Over the last year or so, we have been inundated with news stories about the labor market impacts of Uber, AirBnB, and other sharing economy sites. A new series of studies from the JP Morgan Chase Institute take another look at the issues. These researchers have been doing a very useful study of income volatility in the US, and, not surprisingly, they find that it is a growing problem for much of the population. Overall, 55% of Americans experience monthly income fluctuations that represent at least 30% of income.
Their latest study looks at whether on-line work platforms, like Uber, can serve as a tool to help people better manage big monthly or weekly income fluctuations. In other words, could this new income from online platforms close the gap? At this point, the answer appears to be no. The researchers did a massive review of JP Morgan customer data (28 million people) and found that, in a given month, only 1% of people had received any income via an on-line platform. The growth in usage has been high, but the absolute numbers of those who earn via on-line platforms remains tiny. The research shows that use of the platforms is sporadic and generally provides very limited secondary income to most users. And, platform usage also seems to drop over time, suggesting that users may have some reservations about the model.
This is an excellent study that is well worth reading. It also reminds us that, when studying the 1099 Economy, we need to avoid missing the forest for the trees. Our current public fixation on the Ubers of the world may distract us from focusing on the structural factors that lead to new ways of doing work. The 1099 Economy was an important and growing force long before the on-line gig economy arose. As the study noted, 1% of workers now use these platforms. Let’s not forget the other 99%!
My blog is not well known for its theater reviews, but I’m taking a shot today. Last night, we saw Sweat at Washington’s Arena Stage, and I can highly recommend it. It’s a searing look at what happens to a community when plants close and jobs vanish. The play is set in Reading, PA (my hometown), and it’s not a very flattering portrait. But, it is realistic and shows the many disasters that can befall good people when good jobs disappear. Most of the play is set in a local bar, jumping between 2000 (when the local plant first downsized) and 2008, when nearly all of the main characters are unemployed and untethered. Over the course of the play, the tight-knit community breaks down—triggering racial tension, substance abuse, and a heinous crime as well. At this time of raging anger on the campaign trail, the stories in Sweat will resonate. They should also remind us why the work of community economic development remains so important and vital.
Here are links to reviews and critiques from my qualified sources in the NY Times, the Washington Post, and NPR. If Sweat comes to your town, go see it!
I grew up in Pennsylvania and I’m a Pittsburgh Steelers fan, so I’ll admit my bias: I think that Pittsburgh’s recent history—from industrial decline to partial revitalization as an “eds and meds” center, offers great lessons learned for many U.S. regions. Thus, I was already pre-disposed to like the new regional history Beyond Rust: Metropolitan Pittsburgh and the Fate of Industrial America. This in-depth, but very readable, history takes a deep dive into Pittsburgh’s economic history from the 1700s up to today. Most of the book examines the massive transformations of the 20th century using a regional lens that doesn’t just look at the City of Pittsburgh, but the wider regional economy as well. This broader lens brings in other regional centers like Steubenville and Barnesville (OH), and Weirton and Wheeling (WV). The book is dense with historical details, but a couple of interesting themes stand out:
- The Good Old Days Weren’t Really that Good: When I lived in Pittsburgh in the dark days of the 1980s, I always wondered what it was like when steel was king. It ends up that it wasn’t really that great in many ways. Beyond the pollution, the local steel industry struggled through much of the 20th century and its decline can really be traced back to the 1920s.
- Mixed Record for PPPs: While they didn’t use the term public-private partnerships, much of Pittsburgh’s post-WWII economic development was led by PPPs. This produced some good results, like cutbacks in local air pollution and the development of higher ed resources. But, it also produced some disastrous outcomes, like the razing of parts of Pittsburgh’s Hill District and the displacement of thousands of African American residents.
- Regional Context Matters: The book’s focus on other regional centers, like Wheeling, was very interesting. The regional steel economy was regional in nature, and, sadly the recovery has not been affected all parts of the region. While parts of the City of Pittsburgh are thriving, many of the former steel centers, like McKeesport, Weirton, Aliquippa, and Steubenville, still face seemingly insurmountable economic development challenges.
