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Joel Elvery |

Economist

Joel Elvery

Joel Elvery is an economist in the Research Department of the Federal Reserve Bank of Cleveland. He is primarily interested in labor, public, and urban economics, as well as applied econometrics. His current work focuses on the regional economy of the Fourth District of the Federal Reserve.

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08.07.13

Economic Trends

Brain Hubs and Manufacturing Centers in the Fourth District

Joel Elvery

Urban economists like to divide a regional economy into two sectors: tradable and nontradable. The tradable sector produces goods and services that are sold outside of the region; the nontradable sector produces goods and services for use in the region. The long-term growth trends of regions are closely tied to the fate of their tradable sectors. If the industries that make up the tradable sector are growing nationally, then the region will most likely grow. If the tradable sector is struggling, eventually the region will also struggle.

In his 2012 book The New Geography of Jobs, Enrico Moretti uses this framework to study the growth of metropolitan areas (metros) over the last 50 years. The key insight is that metros whose tradable sectors are focused on knowledge work—which he calls brain hubs—have seen strong growth in employment, property values, and wages (think San Francisco, New York, and DC). Those metros with tradable sectors focused on manufacturing—manufacturing centers—have seen weak wage growth and a loss of employment and population (think Detroit, Toledo, and Cleveland). Regions with small tradable sectors—the rest—have either thrived or declined based on whether they have been able to attract more population, primarily due to natural amenities and the cost of new housing.

A few Fourth District metros could be considered brain hubs. A good measure of a brain hub is the number of knowledge jobs per manufacturing job (K/M). The higher K/M is, the more likely that a metro is a brain hub. The chart below shows K/M for 11 of the largest metros in the Fourth District and ten other metros, including those where K/M is the highest (Washington, DC) and lowest (Elkhart, IN). (Knowledge jobs were defined as jobs in the following industrial sectors: information; finance, insurance, and real estate; and professional and business services.)

While no metros in the district have tradable sectors as specialized in knowledge work as Washington or New York, Columbus and Pittsburgh are close to some of the metros Moretti cites as brain hubs, such as Austin, TX, and San Francisco/San Jose, CA. Columbus and Pittsburgh also rank above three Midwestern metros that have fared well in the last 30 years (Chicago, Indianapolis, and Minneapolis). However, the remaining metros in the district fall below the number of knowledge jobs per manufacturing job found in the nation as a whole and are better classified as manufacturing centers. Canton and Erie are unusual because they have more manufacturing jobs than knowledge jobs.

Few metros in the Fourth District seem to be transitioning from manufacturing centers to brain hubs. The chart below shows the number of knowledge jobs per manufacturing job in 1992 (horizontal axis) and the change in this measure from 1992 to 2012 for Fourth District metros (vertical axis). K/M increased in all of the metros, with the increase ranging from one-third of a job in Erie to almost 2 jobs in Columbus. Columbus and Pittsburgh were more concentrated in knowledge work than the United States in 1992, and this lead grew from 1992 to 2012. The other metros in the Fourth District were behind the United States in 1992, and the gap grew over the last 20 years. Lexington and Toledo stand out as regions where growth in knowledge work has been weaker than would be expected based on their 1992 K/M levels.

The increased polarization of Fourth District metros is similar to what Moretti found for the nation as a whole: regions that had more knowledge work in 1980 had larger increases in knowledge work over the next 30 years. Based on trends in technology and increased foreign trade, Moretti argues that the future of metros will look a lot like the recent past: brain hubs will thrive, manufacturing centers will struggle, and the rest will be somewhere in between. Finding ways to draw knowledge work to manufacturing centers remains critically important to many Fourth District metros.