Growth and inequality in Rochester

Print More
Over the last decade, as tens of millions of dollars have poured into Rochester development projects and the economy has rebounded, the city’s income gap has widened—particularly when broken down by race.

President John F. Kennedy believed a rising tide lifts all boats. A half-century after he famously used that phrase in a speech, it’s a commonly held belief in the private sector and among local government officials. In economic development circles, it’s an article of faith.

But could that faith be misplaced? Does economic growth in fact always improve the lives of rich and poor alike?

A new report from the Brookings Institution suggests an answer. While metropolitan economic growth has been widespread in the U.S. since the end of the Great Recession, the data across all income groups are decidedly more mixed—especially when broken down by race.

How has Rochester’s economy performed? Brookings gives our region a fairly high mark for gains in prosperity and overall economic inclusion. When graded by racial inclusion, however, Rochester ranks near the bottom—and in terms of the change in the poverty gap between whites and people of color, we’re dead last.

An uneven recovery

Since 2009, the Metropolitan Policy Program at Brookings has tracked the nation’s recovery from the financial crisis and the 2007-09 recession—the worst since the Great Depression—through its quarterly Metro Monitor report on the 100 largest U.S. metro areas. Three years ago, its researchers expanded the scope of their performance rankings to include not only growth but two additional benchmarks: prosperity and inclusion. The idea was to highlight economic success “by not only measuring economic growth but also how growth is achieved and who benefits from it.”

For an economic development strategy to be truly successful, it must “not only grow an economy but raise living standards for all of (a community’s) residents,” the lead author of that year’s study argued.

Brookings measures prosperity by examining changes in productivity, average annual wage and standard of living. For inclusion, the components are changes in median earnings, relative poverty rate and employment rate. Inclusion by race, which measures change in the white/people of color gap, also has three components: earnings, poverty and employment rate.

The latest data enabled Brookings to examine a full decade (2007 to 2017), providing a picture of how each of the top 100 metro economies is performing now compared to the start of the Great Recession.

Over the decade, roughly two-thirds of metro areas (64) made gains on all three prosperity indicators, but fewer than one-third did so on inclusion (29) and racial inclusion (26). 

By 2017, 91 metro areas had higher output and 85 had more jobs than in 2007. In other measurements, 95 metro areas had higher average wages and 83 had higher productivity; fewer, but still more than half (65), had achieved a higher standard of living.

Brookings’ inclusion index offers a mixed picture for 2007-17. Overall, 72 metro areas recorded declines in relative poverty (though only 21 were statistically significant) and 62 metro areas improved their employment rate (32 statistically significant), but median earnings in 23 metro areas and employment rates in 12 metro areas “dropped by statistically significant margins.” 

The inclusion-by-race index showed the least progress. In fact, the report states, “more metro areas registered statistically significant increases in racial gaps for median earnings (16) and relative poverty (10) than achieved declines.”

The bottom-line finding: Truly inclusive economic growth remains rare in metro America.

“Even as most metro areas have rebounded to pre-recession levels of output, jobs, and living standards,” the report observes, “other changes in the economy and labor market have mostly served to widen their gaps by race and income.”

What the numbers say about Rochester

In the 2007-17 decade, Rochester added jobs, grew its GMP, boosted wages and earnings, and achieved a decline in relative poverty, Brookings found. But its rankings among the top 100 metros varied widely. The best performances were in change of employment rate (4th), standard of living (8th) and productivity (13th). The employment rate increase of 5.7 percent helped Rochester earn an overall inclusion index ranking of 25th

This image has an empty alt attribute; its file name is Rochester_Metro-Monitor_inclusion-by-race.jpg

Yet in the inclusion-by-race index components, Rochester could do no better than 38th(change in white/people of color employment rate gap). The race gap in median earnings increased by $2,836, ranking 83rd; and the relative poverty gap widened by 8.3 points—the biggest increase in that yardstick of inequality among all 100 metros. Rochester’s overall ranking in the inclusion-by-race index: 94th.

What explains Rochester’s rankings—especially those that trail most other metros—in Brookings’ research? If you’re tempted to point a finger at the “upstate factor”—the usual suspects blamed for lagging metro economies north of New York City—consider this: Both Buffalo and Syracuse outperform Rochester in inclusion by race. The contrast with Syracuse is particularly striking. Its overall growth ranking was 79th, compared with 83rdfor Rochester, but in the overall inclusion-by-race index, it placed 36th—58 places ahead of Rochester. (Brookings also examined one-year data for 2016-17; Rochester ranked 86th, Syracuse 11th.)

The Brookings researchers offer a possible answer in the report. They write that “outcomes for racial inclusion seemed to reflect distinctive local demographic and occupational patterns, as well as a metro area’s starting point on racial disparities.”

When I put the question directly to Alan Berube, an author of the report, he elaborated.

“Rochester is a good example of the tenuous link between overall inclusion, and racial inclusion,” says Berube, senior fellow and deputy director of Brookings’ Metropolitan Policy Program. “It performed relatively well—34th—on reducing overall ‘relative poverty,’ the share of workers earning less than 50 percent of the median for the metro area. However, it ranked 100th out 100 on the change in its relative poverty gap between white and non-white workers.

“The share of the region’s white workers earning less than 50 percent of median earnings fell from 28 percent to 25 percent, while the share of its black workers below that threshold rose from 33 percent to 41 percent. This suggests continued segregation of the region’s black workers in low-wage occupations with limited upward mobility, against the backdrop of weak overall earnings growth in the region from 2007 to 2017.”