While Beyond Rust may be too Pittsburgh-centric for some readers, it’s an excellent study of the regional economy and, in a broader sense, the various waves of economic development strategies that have been used in Pittsburgh and across the U.S.
As a strong advocate for entrepreneur-driven economic development, I’m also an avid supporter of entrepreneurship education. We have reams of evidence—from groups like the Network for Teaching Entrepreneurship–that youth entrepreneurship education helps kids become better students, better workers, and, of course, better entrepreneurs. Thus, it’s a bit sobering and depressing to read the latest Survey of the States 2016 from the Council for Economic Education. The annual CEE survey assesses state policies toward economics and personal finance education. It finds that only 20 states now require high school students to take a class in economics, and only 17 states require coursework in personal finance. As a related 2015 Junior Achievement study shows, the state of entrepreneurship education is even more tenuous. At present, eighteen states require that entrepreneurship course be offered, but these are not prerequisites for graduation. (In many of these states, entrepreneurship education standards exist but are not actively promoted or deployed.) The CEE study highlights Virginia as good example of how states might embrace personal finance education—the Commonwealth requires all high schoolers to take one full credit course in economics or personal finance. These reports suggest that we will need to continue pushing to ensure that American high school students can get access to the economics and entrepreneurship training they need and deserve.
I just finished Robert Gordon’s new book, The Rise and Fall of American Growth. This volume is getting a lot of attention—see, for example, Paul Krugman’s recent book review, and it is definitely worth a read for folks interested in economic development. Gordon has long built his reputation as a naysayer about the information technology “miracle,” and his book builds on this perspective. Gordon’s basic thesis is as follows: the period between 1870 and 1940 was an almost magical era of great inventions. Nearly every technology that undergirds modern life—electricity, cars, mass communications—was invented and perfected in this era, and we’ve been reaping the benefits ever since. As these technologies were developed and perfected, they spurred massive productivity and prosperity gains. However, the pace of these benefits has slowed and the effects are seen in our stagnating economic growth since the 1970s. We’ve had some cool new technologies since then—like the computer, Internet, and many medical advances, but none of them have transformed life to the extent of innovations like electric light, the automobile, or mass electrification. Because the productivity enhancing effects of newer technologies are less profound, we are likely facing a future of lessened economic growth.
While I hope Gordon’s gloomy prognosis is wrong, he marshals lots of evidence to support it. Of course, new revolutionary technologies can always emerge, but there’s no guarantee on this front. The book is chock full of interesting histories of new technologies ranging from frozen foods to electric motors to the shopping mall to airplanes. Gordon contends that we still underestimate the economic impact of these older technologies—much as today’s technology advocates argue that we don’t effectively track the economic impacts of today’s new inventions. If Gordon is right, current trends of income stagnation and income inequality will continue and likely worsen. Gordon concludes with some common sense policy ideas for addressing these issues, but he doubts that we can avoid this fate. Whether you agree with Gordon’s thesis or not, this book is a sobering and worthwhile look at one potential economic future.
A new edition of our quarterly e-newsletter, EntreWorks Insights, is now available. This issue looks at how to better engage young people in community economic development planning and decision-making. You can subscribe and access past newsletters here.
It’s taken awhile, but policymakers around the world have finally gotten the message that future economic prosperity depends on innovation. Governments need to nurture innovation, and when necessary, also know when to get out of the way. Europe is now in the midst of this debate, as the European Union (EU) assesses the potential for a Europe-wide Innovation Council. The European Innovation Council concept was first broached by EU Research Commissioner Carlos Moedas as means to create something of a one-stop shop for EU-driven innovation policies. The jury is still out on the concept, but it is triggering an interesting debate on what the Council might do and what are the benefits of this type of organization. While the current tenor of the U.S. Presidential campaign does not suggest that we will soon engage in a reasoned debate about innovation policy, the EU discussions are relevant as the U.S. also thinks about how best to promote innovation. Whether we dust off older ideas about a U.S. Department of Competitiveness or think about other innovation policy models, we also need to be rethinking how best to foster innovation. For this reason alone, the EU Innovation Council consultations will be useful and instructive.
