Population and GDP of large cities in the US vs Western Europe. Source: The Economist

Recently, the Economist published an article that highlights a relatively unexplored explanation for the difference in per-person GDP between the US and Western Europe nations.

Differences in metropolitan populations may help explain gaps in productivity and incomes. Western Europe’s per-person GDP is 72% of America’s, on a purchasing-power-parity basis. A recent study by the McKinsey Global Institute, the consultancy’s research arm, reckons that some three-quarters of this gap can be chalked up to Europe’s relatively diminutive cities. More Americans than Europeans live in big cities: there is a particular divergence in the size of each region’s “middleweight” cities, those that teem just a little less than the likes of New York and Paris (see chart). And the premium earned by Americans in large cities relative to those in the countryside is larger than that earned by urban Europeans.

The article mentions regulatory impediments to growth that should be familiar to the readers of this blog: tight zoning rules that limit housing supply, in addition to language and cultural barriers that have substantially limited international and even regional migration within national borders. While our regulatory impediments are significantly fewer and smaller than those in Europe, it’s easy to imagine that an even more free system here could increase our own prosperity. Just as $2,000 a month average rents are keeping people from moving to the Bay Area and making themselves and our economy better off, $1500 a month average rents in the city and $1,142 a month average rents in the Greater Seattle Area are keeping Seattle residents from enjoying greater prosperity and local government agencies from enjoying a larger tax base.

It’s easy to look at Europe and conclude “if only people from Spain could move to Germany, the euro-zone economy would be better off”. But the same is true here.

55 Replies to “Urban Area Size and GDP”

  1. Ah. The pining to live in an “interesting” place on a coffee shop salary!

    Why bother trying to make the place I live in a better city, I have to move to the Bay Area!

    lol

    1. The Bay Area is a special case, because you can’t really move out of the city and into cheaper rents. However, in New York, you can get much cheaper rent in the Bronx or Queens, etc.

      1. umm, Bronx and Queens and Brooklyn (and yes, Staten Island) are STILL the city even if Manhattanites scoff.

      2. Cheaper rents are relative in nyc, that is you can get lesser versions of expensive in most places in the city. If you want cheap in nyc, you would have to risk living in the hard inner cities neighborhoods, e.g., East New York and the South Bronx.

  2. “This “regulatory tax” amounts to over 300% in the office markets in Frankfurt, Paris and Milan, according to a 2008 study by Paul Cheshire and Christian Hilber of the London School of Economics, but is just 50% in Manhattan and, in effect, zero in fast-growing places like Houston.”
    So…. Careful what you wish for.

    1. That’s a perfect example, though. Manhattan has crazy residential real estate prices, but it’s office rents are not totally nuts, and in fact, in much of the island they are similar to Seattle/bellevue rents.

      Houston obviously has low regulations, so they are not feeling the burden there.

      1. Manhattan has hard rent control for residential housing (is it the last one? Did Boston and SF dismantle their systems?), which has been shown in multiple experiments to really, *really* mess up residential housing prices.

  3. Obviously if I move from a place where a studio costs $3400 and a mini bagel with cream cheese costs $10 to where 3 bedroom homes cost $150,000 my purchasing power will go up!

    This is where transit can play a role in helping but in the exact opposite design that STB and WA state planners envision. Making it easier for a person to move long distances rapidly to good jobs at low cost inside a swath of down towns, boroughs and suburbs and villages…

      1. Small Town. Big Charm. With a “Very Walkable” walkscore of 94, the Residences at Burien Town Square are in the heart of Burien, close to all the dining, shopping and events that you can fit into your social calendar! But don’t take our word for it, take a look at this video and hear it straight from the ones who love Burien most.

        http://www.burientownsquare.com/

        Message: you can build “Seattles” anywhere now.

      2. Burien’s downtown development is very good, and I applaud the city for embracing their “old downtown” and allowing new, denser, more walking-oriented developments in the area. I myself will be moving to Burien if the short-sale house I’m trying to buy falls through. They’re smart for concentrating their upzones within walking distance of Burien Transit Center, too, because otherwise people need 2 transfers just to get to RRA or Link.

        However, this kind of development is the exception, not the rule in the suburbs. Take a look at the rest of the cities in the area, including almost every one on the RRA corridor, and you see a completely different story.

      3. Completely untrue.

        Kent and Auburn are using this model.

        Bellevue has been building a downtown for decades.

