Economic Report on the Philadelphia Metropolitan Area, 1985 [Reprint 2016 ed.] 9781512818932

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Economic Report on the Philadelphia Metropolitan Area

1985

Economic Report on the Philadelphia Metropolitan Area

1985

Anita A. Summers and Thomas F. Luce T h e Wharton School T h e University of Pennsylvania

University of Pennsylvania Press I'MII.ADKI-1'ΗΙΛ

Prepared for ihe Samuel S. Fels F u n d , the Greater Philadelphia First Corporation, and the William Penn Foundation. Copyright C- 1985 by the University of Pennsylvania Press All rights reserved

Library of Congress (jtaloging-in-Publication Data S u m m e r s . Anita A. Economic report on the Philadelphia metropolitan area. 1985. 1. Philadelphia Metropolitan Area (Pa. ι—Economic conditions. I. Luce, T h o m a s F. II. Title. HC108.P5S86 1985 330.9748Ί1043 85-16464 ISBN 0-8122-1212-6 Printed in the United States of America

Contents

Preface and Acknowledgments

One

Two

Three

Page vii

Introduction

1

History of the VC'harton Philadelphia Economic Monitoring Project Objectives of the Economic Report Methods and Data Methods Selection of comparison groups Data Outline of the Report

1 2 3 3 3 4 5

Overall Economic Trends in the Philadelphia Area

7

Overall Economic Trends, 1952-1983 Accompanying Population Trends, 1950-1980 Changing Industrial Structure T h e 1984 Story

7 8 9 9

Relative Strengths of Industrial Sectors in the Philadelphia Area 13 Relative Employment Growth by Sector Within the Metropolitan Area Growth rates by major sectors Employment growth rates in selected industries Components of employment change in selected industries Area Employment Growth Relative to the Nation T h e business cycle in the region and the nation Employment growth rates by major sectors Components of employment change by major sectors Trends in employment growth rates Area Share of National Employment Demand from Outside the Metropolitan Area Sensitivity of Metropolitan Area Industries to the National Business Cycle Philadelphia Employment Growth Relative to Other Metropolitan Areas Employment growth rates by major sectors Components of employment change by major sectors Trends in employment growth rates Multiplier Effects in the Metropolitan Area Summary: T h e Strong Industrial Sectors

13 14 14 22 25 25 26 26 30 30 32 35 37 37 39 40 40 43

Coa tents

vi

Four The Economic Environment of the Philadelphia Area

Five

47

Labor Costs Manufacturing Services Cost of Living Unionization Tax Burden Amenities Availability of Venture Capital Condition of the Infrastructure Office Space Costs State Economic Development Efforts Intergovernmental Fiscal Assistance Strength of the U . S . Dollar S u m m a r y : T h e Economic Climate

48 49 52 54 55 57 59 61 63 65 66 67 70 71

Executive Summary

73

Overall Economic T r e n d s Strengths in Industrial Sectors Economic Environment

73 74 75

Appendix A .

Bibliography

79

A . l Statistical Bibliography A.2 General Bibliography

79 81

A p p e n d i x B:

86

B.l B.2 B.3 B.4 B.5

Description of Empirical Procedures and Data

E m p l o y m e n t Growth Rates and Cyclical Sensitivity Philadelphia smsa I n p u t - O u t p u t Estimation Procedures C o m p o n e n t s of E m p l o y m e n t Change Labor Cost Indexes for Manufacturing and Services E m p l o y m e n t Growth Regression Analysis

86 87 90 92 96

A p p e n d i x C:

Comparative Data for Large U.S. smsas

101

Appendix D:

