Population Growth Doesn’t Equal Wage Growth in These Cities

This article was originally published by Stateline, an initiative of The Pew Charitable Trusts.

Since the beginning of the 21st century, Sun Belt cities have drawn flocks of new residents looking for warm weather, recreation and a low cost of living. But instead of creating widespread wealth, the influx has led to a proliferation of low-wage jobs in stores and restaurants that cater to tourists and retirees.

Incomes have stagnated or shrunk since 2000 in some of the nation’s fastest-growing areas in the South and West, leading to concerns about their long-term prosperity—especially since many of the low-wage jobs that have been created are vulnerable to automation.

Nationwide there are 10 metro areas whose populations grew more than 30 percent since 2000—almost twice the national average for metros—but whose per-capita income grew less than half the U.S. average.

That includes Sun Belt cities such as Atlanta, Las Vegas, Orlando and Phoenix, along with three other areas in Florida, plus Boise, Idaho; Reno, Nevada; and Colorado Springs. The economies of those areas depend on tourism, retiree spending or warehouses—all sectors in which jobs are quickly being lost to automation technology.

“Places like Las Vegas and parts of Florida have seen their growth on the back of very low-wage jobs, so in a sense they’re growing poorer as they grow,” said Paul Flora, an economic analyst at the Federal Reserve Bank of Philadelphia.

Other high-growth metro areas such as Austin have put themselves in a better position with higher-paying tech jobs like electronics manufacturing, with average pay over $120,000 a year, Flora said.

By contrast, Las Vegas’ economy is driven more by taxi, hotel and bartender jobs with average pay of $28,000 to $40,000, according to Flora’s research, set to be published in 2019.

Florida’s dominance as a retirement destination, especially for people of modest means, has long been a concern for the state. The large retired population tends to create relatively low-paying service jobs.

The state draws more than 200,000 retirement moves a year, more than twice as many as any other state.

For decades the state’s orange groves and tomato fields have been giving way to tourist and retirement meccas that enrich local coffers with property taxes in boom times, but provide little cushion when values fall in cyclical busts.

The recession that began in late 2007 wiped out many of Florida’s high-paying jobs.

In the years since, construction and hospitality jobs have dominated the comeback, while higher-paying positions in finance, manufacturing, government and computer technology have not reappeared, according to a 2016 study by the state’s Bureau of Economic and Business Research, housed at the University of Florida.

Florida’s challenge is to bring back those higher-paying jobs, said the bureau’s director, Christopher McCarty.

“The question is, how do you do that?” McCarty said. To lure large employers, Florida has offered economic incentives of the kind that New York and Virginia used to attract tech giant Amazon. But the effectiveness of those incentives is debatable.

More than two-thirds of Florida’s incentives have been ineffective, costing the state more than the business taxes they produced, the state’s chief economist, Amy Baker, said last year.

Outgoing Republican Gov. Rick Scott also created an $85 million fund last year, aimed at stimulating job growth indirectly with job training and infrastructure grants.

The fund provided $5.5 million for roads and sewers for a business park near Ocala, one of the state’s high-growth, low-wage areas.

Reno and Las Vegas have similar issues, compounded by the drubbing the state’s economy has taken because of competition from American Indian gaming around the country, said John Restrepo, a Las Vegas-based economic consultant.

Like Florida, Nevada’s economy is volatile because it is so dependent on tourism, which can collapse during economic downturns.

“We have to take baby steps away from our dependence on tourism,” Restrepo said. “Our growth is going to lag other areas until we get more local purchasing power from professionals and entrepreneurs with high wages.”

Bob Potts, research director at the Nevada Governor’s Office of Economic Development, said the state’s effort to boost wages has been successful to some degree, but more progress will be difficult.

Average wages are up 20 percent in the state since 2007 but household income still lags the national average.

In Las Vegas, more than 200,000 workers are in food preparation and personal care jobs that pay less than $28,000 a year. Just 85,000 workers are in management and health care practitioner jobs that pay closer to $100,000 a year, federal wage data shows.

Nationally, workers are in those job categories at a nearly equal rate, around 12 percent of all occupations.

The low-paying jobs that proliferate in retirement and tourist destinations are the most likely to become automated in coming decades, according to a study last year by the Institute for Spatial Economic Analysis at the University of Redlands.

Workers in Las Vegas, as well as in Orlando and Sarasota, Florida, could see most of their jobs taken over by automation by 2035, the study found.

The biggest targets for automation are jobs in hotels, restaurants and stores, the mainstay of employment for tourist towns. Three-quarters of those jobs are theoretically subject to automation, according to a McKinsey Global Institute analysis. (The institute is the research arm of the McKinsey management consulting firm.)

Warehousing and transportation, important to a regional hub such as Atlanta, also could lose jobs to automation, the study found.

However, the McKinsey report also stated that the number of “customer interaction” jobs such as bartenders and retail clerks could continue to grow if personal income grows, meaning more people can afford to shop and socialize.

Johannes Moenius, a business professor at University of Redlands, said automation can cause upheaval for people without specialized skills or advanced education, but can sometimes create as many jobs as it replaces.

He cited ATMs, which made traditional bank tellers obsolete but led to more bank branches and customer service jobs.

Something similar could happen with retail stores, Moenius said. Cashiers in clothing stores might be replaced by “fashion consultants” who help customers choose clothing to be ordered or fabricated on demand.

Not all fast-growing tourist or retirement destinations ranked poorly on income growth, even in Florida. Naples on the state’s Gulf Coast saw spectacular growth in income, up 44 percent to about $88,000 per capita, as well as in population, up 47 percent to about 370,000 since 2000.

Naples ranks high as a desirable retirement destination, with low taxes and plentiful health care, but also for wage growth and tech profits. It is one of the wealthiest metros in the country.

It’s easier for low-wage workers to keep their jobs in places like Naples that also have high-wage jobs, Moenius said. Other areas may suffer upheaval as workers face unemployment or move to higher-opportunity places.

“The places that currently have or in the future will attract high-end jobs will have positive income growth and continue to support service jobs, as long as the cost of living remains bearable,” Moenius said. “Other places will not be so lucky.”