        Even Redmond, with its Town Square approach has been creating suburban density.

        The problem is Washington planners are too focused on Seattle and Seattle centrism.

        It’s a terrible mistake and a horrible misallocation of resources.

        I keep waiting for the day the other 2.4 million people around here wake up and start taking control of their transportation destinies.

      4. Live and love the suburbs all you want, but don’t shit on the services we need to create this whole economy and such that supports the existence of your suburb. Stay in the burbs, fine with us.

      5. John — here’s the thing. It *doesn’t* cost less.

        We’re discovering this in my Town(ship), which is in a ring around my City in upstate NY. The Town traditionally provided fewer services and had lower tax rates. People are now demanding the same amenities and services as the City-dwellers have…

        …guess what, the tax rates have to go up to the same level, sometimes higher because we’re more spread out. There isn’t a free lunch on things like sidewalks, water service, sewer service, fire protection…

    1. Of course there are negative externalities with moving to East Kent versus urban areas. To name a few: increased health costs from obesity, increased transportation costs (operating costs and gas from increased mileage, and payments from buying a car more often), less cultural diversity, greater isolationism, and less mobility (esp. for elderly, disabled, children).

      1. 1) increased health costs from obesity

        You were saying, Mayor McGinn?

        2) increased transportation costs (operating costs and gas from increased mileage, and payments from buying a car more often)

        I see more people walking and biking on Kent East Hill than in most Seattle neighborhoods.

        3) less cultural diversity

        LOL! Czech our (ethnic) stats!

        4) greater isolationism

        From what? My internet connection is just as fast as yours!

        5) Less mobility (esp. for elderly, disabled, children).

        We have more elderly, disabled, and children than your barren, leftover yuppies of Seattle!

      2. McGinn on American (Waistline) Exceptionalism? Unremarkable. Oklahoma City Mayor Mick Cornett taking a stand at the elephant pen telling Americans they are fat–now that’s something.

      1. I mean turning what were trips to nearby neighborhood via arterials into trips to other cities via freeways.

    2. Last time I checked, 7-11 was charging the same price for a breakfast sandwich in Seattle as in Sultan or San Francisco.

      We’ve spent close to the past hundred years making it easier for a person to move long distances rapidly, from commuter rail to airports to freeways. The I-5 corridor from Bellingham to San Diego is proof that we have gotten this job pretty much done. We have done this at extraordinary cost; the Interstate Highway System was the most expensive public works project in the history of mankind.

      While there are still some important long-distance things to be done (Speeding up Cascades), in general our short-distance transportation situation has suffered dramatically, as we’ve over-emphasized long distance travel. We’ve made a transportation system where it’s easier to get cross-county than cross-town, and this needs to be corrected with serious investments in local mobility. Even medium sized cities do not function well without good local mobility.

      1. I call that evolution.

        So each generation gets faster and cheaper travel and has more options in living environments.

        The next gen (hopefully) will get used to 150mph trains and think nothing of commutes across half a state.

      2. I still haven’t seen an argument for why we should be trying to get people across the state at 150mph when cross-town trips are STILL happening at walking speed.

      3. I think this point is very accurate. Long distance travel is fast enough for several generations — especially if we build high speed trains, like the rest of the world is already building.

        But very-short-distance travel *isn’t* fast enough. (High speed elevator technology is far more important than people think. Wasting time at crosswalks waiting for cars needs to be severely reduced. Etc.)

    3. Prices are higher in big cities compared to suburbs and smaller towns, New York and London in particular. Some companies average their costs across all branches and set a uniform price, like Fred Meyer and perhaps Starbucks, while others set the price on a per-store basis, to reflect the store’s expenses and its clientele’s wealth. Non-chain businesses can’t average across stores, so the differentiation shows up most in them.

      Making ST Express and Metro “BRT” would require raising the frequency minimums to 15 minutes on core routes like the 550, 511, and 594; upgrading strategic routes like the 169 to RapidRide (or what RapidRide should have been rather than what it is); and adding the missing Seattle-Kent express. That would help alleviate the situation but it would not solve the capacity problems on routes that are already frequent, or solve the traffic bottlenecks on highways and arterials. The capacity problem requires trains, and the bottleneck problems require dedicated transit right of way. In Seattle, there’s no room to expand I-5 or Eastlake or 45th so the only choice is subways. Of course, subways could run buses instead of trains, but the biggest expense is building the tunnels (or on MLK, the center lanes), so why not install trains while you’re at it? That way, you get the right of way you need (the biggest expense), and you get trains almost for free.

