Appalachia is Dying. Pikeville is Not. (2016)

Pikeville’s Changing Economy

We can start where I usually like to start: with simple BEA data on personal incomes. From 1969–2014, I have data on personal income per capita for Pike County versus Kentucky and the US on the whole, as shown below:

So first off, we can see some coal booms in the 70s, 80s, and late 2000s. However, it bears noting much of the late-2000s increase is just that Pike County didn’t have as far to fall when recession hit as much of the rest of Kentucky or the nation on the whole.

We can also note that incomes have fallen relative to the rest of the nation since the recession. Pike County has been left behind. But even beyond that, it turns out that in 2014, nominal personal income per capita was unchanged from 2011. Nominal income has flatlined in Pike County, even as it was risen steadily in Kentucky and the nation on the whole. This is, obviously, because of declining coal production. Let’s look at that coal production.

Here’s total labor hours in eastern Kentucky coal mining:

Woah! Look at that dropoff! That’s incredible! It’s also incredibly sudden. Now there are a lot of reasons for this. Regulations on the coal industry, as well as carbon emissions regulations more generally, have hurt the coal sector, as have subsidies for clean energy. Meanwhile, cheap natural gas has dealt other fossil fuels, including coal, a body blow.

But the suddenness may also (and I say may because I haven’t seen definitive research on this, so consider it speculative) be due to unionism. Mines often were unable or unwilling to restructure their workforces easily, and thus kept large labor pools even as productivity per labor hour declined. What has happened in recent years is that many mines have entered into bankruptcy or other distressed conditions that enable them to aggressively renegotiate labor relations or terminate workers who were otherwise hard to fire. Had these mines been faced with a more flexible labor force a decade ago, it is possible that they might have shown a smoother transition in terms of demand for labor.

There’s another reason, however, that mining employment in Eastern Kentucky is declining:

Let’s talk about what this mine is and is not showing. What it is showing is that existing mines are getting close to being exhausted. What it is not showing is that there’s no coal left. Eastern Kentucky still has probably in excess of 45 billion tonnes of coal remaining.

There’s also a bit of an optical illusion here as well. A mine shutting down will reduce the “recoverable reserves at producing mines.” So if these mines went back to work, “recoverable reserves” would likewise tick upwards, as would productive capacity. Some mines could restart production fairly easily if demand picked up, which means recoverable reserves would jump back up. However, some mines shut down because their recoverable reserves were simply less and less competitive.

But nonetheless, while these lines exaggerate the rate at which coal reserves are being depleted, it is true that much of the best, cheapest, and most accessible coal has been mined out. Remaining coal mines have exhausted many of their best deposits, and getting at the reserves outside of existing mines requires the creation of entirely new mines, which is much costlier than continuing to work existing mines. Ergo, to open new mines, you need higher coal and energy prices, and the prospect of higher energy prices for a long time to come.

The depletion of many of Eastern Kentucky’s best, most accessible, and cheapest coal reserves does not explain the suddenness of decline in demand for labor at the mines, but it does suggest that any revival in coal production is likely to face great difficulty in sustaining any employment gains. Eastern Kentucky’s competitive advantage in coal mining is wearing out.

Up to now, then, I’ve given you no information about why Pikeville is doing so well. It’s been all bad news. And this is where it gets tricky: most mines are not in Pikeville, or even Greater Pikeville. A quick Google Earth perusal of Greater Pikeville indicates probably no more than 2–3 substantial mines anywhere within its territory. Pike County, on the other hand, has numerous mining operations, many of which have been impacted by the recent tumult in the coal sector, including Alpha Natural Resources, which declared bankruptcy (and came out of bankruptcy earlier this year). Thus, while coal is important in the area, the Pikeville city itself will feel these effects less than the county on the whole. Pike County is a very, very big county with quite a lot of people and many towns.

In Pikeville, we can find a different source of economic strength: education.

The University of Pikeville has been expanding rapidly. In 1997, it added a medical school. It has since added graduate programs in business and education, expanded its undergrad offerings, and is opening an optometry school within the next year. Now approaching a tripling of its size in just a few years, the University of Pikeville has drawn in literally thousands of new students, as well as faculty. And that’s not to mention the blue-collar workers who actually keep a university or hospital running day-in, day-out, or the increase in demand for construction driven by large university building projects.

Many readers will be surprised to hear me say that a small, Appalachian mining town is growing as a result of its robust educational sector. Popular stereotypes of Appalachians are of an uneducated people with little interest in higher education. The reality is that, to the extent Appalachia lacks higher education, it is mostly because of (1) poverty, or (2) geographic bias of university placement away from rural, mountainous, extractive-industry-intensive areas.

