From Great Recession to Great Reshuffling

A decade ago, the financial crisis impacted our economy, our politics, and our society in ways few could have expected. Looking back now, we wondered: How did the Great Recession and subsequent recovery affect the health and trajectories of American communities? And how have the rewards of a long national expansion been distributed in local terms across different places and populations?

To find out, EIG used its Distressed Communities Index (DCI) to compare two distinct time periods: 2007-2011 and 2012-2016. The DCI combines seven complementary metrics into a single measure of economic well-being, resulting in a clear snapshot of the economic and social state of the U.S. zip codes, counties, cities, and congressional districts. Places are sorted into quintiles based on their performance on the index: Prosperous, comfortable, mid-tier, at risk, and distressed.

What we found amounts to a “Great Reshuffling” – a sorting of human capital, job creation, and business formation that has had vast implications for Americans and their communities. In the years following the recession, top-tier places have thrived, seeing meteoric growth in jobs, businesses, and population. Meanwhile, the number of people living in America’s most distressed zip codes is shrinking as the nature of distress becomes more rural. But the gaps in well-being between prosperous areas and the rest have grown wider, and national rates of growth have become more distant from the experience of the median community.

What was once a country of disparate places that converged towards prosperity is now a country of places drifting further apart.

Key Insights from Ten Years of Change

1 – Population and prosperity have become more intertwined.

The Great Reshuffling has left more Americans enjoying prosperity. The number of people living in prosperous zip codes swelled by 10.2 million between the two periods to a total of 86.5 million—more than any other quintile. Meanwhile, the number of Americans living in distressed zip codes fell by 3.4 million between the two periods to a total of 50 million—the smallest population of any quintile.

U.S. population distribution across quintiles

2 – The ruralization of distress: The falling total number of Americans in distressed zip codes reflects a shift in the geography of economic distress towards rural areas.

While the overall population in distressed zip codes declined, the number of rural Americans in that category increased by nearly 1 million between the two periods. Rural zip codes exhibited the most volatility and were by far the most likely to be downwardly mobile on the index, with 30 percent dropping into a lower quintile of prosperity—nearly twice the proportion of urban zip codes that fell into a lower quintile. Meanwhile, suburban communities registered the greatest stability, with 61 percent remaining in the same quintile over both periods. Urban zip codes were the most robust—least likely to decline and more likely than their suburban counterparts to rise.

Percent of zip codes that changed quintiles between the two periods

3 – Prosperity is more widely shared across states than distress.

Performance of the average zip code across the seven component metrics of the DCI (2012-2016 data)

The average state had 27 percent of its population in a prosperous zip code during the 2012 to 2016 period, well above the 14.5 percent the average state had in a distressed zip code.

Utah leads the nation in community prosperity. Nearly half of its population resides in a top-tier zip code. Colorado follows not far behind. In relative terms Utah came out furthest ahead in the reshuffling. Its population share in a prosperous zip codes surged by nearly 18 percentage points, emblematic of the advances made throughout much of the West. California advanced most in absolute terms, with three million more residents in a prosperous zip code during the 2012-2106 period than during 2007-2011.

Distress is far more concentrated in the southern half of the country. In Alabama, Arkansas, Mississippi, and West Virginia, one-third or more of the population resides in a distressed zip code. Louisiana, New Mexico, and West Virginia came out on the downside of the reshuffling, with an additional 10 to 12 percent of their citizens becoming residents of distressed zip codes between the two periods.

4 – Anytown, USA, is falling farther behind the nation itself.

National growth rates have become less reflective of local realities. American communities as grouped on the DCI faced similar headwinds during the recession, but the recovery has been highly uneven. The median zip code added jobs only about half as quickly as the national economy from 2012 to 2016. The median county trailed even further behind. The gaps are proportionally even more dramatic when it comes to business establishment growth rates.

Comparing growth rates across key geographies

5 – Prosperous zip codes dominated a deeply fractured jobs recovery.

All five tiers of U.S. communities saw a strikingly similar decline in absolute number of jobs during the recession, each shedding between 1.5 million and 1.8 million jobs from 2007 to 2010.

That is where the similarities end.

By 2016, prosperous zip codes had a 3.6 million jobs surplus over 2007 levels — more than the bottom 80 percent of zip codes combined. It took less than five years for prosperous zip codes to replace the jobs lost to the Great Recession. “At risk” zip codes lost a full decade. “Distressed” ones are unlikely to ever recover on current trendlines. Were it not for prosperous zip codes, the country would still be several years away from a full employment recovery.

Change in employment by quintile since 2007

6 – Fewer than a quarter of counties have recovered from the business closures of the recession.

U.S. business formation has been dismal in both magnitude and distribution since the Great Recession. The country’s population is almost evenly split between counties that have fully replaced (with 161 million residents) and those that have not (with 157.4 million). This divide is due to the fact that highly populous counties—those with more than 500,000 residents—were far more likely to add businesses above and beyond 2007 levels than their smaller peers. Nearly three in every five large counties added businesses on net over the period, compared to only one in every five small one.