I’ve been a little skeptical of the hype over reshoring of manufacturing for some time. For me, this story is a little bit but like Santa Claus. I want it to be true, but the data just don’t seem to back it up. The latest bad news comes from the A.T. Kearney Reshoring Index, which showed its largest decline in reshoring activity in ten years. And, sadly, this has been a relatively consistent trend—with declines occurring in most recent years and growing in 2015. Meanwhile, offshoring to new overseas locations appears to be picking up. This index is only one data source, but other researchers also agree that patterns of large-scale reshoring do not exist. (NOTE: You can access a critique of the Reshoring Index data here.)
So, what does it mean? Primarily, it reminds us that there is no free lunch. We can’t just assume that higher costs in China and other factors will automatically send jobs back home. It means that we need to double down on the harder long term slog of building a world class workforce and enhance the skills and qualifications of workers in manufacturing and other sectors. This data should also be seen as a sign of strength in some ways. The ability to capture and manage global supply chains is a key competitive advantage in today’s global economy. This is a great underlying strength of U.S. firms that can and should benefit our economy for years to come. I will continue to wish for the reshoring story to become reality. In the meantime, I’ll still consider the glass to be half full.
At this time of New Year’s resolutions and planning for the future, many communities are also rethinking their economic plans and foundations. This is especially important for economically-challenged places, where an entire economic “reboot” may be needed. Often, this rethinking is easier said than done. The process of community change can be long, painful and wrenching. But, the conversation has to happen, building on new approaches, ideas, and strategies. If you’re embarking on this journey, or in the midst of it, you might get some inspiration from the conversations now ongoing in Maine where a group of committed folks are trying to spark a new conversation about Maine’s “next economy.”
There’s actually a number of interesting efforts underway in Maine. First, a new book, appropriately titled Maine’s Next Economy, examines “how the state’s innovators, entrepreneurs, and doers are growing a new prosperity.” This is part of a larger statewide effort known as Envision Maine. Meanwhile, the Bangor Daily News is playing its own part with its #TheEconomyProject, a deep dive into the future of Maine’s economy. This interesting series is worth a look. Particularly informative is the poll of the top 10 ideas for changing Maine’s economic future. The top 3 vote-getters for the general public were: reducing energy costs, expanding broadband, and improving K-12 education. A separate poll of policy experts picked the following top 3: improve workforce quality, focus on entrepreneurs and innovators, and improve K-12 education.
The specific ideas and proposals being discussed in Maine may not be appropriate for your state or community, but all of these efforts do provide great ideas on how to spark community conversations about how best to build a future economy. This kind of community engagement is an essential prerequisite to local economic transformation.
As a consultant who often works in smaller communities, I get regularly frustrated by the absence of good (and updated) comparative economic data on small and mid-sized places. Most national benchmarking studies look primarily at large metros—examples include many excellent studies from the Brookings Metropolitan Studies Program and the Kauffman Foundation. (For example, Pittsburgh is the smallest community profiled in Kauffman’s new Metro Start-Up Index.) So, I’m very excited to see a new tool developed by the Atlanta Federal Reserve: the Small City Economic Dynamism Index. This excellent new on-line tool tracks economic dynamism (using 29 different measures) in 244 smaller U.S. cities, from Abilene TX to Yuma AZ and lots of places in between. The tool focuses on four categories of dynamism—population (e.g. growth and in-migration), economics (job and income growth), human capital (college attainment, new firms), and infrastructure (e.g., new building permits). Personally, I’d like to see more data related to business dynamics, but I also recognize that much of this data doesn’t exist in usable forms. So, consider this a minor quibble. For those seeking to understand what’s driving economies outside of our major metros, this resource is a great place to start.