Philadelphia smsa Economic Statistics

118

Preface and Acknowledgments An ongoing i n d e p e n d e n t economic monitoring process has b e e n initiated in the Philadelphia region with the support of the Samuel S. Fels F u n d , the Greater Philadelphia First C o r p o r a t i o n , and the William P e n n F o u n dation. T h i s is the first of the planned reports on the area's e c o n o m y . It concentrates on identification of the region's major industrial s t r e n g t h s and assesses the factors that contribute to or hinder the region's economicg r o w t h . S u b s e q u e n t reports will address other relevant issues in the regional e c o n o m y . D e n n i s J. Clark of the Fels F u n d , Ralph R . W'idner of the Greater Philadelphia First C o r p o r a t i o n , and Helen A. Davis of the William P e n n F o u n d a t i o n have been invaluable supporters of the efforts. Vie are indebted to Janet R o t h e n b e r g Pack for her meticulous and critical reading of the d r a f t , and for her cheerfulness in m a k i n g time available to review our work as sections were completed. T h e s u p p o r t efforts of our research assistants were r e m a r k a b l e in quality and spirit. Michael E. C h e r n e w was talented in ferreting out d a t a , using the c o m p u t e r , and analyzing the results. Benjamin Reich was our c o m p u t e r w h i z — a l l we had to d o was say we couldn't figure out h o w to d o s o m e t h i n g , and he rose to the occasion with zest. T a m e l a B. Thornton b r o u g h t her experience on a similar project in Cleveland to o u r s , a n d was a steady source of assistance. Jeffrey H . Smith and H e n r y A. Eskin came on the project for the two m o n t h s preceding the final d r a f t , a n d were insightful, knowledgeable, and accurate. W e are grateful for their willing participation in the late night and weekend sessions. Gregory G e r u s o n provided us with a good deal of conscientious assistance in assembling the Statistical A p p e n d i x a n d in putting together the b a c k g r o u n d material for C h a p t e r 4. Janusz M . Szyrmer w o r k e d for m a n y m o n t h s in translating the inputo u t p u t data f r o m the Regional Science Research Institute into a useful set of regional data. H e is a scholar in the field, and his w o r k had all the characteristics associated with that label. Michael L. Lahr assembled the data on the c o m p o n e n t s of e m p l o y m e n t changes, and w o r k e d to m a k e sense of a data set that was replete with p r o b l e m s . Roberta E . Fallon, our administrative assistant, kept us marvelously organized. She a n d her word processor saw us t h r o u g h the m a n y drafts. In the last week, Caroline K . M c C a r t h y provided invaluable assistance in picking u p all the loose e n d s on her word processor. Michael S. F o g a r t y , director of the Regional E c o n o m i c Issues Prog r a m in Cleveland, was a regular source of counsel and i n f o r m a t i o n . H e supplied us with a substantial data set and was always available to discuss a r e a s of m u t u a l i n t e r e s t . H e o r g a n i z e d an excellent c o n f e r e n c e in Cleveland that provided a f o r u m for discussing w o r k in progress. W e are

vili

Preface and Acknowledge» ts also appreciative of James L . Medoff for supplying us with his yet unpublished data on unionization rates, and George Peterson for sharing his forthcoming data on infrastructure conditions. Finally, we wish to thank the Oversight Committee of the Economic Development Coalition, an affiliate of the Greater Philadelphia First Corporation, for their advice and counsel. John M . L . Gruenstein was an admirable chairperson, providing both critical comment and support. A. A . S. and T . F. L

One

Introduction This is the first report of a planned series of objective assessments of the e c o n o m i c climate in the Philadelphia region. A l t h o u g h n u m e r o u s worthy one-time economic analyses have been undertaken in urban areas in response to problems of immediacy, very few studies have provided the consistent monitoring that is essential to strategic economic planning and avoidance of fiscal crises. This series is designed to provide the Philadelphia region with ongoing, independent economic monitoring.

