Midwest Community Study: The “Creative Class” in Rural Counties and The Importance of Being Urban SSBSB Research and Writing Group October 31, 2013 Tom Lehman, Ph.D. Professor, Department of Economics Indiana Wesleyan University

Overview Research question: Which nonmetropolitan Midwestern counties are successful in creating economic opportunity, as defined or measured by county income levels, and why? ◦ What are the predictors of county income levels? ◦ What factors explain county income levels in rural and micropolitan areas in the Midwest?  Holding population growth constant 2Lehman

Overview Thesis: ◦ A key hypothesis of this research is that rural Midwestern and Great Lakes counties that can mimic, emulate, or connect in some way with neighboring larger urban economies will have the best chance of experiencing economic development and growth as reflected in various measures of county income. ◦ Those rural economies that can “be urban” or exhibit “urbanness” through population density, the presence of human capital, a labor market more inviting to immigrants and creative-class workers, and access to more specialized urban markets through interstate highway transportation networks, are expected to demonstrate greater levels of economic development and higher income. ◦ Proximity to a neighboring metropolitan area is important (Johnson, 2001; Huang et al., 2002; Partridge et al., 2008) ◦ Creative-class professionals, immigrants, work-play social and professional network opportunities (Florida, 2012; Lepawsky et al., 2010) ◦ “Place luck” (Reese and Sands, 2008), path dependence, history 3Lehman

Theory and Literature Workforce education levels believed to be very important to local economic development and income Human capital (education) increases productivity, elevates output and income in urban and metro areas ◦ Gottlieb and Fogarty, 2003 ◦ Goetz and Rupasingha, 2003 ◦ Carlino, 1995 Workforce diversity, immigration and occupational diversity believed to boost local economic development in urban and metro areas ◦ Florida, 2008, “creative class” argument ◦ Ottaviano and Peri, 2006, 2007 Do similar measures predict economic development in the nonmetropolitan Midwest? ◦ Huang et al., 2002; Monchuk et al., 2007, 2011; Winters, Lehman

Theory and Literature Population and transportation density ◦ Carlino and Mills, 1987 ◦ Monchuk et al., 2007, 2011 Demographics: age, gender, race and ethnicity shares ◦ Aldrich and Kusmin, 1997 ◦ Alesina and Le Ferrera, 2004 ◦ Jones et al., 2007 ◦ Lambert et al., 2008 ◦ Ottaviano and Peri, 2007 Policy factors: aggregate tax revenues ◦ Tiebout, 1956 – Tiebout Choice Theory ◦ Monchuk et al., 2007, 2011 Amenities: natural and recreational ◦ Deller et al., 2001 ◦ Kwang-Koo et al., Lehman

Basic theoretical model County income expressed as:  i = b 0 + b 1  i + b 2 π i + b 3 γ i + b 4 δ i + b 5 μ i + b 6  i +  i  = Proximity to metro area π = Set of human capital measures γ = Population and transportation density δ = Workforce characteristics (creative class) and labor force attachment μ = Local amenities and tax policy  = Demographic control variables  = Standard error term 6Lehman

Data and Method Data sources: U.S. Census Bureau, Bureau of Economic Analysis (BEA), Department of Transportation (DOT) Unit of analysis: Nonmetropolitan Midwestern counties (micropolitan or rural CBSAs) ◦ 601 nonmetropolitan counties in ten-state Midwestern region  States were arbitrarily selected based upon geographic and demographic similarities, climate similarities, transportation contiguity  Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Ohio, West Virginia, Wisconsin Standard OLS multiple regression estimation technique ◦ Dependent variables: 1) county median household, 2) median family, 3) per capita and 4) aggregate household income in 2011, Census Bureau AFF 5- year estimates, American Community Survey (ACS)  Income a proxy or operational definition for the concept of “economic development” or “economic success” ◦ Controlling for decadal county population growth, Lehman

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Specified Model (Independent Variables) Location: Does county share a border with a metro county? Transportation access and density: miles of interstate highway per sq. mile of land Population density: persons per sq. mile of land Educational attainment among adult population Presence of colleges or universities in a county Labor force commuting patterns ◦ Proportion of labor force employed outside home county, mean commute time to workplace in minutes Workforce characteristics ◦ Share of occupations in creative-class core, and in farming and ag-related Labor force attachment measures: LFP rate Water amenities: sq. miles of water area in county Tax policy: aggregate property taxes Age categories: share of pop. age 25-64, share age 65 and over Immigration, ethnic diversity and gender indicators: share of population foreign born, black, Asian, female Social tolerance indicator: share same-sex partner households 9Lehman

