Economic Dynamism in Small Cities (Part 2): Migration, Commuting, New Firm Creation, and Population Density in Small Cities

Given the number of small cities in the Southeast and the relative share of our region's population living in them, gaining a better understanding of a small city's economic dynamism and ability to attract capital is crucial. For the purpose of this inquiry, our team defines small cities as those with populations of at least 50,000 within metropolitan statistical areas (MSAs) with populations less than 500,000. The ultimate purpose of this work is to understand the conditions under which economic dynamism in small cities translates into investment into revitalization or redevelopment of economically distressed areas. We presume that, with some scale, dynamic local economies attract investment, which eventually translates into investment into revitalization or redevelopment of distressed areas. We aim to understand the conditions under which that presumption can be validated within a small city context.

Initially, we are focused on changes across four main dimensions: demographics, infrastructure, human capital, and economics. We are using economic dynamism as a rough proxy for demand within a local market—the idea being that, at a certain scale, more dynamic local economies have sufficient demand and tax base to attract private investment into infrastructure, community facilities, charter schools, housing, small business lending, and other public-private amenities that serve economically distressed populations. Then we will pivot to the question of capital attraction, focusing initially on subsidies that are most often associated with investment into economically distressed places, including new market tax credits, Community Reinvestment Act-motivated small business lending, and lending and investment from community development financial institutions (CDFIs).

The questions we seek to answer include:

  • What inherent factors distinguish more economically dynamic small cities from those with lower levels of dynamism?
  • Are the more economically dynamic small cities attracting capital for investment into revitalization or redevelopment of distress?
  • If so, what are the factors that facilitate investment into distressed areas of dynamic local economies?
  • If not, what are the barriers to attracting capital for revitalization into otherwise dynamic local economies?

The answers to these questions will have implications for local and state policies focused on revitalization of distressed areas in small cities and rural areas, as well as shed some light on undercapitalized community development opportunities in small cities.

Part 1 of this series included an overview of data on where small cities are concentrated in the United States, how many people live in them, and where they are growing. As we begin to dig further into the data, one of our questions has been the degree to which some small cities are becoming "stickier"—that is, the extent to which they are pulling in new residents, workers, and businesses from surrounding rural areas and newcomers from more urban areas. Further, to what extent is stickiness at the small-city MSA level—a broader geography than the municipal boundaries of the city itself—translating into increasing density in the core or primary city of a given MSA?

Migration into small cities
To begin to understand changes in migration into and out of small cities, we use IRS tax return data on migration flows at the county level. Counties have been linked to the principal city within each small-city MSA. From 2006 to 2011, the share of in-migrants to out-migrants increased in 83 out of 244 small cities (34 percent). Said another way, in terms of migration data, 83 small cities became "stickier" during this period. The largest positive change in the share of in-migrants to out-migrants during this period came in Gulfport-Biloxi, Mississippi, followed by Salinas, California, and Beaumont-Port Author, Texas. Chart 1 illustrates these changes in small cities across the United States.


 

Commuting into small cities
We know from existing literature that small cities with anchor institutions such as hospitals, colleges, universities, and local or state government enterprises often serve as economic hubs for surrounding rural communities, pulling in commuters from as far away as dozens of miles (see, for example, Small Town, Big Ideas). To look at changes in commuting patterns into and out of small cities, we use the U.S. Census Bureau's "OnTheMap" application to assemble census data on commuting into each MSA's principal city. From 2005 to 2011, the share of in-commuters to out-commuters increased in 153 out of 244 small cities (63 percent). The largest positive change in the share of in-commuters to out-commuters over this period came in Anchorage, Alaska, followed by Farmington, New Mexico, and Morgantown, West Virginia. Chart 2 illustrates these changes in small cities across the United States.


 

New firm creation in small cities
The Kauffman Foundation and others suggest that dynamism in a local economy is defined in large measure by innovation-driven metrics such as business formation patterns, initial public offerings, relative share of jobs in gazelle (fast-growing) firms, patents, industrial makeup, and share of employment in knowledge-intensive firms. As a proxy, we assembled MSA-level data from the U.S. Census Bureau's Business Dynamics Statistics on new firms as a share of all firms. From 2005 to 2012, the share of new firms to all firms increased in only five out of 244 small cities (2 percent). In other words, this share tends to be very stable or decreasing in nearly all small cities. The largest positive change in the share of new firms to all firms over this seven-year time period came in Cheyenne, Wyoming; Odessa, Texas; and Bismarck, North Dakota. Chart 3 illustrates these changes in small cities across the United States.


 

Population density in small cities
In a 2013 piece from the St. Louis Fed, "Increasing Density: A Small-Town Approach to New Urbanism," Drew Pack reviews the positive community and economic development effects that increasing density can have on a small community. These benefits can include greater productivity, a more competitive downtown core, as well as reduced infrastructure expense from more geographically focused investments. The article concludes with a list of policy considerations for leaders seeking to increase urban density in smaller communities.

To explore emerging trends in terms of population densification in small cities, we use the U.S. Census Bureau's American Community Survey data. From 2012 to 2013, population density in the principal city of each MSA increased in 180 out of 244 small cities (74 percent). The largest positive change in the population densification over this recent one-year time period came in Florence, Alabama, followed by Midland, Texas, and Warner Robins, Georgia. Chart 4 illustrates these changes in small cities across the United States.


 

Sticky small cities Finally, these factors were combined into a raw index score for small town stickiness. This measure indicates the degree to which trends can be observed across combined metrics of migration, commuting, new firm creation, and population densification in small cities. The top 20 cities on the small town stickiness index are:

  1. Anchorage, AK
  2. Gulfport-Biloxi, MS
  3. Farmington, NM
  4. Morgantown, WV
  5. Lake Charles, LA
  6. Odessa, TX
  7. Bismarck, ND
  8. Naples, FL
  9. Saginaw, MI
  10. Williamsport, PA
  11. Salinas, CA
  12. Greenville, NC
  13. Cheyenne, WY
  14. El Centro, CA
  15. Hinesville-Fort Stewart, GA
  16. Florence, SC
  17. Appleton, WI
  18. Tyler, TX
  19. Valdosta, GA
  20. Fairbanks, AK

The next article in this series will explore additional elements of economic dynamism in small cities, including employment and jobs, education levels, and local investment in infrastructure.