February 15, 2019 by Clare Coffey
During the long wooing of Jeff Bezos by various small and mid-level American cities, local governments competed to offer the most eye-popping combination of tax breaks, infrastructure, and amenities.
The prize? Amazon’s new headquarters, and the sudden influx of jobs that would (at least hypothetically) bolster regional economies and revitalize urban/suburban areas.
Of course, when Amazon announced that it planned to settle in the New York and DC metro areas, it shattered dreams of smaller cities vaulting to national prominence on the coattails of a single high-profile mega-corporation. (Although the recently announced collapse of the New York deal may revive some of them.)
Small, mid-sized, and even large cities outside the top metros might conclude from the Amazon HQ search that they have nothing to offer relocating companies, or that they don’t stand a chance of developing their own economies. But that kind of pessimism is simply not supported by the data. In fact, nothing could be further from the truth.
The story the numbers tell is one full of promise: cities of all sizes and locations possess a unique mix of regional strengths, with a wide array of industries and occupations that they would be particularly suited to develop. And according to a recent article by the Brookings Institute, small to mid-level metro areas will play a key role in national prosperity in coming years.
It’s too early to analyze Amazon’s impact, but we can use data to consider recent examples that are similar, if not quite so high-profile (yes, this sort of thing happens more than you might think).
Philadelphia, in fact, provides an illuminating example.
We plan to explore the potential of small cities more deeply in follow-up articles and research. For now, we want to offer a better framework and approach for evaluating economic change. To do that, we’ll consider some of the ramifications of a company opting to locate or expand in your region.
Such changes often have major repercussions for the education and workforce sectors—not to mention other employers that will face new recruiting pressure.
Every region has a strength, but not everyone knows what those regional strengths are.
If someone asked you what Philadelphia was best known for, you might say anything from the Liberty Bell to Rocky—but you probably wouldn’t say portfolio management.
Financial services (a set of industries related to banking and investment) is one of the most important industry clusters to the Philadelphia area, outranked only by biopharmaceuticals.
Emsi’s industry cluster analysis reveals that the financial services sector sits near the top in terms of its contribution to the gross regional product (GRP), its performance compared to other cities, and specialization (measured by location quotient: the overall workforce per capita) within the metro area.
And portfolio management is the strongest subset of a strong cluster. In a sign of the sector’s strength, it has attracted new companies to the region, as well as expanded what’s already there.
For example, Hartford Funds moved to a suburb of Philadelphia in 2013, strengthening an already robust regional industry cluster into an even more potent location for finance and portfolio management in the national, and even global, economy.
Unlike Amazon, Hartford Funds’ move didn’t dominate multiple news cycles nationwide. But its effect on the region offers useful lessons not just in how to attract corporations, but how to extract maximum local benefit from their arrival.
While different cities will see different patterns of growth, here are four ways you can use data to evaluate economic development and assess its effects.
First, let’s evaluate the jobs created by financial services growth in Philadelphia.
In 2012-2013, Philadelphia’s portfolio management industry exploded. From nearly 8,000 jobs, it grew to just over 19,000 jobs: a whopping 140% change. The portfolio management industry currently employs over 21,000 people in the Philadelphia metro area. Its location quotient, calculated by comparing the industry’s share of regional employment with its share of national employment, is 5.02. In other words, portfolio management’s share of jobs in Philadelphia is over five times the national average.
Philadelphia is now also one of the most competitive economies for portfolio management in the nation, with 517 different companies located in the region. According to our professional profile analytics, the top employers are Vanguard, JP Morgan, and Merrill Lynch.
Next, let’s evaluate the economic impact of the job creation that occurred in Philadelphia when portfolio management took its sharp upward turn.
The expansion of local industry clusters is so potent in large part because its effects ripple throughout the entire economy. A growing industry brings outside dollars into the region, which, in turn, circulate to create more jobs and opportunities in other sectors. We used Emsi’s input-output model to assess the consequences for Philadelphia’s larger economy. The results were striking.
