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Leading Locations for 2017: West Coast "Tech" Cities Top List, Smaller MSA's Show Workforce Chops

It’s not surprising to see larger MSAs at the top of the list due to their economic diversity and advantages of scale. But, mid-size and small cities built upon clusters that are in high demand, and where a prime workforce exists, can also be economic powerhouses.

Q2 2017
This is the seventh year that Area Development has presented its 100 Leading Locations feature. Some 394 metropolitan statistical areas (MSAs) were ranked based on their performance in four key categories: “Prime Workforce,” “Economic Strength,” “Year-Over-Year Growth,” and “Five-Year Growth.” These factors are, of course, all interconnected and ideally self-supporting. For example, a top-place ranking in five-year growth is often the result of positive performance in prime workforce, year-over-year economic growth, and economic strength. Larger, “big-city” MSAs tend to perform better overall than mid-size and small communities, simply because of their economic diversity and scale. They also tend to attract more worker inflow because of the opportunities and variety of lifestyles they provide.

That said, a community doesn’t have to have a highly diverse economy in order to be a Leading Location. Its strong economic performance can be built upon one or a few industries or clusters that are in high demand — for example, auto manufacturing. And, because they have experienced workers who are being replenished through inflow and education, more companies move in, creating a cluster. There is risk, however, in these situations when an economic (or commodity) downturn strikes: for example, a number of Texas energy-dependent cities have fallen toward the bottom of the list while, in comparison, cities with tech-based industries are doing well.

Overall Rank

Prime Workforce

In just about any survey of executives, their number-one priority for site location is prime workforce — workers who are motivated, productive, reliable, loyal, and plentiful — both now and in the future.

Prime workforce indicators include the number of workers aged 18–44, their education level, total inward migration of these high-value workers into the community, and wages (over one-, three-, and five-year periods). Most technical jobs now require some level of postsecondary education, as well as computer skills — four- and two-year post-secondary degrees are preferred.

Not only do employers want enough skilled workers for their immediate operations, but also for possible future expansions — even if competitors move in and deplete the labor pool. Therefore, forward-thinking communities are proactive in building a solid pipeline of potential employees.

This includes maintaining an educational system that provides the skilled graduates companies are looking for, especially for local industries. These education assets will also attract students interested in working in these industries, many of whom will stay, hire on, and become part of the community. University research also spins off new companies that require skilled workers. Yet another opportunity to create an enviable workforce is through state-run workforce development programs that are typically free and train workers according to specific company needs.

Because of their economic diversity and advantages of scale, it’s not surprising that six big MSAs — San Francisco-Redwood City-South San Francisco, San Jose-Sunnyvale-Santa Clara, Nashville-Davidson-Murfreesboro-Franklin, Oakland-Hayward-Berkeley, Seattle-Bellevue-Everett, and Dallas-Plano-Irving — are in the top 10 for prime workforce. However, there are small and mid-size communities that share this top-10 ranking, including Columbus, Indiana; St. George, Utah; and Gainesville, Florida.

In Columbus, 37 percent of the 884,000-person labor force is tied to manufacturing. To support this intense demand for manufacturing skills, the city is intent on developing the talent to meet the future needs of employers. Columbus is home to the first K-12 project-based learning magnet school in the nation, where students work collaboratively using technology and project-based learning to improve critical thinking, innovation, and real-world problem-solving skills. Columbus is also highly ranked for its partnerships with Indiana University-Purdue University of Columbus, Ivy Tech Community College, and the Purdue College of Technology to provide customized education and training programs.

Economic Strength

Key factors in determining economic strength are per capita real gross metropolitan product (GMP), manufacturing/goods-producing employment, employment net growth, and local area unemployment rate changes (all evaluated over one-, three-, and five-year periods).

Economic growth is spurred by a variety of factors. Technological advancements, innovative and disruptive products, and new market applications can stimulate economic growth. Policy changes, tax breaks, and other incentives are also important, including workforce development packages. Economic strength is also reflective of sound management by local and state governments, and their awareness of business needs. This helps keep business costs low and workers employed — especially during economic downturns.

Technology is increasingly a key component in growing MSA and regional economies, such as Silicon Valley and the Bay Area. Both San Francisco-Redwood City-South San Francisco and San Jose-Sunnyvale-Santa Clara are in the top five for economic strength and are well-established as technology centers. For example, San Francisco produces more patents than any other city in the nation and attracts about 45 percent of total venture capital investment in the U.S. Key to maintaining this talent-based, innovation economy is the level of educational attainment among its workforce — more than 50 percent of Bay Area residents have four-year degrees or higher.

The advantage of technology is not just the invention of a new consumer product or feature — it’s also its application as a tool in manufacturing, such as automation, robotics, and the Internet of Things. This maximizes productivity and quality and lowers costs. Even just one advanced manufacturing industry can drive an economy to excel.

If the product demand is high, and a prime workforce exists, mid-size and small cities can also be economic powerhouses — for example, Elkhart-Goshen, Ind., and Wausau, Wisc. As an approximately 134,000-population MSA, Wausau’s economic performance is built on building materials, advanced manufacturing, healthcare, IT, and insurance. It also has a bustling business campus and incubator for startups. The city has also enjoyed steady growth in employment, educated workers, and wages.