HistOiy of the WhartOB Philadelphia Economic Monitoring Project

T h e idea for this series of reports arose from the perceived desirability of pulling together the existing economic data in the Philadelphia region with research done at the University of Pennsylvania. A model for doing this was developed by the Rand Corporation for its economic assessment of the Cleveland area, and corporate and foundation funding enabled the Philadelphia project to proceed. T h e r e are several major organizations in the Philadelphia region that contribute to the economic information of the area, apart from the economic analyses done by local government agencies as they plan their budgets and economic development activities. T h e urban section of the research department of the Federal Reserve Bank of Philadelphia has, over the last 15 years, published a significant number of analytic articles on fiscal and economic development aspects of the region. This bank and the Federal Reserve Bank of Boston were early participants in regional economic work in the Federal Reserve System. T h e Pennsylvania Economy League has a long-term presence in the region, issuing regular reports involving scrupulously developed data comparing this city with other cities and regions. T h e Delaware Valley Regional Planning Commission, which is the Bureau of the Census depository for the region, has been the leading group in assessing and developing the infrastructure requirements of the Philadelphia area. T h e planning commissions of the city and the surrounding counties are involved with balancing the residential and industrial development of their areas. T h e Institute for Public Policy Studies at Temple University does a great deal of analysis and highly refined processing of area data. T h e concept behind the Wharton Philadelphia Economic Monitoring Project is to pull together and summarize the regional economic research conducted by the University of Pennsylvania and that of other area groups. T h e objective is to provide the Philadelphia area, and those interested in the region, with regular, encompassing appraisals of the Philadelphia area economy. A model for this effort was suggested by an economic monitoring program in the Cleveland region, funded by the Cleveland Foundation. In December 1980, the Rand Corporation began a large-scale assessment

2

Economic Report on the Philadelphia Metropolitan Afta, 1985 of the Cleveland economy. T w o years later, when the first report was p u b l i s h e d , the desirability of establishing ongoing monitoring was apparent. T h a t effort, now identified as the Regional Economic Issues Program, was first based at Cleveland State University and is now based at the Federal Reserve B a n k of Cleveland. Several funding entities in this region were responsive to the idea of mounting a similar effort here. T h e Samuel S. Fels Foundation gave the first vote of confidence with some initial funding; the Greater Philadelphia First Corporation provided more than two-thirds of the funding for this first report; and the William Penn Foundation provided supplementary funding for this report and full funding for the next two years' volumes. Additional resources in the form of large data sets were given to us by Interactive Data Corporation and the Cleveland Regional Economic Issues Program. T h e Mellon Foundation supported a University of Pennsylvania interdisciplinary seminar series on " T h e Future of Cities," which provided a forum for discussion of the project. United Parcel Services provided some computer support as part of their interest in stimulating the use of computers in educational institutions. Indebted to all of the above, the Wharton Philadelphia Economic Monitoring Project started up on J u n e 1, 1984.

Objectives of the Economic Report

T h e older midwestern and northeastern metropolitan areas of the United States have shared a common sense of malaise in the past 2 0 - 2 5 years, much of it based on economic stress. T h e Philadelphia region has, of course, been part of this group. Like analogous areas, it has lobbied for larger state and federal grants and has engaged in local economic development incentive efforts. Questions relating to the economic future of Philadelphia hinge on how business, government, and labor will accommodate to long-term economic and demographic trends and to their associated transitional problems. T h e identification of these trends, their underlying factors, and the realistic options for responding to them are essential to any serious attempt at strategic planning for the area. T h e substance o f this report focuses on a major economic policy objective in urban areas—maximizing employment. T h i s report is intended to encourage informed discourse within the public sector, within the private sector, and between the two. T h e target groups that might find its analysis and data helpful are • Local elected and appointed government officials who need impartial economic appraisals as a basis for realistic estimates, legislative proposals, allocations of scarce local economic development funds, and representations of the area's interests in Harrisburg and Washington; • Businesses in the area that need economic support for their local operating decisions and as a basis for testimony to congressional

Introduction

i

c o m m i t t e e s on such issues as state and local tax deductibility, investment tax credits, and free enterprise zones;