So far, UPIKE’s offerings are mostly focused on providing for the service needs of its community: primary care doctors, teachers, local business training, etc. This kind of talent-development and workforce training is useful and beneficial for the local community. But even more important than workforce development is knowledge-generation, and especially research, innovation, patenting, and publication. As the school has expanded, it has also begun to undertake more of this research and knowledge-creation.

Oh and, by the way: what happens when you add 2,000 students, who aren’t earning money, while only adding a limited number of jobs? Oh, right, personal income per capita goes down. At least some of the decline in personal income per capita is, then, a good thing, as the student population grows. Although students don’t earn much, they do consume quite a bit, and their tuition employs university workers, from white-collar administrators, to professors, to the blue-collar workers who keep buildings running, work in cafeterias, and secure university grounds.

It is not too much to say that the University of Pikeville is saving the city. Those 2,000 new students amount to essentially 100% of the growth in Greater Pikeville. This knowledge-and-talent-production facility in turn helps make Pikeville Medical Center a booming and effective employer, with a brand new building completed in 2014. Pikeville Medical Center is the only Mayo Clinic Network partner in Appalachia which, again, helps it operate as not only a hub for medical services but also a key knowledge-generation site.

UPDATE: A friend has raised the point that UPIKE’s rise is roughly similar to the sudden rise in student loan debt around the nation. His point was, essentially, that Pikeville may be riding just another boom that will soon bust, leaving the city disappointed. He also raised the question of whether Pikeville was the best place to invest higher ed resources. For the first question, I’d say that I do not personally think any coming higher ed “bust” will be anything close to as cataclysmic as the coal bust has been. But more to the point, UPIKE can do things to limit its exposure: keep net tuition at low levels, ideally rolling back some of the hikes in recent years. Start shifting more program focuses away from workforce training and towards research and knowledge creation. Work on expanding graduate programs even more, while keeping undergrad or part-time student growth more restrained. All of these strategies can help the school be better-prepared to weather any coming decline in student credit availability. For the second question, I would simply say that I think Pikeville is as good a place as any for higher ed work. Urbanists often favor urban locations for higher ed due to “agglomeration effects,” whereby proximity to industries, other universities, civic institutions, etc make research and workforce development more efficient for given inputs. To the extent agglomeration effects matter, Federal investments in UPIKE don’t make sense. On the other hand, knowledge generation is just one of the many positive externalities associated with universities. Strengthened civic institutions, a better educated local population, economies of scale from a larger population and consumption base, and the enormous benefits to neighbors of increased social capital are all likely positive externalities, and almost certainly have a bigger impact per input in a small city than a large one. So on the “optimal location of universities” question, I’d say we have to confess a degree of agnosticism about whether big, medium, or small cities are best for university investments on average. On the margin, however, small cities like Pikeville, especially Appalachian cities, have critical underinvestment in nearby higher ed services, so it seems likely that the marginal investment is more likely to be a good one here.

I got in contact with the Pikeville City Manager as well, who took the time to give me a lengthy response to some questions. He gave me a list of over 15 new restaurants to have opened in the last 10 years, with 5 more soon to open, as well as new hotels, retails, etc. Plus, he told me about their various revitalization efforts for the downtown, cultural attractions, a new distillery opening soon, etc. All of this is to say that, as Pikeville’s population grows, it is becoming more amenity-dense, which is a necessary precondition for lasting growth.

Much of this construction and investment has been helped along by Federal grants. Pikeville has been competitive at getting Federal, and especially Appalachian Regional Commission-related, money, as well as community reinvestment funds. Nobody will know for sure whether this money is well-invested unless and until the spigot is cut off, so I don’t want to sound too boosterish. Between hospitals, an expanded theater, a huge new conference center, a new city hall, drag racing, or the first Bourbon Trail stop east of Lexington (!!!! this one is a huge deal, readers. If you’re not from Kentucky, get with it and go on the Bourbon Trail, which will soon include Pikeville), some of these investments will turn out to be unsustainable boondoggles. But many will turn out to be very savvy, especially those that actually give Pikeville something to sell more widely: unique touristic experiences (which, for the record, having never been to it before, The Breaks is actually on my top-10 list of US parks I want to visit), knowledge generated by university research, medical services, craft and heritage products, etc.

And, at the end of the day, these investments would all be unsustainable if there was no hope for the population base. But there IS hope for Pikeville’s population growth.

And with that, let’s turn to demographics.

from Hacker News https://ift.tt/3i1r0yN