Ames Economic Outlook, 3 rd Quarter, 2015 Peter F. Orazem Iowa State University Ames Labor Market

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1 Ames Economic Outlook, 3 rd Quarter, 2015 Peter F. Orazem Iowa State University Ames Labor Market Ames has completed the best five years of employment growth since Iowa Workforce Development first began compiling data in As shown in table 1, between September 2010 and September 2015, employment in the Ames metro area 1 rose by 6,500 jobs or 14%. Contrast that with the previous 5-year period where employment rose by only 200 jobs or 0.4% growth. The private sector was the dominant driver of the recent expansion, adding 4100 jobs, a 17% increase since Private sector jobs actually decreased by 500 jobs in the previous 5-year period. Between 2005 and 2010, the only reason Ames added any jobs was that there was growth in state and local government jobs that made up for the decline in private sector jobs. In contrast, since 2010, job growth has occurred in Ames in every sector except federal government. While the Ames economy continued to expand in 2015, the pace of expansion fell compared to the previous 4 years. Private sector job growth in Des Moines outpaced the growth in Ames over the past year (see the Chart below). The job growth in Des Moines provides jobs for Ames residents willing to commute, but it is also a reason for job seekers to pick Des Moines over Ames. This will likely lead to wage growth in Ames as firms have to compete more aggressively to attract and retain workers Table 1: Change in Employment, Ames Metropolitan Area, September September 2015 Ames Employment growth September September 2010 September September 2015 Sector Percent Growth Growth in numbers Percent Growth Growth in numbers Total Nonfarm 0.4% % 6500 Total Private -1.8% % 4100 Goods Producing -10.9% % 1200 Service-Providing 2.2% % 5300 Private Service 0.9% % 2900 Providing Government 3.6% % 2400 Federal -8.3% % -100 Government State Government 3.6% % 2400 Local Government 6.7% % 100 Source: Compilations based on data provided by Iowa Workforce Development 1 The Bureau of Census defines the Ames metro as Story County

2 Relative nonfarm private sector employment growth in Ames, Des Moines, and Iowa, September 1990 September Index, September 2000 = Des Moines Iowa Ames Source: Iowa Workforce Development Year As shown in table 2, Ames employment grew less than 1% over the past year compared to 1.7% growth in the state as a whole. Des Moines was the fastest growing labor market in the state, expanding by 3.4%. Omaha/Council Bluffs, Cedar Rapids, Sioux City and Cedar Rapid all grew faster than Ames. All of these cities experienced significant private sector growth. The Ames economy is still heavily reliant on government with 42% of the jobs in Ames in local, state, or federal government. In contrast, only 13% of the Des Moines labor market is in government. Continuing weak prospects for federal and state revenue growth are a major headwind for the Ames economy. It is critical for the health of the Ames economy that it continue to diversify its employment base with private sector job growth, lessening exposure to weakening prospects for government support. Table 2: Employment growth from November 2014 to November 2015, by Iowa Metropolitan area Ames 0.7% Cedar Rapids 1.3% Davenport, Rock Island, Moline -1.7% Des Moines 3.4% Dubuque 0.0% Iowa City 1.0% Omaha-Council Bluffs 2.1% Sioux City 1.35% Waterloo/Cedar Falls 0.0% IOWA 1.7% Source: Iowa Workforce Development and U.S. Bureau of Labor Statistics

