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July 11, 2014

College graduates are sorting themselves into elite cities

WASHINGTON — Census data suggests that in 1980 a college graduate could expect to earn about 38 percent more than a worker with only a high-school diploma. Since then, the difference in their wages has only widened as our economy has shifted to bestow greater and greater rewards on the well-educated. By 1990, that number was about 57 percent. By 2011: 73 percent.

These figures, though, reflect only part of the inequality that has pushed the lives of college and high school graduates in America farther apart. As the returns to education have increased, according to Stanford economist Rebecca Diamond, the geographic segregation of the most educated workers has, too - and not by neighborhood, but by entire city.

This effectively means that college graduates in America aren't simply gaining access to higher wages. They're gaining access to high-cost cities like New York or San Francisco that offer so much more than good jobs: more restaurants, better schools, less crime, even cleaner air.

"With wage inequality, you could just observe the average wage of a college graduate and the average wage of a high school graduate," says Diamond, whose research has gone a step further to calculate what she calls "economic well-being inequality." "But then on top of that, college graduates also live in the nicest cities in the country. They're getting more benefits, even net of fact that they're paying higher housing costs."

It's easy to recognize this phenomenon in San Francisco, or even Washington, D.C. College graduates have flooded in, drawn by both jobs and amenities. Yet more amenities have followed to cater to them (luring yet more college graduates). Housing costs have increased as a result, pushing low-wage and low-skilled workers out. At the neighborhood level, this cycle sounds a lot like how we describe gentrification. At the scale of entire cities - picture low-skilled workers increasingly excluded from Washington and San Francisco and segregated into cities like Toledo or Baton Rouge - Diamond describes this as a kind of nationwide gentrification effect.

She is not just talking about outlier cities here.

"New York, San Francisco, Boston - those places are the ones that get the most press because they're the biggest cities and they have the most extreme changes at this time, but it's everywhere: Philadelphia, Baltimore, Chicago, Atlanta," she says. "It's an across-the-board phenomenon."

Between 1980 and 2000, cities that already had a lot of college graduates increasingly became magnets for more of them. A city like Boston historically had an advantage on this front, but its advantage has only grown stronger with time.

The larger the share of a city's workforce that's made up of college graduates, the more expensive it is to live there. By Diamond's calculation, for every 1 percent increase in a city's ratio of college graduates to non-graduates, the city experiences a 0.6 percent increase in rents:

Census doesn't have good comparable data to make these calculations prior to 1980. But other evidence suggests that the cost of living has come to vary dramatically across the country in ways that weren't historically true. The median rent in metropolitan Washington, in other words, wasn't always twice the median rent in Louisville. In the past, Diamond says, higher-wage cities attracted more workers, driving up the supply of labor and driving down the high wages that drew them to those cities in the first place, counteracting some of the inequality we see today.

So what's changed over the last several decades? Obviously, industry has. Good-paying jobs that didn't require a college degree have been vanishing. Cities like Boston, meanwhile, have shifted their labor demand away from such jobs and toward college grads who now work in industries like biotechnology or medicine. Detroit, once a mecca of a good manufacturing jobs, has had a harder time with that same transition.

Now, not surprisingly, those cities with a higher share of college grads yield higher wages for them, too. Diamond found that a 1 percent increase in a city's college employment ratio corresponded with a 0.3 percent increase in wages for college graduates:

A higher share of college graduates also yielded higher wages for workers without college degrees, likely because employers have to pay them more to keep them in higher-cost cities.

Sure, the San Francisco tech worker has to spend a larger share of his income on rent than a low-skilled worker in Oklahoma City. But all of the added amenities of living in San Francisco outweigh that higher cost. It's not that high school graduates don't also value restaurants, cleaner air and less crime - but they may not be able to afford to live where those amenities exist. They're more likely to make decisions about where to live based on affordability. College graduates, on the other hand, have the luxury of picking a city with amenities in mind.

This also comes at the expense of other cities that may lose their college grads. What happens to Toledo and Baton Rouge without them?

 

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