The key to high wages, rapid economic growth rates, and low unemployment is human capital investment. Economic growth fueled by human capital investment is more durable and stable than growth fueled by real estate speculation. We need only look across cities, not countries, to understand this fact.
The ten fastest growing metropolitan areas in the U.S experienced population growth of about 40%, on average, between 2000 and 2010. One typically expects strong economic conditions in cities with large inflows of population. The promise of better pay and employment prospects is often what causes internal migration. Today, however, some of our fastest growing cities have the weakest local economies because of the collapse of local real estate markets over the past four years.
The ten fastest growing metropolitan areas between 2000 and 2010 include: Austin TX, Bend OR, Cape Coral-Fort Myers FL, Greeley CO, Las Vegas NV, Myrtle Beach SC, Palm Coast FL, Provo-Orem UT, Raleigh NC, and St. George UT. Three of these cities: Austin, Provo and Raleigh have a much more educated workforce than the cities whose growth was largely fueled by a real estate boom. The “human capital” cities have 50% more adults with a graduate degree and 58% more adults with a college degree, per capita, than the “real estate” cities.
The following chart shows the composite unemployment rate between 2000 and 2011 for the three “human capital” cities, the seven “real estate” cities, and the U.S. unemployment rate overall. The unemployment rate increased sharply in the recession, but less so for cities with a highly educated workforce.
An educated workforce is the key to high wages and rapid economic growth. The recession took a much greater toll on the economic prospects of less educated workers. More educated workers are better able to adapt and learn when market conditions change. Cities that benefited from a real estate and construction boom just five years ago have been unable to generate jobs for all their new residents and now have some of the weakest local economies in the U.S.