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a photo-realistic painting of a population growth bar chart where the bars are buildings, that has flatlined, DALL-E
“If you’re not growing, you’re dying.”
In 2011, Newsweek published an article titled, “America’s Dying Cities”. The premise was that in the wake of the Great Financial Crisis, America’s population growth was slowing and that certain cities were experiencing outsized population decline. The assumption was if your population isn’t growing, your city is dying. If you’re from South Bend, this article has been referenced in just about every political speech and economic development initiative for the last 10 years. It’s driven a lot of motivation and narrative, including part of our own with INVANTI.
Sitting here today, I’m frustrated by this article for different reasons than I was 5 years ago. Then, it was about being pegged with a death sentence - a frustrating characterization for a place that many people called home, that many were fighting to improve, and that had a little-known, but globally-influential innovation and economic history. Today, I’m frustrated because I took the premise at face value.
There are two fundamental things wrong with the Newsweek article. First, on a technical level, they looked at population simply on a city limit basis, masking the dynamics of where people were actually going. Second, the implicit assumption that population growth is the leading indicator of success for a city is just not true. The success of a city is measured by the quality of life of its residents. It’s not about size, it’s not about growth rate.
Where Did the People Go
I was lucky to play a small part in a series called More People that Joe Molnar spearheaded about the history of population decline in South Bend during the late 20th and early 21st centuries. In anticipation of the 2020 Census results, Joe thought there was a lot to be said about a city that lost 25% of its population (30k residents) over the course of 50 years.
The superficial story has always been that anchor employer Studebaker, a major manufacturer of automobiles headquartered in South Bend, went under in the mid-1960s and the population cratered as a result. The real story is much more complicated. The single biggest factor driving population decline was actually a reduction in average household size. The second largest? A migration of people from within the city limits to unincorporated areas of the same county. So while the technical population did drop, the region and MSA as a whole didn’t. And while this has a lot of impact on things like the tax base, school systems, and neighborhoods - it is more nuanced than imagining 30k people packing up for greener pastures in another city. I’d encourage you to read and/or listen to the series — it tells a fascinating story not unique to South Bend.
Population Growth Doesn’t Matter as Much as You Think
Even if the population decline story is muddled, doesn’t it still hold that a declining, stagnant, or even slow-growing population is a recipe for economic decline as well? Or at least when it comes to quality of life of residents?
On the surface this seems logical. New people bring new ideas, new money, new taxes, etc. But when I started looking for research that says so, I found it is also more complicated.
Since the 1970s, there has been a group of economists, sociologists, and others that have taken up exploring this issue. All of them have come to a similar conclusion - there is no causal relationship between population growth and economic measures like real per capita income, unemployment levels, or poverty levels.
Figure 1 shows the relationship between real per-capita income growth and population growth in the 100 largest metropolitan areas in the U.S. over the period 1990-1998. Clearly, the relationship between the two variables is not strong. The points scatter in a dense cloud, instead of sitting along a narrow, upward-sloping line. In fact, statistical analysis reveals a very weak positive relationship between per capita income and population growth. Not only is this relationship weak, but if Austin, Texas and Las Vegas, Nevada were removed from the sample it would disappear. To a statistician, this is little better than having no relationship at all, since the relationship that exists depends on only two cases.
The main lesson from Figure 1 is that it is possible to achieve high per-capita income growth without putting up with high rates of population growth. The metropolitan areas in the upper-lefthand-quadrant of Figure 1 have already achieved this feat.
Finding #7: Metro areas with faster growth rates do not tend to have lower unemployment rates.
This finding is inconsistent with the belief that more growth will create more jobs, which will help local unemployed persons find work. There is no clear employment benefit shown from faster growth. There may be new jobs created as a result of growth, but apparently there are more newcomers and job seekers moving in than there are new jobs being created. The result is that local unemployment rates remain more or less the same, but the number of unemployed people increases with growth.
Also from Fodor’s paper (bold emphasis mine):
The last statistic examined in this study is the poverty rate, which is the percent of the population living at or below the official poverty level. Poverty rates for 2009 from the American Community Survey were compared with growth rates for the 2000- 2009 period. As shown in Figure 7, higher growth rates correspond to higher poverty rates. The correlation is fairly strong (>90% level), but is not quite significant at the 95% confidence level.
Across all the research I could find, the conclusion was clear - population growth doesn’t tell you much about the economic measures of your community. This is not to say that you can’t grow population and achieve improved economic measures - it just says that it’s not causal. Communities exist all across the spectrum - some achieved economic improvements with and without population growth, and some experienced economic decline with and without population growth.
What about Small Cities?
All of these analyses were done for the Top 100 Metros at the time of publishing, which excludes the cities that we focus on here. Is the dynamic any different for small cities?
