Where Talent Wants To Live

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Where Talent Wants To Live
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With unemployment down and wages rising, theres
growing concern that a lengthy and potentially
crippling talent shortage will sweep the U.S.
Addressing this could become a critical issue for
businesses competing with Asian and European
firms facing similar and, in many ways, more
severe shortages. In the U.S., the shortage has
been sparked by both robust economic growth and
labor force growth running at about one-third the
norm since the middle of the last century. This
is leading employers to consider raising wages
for all kinds of workers.
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The complete listing for the Best and Worst
States for Business can be found here.
Some suggest that firms must move to expensive,
large urban cores to attract talent, particularly
millennials. This assessment needs to be
rethought. The labor shortage impacts not only
highly coveted tech talent but also those in
fields like supply chain management and
manufacturing. In fact, according to the Bureau
of Labor Statistics, IT is expected to grow by
barely 0.2 percent in the next decade, well below
health, energy, construction, urbhospitality and
professional and business service
sectors. Workers in these fields may not be as
willing or able to live in the cramped conditions
typical of New York or San Francisco. And even
well-educated workers, particularly those in
their 30s, appear to be gravitating toward less
expensive, more livable metros (see maps). To
explore the best future markets for talent, we
did a careful examination of U.S. Census Bureau
data, both by metro and within metro, as well as
by age cohort. We focused not only on millennials
but also older workers, many of whom increasingly
tend to remain in the labor force.
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City Limits
Urban cores have become more successful in
attracting residents over the past two decadesa
sharp reversal from the late 70s and 80s when
crime chased workers and companies out. Legacy
urban cores populated by highly educated
millennials, such as New York, Boston,
Washington, D.C. and San Francisco, have thrived.
SOME SUGGEST THAT FIRMS MUST MOVE TO EXPENSIVE,
LARGE URBAN CORES TO ATTRACT TALENT, PARTICULARLY
MILLENNIALS. THIS ASSESSMENT NEEDS TO BE
RETHOUGHT.
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Yet, this trend is slowing, according to the U.S.
Census Bureaus American Community Survey (ACS)
five-year estimates (2007 to 2011 and 2012 to
2016, the latest data available for such
analysis). In fact, growth in urban cores (based
on a city sector model analysis) has slowed
overall and in every group age 25 and over. Among
millennials 20 to 29, the urban core of major
metropolitan areas (over 1 million) grew by only
282,000 in the period 2012 to 2016 from the
period 2007 to 2011. The percentage of this age
cohort living in the urban cores dropped to 19.1
percent in 2012 to 2016 from 19.4 percent in 2007
to 2011. In the later period, over 1.5 million
(representing 85 percent of the total growth)
headed to the suburbs or exurbs. In April 2016,
the real estate website, Trulia found more
millennials leaving the Washington, D.C. and New
York metropolitan areas than expected. In fact,
U.S. Census Bureau data indicates that between
2013 and 2014, only 2,662 people between the ages
of 25 and 34 migrated to Washington, D.C.,
compared to 10,430 people in that age bracket who
arrived between 2010 and 2011.
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Costs factor prominently. According to Zillow,
for workers between the ages of 22 and 34, rent
claims upward of 45 percent of income in Los
Angeles, San Francisco, New York and Miami,
compared to closer to 30 percent of income in
metros like Dallas-Fort Worth and Houston. In Los
Angeles and San Francisco, a monthly mortgage
takes, on average, close to 40 percent of income,
compared to 15 percent nationally. Prohibitive
home prices in core cities are driving would-be
home buyers out. According to a TD Bank survey,
over 80 percent of 18- to 34-year-old renters
want to own a home. A Fannie Mae survey of people
under 40 found that the vast majority thought
owning made more financial sense, offering
potential for asset appreciation and a hedge
against rent increases. Homeownership prospects
vary greatly by metro. Millennial homeownership
rates are 37 percent in Nashville, 29 percent in
San Antonio and 27 percent in Orlando, compared
to under 20 percent on the California coast or
New York City and environs.
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The Burb Boom
So where are millennials and other generations
moving? First, we have to realize that more than
80 percent of 25- to 34-year-olds in major
metropolitan areas already live in suburbs and
exurbs, according to the ACS data. Among older
generations, this number jumps to more than 85
percent. As economist Jed Kolko notes, people
tend to move out of core cities to suburban
locations as they age. Over 393,000 people age 30
to 44 in 2007 to 2011, largely covering members
of Generation X, left the urban cores by 2012 to
2016, while 678,000 moved into the
suburbs. Although younger millennials migrated
toward urban cores more than previous
generations, the website FiveThirtyEight notes
that they are more likely than prior generations
to move to the suburbs as they age. We have
already passed, in the words of University of
Southern California demographer Dowell Myers,
peak millennial and are seeing the birth of a
new suburban wave. This trend is likely to
accelerate as early as 2020, when millennials
enter their 30s, the age when people tend to
raise children. As generational researchers
Morley Winograd and Mike Hais have long pointed
out, millennial attitudes about family remain
surprisingly conventional, other than a greater
emphasis on gender equality. The vast majority
want to get married, start a family and be good
parents.
