Upstate’s Uneven Metropolitan Economies – Implications for Policy Makers

  • The story of New York’s job market since the 1990’s has been a tale of two regions.  The New York City metropolitan area, where two-thirds of the state’s population lives, has seen private sector employment growth (42.4%) that is near the national rate (48.3%).
  • Albany-Schenectady-Troy’s employment growth – 27.5% – is much higher than the remaining New York state metropolitan areas.
  • Job growth in central and western upstate New York, and in other rust belt metropolitan areas, has lagged.  Buffalo’s job growth during the period was 7.9%, while the Syracuse and Rochester metropolitan grew by 4.7% and 10.6% respectively.   Utica-Rome grew 3.9%, while Binghamton lost 14.1% of employment in goods and services.

Much attention has been paid to the fact that inflation adjusted worker earnings[1] have stagnated nationally since 2000, after growing from $49,000 in 1970 to $58,670 in 2000.  In 2016, real earnings per worker were $56,900 in the United States.  But the fortunes of metropolitan areas have differed.

  • Real earnings per worker in the New York City metropolitan area grew substantially- from $57,800 to $78,300 between 1970 and 2016. Inflation adjusted earnings also grew in Albany-Schenectady-Troy and Syracuse.
  • Rochester and Binghamton saw declines during the period.
  • In 1970, all New York metropolitan areas (except for Utica-Rome) and metropolitan areas in total in Ohio and Michigan had higher earnings per worker than the United States.
  • By 2016, every metropolitan area, except New York City, had earnings that were lower than for the United States.  Much of the worker earnings slippage can be attributed to the loss of manufacturing jobs.

Because the state’s economic performance has been uneven, it is not surprising that New York and its localities spend heavily on economic development.

  • Empire State Development’s 2017-18 budget was eight times larger than in 2012-13 ($2.768 billion compared with $335 million)[2].
    • Ohio’s economic development corporation, JobsOhio reported expenditures of $96 million in 2017.
    • Michigan Economic Development Corporation’s budget was $54 million in that year.
  • Timothy J. Bartik of the W. P. Upjohn Institute for Employment Research reported that as of 2015, New York’s state and local tax incentives as a percentage of the state’s private industry value added were second highest in the nation.[3] Only New Mexico spent more.
    • New York’s high spending on incentives was despite the fact that the state’s business tax burden as a percentage of private industry value added was about average.
  • The 2017 Annual Report on New York State Tax Expenditures show that at the state level, $1.4 billion in economic development tax incentives were issued.[4]

Some economic development efforts have paid off, as companies that have received assistance have created and retained jobs.  But, despite those successes, the employment performance of central and western upstate metropolitan areas, like other rust belt metropolitan areas continues to significantly under-perform the nation’s.

The state’s investments have not lifted job creation in central and western New York above other rust belt communities because economic and technological changes are stronger than the tools available to the state to encourage the creation and retention of jobs. When Eastman Kodak drastically downsized after its consumer film business was destroyed by digital technology, no amount of state assistance could have prevented the resulting job losses.  When labor cost disadvantages led New Process Gear division of Chrysler Corporation to close its factory near Syracuse, and Carrier to move manufacturing operations, the tools available to encourage the companies to stay were simply not enough to make up for the cost differences.

Given those challenges, it is reasonable to ask how economic development strategies for upstate New York metropolitan areas should be structured.  To answer that question, we must start by understanding the changes in the performance of industries that make up regional economies like those in upstate New York.  Because, if we do not understand those changes, we risk allocating resources to efforts that are unlikely to succeed, or which provide a smaller return on the state’s investment than might be received from alternatives.

This post is one of a series presenting data that describes changes in New York’s regional economies and show how those changes might inform state decisions about how to best use resources in the effort to help industry create and retain jobs.  It begins with a look at employment and earnings data since 1970, and then focuses on the more recent 2001-2016 period.

New York’s Differing Metropolitan Economies

New York state is most often seen as consisting of two regions – the New York City metropolitan area, with about two-thirds of the state’s population – and  upstate New York.  But, the upstate/downstate distinction is not as significant from an economic perspective as the difference between areas in the eastern part of New York State, ranging from Albany-Schenectady-Troy through Poughkeepsie into the New York Metropolitan area and the areas west of Albany, such as the Utica-Rome, Syracuse, Binghamton, Rochester and Buffalo metros.  What differs about these two regions is the historic dependence of central and western New York on manufacturing compared with the service sector-based metropolitan areas in eastern New York.

The economic performance of New York’s metropolitan areas has differed significantly in earlier and later time periods.

  • Between 1970 and 1989, Albany-Schenectady-Troy, Rochester, Syracuse and Binghamton had the strongest employment growth in the state.
  • Buffalo-Niagara Falls, Utica-Rome and New York City lagged.  Beginning in 1989, Binghamton began a sharp decline, ending up, by 2016 losing 12% of its employment.
  • In the same year, growth in Syracuse and Rochester began to slow as well, with each of those regions showing little growth since them.
  • The New York City metropolitan area began a period of rapid growth in 1995, moving from last place to first place by 2016.

The Decline of Manufacturing

The divergence in performance between the eastern region of the State and central and Western New York that began about 1990 reflects the region’s dependence on manufacturing.

  • Nationally, in 1970, 26.7 percent of goods and services employment was in manufacturing[5].
  • In the rust belt outside New York, 35% of employment was in manufacturing industries[6].
  • The Binghamton, Rochester, Utica-Rome and Buffalo metropolitan areas had greater percentages of employment in manufacturing than the aggregate of rust belt metropolitan areas outside the state in 1970.
  • The New York City, Albany-Schenectady-Troy and Syracuse metropolitan areas had smaller percentages of manufacturing employment than rust belt metropolitan areas outside New York.
  • In two metropolitan areas in 1970, Rochester and Binghamton, more than four of every ten jobs were in manufacturing industries.

By 2017, manufacturing employment nationally fell to 7.1% of goods and services employment in the United States.  In rust belt metropolitan areas outside New York State, manufacturing employment was 11.8% of goods and services employment.

  • By 2017, every metropolitan area in New York state had a smaller percentage of goods and services employment in manufacturing than rust-belt metropolitan areas outside the state.
  • New York’s metropolitan areas west of the Hudson Valley were more dependent on manufacturing than the nation in 1970 and saw larger declines in manufacturing as a percentage of non-farm employment than the rust belt metropolitan areas outside New York State.
  • Four of five metropolitan areas in central and western New York had higher percentages of manufacturing employment in 1970 and larger declines in manufacturing as a percentage of non-farm employment than metropolitan areas in rust belt states excluding New York.

Manufacturing Employment Losses

Nationally, manufacturing employment has decreased by 5.5 million jobs since 1970.

  • Manufacturing employment declines in the United States began in the 1980-1990 decade, reaching a peak of nearly six million jobs lost between 2000 and 2010.
  • One of every three manufacturing jobs in existence in 2000 was gone by 2010.
  • From 2010-2017, manufacturing employment has shown a modest increase – 7.9%.

Metropolitan areas in Central and Western upstate New York saw a loss of 270,000 manufacturing jobs between 1970 and 2017.

  • Since 1990, 150,000 jobs were lost in these metropolitan area.
  • Percentage losses in these New York metropolitan areas for each decade were larger than for the United States.

Service Sector Employment Change

Because most employment in each metropolitan area is in the service sector, overall employment changes depend primarily on service sector employment change.  Since the percentage of total employment in service sector industries has grown substantially since 1970, the correlation between overall employment change and service sector employment change has grown.

At the national level and in New York State metropolitan areas as a group, in every decade except for the 2000 to 2010 period, service sector employment growth was great enough to more than offset the losses in manufacturing employment. In those decades where there was manufacturing employment growth at the national level, service sector growth was far greater.  For example, between 2010 and 2017, manufacturing employment grew by about 900,000, but service sector job growth was almost 14,000,000.

In the New York City metropolitan area, service sector growth has accelerated since 2001.

  • In upstate New York, service sector employment grew after 2000 in Rochester, Albany-Schenectady-Troy, Buffalo-Niagara Falls and Syracuse, but at slower rates than in the New York metropolitan area.
  • Binghamton and Utica-Rome have seen no service sector employment growth since 2000.

Employment Change: 2001-2016

Economists divide the productive portion of the economy into two categories – goods producing[7] and service providing[8].  In this section the employment change in industries providing goods and services from 2001 to 2016 in New York State metropolitan areas is compared with metropolitan areas in two neighboring rust belt states – Michigan and Ohio.

Overall, the employment performance of the metropolitan areas in this group was significantly weaker than the increase for the United States, which grew by 21.1%.

  • For metropolitan areas in New York, Ohio and Michigan, the median employment change was 3.3%.
  • For New York state metropolitan areas, median growth was 4.4%.

Since 2001, differences in employment performance between the Hudson Valley and upstate-west reflect the differences in manufacturing employment losses and service sector employment gains.

  • The New York City metropolitan area, where two-thirds of the state’s population lives, has seen private sector employment grew more than the national rate (28.6% vs. 21.1% for the nation as a whole), and 40% more than the rate for rust belt metropolitan areas outside New York State.
  • Albany-Schenectady-Troy’s employment growth – 13.3% — is almost two thirds of the national rate.

Job growth in central and western upstate New York, Michigan and Ohio rust belt metropolitan areas, has lagged the nation, in most cases, with most metropolitan areas growing at one-third the rate of the nation, or less.

  • Twelve of fourteen metropolitan areas in Ohio and Michigan and all the upstate central and western metropolitan areas grew at this rate or less.
  • Buffalo’s job growth was 7.1%, while the Syracuse and Rochester grew by 4.4% and 3.3% respectively.
  • Utica-Rome lost 1.7%.
  • Binghamton lost 7.2% of employment in goods and services.

The period from 2001 to 2010 ended in the great recession that began in 2008, while the 2010-2016 period was one of economic recovery.  Because the two decades saw sharply different economic performance, they are examined separately in the following sections.

Employment – 2001-2010

Goods and services employment in the United States increased by 5% between 2001 and 2010.  During that period, most rust belt metropolitan areas saw employment decreases.

  • During the 2001-2010 period, most metropolitan areas in New York State were less affected by the recession than rust belt metros in Ohio and Michigan.
    • Employment in the New York City metropolitan area increased by 9.2% during the period, while Albany-Schenectady-Troy increased by 3%.
    • Buffalo-Niagara, Rochester, and Syracuse had small employment declines, ranging from 0.7% for Buffalo-Niagara to 2.5% for Syracuse.
    • Utica-Rome lost 3.4% of goods and services employment.
    • Binghamton was hardest hit in New York, losing 6.4% of its employment compared with 2001.

Employment in most rust belt metropolitan areas in Ohio and Michigan was harder hit between 2001 and 2010 than it was in New York State, with more than half losing more than 5% of goods producing and service providing jobs.

  • Six metropolitan areas – Toledo, Canton, Detroit, Dayton, Youngstown and Flint lost more than one in ten jobs.
  • Much of the region’s loss of employment can be attributed to employment declines in the automobile and related industries.

Manufacturing vs. Service Employment Change – 2001 to 2010

Between 2001 and 2010, 725,000 manufacturing jobs were lost in the New York, Michigan and Ohio metropolitan areas studied, while 870,000 service sector jobs were gained.  But, the balance between manufacturing losses and service sector gains was heavily influenced by the New York City metropolitan area.

  • Of the 870,000 increase in service sector jobs, 679,000 jobs were in the New York metropolitan area, leaving only 190,000 in the remaining metropolitan areas.

Excluding New York City, the data shows that metropolitan areas outside New York state were more affected by the balance of manufacturing job losses and service sector gains than those in New York.

  • Metropolitan areas in Michigan and Ohio lost 510,000 manufacturing jobs while gaining 110,000 service jobs.
  • In New York State, metropolitan areas other than New York City, 92,000 manufacturing jobs were lost, compared with 81,000 service sector jobs gained.