Summary of Findings Rural Midwestern counties with relatively high county incomes exhibit: ◦ Shared border with a metropolitan county ◦ Outside-of-county commuting employment opportunities  Proximity to metro areas just outside county borders?  “Extent of the market” raises specialization, division of labor and productivity ◦ Greater population density  Proximity to metro population, “extent of the market”? ◦ Greater transportation density  Interstate highways per square mile of land area ◦ Higher levels of average educational attainment  Human capital improves productivity, employability ◦ Greater labor force attachment: LFP rate ◦ Higher levels of immigrants and workforce diversity ◦ Greater share of core creative-class occupations in workforce  management, business, science, arts ◦ Higher share of population age Lehman

Research Findings: Unstandardized Partial Coefficients for Selected Variables 11 VariableMedian HouseholdPer Capita(ln)Aggregate Population growth rate ** Share border metro county1, *** *.141*** % adults with BS degree *** ***.008 % adults HS drop-out *** ***-.023*** No. colleges in county ** % workforce employed outside county of residence *** *** Mean commute time ** *** Interstate highway density13,603.96**4,765.68**.089 Population density19.329***9.713***.009*** % creative class occupation ***45.011**-.003 % immigrants *** LFP rate *** ***.015*** % female population *** % population age *** ***.029*** Model r

Median Income and Proximity to Metropolitan Area 12Lehman

Income and Interstate Highway Density 13Lehman

Income and Population Density 14Lehman

Income and Educational Attainment 15Lehman

Income and Educational Attainment Lehman16

Income and Creative Class Share 17Lehman

Income and Immigrant Share 18Lehman

Income and Labor Force Participation Rate 19Lehman

Grant County Rankings, 2011 (Nonmetropolitan counties only, n = 47, n = 601) Lehman20 VariableValueRank in IndianaRank in Midwest Population , Median Hhld. Income$39, Aggregate H. Income $1,382,999, Per Capita Income$20, Interstate Hwy. Density Population Density Educational attainment %10200 Educational Attainment %19222 Creative-Class Share31.0%1102 Immigrant Share1.6%20231 Labor-force- participation rate 57.3%44405

Conclusions Nonmetropolitan counties that can “be urban” appear to do better in boosting county incomes ◦ Population density ◦ Interstate highway transportation density (commuting) Nonmetropolitan counties that can attract “creative class enclaves” bordering metro areas have more market potential ◦ Shared border with metro area, spillovers in growth ◦ Educated, skilled, creative-class professionals residing ◦ Working age – young workers and peak income- earning ◦ Immigrant diversity in workforce 21Lehman

Conclusions Policy must encourage the following : ◦ Higher levels of educational achievement beyond secondary education (post-secondary and graduate degrees) among county residents  Cultural emphasis on value of higher education and skills  Educational institutions within counties may not matter ◦ Strong labor force attachment through increased job opportunities both inside and outside the county  High labor force attachment, LFP rate  Too much emphasis on within-county job creation? Not enough emphasis on connections to out-of-county job opportunities? ◦ Open immigration and increased workforce / population diversity  A “welcoming” culture to immigrants and “creative class” workers ◦ Attraction of younger “creative class” workers with higher levels of education requires greater openness, tolerance, and more work-play opportunities Geographic proximity to metro counties partially attributable to “place luck” or chance 22Lehman

Weaknesses in Research Endogeneity: correlation ≠ causation ◦ Study controls for population growth in prior period ◦ But, all other measures are (mostly) simultaneous (simultaneity) ◦ Time order is an issue ◦ Reverse causality possible on some measures Amenity measure (water area) is limited, narrow Study does not include measures of local business-attraction policies, such as TIFs and other tax-abatement techniques ◦ County-level data on these measures unavailable or difficult to assemble for counties Avenues for future research: ◦ Control for endogeneity: regress county income on change in independent variables in prior time period (i.e., )  Growth in educational attainment  Growth in immigrants, creative-class occupations, commuting patterns  Population density, interstate highway density measured in prior period ◦ Improve natural and recreational amenity measure, broaden  Deller et al. index, forest land, hiking trails, parks and built recreation areas 23Lehman

Q & A Lehman24

References and Sources Aldrich, L. and Kusmin, L. (1997). Rural economic development: What makes rural communities grow? Economic Research Service Report, Agricultural Information Bulletin No. 737 (September), Washington, DC: U.S. Department of Agriculture. Alesina, A. and La Ferrera, E. (2004). Ethnic diversity and economic performance. National Bureau of Economic Research, Working Paper No Blau, F.D. and Kahn, L.M. (2000). Gender differences in pay. Journal of Economic Perspectives, 14(4), Carlino, G.A. (1995). Do education and training lead to faster growth in cities? Business Review of the Federal Reserve Bank of Philadelphia (January/February), Carlino, G.A. and Mills, E.S. (1987). The determinants of county growth. Journal of Regional Science, 27(1), Connolly, J.J. (2010). Can they do it? The capacity of small rust-belt cities to reinvent themselves in a global economy. In Connolly, J.J., ed. After the factory: Reinventing America’s industrial small cities. Lanham, MD: Lexington Books, Deller, S.C., Tsai, T., Marcouiller, D.W., and English, D.B.K. (2001). The role of amenities and quality of life in rural economic growth. American Journal of Agricultural Economics, 83(2), Dudensing, R.M. and Barkley, D.L. (2010). Competitiveness of Southern metropolitan areas: The role of new economy policies. The Review of Regional Studies, 40(2), Florida, R. (2012). The rise of the creative class, revisited. New York, NY: Basic Books. Florida, R. (2009). How the crash will reshape America. The Atlantic. Retrieved from Florida, R. (2008). Who’s your city? How the creative economy is making where to live the most important decision of your life. New York, NY: Basic Books. Florida, R. (2002). The rise of the creative class: And how it’s transforming work, leisure, community and everyday life. New York, NY: Basic Books. Glaesar. E.L. (2011). The triumph of the city: How our greatest invention makes us richer, smarter, greener, healthier, and happier. New York, NY: Penguin Books. Lehman25

