Real income datapoint of the day

By Felix Salmon
May 11, 2010
Manhattan, Kansas, that is. Meanwhile, in much more educated and vibrant cities like Raleigh and Austin, real incomes fell substantially. What's going on here? Mike Mandel looks at the numbers:

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Manhattan incomes rose by 35.5%, in real terms, between 2000 and 2008. Manhattan, Kansas, that is. Meanwhile, in much more educated and vibrant cities like Raleigh and Austin, real incomes fell substantially. What’s going on here? Mike Mandel looks at the numbers:

Brains and education did not seem to count too much in success in the last business cycle. Overall, the top ten cities, measured by growth in per capita income, had an average college graduate rate of 17.7% The bottom ten cities had a college graduate rate of 31.8%.

My feeling is that this is a historical anomaly, and largely a product of the beginning and end points that Mandel used: 2000 was the peak of the dot-com bubble, which artificially inflated tech salaries, while 2008 came at the end of a commodity boom which helped oil-rich states. The long-term trend is inescapable: the returns to education are large and growing, and if you’re not a college graduate and you don’t own your own company, it’s becoming increasingly difficult to maintain a middle-class lifestyle.

What’s more, Mandel’s outliers have to bee seen in the context of the bigger story about real wages, which he noted back in April: real wages in general have been falling, for the first time since the Great Depression. And with unemployment still at 10%, there’s not much hope that they’ll start rising again any time soon. If you want to see incomes go up in your city or region, your best hope is frankly just to get lucky, like Manhattan did. Because wages in the U.S. as a whole aren’t going anywhere.

(HT: Cowen)

Update: I had lunch today with Allison Schrager of the Economist, and she asked a good question: how did the percentage of college graduates in these cities change from 2000 to 2008? And what happened to the student population in Austin?

Update 2: Mark Beauchamp of EMSI makes some excellent points via email:

Mr. Mandel’s lead example of Metro Areas with the Biggest Real Per-Capita Income Gains was Houma-Bayou Cane- Thibodaux, LA — a metropolitan area that had 11% of the population of the San Jose MSA in 2002.

Between 2002 and 2009, its population grew 5.08% while its total employment grew 19%.  You have to have an income-per-capita increase in jobs like that.  An income-per-capita ratio favors regions that have explosive income growth (especially jobs that pay above the previous average), and population growth that lags behind the job growth. Conversely, the ratio will not favor areas that have a high amount of population growth with concurrent losses in total income.

The  biggest “loser” by this metric is the San Jose MSA, and during the same time period  its population grew by 86,269 people (5.16% growth) and lost 43,314 jobs (a 5% loss).  For purposes of scale, the San Jose MSA added the equivalent of half of the population of the Houma MSA and lost the equivalent of half Houma MSA’s workforce between 2002 and 2009.

Tying this in to education level is pretty silly — these are boom towns (oil and military), and likely with a high amount of young workers, early in their careers who didn’t bring spouses or children (extra, non-income-producing population, thus dampening the ratio).  This is like comparing the boom towns of the Western US with the established cities of the Eastern US during the Long Depression at the end of the 1800’s.

He also has some numbers for college graduates in Austin: they were 46% of the population in 2002, and 44% in 2009. So that doesn’t explain very much.

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