Rochester and the ‘superstar’ cities

The story we like to tell ourselves about Rochester’s “new economy” goes something like this:

Our bedrock of entrepreneurship and innovation has enabled the transition from a manufacturing-based economy dominated by the Big Three to a knowledge-based economy where a highly-educated workforce and research centers of excellence are driving growth in fields as varied as biotech and life sciences, energy, food and beverage production, and optics, photonics and imaging.

Yes, we face difficult challenges such as concentrated urban poverty and one of the worst-performing city school districts in the nation. Nonetheless, our economy has weathered the storm of deindustrialization.

A different story also can be told, however. In a July 16 article, New York Times writer Eduardo Porter examined how midsize cities’ economies have fared compared to a handful of big, “superstar” cities. The article doesn’t mention Rochester, but our region shares many of the characteristics of the midsize metropolitan areas he describes.

Porter’s conclusion: There is a “widening gap between a limited set of successful cities—which draw both highly educated workers seeking well-paid jobs and high-tech companies that want to employ them—and pretty much everywhere.”

A number of midsize metros are growing, yet they are failing to keep pace with the elite cities mostly located on the two coasts. This is a relatively new development, he notes; in the decades after World War II, “poorer and generally smaller cities were catching up with richer, bigger places. In recent years, this convergence stopped.”

In the industrial era, cheaper labor found in smaller metropolitan areas was attractive to factory owners. But the high-tech companies that dominate today gravitate toward select big cities where skilled knowledge workers, research facilities and venture capital are concentrated.

In Porter’s telling, Winston-Salem, N.C., exemplifies the plight of midsize metros. Its population of 670,000 is roughly two-thirds the size of the Rochester MSA, but it’s growing. Once a thriving hub of the tobacco, textile and furniture industries, it has pivoted toward biotech. The Wake Forest Innovation Quarter, a research-focused district anchored by Wake Forest University’s Institute for Regenerative Medicine, has breathed new life into abandoned downtown cigarette factories.

Yet private-sector employment in Winston-Salem is only slightly higher than it was at the turn of the century (the same is true here), and over the last decade the gap between its per-capita income and the average for U.S. metro areas has widened.

So, two narratives: Which are we to believe? To try to answer that question, you need to go to the data—not a single metric, but a range of income and economic output indicators.

What do the numbers say?

Let’s start with the yardstick Porter used: income per person. From 2009 to 2017, real per-capita personal income in U.S. metropolitan areas increased 17 percent, Bureau of Economic Analysis statistics show. Rochester (14 percent) and Winston-Salem (13 percent) were not far off the U.S. average, but since they had lower per-capita personal income at the start in 2009, they fell a bit farther behind over the period. By contrast, cities like Boston, Charlotte, N.C., New York City and San Francisco outpaced the U.S. average—with San Francisco leading this group at 30 percent.

Viewed through a somewhat different lens, median household income, Rochester and Winston-Salem again grew—and fell farther behind the big cities. County-level data from the Federal Reserve Bank of St. Louis shows that in the 2009-2017 period, Monroe County’s median household income rose 15 percent, markedly better than the 11 percent gain posted by Forsyth County (Winston-Salem). But both badly lagged New York County (23 percent), Mecklenburg County/Charlotte (24 percent), Suffolk County/Boston (25 percent) and San Francisco County (56 percent).

Regional economies that once thrived with well-paid manufacturing jobs now pin their hopes on technology jobs, which pay more than most other occupations. But in a recent study of tech workers’ pay in the 100 largest U.S. metros, Rochester ranked third from the bottom—and the average salary here of $69,000 is down 9 percent from last year. What’s more, Rochester had the smallest salary difference between tech and other occupations—35 percent, compared with a roughly 50 percent difference in San Francisco and Boston, 68 percent in New York City, and a whopping 85 percent gap in Charlotte.

What about economic output, another way of measuring a region’s growth and prosperity? The BEA’s data on per-capita real (inflation-adjusted) GDP for metropolitan areas shows Rochester and Winston-Salem with zero increase in output from 2009 to 2017. The U.S. average for that period was 9 percent, with San Francisco and Boston at 17 percent and 13 percent, respectively, Charlotte matching the U.S. mark and New York City (8 percent) trailing slightly.

Comparatively, the worst metric for Rochester is real metropolitan GDP (versus per-capita GDP). Again, our region had zero growth in the 2009-2017 period. The other metros I looked at all did better: Winston-Salem (5 percent), New York City (13 percent), Boston (21 percent), Charlotte (25 percent) and San Francisco (28 percent). 

If you look at a longer time frame—2001 to 2017—Rochester’s performance improves somewhat, especially in growth of median household income (it even outpaced Mecklenburg County/Charlotte by a few percentage points). The overall picture remains the same, however.

A map in a September 2018 report titled “The Geography of Prosperity” by The Hamilton Project of the Brooking’s Institution vividly portrays what has occurred in Rochester over the last several decades. It shows the change in Vitality Index, a measurement the researchers devised that contains a half-dozen components, with median household income the largest, weighted at 45 percent. From 1980 to 2016, our region ranks in the worst-performing group.

Rochester’s edge

There are, of course, other ways to take the measure of a local economy. I’ve written before about one edge that Greater Rochester has economically: its affordability. Of the metros I examined, only Winston-Salem and Charlotte were more affordable than Rochester, measured by regional price parities or the differences in the price levels of goods and services, expressed as a percentage of the national average. At 98, Rochester was two points below the national average in both 2009 and 2017—while San Francisco rose from 122 to 128. That gives Rochester a very large purchasing-power advantage.

Affordability matters. It’s a big reason why Rochester—and other midsize cities—are hot real estate markets today. And coupled with the quality of our work force, it’s a key factor that has prompted some big-city companies to open operations here. (For employers, the comparatively lower pay for tech workers here is a definite plus.) Yet Charlotte seems to have used these same attributes to greater advantage, becoming a startup capital of the South.

So, how would I answer the question about which narrative is true? I think both are, yet neither tells the whole story. Rochester’s transition to a new economy is a work in progress. We need to be honest about our current competitiveness but also farsighted in assessing opportunities to gain advantage.

Porter wonders if “midsize cities are doomed to stagnation.” I think the future is not set in stone; in fact, it’s yet to be written.

Paul Ericson is Rochester Beacon’s executive editor.