Tag Archives: sporting

Education, Innovation, and Urban Growth

One of the strongest predictors of urban growth since the start of the 20th century is the skill level of a city’s population. Cities that have a highly skilled population, usually measured as the share of the population with a bachelor’s degree or more, tend to grow faster than similar cities with less educated populations. This is true at both the metropolitan level and the city level. The figure below plots the population growth of 30 large U.S. cities from 1970 – 2013 on the vertical axis and the share of the city’s 25 and over population that had at least a bachelor’s degree in 1967 on the horizontal axis. (The education data for the cities are here. I am using the political city’s population growth and the share of the central city population with a bachelor’s degree or more from the census data linked to above.)

BA, city growth 1

As shown in the figure there is a strong, positive relationship between the two variables: The correlation coefficient is 0.61. It is well known that over the last 50 years cities in warmer areas have been growing while cities in colder areas have been shrinking, but in this sample the cities in warmer areas also tended to have a better educated population in 1967. Many of the cities known today for their highly educated populations, such as Seattle, San Francisco, and Washington D.C., also had highly educated populations in 1967. Colder manufacturing cities such as Detroit, Buffalo, and Newark had less educated workforces in 1967 and subsequently less population growth.

The above figure uses data on both warm and cold cities, but the relationship holds for only cold cities as well. Below is the same graph but only depicts cities that have a January mean temperature below 40°F. Twenty out of the 30 cities fit this criteria.

BA, city growth 2

Again, there is a strong, positive relationship. In fact it is even stronger; the correlation coefficient is 0.68. Most of the cities in the graph lost population from 1970 – 2013, but the cities that did grow, such as Columbus, Seattle, and Denver, all had relatively educated populations in 1967.

There are several reasons why an educated population and urban population growth are correlated. One is that a faster accumulation of skills and human capital spillovers in cities increase wages which attracts workers. Also, the large number of specialized employers located in cities makes it easier for workers, especially high-skill workers, to find employment. Cities are also home to a range of consumption amenities that attract educated people, such as a wide variety of shops, restaurants, museums, and sporting events.

Another reason why an educated workforce may actually cause city growth has to do with its ability to adjust and innovate. On average, educated workers tend to be more innovative and better able to learn new skills. When there is an negative, exogenous shock to an industry, such as the decline of the automobile industry or the steel industry, educated workers can learn new skills and create new industries to replace the old ones. Many of the mid-20th century workers in Detroit and other Midwestern cities decided to forego higher education because good paying factory jobs were plentiful. When manufacturing declined those workers had a difficult time learning new skills. Also, the large firms that dominated the economic landscape, such as Ford, did not support entrepreneurial thinking. This meant that even the educated workers were not prepared to create new businesses.

Local politicians often want to protect local firms in certain industries through favorable treatment and regulation. But often this protection harms newer, innovative firms since they are forced to compete with the older firms on an uneven playing field. Political favoritism fosters a stagnant economy since in the short-run established firms thrive at the expense of newer, more innovative startups. Famous political statements such as “What’s good for General Motors is good for the country” helped mislead workers into thinking that government was willing and able to protect their employers. But governments at all levels were unable to stop the economic forces that battered U.S. manufacturing.

To thrive in the 21st century local politicians need to foster economic environments that encourage innovation and ingenuity. The successful cities of the future will be those that are best able to innovate and to adapt in an increasingly complex world. History has shown us that an educated and entrepreneurial workforce is capable of overcoming economic challenges, but to do this people need to be free to innovate and create. Stringent land-use regulations, overly-burdensome occupational licensing, certificate-of-need laws, and other unnecessary regulations create barriers to innovation and make it more difficult for entrepreneurs to create the firms and industries of the future.

Stadium Debt and Monopoly Power

The old Giants Stadium was demolished this spring. The New York Times reports all that remains is a parking lot carrying $110 million in debt. This Sunday, the New York Giants will play their first game of the season in the new stadium, while New Jersey taxpayers will continue to pay the remaining principal and interest on $266 million in bonds issued to finance the original (1976) Meadowlands Sports Complex.

What went wrong? As the NYT notes, in the beginning the Meadowlands was successful. But by the 1980s, interest in horse racing started to decline. The NJ Devils and the Nets went to Newark. Revenues fell. Instead of responding to these signals the New Jersey Sports and Exposition Authority expanded operations.

The hypnotic fascination that sporting and entertainment facilities hold over local politicians dates to the 1960s and is a universal phenomenon. (The Olympic Games are a prime example, as is The World Cup). During this period, the definition of infrastructure changed to include not just roads and bridges but also stadiums and convention centers. Keynesian economic theories held sway. The idea that publicly financed sporting facilities would reap economic benefits for host cities continues to be the leading rationale for public investment in what should be privately financed ventures.

Economist Stefan Szymanski writes in his book, Playbooks and Checkbooks, “in recent years [major league sports franchises in the U.S.] have found a way to exploit their monopoly power.”During the early years of professional sports, team owners would build their own stadiums. With a shortage of major league teams, owners discovered they didn’t have to foot the bill, cities would gladly bid for the privilege. He estimates that over the last 20 years more than 60 publicly financed stadiums and arenas have been built in the U.S. totaling $20 billion. All a team must do is hint at leaving town to “extort a subsidy from the incumbent city.”

The problem is once the thrill is gone and attendance drops off the taxpayer is stuck with decades of debt. This “honeymoon effect” is well-understood. But even when put on ballot referendums in many cases voters still O.K. stadium debt. That may change in the near term with cities and states desperate to close budget deficits.  Another good sign: the Jets and the Giants financed the new stadium, one of the most expensive ever built at $1.6 billion. It’s probably not enough to convince politicians that they should stop committing the public purse to subsidizing ventures that are purely private goods.

The Super Bowl as Economic Remedy

It seems obvious that when a city is chosen to host a major event — political convention, Super Bowl, Olympics — this provides a natural economic boost to the city’s economy. If any city is deserving of such a boost it is New Orleans, which will be hosting the 2013 Super Bowl for the first time since Hurricane Katrina. (It will be the 10th time the city has been the site of the championship.)

And like many governments that find themselves chosen for a major sporting event, the Louisiana legislature is deciding if it should spend $85 million in Superdome upgrades. However, the boost is largely symbolic: while New Orleanians may feel a sense of pride over the selection, and the stadium will get another make over, economic gains are very likely to be fleeting and possibly negative.

Much academic work has been done assessing the impact of sporting events on regional economies. The findings generally show little lasting impact on host cities. Robert Baade finds the primary beneficiaries of taxpayer subsidies for stadiums are team owners, and players, not local residents.

That has not stopped cities from competing for the honor. 

University of Maryland economist Dennis Coates, writing in The American, finds since 1990 Major League Baseball has opened 19 new stadiums, the NFL opened 17, and the NBA over 20. These projects are highly subsidized on the federal, state and local levels, with the public bearing as much as 63 percent of the cost.  Coates and fellow economist Brad Humphreys find in an analysis of  of wages between 1969 and the 1990s in metro areas where these stadiums reside is that incomes actually decreased.

Why? Consumer spending on sports replaces consumption of other kinds of entertainment, and the spending patrons undertake has a relatively small multiplier effect in real the local economy. Athletes get the income boost. And to top it off, increased local subsidies to the franchise redirect tax revenues from other use, making the local economy less efficient.

While local and state governments might like to think otherwise, being chosen as a host city may be as much an economic drain as a publicity boon.