      1. While subways could, in theory, run buses instead of trains, I would argue that the very high cost of building them is only justified in cases where you actually need the high passenger capacity that only trains can offer.

      2. I basically agree with asdf on that point, but I would like to make a caveat.

        Because of the long lead time on construction (it takes years even if you do it fast), and because of the uncertainty in ridership projections (there’s always a huge amount of uncertainty), and because of rider preference for trains, I think one should not be too strict with the definition of “needing” the high passenger capacity of trains.

        If you can make a *solid case* that you are *likely* to *want* the high passenger capacity which only trains can provide, then you should go for trains. If you slip below your estimates, you’ll be in the range where either trains or buses will work, and that’s OK.

        (If you can’t make such a case — if being able to regularly fill vehicles larger than a bus simply doesn’t seem plausible — that’s when you don’t go with trains.)

  4. Whenever people don’t describe how they define their “region” I’m always a wary of whatever their study says. A lot can depend on how the area is defined.

    Because of sprawl urbanized areas in the US can sprawl into either other forming large continuous urbanized areas while European cities are much more distinct and defined, but can be equally far apart. Additionally because of Europe’s better regional/intercity train network there is in my opinion a stronger “agglomeration” effect between CBDs in neighborhoring cities than in the US.

    For example the distance between Everett and Tacoma is roughly 60 miles with essentially continuous urban sprawl between them. In the Stockholm region Uppsala and Sodertalje are the same 60 miles apart, are not linked by sprawl, but are linked well by fairly frequency regional and intercity train service.

    Another example is Copenhagen and Malmo. Different countries but all part of the same regional economy.

      1. There’s something funny about this. They’re trying to account for “lower GDP per person” in Europe — have they accounted for the fact that Europeans have more vacation time per person, fewer hours worked per day, and generally higher quality of life? Everything I’ve seen says that that accounts for pretty much all of the difference.

      2. Nathaniel,
        Like everything, there are several factors at play. Certainly if the US kept fewer people in jail, etc.

      3. have they accounted for the fact that Europeans have more vacation time per person, fewer hours worked per day, and generally higher quality of life

        Yes. The article claims that about 25% of the difference can be blamed on other factors, such as the ones you bring up, but doesn’t go into depth on them (presumably because those differences have been reported to death).

  5. Technology innovators and entrepreneurs congregate in Silicon Valley, for instance, rather than in smaller places where they have less to offer to, or get from, would-be partners. And knowledge-sharing among such people tends to make cities more productive as they get bigger. In a 2009 paper Mr Glaeser and Matthew Resseger of Harvard University find that in highly skilled areas, city size explains 45% of the variation in worker productivity (it has almost no effect in underskilled cities). This connection between size, skills and productivity is not simply due to brainier workers choosing to live in more populous places. The cities themselves seem to promote learning. Mr Glaeser and Mr Resseger note that new arrivals to big cities do not receive the city’s wage premium all at once, but rather enjoy faster wage growth over time. [emphasis mine]

    It’s easy for a lot of people to point to Seattle’s high average incomes and say that it cancels out our high housing prices. It does no such thing for newcomers or people early in their careers.

    1. For people who aren’t Software Engineers, Boeing Workers, or some Health Care personnel, high housing prices definitely aren’t cancelled out.

      1. Some of that high pay does filter out into other industries. I’ve never worked in any of those fields you mention, but almost all of my employers in Seattle have had HR designations for the region as an “elite labor market” or similar, and corresponding increased wages. Even when I was a manager for a fast food chain, the designation was there, even if the increase was tiny.

        But we still need to have a serious increase in housing supply if we want any significant housing price correction during the next century

      2. And some companies pay the minimum wage regardless of the cost of living in the city. And people commute two hours or more from wherever they can afford to live.

  6. Capital and goods can move essentially freely across the national borders here. People cannot. That sieve produces some rather unhealthy results. It also limits transit access in border areas.

    Europe has an elected parliament to sort out their continental rules. We have a tribunal to make sure the rights of multinational corporations are not infringed upon by national governments.

    It makes one want to move to Kent. (No, John, not that Kent.)