I couldn’t find any studies that looked at the cities1 in our range of 100k-500k residents. So I took our list and went to the Census Bureau and the Bureau of Economic Analysis (these are the sources that the above two papers used) and pulled the same data for the cities on our list for the period of 2010-2020. You can find the data, analysis, and graphs in this spreadsheet2.
The graph below shows the relationship between average annual population growth and average annual real per capita income growth. Each dot represents a city. What we find is something similar to the previous studies - there is very little predictive relationship between the two (R^2 = 0.081).
(Quick refresher, R^2 values tell you something about how much prediction power one variable has on another variable. 0 means no predictive power, 1 means perfect predictive power.)
As you can see in the graph, there are two somewhat outliers - representing The Villages, FL and Naples, FL. If you remove these from the data set, the relationship becomes even less predictive (R^2 = 0.037).
If instead of looking at average annual income growth, we just look at magnitude of incomes in 2020 versus the average annual population growth rate over the previous decade, we see a similar result (R^2 = 0.056). Population growth over the decade prior predicts very little about the real incomes at the end of the decade.
And again, if we remove to two outliers (The Villages, FL and Midland, TX), it has even less predictive power (R^2 = 0.017).
The conclusion: even for small cities, policies and programs for population growth are probably not all that important to the economic measures we care about for the quality of life of our residents.
Population Growth : Capital Raised :: Small Cities : Startups
My takeaway from all of this is not that the Newsweek article was wrong in its conclusion. Maybe South Bend was a dying city, maybe it wasn’t. The point is that population growth was a poor way to draw any conclusions about that question.
As I thought about this more, it reminded me of the conversation that always seems to be happening around venture capital and startups. Funding rounds are the quick, de-facto judgement of how a startup is doing. It’s what grabs headlines, it’s what stirs up drama, it’s what people brag about. But at the end of the day, it’s not the real metric that matters. It’s a distraction. Venture capital is a tool for a business, not the reason for a business.
The same seems to be true about population growth and small cities. Population growth creates headlines (see annual versions of “Top 10 Fastest Growing Small Cities”). Everyone wants to constantly know where people are moving. Are the techies escaping to small cities? What about remote work? Who is on the rise - the Sun Belt or the Rust Belt?
But as you can see, it’s a bit of a distraction. Economic development’s underlying purpose is to improve the quality of life of residents. That quality of life can be improved in a multitude of ways, some of which involve increasing incomes, decreasing unemployment, and decreasing poverty. But none of these are caused directly by population growth. Cities that are growing can do both poorly and well on these measures, and those not growing can do the same. No conclusions can be drawn simply by population growth stories, in the same way that no conclusions can be drawn simply by venture funding stories.
Shifting Focus: Entrepreneurship & Increasing Quality of Life
Entrepreneurship is one of many tools of economic development. But I think it’s one that plays especially well with population growth agnosticism. If we think about the underlying goal of increasing quality of life, entrepreneurship gives small cities a lot of ways to be successful, regardless of where founders and their teams decide to live.
A founder/company has three characteristics at the time of founding that influence its effect on small cities:
Where the founder/company is located at time of founding
Where the people the company serves are located
Where the founder/company is located in the future
Each of these variables can then be either “small city” or “not small city”, creating eight (2^3) possible combinations. Most places concentrate on strengthening two or three of these scenarios. But in reality, only one of the combinations is truly unhelpful - that in which the founder is not located in a small city at founding, doesn’t serve people in small cities, and never moves to a small city. All other combinations can have positive outcomes for small cities, regardless of where the founder/company is now or in the future.
A Different Question
I find all of this liberating. From personal experience, convincing people to move to a place like South Bend is not always the easiest thing to do. At the same time, it’s always exciting to meet people who choose to do so. What this analysis tells me is that it’s not something to worry about all that much. There are other ways to spend time, money, and effort that can move the needle on what is important. If we grow - awesome. If we don’t - that can be ok too. We can instead pay attention to the metrics we really care about: the quality of life for the people who are deciding to call our small cities home.
Over the last 18 months, a lot of startups have had to ask themselves:
“How do we chart a path to success if we never raise more capital?”
I think it is a good exercise for small cities to ask the analogous question:
“How do we chart a path to success if we never see population growth?”
Don’t get me wrong, I’m not anti-population growth. I’m just interested in how small cities can be resilient to differing futures of population growth.
The exciting part is that there are a lot of options, many of which can be driven by a wide-range of relationships to founders and entrepreneurship.
And I have a feeling that there may be an irony to population growth that is similar to the irony of startups and venture capital - those that don’t concentrate on it are the ones that end up attracting it anyway.
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(1) I’m not an economist or academic researcher, so I could be making mistakes! I’m hoping that even if there are some mistakes, they are somewhat minor and the general conclusion still holds true.
(2) There are some cities on our list deemed “micropolitan” instead of “metropolitan” and so aren’t included in the BEA real per capita income data set. They are not included in those analyses.
Excellent analysis here - thanks.