All the metropolitan areas in central and western upstate New York lost more manufacturing jobs than service sector jobs gained.  Albany-Schenectady-Troy and the New York City metropolitan area both gained more service sector jobs than manufacturing job losses.

Employment: 2010-2016

While New York’s metropolitan areas were less affected by the weak economic performance of the 2001-2010 period than those in Ohio and Michigan, most saw a significantly weaker recovery than those other metropolitan areas between 2010 and 2017.

  • Only New York City did better than the nation, with employment growth at 17.8%.
  • Albany, Schenectady, Troy also did relatively well compared to the group of metropolitan areas studied here, ranking eighth of twenty-one.

Job creation was relatively weak in central and western New York metropolitan areas between 2010 and 2016.

  • Only Youngstown performed as poorly as these New York metropolitan areas.
  • The strongest of the central and western New York group, Buffalo-Niagara Falls, saw an increase of 7.9% compared with the median for Michigan and Ohio metropolitan areas – 9.6%.
  • Two metropolitan areas were the weakest of the group. Utica-Rome’s employment increased by 1.7%, while Binghamton’s lost 0.9%.

Compared to Ohio and Michigan, metropolitan areas in New York followed differing paths between 2001 and 2010 and 2010 and 2017.

  • Eastern New York metropolitan areas New York City and Albany-Schenectady-Troy did relatively well in both periods.
    • The New York City metropolitan area’s growth exceeded the nation’s growth and far exceeded the rust belt’s performance in both periods.
    • Albany-Schenectady-Troy did relatively well in both periods, although its performance compared with the other metropolitan areas studied was stronger between 2001 to 2010 compared to 2010 to 2017.
  • In the 2010 to 2017 period, the performance of central and western New York metropolitan areas ranked lower compared to the group than in 2001 to 2010.
    • Central and western New York metropolitan areas had the weakest employment performance of all the metropolitan areas in the group.

 

Manufacturing vs. Service Employment Change – 2010-2016

Service employment growth dominated the 2010-2016 recovery.

  • For the metropolitan areas in New York, Michigan and Ohio studied, service employment increased by two million, compared with 144,000 manufacturing jobs.
  • The New York metropolitan area contributed half the service sector growth – 1.1 million.

Metropolitan areas in central and western New York state had an increase of 94,000 service sector jobs, compared with a loss of 3,400 manufacturing jobs.

  • Albany-Schenectady-Troy was the only bright spot for manufacturing jobs in New York State.
    • The data shows that the growth was about evenly split between semiconductor and biotechnology manufacturing.
  • Binghamton, the only metropolitan area in the group to lose jobs, lost 2,800 manufacturing jobs, compared with a gain of 2,245 service jobs.

Metropolitan areas in Michigan and Ohio saw larger manufacturing gains than those in central and western upstate New York.

  • Manufacturing jobs in Michigan and Ohio increased by 142,000, while service sector employment increased by 789,000.

Worker Earnings

Between 1970 and 2000 average inflation adjusted earnings grew much more in the nation (19.2%) than in any of the metropolitan areas in New York State, except for New York City, but between 2000 and 2016, the picture changed.

  • Neither the United States nor any of the metropolitan areas saw significant growth, apart from Albany-Schenectady-Troy.
  • Some, like New York City, Michigan and Ohio metropolitan areas in the aggregate, Rochester and Binghamton saw losses.

Unlike employment, inflation adjusted worker earnings did not show distinctive trends in the 2000-2010 period vs. the 2010-2016 period.

Because the mix of employment has shifted from manufacturing, with higher earnings per worker towards services, with lower earnings, average worker earnings today are lower than they would be if the employment mix in 2016 was the same as it was in 1970. 

  • For example, if manufacturing and services wages were at the same levels as in 2016, with the manufacturing/services employment mix of 1970, earnings per worker in the Rochester metropolitan area would have been 16% higher than they are.

In general, metropolitan areas that had the greatest shift from manufacturing to services saw the greatest earnings impacts.

  • Binghamton, the most affected, had a 30% decline in manufacturing’s share of goods and services employment.
  • Earnings per worker in 2016 were 33% lower than they might have been had manufacturing’s employment share not decreased, and manufacturing and service wages had remained as they were in 2016.

The relatively greater loss of manufacturing employment in the rust belt, including central and western upstate New York has affected worker earnings more than for the United States.

  • At the beginning of the period, most metropolitan areas in New York and rust belt metropolitan areas in Michigan and Ohio in total had annual worker earnings that were higher than for the United States.
  • By 2016, all but the New York City metropolitan area were below the United States.
  • Rochester’s average earnings per worker in 1970 were 12% higher than the United States average. By 2016, they were 11% below.
  • Binghamton was 6% above the United States average in 1970, and 23% below it in 2016.
  • Only New York City, with its service sector dominated economy and high average service sector wages remained above the average worker earnings for the nation in 2016.[9]

Conclusions

Employment growth in central and western upstate New York metropolitan areas was relatively strong but beginning in 1990 flattened out.  The New York City and Alban-Schenectady-Troy metropolitan areas were less dependent on manufacturing employment and showed stronger growth after 1990.

Employment performance in New York metropolitan areas was, in the 2001-2010 period, generally less affected by the recession than in metropolitan areas in Ohio and Michigan.  But, in the 2010-2017 period, only Albany-Schenectady-Troy and the New York City metropolitan areas in eastern New York performed at average or better than average levels compared to Ohio and Michigan metros.  Buffalo-Niagara Falls, Rochester, Syracuse, Utica-Rome and Binghamton were five of the six weakest performers among the metropolitan areas in New York, Michigan, and Ohio.

In every rust belt metropolitan area, manufacturing employment declined substantially between 2001 and 2010.  The best performing metropolitan area in the study, New York City, lost 110,000 manufacturing jobs, 38% of its 2001 manufacturing employment; the worst, Flint, lost nearly two-thirds.  During the 2010-2017 period, manufacturing employment recovered some of its losses in the earlier period, with more than half of the metropolitan areas in the studies gaining 10% or more.  Unfortunately, in New York State, only Albany-Schenectady-Troy saw significant manufacturing gains between 2010 and 2017.  Even so, the manufacturing gains in Albany were less than one-third the size of service sector employment gains.  The New York City, Rochester, Syracuse and Binghamton metros saw continued losses.

The comparative employment data examined here shows significant differences in the performance of metropolitan areas between 2001 and 2010 and 2010 and 2017. The differences are likely have resulted from several factors.  Manufacturing employment took a particularly large hit between 2001 and 2010 and has recovered slightly since then.  The historic dependence of many of the metropolitan areas in upstate New York, Ohio and Michigan on manufacturing made them more vulnerable to manufacturing losses than other places.  Import competition, technological obsolescence and productivity improvements were all factors, but had differing impacts on industries in the metropolitan areas in this study.

The average earnings of workers in rust belt metropolitan areas were higher than the nation in 1970 but are now lower.   Average worker earnings between rust belt metropolitan areas in central and western upstate New York, Ohio and Michigan have been stagnant or declined since 1970. Average worker earnings for the United States increased by nearly 20% between 1970 and 2000.  Since then, average earnings at the national level and in rust belt metropolitan areas have not grown, with few exceptions.[10]

Why Rust Belt Metropolitan Areas Have Lagged

Much of the weak employment performance in Central and Western New York metropolitan areas, and in other rust belt locales is the result of their dependence on manufacturing.  The long-term decline in manufacturing employment nationally and in New York State has primarily been the result of efforts by manufacturing businesses to increase their competitiveness by cutting costs.  Though labor costs as a percentage of total production costs vary widely among manufacturing industries, they are important in almost all of them.

One means of reducing unit labor costs is through productivity gains from automation and process improvements.  Some analyses have concluded that more efficient production methods are responsible for as much as 88% of manufacturing employment losses over the long-term, though the effect the effect of this varies significantly by industry.[7]

The movement of manufacturers to locations with lower labor costs is another substantial factor in the decline.  In the twentieth century, rust belt states lost many manufacturing jobs to lower cost, non-unionized, locations in the south.  More recently, manufacturing jobs have moved offshore[27].

Over the longer term, research shows that the rust belt began to suffer in the 1950s because of the very large firms that dominated the region’s most important industries faced little product or labor competition.[11] As a result, workers received a significant wage premium, and industries had relatively low labor productivity growth rates, making them vulnerable to foreign competition.

Another recent study[12] found that “The sluggish job growth of many deindustrialized metropolitan areas was only partly due to the fact that these metropolitan areas specialized in the wrong industries…instead it came about primarily because these areas underperformed the rest of the nation with respect to the industries that they had.[13] Both of these analyses point to the fact that in slow growing areas, “the performance of the particular firms and plants in those areas and/or the relative unattractiveness of those areas to firms seeking to open, grow or relocate were the problem.[14]

In the late 20th century, the Northeast and Midwest lost manufacturing jobs to the South and West.  According to “Locating American Manufacturing: Trends in the Geography of Production, by Susan Helper, Timothy Krueger and Howard Wial,[15]This trend represented a shift of manufacturing jobs toward regions where right-to-work laws are more common, and, in the case of the South, toward a lower-wage region where generous industrial recruitment subsides have long been an important economic development policy tool.”  But, in the recent past, wage differentials between rust belt and Southern locations have declined and are less important in the face of competition from low wage countries.

The loss of manufacturing jobs in the decade from 2000 to 2010 was far larger (5,700,000 jobs) than any other decade in the 1970-2016 period.   While long-term analyses point to productivity gains as the main cost of lost manufacturing jobs, there is evidence that since 2000, offshore production has been the primary cause of lost jobs.  Daron Acemoglu, David Autor, David Dorn, and Gordon H. Hanson concluded in Import Competition and the Great U.S. Employment Sag of the 2000s,” found that between two and two million, four hundred thousand jobs were lost to Chinese competition between 2000 and 2011. They point out that “the coefficient estimates imply that had import competition from China not increased after 1999, trade-exposed industries in local labor markets would have avoided the loss of 2.35 million jobs.[28] Manufacturing employment has rebounded slightly since 2010 – increasing by 700,000 jobs (6%) between 2011 and 2017.

In part, the cause of the poor performance of many rust belt metropolitan areas was insufficient industrial diversification.  Because they had high concentrations of manufacturing, these areas were vulnerable to technological changes and import competition that sharply reduced manufacturing employment over the past four decades.  In contrast, higher concentrations of service providing businesses in metropolitan areas like New York and Albany-Schenectady-Troy have protected them from the collapse of manufacturing employment that disadvantaged metropolitan areas that had been more dependent on manufacturing.

Many of the metropolitan areas in this study are small enough to be significantly affected by the loss of jobs at a few large businesses.  For example, the displacement of Kodak’s film business by digital technology cost the Rochester MSA 16,000 jobs at Kodak of the 39,000 manufacturing jobs lost between 2001 and 2017.  No doubt more jobs were lost at Kodak’s suppliers.  Xerox in Rochester, Chrysler’s New Process Gear Division and Carrier in Syracuse had smaller but still significant impacts.

Service sector employment has grown slowly or declined in mid-sized and smaller rust belt metropolitan areas for several reasons.  First, a large portion of service sector employment serves other businesses and the population in its area.  When hundreds of thousands of manufacturing jobs disappeared in New York State, many service sector jobs were lost as a result.  Second, for advanced services, in some cases, rust belt metropolitan areas are too small to provide large labor pools with the specialized labor skills needed by industries like information and financial services.  Third, industrial consolidation has led to the loss of some corporate headquarters in small and medium sized metropolitan areas.  An example is the purchase of regional banks by megabanks, which became possible after the Glass-Steagall act was repealed.

Implications for State Policy

Traditionally, the goal of state and local economic development agencies has been to encourage businesses to locate or remain or expand within their jurisdictions.  Economic development agencies at the state level perform several functions, including providing financial assistance for purposes such as infrastructure development, urban revitalization and encouraging business investments within the state.  These agencies typically attempt to maintain and create jobs by providing financial assistance to employers to help them strengthen their work forces though training, or by providing tax incentives and/or financial assistance for capital investments.