Today, adding the 11,158 new jobs that portfolio management gained between 2012 and 2013 would create nearly 12,000 additional jobs in other industries. Every local job in portfolio management would create another job in the region. This is a jobs multiplier of slightly over two (2.07 to be exact).
Extrapolating from our input-output model, we can estimate that from new industry jobs alone, portfolio management brought $1.5 billion in earnings to Philadelphia. When you consider earnings from industry purchases (direct earnings), supply chain purchases (indirect earnings), and miscellaneous spending in the local economy (induced earnings), the number climbs to nearly $2.2 billion.
The data suggests that the industry also added $73.2 million to the state and local tax base. All told, each dollar earned brought in a total of 1.46 dollars (taxes aside).
The importance of industry development to regional economies is something we’re all aware of in the abstract. But when you can see the exact numbers, the full scope of the consequences is undeniable.
Shortly after the boom in portfolio management, colleges and universities in the Philadelphia region began adding programs to train the local workforce for the growing industry. This educational development was likely part of high-level conversations as Hartford moved to the region and as the industry cluster (driven by the demand of other businesses in this sector) voiced their need for more people.
As a result, American College of Financial Services began offering new certifications in financial planning and services, with 3,065 people completing one of their programs in 2017 alone. In 2015, Temple University also added a financial planning major for undergraduates.
The addition has paid off for Temple. According to our profile analytics, the school is currently the No. 1 alma mater for the top four occupations employed by the portfolio management industry.
And it’s paid off for the region in general. Of those top four occupations that work in portfolio management, personal financial advisors earn the most at $43.73 (median hourly wage). Financial analysts earn $37.70, financial services sales agents $32.59, and brokerage clerks $24.09.
Finally, let’s explore where employers are finding talent, and how well the local education providers are fulfilling that need.
In the case of portfolio management in Philadelphia, local schools dominate each of the top four occupations employed by the industry. Temple, St. Joseph’s, Villanova, Drexel, University of Delaware, West Chester University, and Community College of Philadelphia all appear in the top 10 schools for workers in those occupations, according to our profile analytics.
This strong educational base may be part of the reason why portfolio management has continued its steady upward trend after the initial rapid growth in 2013. With local institutions regularly producing qualified workers, more establishments see the area as a strong location for expansion.
Today, there’s a great deal of demand for workers with various types of financial expertise. Employers are mentioning investments, accounting, wealth management, and related skills at a high rate in their job postings.
No single company dominates the hiring scene. According to our job postings analytics, Mutual of Omaha, New York Life Insurance Company, and PNC Bank led job postings in the top industry occupations between 2016 and 2018.
A note for those interested in emulating Philadelphia’s trajectory: while it may seem like common sense to throw every possible resource at programs directly linked to a particular industry, the data suggests a slightly more diversified approach.
This is not a field with an exclusive, linear, degree-to-career path. Business, accounting, and finance programs combined make up only 23.2% of the portfolio management educational pool. People wind up in the field through a diverse array of educational paths, including law, psychology, history, general education, engineering, design, computer science, communications, and humanities.
And with management, leadership, customer service, and research all appearing in the top skills sought by industry employers, it would be a mistake to write off the core skills that the liberal arts can provide. It is also notable that the local community college is also a solid supplier of talent to this sector. Investing in a variety of institutions may make more sense than putting all your eggs in one educational basket.
The broader lesson is twofold.
First, like Philadelphia, other cities can lean on established regional strengths (in Philadelphia’s case, a strong economic base and 125 postsecondary institutions).
Second, local colleges can invest in workforce and talent development to meet an industry need. Attracting a major company makes for an exciting news story, but it’s only a first step in creating sustained growth. It will be interesting to watch how the Amazon story plays out in New York, DC, and even Nashville. More importantly, communities must ask: what are we doing to align our employment, workforce, and education sectors so we attract companies to come to our region—and stay?
As we demonstrated here, labor market data can help shine a light on these critical issues. Imagine trying to navigate changes this complex and important in the dark!
Whatever your region’s growth pattern, Emsi data can help you identify your strengths and formulate a plan for workforce development.
If you would like help exploring these issues for your community, please let us know.