The Latest in Economic Development

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This week’s blog discusses the many reasons for America’s persistent unemployment problem, explores New York City’s ambitious bet on an “innovation economy,” looks at an emerging market for microlenders, and highlights the changing environment for America’s malls.

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In discussing the reasons for America’s continuing unemployment problem, the arguments usually diverge into two camps:  Some think that advances in technology are the culprit, while others believe globalization is to blame. It’s probably a combination of both. A study highlighted by Dylan Matthews at the Washington Post makes the case that America’s recent jobless recoveries are a product of the permanent wiping out of “middle-income” jobs due to technological advancement. Jobs previously earning middling incomes were commonly routine assembly jobs, but with productivity enhancing robots – among other advances – these opportunities have gone by the wayside. Also mentioned is the polarized nature of the post-recession job market, marked by available high and low-income jobs, but not much in the middle.

On the other side of the argument, Edward Alden, writing on the Economix blog at the New York Times, says that economists are now coming around to the idea that globalization is the cause of persistent unemployment. Surveying work by other economists, Allen notes that in the US, there has been almost “no net job growth in sectors… in which global trade played a large role.” Also, “regions that faced growing exposure to Chinese competition had higher unemployment, lower labor-force participation and lower wages that might otherwise be expected.”

Although structural explanations of joblessness have come under fire recently, evidence suggests that a mismatch between what employers are demanding and the skills of prospective employees, at least for middle skill jobs, is real…with implications for local and regional economic development.  In light of this evidence, NLC’s Christiana McFarland criticizes those pushing for a sole focus on talent attraction and “college for everyone,” instead noting the importance of aligning workforce development with economic development to grow an appropriately skilled pipeline of talent in the community.  “Everybody wants to be Seattle, with its 50%+ population of college graduates. But if your city’s percentage is nowhere near Seattle’s, no amount of coffee shops, artist lofts and talent attraction will solve your underlying economic challenges.”

“Can a city really engineer an innovation economy?” Nancy Scola, writing for Next American City, asks this question in her intriguing article about New York City’s Roosevelt Island project. The city is investing $100 million and a piece of real estate to develop a two million square foot graduate engineering campus run by Cornell University and the Technion-Israel Institute of Technology. The expected return for the city: $23 billion over 30 years. Other places have tried to build their own “Silicon Valleys” before, so there are understandably some skeptics raising legitimate questions. But if it can happen anywhere, New York might just be the place. And since I can’t possibly summarize the whole article, I highly recommend reading the whole thing.

Microlending is usually associated with “mom and pop” stores, helping them to smooth expenses such as payroll or inventory, but a new market is emerging for microlenders: virtual stores. Unable to access traditional lines of credit due to online sellers’ small business scope and sometimes mixed credit histories, individual entrepreneurs that sell small quantities of product online are turning to firms like Kabbage, Inc. for help. Microlending firms like Kabbage are assessing creditworthiness based on factors other than traditional credit scores. They “put more weight on UPS shipping information, and PayPal records to assess the probability that they’ll get their money back.” As ecommerce continues to grow at a fast clip, non-traditional sources of funding will most likely flourish.

Independently owned small businesses in malls? What? A product of the recession, Simon Property Group (a huge mall developer) started targeting small businesses to fill space in struggling northeastern New Jersey malls. Now that bigger retailers are getting back on their feet, Simon wants to find a happy mix of national retailers and smaller businesses. Explaining how Simon attracted small businesses through expos three years ago, Joan Verdon writes that “some of the retailers recruited then turned out to be so successful that the company… expanded the sessions.” By some accounts, “about a third of our existing malls are ‘dead’ or dying.” So it’s no wonder that the whole idea of the mall is dramatically changing.