3 Retail Sales One of every 3 private sector jobs in Ames are in the retail, restaurant or hospitality industries. Many of these jobs are part time and are held by students attendingg Iowa State. As shown in the next figure, Ames has experienced 4 straight years of growing taxable retail sales after correcting for inflation. Ames retail growth is in marked contrast to the stagnating conditions for retail in the state as a whole. While job growth in retail makes it easier for students to attend Iowa State, retail sales taxes help fund school infrastructure, social services, parks and cultural amenities in Ames. This will be critical for pending school improvements, rebuilding the indoor pool, and expanding public amenities that may be important for attracting young families to the city. Attracting workers to the Ames labor market: commuting versus residing There seemss to be a great deal of confusion about who works in the Ames labor market and where people who live in Ames work. The answer is that the Ames labor market extends well beyond the boundaries of the city and that has been true for decades. Inn addition, the workplaces for Ames residents have extendedd beyond the boundaries of Ames forr decades as well. Officially, the U.S. Census Bureau defines the Ames Metropolitan area as Story County. Information presented in Table 3 shows that 77.1% of people employed in Ames live in Story County, and 59.4% live in Ames. The remaining 23% of workers or 4,307 employees commute daily into Ames from surrounding counties with Boone and Polk counties being the most important labor sources. The share of Ames workers living in Ames has increased slightly since 2005.

4 In commuters Table 3: What share of Ames workers live in Ames? Ames 58.3% 59.4% Story County 17.3% 17.7% Polk 7.2% 5.7% Boone 8.8% 8.6% Hamilton 2.3% 2.3% Dallas 0.5% 1.1% Residence of 7,626 Marshall 1.2% 1.2% Hardin 1.0% 1.4% Commuter share 41.7% 40.6% nonresidents working in Ames. 3,319 live in Story county 4,307 live in other counties Source: Iowa Workforce Development, 2013 Ames Laborshed Analysis, unpublished data Even as Ames attracts 4,300 workers from other counties, about 4,800 Ames residents commute out of Ames for work. Iowa Workforce Development estimates that 70% of the out-commuters have at least a Bachelor s degree and their median earnings exceed $80,000 per year. For Ames employers, there is an apparent ready supply of skilled labor currently commuting out of town for work, but these workers are highly paid and would be expensive to bid away from their current employers. Are Ames wages too low to attract workers? As shown in Table 4, the Ames wage distribution per worker is roughly consistent with wages in Cedar Rapids, Des Moines and Iowa City. The same conclusion holds when the comparison is made on hourly wages rather than annual wages. These 4 are the best paying labor markets in the state of Iowa. Wages in these 4 metro areas match the distribution of annual wages paid in the U.S. as a whole. Iowa residents have an incentive to work in these 4 metropolitan markets because wages average 16% more than in the other 4 lower-paying metro areas and 24% more than nonmetro areas in Iowa. Table 4: Annual Wages in metropolitan and nonmetropolitan Iowa and the USA, May 2014 Area Mean 10th%ile 25th%ile Median 75th%ile 90th%ile Ames, IA Cedar Rapids, IA Davenport-Moline-Rock Island, IA-IL Des Moines-West Des Moines, IA Dubuque, IA Iowa City, IA Sioux City, IA-NE-SD Waterloo-Cedar Falls, IA Nonmetro Iowa USA Source: May 2014 Current Population Survey

5 The reason more rural Iowans are commuting out of town for work is because the higher pay in urban Iowa compensates for the cost of the commute. That is whyy ¾ of employed Iowans in towns under 2,500 work in a different town. The higher urban wages aree also a reason to leave smaller towns and live in the growing Iowa metro areas. There is no evidence that Ames wages are not competitive compared to the rest of Iowa or compared to the rest of the U.S. Ames employers seeking new employees could target the 4,8000 workers currently commuting out of Ames, target more workers willing to commute into Ames, attract workers from other metro areas in Iowa or from elsewhere in the U.S., or target new cohorts of ISU graduates. The most pressing competitors for Ames are the employers in the now booming Des Moines labor market. If we cannot attract more workers willing to relocate to Ames, perhaps we should start more serious efforts to lower the costs of commuting. Jim Lohr s recent proposal that we coordinate and help pay for more ride-share programs between the area governments s and private firms would be a reasonable option. Housing Prices: Are they too high to attract workers to Ames? Concerns about housing prices in Ames should ease in the coming years as artificial constraintss on land for housing lots have been removed and prices should moderate. However, housing prices in Ames are comparable to other growing areas in the Des Moines metro including Johnston, West Des Moines and Ankeny. If young families are not locating in Ames, the reason is broader than just housing prices. Moreover, as the next chart shows, housingg price growth is quite consistent with the long-run growth nationally. Historically, housing prices rise about 1% faster than inflation. Using transaction prices for alll housing collected by Trulia, real housing values in Ames have increased 1.3% per year. Some have said the large number of workers commuting into Ames is evidence thatt housing costs in Ames are so high that workers cannot afford to live in Ames. I have never heard anyone argue that the large number of Ames residents commuting out of Ames doo so becausee they cannot afford housing in Ankeny.

