2 things we do well, 3 things we can do better

Who: Alex West, Director of Research, Ann Arbor SPARK

What: Benchmarking the Ann Arbor Region, an Economic Competitiveness Assessment

When: April 2017 and continuing annually

Where: using Ann Arbor and Washtenaw County data, comparing against a competitive set of regions around the USA

Why: …read on, dear friends…

This all started with a series of questions we get asked all the time: how does Ann Arbor compare to (_insert city or region here_)? Generally speaking, we have data tools and resources that compare data on a basic level; demographics, economics, industry clusters, etc etc. But the discussion never ends at just one data point, or even one market report… it invariably leads to deeper questions:

  • What are the right metrics to track for our region?
  • Who are our regional competitors?
  • What do we (as a region) do well?
  • What can we (as a region) improve on?
  • What are the trends? How have we performed on ___ over time?
  • And on, and on… eventually coming to the most important question of all: so what? What are the implications of all this data?

This is the absolute best part of my job. I take the most interesting questions from community stakeholders (public sector and private sector) and figure out how to answer them with the data that’s available. The report we released in April, Benchmarking the Ann Arbor Region, is the first in a series of benchmarking exercises that aim to answer questions like the ones posed above.

First things first: this isn’t marketing

The goal of this report is to take the pulse of the Ann Arbor region in comparison to a specific competitive set of technology-driven communities and their economies. The purpose is not to market the region — Ann Arbor SPARK identifies, tracks, and compares numerous metrics that confirm and support our marketing message: the Ann Arbor region is a great place to live, work, and play. The purpose of this study is to compare ourselves to peer communities on more foundational metrics, and to ask ourselves where and how we can do better.

Who are our competitors?

For this report includes 11 city/county comparison regions, and 4 contextual comparison regions (including metropolitan statistical areas in Southeast Michigan (Detroit metro area), Western Michigan, the state of Michigan, and national averages). Many of the selected regions were chosen due to their inclusion in anecdotal comparisons to the Ann Arbor region. Austin, TX, is a perfect example. There are many similarities to Ann Arbor, but when comparing available services and city policy, it is helpful to remember that Austin is eight times larger than Ann Arbor. Where possible, I normalized for population.

 

What are the metrics?

There are eight individual metrics in this report, and I encourage you to read it in its entirety to get the full picture.

 

In the interest of brevity I’ll focus on four central highlights and areas for further research…

 

Two things we do well

 

1. We’re #1 in R&D spending

Why it matters: University R&D expenditures are important because they provide opportunities for risk taking, proving ideas, and add to the innovation pipeline. R&D funding helps to build a conduit of research for future innovations. Nationally, levels of university R&D spending have been growing in the last ten years at a greater pace than U of M.

 

 

2. Our Venture Capital Funding Activity isn’t bad…given Ann Arbor’s size.

Ann Arbor’s venture capital activity is 5.8 times the national level, second only to Boulder.

Why it matters:  High levels of venture capital activity indicate areas of innovation. Venture capital is important for the growth of startups as venture investors tolerate more risk than conventional investors and lending institutions.

 

 

You’ll notice that Boulder’s level of VC Activity is nearly off the charts. This isn’t too surprising; Boulder has long been a hub of startup activity, and for a city about the same size as Ann Arbor, the level of activity is impressive. This leads to questions like – what are they doing differently? Are there things we can emulate? Etc. 

And two things we can do better

 

3.a. We need more people to move in.

Why it matters: To be considered an innovation hub, the Ann Arbor region must be attractive to outside talent. Net population movement, both inter and intrastate, can potentially indicate the attractiveness of a region to outside talent, especially when viewed as proportional to population.

 

Among our competitive set we have a positive net migration, but nothing like Austin or Berkeley or Portland. Again, these are large cities, so in terms of net migration as a % of population, Ann Arbor performs pretty well.

3.b. …from out of state

Washtenaw County benefits from significant intrastate movement (movers to a different county, same state). However, among the chosen competitor regions, it loses the most people to other states.

