By August Benzow
Introduction
For the first time since the Great Recession, the richest metro areas are no longer creating the majority of new jobs in the U.S. The weakening of their position as the country’s primary engines of job growth started during the pandemic and accelerated last year.
Several factors are likely at play:
- Cost of Living Exodus: People are leaving expensive coastal cities for more affordable locations, taking their job prospects with them.
- Tech Slowdown: Stagnant growth in tech-related sectors, a traditional driver of coastal job markets, is further dampening opportunities.
- Sun Belt Boom: The economic strength of Sun Belt regions is attracting businesses and workers, creating new engines of job growth.
If this trend continues, it could lead to a more geographically dispersed distribution of economic opportunities. This shift could challenge the longstanding dominance of coastal metro areas as the hubs for high-skilled jobs and workers, potentially creating a more balanced national landscape for talent and innovation.
Low-wage metro areas lead U.S. job growth
Throughout the previous decade, roughly two-thirds of job creation nationwide occurred in the 20 percent of metro areas with the highest average incomes.
Then came the pandemic. After a brief surge in 2020, the contribution of these high-wage metro areas to overall job growth declined steadily, falling below 50 percent for the first time last year.
Not only have other places started converging with these high-wage metros, but the fastest pace of job creation is actually taking place in the lowest-wage metros.
Employment growth in affluent metro areas has slowed compared to pre-pandemic levels, but not by much. The more notable story is that these prosperous metro areas are failing to keep up with the rapid employment expansion seen across the rest of the country.
Coastal job growth is faltering
What explains this divergence? Why have high-wage metro areas not matched the national pace of job growth? One reason is the pandemic’s disruption to coastal economies, which represent some of the largest metropolitan areas in the high-wage bucket.
Fueled by rapidly growing technology and knowledge-based industries, eight coastal areas in particular—Los Angeles, San Jose, San Francisco, Portland, Seattle, Washington, DC, Boston, and New York City—by themselves had created about a quarter of all new jobs in the decade before the pandemic.
Once known for attracting talent with their abundance of amenities, these coastal hubs face a new reality. The pandemic spurred migration to more affordable locations, and it appears this trend is also affecting the job market, with a rise in job creation in lower-cost metro areas.
Notably, many high-wage metro areas in the Midwest and more inland portions of the Northeast have experienced a different fate than their coastal counterparts. These “legacy” metro areas, which include places like Omaha and Lansing, have managed to avoid the employment growth slowdown. Despite their high average incomes, legacy metro areas have average home prices less than half those of the coastal cities. This substantial difference in cost of living may explain why many of these legacy metro areas continue to see job growth at rates that match or surpass their pre-pandemic levels.
In stark contrast to the sluggish labor markets in the coastal hubs, Sun Belt metro areas have collectively regained their exceptional pre-pandemic pace of job creation and are undeniably leading the nationwide employment surge of the past three years. This rapid job growth is evident across most Sun Belt metro areas, including those with high wages like Houston and low wages like Las Vegas.
Slowdown in tech-related sectors hits high-wage metro areas the hardest
The geographic reshuffling of job creation gained momentum in 2023, reflecting a deeper transformation within the U.S. labor market. While the overall economy surpassed its pre-pandemic rate of job growth last year, sectors traditionally associated with tech and the knowledge economy (professional services and information) lagged behind. Nationwide, these sectors experienced sluggish growth throughout the year, culminating in a meager 0.2 percent increase in jobs by December compared to the previous year. During the same period, total jobs across the country grew by 2 percent.
The slowdown in tech-related sectors hit high-wage metro areas particularly hard. As of December 2023, these areas shed a combined 2.1 percent of jobs in professional services and information–a loss of 330,000 jobs. This capped off a dismal eight months of negative growth in these knowledge-economy sectors. Other sectors in these metro areas also experienced negative or stagnant job growth, but not as sharply negative as the information and professional services sectors.
In contrast, metro areas with the lowest average earnings experienced a different 2023. These cities enjoyed consistent year-over-year growth rates in professional services and information jobs, mirroring their pre-pandemic performance. This suggests that these more affordable locations are faring much better in the current economic climate.
Conclusion
In the years following the pandemic, the U.S. job market has been characterized by emergent patterns of job creation that point to a significant realignment in terms of where employers seek to expand their workforce.
Metro areas that offer lower average wages but also promise more affordability are not just adding population but also adding jobs. In contrast, metro areas rich in amenities but expensive compared to many of their counterparts are far from the job growth rates they experienced before the pandemic.
The long-term implications of this geographic reshuffling remain to be fully understood. However, one thing is clear–the landscape of opportunity across America has been fundamentally altered in the post-pandemic environment. This transformation provokes a re-evaluation of our assumptions about the locations and drivers of job growth in what appears to be a “new normal” economy.
