Economic Dominance: The labor shortage and metro economies

Our Chief Economist explains why companies have incentives to collocate near their peers

Despite the rise of faster growing metros such as Dallas and Houston, the economies of New York, Los Angeles and Chicago have remained, and I forecast they will remain, in the top three for the United States.

This is because economic dominance is entrenched and economies of scale are powerful. Lately, they’re gaining more power, with the rift between major economies and smaller economies widening. Companies increasingly have an incentive to collocate near other companies in the same or complementary industries to share a labor pool, ideas and services.

This creates highly competitive environments when it comes to hiring, especially as the U.S. experiences the worst labor shortage in history. Roughly 40% of employers’ report difficulty filling open positions.

Big companies, more likely to pay higher rents on newer buildings in urban centers, continue to compete for talent with the primary incentive being salary. Because of the collocation trend, this process can be cutthroat — there are so many options for skilled job seekers that companies often have to increase their salary ranges far beyond where they were comfortable just a few years earlier.

Small to medium size companies have a different set of challenges. These companies tend to locate in areas within metro centers that are removed from the urban core, where there is cheaper rent. This discrepancy is exacerbated in larger markets, which tend to have the highest rents and labor costs.

Smaller companies who can’t afford high salaries or prestigious zip codes need to really bust out the shots in today’s job market. I recommend flexible work arrangements, training, education, advancement, and benefits. The physical workplace can also be a powerful tool an organization can use to differentiate and demonstrate its commitment to productivity, wellness and even employees’ happiness. Small changes, like taking measures to bring more natural light into the space, and offering healthy snacks and beverage options, can make a huge difference. Employee feedback on what kinds of spaces are needed — whether it is collaboration areas, huddle rooms or private “telephone booths”— can help employers shape the kind of environment that will attract future employees.

Additionally, any program that makes it easier for women to remain in or re-enter the workforce will serve companies struggling to fill skilled roles. My research shows that some of the most qualified people to fill these skilled roles have one thing in common: X chromosomes. A look at the pool of “prime age” unemployed workers — those between 25 and 45 — reveals a much higher percentage of educated women than educated men. There were 1.4 million prime-age American women with master’s or other advanced degrees that weren’t in the workforce as of 2017, compared to less than 473,000 prime-age men, according to U.S. Census data. More than 3.3 million prime-age unemployed women had bachelor’s degrees, compared to less than 1.3 million prime-age unemployed men.

Any policy or workplace program that increases paid maternity/paternity leave, improves wage disparity, increases the availability of affordable childcare, offers a more flexible schedule or improves work-life balance would encourage more women to opt back in.

Any policy that facilitates the movement of labor between greater metro areas and their urban cores can also help attract talent, as could improved infrastructure that better connects outlying areas. Because at the end of the day, it isn’t all about cities. From an economist’s perspective, it’s about economies, with every region in a metro area playing an interconnected role in the greater whole.

Ryan Severino is JLL’s Chief Economist, Americas. He can be reached at

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