Since they are business facing agencies, their approaches focus on factors that influence company location decisions, usually at the time that the companies themselves are considering those issues.  This perspective leads to policies that relate to the availability of sites, the costs of building and equipping facilities, and the availability of labor with appropriate skills.  There is little significant research that focuses on the effectiveness of different approaches.

However, available evidence does not support the notion that tax reductions, or the use of business incentives plays a significant role in creating jobs by increasing the demand for workers.  The largest recent study of the effects of tax reductions and business incentives found “The effects of net taxes, gross taxes and incentives are always statistically insignificant.”[16]  As the author points out, “Small variations in wages from place to place can offset the largest tax incentives offered by governments.  The highest incentives that are typically provided could be entirely offset by a competing area that had no incentives, but had labor that was 79 cents per hour cheaper in wages.[17]

When financial incentives are employed to encourage job creation, the most effective approaches provide significant upfront assistance and have short durations (because businesses heavily discount future benefits compared with near term subsidies) and include claw backs and first source agreements (targeting low income people).[18]

Because relatively few business capital investments involve attracting businesses from outside the state, most effort is focused on encouraging the modernization or expansion of existing operations.  During the time I worked at Empire State Development (from 1995-2007), the agency provided financial assistance to thousands of upstate companies for training and capital projects.  Many of these projects would not have taken place, at least at the same scale, without state assistance.  Although I’m not currently at ESD, much of what the agency does today reflects the same objectives and similar approaches to assisting businesses.

While ESD at the state level, and economic developers at the local level, aid service businesses as well as manufacturers, economic development agencies over the years have emphasized the retention of manufacturing as a primary strategy.  This has been a rational approach, since manufacturing jobs have several desirable characteristics: they are typically in industries whose products are sold outside New York state, thereby bringing income into the state; they have historically offered relatively high wages; and in many cases they did not require specialized skills.  Today, because of automation, manufacturing processes have changed, and factory jobs often require specialized skills.  There are far fewer manufacturing jobs now than there were twenty years ago. Though we may not soon see severe decreases, like those of the 2000-2010 decade, fewer than one in ten workers is now employed in manufacturing in most areas.

For those reasons, economic development efforts should reflect the reality that most job growth will continue to come from service sector businesses.  Primary economic development strategies for upstate metropolitan areas should work to strengthen regional service sector businesses that sell services outside the region. Efforts to retain manufacturers are equally important but must recognize that assistance to manufacturers to increase productivity may reduce the number of jobs at facilities but may help preserve those jobs over the longer term.

Encouraging new business development through entrepreneurship is another avenue that state economic development agencies can effectively promote.  Entrepreneurial assistance programs and business incubators, often aimed at disadvantaged groups and businesses, can increase successful business startups.

These activities represent short-term interventions that work within the longer-term context of the existing economic, cultural and demographic environments found where they operate.  But, while economic development agencies can incentivize company decisions in favor of a location, by providing financial assistance, facilitating other government actions, such as permitting, training or by coordinating with local agencies, they should also play a role in contributing to longer-term actions to strengthen regional competitiveness.

 

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The contributions of time and insights by Merideth Andreucci, Kent Gardner, Amy Schoch, Robert Ward and Rockefeller Institute staff including James Malatras, who read earlier drafts of this piece, are gratefully acknowledged.

[1] The Bureau of Economic Analysis of the U. S. Department of Commerce definition: “Earnings is the sum of three components of personal income–wages and salaries, supplements to wages and salaries, and proprietors’ income.”  See:  https://www.bea.gov/regional/definitions/

[2] “Economic Development in the New York State Budget,” Citizens Budget Commission of New York, https://cbcny.org/research/economic-development-new-york-state-budget

[3]A New Panel Database on Business Incentives for Economic Development Offered by State and Local Governments in the United States,” Timothy J. Bartik, W. E. Upjohn Institute,  http://research.upjohn.org/reports/225/

[4] Includes $69 million in Research and Development Tax Credits.

[5] Data is from U. S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Accounts Tables:  https://bea.gov/.  Most BEA data was taken from the Headwaters Economics Economic Profile System:  https://headwaterseconomics.org/tools/economic-profile-system/about/

[6] Metropolitan areas in Ohio, Michigan, West Virginia, Indiana, Illinois (except for the Chicago MSA) and Wisconsin. Chicago like New York City is excluded because its industrial composition has a small percentage of manufacturing employment.

[7] Agriculture, forestry, fishing, and hunting; mining; construction; and manufacturing.

[8] Utilities; wholesale trade; retail trade; transportation and warehousing; information; finance, insurance, real estate, rental, and leasing; professional and business services; educational services, health care, and social assistance; arts, entertainment, recreational, accommodation, and food services; and other services (except public administration).

[9] New York’s position weakened between 2000 and 2016 because of decreases in average earnings per worker in the financial services industries.

[10] One exception is Albany-Schenectady-Troy, where rising government employee earnings have benefited workers in the private sector, as market competition for workers reflects the opportunity for potential employees to take well paid government jobs.

[11] “Competitive Pressure and the Decline of the Rust Belt: A Macroeconomic Analysis,” Simeon Alder, David Lagakos and Lee Ohanian, National Bureau of Economic Research, Working Paper 20538, http://www.nber.org/papers/w20538

[12] “The Consequences of Metropolitan Manufacturing Decline:  Testing Conventional Wisdom,” Alec Friedhoff, Howard Wial, and Harold Wolman, Brookings Institution, Metropolitan Policy Program, https://www.brookings.edu/wp-content/uploads/2016/06/1216_manufacturing_wial_friedhoff.pdf

[13] Ibid, p. 15

[14] Ibid, p. 11.

[15] “Locating American Manufacturing: Trends in the Geography of Production,” Brookings Institution, Metropolitan Policy Program,  https://www.brookings.edu/wp-content/uploads/2016/06/0509_locating_american_manufacturing_report.pdf , p. 29.

[16] Timothy J. Bartik, “A New Panel Database on Business Incentives for Economic Development Offered by State and Local Governments in the United States,” p. 110.

[17] Bartik, 2009. “What Works in State Economic Development?” In Growing the State Economy: Evidence-Based Policy Options, 1st edition, Stephanie Eddy, and Karen Bogenschneider, eds. Madison, WI: University of Wisconsin, pp. 19.

[18] Ibid.

[19] NBER Working Paper No. 19843, The Quarterly Journal of Economics (2014) 129 (4): 1553-1623 http://ideas.repec.org/a/oup/qjecon/v129y2014i4p1553-1623.html

[20] Analogous to metropolitan areas but includes rural areas.

[21] https://regionalcouncils.ny.gov/

[22] https://www.governor.ny.gov/news/governor-cuomo-announces-more-755-million-economic-and-community-development-resources-awarded

[23] These include:  “Solar City: The Risk Embedded in Buffalo’s Billion,” John Bacheller, Policybynumbers.com,  http://policybynumbers.com/solar-city-the-risk-embedded-in-buffalos-billion ,

and “Nexgen in Syracuse: Throwing Good Money After Bad,” John Bacheller, Policybynumbers.com, http://policybynumbers.com/nexgen-in-syracuse-throwing-good-money-after-bad

[24] “America’s Advanced Industries:  What they Are, Where they Are, and Why they Matter,” Mark Muro, Johathan Rothwell, Scott Andes, Kenan Fikri, and Siddharth Kulkarni, Brookings Advanced Industries Project, F4.ebruary 2015, p.

[25] “Solar City: The Risk Embedded in Buffalo’s Billion,” op. cit.

[26] NBER Working Paper No. 19843, The Quarterly Journal of Economics (2014) 129 (4): 1553-1623 http://ideas.repec.org/a/oup/qjecon/v129y2014i4p1553-1623.html

[27] See:  “Import Competition and the Great U.S. Employment Sag of the 2000s,” Daron Acemoglu, David Autor, David Dorn,  Gordon H. Hanson, 2014.  http://economics.mit.edu/files/10590

[28] Ibid., p. S181.




Traded Employment Losses Since 2001 in Upstate New York

Metropolitan areas in Central and Western New York, like others in the Rust Belt that had high concentrations of manufacturing employment, have been hit hard by the loss of manufacturing jobs.  Ninety-one thousand net manufacturing jobs were lost in the 2001-2010 decade in five upstate metropolitan areas – Utica-Rome, Syracuse, Rochester, Binghamton, and Buffalo-Niagara Falls. During that same period, only 62,000 net service sector jobs were created in these areas.  The period between 2001 and 2010 was an extraordinary decline in manufacturing, but it was not unique.  Manufacturing employment in these Central and Western New York metropolitan areas has declined in every decade, beginning in 1970.

The challenges facing upstate metropolitan areas that had high concentrations of manufacturing employment in the twentieth century are not unique.  In fact, most rust belt metropolitan areas have seen employment stagnate since 2001.  While manufacturing employment has significantly decreased, service sector employment in most rust belt metropolitan areas has grown more slowly than in the nation.  In fact, more than half of the region’s job creation deficit compared to the nation since 2001 is associated with slow service sector growth.

The weak performance of the region’s service sector is in part a reflection of the manufacturing employment losses, since much service sector employment has historically depended on manufacturing.  Almost all manufacturing firms are so-called “traded” businesses, since they sell products outside the regions where they are produced.  These businesses import income into regions through the sale of products and services that they export.  In contrast, local businesses sell products and services within regions.

Manufacturing industries typically produce products that are exported from the metropolitan areas where they are made.[1]  But, service providers operate in many cases within local markets.  For example, lawn care providers, hair dressers and barbers, restaurants and retail stores (other than those with an on-line presence) generally trade within a relatively small area.  Other service providers export their services.  Industries like financial services, information services, on-line retailers and institutions of higher education serve larger regional, national or international markets.

Because local services are bought in local, rather than regional or national markets, local service employment is proportional to local populations.  Because traded jobs export products and services and replace imports, they create more jobs within their regions.  Consequently, economic development strategies focus on strengthening existing traded industries, and attracting traded employment.

This post examines changes in traded industry employment in New York State, Michigan, Ohio and the United States.  The data shows that traded employment grew nationally from 2001 to 2016, but not in Central and Western New York metropolitan areas, or in Ohio and Michigan.  It also shows that while traded service sector employment has grown in most metropolitan areas in upstate New York and the rust belt, growth in some cases has been insufficient to offset losses in manufacturing employment. Even so, traded service employment continues to increase its share of total traded employment.  In 2016, more than 70% of traded employment in every New York metropolitan area except for Binghamton was in the service sector.  Nationally, 80% of traded employment was in service industries.

Employment Change – Traded and Local Industries

Except for the New York City and Albany-Schenectady-Troy metropolitan areas, traded industry employment in New York metropolitan areas and in Ohio and Michigan did not do as well between 2001 and 2016 as the United States, which grew by 13.3%.[2] The Rochester and Syracuse MSA’s saw decreases in traded employment of more than 6%, while in Utica-Rome it decreased by 12.4%.  The Binghamton MSA, which was hard hit by the closure of IBM’s first manufacturing plant, lost 24% of traded employment between 2001 and 2016.  New York City had an increase in traded employment of 19%, while Albany-Schenectady-Troy’s traded employment increased by 11%.

Metropolitan areas in Michigan and Ohio had greater employment losses between 2001 and 2010 than those in New York State, other than Binghamton.  Since 2010, Michigan and Ohio metros have recovered employment at nearly the rate of the nation growing 15% compared to 17%.

Local employment increased by 9% between 2001 and 2010 in the United States.  New York City metropolitan local employment growth during that period was greater than the nation – 13.4%.  Metropolitan areas upstate had much weaker growth. Albany-Schenectady-Troy local employment growth was strongest, at 5%.  Between 2010 and 2016, the New York City metropolitan area again had local industry employment growth that exceeded the nation – 18% to 16%.  Local industry employment growth in upstate metropolitan areas was much weaker – less than 10% in each case.

