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83 Cheers for the Old Economy

Last week Paul Krugman had a nice blogpost comparing income growth in the stagflation-ridden “old economy” of the 1970s and the bubbly “new economy” of the last decade. For the entire United States, it seems, inflation-adjusted median family income fell at a slightly slower rate between 1973 and 1981 than between 2000 and 2008. The old economy was better for the nation as a whole, at least as far as income growth goes. But what about metropolitan areas? In which places was income growth more rapid in what many people remember as the “bad old days”?

The answer: 83 of the nation’s 100 largest metro areas (shown in blue on the map) had faster inflation-adjusted income growth from 1973-81 than from 2000-08. (Because of data limitations at the metro level, I compared growth in per capita personal income rather than median family income.) The 17 metro areas that did better in the 2000s than in the 1970s (shown in red on the map) included all six major metro areas in New York, Springfield (MA), Scranton, Providence, Baltimore, Virginia Beach, Augusta, Jacksonville, Miami, Little Rock, El Paso, and Honolulu.

The new economy was especially bad news for some places that specialized in its iconic IT and financial services industries. None of the top 100 metro area saw income declines from 1973-81 but 10 had income losses from 2000-08. Those nine included high tech centers that struggled to recover from the tech bust (San Jose, Austin, Raleigh, Provo), auto manufacturing centers that never recovered from the 2001 recession and then got hammered by the troubles of GM and Chrysler in 2008 (Detroit, Grand Rapids, Toledo), a banking center that suffered during the 2008 financial crisis (Charlotte), and, for reasons I don’t understand, Atlanta and Indianapolis.

The new economy favored the West, where 23 large metro areas had faster income growth in the 2000s and only one had faster growth in the 1970s. The Northeast was split almost evenly between places that did better in the 1970s and those that did better in the 2000s. The Midwest and South were better off in the 1970s. All the Midwest’s large metro areas had more rapid income growth in the 1970s than in the 2000s, as did 29 of the 36 large Southern metro areas.

Did unionization, a mainstay of the old economy, hold metro areas back in the 2000s? Surprisingly to some, the answer is no. The 41 metro areas with union representation rates above the national average in 2008 averaged 8.5 percent growth in inflation-adjusted personal income from 2000-08, while the remaining 59 metro areas averaged 8.1 percent growth. That doesn’t prove that unions caused the faster income growth. But it does mean that, contrary to recent claims from conservative think tanks, unions aren’t killers of economic growth. Maybe the institutions of the old economy are worth reviving after all.