State of the Region

Differences in employment growth across the District’s metro areas

To help understand what might be behind the District’s recent employment performance, we take a longer look back. Shorter-term fluctuations often obscure longer-term drivers of employment growth differences, and it’s important to identify these longer-term drivers because they will likely remain meaningful as the recovery continues. As a result, we will consider employment changes during the entire recovery to this point, from mid-2009 to the end of 2013.

To identify the factors that have driven employment changes during this period, one place to start is with some of the key issues that were important in the recession. The boom and bust in housing prices, for example, was arguably a precipitating cause of the recession, and differences in the declines of residential real estate values led to differences in the severity of employment losses across America’s MSAs. Another example is the manufacturing sector, which was hard hit during the recession, especially the transportation equipment subsector. The Labor Department reported that transportation equipment “lost the greatest number of jobs in manufacturing and accounted for a disproportionate share of the jobs lost in durable goods” production. In fact, the severity of the recession forced two of the three major American automakers to restructure. Both manufacturing and motor-vehicle-related production—a key component of the transportation equipment subsector—have above-average concentrations in the District.

Many of the District’s MSAs remain above average in the share of their workers devoted to the manufacturing sector.

During the recession (essentially 2008 through the middle of 2009), these two factors—changes in an area’s housing prices and its manufacturing intensity—did indeed explain a fair amount of the variation in employment changes across the nation’s major MSAs. Together, they accounted for about 25 percent of the variation in the 150 most populous metro areas. Both factors were measured before the recession, so the direction of causality is assumed to be from these factors to employment changes during the recession, not the other way around.

Within the District, home-price appreciation before the recession was relatively modest. For the 10 District MSAs that rank among the nation’s 150 largest, nominal increases in home prices from 2000 to 2007 ranged from roughly 20 percent (Canton) to 36 percent (Pittsburgh), a fairly narrow band, which was well below the median increase (almost 50 percent) for this set of 150 metro areas. For context, consider that about 20 percent of these metro areas actually saw their home values more than double during this period. Across all of these major American MSAs, larger prior home-price increases predicted larger employment declines during the recession. However, this was not true in the Fourth District, partly because home-price increases in the 10 major District MSAs were fairly modest and closely clustered.

What mattered more in the District were differences in manufacturing intensity. Historically, the District has been home to many types of manufacturing. In fact, some of its cities are still associated with the materials they became known for producing around the turn of the century—glass in Toledo, rubber in Akron, steel in Pittsburgh. Aerospace production has been and continues to be important in the District, as does automotive production, in which Ohio ranks second nationally.

Many of the District’s MSAs remain above average in the share of their workers devoted to the manufacturing sector. Of the 10 we will consider, eight had a higher fraction of employment in manufacturing than the national average of about 10 percent in December 2007. The exceptions were Columbus (8.0 percent) and Pittsburgh (8.6 percent). The most manufacturing-intensive MSA among these 10 was Canton (17.5 percent). In the District, as in all 150 major MSAs, higher manufacturing intensity in December 2007 was associated with larger employment declines during the recession.

Interestingly, while these two variables are important in explaining employment changes during the recession, they are not statistically significant predictors of employment changes during the recovery. However, when we examine a third variable in conjunction with the other two, the third one - educational attainment - is statistically significant, and thus a partial explanation for employment changes that have taken place during the recovery. Specifically, MSAs that had higher rates of adults holding undergraduate degrees in 2010 tended to experience stronger employment gains during the recovery. Indeed, within the District, places like Lexington and Columbus, which have high shares of adults with bachelor's degrees (BAs), have also seen some of the strongest employment gains during the recovery (figure 3).

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