 

4. We need more people to raise their hands and say they want to work.

Washtenaw County has enjoyed positive job growth and a steady decline in unemployment, puzzlingly coupled with a decline in labor force participation.

What it is: The national unemployment rate reflects the number of unemployed people as a percentage of the labor force. The labor force participation rate measures the number of people in the labor force as a percentage of the civilian non-institutionalized population 16 years old and over. In other words, it is the percentage of the population either working or actively seeking work. The picture of the labor market is incomplete without both metrics.

 

 

Why it matters: The unemployment rate has been steadily decreasing, as has the labor force participation rate. Usually these two statistics are inversely proportional, just as they are in some of the chosen competitor regions. There are many explanations for the decline in labor participation rate: aging population; retirement; increase in workers taking disability; more people in school; a decline in working women (for a time the decline of working men had been offset by the rapid rise in working women, but since its peak in 1999 it has been declining slowly); unemployed people unable to find work may get discouraged, lose their skills, and drop out of the labor force. Policy solutions can work to attract new labor as well as engage labor that is no longer in the workforce. Future research can examine the competitor regions with both low unemployment and higher participation rates as to what makes them different labor markets.

 

 

These two metrics shouldn’t be declining together – the Unemployment rate should be declining as the Labor Force Participation Rate grows.

Final Thought

None of these metrics operates in a vacuum.

The eight metrics chosen for this particular study all influence one another.

Envision an idea which originates in the University of Michigan as a result of R&D funding, and makes its way into the community by way of venture-funded startup. The fledgling company does well in its first few years, growing quickly and hiring a diverse group of people. Due to the complex nature of its product, new recruits are often brought in from other regions—and have to grapple with a unique housing market. The company may encounter difficulties in hiring people from out of state, and must raise awareness of the region and its attributes. At a certain point, local economic development will take notice of the company and its growth, marking its impact on the ecosystem. As the company continues to grow, it encounters scarcity of labor—the drawback of a low unemployment rate. It therefore utilizes more creative tactics to recruit new hires. Underpinning the community’s response to meeting the needs of such a growing company to stay and flourish here will be its efforts to reduce income disparities that hold back a portion of the region’s population from fully participating in an expanding economy.

This report is merely the beginning. With input from community members and considering the questions posed in the conclusions, future research will be conducted to build on the complex picture of the region.

 

Disclaimer:
The goal of this report is to take the pulse of the Ann Arbor region in comparison to a specific competitive set of technology-driven communities and their economies. The objective is not to make policy recommendations, but to provide clear, unbiased data with regional analysis on a series of metrics that are often applied without context.
Ann Arbor SPARK worked with various groups of stakeholders to produce the list of regions and metrics, including our CEO Roundtable, our Executive Committee and Finance Committee members, and participants at the Ann Arbor IMPACT conference 2016. The report represents the beginning of a series of benchmarking exercises that aim to develop a comprehensive, accurate picture of the region. In the coming months further research will be conducted using the findings of this report.
A full list of data sources and an explanation of methodology can be found here.

 

 

 

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(2 Comments)

  • Jim Libs

    I don’t know how the Labor Participation rate is figured. Could it be that the Labor Participation rate and Unemployment rate could both be going down simultaneously if there are a larger pool of people retiring coupled with existing people coming off the unemployment roles ?

  • Alex West

    Hi Jim,
    There are many explanations for the decline in labor participation rate: aging population; retirement; increase in workers taking disability; more people in school; a decline in working women (for a time the decline of working men had been offset by the rapid rise in working women, but since its peak in 1999 it has been declining slowly); unemployed people unable to find work may get discouraged, lose their skills, and drop out of the labor force. For more in-depth analysis, check out the full benchmarking report: http://annarborusa.org/sites/default/files/ann_arbor_spark_benchmarking_study_0.pdf and the Bureau of Labor Statistics explanation of the Labor Force Participation rate https://www.bls.gov/bls/cps_fact_sheets/lfp_mock.htm.

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