6 My assessment is that Ames is competitive on both wages and housing costs. If Ames is facing difficulty attracting and retaining workers, we may have to investigate whether Ames offers the amenities and services that young families are looking for. Who is Ames attracting and retaining? In evaluating Ames competitive position in attracting workers, it is useful to look at our recent history of population growth. The Ames population has increased 18.6% since The fastest growth are the groups in blues in table 5 below: the college age groups and the older worker and retired age groups. In stunning contrast to the overall population growth, the population of Ames residents aged declined, a consequence of the lack of any employment growth in the Ames labor market from The best way to attract 35-year olds is to hire them as 25 year olds and wait 10 years. It is much more expensive to bid a 35-year old away from another market. Hence, the rapid growth in the Ames labor market since 2010 bodes well for the growth of our year-old population group in the future. Restoring that age group is critical to restoring the lost students from the Ames school system. Nevertheless, it does suggest that Ames firms may have to take more chances on young workers and train them as opposed to recruiting experienced workers from other areas. Table 5: Age Distribution and Population Growth, Ames, IA, Age Share Growth, <5 yrs % 5 to 9 years % 10 to 14 years % 15 to 19 years % 20 to 24 years % 25 to 34 years % 35 to 44 years % % % Total % Poverty in Ames: Appearances and Facts Somewhat strangely for a community experiencing its strongest labor market conditions in years, prominent commentators from the Ames Tribune to the League of Women Voters to ISU faculty and advocacy groups have characterized Ames as having significant isuues with poverty. As the data above suggest, the truth is that the community of Ames is atypically well-off compared to Iowa and to the U.S. as a whole. What is the source of the perception of poverty? The answer lies in the demographics with a disproportionate share of the population of student age. As shown in table 6, median household income in Ames is only $42,714 which is below the median for

7 the U.S., but Ames households are dominated by the student population. If we look at family income which would be atypically representative of the Ames permanent residents, Ames median income is over $80,000 compared to around $ 65,000 nationally and for the state as a whole. The large student population also affects Ames poverty rates in ways that distort our true well-being. The Ames poverty rate is 28% which is well over the Iowa poverty rate of 12% or the national rate of 15%. However, the high incidence of poverty in Ames is entirely due to the large student population. The Ames poverty rate for year olds is 62.5%. The Ames poverty rate excluding year olds is only 7.1%, well below the Iowa and national rates. Additional insight into how the Ames poverty statistics are affected by the student population can be obtained by looking at our population growth by age group.. The growth of the student-age population accompanied by a decline in the population of parent-aged residents has led to an increase in the fraction of students qualifying forr free and reduced lunch in the Ames schools. Becausee most of the ISU students qualify ass poor, most of their children qualify for free and reduced lunches, even as the number of children off resident parents was declining. In 2000, the fraction of Ames school children on free and reduced lunch was the same as Ankeny s at 13%. The current Ames share of students on free and reduced lunch has grown to 29%, still well below the state average of 41% (seee table 7). Virtually all of the growth in the share of free and reduced lunch students in Ames schools is attributable to the increase in the collegee student population accompanied by the decline of year-olds. In fashioning policies addressing the needs of the poor, it is important that we have accurate information on who is really in need of servicess related to permanent household poverty as opposed to temporary poverty related to student status.

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