Matthew Moore: A new study by the Milken Institute ranks Northwest Arkansas as the best-performing large metro area in the U.S. The nonprofit, nonpartisan think tank released its Best-Performing Cities report earlier this week with the subheading “Resilience in a Cooling Economy.”
Maggie Switek is the senior director of research at the Milken Institute. We spoke over Zoom yesterday about the report. She says they primarily use publicly available data and sort it into three main categories: labor market performance, high-tech industry concentration and access to economic opportunity.
Maggie Switek: And by combining those three using different weights, we really calculate a score. And based on that score is where we see, well, how does this metro do in general in terms of rankings? Who falls toward the top? Who tends to fall toward the bottom?
Moore: As I look at some of the other cities that were highly ranked here, we're looking at Huntsville, Alabama. We're looking at Charleston, South Carolina. We're looking at Boise, Idaho. One of the things that sticks out to me about those top three is there tends to be higher education. There tends to be heavy STEM in these places, especially when we think of Huntsville. We think of NASA, right? Is that what we see year over year, is places where there's a high propensity of higher education, a high propensity of STEM jobs?
Switek: We do see a higher propensity of metropolitan areas that are anchored in some kind of educational institution. Education and health care really are the two types of institutions that tend to anchor the places that rank high in our rankings.
So, for example, last year the top-performing metropolitan area was Raleigh, North Carolina. And that is also anchored in the Research Triangle. This actually came up in a conversation I had with the city’s mayor. They also have a very strong system of community colleges, which is really interesting.
So it does tend to be a pattern that we see metropolitan areas anchored in educational institutions. In your case, of course, the University of Arkansas, according to the metrics that I have here, is the second-biggest employer in the metropolitan area. That also tends to anchor the city in high growth, and growth that tends to be consistent from year to year.
Moore: I imagine the number one employer in this region is the Fortune One company that’s in our backyard here, and that is Walmart. That plays a huge role in a lot of these components.
Switek: Absolutely. One of the components that it played a big role in this year is the growth of jobs in the professional and business sector. Those are super sectors defined by the Bureau of Labor Statistics. It’s a high-paying sector, and it’s a sector that over the past year at the national level lost jobs, which slowed down the labor market overall.
However, in the case of Northwest Arkansas, you gained jobs in that sector. The reason why is growth in management of companies and enterprises and growth in professional and scientific industries. Both of those industries also have a high share of employment in your metro area.
If I look at management of companies and enterprises, about 10% of jobs in your metro area come from that occupation. The number of jobs in that industry continued to increase over the past year and is projected to continue to increase. That is not necessarily the case for the rest of the country.
Moore: One of the things that stuck out to me is that you list as one of the strengths that despite its persistent population growth, the metro region continues to provide relatively good access to affordable housing. I’m intrigued by that, because there are a lot of conversations here in Fayetteville where housing is not affordable.
Switek: Yes, I hear that. I’ve also seen the trends in housing prices, specifically in Fayetteville. They are increasing, and they are increasing at a faster pace than in the rest of the United States.
The way we define access to affordable housing is by looking at the percentage of households that spend less than a third of their income on rent or housing costs. We’re not just looking at housing prices. We’re looking at the ratio of how much people are spending on housing to how much they are earning.
So it's really an income-to-cost ratio. And because in Fayetteville wages have still been increasing at an above-average national rate, that has kept the ratio of income to cost. And one key word that we use there is relatively. Relatively to the rest of the country, we're better off.
Moore: And I imagine there's also an element of it's easy to hyperfocus on the city of Fayetteville and not look at the metro region as a whole, that perhaps for folks who live within city limits of Fayetteville, it is not easy to find affordable housing. But if you live outside of the city limits and you live within the metro area, you may have better access to affordable housing.
Switek: Yes, of course, because the metro region is really interesting from that perspective, because the particular metro is a composition of about, based on what I could see, like about 30 different small towns that are in close proximity to each other. So the name of the metro area, as you stated, is Fayetteville-Springdale-Rogers, but there are a number of other smaller cities that are also included in there.
So it is, and that is actually, as I told you, to me, these interviews are always interesting because they also give me a perspective of the people that are on the ground. But it's interesting to know how much commuting is there in between those places. Do people really go to other places to get more affordable living conditions? Because I know in some particular metros that is not possible because of the geography, while in others the cities tend to be better connected. And because of that, there does tend to be a lot of commuting in and out of particular areas.
Moore: The one area of focus that's listed here in the report talks about the rising income inequality in recent years. Can you talk more about that specific data point and why that's an area of concern, perhaps?
Switek: Yes. So that is one of the few weak points in the ranking when we look at precisely. So as I said, our ranking really looks at multiple different things and it tries to balance them out in order to include the social component.
And we see that in terms of income inequality, your metropolitan area, as compared to other metropolitan areas of similar size in the United States, ranks 132nd. In previous years it has ranked slightly higher. So that means that really there has been an increase in income inequality.
And some of it could be because of the demographic trends that your metro area has experienced. My understanding is that there's been an inflow of domestic migrants into the region. I have never been, unfortunately, to your area. So I don't know the effect that that has had on the residents that were already there. But to the extent that there's an influx of higher-paid, higher-wage workers into the area, that doesn't necessarily benefit the current residents. That could be reflected in an increase in income inequality.
Moore: Before we hit record here, the question that I asked you is, I imagine you hear a lot from people who are at the top of this list, but you said that you also hear from folks who were at the bottom of this list, who were the lowest-ranking metropolitan areas. What are the kinds of things that you tell those areas of here are things you can do to improve?
Switek: Yes. So it's an interesting question. And I get two types of people, two types of city officials, that are not performing well that want to talk about that. Ask me this question of what can we do.
So the first one is the ones that are at the bottom, and the second one is the ones that have dropped and want to go back up. So what I always see is that the cities or the metro areas that tend to stay high in the rankings consistently from year to year, rather than fluctuate a lot, are the metro areas that have employment across multiple industries.
So for example, as in the case of Northwest Arkansas, you have a high share of employment in professional and business services, but you also have a high share of employment in education and health care. You also have a high share of employment in government, in leisure and hospitality. So these are really sectors that tend to complement each other.
And when one of them is growing and perhaps some others are not, there's still job creation. So what we have seen that has happened in some metropolitan areas that, for example, are very much anchored in the information sector and the high-tech sector is that in the past years they might have dropped a lot. But because precisely of the slowdown in high tech, in your particular case, we don't see that because of the kind of spread-out anchoring across the different industries.
Now, having said that, and I have spoken to other reporters from your area, what they have told me is that this is interesting to them because I'm talking about the diversified economy across multiple sectors, but what they're seeing is not necessarily a diversified economy as it comes to employers.
But I will say your two top employers that we already stated here are Walmart and the University of Arkansas. And those are very different. Because Walmart is a very professional kind of management type of employment, white-collar, maybe some blue-collar jobs, whereas the University of Arkansas is really an educational institution. And these types of institutions tend to anchor precisely the metropolitan areas in what we have seen is consistent and sustained growth over years.
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