The Washington PostDemocracy Dies in Darkness

Big cities are dominating the recovery, leaving the rest of America behind

There are two American economies right now: big cities and everyone else.

The San Jose skyline is seen from City Hall in San Jose, Calif., Tuesday, Feb. 5, 2013. The Silicon Valley is leading the rest of the country out of the recession with increased jobs, income and initial public offerings last year, according to a new regional report. (AP Photo/Jeff Chiu)

PALO ALTO, Calif. – Monday traffic is brutal on U.S. 101 between San Francisco and San Jose, choking the commute to Google and Facebook and hundreds of startups you’ve never heard of. Tuesday and Wednesday are worse, the regular drivers say, and so is Thursday. On Friday it lets up, but not much. Everyday traffic is  worse than it was last year and the year before that and the year before that.

This is the most frustrating gauge of just how hot Silicon Valley’s economy is right now.

Out here it’s easy to forget there was ever a Great Recession, or why so many Americans believe that recession still isn’t over. The metro area that the 101 freeway bisects added 30,000 new jobs in the past year, a 3.5 percent increase from September 2013.

All those jobs, and the salaries and stock options that come with so many of them, are powering California to a respectable recovery and a balanced budget. The state as a whole has a falling unemployment rate and 100,000 more jobs today than it did at its pre-recession peak in 2008. But if the San Jose and San Francisco areas didn’t exist, the state would still be 80,000 jobs down from its ’08 peak.

A similar story is playing out around the nation: Big metro areas are mostly booming after the recession, and everywhere else is still digging out.

As of the third quarter of this year, according to a Brookings analysis of Moody’s Analytics data, America’s 100 largest metro areas were collectively 1.3 million jobs over their pre-recession peak. All the other parts of the country, combined, were still 300,000 jobs below peak. That’s a 1.5 percent gain for the big metros and a 0.7 percent loss for everywhere else. The gap would be much wider if not for an oil- and gas-drilling bonanza that is lifting job growth in North Dakota and other largely rural areas.

This isn’t how the economy typically worked over the last 35 years. Calculations made earlier this year by state economists in Oregon show that big cities tended to grow at rate similar to other areas of the country after a recession. Only the late 1990s were an exception. Until now.

Those diverging fortunes help explain why people in broad swaths of the country perceive that the recession, which ended officially in mid-2009, still hasn’t loosened its grip on their lives. Rural areas without oil or gas reserves have on average only recovered one-fifth to one-quarter of the jobs they lost during the crisis, according to calculations by Joshua Lehner, an economist for the Oregon Office of Economic Analysis.

“In an ideal world,” he said, “you’d have jobs for everyone that wanted them” — regardless of where they live.

It may be that this geographic jobs gap is a permanent feature in an economy increasingly driven by brainpower and innovation, where clustering smart people in relatively small areas appears to boost labor productivity. That’s certainly what the economists think at the Brookings Metropolitan Program, which conducted its breakdown of job growth at the request of The Washington Post.

“Scale and density concentrate economic inputs like skilled people and R&D, intensify interactions, allow for labor market pooling and matching, allow for access to shared infrastructure,” said Mark Muro, the metro program’s policy director. “This a fact of economic life. Place, scale and density matter.”

Or, says, Jed Kolko, the chief economist for the online real estate site Trulia, it could be that there’s nothing new here, other than that some parts of the country are just correcting the excesses of the last housing bubble. “We need to be further outside of this economic cycle before we can say whether there’s been a permanent shift in the past few years,” he said.

In California, researchers are beginning to worry that the economy and the state budget depend too heavily on Silicon Valley. It’s easy to imagine a cascade where tech growth slows, employees cash in fewer stock options and capital gains receipts fall, plunging the state back into the sort of budgetary trouble that plagued it throughout the 2000s.

Oddly enough, government budget cuts may be one driver of the big metro/everyone else disparity. Smaller communities tend to have less diverse economies than major cities, Lehner said, and so when cuts force layoffs of teachers and civil servants, those smaller areas have fewer other jobs to cushion them. That’s a factor in his state, Oregon, where Portland has gained back all its lost jobs, plus two percent, while the rest of the state is still four percent below its jobs peak.

That brings up another concern about growth being concentrated in big metro areas: They tend to be more unequal and expensive places to live. Income inequality runs very high in Silicon Valley and many other large metros. Palo Alto residents love to talk about the bidding wars on their blocks, with multimillion-dollar homes being bought entirely for cash. Home prices are up more than five percent over the last year in Portland, Ore. Trulia reported Tuesday that homes are getting less affordable for the middle class, especially in high-income areas.

When jobs are concentrated in pricier areas, workers often face a choice: Accept a more expensive life or drive longer to get to work. Many of them choose the commute — which means more traffic, on the 101 and elsewhere.