The Bad News for Local Job Markets

By AARON K. CHATTERJI Published: October 24, 2013 100 Comments

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DURHAM, N.C. THE September jobs numbers, finally released this week after the government reopened, indicate that the job market remains on a painfully slow upward trajectory. Unemployment has fallen a full percentage point since early 2012, but at this pace, our economy could still be years away from its prerecession level. To make faster progress, many analysts are banking on job growth from two key sectors, education and health care. Enlarge This Image

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Share your thoughts. Post a Comment Read All Comments (100) Ed and meds have already accounted for a significant share of employment growth over the past several years. More important, these jobs are the only thing keeping many small and midsize American cities from sliding into deeper decline. Several regions are consciously building around these services under the logic that they cannot be outsourced, and local demand will continue to grow. Unfortunately, both assumptions are wrong, and that could mean bad news for many local job markets around the country. Education and health care jobs are so attractive because unlike manufacturing jobs, which have steadily declined over the last 25 years, they are largely shielded from global competition. As a society we continue to spend large sums of money, both in the public and private sector, on educating our students and caring for the health of our citizens. Since good jobs will increasingly require more education and our population is aging, the long-term outlook for these sectors looks positive. Education and health care also create jobs across income distribution, providing work for home health aides as well as college professors. However, while the total number of jobs in these sectors could grow, it is not likely that all regions would benefit equally. For example, one might take for granted that there will be growing demand for orthopedic surgeons in Toledo, Ohio, and educational administrators in Iowa City. But the same forces that led other industries to cluster in specific regions (think technology in Silicon Valley or banking in New York) are now sweeping through education and health care. Consider the education market. The rise in online education, specifically massive open online courses, is expanding the number of students a top university can educate. The Wharton School of the University of Pennsylvania, one of the top business schools in the world, recently announced that it would offer four of its foundation courses online for free through Coursera; students can receive a certificate of verification for $49 for each course completed. A certificate might not be as valuable as an M.B.A. from your local university but it could be in 5 to 10 years.

What will happen to enrollment at lower-ranked business schools when students have the opportunity to take courses la carte at Wharton for less than the cost of their monthly cellphone bill? The best schools will attract more and more students, while the middleand lower-tier institutions will mostly struggle, leading to less local demand for college administrators, tutors and faculty. Health care jobs might seem very different at first glance. Every city, large or small, will always need emergency room staff and obstetricians within a reasonable distance. But this could be less true for orthopedic surgeons and cardiologists, who power the highmargin services that pump significant sums into local economies. What will happen when more employers follow the example of Walmart, which announced last fall that it would send employees in need of transplants or heart or spine surgery to one of six leading medical centers around the country, rather than to their local hospital? Walmart is making this move because there is notorious variation across the country in health care costs. Getting the same service in one city can be a lot more expensive than in another. Walmart believes it will save money by funneling its employees to the very best facilities, where higher volumes should generally drive lower costs. If this trend accelerates, it will hurt local hospitals and leave them with fewer profitable service lines. It will also certainly mean fewer jobs at these facilities. Thus while the number of education and health care jobs could indeed grow significantly in the coming years, that does not directly imply job growth in small and midsize cities that depend on these sectors. In fact, the opposite situation could unfold for places that are not world leaders in providing education and health services. This category includes most places outside major metro areas. Toledo and Iowa City are quite typical in their heavy reliance on education and health care sectors. Without job growth in these industries, there are few remaining employers in most places left to make up the difference. Instead, we might see the same dynamic of winners and losers observed in other industrial sectors, as top universities and hospitals become larger and absorb most of the increase in students and patients from across the nation. While these shifts might increase economic efficiency and gross domestic product over all, they will leave even fewer opportunities for good jobs in the places that need them the most. Aaron K. Chatterji is an associate business professor at Duke. From 2010-2011, he was a senior economist at the White House Council of Economic Advisers.