The Cities Creating the Most High-Wage Jobs

This piece first appeared on Forbes.

As the country moves toward full employment, at least as economists define it, the quality of jobs has replaced joblessness as the primary concern. With wages still stagnant, rising an anemic 2.5% in the year to May, the biggest challenge for most parts of the U.S. is not getting more people into the workforce but rather driving the creation of the types of jobs that can sustain a middle-class quality of life.

To that end, the key sector to watch is business and professional services. By far the nation’s largest high-wage sector — including such fields as law, accounting, architecture, advertising, engineering, scientific research and development, and computer systems design – it employs 20.5 million Americans, roughly the same as the finance and manufacturing industries combined. Over the past decade, the number of people working in business and professional services has expanded by nearly 2.5 million, including an increase of more than half a million jobs in the last year.

We decided to take a look at which metropolitan areas are gaining the most professional and business services jobs and the trends that are driving some to pull ahead while others fade. Our rankings look at employment in the sector over time— assessing short, medium and long-term job trends and adding in variables for persistence and momentum as well. The results of these trends, based on three-month averages, are normalized and each metropolitan statistical area is assigned a score based on its relative position in each area. The rankings this year produced some surprising results, as well as some familiar stories.

The shift to affordable places

Looking at the 70 largest labor markets in the country, the clear winners are affordable, business-friendly locales – and their momentum is growing. These span an array of regions, from the Midwest heartland to the Deep South, Texas and the Intermountain West.

Our number one metro area for professional and business service jobs, Nashville, Tenn., epitomizes many of the characteristics that drive high-end employment today. Since 2011, Nashville’s job count in professional and business services has expanded a remarkable 42.6% to 160,300, easily the highest growth rate of any major metropolitan area. Management and technical consulting, architecture and related services have led this growth.

The very forces that lead companies to Nashville — low taxes and a pro-business regulatory environment — also apply to several of our other top 10 places. These include No. 2 Kansas City, Mo., which has logged 28.4% growth since 2011. KC, better known in the rest of the country for barbecue and its music scene (though not quite Nashville), has grown a vibrant economy based in good part on service businesses in architecture and innovative administrative support models (especially for health care providers), accounting for some 100,000 jobs in professional and business services.

But for the most part of the fastest-growing areas for business services are also the same areas that did best on our overall list. These include the Texas powerhouses of Austin-Round Rock (third), Dallas-Plano-Irving (fifth), and San Antonio-Braunfels (sixth), all of which logged 25% job growth or more since 2011. Salt Lake City, ranked ninth, has become a major magnet for business service, outpacing such hot spots as 21st-ranked Seattle and No. 28 Denver. Charlotte, another consistent performer, ranked eighth.

The last big region for fast-growing high-wage service jobs is Florida, led by 10th-ranked Orlando, 11th-place Tampa-St. Petersburg-Clearwater and No. 14 Ft. Lauderdale-Pompano Beach-Deerfield Beach. Better known for its huge hospitality industry, Florida cities like Orlando have become major lures to large companies seeking lower costs and taxes. Orlando is home to corporate or regional headquarters of Darden Restaurants, Tupperware, AAA, Deloitte, and the fast-growing auto service firm, Greenway Automotive. Over the last two years, the business services sector grew more than tourism, adding almost 24,000 jobs compared to 21,300 for tourism.

Places Where Value Still Outpaces Costs

Yet not all of the economies creating the most high-wage jobs are in the lower-cost states. There remains a handful of places with high taxes and strict regulation that are attractive to businesspeople. Perhaps the best example is San Francisco-San Mateo-Redwood City, which is down two notches from last year to fourth place, but remains on a tear, with over 34% growth since 2011. This growth is driven in large part by the tech industry, which is increasingly integrated into business services.

One prime example is Salesforce.com, a firm with strong tech assets, but whose customer relationship management tools are firmly in the business service space. The company has quadrupled its sales to $8 billion since 2012 and now employs 6,600 people at its San Francisco headquarters, making it the second largest private employer in the city after the venerable Wells Fargo.

Seventh-ranked San Jose-Sunnyvale-Santa Clara, the capital of Silicon Valley, has also been able to dodge the cost bullet, enjoying 34% business services job growth since 2011. Other high cost areas that have seen impressive growth in business services include No. 20 New York, with 21.2% growth since 2011 to 735,300 jobs – the most of any metro area in the nation, as well as No. 24 Boston, with 17.1% growth over the same period. As competitive pressure in these tech-heavy metro areas has surged, it has driven up the local demand for professional services.

Many other high-cost metro areas have not done so well. In Southern California, 32nd-ranked Anaheim-Santa Ana-Irvine, with a job growth rate of 19.3%, is the pick of the litter. Other parts of this heavily populated area do worse, including San Diego 49th ) and Los Angeles (53rd), where growth was 11.6%, way below the average of 16.5% for large MSAs. Riverside-San Bernardino, which did respectably in our overall job growth survey, ranked a poor 67th in business services, with a 6.9% drop last year.

What the future may bring

The future of business services presents a mixed picture. Areas with particularly strong technical expertise, such as the Bay Area and Boston, and financial talent, notably New York, continue to do well. Yet job growth is slowing in all three; San Jose and San Francisco posted the lowest growth among the top 10 metro areas in 2016, well below such places as Nashville, San Antonio and Kansas City.

Does this suggest a developing trend? Certainly the ease of online communication may grease the skids for firms to locate people in less expensive regions. Although salaries for business professionals are higher in places like San Francisco or New York, the cost of living, particularly housing, cuts into the value of their salaries. Estimated median home prices in the City by the Bay hit $1.5 million in May, more than six times the national median price of $244,800.

Further down the road, we may also see the shift of some business to small and mid-sized cities, which constituted 10 of the top 12 fastest growing areas for business service jobs, led by such diverse places as Wausau, Wisc., Monroe, Mich., and College Station, Texas. As companies look to cut costs and still offer a middle-class standard of living to their employees, such shifts could be in hand. If so, the much dismissed prospects for small cities may prove far brighter than many may expect.

Photo credit: Nashville skyline by Peter Miller via Flickr under CC 2.0 license.