but it obscured something else happening in the U.S. economy. Second-tier cities are thriving, and by some measures they are doing even better than their bigger rivals.
Many second-tier U.S. cities on Amazon’s list of finalists have lower unemployment rates than the national average of 3.7%, and several have lower unemployment and faster labor-force growth than the two winners.
The New York metro area, which includes Newark, N.J., another finalist, had an unemployment rate of 3.9% in September. The Washington metro area—which includes the second winner, Arlington, Va.—saw unemployment drop to 3.3% in September. Those figures are exceptionally low by historical standards. But among the jilted Amazon finalists, for example, Raleigh, N.C., and Indianapolis both had unemployment rates of 2.9% in September.
By another key measure—labor-force growth—many of these cities are also growing more quickly. From 2010 through 2017, the Washington area has seen its labor force grow 8%. Austin, Texas, saw its labor force explode by 24% in that same time frame. Dallas, Nashville, Tenn., and Raleigh all enjoyed double-digit labor-force growth.
“There are these very big places that have a particular trajectory and we can call superstars, but then there are these places that are doing very well and are clearly the stars of the next echelon,” said Mark Muro, policy director of the Brookings Institution’s Metropolitan Policy Program. “I wouldn’t count them out.”
Many of them have quietly become centers for business and talent, in part because of their smaller size and affordability. As the economic expansion priced out companies in places like New York or San Francisco, some midsize or smaller firms went on the hunt for more affordable alternatives.
At the same time, many of these cities worked on improving their quality of life, building up dynamic downtown neighborhoods that would be attractive, but still affordable, for younger, educated professionals.
J.J. Thompson, chief executive of Rook Security, picked up his Silicon Valley-based cybersecurity firm and moved to Indianapolis, in 2009. He said operating expenses are two-thirds of what they were in the Bay Area. Indianapolis, which is home to pharmaceutical giant Eli Lilly & Co., was able to use its history in that industry to lure more health care and technology firms to the area. Mr. Thompson said one of his top reasons for choosing to move there was the abundance of talent.
A connecting factor for cities like Raleigh, Austin, Columbus, Ohio, and Pittsburgh is that they are homes to major research universities that produce young talent, some of which sticks around.
In the past decade, private and public investment changed the face of Raleigh’s downtown. It was once dominated by government and service economy offices, and people tended to leave in the evenings. Then came an explosion of restaurants, bars and full-time residents, and the revival of Fayetteville Street, a once-sleepy pedestrian mall that was reopened as part of a larger downtown reconstruction plan.
“You bring in a lot of young, skilled workers and then suddenly you’ve got somewhere that’s very attractive,” said Adam Kamins, senior economist with Moody’s Analytics.
Kenny McDonald, head of the Columbus economic development group that ran the Amazon bid, said a strategy emerged from the pain of the last housing crisis that focused on not only attracting companies, but also making the city more livable.
As part of that, the previously crime-ridden Short North neighborhood was turned into an arts and entertainment district that is also home to technology companies, he said. The city invested millions in improving the cleanliness and safety of the area, which had already seen an influx of artists and gallery owners. As the neighborhood’s safety and cultural appeal grew, the city lured technology companies to open office space there.
The unemployment rate in Columbus hit 3.7% in September and its labor force grew 7% from 2010 to 2017. Both metrics are better than New York’s.
Even Detroit, battered by the hollowing out of American manufacturing, is on an upswing. The unemployment rate exceeded 16% there in 2009. It is now down to 3.7% and the city’s downtown has come back to life after the 2013 municipal bankruptcy. City officials and local business leaders have taken feedback from Amazon’s executives as to why they weren’t a finalist to push for improvements to regional transportation that would help expand its talent pool.
To some extent, these cities have been lucky, having ridden a long-running trend of people moving from suburban and rural areas to larger cities. Even if Amazon isn’t knocking at their doors, that luck has taken them a long way.
Write to Shayndi Raice at shayndi.raice@wsj.com
Appeared in the November 26, 2018, print edition as 'Amazon Also-Rans Are Doing Fine.'