Center for Population Dynamics Quarterly Brief March 2016 Cleveland Works: Employment Trends, 2014 to 2015 BY RICHEY PIIPARINEN AND JIM RUSSELL Center for Population Dynamics Quarterly Brief March 2016 The 2000s were unkind to Greater Cleveland1. The recessions of 2001 and 2007-2009 were periods of economic restructuring that came with significant job losses (see Figure 1). Nearly 90% of the losses were due to reductions in manufacturing employment2. Data from the Bureau of Labor Statistics, though, point to a recovery of sorts. Specifically, Greater Cleveland saw a gain of 23.3 thousand jobs in 2015—the largest year-over-year increase since 1997. Job Growth (in thousands) Figure 1: Cleveland Metro Total Employment Year-Over-Change (Dec 1991 to Dec 2015). Source: BLS, Not Seasonally Adjusted. 40 30 20 10 0 -10 -20 -30 -40 -50 -60 31.7 26.6 23.3 -32.5 -36.9 -50.2 Greater Cleveland’s gains compare favorably to benchmark regions (the benchmark regions were replicated from the data dashboard “Pittsburgh Today”3). Table 1 shows Cleveland ranked 4th out of 15 benchmark regions in the percent gain of total jobs, behind Charlotte, Indianapolis, and Baltimore. Table 1: Job Growth (Dec. 2014 to Dec. 2015) and Unemployment Rate (Dec. 2015). Source: BLS. 2014 2015 % Unemployment Benchmark Total Total Change Rate Regions Jobs Jobs 1093.9 1130 3.3% 5.2% Charlotte Importantly, the rate of job growth has coincided with a decline in the region’s unemployment rate. Cleveland’s unemployment rate was 5.6% in 2014. By 2015, the percentage of unemployed Greater Clevelanders actively seeking work was down to 4.4% (See Table 1). This percent point decrease ranked as the 3rd largest decrease out of the 15 benchmark regions. Next, the analysis turns to what sectors are driving this change. Indianapolis 1015.9 1043.3 2.7% 4.3% Baltimore 1368.4 1399.4 2.3% 5.1% Cleveland 1044.8 1068.1 2.2% 4.4% Detroit 1928.5 1968.1 2.1% 6.2% Cincinnati 1055.9 1075.6 1.9% 4.6% Minneapolis 1913.6 1947.6 1.8% 3.3% Denver 1374 1398.2 1.8% 3.3% Boston 2629.8 2675.6 1.7% 4.4% Philadelphia 2831.2 2866.7 1.3% 4.7% Pittsburgh 1172.6 1186.6 1.2% 4.8% St. Louis 1325.7 1341.2 1.2% 4.7% Milwaukee 849.7 856.6 0.8% 4.9% Richmond 643.1 646.3 0.5% 4.4% Kansas City 1040 1042.7 0.3% 4.3% Note: “Greater Cleveland” includes the counties of Cuyahoga, Lake, Geauga, Lorain, and Medina. Total jobs losses from Dec. 2000 to Dec. 2015 were 77.1 thousand, and 69.2 thousand in manufacturing. Source: BLS. 3 See http://pittsburghtoday.org/home.html. 1 2 Center for Population Dynamics Quarterly Brief March 2016 Over 87% of the year-over-year job growth gains in Greater Cleveland can be accounted for by four sectors: education and health services; leisure and hospitality; mining, logging, and construction; and financial activities (See Table 2). Each sector’s growth rate ranked highly compared to the 15 benchmark regions. The 3.8% growth in education and health services jobs ranked 3rd (behind Minneapolis and St. Louis); the 5% growth in leisure and hospitality jobs ranked 3rd (behind Charlotte and Pittsburgh); the 12.6% growth in mining, logging, and construction jobs ranked 1st; and the 5.7% growth in financial activities jobs also ranked Cleveland 1st. Table 2: Cleveland Metro Job Growth (Dec 2014 to Dec 2015) by Sector. Source: BLS. 2015 Total % Sector Total Growth Change 205.2 7.5 3.8% Education and Health Services 105.8 5.0 5.0% Leisure and Hospitality 36.6 4.1 12.6% Mining, Logging, and Construction 68.3 3.7 5.7% Financial Activities 3.0 Other 23.3 Total Before inferring any economic rationale as to why these activities were the highest-growth sectors—that is, does their growth “hang together” in any way?—it is important to sketch out how a regional economy works. “Urban economists like to divide a regional economy into two sectors: tradable and nontradable,” explains the Cleveland Fed4. “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.” Historically, Greater Cleveland’s tradable economy was driven by manufacturing. The aggregate wages from manufacturing made for a robust nontradable economy—ranging from home construction to leisure and hospitality. As shown in Figure 2, total jobs and aggregate wages in manufacturing have declined across time, with wages decreasing from $10.7 billion in 2001 to $7.6 billion in 2014. Not coincidentally, the large contraction in employment and pay has hurt the local economy, as evidenced by a flatlining in leisure and hospitality jobs between 2000 and 2011. Total Jobs (in thousands) Figure 2: Job and Wage Growth (in 2014 $) by Sector. Source: BLS. 240 220 200 180 160 140 120 100 80 60 40 2001, $10.7 Billion 2009, $7.8 Billion 2014, $8.5 Billion 2014, $7.6 Billion 2009, $6.9 Billion 2001, $6.7 Billion 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Education and Health Services Leisure and Hospitality Manufacturing Elvery, J. 2013. “Brain Hubs and Manufacturing Centers in the Fourth District.” Federal Reserve Bank of Cleveland. 