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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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.
Urban cores have become more successful in attracting residents over the past two decades—a 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.”
Yet, this trend is slowing, according to the U.S. Census Bureau’s 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.
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.
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.”
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 ago—and 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 millennials—and growing—while the younger generation’s rate has been on the decline.
Boomers—many of whom also went to core cities in their 20s—also 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.
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 cores—places 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.
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, there’s 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 people—like 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.
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.
Where Talent Wants to Be
If current trends continue, another generation—often called GenZ—will follow their predecessors into urban cores in disproportionate numbers. Then they’ll 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 centers—whether restored or created—and will likely prefer such things as bike trails and parks over golf and endless mega-retail centers. The millennial suburb, as MIT’s 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.
“The millennial suburb, as MIT’s 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 America’s 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 future—and that workplace will be in suburbia.