Forget red and blue: America’s real geographic divide is between bosses and their employees

A lack of building in places like New York, Los Angeles, and San Francisco has sent home prices and rents soaring, leading to a plateau or even outright decline in the number of people living in these cities. On the flip side, the populations of relatively housing-abundant, lower-cost cities have swelled: Austin has grown by more than 25% over the past decade, while Jacksonville, Florida; Raleigh, North Carolina; and Orlando have each grown by more than 20%. On the eve of the pandemic, most of the people emigrating from California were middle-class or lower-income; Texas, Arizona, and Florida are the states that have received the largest influxes of ex-Californians. One 2023 analysis found that New York state continued gaining millionaires even as overall population growth stagnated.

Some movement between cities and regions is good. Relocating to a new city can be a great way to raise your income, broaden your cultural horizons, or discover a sense of community and belonging. But America’s current seismic reshuffling is something much less benign than a series of freely chosen moves.

As the middle class flees superstar cities, those who are able to stick around are likely either too rich to care about housing costs or too poor to take on the expense of relocating somewhere more affordable. For one, this has dramatically reshaped regional job markets. The COVID-era transition to more remote work accelerated this process of “domestic offshoring,” a recent study by the workforce-analytics company ADP found. Because there’s less of a need for proximity between a firm’s leadership and its employees, executives have become more concentrated in high-cost metropolitan areas, while middle-class jobs have shipped off to areas with lower labor costs — areas that, not coincidentally, also tend to have lower housing costs.

In the short run, middle-class job growth benefits regional economies in places like Austin, Raleigh, and Charlotte, North Carolina. But in the long run, the high concentration of high-powered individuals in a select few metros is a disaster for social mobility. Domestic offshoring regionally segregates middle- and working-class employees from their employers, making it far more difficult for the former group to advance professionally. This not only creates a dangerous power imbalance between cities but hollows out formerly diverse, vibrant cultural scenes in some of America’s biggest cities.

As America has sorted into high-cost regions and relatively affordable regions, class itself has become an increasingly regional phenomenon.

The promise of mobility

Regional mobility and social mobility have long gone hand in hand. It wasn’t just that the higher-wage starting positions tended to cluster in boomtowns; it was that residing in a boomtown put one in closer contact with all kinds of other opportunities. These might include the chance to network with executives or other employees further up the career ladder; exposure to more-remunerative adjacent professions; or access to investment capital, for those who want to start their own businesses.

For example, a relatively green developer from Nashville could move to the Bay Area and be able to rub shoulders with venture capitalists — and eventually entice those venture capitalists to provide the seed money for a new startup. The developer could even move their business back to Nashville, leveraging the connections from their time in California to bring new jobs to Tennessee. This dynamic cultural and economic exchange wouldn’t have been possible if the developer had been unable to make the cross-country move. The opportunity loss would be even greater for a customer-service representative who wants to move into a higher-wage, higher-status role as a developer but doesn’t have access to a professional network of developers because their employer keeps all those workers in a different metropolitan area.

It’s not just the individual worker who loses out. When people get locked out of opportunities to raise their incomes or start new businesses, the national economy suffers. An influential 2019 paper by the economists Chang-Tai Hsieh and Enrico Moretti found that low housing supply in superstar cities had significantly constrained US economic growth by limiting “the number of US workers who have access to the most productive of American cities.” Domestic offshoring threatens to lock in these effects, potentially costing the country trillions of dollars in forgone wealth creation.

When people get locked out of opportunities to raise their incomes or start new businesses, the national economy suffers.

The superstar cities that ostensibly gain more influence also suffer. A city for managers and executives will never be a city of managers and executives — no matter how many bosses relocate to New York City, they will always be a minority of the population. But if domestic offshoring persists, fewer of the city’s other residents will be middle-class professionals; those people will tend to congregate in domestic-offshoring sites. Instead, the superstar cities will become luxury-service economies. Corporate leaders will still create jobs in places like San Francisco and New York, but they will be jobs for the support staffers who sustain the executive lifestyle: food servers, house cleaners, nannies, and so on. These cities, which are already deeply segregated and unequal, will become even more bifurcated between an elite class and a servant class. Beneath the servant class, and overlapping with its lower tiers, will be the large and growing ranks of the truly destitute.

Of course, those at the bottom of this class system will suffer the most. But in the long run, this process will make us all poorer, costing us both forgone economic growth and the cultural vitality that can only be found in diverse cities.

More beds for more heads

There is one surefire way to reverse domestic offshoring: build more housing. Companies, the ADP study says, “have an incentive to locate” individual and front-line workers “in places that are more affordable” and where a lower cost of living translates into less upward pressure on wages. If housing in major cities were more affordable, that incentive would diminish, encouraging firms to spread the distribution of roles equally. Workers could move from one office to another in order to advance their careers or offer more value without worrying about the exorbitant cost of their new home.

There is one surefire way to reverse domestic offshoring: build more housing.

If the pressures that lead to domestic offshoring are a lose-lose for all the cities involved, then changing course can be a win-win. Even as high-cost cities build more housing and work to reconstruct their middle classes, the growing Sun Belt cities on the other side of domestic offshoring can continue to thrive. They can do this by fostering diversified local economies — with their own local executive class — that are not reliant on any single large employer or industry. Further, they can avoid the mistakes of the larger cities and preemptively build plenty of dense, multifamily, infill housing. This will ease the upward pressure that a growing population puts on housing costs. It will also facilitate future population growth, which can, in turn, support a virtuous cycle of rising productivity, greater economic diversification, and further population increases.

The goal should not be to pick winners and losers among cities but to ensure economic integration within cities. Without such integration, the superstar cities face social and political collapse, while workers in domestically offshored jobs face narrower horizons for economic mobility. Society will end up sharing in the cost: If we allow our cities to become divided into imperial metropoles and economic hinterlands, we will all end up poorer. On the other hand, economic integration, and the productivity gains that come along with it, can make us all more prosperous.

Ned Resnikoff is the policy director of California YIMBY and co-leader of the Metropolitan Abundance Project.