Traded Industry Employment – Manufacturing vs. Services

 Manufacturing

Between 2001 and 2010, 3,700,000 traded manufacturing jobs were lost in the United States – nearly three of every ten manufacturing jobs that existed in 2001.  Much of the lost manufacturing loss was the result of increased off-shore competition – 2.4 million jobs by one estimate.[3] But other factors were important as well.  Increases in productivity have played a significant role over the long-term in reducing manufacturing employment.  And, technological change has displaced major manufacturers, like Kodak, that depended on the sale of products like photographic film that became inferior to new competition.

Traded manufacturing employment losses hit New York State metropolitan areas harder between 2001 and 2010 than the United States.  Most metropolitan areas in New York State lost more than 30% of traded manufacturing jobs between 2001 and 2010, compared with 29% for the United States. Michigan/Ohio metropolitan areas were hit even harder than those in New York, losing 39% of manufacturing employment.  

Traded manufacturing employment began to rebound in 2010, gaining 727,000 jobs.  Nationally, traded manufacturing employment increased by 8%. Michigan and Ohio rebounded even more strongly, gaining 144,300 jobs – 18%.   Most metropolitan areas in New York State saw weaker recoveries, or continued manufacturing employment losses.  Three metropolitan areas saw increases – Albany-Schenectady-Troy gained 6,000 jobs (30%), Buffalo gained 2,700 (5.6%) and Utica-Rome gained 190 (1.7%).  The New York City metropolitan area, Syracuse, Rochester and Binghamton had continued losses.  Binghamton lost 19% of its traded manufacturing employment between 2010 and 2016 (2,600 jobs), after losing 6,600 traded manufacturing jobs between 2001 and 2010.

Services

Traded service sector employment in the United States increased in both the 2001-2010 and 2010-2016 periods, though the gain between 2010 and 2016 was larger than in the earlier period – 5,500,500 vs 3,000,000.  Between 2001 and 2010, only the Buffalo-Niagara metropolitan area equaled the national rate of increase – 9.6%.   The New York City metropolitan areas saw an employment increase that approached that for the United States – 8.1% vs. 9.6%.  Rochester and Syracuse had smaller increases, while service sector employment in Utica-Rome and Binghamton decreased.  Metropolitan areas in Michigan and Ohio also had slightly less service traded sector employment in 2010 than in 2001.

Between 2010 and 2016, national traded service sector employment increased by 16.4% compared with 9.6% in the earlier period.  New York City’s traded service employment increased by 18.4%, while metropolitan areas in Michigan and Ohio had an increase of 14.2%.  All the metropolitan areas in upstate New York had increases of less than 10%, with Albany-Schenectady-Troy showing the strongest growth – 9.1%, followed by Rochester with 8.9% and Buffalo-Niagara Falls with 8%.  Binghamton again lost traded service sector employment .

Traded Manufacturing and Service Employment 2010-2016

Following the great recession of 2008-2010, manufacturing employment rebounded nationally, as well as in several upstate New York metropolitan areas.  How much employment growth did traded manufacturing and service employment each contribute?

The performance of metropolitan areas showed substantial differences.  Nationally, manufacturing generated 11% of traded employment growth between 2010 and 2016.  But, in Albany-Schenectady-Troy. Utica-Rome and Michigan and Ohio metropolitan areas, manufacturing accounted for one-third or more of employment growth.  In Buffalo, manufacturing provided 20% of traded growth.  But in Binghamton, the New York City metropolitan area, Rochester and Syracuse, manufacturing employment continued to decline.

Because manufacturing employment dropped sharply between 2001 and 2016, and traded service employment generally increased, service employment now constitutes more than two-thirds of all traded employment nationally, and in most of the rust belt metropolitan areas studied.

Only the Binghamton metropolitan area has less than 70% of traded employment in service industries, and even that area has shifted towards services.

Conclusions

Over the 2001 – 2016 period, manufacturing dependent upstate metropolitan areas west of Albany-Schenectady-Troy and those in Michigan and Ohio did not do well. While traded employment in the United States increased by 13.3%, every upstate metropolitan area west of Albany and those in Ohio and Michigan and had less traded employment in 2016 than in 2001.  But, between 2001 and 2010 and 2010 and 2016, the employment of upstate metropolitan areas differed from other rust-belt metropolitan areas in Ohio and Michigan.  Ohio and Michigan had steeper traded employment declines between 2001 and 2010 and greater growth between 2010 and 2016 than did those in Western and Central New York.  The v-shaped employment change in Ohio and Michigan may have been primarily the result of the collapse and federal bail-out of the domestic auto industry during the great recession.

Traded service sector employment growth was relatively weak during both periods in Central and Western New York metropolitan areas.  Two small metropolitan areas – Utica-Rome and Binghamton had less traded service employment in 2016 than in 2001.  But, despite the relatively weak growth of traded service sector employment in Central and Western New York metropolitan areas, most traded employment growth in the region came from service sector industries.

State and local governments in the rust-belt seeking to strengthen regional economies face a challenging environment.  Because they have higher percentages of employment in declining and slow-growing industries than other regions, if rust-belt regions are to succeed in encouraging economic growth, they must focus on helping build employment in faster growing industries, while helping preserve the existing industrial base.   Because there are relatively few large business expansions and relocations in a given year (one estimate is 1,500)[4], attracting businesses in growing industries can be difficult – competition can be intense and incentive costs are often very high.  Supporting the growth of existing small businesses in faster growing sectors may be more cost-effective, but relatively few small businesses grow to become large employers.

Too often, policy makers think primarily of tax incentives as the primary tool to induce businesses to locate and expand within their jurisdictions.  But, tax incentives have crippling weaknesses as economic development policy tools.  First, they are extraordinarily wasteful.  Timothy J. Bartik, in “Who Benefits from Economic Development Incentives? How Incentive Effects on Local Incomes and the Income Distribution Vary with Different Assumptions about Incentive Policy and the Local Economy”[5] found that 85 to 90% of typical incentive spending is wasted, because it does not affect the existence of about 85 to 90% of the jobs that receive tax incentives. Bartik writes, ““But for” the typical incentives, the probability of the incented jobs choosing the state would have been reduced from 100 percent to 90 or 85 percent.” Because of this, Bartik concludes, “As a result, the direct budget costs of incentives significantly exceed fiscal benefits.”[6] Bartik estimates that fiscal benefits are 22% of incentive costs, based on his model’s assumptions.

In practical terms, the heavy use of tax incentives carries a large opportunity cost.  Given that state and local budgets are constrained by tax revenues, large tax incentive expenditures are likely to result in cuts to major state programs – primarily education and social assistance.  Alternatively, they can lead to tax increases, which decrease private sector demand because they reduce the number of dollars available to taxpayers to spend.

Development of successful economic development strategies at the state level requires understanding the needs of existing businesses within a region and the development of effective assistance strategies.  They require the creation and maintenance of strong relationships between state, local and regional economic development organizations.  They build knowledge of and relationships with existing traded businesses and seek to meet their needs.  Effective organizations maintain strong business visitation programs, assemble up to date site data, and work with private developers to expand site availability, work with training providers to ensure the availability of workers with needed skills, assist expanding businesses in expediting permit processes, and where needed, provide financial assistance for capital costs and worker training.

Because of the difficulties faced by upstate metropolitan areas west of Albany-Schenectady-Troy, Governor Cuomo has focused resources on the region. The Governor proposed legislation in 2011 creating Regional Economic Development Councils. The Councils are responsible for the creation and implementation of regional economic development plans.  The state provided funding to support their implementation.

The intent of the initiative is to give regions greater voice in decision making about state supported economic development efforts.  As of 2018, the state has spent $5.4 billion on projects selected through the Regional Councils.[7]  This year’s funding is $750,000,000.  $225 million is to be provided through grants and tax credits from Empire State Development, and $525 million through other state agency programs.  To be sure, much of the spending is through already existing programs, but there has been significant additional funding provided for regional initiatives.

Much of the emphasis of the regional strategies that were developed in response to the Governor’s call has been on growing advanced manufacturing and high technology within upstate New York regions.  And, the State has encouraged that focus with a series of large investments in high technology manufacturing facilities. It is clearly rational for regional economic developers to focus on retaining manufacturing employment, and it is possible for manufacturing employment to grow, as it has in some metropolitan areas.   But, over the past forty years, manufacturing employment’s share of national employment has declined.  High technology manufacturing has declined along with more traditional industries. Regional economic development strategies should recognize that most employment growth in upstate New York and elsewhere, even that in traded industries that export products and services, is in services.

Future posts will examine additional employment challenges faced by upstate metropolitan areas and the Governor’s Regional Economic Development initiative.

[1] One of the relatively rare exceptions might be found in the food processing industry, such as a few dairies that only sell their products within the metropolitan areas where they are located.

[2]Source:  Bureau of Labor Statistics – Current Employment Survey.  Traded employment estimated as proposed by Mercedes Delgado, Richard Bryden and Samantha Zyontz, in “Categorization of Traded and Local Industries in the US Economy,”   http://clustermapping.us/sites/default/files/files/page/Categorization%20of%20Traded%20and%20Local%20Industries%20in%20the%20US%20Economy.pdf.  In this paper the authors estimate the percentage of employment in two-digit NAICS codes that is traded.  Because two digit codes are broad categories, differences in industry mix within clusters between areas are possible sources of estimation error.

[3] “Import Competition and The Great U.S. Employment Sag of The 2000s” Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson, and Brendan Price, NBER Working Paper 20395, http://www.nber.org/papers/w20395.pdf

[4] Timothy J. Bartik, “Local Economic Development Policies,” Upjohn Institute Working Paper No. 03-91, W. E. Upjohn Institute, 2003.  http://research.upjohn.org/cgi/viewcontent.cgi?article=1108&context=up_workingpapers

[5] http://research.upjohn.org/cgi/viewcontent.cgi?article=1037&context=up_technicalreports

[6] Ibid, pp. viii-ix.

[7] https://regionalcouncils.ny.gov/about




Data, Key Punches, Blogging and the Upstate Economy

Fifty years ago, as a research assistant in graduate school at Syracuse University, I did some quantitative research for a professor on the effect of various factors on state policy outputs.

Technische Hochschule Aachen
Rechenzentrum

Doing the work required me find data in books in the university library and to go to a room in the university computer center, like the one in the illustration on the right, to put the data on cards using a key punch. Once the cards were punched, I gave the deck of cards to a member of the university’s computer staff. who then put them in a card reader connected to a computer.  On the computer, a statistical analysis program – SPSS (Statistical Package for the Social Sciences), provided the tools I needed to analyze my data.  Later, I would return to collect sheets of paper on which the results were printed.

The process was slow and cumbersome, involving hours of work to collect, input and analyze data.  Today, that data can be collected and analyzed in minutes on a laptop computer.  With the internet, I no longer have to comb through books from a specialized library, and with a personal computer, I no longer have to go to a central place to analyze data.

Information sharing is much easier, too.  In the past, if I wanted to share research data, I would have to find an institution that was willing to publish it – a process that sometimes required researchers to share in the cost of publication.  Today, the internet offers the possibility to reach readers directly.  Over the past two years, I’ve been able to publish more than two dozen research notes on my blog, reaching thousands of readers.

On this blog, I’ve written about data related to significant policy issues that face New York, particularly upstate New York.  As a long-time upstate resident, I am aware that much of the region, particularly those areas that were historically dependent on manufacturing, faces significant challenges in making it possible for residents to find good jobs that pay well.

While upstate New York faces the same challenges as the rest of the rust belt, its metropolitan areas differ from those in other rust belt places, such as Michigan and Ohio, because the impact of the loss of manufacturing has been less severe here.  Metropolitan areas like Buffalo, Rochester and Syracuse continue to have relatively affluent suburban populations, and overall have median household incomes that are near the national average.  Paradoxically, upstate central cities have among the highest poverty rates in the region, and several of the cities face fiscal distress.  The map, below, shows employment growth rates from 1998 to 2015 for economic regions in the Northeast and Midwest.  The weakest rates in the region are on a belt along the southern shores of the Great Lakes running from Wisconsin to Ohio.  Although Western and Central New York have done less well than much of the country, they have performed better than much of the Midwest.

