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Employment Growth in America
What Determines Good Jobs?

Employment growth is one of the most fundamental aspects of a strong economy. Yet not all jobs are created equal. Some pay generously and offer desirable working conditions, while others do not. A study by Federal Reserve Bank of St. Louis economist Christopher H. Wheeler examined the growth of high-paying (“good”) and low-paying (“bad”) jobs across a sample of 206 metropolitan areas in the United States. This study suggests that the nature of jobs held by workers influences a variety of economic and social outcomes. Cities that experience rapid growth in high-wage employment also tend to see increasing incomes throughout the entire labor market, not just among those who happen to hold high-paying jobs. In addition, the growth of high-paying employment is associated with lower rates of crime, higher property values and rising educational levels.

Does Education Matter?

One of the fundamental sources of good job growth is an educated labor force. Within the past three decades, the demand for highly educated workers has grown dramatically in the United States. In 1980, the average proportion of workers across 200 industries with some education at the college level was 32 percent. By 2000, it had risen to 51 percent. In fact, no industry saw its proportion of college-educated workers decrease over this period.

At the same time, high-paying jobs also tend to have a particularly strong demand for college-educated workers. Among the top 25 percent of jobs in the sample, the average proportion of workers with a bachelor’s degree rose from 18 percent in 1980 to 36 percent in 2000. There is also a strong positive association between an industry’s average hourly rate of pay and the fraction of its workers with a bachelor’s degree. More than 70 percent of workers in the top quartile of jobs had completed some post-secondary schooling in the year 2000, whereas fewer than 40 percent of workers in the bottom quartile of jobs had done so.

Why is the general level of education so important? Economies with high levels of educational attainment among the work force (or, more generally, population) experience a variety of benefits that economies populated by less-educated individuals do not. Not only is education associated with higher earnings for individuals, but as the general level of education within a city rises, the average labor earnings of all workers tend to rise. An additional benefit of a more-educated work force concerns the potential for future job growth. The level of education among a city’s population is strongly associated with subsequent rates of growth among high-paying sectors. Thus, there is a “virtuous cycle” aspect to the growth of good jobs: Their presence helps to ensure that such jobs will continue to grow in the future. In addition, cities with large numbers of colleges and universities and employment that is accounted for by institutions of higher education tend to exhibit a significantly faster growth rate for good jobs. Therefore, cities with more-educated populations tend to see the ratio of good to bad jobs increase over time.

Where Are Good Jobs Created?

Beyond education and skill concerns, characteristics such as labor costs and unionization rates may influence the perceived profitability of a location and, therefore, the extent to which producers create jobs there. Where workers are willing to live and, thus, where employers are likely to set up production also depend on what amenities (e.g., entertainment, warm weather, schools) people desire in a location. The number of movie theaters and the average temperatures during January and July all affect employers’ selection of their business locations. Not surprisingly, employment growth in the South and West of the United States has outpaced that of the Northeast and Midwest in recent decades.

Good jobs also tend to grow faster in metropolitan areas with younger populations. Part of the explanation for this probably relates to the fact that cities with young populations also tend to be more educated. Furthermore, urban workers tend to be somewhat younger and more educated than their nonurban counterparts. In 2000, for example, 29.3 percent of urban workers between the ages of 18 and 65 held a bachelor’s degree, and nearly 60 percent had some schooling at the college level. In rural areas, only 16.3 percent held a four-year college degree and only 45 percent had some post-secondary education. Moreover, 55 percent of urban workers were between 25 and 44 years of age—i.e., in the first half of their careers—whereas only 51 percent of rural workers were.

Conclusion

The benefits of job creation for both workers and their communities are enormous. Because those benefits tend to be even greater as the share of good jobs in total employment increases, identifying where and why good jobs grow is an important task.

Among the potential determinants considered, the most important seem to relate to the characteristics of the local labor force: age, education and work skills. Developing a young, skilled work force is probably the most fundamental step that a region can take in the promotion of good jobs.

This article was adapted from “Employment Growth in America” which was written by Christopher H. Wheeler and was published as a Federal Reserve Bank of St. Louis study in July 2005.

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