Jul 11, 2019

Exclusive: The next big inequality crisis

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Data: McKinsey Global Institute; Map: Andrew Witherspoon/Axios

Think polarization and inequality are bad now? Buckle up: big cities are poised to get bigger, richer and more powerful — at the expense of the rest of America, a new report by McKinsey Global Institute shows.

Why it matters: McKinsey's analysis of 315 cities and more than 3,000 counties shows only the healthiest local economies will be able to successfully adapt to disruptions caused by the next wave of automation. Wide swaths of the country, especially already-distressed rural regions, are in danger of shedding more jobs.

  • The 25 most prosperous cities that have led the recovery from the Great Recession are poised to get stronger. Those megacities could claim at least 60% of job growth through 2030.

The big picture: The labor market will become more polarized.

  • On one end of the spectrum: a couple dozen successful cities with diversified economies and a lot of young, highly educated workers who are likely to be more resilient to workforce transitions.
  • On the other end: "trailing" cities and rural regions with aging workforces, lower education levels and jobs that are highly susceptible to automation-related displacement. As a result, these places may see a decade of flat or even negative net job growth.

Between these extremes is a group of thriving niche cities, such as Sunbelt cities popular with retiring baby boomers and college towns.

  • There's also a broader “mixed middle” that is seeing modest economic growth. These places — including stable cities like St. Louis and unique economies like Lancaster, Pa. — aren't necessarily thriving but are doing much better than distressed areas.

Making matters worse, workforce mobility is at historic lows, meaning far fewer people are moving to new counties or states.

  • "And when they do move, they go to places very similar to where they came from," said McKinsey partner Susan Lund.
  • That means people from distressed areas aren't finding their way into more prosperous ones, deepening their sense of being left behind and likely leading to greater social and political turmoil.

The impact: Automation will have the largest impact on entry-level and older workers, because more of their jobs tend to be routine or physical in nature and are most likely to be taken over by machines and algorithms.

  • It will also affect some of the country's largest occupational categories: office support, food service, production work, customer service and retail sales.
  • Almost 40% of U.S. jobs are in categories expected to shrink between now and 2030.
  • The hollowing out of middle-wage work will likely continue, per the report, without deliberate intervention to provide workers with skills they need to get higher-paying jobs.

Women may be better positioned than men for the automation-era jobs, with McKinsey data suggesting women could capture 58% of net job growth through 2030.

  • This is largely because of women's heavy representation in health professions and personal care work.
  • The catch: Many of those jobs are not high-paying.

What's next: It's going to be up to local and federal policy makers to proactively create employment paths for the those most likely to face displacement, McKinsey's Lund said. "Lifting up these places will not just happen naturally," she said. "It will take a concerted effort."

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