Through my analyses, I’ve tried to strengthen policy discussions that focus on the decline of upstate cities and rust belt metropolitan areas, in order to avoid errors such as attributing most of the region’s decline to relatively high taxation levels, and misguided attempts to revive regional economies that create too much taxpayer risk by spending hundreds of billions of dollars to attract high technology businesses.  I’ve looked at the paradox of thriving suburbs and declining cities in New York’s metropolitan areas, and the growth of racial segregation upstate.  I’ve also provided data to help readers understand the real reasons why city schools are “failing.”

I’ve been happy to see that some of my pieces have been seen by a relatively large number of people.  Among the most popular have been:

The Decline of Manufacturing in New York and the Rust Belt, which has had more than 3,000 views.

As Private Sector Employee Incomes Stagnate, Local Government Workers Prosper, with more than 2,300 views.

New York’s Ineffective Business Tax Incentiveswith 1,600 views.

New York’s “Failing Schools” – The Wrong Diagnosis and a Misguided Solutionwith 1,300 views, and

The Crisis of Poverty in Upstate New York Cities, with more than 1,000 views.

In the coming year, I’ll be a Richard P. Nation research fellow the Rockefeller Institute at the University of Albany.  The fellowship will afford me the ability to work with other researchers on critical issues.  I also hope to work with the Institute’s staff to develop forums to discuss some of these issues and policies.  As a result, in the coming year, some of my research will be published on the Institute’s blog, or as research publications.  In those cases, I’ll be sure to provide links to that work on this blog.

In the past two years, much of the impetus for my work has come from accounts that I have read in various places on the internet, such as a story that appeared in the New York Times, “Spike Nation: Cheap, unpredictable and hard to regulate, synthetic marijuana has emergency responders scrambling to save lives.”, which contained the statement, “Syracuse is one of the poorest cities in America — more than a third of the people here live below the poverty line.”  Having lived in Syracuse in the 1960’s and 1970’s, I was aware that whenI lived there, that Syracuse was not one of the poorest cities in America.  The city had a mix of relatively poor and well-off areas.  That sparked my interest into researching what had happened to upstate metropolitan areas after I left Syracuse in 1971,  and led to several pieces on this blog.

Other pieces on this blog came from readers who asked questions about the proposed increase in the minimum wage, and about labor participation rates in upstate areas.  I hope that readers of this blog will continue to ask questions and offer their perspectives.  I may be contacted at  john.bacheller@policybynumbers.com.  

In the coming year, I plan to continue to look at labor participation and employment in New York State with a focus on disparities between cities and suburbs.  I’m also collecting data on city and town tax and revenue burdens and spending patterns to understand how they differ, and researching New York’s Regional Economic Development Council initiative to better assess strengths and weaknesses.  I also hope to take a look at some more data about student performance in New York schools.   I expect to publish findings via the Rockefeller Institute and on this blog in the coming months.

Illustrations are from Wikipedia.  Map is from: U.S. Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School.    http://www.clustermapping.us/region




Left Behind: Characteristics of Low Labor Participation Counties

In my last post, I examined labor market participation in New York State counties.  I found that most New Yorkers, both upstate and downstate, live in counties where labor market participation differs only slightly from national levels, but upstate counties with small populations in many cases have labor participation rates that are significantly below the average.  In this post, I look more closely at the ways that low participation counties differ from those with higher labor market participation.  In particular, I examine how income compositions, and industry compositions differ.

The data shows that employment has decreased between 1970 and 2015 in upstate counties with low levels of labor participation, largely because weak service sector employment growth was insufficient to offset losses in non-service industries.  Earnings per employee were weak in low participation counties as well.  In 2015, per employee earnings overall were 16% lower in  upstate low labor participation counties than in high participation counties, and 47% lower than those in the New York city metropolitan area.  Differentials between per employee earnings were particularly large in relatively high paying service industries, such as information, financial services, and professional and business services.  Government transfer payments make up a larger part of personal income in counties with low labor participation because of low employment levels in these counties.  Government employment made up a larger part of total employment in low participation counties because of the low level of private sector employment in these counties.

Data from this post is from the U. S. Bureau of Economic Analysis – Local Area Personal Income and Employment tables.  Much of the BEA data referenced was taken from the data presentations found at the Headwaters Economics Economic Profile System.

County Population Size

On average, the fifteen upstate counties with the lowest levels of labor participation had populations that were much smaller than those with high levels of participation, or those in the New York State metropolitan area.  On average, low participation upstate counties populations were only 22% of high participation counties, and 6% of counties in the New York metro area.

Populations of both the top and bottom 15 participation counties upstate have been essentially stagnant since 1970.  While high participation counties showed a small amount of growth between 1990 and 2015, and low participation counties have declined since that year, populations in both have only increased by about 2% since 1970.  The populations of New York metropolitan area counties have increased by 12% since 1970, and by 18% since 1980.

Employment

Not surprisingly, full and part-time employment as the percentage of the population of low labor participation counties was lower than counties where labor participation was higher.

Low participation counties had lower levels of employment throughout the period than either high participation counties, or counties in the New York metropolitan area.  Significantly, the gap in employment levels between low participation counties and other counties has increased over time – from six to eight percent less in 1970 to 14% to 16% less in 2015.

Income

Average wages and salaries have consistently been highest in counties in the New York Metropolitan area, followed by high participation upstate counties, with low participation upstate counties having the lowest average wages and salaries.  While the difference between low and high participation counties upstate has been relatively constant since 1970 – about 15% – the gap between average wages and salaries in the New York City Metropolitan area and in high participation areas upstate has grown from 7% in 1970 to 24% in 2015.

The Bureau of Economic Analysis income data is average, not median, income.  In contrast, inflation adjusted median incomes have not risen significantly for the past 15 years, and have risen much less than average incomes over the period since 1970.  Median incomes have increased less than average incomes because most real income growth over the past several decades nationally has been received by high income workers, while typical workers have had much smaller income growth.  See, for example, the chart below, from “Distributional National Accounts: Methods and Estimates for the United States,” by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman

Components of Personal Income

Labor income (work related compensation) is a smaller part of personal income in low labor participation counties than in high participation counties upstate and in the New York City metropolitan area, while transfer payments (such as Social Security benefits, medical benefits, veterans’ benefits, unemployment insurance benefits, liability payments for personal injury and corporate gifts to nonprofit institutions)  make up a larger part of personal income in these counties than elsewhere.  Transfer payments are 26.6% of total personal income in low participation counties upstate, compared with only 15.9% in the New York metropolitan area and 19.9% in high participation counties upstate.  Dividends, interest and rent are 14.6% of total personal income in low participation counties, compared with 21.8% in the New York City metropolitan area.

The fact that transfer payments make up more than 26% of per capital personal income in low participation counties compared to 16% in the New York metropolitan area might lead readers to conclude that the amount of government transfer payments per capita is greater in low participation counties  upstate than in high participation counties or in the New York City metropolitan area.  In fact, that is not the case – per capita transfer payment levels per capita differ little.  Instead, they are more important in low participation counties because wage, salary and benefit levels are lower than elsewhere.

Employment

Employment patterns in high and low labor participation counties upstate and in the New York City metropolitan areas differ. Low labor participation counties had much larger percentages of total employment in non-service sector industries and in government.

Employment in service industries was 79% of the total in the New York City metropolitan area in 2015, while in low labor participation counties upstate, service sector employment was only 56% of the total.  Service sector employment in high labor participation counties upstate was 70% of total employment.

Several relatively high paying service industries – information services, financial activities, professional and business services and education and health services were  concentrated in counties in the New York City metropolitan area, with 48% of total employment in the region in 2015. In high participation counties upstate, these industries were also relatively important, having 38% of total employment.  In low participation counties upstate, however, these industries only accounted for 24% of total employment. In contrast, relatively low paying service industries, like trade, transportation and utilities and leisure and hospitality accounted for between 27% and 28% of all employment in each region.

Non-Services related employment (primarily manufacturing and construction) was 19% of the total in low labor participation counties upstate, while it was only 7% of the total in the New York City metropolitan area.  Again, high participation counties upstate were between low participation counties and the New York City metropolitan area on this measure, with 13.2% of total employment in non-service related industries.  Manufacturing was 8.7% of total employment in high labor participation upstate counties, 13.3% in low participation upstate counties, and 2.9% in counties in the New York City metropolitan area in 2015.

In low participation counties in upstate New York, more than one-quarter (25.4%) of all employment is in government, while in the New York metropolitan area, government employment is only 13.5% of the total.  In high participation counties, upstate, government employment was 17% of total employment. Local government employment is a larger part of total employment in low participation counties upstate than elsewhere – 16% of the total.  State government employment is also a larger part of total employment in low participation areas than elsewhere – 8%.

Why is government employment a much larger percentage of total employment in low labor participation counties?  The table above shows that government employment is about the same percentage of the total population in high and low participation counties upstate – between 8% and 9%, while in New York City, government employment is about 6% of the population.  But, the percentage of the population that is employed in the private sector is much lower – 26% in low participation counties upstate, compared with 40% in upstate high participation counties and in counties in the New York metropolitan area.

Overall, total employment in low labor participation counties is only slightly more than one-third of the total population – 35%, compared with nearly half – between 46.4% and 48.5% in counties in the New York City metropolitan area and in high participation counties upstate.

Change in Employment by Industry Sector Since 1970

Low labor participation counties upstate differed from high labor participation counties upstate and those in the New York City metropolitan area in the fact that these counties lost employment between 1970 and 2015.  Employment decreased in these counties by 6.3% during the period.  Employment in the New York metropolitan area increased by 6.7%, while in upstate high participation counties, it increased by 12.2%.

While non-services employment declined slightly less in low labor participation counties in upstate New York than other counties studied — 52% vs. 56% and 66%,  service sector employment grew much more slowly than elsewhere – 26% vs. 35% and 58%.

Employment and Population Change

Employment in low labor participation counties upstate decreased as a percentage of the counties’ populations by 2.9 percent between 1970 and 2015.  In the New York metropolitan area, employment as a percentage of counties’ populations decreased by 2.1%. Only in upstate counties with high levels of labor participation did employment as a percentage of population increase – by 4.1%.

In low participation counties, non-services employment  as a percent of county populations in industries like manufacturing has decreased slightly less than elsewhere – by 7.2% compared with 7.5% and 8.5% between 1970 and 2015, but service sector employment as a percentage of population  in upstate counties with low labor participation grew slower than elsewhere in those years.  In low participation upstate counties, service sector employment as a percentage of population grew by 3.8% compared to 11.9% percent in high labor participation counties, and 6.4% in counties in the New York City metropolitan area.

Per Employee Earnings by Industry

Per employee earnings are the sum of wages and salaries, supplements to wages and salaries, and proprietors’ income divided by employment.  Per employee earnings overall, in the private sector, and in government were lower in low participation counties upstate than they were in counties in the New York City metropolitan area and in high participation counties upstate.  Overall, earnings per employee were 16% lower in low participation counties upstate than in high participation counties upstate.  Compared to counties in the New York City metropolitan area, earnings per employee were 47% lower in low participation counties upstate.

Per employee earnings in the service sector in low participation counties show the greatest weakness compared to high participation counties upstate  (25% lower) and counties in the New York city metropolitan area (58% lower).   Per employee earnings in non-service sector industries, such as manufacturing, in low participation counties upstate were 16% lower than in high participation counties upstate, and 26% lower than in counties in the metropolitan area.  Differences in government earnings per employee between low and high participation counties upstate and counties in the New York City metropolitan area. Per employee earnings in low income counties upstate were 14% lower than in high income counties upstate, and 25% lower than in counties in the New York City metropolitan area.

