Monday, December 19, 2011

Houston a "brain hub" creating middle-class jobs?

The Wall Street Journal recently profiled Austin's power to create middle class jobs, something the rest of the nation is struggling with.  But not Houston.  If you check out their graph, you'll note that Houston and Austin are neck-and-neck in middle-skill job growth since 2001 at ~25%, and well ahead of the rest of the pack, including Dallas (surprisingly).  Let's look at the key excerpts first, then discuss if Houston is following Austin's model:
AUSTIN, Texas—As the nation grapples with stubbornly high unemployment, Texas's political and high-tech capital shows one way to create good jobs for people who didn't go to college: Attract highly skilled entrepreneurs, and watch the companies they start hire lower-skilled workers
The Texas state Capitol in Austin, a city that in the past decade has added 50,000 'middle-skill' positions that pay roughly $38,000 a year. 
Praxis Strategy Group, an economic-development consultancy, estimates Austin added 50,000 "middle-skill" positions in the past decade. These are jobs that require a two-year associate's degree or the equivalent work experience, and pay a median wage of $17.30 an hour, or $38,000 a year. That pace of growth is roughly four times faster than the nation's as a whole, three times that of New York and Portland, Ore., and twice that of Phoenix.
Austin's success in creating middle-class jobs runs against the grain of national trends. As America's shift from manufacturing to the service sector has accelerated, economists have noted a hollowing out of such jobs.
One consequence of the economy's shift away from production toward brain work is that companies are constantly seeking new ways to break down high-value intellectual tasks into smaller, cheaper bits. Much the same way that assembly lines created millions of new jobs by reducing mass production to a sum of tasks, employers in Austin and elsewhere are constantly breaking down higher-skill jobs to "create new middle-skill, middle-income specialties," according to a recent report by the McKinsey Global Institute.
Enrico Moretti, an economist at the University of California, Berkeley, notes that highly educated cities see faster wage growth for less-educated citizens as well as the high fliers. One reason is that that many lower-level employees use the most productive technologies and act as complements to more-expensive and highly-educated workers, making it much easier for companies to raise their wages faster than overall inflation
Another force, Mr. Moretti notes, is called "human capital spillovers," a fancy way of saying that many "middle skill" workers begin to acquire skills that are much more valuable than their overall education level might suggest.
The WSJ has a companion blog post on "brain-hub cities", with the following distinction between two types of them:
William Frey, a demographer at the Brookings Institution in Washington, notes that there are two types of high-educated metro. The first are old stalwarts like Washington, San Jose — the heart of the Silicon Valley — and Boston. Those cities are already highly educated — each has a greater than 35% share of college degree or higher workers, versus 28.2% nationally — yet have still seen big gains in their share of college educated population. That’s not so much because young and educated workers are moving there, although many are. What’s driving those gains is the fact that many lesser-educated workers are leaving — either by dying or moving to less expensive cities
The second type of educated city are places like Raleigh and Austin that have had fast growing populations but, thanks in part to their relative affordability, have seen a more diverse mix of educated and less-educated workers moving there. Because they’re adding all sorts of people, those places are middle of the pack when it comes to their share gain of college educated workers. But, when measured in raw numbers of college-educated people moving there, they were the nation’s number one and two most popular destinations.
Now, you don't often hear of Houston as a "brain hub", but I'd argue we fall pretty clearly into the second camp there.  The reason we don't get the same media hype as a place like Austin is that our brain hub is hidden inside of a much larger overall metro economy driven by things like the port and manufacturing (both of which also drive a lot of middle class jobs).  Our brain hub is also not concentrated in the media's darling industry, technology, but broken up across energy, medical, and NASA.  Both factors muddle up Houston's story (not to mention the energy boom), thus the Journal's preference for Austin's simpler story even though our stats are almost tied (tied on a percentage growth basis, which means in reality Houston has created many more absolute numbers of middle class jobs, probably close to triple Austin's).

The question is, do we have a similar dynamic to Austin as described in my bold highlights in the main story?  Do our brain jobs in energy and medical drive the same type of middle-class job growth in the ways they describe?  I suspect yes, but don't have a lot of experience in either industry, so I'll throw it to my readers.  Thoughts welcome in the comments.

Update: The Houston Chronicle picks up the story with an editorial: "Houston's well-positioned to create good jobs"

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At 7:02 AM, December 20, 2011, Anonymous Kevin said...

I think you get some of the same effects, but tech is more potent because of the extremely high barriers to entry into medical and energy. Both industries feature generally higher regulatory and capital requirements than you'd find in tech. One might respond that there are plenty of service and support businesses on the edges of those industries where smaller entrepreneurs can compete, but to me most of those *are* tech.

At 9:03 AM, December 20, 2011, Blogger Tory Gattis said...

On reflection, the Austin analysis may be a little superficial and speculative. It may be that middle class jobs are simply driven by population growth, and it matters less whether that population growth is "brainy" or involves entrepreneurs. Think pre-crash Phoenix (in the graph) or Vegas. The counter-argument would be Dallas: lots of growth over the decade, but not many middle class jobs, at least according to the chart in the WSJ.

At 7:02 PM, December 20, 2011, Blogger Michael said...

>>The question is, do we have a similar dynamic to Austin as described in my bold highlights in the main story? Do our brain jobs in energy and medical drive the same type of middle-class job growth in the ways they describe?

Yes. And we also have a lot of brain jobs in tech too. A lot of major banks / hedge funds / energy companies / aerospace / software companies have set up shop in Houston. The difference seems to be it is not nearly as much of a startup culture here. But if you don't really care about that, there are plenty of good jobs in tech here - last count on Dice we have ~100 more "software" postings than the Austin area. Houston just has a lot more going on besides tech as well - as you mentioned.


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