Methods and Data

•

Financial institutions that require objective assessments of the economic strength of an area for such investments as large-scale real-estate development and municipal b o n d s ;

•

N e i g h b o r h o o d organizations that usually cannot afford to purchase economic advice, though it is relevant to m a n y of their policy interests;

•

Local news m e d i a , which are responsible for the economic literacy of our citizens, but which do not have the time and resources to examine the region's economic issues in d e p t h ;

•

Civic organizations (such as the Greater Philadelphia First C o r p o r a t i o n , the Greater Philadelphia C h a m b e r of C o m m e r c e , and the United VCay) that now have to search out economic information because it is not readily available in one place;

•

Specialists in u r b a n economic affairs here and in other regions who might find this both a useful h a n d b o o k of comparative regional data and an example of economic monitoring to be applied elsewhere.

T h e economic assessment of a region requires the development ol extensive and detailed local and nationwide data bases, and the evaluation of long-term patterns without u n d u e emphasis on recent events.

Methods T h e general m e t h o d used in this report was a comparative analysis of e m p l o y m e n t patterns by industrial sector and of the factors underlying those patterns. T e c h n i q u e s employed included simple comparisons of c o m p o u n d growth rates, regression analysis, input-output analysis, and the development of labor cost measures and comparative m e a s u r e m e n t s of the economic climate.

Selection of comparison groups C o m p a r i s o n s were made (1) within the Philadelphia Standard Metropolitan Statistical Area ( S M S A ) , (2) with the largest 20 SMSAS in the c o u n t r y , and (3) with the United States as a whole. Some comparisons were m a d e with 78 other SMSAS. T h e SMSA is an appropriate unit for analyzing e m p l o y m e n t patterns. It reflects the definition of a labor market area given by the U . S . Office of M a n a g e m e n t and Budget: " . . . a geographic area consisting of a large population nucleus together with adjacent c o m m u n i t i e s having a high degree of economic and social integration with that nucleus" (U.S. Office of Information and Regulatory

4

Econoaic Report on the Philadelphia Metropolita· Arca, 1985

Affairs, 1983, p. 1). For this region, the SMSA encompasses eight counties: Bucks, Chester, Delaware, M o n t g o m e r y , and Philadelphia in Pennsylvania, and Burlington, C a m d e n , and Gloucester in N e w Jersey. T h e comparison g r o u p composed of the 20 largest SMSAS in the United States, selected on the basis of 1980 e m p l o y m e n t levels ( f r o m the 1980 Census), was used for most of the comparative analyses. T h e g r o u p composed of the 90 largest SMSAS in the country (based on 1980 population) and 8 smaller Pennsylvania SMSAS for which relevant data were available over a reasonable time period was used for some of the u n d e r lying statistical a n a l y s e s . T h e 8 P e n n s y l v a n i a SMSAS i n c l u d e d H a r risburg, York, Lancaster, Reading, Erie, Johnstown, Altoona, and Williamsport. T h e 98 SMSAS are listed in A p p e n d i x C , T a b l e C . l .

