Working harder and hardly hiring

By R.A. | WASHINGTON

WHENEVER the Bureau of Economic Analysis releases new data on sub-national output, I find it interesting to dig in and see if state and metropolitan economies are behaving as Arthur Okun would have us expect. Where growth is occuring, is it translating into the expected change in employment?

This week, BEA put up new figures on metropolitan GDP, for 2010. Here's a look at the change in GDP for that year and the change in the unemployment rate for the 50 biggest metropolitan economies (many thanks to our research and graphics departments for their help with these):

A couple of things stand out here. One is that way too many of these economies experienced growth under 3% in 2010. Another, however, is the general negative relationship; across these cities faster growth seemed generally to translate into a bigger drop in the unemployment rate, as we'd expect. To a large extent, then, America's employment shortfall looks like a growth shortfall.

There's a lot of variation across these metropolitan areas, however. Another look at the data might tell us more. Here are changes in output and employment in 2010, in percentage terms, for the 20 largest metropolitan economies:

What we see here is that not only does growth vary dramatically across cities, but so too does the extent to which that growth is translated into job creation. The San Jose metropolitan area, for instance, enjoyed scorching growth in 2010, yet somehow managed to raise employment by just over 1%. Houston's growth, by contrast, is remarkably job-intensive.

What's going on here? One possibility is that there are structural obstacles to greater job creation in some high-growth cities. Skills mismatch might be a problem. I'm more inclined to credit the cost of housing in places like Silicon Valley, Boston, and New York in deterring potential migrants. That may sound strange coming on the heels of a major housing bust, but the cost of owner-occupied housing fell less in these high-cost, high-growth markets than in inland cities like Phoenix. Meanwhile, rents in places like San Jose are high and rising. The pace of construction in Houston, by contrast, keeps supply growing and costs low.

Another possibility is that growth in some metropolitan areas is focused in less productive industries. Growth in high-tech manufacturing in the Bay Area, for instance, might not translate into the same level of labour demand as growth in the health care sector in Texas.

Two things seem clear, however. Across the country, a greater level of demand growth is necessary to boost employment. And at the same time, there are places within the country experiencing strong growth which aren't producing the jobs we'd expect them to. If America could find ways to make San Jose just a little more like Dallas, that might make a meaningful dent in America's employment problems.