A closer look at per employee earnings by industry sector in 2015 shows that low labor participation rate counties upstate were at a greater disadvantage to others in some industries than others.  For information services, per employee earnings were 31,536 in low participation counties, compared with 69,604 in high participation counties upstate, and $131,767 in counties in the New York City metropolitan area.  For professional and business services, per capita employee earnings were $39,004 in low labor participation counties upstate, compared with $60,015 in high labor participation counties, and $99,132.  For financial activities, per capita earnings for low participation counties were $48,746, compared with $66,689 in high labor participation counties upstate, and $200,727 in the New York City metropolitan area.  The industries with the greatest differentials between low participation areas and other locations were industries with relatively high per employee earnings.   Industries with lower per employee earnings, like leisure and hospitality and education and health services had smaller differences in earnings per employee between upstate low and high participation counties and counties in the New York metropolitan area.

Conclusions

The data supports the notion that counties with low levels of labor participation have weak labor markets characterized by weak employment growth in service industries that have seen growth nationally, and relatively low earnings per employee in service industries that have comparatively high earnings per employee.  Both of these factors support the conclusion offered in my earlier post on the subject that, “Differences in participation within groups between counties that have low and high labor participation levels at least partially reflect the hypothesis that people have been unable to find jobs and have left the labor force.”  

But, in my earlier post, based on low levels of participation by low skilled workers, I argued that, “The low levels of participation of these groups in low participation counties probably reflect reinforcing factors, like lower average levels of education among minority group members, the decline of manufacturing industries that employed low skilled men, and low levels of demand for workers without college educations in places where there are relatively few jobs available.”  Instead, this data shows that labor market growth in low labor participation counties has been particularly weak in those industries in the service sector, like information, financial services and professional and technical services that have relatively high earnings per employee.

In my earlier post, I concluded that, “The ability of low participation counties in small metropolitan areas and rural locations to create the resources needed to diversify their economies to include occupations that match the qualifications of residents are likely to be limited, because of the significant advantages offered by locations that have larger labor pools.”  The data presented in this post does nothing to contradict that conclusion.  And, because these labor markets are typically small and lack concentrations of workers with skills that are in high demand in growing industries, reversing their decay would present substantial challenges to remedial policy efforts.

Government actions can give residents the opportunity to increase their social mobility, though, even if the way mobility can be achieved is to move to locations with greater opportunities.  In “Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States,” by Raj Chetty, Nathaniel Hedren, Patrick Kline, and Emmanuel Saenz, the authors found that higher mobility is associated with higher quality primary and secondary education, greater family stability, and less income inequality.  But, more economic mobility also is related to geographic mobility from low income locations – those places that had higher levels of economic mobility also had higher levels of out-migration.

In a recent study by Eleanor Krause and Richard V. Reeves, “Rural Dreams, Upward Mobility in America’s Countryside” the authors conclude that several actions could be taken to increase mobility.  These include “increase the number of Advanced Placement courses and improve career and college counseling.” and providing better funding for rural schools.  Another option might be to encourage charter schools to open in low labor participation areas.  Extending the availability of high speed fiber networks could benefit schools that lack access to online curricula, internet-based research and online testing.

Krause and Reeves also point to the need to encourage family stability.  Discouraging teen pregnancy is one approach to helping teens to make decisions that are more likely to lead to stable families with two parents.  Increasing access to long-acting reversible contraceptives is particularly important. They argue,  that residents of rural areas face obstacles to receiving health care that urban residents do not.  “Efforts to reduce these disparities are likely to include the protection or expansion of health coverage (particularly publicly-funded health insurance for low-income families), supporting publicly funded clinics, and promoting the availability of the full range of contraceptive options, including LARCS. School-based health centers and online programs could also help to reduce transportation barriers in more isolated areas. (Of course, online platforms will only prove effective if complemented by expanded access to broadband in some regions.)”




President Trump to Upstate Residents: Move to Wisconsin

Recently, in an interview with the Wall Street Journal, President Trump suggested that upstate New York residents should leave the state for Wisconsin, where a new Foxconn LCD display panel manufacturing plant will be located, creating at least 3,000 jobs.  President Trump said, “I said, you know, Gary, you go to certain sections and you’re going to need people to work in these massive plants that we’re getting, that are moving in. Where do we have the people? You know where we have the people? In New York state that can’t get jobs, in many other places that can’t get jobs. And people are going to have to start moving. They’re going to move to Colorado and they’re going to move to Iowa and Wisconsin and places where – like if Foxconn goes to Wisconsin, which is one of the places they’re very strongly considering – but if Foxconn goes to Wisconsin and they have a very low rate and the governor’s done an excellent job, you’re going to have a situation where you got to get the people. But they’re going to start moving. And I’m going to start explaining to people when you have an area that just isn’t working – like upper New York state, where people are getting very badly hurt – and then you’ll have another area 500 miles away where you can’t – you can’t get people, I’m going to explain you can leave, it’s OK, don’t worry about your house.” Source, “Full transcript: Trump’s Wall Street Journal interview” Politico, August 1, 2017.

It is true that upstate employment performance has been weak, with most upstate metropolitan areas seeing decreases, while a few, like Buffalo, Glens Falls and Albany-Schenectady-Troy had small increases (Source – Bureau of Labor Statistics – Local Area Statistics). Many of the region’s smaller metropolitan areas had relatively large losses:  Binghamton, Elmira and Utica-Rome each lost more than 10% of its population.

On the other hand,   Median household incomes upstate were near the average for rust belt states, and the unemployment rate for upstate counties was the same as the national average in 2016: 4.9% in 2016 (Source: U. S. Department of Labor, Bureau of Labor Statistics, Local Area Unemployment Statistics).

The fact that the average unemployment rate in upstate counties is near the national average shows that the President’s statement, “You know where we have the people? In New York state that can’t get jobs…when you have an area that just isn’t working – like upper New York state, where people are getting very badly hurt,” is unfounded, given that unemployment upstate is no higher than the national average and that median household incomes are near it.  The labor force in upstate New York is stagnant or shrinking in most cases, but few labor force members are unemployed.  Upstate’s problem is not that its residents cannot find jobs, it is that the region’s population and workforce are stagnant or shrinking.

E. J. McMahon, in a recent New York Post op. ed., “Trump’s right, Cuomo wrong about the woes of Upstate” pointed out that many upstate New York counties are losing population.  McMahon argues, “From mid-2010 to mid-2016, nearly 194,000 people moved out of the 50 counties north of the New York City metro region — a net out-migration rate exceeded only by four states. Births and foreign immigrants made up some of the difference, but the total upstate population still dropped by nearly 60,000 people.”  McMahon’s statement is correct – many areas upstate have lost population since 2010 – in fact, 40 of 62 counties in New York State lost population between 2010 and 2016.

New York State is not unique in seeing population declines in some areas.  In Wisconsin, one of the places that the President said “they’re going to move to,” 36 of 70 counties saw population declines between 2010 and 2015.  In Ohio, included for comparison as another rust belt state which claims to have more business friendly policies than New York State, county populations decreased in 62 of 90 counties.

Since counties differ substantially in size within states, a better measure of the economic weakness of an area is the percentage of residents living in counties that are losing population.   In that respect, New York and Wisconsin performed similarly – in 2016, 13.2% of New Yorkers lived in areas with declining populations, while 9.2% of Wisconsin residents lived in declining areas.  In Ohio, 55.5% lived in declining population areas. Reflecting New  York’s regional divide, 61.3% of upstate residents lived in counties with declining populations, while none of the counties in the New York City Metropolitan area had declines.

(Table with full listing of counties is here:)

 

 

 

The data shows that population changes between 2000 and 2015 at the county level within New York, Wisconsin and Ohio varied significantly.  Like New York, Wisconsin and Ohio had counties that had significant population increases, and others that had large losses. Saratoga, Orange and Rockland Counties all had population increases between 2000 and 2016 that were greater than 10%.  New York’s least populous county, Hamilton, lost 15% of its population – a decrease of 834 residents. Wisconsin and Ohio saw similar variations. One county in Wisconsin had a 38% increase, while another lost 16% of its population.  In Ohio,  One county gained 75%, while another lost 10.5%.

“Business Friendly” Policies and Job Growth

E. J. McMahon argues in his New York Post piece that, “Trump, in effect, was simply prodding upstaters to act in their own best economic interests. …So, taxes aside, what advantages does Wisconsin offer over New York?….While Wisconsin Gov. Scott Walker has been an aggressive deregulator, New York’s regulatory climate in general is notoriously hostile to businesses. The 1970s-era State Environmental Quality Review Act, which has no equivalent in most states, hands a potent weapon to anti-development activists.”

Looking at New York, Wisconsin and Ohio from 2000 to 2015,  there is no evidence of consistent differences in performance that would reflect the effect of “business friendly” policies on job growth.  Instead, it shows that population and job growth vary substantially from local labor market to local labor market within New York State, and in Wisconsin and Ohio.  In each state, some areas are suffering, while others are doing relatively well.  New York had by far the strongest job growth overall between 2000 and 2015, but employment growth in New  York’s rural areas was the weakest of the three states.  Wisconsin’s performance was in the middle in both metropolitan areas and non-metropolitan areas, and Ohio’s was weakest in metropolitan areas, but stronger than New York’s in rural areas.

In a recent post, “Government Policies and Job Growth in the Rust Belt,” I showed that the relative performance of metropolitan areas over the rust belt differed substantially across time periods between 1990 and 2015.  If government policies, like “business friendliness” determined the economic performance of regions we would expect to see consistent advantages for states with states with business friendly attributes like low taxes or lax environmental regulation.  But, we do not.

Upstate’s relatively weak economic performance may be attributed to several factors  – most importantly, its past reliance on manufacturing employment.  In 1970, manufacturing employment was more than 40% of the private sector total in the Rochester and Binghamton metropolitan areas, and more than 35% of the total in Buffalo-Niagara Falls.  Today, in these areas, manufacturing employment is about 10% or less of the total.  In contrast, metropolitan areas that have had stronger growth recently, like New York City and the Albany-Schenectady-Troy metropolitan area, were less dependent on manufacturing.

Manufacturing Mega-Projects and Job Creation

Large manufacturing attraction projects, like the Foxconn plant in Wisconsin, the Solar City project in Buffalo,  and Global Foundries near Saratoga Springs cannot, in themselves be successful approaches to significantly improving the employment rate at the state level.

To encourage Foxconn to locate its facility in Wisconsin with a promise to create 3,000 jobs, the state agreed to provide three billion dollars in tax incentives and to waive environmental regulations  to allow Foxconn, without permits, to discharge dredged materials, fill wetlands, change the course of streams, build artificial bodies of water that connect with natural waterways and build on a riverbed or lakebed.Foxconn would also be exempt from having to create a state environmental impact statement, something required for much smaller projects.” Source: The Washington Post, “The Latest: Wisconsin Foxconn deal waives regulations,” July 28, 2017.

Projects that involve expenditures of as much as one million dollars per job are simply too expensive to replicate on a scale that would be large enough to meaningfully change  a regional economy.  New York’s employment was about 9,100,000 in 2016.  Increasing the state’s employment by even one percent – 91,000 – would cost ninety-one billion dollars at the cost of one million dollars per job for recent projects, assuming that enough large new job attractions were possible to enable that large an employment increase.  In fact, most job creation occurs at existing businesses, not at new facilities attracted because of government subsidies, while very few large manufacturing investments take place in a given year.

At the same time, the focus on attracting manufacturing is largely misguided.  Although manufacturing jobs are important, because they have higher average wages than jobs available to people without college educations in other sectors, manufacturing has been hemorrhaging jobs for forty years.  Mostly because of automation and productivity improvements, and less so because of import competition, manufacturing employment has sharply declined in the United States – from 20,000,000 in 1980 to 13,000,000 in 2016.   Between 2000 and 2015, New York lost 239,000 manufacturing jobs, while gaining 1,878,000 service sector jobs.  Ohio and Wisconsin also lost manufacturing employment, while gaining service sector employment. Because the growth of New York’s already strong service sector was particularly large – 25%, the state’s percentage job growth was much larger than the other states.