Data T h e data compiled for this study are extensive. T h e sources are listed in the Statistical Bibliography (Appendix A . l ) . Several of the very large or not readily available data sets warrant special attention. Employment Data: F o r the comparative analysis of e m p l o y m e n t patterns across SMSAS, the Bureau of Labor Statistics' (BI.S) time series of e m p l o y m e n t based on establishment survey data was collected for each of the 98 SMSAS and for the nation. Collection of the e m p l o y m e n t data for the 1972-1983 time period was facilitated by a grant to the W h a r t o n School f r o m Interactive Data Corporation. Early releases of the revised 1983 and 1984 data were provided by the Mid-Atlantic Regional Office of the BI.S located in Philadelphia. Pre-1972 data were also collected for the Philadelphia SMSA and the nation. F o r more in-depth analysis of e m p l o y m e n t trends within the Philad e l p h i a SMSA, c o m p i l a t i o n s of e m p l o y m e n t by t h r e e - d i g i t S t a n d a r d Industrial Classification (sic) codes for the five Pennsylvania counties in the SMSA were acquired f r o m the Institute for Public Policy Studies, T e m p l e University. T h e s e more disaggregated e m p l o y m e n t files were compiled f r o m firm level data, collected by the Office of E m p l o y m e n t Security (OHS) of the Pennsylvania D e p a r t m e n t of Labor and Industry for the period f r o m the first q u a r t e r of 1971 to the second q u a r t e r of 1983. P r o b l e m s relating to consistency of the data across years existed in both of these e m p l o y m e n t data sets. Changes in both the definition of industries and the geographic borders of SMSAS in the comparison g r o u p occurred d u r i n g the years covered in the data. Because major changes in SIC definitions of industries occurred in 1972, the comparative analysis across SMSAS was confined to subsequent years, for which consistent time series are available. W h e n Philadelphia SMSA or national data were used for years prior to 1972, care was taken to select time periods that avoid these definitional p r o b l e m s . M o r e complete descriptions of the employment data are provided in A p p e n d i x e s B.l and B.3.

Introduction

5

Components of Employment Change: Compilations m a d e f r o m the U . S . Establishment and Enterprise Microdata ( i s k h m ) set were used for the comparative analysis across s m s a s of e m p l o y m e n t changes due to firm births and deaths and of those due to expansions and contractions of existing firms. l s h h m is a data base developed by the Brookings Institut i o n , with f u n d i n g f r o m the Small B u s i n e s s A d m i n i s t r a t i o n ( U . S . D e p a r t m e n t of C o m m e r c e ) . It is based on the D u n and Bradstreet d u n s M a r k e t Identifier files for 1976, 1978, 1980, and 1982. Compilations for our comparison g r o u p of 98 s m s a s broken out by 72 two-digit s i c code industries and several three-digit industries were made available by the Regional Economic Issues Program at the Federal Reserve Bank of Cleveland. For the intra-sMs.\ analysis of the c o m p o n e n t s of e m p l o y m e n t c h a n g e , data compiled by the Institute for Public Policy Studies, T e m p l e University, from the firm level oi;s data were used. As with the oi:s e m p l o y m e n t data, the c o m p o n e n t s data cover only the Pennsylvania portion of the s m s a . Descriptions of the ι sm .w and oi;s c o m p o n e n t s data are provided in A p p e n d i x B.3. Labor Cost Data: T h e data for the relative wage and labor productivity comparisons in m a n u f a c t u r i n g are from the 7967, 7977, and 1982 Census of Manufacturing, Bureau of the Census. Estimates of s u p p l e m e n t a r y (nonwage) income were also developed for 1977 f r o m the same source. Because of the late release of the 1982 Census of Manufacturing, the labor cost data for most of the s m s a s in the comparison g r o u p were not available. Labor cost indexes for selected services industries were compiled f r o m the 7967 Census of Business and the 1977 and 1982 Census of Services, Bureau of the Census. Because the industries covered vary a m o n g the three years, most of the analyses in this report are limited to the six sectors that appear in all three of the census years. Data for all three years are for payroll per year per employee and include only wages and salaries. A description of the m e t h o d s used to c o m p u t e the relative labor cost and productivity indexes is provided in A p p e n d i x B.4. Input-Output Data: Various input-output multipliers were c o m p u t e d f r o m a 492-sector regional input-output table constructed f r o m data a c q u i r e d f r o m the R e g i o n a l Science R e s e a r c h I n s t i t u t e . T h e Philadelphia s m s a table was estimated f r o m 1977 national input-output data and s m s a data for 1981. A description of the data and model is provided in A p p e n d i x B.2.