References and Sources Goetz, S.J. and Rupasingha, A. (2003). The returns on higher education: Estimates for the 48 contiguous states. Economic Development Quarterly, 17(4), Gottlieb, P.D. and Fogarty, M. (2003). Educational attainment and metropolitan growth. Economic Development Quarterly, 17(4), Huang, T., Orazem, P.F., and Wohlgemuth, D. (2002). Rural population growth, : The roles of human capital, industry structure, and government policy. American Journal of Agricultural Economics, 84(3), Isserman, A.M. (2005). In the national interest: Defining rural and urban correctly in research and public policy. International Regional Science Review, 28(4), Jacobs, J. (1961). Death and life of great American cities. New York, NY: Random House. Jacobs, J. (1984). Cities and the wealth of nations: Principles of economic life. New York, NY: Random House. Johnson, T.G. (2001). The rural economy in a new century. International Regional Science Review, 24(1), Jones, C.A., Kandel, W., and Parker, T. (2007). Population dynamics are changing the profile of rural areas. Amber Waves, 5(2), Kilkenny, M. (2010). Urban/regional economics and rural development. Journal of Regional Science, 50(1) Kwang-Koo, K., Marcouiller, D.W., and Deller, S.C. (2005). Natural amenities and rural development: Understanding spatial and distributional attributes. Growth and Change, 36(2), Lehman, T. (2010). Explaining household income patterns in rural Midwestern counties: The importance of being urban. In Connolly, J.J., ed. After the factory: Reinventing America’s industrial small cities. Lanham, MD: Lexington Books, Lepawsky, J., Phan, C., and Greenwood, R. (2010). Metropolis on the margins: Talent attraction and retention to the St. John’s city-region. The Canadian Geographer, 54(3), Lehman26

References and Sources Monchuk, D.C., Hayes, D.J., Miranowski, J.A., and Lambert, D.M. (2011). Inference based on alternative bootstrapping methods in spatial models with an application to county income growth in the United States. Journal of Regional Science, 51(5), Monchuk, D.C., Miranowski, J.A., Hayes, D.J., and Babcock, B.A. (2007). An analysis of regional economic growth in the U.S. Midwest. Review of Agricultural Economics, 29(1), O’Neill, J. (2003). The gender gap in wages, circa The American Economic Review, 93(2), Ottaviano, G. and Peri, G. (2006). The economic value of cultural diversity: Evidence from U.S. cities. Journal of Economic Geography, 6(1), Ottaviano, G. and Peri, G. (2007). The effects of immigration on U.S. wages and rents: A general equilibrium approach. CEPR Discussion Paper No Partridge, M.D., Rickman, D.S., Ali, K. and Olfert, M.R. (2008). Lost in space: Population growth in the American hinterlands and small cities. Journal of Economic Geography, 8, Quigley, J.M. (1998). Urban diversity and economic growth. Journal of Economic Perspectives, 12(2), Reese, L.A. and Sands, G. (2008). Creative class and economic prosperity: Old nostrums, better packaging? Economic Development Quarterly, 22(1), 3-7. Renkow, M. (2003). Employment growth, worker mobility, and rural economic development. American Journal of Agricultural Economics, 85(2), Roback, J. (1982). Wages, rents, and quality of life. Journal of Political Economy, 90(6), Sands, G. and Reese, L.A. (2008). Cultivating the creative class: And what about Nanaimo? Economic Development Quarterly, 22(1), Lehman27

References and Sources Tiebout, C.M. (1956). A pure theory of local expenditures. Journal of Political Economy, 64(5), Winters, J.V. (2011). Human capital and population growth in nonmetropolitan U.S. counties: The importance of college student migration. Economic Development Quarterly, 25(4), Wojan, T.R., Lambert, D.M., and McGranahan, D.A. (2007). Emoting with their feet: Bohemian attraction to creative milieu. Journal of Economic Geography, 7, Wu, J. and Gopinath, M. (2008). What causes spatial variations in economic development in the United States? American Journal of Agricultural Economics, 90(2), Lehman28