Change in the number of business establishments between 2007 and 2016 by county

Legend

To underscore the weak magnitude and geographic unevenness of new business formation, consider that the country as a whole contained only 52,800 more business establishments in 2016 than it did in 2007. Five counties alone surpassed that, with a combined 55,500 more businesses in 2016 than before the recession: Los Angeles, CA;  Brooklyn, NY; Harris, TX (Houston); Queens, NY; and Miami-Dade, FL. Without those five counties, the U.S. would still contain fewer active business establishments than it had before the recession.

Share of counties in different size classes with more or fewer business establishments in 2016 relative to 2007

7 – Prosperous zip codes added more business establishments during the recovery years than the bottom 80 percent of zip codes combined.

It is difficult to overstate the role of prosperous communities in driving the national business recovery. The number of businesses in prosperous zip codes increased by over 180,000 from 2012 to 2016. Comfortable, mid-tier, and at risk zip codes together added 150,500, while distressed zip codes lost 13,300 businesses deep into the national recovery.

Increase in business establishments between 2012 and 2016

8 – The vacancy bellwether: The housing vacancy rate was the best predictor of a zip code’s overall well-being.

Of the seven components of the DCI, the housing vacancy rate emerged as the strongest predictor of both a zip code’s score on the index and its change over time. Distressed zip codes contain 16.5 percent of all housing units nationwide, but 28.5 percent of all vacant ones. High vacancy rates are classically associated with distressed urban zip codes in the Northeast and Midwest; in fact one in every five homes in distressed urban zip codes in the Midwest stands vacant. However, vacancy rates generally fell in struggling urban neighborhoods and rose in struggling rural ones between the two periods. There are more vacant housing units in distressed rural zip codes, contributing to the ruralization of distress.

Total number of vacant housing units by quintile and type of community

9 – Brain gain: Education attainment is one of the clearest fault lines separating U.S. communities today.

College-educated Americans almost entirely account for the population differential across types of communities.

  • Prosperous zip codes contain 27.7 million adults with a bachelor’s degree or higher—almost six times the 4.8 million that live in distressed zip codes.
  • Each of the five tiers of U.S. communities otherwise contain roughly equal numbers—approximately 30 million—with some college, an Associate’s degree, or less education.
  • Prosperous zip codes contain 45 percent of the country’s advanced degree holders.
  • More than half of the 27.6 million Americans without a high school diploma or equivalent live in distressed or at risk zip codes.
  • In total, nearly half of residents of prosperous zip codes have obtained at least a bachelor’s degree, compared to 30 percent nationally and only 15 percent in distressed zip codes.

Educational attainment of the adult population in each quintile

The sorting by education attainment is accelerating: Prosperous zip codes welcomed half of the 3.5 million increase in advanced degree-holders nationwide between the two time periods.

Distribution of the increase in advanced degree holders across quintiles

Metro area well-being closely correlates with education attainment.  Minneapolis-St. Paul tops the list of major metro areas in its percentage of residents in prosperous zip codes and Bakersfield has the highest concentration in distress. Seven of the top 10 major metro areas on this measure also rank in the top 10 for bachelor’s degree attainment. Six of the bottom 10 major metro areas on this measure also rank in the bottom 10 on college degree attainment nationally (out of 105).

10 metro areas with the greatest concentration of residents in prosperous zip codes

10 metro areas with the greatest concentration of residents in distressed zip codes

10 – Diversity and inclusion: Despite modest progress towards inclusion, race and ethnicity remain strong predictors of the sort of community one calls home.

Minority groups (encompassing all races and ethnicities except non-Hispanic white) represented 56 percent of the population in the country’s distressed communities, compared to only 38 percent of the population nationwide. By contrast, non-Hispanic whites account for nearly three-quarters of the residents of prosperous zip codes. Promisingly, all groups—with the important exception of Native Americans—became modestly less concentrated in distressed communities over the period.  Hispanics saw the greatest relative improvement in well-being. However, the average majority-minority zip code still registered a sharply higher distress score of 67.4 (at risk) on the index, compared to 46.7  (mid-tier) for the average majority-white community.

Demographic breakdown of the population in each quintile

Looking backward, looking forward

The American economy is both riding a record-breaking expansion and adrift in a decade of lost progress. Which truth applies depends on your zip code.

A large and rapidly growing share of the population lives in thriving areas. The post-recession economy has delivered phenomenal economic growth and rising prosperity for degree holders, professional workers, and communities with spending power. But an economy that only works for the college-educated and the places they congregate is not an economy that works.

The ruddy national economic outlook risks breeding complacency. It should not. The median American community has not healed from the trauma of the Great Recession and is ill-equipped to cope with the inevitable next downturn. This period of national prosperity is our chance to reinvest in communities and rekindle the economy’s dynamic forces. Policymakers should strive to make opportunity more accessible, healthy risk-taking more viable, markets more competitive, and people more empowered to choose and shape their communities.

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