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The Portlandia Paradox

Oregon's largest city is full of overeducated and underemployed young people.
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Portland, Oregon. (Photo: Paul Turner/Flickr)

Portland, Oregon. (Photo: Paul Turner/Flickr)

Claire Cain Miller poked the hornet's nest of Portlandia boosters with "Will Portland Always Be a Retirement Community for the Young?" in the New York Times Magazine. At issue is Portland, Oregon, as a model of economic development. Miller describes the paradox:

Portland’s paradox is that it attracts so many of “the young and the restless,” as demographers call them, that it has become a city of the overeducated and underemployed — a place where young people are, in many cases, forced into their semiretirement. A July report by the Oregon Employment Department fretted about the state’s low personal income and employment-to-population ratio. The average income of Oregonians in recent years “may have been a ‘victim’ of the state’s attractiveness, and a resulting population influx” by new residents who don’t earn much, the report said.

Portland suffers from a glut in college-educated labor. Joe Cortright, who authored a report titled "The Young and Restless in a Knowledge Economy" (PDF), should be surprised at this outcome. He predicted a talent dividend, "increasing the four-year college attainment rate in each of the nation’s fifty largest metropolitan areas by one percentage point would be associated with a $124 billion increase in annual personal income."

Indeed Portland has been successful in increasing the college attainment rate. But the region struggles to "capitalize" on this brain gain. That was the gist of my last post. Since then, Cortright published a response to Miller's article:

The New York Times article asserts that Portland is experiencing a paradox, where all of these amenities are somehow making people worse off. But the connection between wages and amenities isn’t so much a paradox as it is a fundamental axiom of urban economics.

Miller dismisses as “perks” the mild climate, great urban neighborhoods, green living, transportation alternatives, and vibrant cultural life that characterize Portland. Yet these so-called perks have a tangible economic value. This insight is captured in something called the Roback-Rosen model developed by economists Jennifer Roback and Sherwin Rosen more than 30 years ago. This model measures the value of amenities by looking at differences in earnings among places. It shows that, if workers accept lower wages to work in one location than another, it is because they attach a real economic value to quality of life. By extension, the same is true of prices: People pay higher prices for housing in nice neighborhoods or great cities because they place a real value on the amenities outside their doors. Economists have long used this model to evaluate the economic benefits associated with cleaner air, better schools, lower crime, and other urban and natural amenities.

Venerable Oregon economist Ed Whitelaw called this the “second paycheck” that Oregonians get from their quality of life—the access to the environment and livability of communities that you can’t buy at any price in most other cities.

Great environmental policies do more than make a nice place to live—they also reduce the cost of living. While per capita incomes in Portland are slightly lower than in some other larger, better-educated cities, Portlanders get a “green dividend” from the city’s compact development and robust bike and transit systems. Because it has less sprawl, Portlanders drive about 20 percent less than the national average, saving them a combined cool billion dollars a year—real money they can spend on good food, bikes, beer, or even rent. (Did I mention that Portland has the third highest number of restaurants per capita of any large U.S. metro area, after only Seattle and San Francisco?)

Emphasis added. Cortright concedes the point about lower incomes, which is strange coming from such an ardent promoter of the talent dividend. Don't worry about the flagging per capita income issue. The "second paycheck" is in the mail.

The second paycheck won't pay the rent, which Cain Miller reports as a Portlandia concern:

But Portlanders fear that the very things that make it such a great place to live — its affordability, lifestyle and natural environment — could be threatened if too many people move there. It’s what two Portland State University professors call the amenity paradox.

It’s a problem recognizable to people nationwide. Among comments by Times readers defending noncorporate jobs and $6.50-a-dozen, pasture-raised eggs was this one, written by Charlotte Udziela, who had to leave the city for a nearby one because she could no longer afford it: “I fear Portland quickly is going the way of Brooklyn … that is, it’s becoming unaffordable for the very people, the young people, who do make it interesting.”

This is the fatal flaw in following the Creative Class playbook for economic development. Be weird and cool, attract college-educated people. This bids up the price of real estate, which isn't a problem for college-educated people who make the kind of money usually associated with a degree. Economist Linda Nazareth:

Jobs are not as plentiful in Portland as they are in other places in the U.S., and the situation is getting worse because people keep showing up. [You] move to Pittsburgh because you have specific job opportunities, but you move to Portland because you want to, but there is a price for that choice. According to two researchers at Portland State University who are quoted in the article, it is a ‘buyer’s market’ for employers, flooded as they are with educated labor. Translation: if you buy a latte in Portland, you can figure it was poured by a guy with a better degree than the guy who would pour it most other places. It is being called the ‘Portland Paradox’: the city is full of overeducated and underemployed young people.

The "price for that choice" is a job that won't pay the rent in such a lovely and popular place. Joe Cortright would have us believe that this is not a problem, sweeping his own research under the rug in the process. Pushing up the college educational attainment rate should not be a policy goal. Also, attracting/retaining the Creative Class should not be a policy goal. The goal should be better wages for residents and a way for all to share in the prosperity. Portland is a model for what not to do.