4 Center for Population Dynamics Quarterly Brief March 2016 Countering the job losses in manufacturing has been a steady increase in job and wage growth in education and health services sector. The sector’s expansion included a gain of 53.2 thousand jobs since 2000, with an associated increase of about $1.9 billion in total wages (See Figure 2). While “eds and meds” is traditionally thought of as being a local sector, the region’s healthcare industry is increasingly tradable, involving the export of healthcare and related professional services to both national and international outposts; as well as the import of patients, medical trainees, and research and development expenditures into Cleveland . Moreover, the healthcare industry is prone to economies of scale. Here, the push to efficiency can reward those regional health clusters that excel in healthcare quality and innovation in healthcare delivery. “[T]he same forces that led other industries to cluster in specific regions (think technology in Silicon Valley or banking in New York) are now sweeping through education and health care,” explains former White House economist Aaron Chatterji in the New York Times recently5. Chatterji envisions an emerging “eds and meds” geography that “sees the same dynamic of winners and losers observed in other industrial sectors, as top universities and hospitals become larger and absorb most of the increase in students and patients from across the nation.” A simple way to chart the extent Cleveland is clustering “eds and meds” employment is by examining the sector’s concentration relative to overall labor market, and then comparing that to benchmark regions. Table 3 shows that 19.2% of Cleveland’s labor market is made up of education and health services, ranking the region tied for 5th. Delineating further, when looking at the location quotient (LQ) of skilled healthcare workers6—an LQ is a way to quantify how concentrated a particular occupation is in a region as compared to the nation—Greater Cleveland not only has the largest concentration of skilled healthcare workers in the benchmark regions (LQ = 1.29), but also the largest concentration in the nation’s top 50 job markets. Now, how does an increase in “eds and meds” employment and wages help bring about a more robust local economy? Table 3: Concentration of "Eds and Meds" Employment in Benchmark Regions. Sources: BLS, OES. % Regional Location Quotient Region Labor Market (LQ) Skilled "Eds and Meds" Healthcare Workers 21.2% 1.11 Philadelphia 21.1% 1.21 Pittsburgh 21.1% 1.23 Boston 19.3% 1.06 Milwaukee 19.2% 1.29 Cleveland 19.2% 1.13 Baltimore 17.8% 1.17 St. Louis 16.4% 0.91 Minneapolis 15.9% 1.17 Detroit 15.7% United States 14.9% 1.13 Cincinnati 14.7% 1.09 Richmond 14.5% 1.20 Indianapolis 14.0% 1.05 Kansas City 12.9% 0.90 Denver 10.1% 0.89 Charlotte Simply, a rebound in total regional wages brings with it disposable income, with a growth in the local service sector the result. For instance, economist Chatterji, A. 2013. “The Bad News for Local Job Markets.” New York Times. Note: “Skilled Health Care Workers” are defined as those in the “Healthcare Practitioner and Technical Occupations” category in the Occupational Employment Statistics (OES) survey. In 2014, Greater Cleveland had approximately 76,000 skilled healthcare workers, up from 63,000 in 2001. 5 6 Center for Population Dynamics Quarterly Brief March 2016 Enrico Moretti detailed that for every high-tech job created in a regional economy, an additional 5 jobs are created in the local economy7. In Greater Cleveland, such a wage divergence can be found in the region’s hospital sector (nearly half of Cleveland’s “eds and meds” jobs are in hospitals). Local hospital wages grew from an inflation-adjusted $50,013 in 2002 to $61,206 in 2014, or by approximately $11,200. Nearly 36% of that growth occurred over the last 4 years alone. It is possible that the increasing wages in the region’s globalizing healthcare sector is paying off in local sector job growth, particularly in leisure and hospitality and construction. Figure 3: Average Annual Wage in Greater Cleveland (in 2014 $). Source: BLS. $65,000 $60,000 $61,206 $55,000 $50,013 $50,000 $45,000 $49,094 $47,926 $40,000 2001 2002 2003 2004 2005 2006 Avg. Annual Pay 2007 2008 2009 2010 2011 2012 2013 2014 Avg. Annual Hospital Pay This is not, however, to say that the region’s other tradable sectors do not play a part in local economy growth—in fact the average annual wage in manufacturing is $61,058, above the pay in 2001 ($59,449)8—it is simply meant to acknowledge the ever-increasing role Cleveland’s healthcare industry is playing in driving regional economic restructuring. That said, given the growing prominence healthcare will play in U.S. policy going forward—not to mention healthcare is projected to be the fastest growing employment sector up to 20249—strategic thinking must be given as to how the region’s tradable professional services can begin specializing in “know-how” related to the healthcare—be it legal, finance, education, and technology. This occurred in the growth of Cleveland’s “white collar” workforce on the backs of heavy industry. It can occur on the back of the region’s “white coat” industry as well. By accelerating broader growth on the region’s competitive tradable sectors, more jobs will be created in the local economy. Brokaw. L. 2013. “The Multiplier Effect of Innovation Jobs.” MIT Sloan Management Review. Source: BLS. 9 U.S. Bureau of Labor Statistics. 2015. “Employment Projections — 2014-24”. 7 8 The Center for Population Dynamics 2121 Euclid Ave, UR 347 Cleveland, Ohio 44115 www.urban.csuohio.edu/cpd/