  7. The difference in GDP surprises a bit. I just returned from Europe (Italy, Switzerland, Germany), and at least on the surface it seems like a ‘wealthier’ place. This sounds a bit weird to say, and is hard to describe, but people seem a bit more put together. Plus, why do all of the cars seem relatively new? I can’t remember ever seeing an old beater. I guess it just must be that Europeans spend their disposable income on different things than Americans do? And, then there’s one HUGE glaring difference…no outward signs of poverty; homelessness, pandhandling, derelict properties etc.

    1. There is a much large income spread in the united states for a variety of reasons. Even within Europe, spreads can be rather pronounced.

      1. The income spread in the US is absolutely ridiculous — the Gini coefficient is up above third-world levels. (High Gini coefficient is bad.)

        I believe that the *median* person in Europe is wealthier than the *median* person in the US. (I have not rechecked the Purchasing Power Parity numbers in a while, though; correct me if I’m wrong. These medians are painful to compute anyway.)

        We have more mega-billionaires here, which isn’t a good thing, and they’re sucking up a large portion of the US’s GDP.

      2. Median probably is. Mean is not, mean in the US has been high than in Europe for more than a century, and the spread has actually widened over that period.

    2. Switzerland seems like a wealthier place than the US because it is a wealthier place. If you were just in the areas of Germany and Italy that are close to Switzerland, those are very wealthy areas as well.

      The difference in cars is there for two converging reasons. First, in those countries, for the most part, poor people don’t drive cars. Public transportation is truly sufficient for people in all but the smallest towns. Only the relatively well-off need to bother with a car. Second, inspections and safety requirements are much stricter, and derelict heaps can’t be registered.

      Finally, tourists in Europe don’t ever tend to see the poorer areas. Central cities are pretty much entirely wealthy. Suburbs are mixed, but the poorer suburbs tend to be completely out of view to tourists. Major tourist roads and intercity railways usually don’t go through them at all, and they don’t show up in guidebooks.

    3. Switzerland is wealthy, so that’s why it looks wealthy. The Swiss frank is high and rising, so imports are getting ever cheaper. In Germany, as in Canada and the rest of Europe, social programs and regulations smooth out the hard corners, so there’s not as much poverty and desperation. Because the government provides or catalyzes healthcare, comprehensive transit, education, housing for the poor, etc, people don’t have to spend as much of their income on those and they can spend it on other things. Europeans also love their cities in the way Americans hate theirs. Historically, walled cities were people’s defense against roving bandits and invading armies, so cities are a sign of safety and the achievement of civilization. Whereas Americans often see cities as the pit of pollution, slums, and immorality. So Europeans are more willing to build up their cities both collectively and individually, while Americans try to escape their cities or make them look like smaller towns. So people in London and Moscow clamor for subway stations in the outskirts, and every smart new business center has a subway station both for practicality and as a sign of prestige, while Americans dither about whether subways are worthwhile and would rather just widen the highway and add a cloverleaf exit and pretend congestion won’t happen.

      Re old cars in Gemany, we discussed that here a week or two ago. A couple people said Germany has stricter pollution standards on old cars, so it costs more to fix them up to pass inspection, so people are more likely to get rid of them and get a newer car instead.

      1. It was a bit depressing when I stood in an S-bahn station in (what seemed like) the suburbs of Dusseldorf. The density did not seem all that crazy…lots of suburban homes with yards and parks and playgrounds etc. But, there was a train going to the city center (or neighboring city centers) every few minutes…and these trains were scary fast (not ICE scary fast, but fast enough). Plus, I could go a relatively long (regional) distance for 2.40 euro. Ugh…we’re living in the dark ages. I think I’d rather not travel anymore so that I don’t see the wonders others get to have.

        Oh yeah…another observation. So, I was sometimes traveling on the suburban network at off-peak hours, and the trains were often kind of empty at these times. I bet Germans don’t start freaking out when they see light loads, and think it’s a failed investment. Why do our transit modes have to be standing room only before some people think they’re successful? Nobody complains about I-5 when it’s not at full capacity, and that sort of seems like the same thing.

      2. Here in the US, we have a large political lobby for the purposes of preventing the average person from receiving improvements in quality of life. This lobby can be very hard to explain; it has an immense array of propaganda, but it mostly uses ‘prosperity gospel’, mangled Puritan, and mangled Calvinist ideas as its methods of selling pernicious ideas. It’s funded by some people whose attitude is “We got ours, why should you have anything?”.

        This lobby is not as powerful in Europe, though it is still powerful. It used to be very powerful in much of South America (with US backing), but the consistent disastrous results it has given has made it discredited….

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