Economic Impact of the Creative Class

Economic impact of the creative class can be substantive; the average annual creative class wage was $70,714 in 2010, while the average wage for a service and manufacturing worker was just $29,188 and $36,991, respectively (Florida, 2012a).

Given the wage differentials, it is not surprising that the creative class account for nearly 50 percent of wages in the United States while the creative class represents only 30 percent of the workforce (Figure 3). Additionally, the creative class invariably has lower rates of unemployment during times of economic stress and the metropolitan areas with the higher percentages of creative class have lower rates of unemployment over all (Figure 4) (Florida, 2012b). There are areas that put all four T’s of economic

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development together; for example, San Jose/San Francisco, Boston, and Austin. These areas always rank high in each of the creative class variables (Florida, 2002 and 2012a).

Figure 3. Share of Creative Class Employment and Wages Relative to Services and Manufacturing.

Source: Bakowska and Rudawska, 2011.

It is clear that the creative class can substantially affect the economy of an area by lowering unemployment and generating higher wages. There is a multiplier effect that the creative class has on the local economy. If an area can attract more members of the creative class, it is possible to generate a spiral of growth (Stolarick, 2012) because each additional creative worker generates nearly five more service industry jobs in the

metropolitan area (The Economist, 2014). Florida and Stolarick argue that areas that offer higher levels of the four T’s of economic development (technology, talent, tolerance, and territorial assets) will likely attract more creative class workers (Florida, 2002 and 2012a; Stolarick, 2012). Creative capital theory puts the focus on attracting

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Employment Share Wage Share

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creative people and providing what is important to them and much less (or no) emphasis on the traditional economic development strategies of attracting sports teams, building infrastructure (e.g., roads, stadiums, convention centers, etc.), and/or “smoke-stack chasing” with tax incentives. According to Florida’s creative capital theory, public policy that enables grants to poets, street festivals, and bike paths are more important than more traditional economic development tools because the events and amenities will more likely draw the creative class to the area than traditional schemes.

Figure 4. Unemployment Rate Before and After the Great Recession of 2008 by Class.

Source: Florida (2012b).

Creative Service Working

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The creative class can be a strong indicator of various measures of economic growth. The creative class alone was found to be a significant factor in determining economic growth rates in the United States (McGranahan and Wojan; 2007; Lee et al., 2004), the Netherlands (Stam et al., 2008; Anderson et al., 2010), Sweden (Mellander and Florida, 2007) and Canada (Reese et al., 2010; Florida et al., 2010). Each study found that the principal cities¹ and counties of metropolitan areas that have a higher percentage of the creative class tend to have higher rates of productivity, population growth, and job growth.

The creative class can be an effective predictor of many economic measures, at many scales, and in many different countries. The creative class was found to be positively associated with overall good “economic health” — an index that captures employment, earnings, income, and unemployment — when studying mid-sized

Canadian urban areas (populations between 75,000 and 350,000) (Reese et al. 2010). In the Netherlands it was found that “the creative class actually predicts employment growth” in cities (Marlet and van Woerkens, 2004, p. 11). Marlet and van Woerkens findings are supported with United States based research on cities that experienced less unemployment as the percentage of creative class in the workforce increased (Figure 4 above) (Florida, 2012b). The creative class has proven to be a robust predictor of other economic variables since “employment growth within these [Dutch] urban areas is more strongly determined by the presence of the creative class” (Stam et al., 2008, p 129). The

1 Principal Cities are defined by the office of Management and Budget as the “largest incorporated place with a population of at least 10,000 in the CBSA [core based statistical area (i.e., combined statistical area, metropolitan statistical area or micropolitan statistical area]” (U.S. Census Bureau, 2014).

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creative class has proven a strong predictor of economic growth in the Netherlands and Canada, and the creative class has proven useful in other countries.

Like the Netherlands, research in Sweden found that the creative class was the key predictor and more predictive than other variables in determining regional economic development growth rates (Mellander and Florida, 2007). Additionally, when innovation by U.S. metropolitan statistical area is used as the dependent variable, it was found that the density of the creative class was positive and significant (Knudsen et al., 2007).

Knowledge spillovers that come from the incalculable number of random interactions between different members of the creative class in dense urban areas enable higher rates of innovation (Jacobs, 1961; Knudsen et al., 2007).

Clifton and Cooke (2009) correlated the creative class with unemployment rates for seven European countries and found that “the location of the creative class will be more likely to be significantly (and negatively) associated with unemployment in deregulated markets regimes [i.e., the United States and the United Kingdom] . . . the results support this hypothesis unequivocally” (p. 83). The United Kingdom is considered a more deregulated market compared to other European countries like

Germany or Sweden; therefore, when Clifton and Cook found that the creative class was negatively associated with unemployment it likely resulted from the countries responding to the invisible hand of economics in a manner that enables the creative class to locate in areas where the unemployment was lower, or the creative class were enabled by

decreased regulatory schemes to lower unemployment in countries with deregulated markets, or a combination of situations which seems the most likely. Furthermore, the

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location of the creative class is positively and significantly associated with employment change in the United Kingdom from 1993 to 2002 (Clifton and Cooke, 2009). In the deregulated markets of the United Kingdom (like the United States), the creative class is positively associated with employment growth. Finally, there is a strong and significant correlation between new firm formation (i.e., start-ups) and the localization of the creative class in both deregulated and more regulated countries (Clifton and Cooke, 2009). Overall, the creative class has a positive impact on new firm formations for all seven European countries studied.

Boschma and Fritsch (2009) analyzed six of the seven European countries studied by Clifton and Cooke (2009) and used the creative class as a dependent variable in a multivariate regression. Population density — as a proxy for urban environment — has a

“positive effect on the presence of the creative class in five of the six European countries [England and Wales, Finland, Germany, Norway and Sweden, but not the Netherlands]”

(Boschma and Fritsch, 2009, p. 412). Boschma and Fritsch’s findings indicate that members of the creative class localize in urban areas which supports earlier work by Florida (2002, 2012a). The urban environment is where interactions among people occur at higher rates due to proximity. Clifton and Cook (2009) and Boshcma and Fritsch (2009) have similar and supportive findings regarding the variables that predict the location of the creative class within all seven countries studied in Europe.

The creative class has proven very versatile in predicting different economic measures in different countries and at different scales. Other scholars examined the different predictor variables that indicate why the creative class clusters in certain areas.

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A multivariate model developed for Spain and Italy with clustering of the creative class as the dependent variable showed the creative class agglomerations were best explained by the specialization of the local economy and the percentage of university graduates (Lazzeretti, et al., 2012). It was already established that the creative class and bachelor degree variables are correlated at greater than 70 percent for the United States (Glaeser, 2005) so it is understandably similar for other countries.

The distribution of the creative class in rural and urban counties of the United States is explained by an association with several variables. Population density, business services, recreation, and college graduate variables had a positive association with the creative class while cropland, Blacks, and Hispanics variables had a negative association (McGranahan and Wojan, 2007). The recreation variable could be a proxy for creative amenities and territorial assets. Cropland is a proxy variable for the degree to which a county is rural and it understandably has a negative association with the creative class.

McGranahan and Wojan’s findings are unique because they compare rural, suburban, urban counties in the United States while most creative class research focuses on relatively few counties in metropolitan statistical areas.