The great work from home experiment may soon reset America’s great geographic growth imbalance.
Over the last decade, half of U.S. growth came from a handful of American cities. With more companies adopting work from home and distributing their work forces across more locations, growth might start to become more equitable across geography.
People working from home reduces the need to bring everyone together in a handful of geographies. Even within a given geography – the premium of being close to headquarters drops significantly. That has important implications for the mega-regions driving most of America’s recent economic growth.
Indeed, the increasingly distributed workforce might end up reversing the trend of economic consolidation that has occurred over the past decade.
A few big metros have emerged as the centers of U.S. growth. Since 2009, seven cities or regions accounted for half of GDP growth: New York, Seattle, Boston, Atlanta, the Bay Area (defined as San Francisco and San Jose), Southern California (San Diego, Los Angeles, and Riverside) and the Texas Triangle (Dallas, Houston, Austin, and San Antonio).
I’m not the first to note this – experts in urban studies like Richard Florida have been pointing out this trend out for years. But the data is pretty stark.
Nowhere has the trend been more apparent than in the Bay Area. It grew at an incredible 5.6% annual rate between 2009 to 2018 – roughly three times the U.S. national average. Despite still being less than 5% of the US economy, the Bay Area accounted for 11.5% of US growth in the past decade.
While New York and Los Angeles grew a bit more than what we’d expect given their economic heft, the big tech hubs Boston and Seattle gained a disproportionate share of economic activity, as did southern powerhouses Dallas, Austin, Atlanta, and Houston.
Investment flowed liberally to those cities in the last decade. These cities accounted for 80 percent of venture capital activity, with much of it going to San Francisco and San Jose.
Cities in the rest of the top 25 accounted for 20% of the growth despite being 23% of the economy. For the rest of the country, the situation was uglier, as only 29% of GDP growth filtered down to smaller metros in the U.S, a much lower share than the 41% of the economy they currently account for.
Moreover, even within those cohorts, growth was uneven. In the top 25, the only other metros that grew faster than 2% were Portland and Denver. Outside of the top 25, only a handful of others grew that fast including college centric cities like Raleigh-Durham, Madison, and Nashville and resource rich Oklahoma City and Salt Lake City.
It is no wonder folks outside the most successful cities are so unsatisfied with the government. For the most part, they have been left out of the growth of the last decade.
None of this is surprising. Clusters have been driving economic growth for centuries; even Harvard Business School has a center to study the phenomenon. There are proven advantages for industries coming together in a single geography – as best practices, suppliers, and staff can all flow easily within a region.
Will work from home reshape clusters? At minimum, the idea that big companies should bus people from downtown San Francisco to a campus in Mountain View every day seems kind of silly. Or the notion of a 90 minute train ride from Westport to downtown Manhattan.
Mega-regions still have a lot going for them. For one thing, the Zoom experiment did not do as well for education, and most clusters are anchored around big universities. Tech businesses thrive close to major R&D centers. Hardware and biotech in particular need physical space, but even software companies benefit from in person interactions.
And there are many people who would stay, at the right price, for the amenities these places bring. New York and San Francisco can be terrific places to live – regardless of job.
But there will be a redistribution. Smaller cities with good quality of life and a strong foundation should probably pick up more high value jobs. The second headquarters approach taken by Amazon may be adopted and expanded by others. Many companies have also been moving administrative services outside of city center for years – that trend likely accelerates.
And outer ring suburbs will also likely thrive as companies take a hybrid work from home approach with employees coming in occasionally for meetings. A 90 minute ride from the East Bay to Palo Alto or the Hudson Valley to Manhattan doesn’t seem as daunting when it is once or twice a week.
Policymakers will need to take note – and aggressively tackle issues of housing, education, and quality of life. In a work from home world, employees will be even less willing to pay a premium to live in a mega-cluster – when a good job can be had outside of the major metro area.
The Great Refactoring 