Cleveland's Higher Unemployment Rate

George Nemeth over at Brewed Fresh Daily posted a thought-provoking article about the City of Cleveland's rising unemployment rate. Here is my response to his article:

George,

Thanks for your post. Here are some thoughts on the unemployment issue you point to in your post, as well as some surrounding thoughts that might help all of us think better about the underlying problem.

First of all, I believe that the long term pattern is most important here. Certainly, it is not good that Cleveland's unemployment rate rose so sharply, but there are deeper issues to be considered here. Cleveland's unemployment rate typically has been higher than that of Cuyahoga County and most of the surrounding counties. In my assessment, that is a function of the central city's long term loss of competitive position as a business and job location. (This is a trend shared by a large number of older urban centers nationally, and therefore not new news to urban economic developers.)

The many possible reasons for the City of Cleveland's loss of competititive position could be grouped into three main categories: 1) local factors within the City's borders (inadequate supply of competitive business sites, troubles working with City Hall on development projects, perceptions and realities about the City's crime rate, higher local tax rates, negative impact of past business losses, abandoned buildings, etc.) causing or contributing to Cleveland's loss of competitiveness; 2) local factors within surrounding locations, such as Solon, Twinsburg, Mentor, etc.(incentives, lower local tax rates, competitive new business parks, marketing, better access to skilled labor, etc.), contributing to their rise in competitive advantage; and 3) external factors (business strategy, state policy, globalization, technological innovation, etc.)that impact Cleveland's decline in competitiveness and gains in surrounding area competitiveness.

I suspect that there is something else going on that we have not given attention to in the past. Here is an hypothesis that could be tested by some astute local university researcher, using the state's ES-202 data. (Hint: See if Ziona Austrian at the CSU Urban School can help everyone elucidate the issue.) My hypothesis is that, at this particular point in time, the central city's continued decline in business and job location competitiveness makes other locations within the surrounding region "look" more competitive than they really are. In other words, many of these surrounding areas (within and outside Cuyahoga County) may not have really gained an added competitive edge. Instead, they are viewed as more competitive because the central city looks so bad.

Many companies locating facilities in NEO's suburban and exurban locations are relocating existing operations (from Cleveland and other NEO communities), which they need to expand or upgrade. My hypothesis is that many companies may be making a decision based upon the "lesser of two (or more) evils" principle. In other words, the alternative locations outside Cleveland, are not necessarily that "attractive," but they are the best that companies can find in the region. The availability of generous incentive packages in these surrounding locations make it much easier for business owners and managers to make the move because the incentives compensate in large part for any risk to profitability they may incur as a result of the move.

Here is another consideration. Part of the unemployment issue is determined by structural factors, such as the availability of jobs in Cleveland/Cuyahoga County, the long term pattern of manufacturing job loss in the region, and the educational and skill levels of Cleveland residents who work. Major employment dislocations (plant or office closing or job curtailment) at large employer locations can also cause a spike in an area's unemployment rate.

Available data points to a very significant slowing of the job growth rate in both the central city and Cuyahoga County. In short, we are not creating as many jobs in these locations as we once did. Manufacturing employment continues to decline in Cuyahoga County, as a consequence of both local and national trends.

A more in-depth look at the U.S. Census Bureau's worker commuting pattern data might shed some additional light on the City of Cleveland's high unemployment rate. I don't know what the numbers say here, but I suspect that Cleveland has fewer "high-quality" (based upon wages and benefits) jobs to offer Cleveland and non-Cleveland residents. Look at where Progressive, MBNA, and other major well-paying employers are located.

This means that more suburban and central city workers in NEO are traveling to suburban locations everyday for the good jobs. My impression is that folks with higher skills tend to live in the burbs, where amenities, schools, property value growth, etc., are better. This causes companies like Progressive and MBNA to locate their facilities in the burbs so they can more easily compete for skilled and talented workers. This reality works against Cleveland's job and business competitiveness as well.

It is important to note that a significant number of high-quality jobs remain concentrated in the University Circle area. Thanks to the Cleveland Clinic, UH, CWRU, etc. for keeping their great jobs in the central city. This is also true for downtown, but I see Downtown Cleveland as currently losing the battle for quality jobs.

Sorry for going on so long here, but the spirit moved me this fine sunny Sunday morning.

Don Iannone