Because potential job growth continues to be likely to occur almost entirely in the service sector, focusing state resources on attracting manufacturing employment has a high opportunity cost.  Instead, policies and programs to support existing manufacturers in a region can be useful.

Upstate’s relative economic weakness is partly explained by the changing factors that drive location decisions in manufacturing and service industries. For manufacturers, upstate New York is a less attractive location than it once was because of factors including its location relatively far from the country’s population center, relatively high labor costs, difficult environmental permitting processes and relatively small and tight labor markets.  But, because manufacturing provides only about 10% of jobs upstate and nationally, manufacturing employment is a less significant economic driver than employment in other sectors is.

For high value added service industries, upstate New York suffers from relatively shallow labor markets, its relatively low percentages of college graduates compared to places like New York City and Boston, and the increasing concentration of industries in a few large companies headquartered in major cities.  Although the region has some significant strengths in higher education and health care, it has lost a number of corporate headquarters in financial services, because of the increasing concentration of the industry.

None of the problems faced by upstate New York, or for that matter, those parts of Ohio and Wisconsin that have stagnant economies, are easily resolvable.  But, leaders should recognize that the resurgence of these areas will not result from a policy of attracting manufacturing jobs to them – there are just too few opportunities to attract companies like Solar City, Foxconn or Global Foundries, and the cost is exorbitant.  Instead, leaders need to do what they can to anchor the companies in their area that have the potential to grow.  In most cases, those are service industries.  For these businesses, robust labor pools with appropriate skill sets are far more critical than the financial incentives or permitting issues that were critical to attracting large manufacturing facilities.




Economic Stagnation and Electoral Discontent in the Rust Belt

Readers of this blog know that I have been describing changes in employment in New York State and the rust belt associated with the loss of manufacturing employment in the nation.  The loss of 5,500,000 manufacturing jobs since 1970 has slowed employment growth in the region as a whole.  As a result, upstate cities, along with other small and medium sized cities in the rust belt have seen little overall job growth.

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The more significant impact for rust belt residents has been on employee earnings.  Many metropolitan areas in the rust belt saw declining earnings per employee between 1970 and 2014. In one metropolitan area, Flint, Michigan, earnings per employee are nearly 33% lower than they were in 1970.  Ann Arbor, Binghamton, Lansing and Youngstown earnings per employee were more than 10% lower in 2014 than in 1970.

In the most recent presidential election,we saw major shifts in voting patterns in traditionally Democratic voting rust belt states, with Donald Trump, the Republican presidential candidate, making large gains, particularly in smaller cities and rural areas.  His gains have been portrayed as resulting from economic stagnation in the region. Commentators have highlighted the contrast between employment and income growth in more prosperous large, coastal cities like New York and stagnation in smaller communities.

Earnings per Employee

The United States Bureau of Economic Analysis publishes data on employment by industry, along with industry earnings.  The Bureau defines “Earnings ..[to be] the sum of three components of personal income–wages and salaries, supplements to wages and salaries, and proprietors’ income.”

The data shows that while large cities in the rust belt saw significant growth in earnings per employee between 1970 and 2014, employees overall in medium and small metropolitan areas in the region had stagnant or declining earnings during the period. Earnings per employee in the Boston metropolitan area increased from $48,163 to $73,147 (52%) and New York City metropolitan earnings per employee increased by 40% from $55,923 to $78,232.

While large cities prospered, the median increase in real earnings per employee for the 32 Rust Belt metropolitan areas in New York, Massachusetts, Pennsylvania, Ohio and Michigan was only 2.2% over the entire 30 year period. Fourteen of 32 metropolitan areas saw decreases in earnings per employee over the 44 year period. Flint, Michigan had the second highest earnings per employee of the 32 metropolitan areas in 1970, and had the lowest in the group in 2014, decreasing by 33%. Earnings per employee in Youngstown, Ohio decreased from $50,107 to $42,981 – 14.2%.

earnings-per-capita1970-2014

More recently, between 2000 and 2014, growth in earnings per employee in rust belt metropolitan areas between was virtually non-existent, overall – only 0.2%.  Real earnings per employee declined in 15 of 32 metropolitan areas.  Metropolitan areas in Michigan saw disastrous losses in earnings per employee because of problems in the automotive industry – Detroit lost 14%, Ann Arbor lost 17%, and Flint lost more than 24%.

earnings-per-employee20002014

Employment Growth

Although many rust belt metropolitan areas showed employment growth during the 1970 and 2000 period, growth between 2000 and 2014 was much weaker. Between 1970 and 2000, the median metropolitan area goods producing and service providing employment increased by 42%. Cities in the heart of the rust belt, like Grand Rapids and Ann Arbor Michigan showed the largest employment increases, while several metropolitan areas in New York State, including Binghamton, New York City and Buffalo-Niagara Falls lagged.

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During the current century, between 2000 and 2014, median employment growth in rust belt metropolitan areas was only 2.5%.  Twelve of 32 metropolitan areas saw losses in goods producing and service providing employment.  Flint lost nearly 11% of jobs during the period, while Binghamton lost almost 13%.  At the same time, some areas, including New York City, Philadelphia, Boston and Columbus saw employment growth of more than 10%.

employchg20002014

Impact of the Shift from Manufacturing to Services

In some large cities – New York City, Boston and Philadelphia, despite the shift from manufacturing employment to services, earnings per employee have remained high – even increased.   In these cities, earnings per service employee were relatively high in 2014- more than $65,000 in each case.  But in many smaller cities, like average earnings per employee for service sector jobs averaged less than $40,000, compared with $60,000 to $80,000 per employee for manufacturing.  Smaller cities were also harmed by the fact that in most cases, manufacturing employment losses were a higher percentage of total goods producing plus services providing employment.

Overall, rust belt metropolitan areas have seen significant shifts in employment from substantially higher paying manufacturing jobs to lower paying service jobs.  The Syracuse metropolitan area lost 37,800 manufacturing jobs between 1970 and 2014.  Manufacturing jobs in Syracuse averaged $76,700 earnings per employee.  The area gained 134,000 new service sector jobs, averaging $46,200.

 

earnings-employ-impact

For a larger version of this table click here:

Implications

Many parts of the rust belt – particularly small and medium sized metropolitan areas – have not seen the prosperity enjoyed by large cities on the East and West coasts.  Outside the major cities, the growth of real earnings per employee has been insignificant – typically about 2% over the 44 year period.  Between 2000 and 2014 real earnings growth was virtually non-existent.  Worse, 14 of 32 metropolitan areas saw decreases in real earnings per employee.  Between 2000 and 2014, 15 metropolitan areas saw declines.

Employment growth was substantially lower between 2000 and 2014 – typically 2.5% over the 14 year period, than the 42% increase in the 30 year period between 1970 and 2000.  The region has endured a long period of economic stagnation, one that is largely the result of the loss of relatively high paying manufacturing jobs, and their replacement with lower paying service positions.

The primary cause of the lackluster performance of medium and small metropolitan areas in the rust belt was their dependence on manufacturing.  Because manufacturing was a larger share of medium and small rust belt metropolitan areas economies, automation and global markets resulted in larger job losses than in areas with more diversified economies.  In some cases, residents of rust belt metropolitan areas are on average significantly worse off than they were in 1970.  In most other metropolitan areas, earnings have stagnated for decades.

The appeal of a Presidential candidate who promised to “Make America Great Again”, and to address perceived threats to rust belt residents’ well being with simple sounding solutions like imposing tariffs on foreign producers, and by controlling immigration from locations that are perceived to have taken jobs from workers in the rust belt should not be surprising.  In contrast, many rust belt residents found that Secretary Clinton’s theme, “Stronger Together,” and policy positions lacked focus.  The problem for the victorious candidate, however, is that ending the rust belt’s economic stagnation is likely to be more difficult than his proposed solutions suggest.




The Decline of Manufacturing in New York and the Rust Belt

In a recent post I looked at employment changes in New York’s metropolitan areas and compared their performance with other metropolitan areas in the rust belt.  I found that change was inconsistent between cities in each state, and over different time periods.  I argued that industry mix probably was the primary cause of the differing results.

Here, I look at the decline of the manufacturing sector and its impact on employment change in New York State metropolitan areas.  Overall, rust belt metropolitan areas in this study have 4,500,000 less manufacturing jobs today than they did in 1970, compared with 28.4 million private sector workers in that year.  Overall, 1.2 million fewer people were employed in manufacturing in New York State in 2014 than in 1970, equal to 12.8% of the private sector employment total in 1970.  In two metropolitan areas (Binghamton and Utica-Rome), manufacturing job losses were about one-quarter of private sector employment in 1970, while in Buffalo and Rochester the manufacturing losses were about 20% of the total.

The loss of manufacturing jobs created a significant drag on job growth in the rust belt, and explains much of the growth of income inequality in the United States since the middle part of the last century.  Manufacturing jobs provided working class people with relatively high incomes.  Today, the opportunities that manufacturing provided to people with high school educations have sharply declined.

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Rochester provides a good example of the impact of the decline in manufacturing.  The chart above shows that in 1970, 152,000 people in the Rochester worked in industries in the manufacturing sector, with average earnings of $68,000 (in today’s dollars), compared with the regional average private sector earnings of $53,200.  In 2014, 61,800 people worked in manufacturing industries in the area, with average earnings of $74,500, compared with regional average private sector earnings of $51,400.  The loss of nearly 100,000 jobs paying significantly more than the regional average has large impact on Rochester and other rust belt metropolitan areas.

State Level Changes

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In this section, aggregate data for all metropolitan areas each rust belt state is examined.[1]  The data shows that while overall employment change in metropolitan areas was inconsistent over time, that between 1970 and 2014, manufacturing showed a larger decline in New York State than in metropolitan areas in other rust belt states.  New York metropolitan areas have lost 75% of the manufacturing jobs that existed in 1970.  Other rust belt states lost between 35% and 63%.  (Note that in the data, there is a discontinuity between the years 2000 and 2001, reflecting the change from the Standard Industrial Code Classification System and the North American Industry Classification System, which removed some industries from the manufacturing sector. As a result, the long-term data charts and tables exaggerate the change that took place between 2000 and 2001.  For that reason, shorter term charts and tables exclude the 2000-2001 data).

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(In the chart above, blue shaded cells performed better than the median for metropolitan areas)

Dividing that data into periods reflecting economic boom-bust cycles, there were significant differences in the relative performance of manufacturing in state metropolitan areas across economic cycles.  However, manufacturing employment in New York metropolitan areas decreased more than most metropolitan areas in other rust belt states in most periods. Only in the 2007-2009 recession did it outperform the rust belt median.[2]  Between 1970 and 1976, between 1992 and 2000, and between 2001 and 2007 manufacturing employment performance in New York metropolitan areas was the worst of the seven rust belt states.

Because more than two-thirds of New York residents live in the New York City Metropolitan area, the very large decrease in manufacturing employment in that area has had a disproportionate impact on the decline of manufacturing in the state.  But, while upstate metropolitan areas had smaller percentage decreases in manufacturing employment that the New York Metropolitan area, they were more dependent on manufacturing.  As a result, the loss of manufacturing jobs in those areas did more economic harm to them than the losses in the New York City area.

Despite the large losses in manufacturing employment, each metropolitan area in New York State has shown some private sector employment growth since 1970, but the growth has been uneven.  This data also makes clear that changes in manufacturing jobs are not the only factor driving employment change in metropolitan areas.   Because so much employment is now in service sector industries, the performance of industries within the service sector has had substantial effects on the relative ability of metropolitan area employment to withstand the declines in manufacturing employment.