Outline of the Report

T h e general plan of this report is to describe the broad sweep of economic developments in the Philadelphia region, identify the relatively competitive industries, identify strengths and weaknesses in the economic

6

Ecoooaic Report on the Philadelphia Metropolitan Area, 1985

climate of the region, give a s u m m a r y assessment, provide some comparative SMSA data, and provide the basic economic data for the Philadelphia SMSA. C h a p t e r 2 describes the overall economic trends in the region f r o m 1952 to date. C h a p t e r 3 establishes and applies a n u m b e r of measures of the relative strength of regional industries, s u m m a r i z i n g the results in a matrix that highlights Philadelphia's most competitive industries. C h a p ter 4 considers eleven characteristics of the region's economic environment that are regarded as relevant to e m p l o y m e n t growth. T o the extent possible, the economic climate of the Philadelphia SMSA vis-à-vis other regions is assessed and s u m m a r i z e d in a matrix. Chapter 5 is an executive s u m m a r y of the report. T h e Appendixes contain the sources, techniques, and m u c h of the data underlying the tables in the text. T h e y also contain general data on the Philadelphia SMSA. A p p e n d i x A provides a detailed bibliography of the statistical and general sources. A p p e n d i x Β describes the m a j o r empirical procedures used in the analyses. A p p e n d i x C is a rich source of comparative data on other SMSAS in the United States. A p p e n d i x D contains m u c h of the publicly available economic data for the Philadelphia S M S A , broken down by county w h e r e possible.

Two

Overall Economic Trends in the Philadelphia Area D u r i n g t h e last q u a r t e r of a c e n t u r y , the P h i l a d e l p h i a a r e a ' s d e m o g r a p h i c a n d e c o n o m i c c h a r a c t e r i s t i c s have b e e n s h a r e d b y m o s t of the n a t i o n ' s smsas w i t h l a r g e u r b a n c o r e s — d e c e n t r a l i z a t i o n of p o p u l a t i o n a n d e m p l o y m e n t w i t h i n t h e smsa, relatively s l o w e r e c o n o m i c g r o w t h t h a n t h e rest of t h e c o u n t r y , a n d d e c l i n i n g m a n u f a c t u r i n g sectors. T h e evid e n c e of t h e last few y e a r s , h o w e v e r , s u g g e s t s that P h i l a d e l p h i a h a s b r o k e n o u t of m o s t of t h e s e d o w n w a r d p a t t e r n s , that a c c o m m o d a t i o n s to a n u m b e r of u n d e r l y i n g f a c t o r s have t a k e n p l a c e , a n d that t h e r e g i o n a l e c o n o m y is f u n d a m e n t a l l y m o r e r o b u s t .

Overall Economic T r e n d s ,

1952-1983

T h e net e m p l o y m e n t g r o w t h of the e n t i r e P h i l a d e l p h i a region a v e r a g e d less t h a n 1% p e r y e a r b e t w e e n 1952 a n d 1983, b u t t h e d i f f e r e n c e s in s t r e n g t h b e t w e e n t h e city a n d t h e rest of t h e smsa w e r e s u b s t a n t i a l . T h e m o v e m e n t of e m p l o y m e n t f r o m the city to t h e s u b u r b s is reflected in t h e d a t a in T a b l e 2.1: the city e x p e r i e n c e d actual d e c l i n e s ( n e g a t i v e g r o w t h

