What’s the future of the economies of the Rochester region, New York State and the nation in the aftermath of a pandemic?
On Jan. 14, prominent economists Jed Kolko and Mark Zupan explored that question in a Rochester Beacon online forum. More than 220 people tuned in to listen to the Rochester natives in a conversation moderated by Kent Gardner, Rochester Beacon opinion editor and chief economist at the Center for Governmental Research.
Kolko is chief economist of Indeed, the world’s largest online jobs site, and was previously chief economist and VP of analytics at Trulia, the online real estate site.
Zupan, president of Alfred University, has long observed the business community, particularly in New York and the Finger Lakes region. The economist has held a number of distinguished academic positions in the past, including dean of the University of Rochester’s Simon Business School.
Impact of Covid-19
The coronavirus pandemic caused a rapid, severe, global economic downturn, Gardner noted. From the first to the second quarter of 2020, New York’s GDP dropped by 36.3 percent. The fall occurred against the backdrop of poor long-term job growth in Upstate New York. Of the top 100 metros in the country, Syracuse, Rochester and Buffalo have been some of the worst-performing in the nation since 2010.
Placing Gardner’s findings in context, Zupan pointed out that most of the world’s economy now depends upon services instead of the production of physical goods. Industries can locate almost anywhere that their workers desire to live, and there’s been a big shift toward locations that are high in amenities—such as good weather. Places like San Antonio, Texas, have seen faster economic growth, though their mixtures of jobs and industries are similar to Rochester’s.
Zupan, who prefers Upstate New York’s annual change of seasons to the weather of Tucson, Arizona or Los Angeles, says high state and local taxes discourage entrepreneurship.
“We compete with New Jersey for the highest-taxed state,” Zupan said.
Efforts to attract or keep businesses through government economic development strategies like New York’s Opportunity Zone Program “often end up making landlords and investors richer without creating jobs,” Kolko said. He and Zupan assert that instead of depending upon such programs, Upstate New York should use its wealth of colleges and universities as engines of economic growth.
“The single best thing a place could do is build a university and wait 50 years,” Kolko said.
In addition to being the largest employers in upstate metros, institutions of higher education also function as “intellectual Ellis Islands” that attract students from around the U.S. and abroad, Zupan said. The problem is keeping the potential entrepreneurs those institutions nurtured in the communities in which they studied.
“How do we make sure that Syracuse, Rochester, Buffalo are hip places (where) the young want to join businesses, start businesses?” Zupan said.
One way, he believes, is to develop co-op programs that give college or university students the chance to see local companies from the inside, and the businesses the chance to examine them for possible employment.
Growth of remote workers
Remote employment will continue to be a part of the economy even after vaccines reduce the risk of contracting COVID-19. That, plus the growth in the prices of real estate in some urban areas, will benefit more affordable suburbs that have large, dynamic labor markets.
“A lot of the growth of smaller cities that we’ll see will be among places that are already growing quickly, places that have already demonstrated a pull towards people who have more flexibility,” Kolko said.
Many have wondered why the stock market has boomed while the jobs market nationwide has plummeted. Zupan pointed out that despite the loss of wages for those in lower-paying jobs, the overall savings rate has risen dramatically, and now stands at roughly 7 percent.
“There hasn’t been so much stuff we can spend on,” he said.
Some of that money has gone into home sales or invested in the stock market, including the technology companies that exert an outsized influence over economic indicators.
“Indices like Nasdaq, indices like Dow Jones have been disproportionately weighted toward the tech companies,” Zupan said. “It looks like things are great, but there’s still horrific job losses.”
Vaccines offer some hope
Congress passed a $900 billion coronavirus relief bill in December, and on Jan. 14, President-elect Joe Biden unveiled another $1.9 trillion aid package. Though the huge aid packages carry the risk of fueling inflation, targeting the funds properly should reduce that risk.
“The extent to which the stimulus (spending) can be focused on people and businesses who otherwise won’t make it, that’s less likely to fuel inflation,” Kolko said.
Despite the huge deficit, the greater danger would be to do too little to stimulate the economy, as the federal government did back during the 2008 recession.
“In a world where interest rates are much lower, it’s much more manageable that government would carry larger deficits to spend this kind of stimulus,” Kolko said.
In the near term, the state of the economy will depend upon the virus and the success of vaccination programs. Widespread vaccinations will benefit some sectors right off the bat.
“Local businesses, restaurants, local retail, personal services can reopen pretty quickly,” Kolko said.
Other sectors, such as the travel industry, will take longer, and the financial and professional service industries will probably wait until they are confident of the economy before hiring. Retailing and warehousing have likely changed permanently.
“Lots of retailers and households have shifted patterns dramatically to ordering online, picking up curbside,” Kolko said.
The resulting increase in warehousing and delivery jobs will probably also be permanent.
The pandemic also has increased the racial, educational and economic inequities that have long afflicted the nation.
“Even after the vaccine, we’ll likely be in for a several-year period of higher than pre-pandemic unemployment, which will be a headwind for trying to narrow some of these gaps in inequalities,” Kolko said.
Mike Costanza is a Rochester Beacon contributing writer.