Sep 25, 2017

The large parts of America left behind by today's economy

Economic prosperity is concentrated in America's elite zip codes, but economic stability outside of those communities is rapidly deteriorating.

What that means: U.S. geographical economic inequality is growing, meaning your economic opportunity is more tied to your location than ever before. A large portion of the country is being left behind by today's economy, according to a county-by-county report released this morning by the Economic Innovation Group, a non-profit research and advocacy organization. This was a major election theme that helped thrust Donald Trump to the White House.

Key findings:

  • New jobs are clustered in the economy's best-off places, leaving one of every four new jobs for the bottom 60% of zip codes.
  • 57% of the national rise in business establishments and 52% of employment growth from 2011-2015 were in prosperous areas.
  • Most of today's distressed communities have seen zero net gains in employment and business establishment since 2000. In fact, more than half have seen net losses on both fronts.
  • Half of adults living in distressed zip codes are attempting to find gainful employment in the modern economy armed with only a high school education at best.
  • The healthier the economy, the healthier the person — people in distressed communities die five years earlier.

The map: The fastest growing western cities (such as Gilbert, Ariz., and Plano, Texas) and "tech hubs" (Seattle, San Francisco, Austin) dominate the list of the most prosperous cities in the country. Cities that were once industrial powerhouses in the Midwest and Northeast are now more likely to be on the distressed end of the spectrum, like Cleveland and Newark.

"Today's jobs are going almost exclusively to people with education beyond high school, and those jobs are going to thriving communities," said John Lettieri, co-founder of EIG. "It's a self-reinforcing cycle."

The cycle: Fewer new companies are forming than ever before, which disproportionately hurts distressed communities. The new businesses that do get started are often located in thriving communities where educated workers are. So talented people are forced to leave places with little economic opportunity — even if they have personal and family reasons to stay — to move to those where there is opportunity.

That's why startup advocates have urged investors to look for opportunities outside of California, New York and Massachusetts, the three states that get more than two-thirds of venture capital funding. "It's not likely to fix itself," said EIG co-founder Steve Glickman. "Entrepreneurs are everywhere, but capital flows are really isolated and captured in a handful of places."

The tech factor: Compared to the rest of the country, tech hub cities have remained economically robust. Business growth in these areas seems to be especially strong, mostly because the "the rest of the country has fallen off a cliff," said Glickman. "That's allowed us to obscure the fact that there are a huge number of people and places being left out."

That dynamic has helped to fuel a quiet backlash, as people in parts of the country that are suffering economically have begun to resent the prosperous ones — in some areas driven by the tech industry's boom that hasn't generally expanded beyond the borders of a handful of cities.

Be smart: This isn't a Republican or Democratic problem. At every level of government, both parties represent distressed areas. But the economic fortunes of the haves and have-nots have only helped to widen the political chasm between them, and it has yet to be addressed by substantial policy proposals on either side of the aisle.

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