Table

2.1

AVERAGE ANNUAL EMPLOYMENT GROWTH RATES: PHILADELPHIA SMSA, 1952-1984

T o t a l SMSA Philadelphia City R e s t of SMSA United S t a t e s

1952. , -1972

1972... -1983

1.02% -0.54 3.24 2.13

0.61% -1.49 2.29 1.83

1983, -1984(b) 3.25% 1.31 4.47 4.46

SOURCE: WPQIP a n a l y s i s b a s e d on d a t a from Employment and E a r n i n g s , S t a t e s and A r e a s , Bureau of Labor S t a t i s t i c s , U.S. D e p a r t m e n t of L a b o r ; and County B u s i n e s s P a t t e r n s , B u r e a u of t h e C e n s u s , U.S. D e p a r t m e n t of Commerce. ( a ) T o t a l SMSA g r o w t h computed from Employment and E a r n i n g s , S t a t e s and A r e a s , Bureau of Labor S t a t i s t i c s . Philadelphia C i t y and R e s t of SMSA employment f o r 1952 computed f r o m t o t a l SMSA employment and c o u n t y employment s h a r e s f r o m County B u s i n e s s P a t t e r n s , 1951. ( b ) Computed f r o m Employment and E a r n i n g s . 1983-84 growth r a t e s w e r e computed u s i n g d a t a r e b e n c h m a r k e d i n 1984.

8

Economic Report on the Philadelphia Metropolitan Atta, 1985

rates), w h i l e t h e s u r r o u n d i n g c o u n t i e s s h o w e d s t r o n g p o s i t i v e g r o w t h rates. T h e e m p l o y m e n t g r o w t h that o c c u r r e d in this r e g i o n d u r i n g the last 30 y e a r s o c c u r r e d o u t s i d e t h e city. T h e r o b u s t n e s s of this g r o w t h is f u r t h e r d o c u m e n t e d b y t h e relatively h i g h g r o w t h rates in t h e s u b u r b a n r i n g relative to t h o s e of t h e n a t i o n ( T a b l e 2.1). T h e i m p l i c a t i o n s of t h e p a t t e r n a r e c o n s i d e r a b l e b e c a u s e these d r a m a t i c d i f f e r e n c e s in e m p l o y m e n t g r o w t h o c c u r w i t h i n political b o u n d a r i e s that d o not c h a n g e . B e c a u s e political p r o c e s s e s a r e slow to r e s p o n d to d e m o g r a p h i c c h a n g e s , t h e result is c h a n g e s in tax bases w i t h o u t c o r r e s p o n d i n g c h a n g e s in public service delivery obligations. T h e m o v e m e n t of e m p l o y m e n t f r o m t h e P h i l a d e l p h i a r e g i o n to t h e rest of t h e c o u n t r y — p a r t of a n a t i o n w i d e p a t t e r n of d e c e n t r a l i z a t i o n — i s reflected in the c o m p a r i s o n of t h e r e g i o n ' s g r o w t h rate w i t h that of the n a t i o n (1% c o m p a r e d w i t h 2 % b e t w e e n 1952 a n d 1972, 0 . 6 % c o m p a r e d w i t h s o m e w h a t less t h a n 2 % b e t w e e n 1972 a n d 1983). A s T a b l e 2.1 i n d i c a t e s , U . S . g r o w t h r a t e s b e t w e e n 1952 a n d 1983 w e r e t w o to t h r e e t i m e s t h a t of t h e P h i l a d e l p h i a smsa.

Accompanying Population Trends,

1950-1980

T h e P h i l a d e l p h i a smsa's overall p o p u l a t i o n c h a n g e s w e r e s i m i l a r to t h o s e of t h e n a t i o n b e t w e e n 1950 a n d 1970 ( T a b l e 2 . 2 ) . T h i s a g g r e g a t e p i c t u r e h i d e s t h e s e p a r a t e p i c t u r e s of e n o r m o u s p o p u l a t i o n g r o w t h in t h e s u b u r b s a n d a n a c t u a l d e c l i n e in t h e city. B e t w e e n 1970 a n d 1980, h o w e v e r , t h e P h i l a d e l p h i a r e g i o n s h a r e d in t h e t r e n d t o w a r d p o p u l a t i o n d i s p e r s i o n c h a r a c t e r i z i n g m o s t of the n a t i o n ' s large smsas; t h o u g h t h e n a t i o n ' s p o p u l a t i o n g r e w at a n a n n u a l c o m p o u n d rate of 1.1%, t h i s area r e g i s t e r e d a d e c l i n e of 0 . 2 % p e r y e a r . E v e n t h e g r o w t h r a t e in the s u b u r b a n ring w a s o n l y a b o u t half that of t h e U n i t e d States as a w h o l e . T h u s , in a d d i t i o n to s u b s t a n t i a l d e c e n t r a l i z a t i o n f r o m t h e city to t h e o u t e r r i n g s , t h e r e was d e c e n t r a l i z a t i o n f r o m t h e r e g i o n to the rest of t h e n a t i o n .