“While the nature of work has changed, economic opportunity is still key to where people want to live,” says Christian Schock, director of Planning, Community and Economic Development for the city of Wausau. “Last year, a Pew Research Trust project on the middle class ranked Wausau’s metro first in the country for equality. This highlights the importance of balancing economic opportunity with housing and lifestyle affordability.”

Year-over-Year Growth

Year-over-year growth indicators reveal which communities had the strongest short-term economic growth. The indicators are employment growth net change as a percentage of population, local area unemployment rate change, manufacturing/goods-producing employment net change as a percentage of population, and per capita real GMP rate change — all for the one-year period from December 2015 to December 2016.

These indicators are useful for identifying those cities (and their industries) that are “hot” in terms of economic growth. What are the developing economic strengths? How can they be supported and improved? Is this an anomaly, or the beginning of a trend? How will it impact other industries in the community? Year-over-year growth hopefully leads to strong five-year growth — typically the mark of effective economic development organizations that make the needed investments to retain and attract business.

Diversification is always beneficial for economic stability, especially bringing in knowledge-based industries that offer good wages and have high growth potential for the future. However, it doesn’t even have to be a large firm — a startup with a high-demand product in a well-equipped business incubator can have significant impact on local and regional economies. Working together in regional partnerships is a good approach for sharing risk, and developing infrastructure and training for attracting new businesses.

In first place for year-over-year growth is Elkhart-Goshen, Ind., which has seen a resurgence in manufacturing since the end of the Great Recession. There are currently 18 factories under construction in the county (or ready to break ground). Nearly all contemporary manufacturing space is occupied, compared to the 20,000,000 square feet of space that was available in 2009, according to Mark Dobson, president and CEO of the Economic Development Corporation of Elkhart County. Currently the unemployment rate is 3.2 percent; five years ago it was 10.2 percent. Wall Street 24/7 recently ranked Elkhart County as the number-one location in the state of Indiana for job growth in 2016, and tenth overall in the U.S.

Other leaders for year-over-year growth include San Jose-Sunnyvale-Santa Clara, San Francisco-Redwood City-South San Francisco, and Visalia-Porterville, Calif.; and Norwich-New London, Conn., which is enjoying rapid job growth due to a resurgence in manufacturing.

Midterm (Five-Year) Growth

For midterm (five-year-growth), only the economic indicators ranking change from 2011 to 2016 were considered. This provides some measure of how well cities have recovered from the generally accepted end of the Great Recession. These indicators are employment growth net five-year change as a percentage of population, local area unemployment rate five-year change, manufacturing/goods-producing employment five-year net change as a percentage of population, per capita real GMP five-year rate change, and average hourly earnings five-year rate change.

Cities that are top-ranked in five-year growth are generally there because of a diversified economic base, high-performing industries, a cooperative business climate, and an engaged economic development community. These cities also tend to have low overall business costs, including cost advantages in labor, property and leasing, and corporate taxes as well as incentives.

A number of big MSAs are again in the top 10 — for example, San Francisco-Redwood City-South San Francisco, San Jose-Sunnyvale-Santa Clara, and Anaheim-Santa Ana-Irvine. However, first and second place are occupied by Napa, Calif., and Columbus, Ind., respectively. Other top-ranked mid-size and small cities are Elkhart-Goshen and Kokomo, Ind.; Bend-Redmond, Ore.; and Reno, Nev.

Napa/Sonoma County is booming. A recent Milken Institute study ranked Sonoma County first in one-year economic growth among large metros for beverage and tobacco product manufacturing, 10th for job growth from 2010 to 2015, and 21st for technology diversity. This last number is reflective of increasing economic diversity and advanced manufacturing.

Kokomo, a community dominated by auto and auto-part manufacturing, is frequently recognized for its manufacturing presence, productivity, and strength. This achievement is in part due to its high-quality workforce. About 18 percent of the Kokomo/Howard County population holds a bachelor’s degree or higher. The city’s Economic Development Income Tax (EDIT) job training program assists new and existing businesses with workforce training and development.

Becoming a Leading Location
Leading locations typically outperform other communities and MSAs because they understand what businesses need to thrive. Community and economic development leaders are skilled at identifying their city’s strengths and weaknesses, especially in terms of what existing and targeted industries require — especially CEO confidence in long-term success.

Ultimately, diversity is the key for long-term growth that can offer high-paying jobs and weather economic tides. This can be easier for large MSAs, which have well-established infrastructure, assets, and resources. Smaller communities also have a lot to offer and can actually be more nimble in responding to economic opportunities. Take Bend-Redmond, Ore., for example, which ranked in the top 10 for prime workforce and five-year economic growth. The Milken Institute also rated Bend-Redmond as the best-performing small city in 2016. Part of this success is due to the city’s recruitment of targeted industries such as high technology, biotech, recreational/outdoor equipment, brewing and distilling, and data centers.

“We also focus on helping existing businesses grow and expand,” says Roger Lee, executive director at Economic Development for Central Oregon (EDCO). “Often the very best opportunities for job creation start with companies already operating here. Central Oregon has a diverse economy with a variety of sectors. It is our goal to deepen the pool of companies in the form of new startups, relocations, and critical supply chains to continue the diversification of our economic base.”

Area Development’s research desk compiled the statistics for this report. Locations were ranked according to the methodology explained herein. This article was written by Mark Crawford, Staff Editor.
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