How Portland Got Its Groove Back

The city where “young people go to retire” is having an economic renaissance, with lessons for the rest of the country.

Man with bicycle looking at skyline over river, Portland, Oregon.
A bicyclist in Portland, Ore.

Photo by Kim Carson/Digital Vision/Thinkstock.

While I was in Portland, Ore., last week to give a few talks on economic policy, at least four different people told me the same joke about the local economy.

 “Portland,” they said, “is where young people go to retire.” Fun city, in other words, but a bleak labor market. The joke turns out to be borrowed from the IFC show Portlandia. The city is described as reminiscent of a time when “people were unambitious; they’d sleep till 11 and just hang out with their friends.” Or a time when there were “no occupations whatsoever, maybe working a couple of hours at the coffee shop.” This is said with affection on the show, but the city’s reputation for labor-market difficulties weighs heavily on residents, particularly because they’re proud of its quality of life. If, despite all the bike paths and painstakingly made pour-over coffee, you’re an economic backwater, that seems to suggest you’re doing something wrong.

And it wasn’t just jokes told in coffee shops or on TV shows. In 2010, a consortium of area business groups released a report (PDF) attempting to explain “why Portland-metro’s economy underperforms” relative to comparable cities such as Seattle, Denver, and Minneapolis. The authors noted a substantial and growing gap in per-capita income between the Portland and Seattle metropolitan areas, driven primarily by weak workforce participation.

“Oregon,” they wrote, “has fewer prime working age residents actively employed than Washington does and this is not attributable to any shift in the age of our population.”

In other words, Portland really was where young people go to retire. Portlandia’s depicted idyll was more of a disaster area. After all, fewer workers means lower incomes and less productivity. Lower incomes means there’s less money available to help meet the social needs of those genuinely unable to work. It means there’s less opportunity to invest in infrastructure and education. Multnomah County, home to the central city of Portland, was ranked second-to-last among 199 Western U.S. counties in job creation.

But a funny thing happened. Metro Portland, once a basket case, is now doing fine. This chart comparing the unemployment rate nationally to the unemployment rate in the Portland metropolitan area shows where the city’s reputation as a place where young people go to retire comes from.

The recession of 2001 had a long-lasting effect on the labor market, but nationally it was among the shallowest on record in the postwar period. The Portland region, by contrast, suffered a spike in joblessness that was much more severe than the national average, and it didn’t bounce back any faster than the rest of the country. At the national labor market’s 2003 nadir, joblessness in the Portland area was nearly 50 percent higher than the national average. Given the long and severe nature of the jobs crisis, it’s no surprise that labor-force participation rates slumped. Then, just as Portland was converging with the national economy and finally getting back to health, the Great Recession of 2008 hit. Here again, Portland’s joblessness rate spiked higher and faster than the national average. But the gap wasn’t nearly as large as it had been previously. What’s more, this time around, Portland fell harder but also bounced back faster. And over the past year, Portland’s unemployment rate has fallen to below the national average. Joblessness is still high nationally, so conditions in the Portland area hardly feel like a local miracle. But in relative terms, the turnaround is striking. National unemployment is still about two percentage points higher today than at its post-dot-com peak in 2003, while Portland’s unemployment is one point lower.

What’s even more impressive is that while high unemployment is driving the national labor-force participation rate down, the Portland area’s participation rate is now growing. In the aggregate, Texas is where people have been moving to get jobs, but if you like overcast weather and independent coffee shops, greater Portland’s not a bad alternative.

So what went right? To an extent, Portland’s benefited from the fact that some of its local enthusiasms—bicycles, food carts, microbrews, artisanal whatnot—have become more popular nationally, giving a boost to some growing local companies.* The Portland area has also benefited from the region’s green proclivities. Renewable energy has been a growth industry nationwide, and Portland is home to the North American base of Germany’s SolarWorld and Denmark’s Vestas, one of the world’s largest wind-turbine manufacturers.

But attributing Portland’s recent success to its unique nature is probably just as misleading as was the tendency to do the reverse a decade ago. The truth is that local economies are buffeted by an awful lot of luck over the short term. Portland is one of several places that were hit unusually hard by the bursting of the technology stock bubble—Intel is the state’s largest employer. Port cities in general seem to experience unusually severe business cycles, since global shipping ramps up and down much faster than the economy as a whole. Relatively strong performance today is not so much a new thing as a return to form—Portland had a better-than-average economy in the 1990s, too. What’s coming through today are strong underlying fundamentals. Über-hip Portland and its supersquare opposite, Washington, D.C., are probably doing well for the same underlying reason. Portland has an above-average share of college graduates and a below-average unemployment rate. The D.C., Boston, and Minneapolis areas have even more college graduates and even stronger local labor markets.

That the slow, boring work of improving a local area’s educational attainment is the best path to prosperity is rarely what people want to hear—Portland Mayor Sam Adams, to his credit, has put a lot of emphasis on reducing the city’s dropout rate—but it’s what the data show. Different kinds of urban planning fads come and go, and different local industry mixes are sometimes beneficial at different times. But over the long term, cities are first and foremost made up of people. The cities with large numbers of skilled workers will either attract employers from outside or else lay the groundwork for homegrown success. The unfortunate news for local officials in places that draw the short straw is that more economically dynamic cities will also tend to attract the most skilled workers. Even if you do a better job of educating your local population, that’s no guarantee they won’t just move elsewhere when they graduate. So for the good of other cities around the country competing for talent, maybe it’s a good thing that a TV show is spreading outdated information about economic conditions in Portland.

Correction, Aug. 10, 2012: This article originally stated that food trucks are among Portland’s local enthusiasms. Stationary food carts, rather than food trucks, are typical in Portland. (Return to the corrected sentence.)