The 'Best Performing' Cities Revolve Around Tech and Energy

Three of the top 10 "Best Performing Cities" index and seven of the top 25 are in Texas, while Colorado and California have four each in the top 25. Interestingly, not a single metro east of the Mississippi River made it into the top 10.

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To the casual observer, the narratives of economic growth in American cities seem fairly obvious: the Sunbelt is adding people, the Rustbelt is failing, and big cities like New York, Chicago, Boston and D.C. are coming back. But the reality is far more complicated once you start adding real-world statistics into the picture.

Each year, the Milken Institute’s "Best Performing Cities" index injects some much-needed clarity into the debates surrounding metro growth and decline. An "outcomes-based" ranking, the report takes into account both short and long-term growth in job numbers, wages and salary, and the concentration and size of high-tech industries — an increasingly important part of success in today’s knowledge-driven economy.

The result is a data-driven look at economic growth in America's 200 largest metropolitan areas. (The report uses the more generic term "city." It also contains a separate ranking and analysis of 179 small and medium-sized metros).

My Martin Prosperity Institute colleague Zara Matheson mapped the 200 large metros on Milken's Best Performing Cities Index (see above). The table below, from the report, shows more details on the top 25 highest performing metros on the 2013 rankings, compared to their position in 2012.

"Best Performing Cities 2013," by Ross DeVol,Minoli Ratnatunga and Armen Bedroussian

Milken’s Best Cities is heavily weighted toward the performance of high-tech metros. Two-sevenths of the index's calculation is centered on the strength and growth of these industries, so the predominance of tech centers is not surprising.

What's most interesting is the diversity of the top performing tech hubs. The San Francisco Bay Area is certainly up there — with San Francisco and Silicon Valley’s San Jose taking the third and fourth spot. First place Austin is, of course, a substantial tech center in its own right. The report tellingly calls Austin a "case study in concocting the proper recipe for economic vitality." As I noted in The Atlantic earlier this fall, Austin had the fastest job growth of all metros with more than one million residents between 2009 and 2013. Several other tech hubs rank high on the list, including Provo, Salt Lake City, Seattle, Dallas, and Boulder.

The traditional East Coast tech hubs rank in the top 25, to be sure, but they are not nearly as dominant as you might expect. Raleigh-Cary in the North Carolina Research Triangle comes in at 13 (falling 10 places since last year), and Cambridge, Massachusetts — home to MIT, Harvard, and a welter of high tech firms — fell 15 spots to 23. Boston itself, long a high tech area, does not register in the top 25.

A number of leading energy centers also rank high on the list, notably Houston, which comes in 8th. Houston has posted incredible job growth of late, accounting for 5.9 percent of the total U.S. job growth between 2009 and 2013.

Several other metros stand out as well. Nashville ranks 14th, riding on the power of its unique economic model that combines the nation’s leading music industry cluster with strong capabilities in healthcare and manufacturing. Portland, Oregon, ranks 21st, defying its Portlandia stereotype as a place where millenials go to retire.

The top-ranked metros on the list are geographically concentrated. Three of the top 10 and seven of the top 25 are in Texas, while Colorado and California have four each in the top 25.  Interestingly, not a single metro east of the Mississippi River made it into the top 10.

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As a data-driven outcomes metric, the Milken rankings can also be used to gauge the key factors that underpin and drive the growth in U.S. metros. My MPI colleague Charlotta Mellander ran a basic correlation analysis on Milken's results for the 200 large metros they ranked. She matched up these data (which the Milken Institute kindly supplied to us) to key factors like population, density, human capital (the percent of adults that are college graduates), the share of knowledge, professional, and creative workers, and other measures of demographic and economic characteristics for each metro area. As usual, I note that correlation does not imply causation, and merely shows a relationship between variables.

The biggest takeaway is the clear connection between talent and economic performance. The Milken Index is positively associated with both the share of adults that are college grads (.41) and the share of the labor force made up of knowledge, professional, and creative workers (.35). Talent thus appears to underpin tech-based economic growth. As Ross DeVol, the primary author of the report and the chief research officer at the Milken Institute wrote to me via email: "It really is a talent/human capital story this year and the relationship to tech."

Our analysis also looked inside the "black box" of talent at the specific kinds of occupations and skills that might be associated with higher economic performance. Better performance as gauged by the Milken Index is associated with three occupational sectors:  science and technology (.37), business and professional workers (.33), and art, culture and media (.25). Many cities and metros have made the education and healthcare sectors — the so-called "eds and meds" — a centerpiece of their economic development strategies, seeing them as a driver of jobs and high-tech employment. But this is not the case according to Mellander’s analysis: eds and meds employment is not statistically associated with the Milken Index.

The economic performance of metros is even more closely related to two underlying skills required for knowledge-intensive work. Metro performance as measured by the Milken Index is closely associated with both cognitive and analytical skills (.38) and social skills, including key entrepreneurial strengths like the ability to lead teams and mobilize people (.37).

But there may be a darker side to this process of clustered and concentrated tech-driven economic growth. Metros that performed better on the Milken Index have higher levels of wage inequality (with a correlation of.34), a measure of the troubling gap between have and have-nots in America. (However, the Milken Index is not statistically associated with income inequality, as measured by the Gini coefficient, according to Mellander’s analysis).

On the up side, there is a strong connection between economic performance on the Milken Index and the Gallup Organization’s overall gauge of well-being and happiness of metros (the correlation of .41 was the highest of any in our analysis).

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These latest Milken rankings add additional evidence to the arguments that I made in my recent Atlantic essay on the "Boom Towns and Ghost Towns of the New Economy" — that the American economy is being reshaped around the twin pillars of knowledge hubs and gas and energy centers. Thirteen metros that Milken defines as tech hubs made it into the top 25, while nine of them benefited from the energy boom in shale and natural gas, especially places like Greeley, Colorado, and Houston, Texas. As the report concludes, "technology and energy were the forces powering this year’s top performers, even more so than in 2012."

Top Image: Austin skyline ( Bose)

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