The U.S. states and metro areas with large tech industries — most notably Silicon Valley and the Bay Area — are adding jobs and residents and seeing incomes rise at a faster rate than other parts of the country. This polarization has prompted hand-wringing from both tech executives and those in overlooked regions of the country, but the disparity continues to grow year over year.
Now, a new report raises another cause for concern — that the areas with the least-prosperous, least-diversified economies will have a harder time weathering the next recession than will already prosperous tech hubs.
The Economic Innovation Group — backed by tech heavyweights like Sean Parker and Ron Conway — has released its annual Distressed Communities Index. The report examines how “prosperous” or “distressed” each zip code in the U.S. is based on seven factors: the percentage of a community’s adult population with no high school diploma, housing vacancy rate, percentage of adults not working, poverty rate, median income ratio, change in employment, and change in the number of business establishments over the last five years.
The idea is to draw attention to the growing divide between the haves and the have-nots in country. Given that 2018 marks 10 years since the start of the Great Recession, this year’s report also looked at how well communities have recovered since the recession. While prosperous areas have already recovered all the jobs and businesses they lost during the recession, distressed areas are still losing jobs.
This year’s report found that the 10 metro areas with the greatest concentration of residents in prosperous zip codes are cities with a large concentration of technology companies (San Francisco, San Jose-Sunnyvale-Santa Clara) and/or large research universities (Austin, Minneapolis-St. Paul, and Boston).
Additionally, California — the heart of the technology industry in the U.S. — was the state that saw the largest absolute increase in the number of residents living in a prosperous zip code between 2012 and 2016. Utah, which for the last few years has seen the highest percent increase in the number of tech jobs nationwide, has also seen statewide benefits from its booming technology industry. Nearly half of its population live in populous zip codes, the highest percentage in the U.S.
Together, the top 20 percent of cities in the U.S. have added 3.6 million jobs since the start of the recession in 2008. This contributes to a narrative that nationally, the U.S. is recovering from the recession at a healthy clip, as these cities house 85.6 million residents — or 27.4 percent of the overall population.
But the most distressed communities aren’t experiencing the same levels of growth as the top-performing cities. The most distressed communities have not added jobs since the recession but have instead lost jobs — 1.4 million since 2008. Half of all communities had fewer jobs in 2016 than they did in 2007.
“We’ve never really seen this type of concentration, where truly the lion’s share of the benefits of a recovery — nationally speaking — are accruing to a relatively narrow swath of places,” EIG president and CEO John Lettieri told VentureBeat in a phone interview. “We see that prosperity and resiliency go hand-in-hand.”
Lettieri says that after the recession the U.S. economy experienced sort of a “reset” in which more businesses, people, and jobs started moving to the places with growing businesses and industries — rather than waiting for the jobs to come back to their cities. One of the most evident beneficiaries of this reshuffling has been the Bay Area, which now has more than 4 million jobs for the first time.
The concern, Lettieri says, is that if some of these communities have even fewer jobs and businesses than they did before the 2008 recession, a similar economic downturn could set them back even further.
Lettieri says that a variety of legislative reforms could be passed to entice people and businesses to move back to distressed or at-risk communities. EIG is a proponent of the recent Opportunity Zone legislation that encourages investment in such distressed communities. But Lettieri is also a proponent of occupational licensing reform, the banning of non-compete clauses, and immigration reform.
“You start with a policy framework that prioritizes competition within industry over prioritizing the incumbents in today’s economy,” Lettieri said. “There’s a reflexive tendency to cling to today’s jobs and today’s businesses.”
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