Affluent cities gained at expense of Trump's 'forgotten' America study

[October 15, 2018]  By Howard Schneider

WASHINGTON (Reuters) - The economic divide between affluent U.S. cities and suburbs and the ailing, often rural, areas where blue collar and middle-tier service jobs are the norm grew wider after the onset of the Great Recession, a Washington-based think tank said on Monday.

(A decade after crisis, economic gaps widen: https://tmsnrt.rs/2CH68ZR)

The crisis and ensuing rebound saw a "reshuffling" of jobs, entrepreneurial energy, and human capital from worse-off areas towards those that have increasingly captured the benefits of growth, the Economic Innovation Group concluded after comparing demographic data for the 2007-2011 and 2012-2016 periods.

The findings show "a big blindspot" in strong national data, including a 3.7 percent unemployment rate that is near a 50-year low, said John Lettieri, co-founder and president of the bipartisan Economic Innovation Group think tank.

"The distribution of new jobs, new businesses, the distribution of the best human capital - it is a geographical concentration," Lettieri said. "National growth alone is not doing it for Americans in terms of their local realities."

The time frame of the study, capturing the impact of the 2007-2009 recession and the bulk of an ongoing recovery, gives insight into some of the forces that fueled President Donald Trump's 2016 election victory, with areas outside the booming coastal cities struggling to hang on to old-line industries in the information age.

Trump has brandished himself as a defender of the "forgotten" Americans that he says have been left behind by the forces of globalization, vowing to bring back manufacturing jobs that have moved offshore.

In that objective, he is fighting longstanding trends, that are rooted in decades of urbanization, as well as the more recent power of knowledge-based companies, colleges and other institutions to attract investment and talent.

The influence of those trends seemed amplified by the crisis, according to the EIG study, which used zip code-based data on seven indicators of economic health including education, poverty, job growth, and the change in the number of businesses.

Across most indicators, the spread between the top fifth of zip codes and the bottom fifth had grown larger, with relatively more adults in distressed areas out of work, in poverty, and experiencing slower income growth.

Whereas the top fifth of zip codes had generated 3.6 million new jobs more than were present in 2007, the bottom fifth had 1.4 million fewer.

After the U.S. economy shed 350,000 businesses between 2007 and 2011, business starts in the next five years clustered in already thriving areas. The top quintile of zip codes added 180,000 new firms, more than the other 80 percent of zip codes combined.

The most well-off areas added roughly 10 million more people between the periods studied, with about a quarter of the U.S. population, or 86 million, living in areas of "extraordinary prosperity and dynamism." By contrast, the population in "distressed" areas decreased by 3 million, to around 50 million, the study found.

"The returns to initial community advantage are increasing, as growth chases growth and recovery is slower to diffuse across the map than in the past," said EIG, which has been a big proponent of "place-based" policies to encourage investment and development in left-behind areas, and remove barriers to give prospective workers more ability to relocate.

(Reporting by Howard Schneider; Editing by Paul Simao)

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