He points to median household income data to further illustrate how economic outcomes for blacks in the Rochester area declined over the decade, while they improved in Syracuse and, to a lesser extent, Buffalo.

“Black median household income, when adjusted for inflation, rose by about $12,000 in Syracuse from 2007 to 2017, but dropped by about $7,000 in Rochester,” he says. “Notably, Buffalo and Syracuse saw stronger declines in racial segregation over the last 15 years than did Rochester.”

The effects of long-term racial disparity in our community were examined in the 2017 “Hard Facts” report by ACT Rochester and the Rochester Area Community Foundation. It found that “while discrimination and racism have played and are continuing to play significant roles in American history and culture, … for almost every indicator, our Rochester region is performing even more poorly than New York State and the country.”

Growth for all

A recent article in the Beacon by Vincent Esposito, vice president with Empire State Development and executive director of the Finger Lakes Regional Economic Development Council, described how FLREDC’s strategic plan—United for Success: Finger Lakes Forward —has positioned the region for future growth. Nearly $500 million of state Upstate Revitalization Initiative money is fully committed, nearly two years ahead of schedule, on 100 projects. These projects, he wrote, will “leverage more than $1.77 billion in additional investment (private, local, federal), will create approximately 4,000 new jobs, and have already helped retain over 6,200 jobs for our region.”

But are we doing enough to ensure that everyone in our region—regardless of income status or race—has a realistic shot at this economic opportunity? Of the committed URI funds, less than 10 percent—or $47.6 million—supports “pathways to prosperity” programs (with roughly one-third going to the Rochester-Monroe Anti-Poverty Initiative). By contrast, $209 million is committed for optics, photonics and imaging, and next-gen manufacturing and technology has a $107 million commitment. No doubt, these investments should boost regional prosperity, but what portion of it will reach areas of concentrated poverty in the city?

To bend JFK’s metaphor slightly, it seems some people are transported by the rising tide in rowboats and rafts—and others in speedboats.

Like the Brookings report, recent census data for Rochester points to widening inequality. From 2010 to 2017, median household income for the lowest quintile in the city rose 7 percent—but for the highest quintile, the increase was 18 percent, and the top 5 percent reaped a 27 percent gain. In metropolitan Rochester, the story was much the same.

Growing inequality is a problem for the entire nation. Studies by the Congressional Budget Office and others have shown how most of the benefits of economic growth have gone to those at the top of the income ladder. As a matter of simple fairness, this seems wrong. 

But fairness is not the only reason to view inequality as unacceptable. Research shows inequality also drags down economic growth. In Pulitzer Prize-winner Steven Pearlstein’s recent book, “Can American Capitalism Survive,” he cites a 2015 Organization for Economic Cooperation and Development macroeconomic study that found inequality “knocked 4.7 percentage points off cumulative economic growth (across OECD countries) between 1990 and 2010.” The reasons why—misallocation of capital and increased poverty, among them—almost certainly apply at the regional level too.

How do we want Rochester’s economy to grow? If we want the rewards and opportunities to be fairly distributed, what needs to change? These are not simple questions, but ones we need to answer.

3 thoughts on “Growth and inequality in Rochester

  1. “President John F. Kennedy believed a rising tide lifts all boats. A half-century after he famously used that phrase in a speech, it’s a commonly held belief in the private sector and among local government officials. In economic development circles, it’s an article of faith.”

    The above’s a perfect visual for what Mr. Ericson so thoroughly and carefully describes, IF you add a single change to Kennedy’s quote: “… lifts all boats [THAT DON’T HAVE HOLES IN THEM].”

    One of the things I really like about the Beacon is that most contributors seek to ground their statements in data; not that I by any means agree with all the articles, but at least data provides a common ground to build on. In the current article Ericson’s data really touches on my holey boat extension; yes, things are improving, as long as you’re already in a particular category of the population. But, if not, not. Or as Fitzgerald put it, “the rich get richer and the poor get children.”

    ***

    One thing that’s always struck me about Rochester in the 12 or so years I’ve lived here is how much it’s a surplus of the old with change exerted by the new. The Kodak and Xerox influences are very old, and whether or not they were ever good (economically yes, but in terms of corporate culture … ?) their mindsets live on, perhaps past the time when they ought have gone gently in that good night.

    To put it simpler, if there are boats that are sea-worthy and ones that are skeletons, part of fixing that problem is to recognize the two categories; the other part is to deconstruct old ways of thinking when they interfere with that conceptualization and the pain that comes of it.

  2. The inner city low income population has had the benefit of very generous subsidies for housing, food, health care, heat/other utilities, education, day care, earned income tax credits, etc. This isn’t reflected in their effective actual income. This makes them among the wealthiest poor in the world. These benefits discourage to a certain extent the willingness to work or get trained. In addition, this has become ingrained into their culture along with role models who promote violence, anti police, drugs, etc. This demographic needs to know how to embrace the freedoms and opportunities of this great country.

  3. A note in reference to John Rynne’s comment: The Congressional Budget Office study for which I provided a link in fact does include in social insurance benefits and “means-tested” transfers such as Medicaid, the Supplemental Nutrition Assistance Program (formerly known as food stamps), and Supplemental Security Income. As the study’s Summary Figure 2 shows, even with these adjustments, the highest quintile’s growth in cumulative average income since 1980 has far outpaced the lowest or middle quintiles (though the lowest quintile outgained the middle quintiles).

Leave a Reply

Your email address will not be published. Required fields are marked *