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Millennials may take longer to take the vow or
have the child, but they are doing so in
increasing numbers. Today, 16 million millennials
have children, up from barely six million a
decade agoand that number is likely to soar in
coming years. Young, growing families tend to
opt for the suburbs for reasons of affordability,
safety and education quality. Among those under
35 who do buy homes, four-fifths choose the
single-family detached houses most often found in
suburban locales. Surveys such as those from The
Conference Board and Nielsen consistently find
that most millennials see suburbs as the ideal
place to live in the long run. According to a
recent National Association of Homebuilders
report, more than 66 percent, including those
living in cities, actually prefer a house in the
suburbs. Generational preferences on where to
live remain remarkably similar. Generation X,
perhaps the best guide to future millennial
behavior, saw the urban core share drop 7.8
percent, from 15.6 percent in 2007 to 2011 to
14.3 in the 2012 to 2016 period. Employers need
to pay attention to this generation, which, while
smaller than millennials, now makes up the
majority of managers at U.S. companies. They are
also far more entrepreneurial than their
millennial successors, with a startup rate
roughly twice that of millennialsand
growingwhile the younger generations rate has
been on the decline.
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Boomersmany of whom also went to core cities in
their 20salso are largely clustered in suburbs
or exurbs. The much-hyped return to the city is
a minor phenomenon. As with other groups, the
share of boomers living in urban cores since 2010
has dropped from 13.9 percent to 13.1
percent. Some might dismiss the boomers as a
potential talent pool, but many are
well-educated, particularly in skilled trades,
and now remain on the job longer than at any time
since the 1950s. They are also, along with
immigrants, increasing their entrepreneurial
presence.
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Shifting Regions
Perhaps even more significant for talent
acquisition may be regional shifts, measured by
the latest U.S. Census Bureau population
estimates (2016). Virtually all the major
metropolitan areas with the strongest population
growth since 2011 are cities with smaller or, in
some cases, even negligible urban coresplaces
like Austin, Orlando, Raleigh, Houston, San
Antonio, Dallas-Ft. Worth, Nashville, Phoenix,
Denver and Charlotte. For example, less than five
percent of the population of these metropolitan
areas is in the urban core. In comparison, more
than 50 percent of the population of New York
lives in the urban core, while in Boston, San
Francisco, Philadelphia and Chicago, the number
exceeds 25 percent.
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Overall, population growth in the expensive big
cities tends to be one-third to one half less
than in Sunbelt boomtowns. Again, as in the
suburban shift, theres a strong correlation with
aging. Among people who were in their early 20s
in 2007 to 2011, some of the biggest population
increases took place in metropolitan areas like
Denver, San Francisco, San Jose, Seattle and
Portland. Yet, these movements shifted as people
entered their late 20s. Among those 25 to 29 in
2011, now in their early 30s, the fastest growth
occurred in Orlando, Raleigh, Austin, San
Antonio, Charlotte and Houston. San Francisco,
which does so well among people in their early
20s, grew at half the rate of the Sunbelt
standouts. New York, Los Angeles and Chicago all
experienced net declines in this cohort. Turn to
those 30 to 44 in 2011 and the pattern
accelerates. In this cohort, growth shifts to
lower-cost, largely Sunbelt metros such as
Orlando, Austin, Raleigh, San Antonio, Tampa-St.
Petersburg, Houston, Charlotte, Miami,
Jacksonville and Nashville. In contrast, most of
the metros that attracted younger peoplelike San
Francisco and Washington, D.C.grew half as
quickly or less. New York, Chicago, Los Angeles
and San Jose saw a net decline in this
population, indicating no significant net
in-migration.
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These trends also apply for the boomers. Here the
fastest growth takes places almost exclusively in
lower-cost Sunbelt metros such as Phoenix,
Austin, Las Vegas, Orlando and Tampa. In
contrast, New York, Los Angeles, Chicago, San
Jose, Boston and San Francisco lose boomers,
often by wide margins. Given the increasing
importance of boomers, Xers and aging millennials
in the workforce, it may well be that employers
seeking help need to calibrate their choices to
where these generations seem to be headed. At a
time of growing shortages of labor, an
appreciation of these demographic and geographic
trends seems sensible.
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Where Talent Wants to Be
If current trends continue, another
generationoften called GenZwill follow their
predecessors into urban cores in disproportionate
numbers. Then theyll face the same pressures
that have impacted older generations. And unless
there is some dramatic recasting of the housing
industry, these younger workers may have even
shorter windows to live in the large legacy
cities before sparking urban core growth in
metros such as Orlando, Phoenix, San Antonio and
Nashville. For the next generation, New York,
Boston and San Francisco may seem more like gated
communities than places of opportunity. The big
opportunities for employers are likely to be
found in the suburbs, particularly those
developing amenities like theaters, ethnic
restaurants and music venues. Aging millennials
will want locations with town centerswhether
restored or createdand will likely prefer such
things as bike trails and parks over golf and
endless mega-retail centers. The millennial
suburb, as MITs Alan Berger has noted, will be
different than the ones their grandparents
desired, more walkable, environmentally
sustainable and likely connected eventually by
autonomous technologies. In other words, the most
coveted American community of the coming decades
could resemble a 19th century village.
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THE MILLENNIAL SUBURB, AS MITS ALAN BERGER HAS
NOTED, WILL BE DIFFERENT THAN THE ONES THEIR
GRANDPARENTS DESIRED, MORE WALKABLE,
ENVIRONMENTALLY SUSTAINABLE AND LIKELY CONNECTED
EVENTUALLY BY AUTONOMOUS TECHNOLOGIES.
It is also where more of Americas immigrants are
headed, as is most evident in locales like Fort
Bend, Texas, or Orange County, California this
is where minorities and immigrants, who make up
45 percent of all millennials, are increasingly
settling. Along with aging millennials, Xers and
boomers, these newcomers will dominate the
workplace of the futureand that workplace will
be in suburbia.
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