Manufacturing Employment in New York’s Metropolitan Areaspicturea

As in other rust belt metropolitan areas, manufacturing employment in New York State metropolitan areas decreased during most periods.  The patterns of the declines varied, with some metropolitan areas, like Rochester and Binghamton, doing quite well in the 1970’s and 1980’s but going into steep declines in the late 1980’s and 1990’s.  Others, like Utica-Rome performed quite poorly in the 1970’s and 1980’s but performed better than other New York MSA’s in more recent periods.  New York City’s manufacturing employment losses were consistently larger in percentage terms than average.  In all the periods, every metropolitan area in New York State lost manufacturing employment, with the exception of the 2009-2015 period, where Albany-Schenecady-Troy gained 16%, and Buffalo-Niagara Falls gained 3.1%.pictureb1

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While there were losses in manufacturing employment in each metropolitan area in each decade except the present one, the patterns of losses varied.  New York City, Utica-Rome  and Buffalo-Niagara Fall had losses that were greatest between 1970 and 1990.  Binghamton and Rochester saw the largest losses between 1990 and 2010.  Syracuse’s losses were largest between 2000 and 2010.  Employment changes in non-manufacturing sectors in different decades led to sharply varying results.  For example, despite losing 36,600 manufacturing jobs between 1980 and 1990, Buffalo-Niagara Falls had a net gain of 48,400 jobs during the period, because non-manufacturing employment increased by 85,000.  From 2001 to 2010, Buffalo-Niagara Falls lost 30,600 manufacturing jobs, but gained only 24,600 non-manufacturing jobs.  As a result, the area lost private sector employment in that decade.  Rochester and Syracuse also performed well during the 1970 to 1990 period but did poorly during the first decade of this century.  In contrast, The New York City metropolitan area lost employment during the 1970’s, but has steadily gained strength since then.

Since 2001, two New York metropolitan areas have shown significant private sector employment growth – New York City and Albany-Schenectady-Troy.  Buffalo, Rochester and Syracuse did not do well between 2001 and 2010, but showed significant recoveries from 2010 to 2014.  Binghamton and Utica-Rome had employment losses in the 2001 to 2014 period.

Percentage of Private Sector Employment in Manufacturing

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Overall, 1.2 million fewer people were employed in manufacturing in New York State in 2014 than in 1970, equal to 12.8% of the private sector employment total in 1970. New York’s metropolitan areas each had substantial declines in manufacturing employment between 1970 and 2014.  Binghamton lost the highest percentage (26.66%) of manufacturing jobs compared with its private sector employment in 1970.  Albany-Schenectady-Troy, which lost 8.1%, was the least affected.

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Over the 44-year period between 1970 and 2014, manufacturing employment in New York State metropolitan areas both declined and converged.  Four metropolitan areas had significantly higher percentages of manufacturing employees compared to private sector employment in 1970 than the rust belt average:  Binghamton, Buffalo-Niagara Falls, Rochester, and Utica-Rome.  In 1970, more than four of ten private sector employees in the Rochester and Binghamton metropolitan areas were in manufacturing.  More than 35% worked for manufacturers in Buffalo-Niagara Falls and Utica-Rome.  Each of these metropolitan areas had larger decreases in the percentage of manufacturing employment than the average.  New York, and Albany-Schenectady-Troy had the lowest percentages of manufacturing employment in 1970 – 21.5% and 24.7% respectively, and had the smallest long-term declines – 18.7% and 19%. Note, however, that when metropolitan areas with similar concentrations of manufacturing employment are compared (see below), much of the difference in performance between New York metropolitan areas and other rust belt locations disappears.

In 2014, the areas with the highest percentages of manufacturing employment – Binghamton and Rochester – had only 11.4% and 10.9%. Only 2.9% of private sector employees in the New York metropolitan area and 5.8% of those in the Albany-Schenectady-Troy metropolitan area were employed in Manufacturing.  By 2014, only Binghamton, Rochester and Buffalo-Niagara Falls had higher percentages of manufacturing employment than the rust belt average.  The percentage of manufacturing employment in these two metropolitan areas exceeded the rust belt average by less than 2%, compared with 7% to 9% in 1970.

pictureng

Manufacturing and private sector employment change each varied substantially from decade to decade, but the relationship between the two was not constant.  Clearly, the decade from 2001 to 2010 was the worst decade for employment change in upstate New York, both for the private sector and for manufacturing.  On the average, more nearly one-third of manufacturing employees were lost during that decade, while overall, private sector employment declined by 1.7% on average.  From the perspective of manufacturing employment, 1980 to 1990 was the second worst decade in the period, but private sector employment had the second highest growth of the five time periods.  Rochester and Syracuse had the strongest private sector growth between 1970 and 1990, but showed little growth after 2000. New York City’s employment growth was the weakest in the state between 1970 and 1990 but among the strongest since 2001. 

Decreases in Concentration of Employment in Manufacturing Industries  

picturerrOverall, metropolitan areas[3] in the rust belt that had relatively greater percentages of private sector employment in manufacturing in 1970 lost a greater share of manufacturing employment than other areas with lower initial manufacturing employment concentrations. The data shows that metropolitan areas in New York State performed similarly to others with similar concentrations of employment in manufacturing industries. Buffalo, Rochester, Binghamton and Utica-Rome had both the highest concentrations of manufacturing employment and the greatest declines in the share of private sector employment in manufacturing.

picture1ss

Between 2001 and 2014, the relationship between manufacturing’s share of private sector employment and the decline in the manufacturing share of employment was weaker, but still present.  In general, areas that had higher concentrations of manufacturing employment in 2001 had greater decreases in the concentration of manufacturing employment than those with lower concentrations.  Once again, metropolitan areas in New York State generally performed in a similar manner to those in the rust belt outside New York having similar concentrations of manufacturing employment.

The data in both periods points to the steep decline in manufacturing employment from an average of more than three in ten private sector jobs to an average of one in seven.  With the decline came a convergence of manufacturing employment in metropolitan areas, with the range in the percentage of private sector employment in manufacturing ranging from about 20% to 40% in 1970, compared with 5% to 20% in 2014. 

Decreases in Manufacturing Employment and Concentration of Employment in Manufacturing Industries

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Here, the percentage decrease in manufacturing employment is compared with the initial share of private sector employment in manufacturing industries.  The data shows little relationship between these two factors.  Over the 1970-2014, and in the 2001 to 2014 period, metropolitan areas in New York State performed relatively poorly compared to others in the rust belt.  However, over the more recent period from 2001 to 2014, New York metropolitan areas, other than New York City saw percentage decreases in manufacturing employment that were closer to other rust belt cities with similar concentrations of employment in manufacturing.

picture1zzManufacturing Employment Concentration vs. Private Sector Employment Change 

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In this section, the percentage of total private sector employment in manufacturing industries is compared with private sector employment change.  Between 1970 and 2014 overall, Albany-Schenectady-Troy had better performance than metropolitan areas with similar concentrations of manufacturing employment in 1970.  Syracuse and Rochesster were near the average.

picturedildo

Most metropolitan areas in New York State performed better in the 2001 -2014 period relative to other rust belt metros than they did in the longer term period, Binghamton being a notable exception.  The New York City metropolitan area had the best job creation performance of the rust belt metropolitan areas studied. Note also that the charts above show that when New York’s metropolitan areas are compared with other rust belt areas with similar concentrations of manufacturing employment, much of the apparent worse employment performance of New York metropolitan areas described in an earlier section disappears.

Over the 1970 to 2014 period, percentage decreases in manufacturing employment did not show an association with private sector employment change for the rust belt . However, metropolitan areas in New York State performed somewhat differently:  Areas with higher concentrations of manufacturing employment in 1970 showed less private sector employment growth than those with lower concentrations.  Similarly, in 2014, for the rust belt overall, there was not a significant relationship between the concentration of employment in manufacturing industries and private sector growth.  In that period, in New York State, areas with lower concentrations of manufacturing had greater private sector growth.   New York City had the greatest percentage growth in private sector employment during the period along with a low percentage of manufacturing employment.  Albany-Schenectady-Troy was another metropolitan area with relatively little manufacturing employment in 2001 and relatively high private sector employment growth.
  

Implications 

Since 1970, New York and the rust belt region have seen a substantial transition from high concentrations of manufacturing employment to lower ones.  In 1970, one third of all private sector jobs in the rust belt outside New York State, and more than 40% of private sector jobs in Rochester and Binghamton were in manufacturing.  In 2014, manufacturing employment in New York State metropolitan areas ranged from 2.8 to 11.4% of private sector jobs.  Since 2010, manufacturing employment has levelled off.  Whether this is a lasting change or a temporary stabilization after the very large manufacturing employment losses between 2000 and 2010 is not known.

This data shows that much of New York’s relatively large manufacturing employment loss resulted from the fact that a number of upstate cities had higher concentrations of manufacturing than average for the rust belt.  In New York, unlike metropolitan areas elsewhere in the rust belt, private sector employment growth appeared to be negatively related to the level of employment in the manufacturing sector.

All of the metropolitan areas in the rust belt were hurt by technological change, factory automation and the movement of manufacturing off-shore.  These trends reflect the continuing attempt of manufacturers to cut costs to be competitive.  In addition, the New York and the rust belt are no longer as good location to serve markets as they were when manufacturers in the United States primarily served domestic markets.  For those manufacturers that find it advantageous to serve domestic markets from the United States, the center of population has continued to move South and West.

Manufacturing employment losses in New York State had differing causes.  In Rochester, Kodak was initially threatened from foreign competition by Fuji, then saw its cash cow (film production) killed by the introduction of digital cameras.  In Syracuse, New Process Gear was closed by Fiat/Chrysler because of high labor costs.  Production continued at factories in Indiana and Tennessee, locations with lower labor costs and better geographic locations.  Carrier moved production of air conditioners from Syracuse to Tennessee, Texas, and Indiana (now being transferred to Mexico) for the same reasons.

Given transportation costs, the need for quick delivery of some products, and in a few cases technological leadership, some manufacturing continues in the United States.  In the competition to retain manufacturing, New York may continue to be handicapped by its location in the Northeast, its relatively high labor costs, and congestion in the New York metropolitan areas.

Future losses of manufacturing jobs have a smaller potential to harm regional economies because manufacturing employment is now only a small portion of private sector employment in the rust belt and New York State.  But, the loss of millions of relatively high paying jobs in manufacturing industries has had significant negative consequences for New York and rust belt metropolitan areas.

In New York, the decline of manufacturing has been a cause of private sector employment declines in places like Binghamton and Utica-Rome, and slow growth in Rochester, Syracuse and Buffalo-Niagara Falls.  And, though employee earnings are not the primary subject of this post, data from Rochester showed that the loss of 93,000 manufacturing jobs contributed to the stagnation in average private sector earnings in that metropolitan area, as well as greater earnings inequality.

In future posts I will examine employment change in service industries, and implications for metropolitan area wages.

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[1] The data for this post is from the Economic Profile System at www.headwaterseconomics.org  and the U. S. Department of Commerce, Bureau of Economic Accounts, Regional Economic Accounts.

[2] Periods were broken between 2000 and 2001 because of the change from the SIC to NAICS classification system, which creates a discontinuity because of changes in firms classified as manufacturers.

[3] Metropolitan areas included in rust belt comparison:  Illinois:  Champaign-Urbana, Chicago, Peoria, Rockford, Springfield; Indiana:  Elkhart, Evansville, Fort Wayne, Gary, Indianapolis; Massachusetts:  Boston, Springfield, Worcester; Michigan:  Ann Arbor, Detroit, Flint, Grand Rapids, Kalamazoo, Lansing; New York:  Albany-Schenectady-Troy, Binghamton, Buffalo-Niagara Falls, New York City, Rochester, Syracuse, Utica; Ohio:  Akron, Canton, Cincinnati, Cleveland, Columbus, Dayton, Toledo, Youngstown; Pennsylvania:  Allentown-Bethlehem-Easton, Erie, Harrisburg, Lancaster, Philadelphia, Pittsburgh, Reading, Scranton-Wilkes-Barre, York.