Table

2.2

AVERAGE ANNUAL POPULATION COMPOUND GROWTH RATES: PHILADELPHIA SMSA AND U . S . , 1950-1984

T o t a l SMSA Philadelphia City R e s t of SMSA United S t a t e s

1950 -1960

1960 -1970

1970 -1980

1980 -1984

+1.7 -0.3 +3.9 +1.7

+1.1 -0.3 +2.1 +1.3

-0.2 -1.4 +0.5 +1.1

+0.3 -0.6 +0.8 +1.0

SOURCE: See T a b l e D. 9 i n Appendix D f o r P h i l a d e l p h i a SMSA data. U . S . d a t a from Economic R e p o r t of t h e P r e s i d e n t , C o u n c i l of Economic A d v i s o r s , F e b r u a r y , 1985, p . 2 6 5 .

Overall Economic Trends

Changing Industrial

Structure

9

T h e w e l l - d o c u m e n t e d a n d p e r v a s i v e shift in t h e i n d u s t r i a l s t r u c t u r e of m o s t of t h e n a t i o n ' s large S M S A S s h o w s u p clearly in t h e d a t a for t h e P h i l a d e l p h i a area ( T a b l e 2 . 3 j . B e t w e e n 1952 a n d 1972. t h e r e w a s a d r a m a t i c shift a w a y f r o m M a n u f a c t u r i n g , a t r e n d that c o n t i n u e d i n t o the 1980s. By 1983, M a n u f a c t u r i n g e m p l o y e d slightly m o r e t h a n 2 0 % of t h e l a b o r f o r c e , c o m p a r e d w i t h o v e r 4 0 % in 1952. T h e biggest d e c l i n e w a s in N o n d u r a b l e g o o d s . O n e i m p l i c a t i o n of this shift is that as t h e s e M a n u f a c t u r i n g sectors b e c o m e s m a l l e r , the i m p a c t of f u r t h e r d e c l i n e s d i m i n i s h e s . N o n m a n u f a c t u r i n g o c c u p i e s an i n c r e a s i n g s h a r e of t h e l a b o r f o r c e , w i t h Services l e a d i n g t h e w a y — m o r e t h a n d o u b l i n g its s h a r e o v e r the last 30 vears.

The 1984 Story

T h e g e n e r a l c o n c l u s i o n s u g g e s t e d by t h e d a t a of t h e last few years is that t h e P h i l a d e l p h i a r e g i o n h a s c o m e t h r o u g h t h e 1960s a n d 1970s with a n e c o n o m i c s t r u c t u r e that h a s a b s o r b e d a n d r e s p o n d e d to m a n y of the c o m p e t i t i v e a s s a u l t s of t h o s e y e a r s . T h e r e are m a n y signs of what e c o n o m i s t s call e q u i l i b r a t i o n — t h e l a b o r f o r c e a p p e a r s to h a v e s h a p e d itself a r o u n d an altered industrial structure. T h e e m p l o y m e n t g r o w t h rates in T a b l e 2.1 s h o w a s u b s t a n t i a l r e b o u n d in 1 9 8 3 - 1 9 8 4 , w i t h t h e g r o w t h r a t e of the s u b u r b a n r i n g essentially m a t c h i n g that of t h e n a t i o n . T h e d e c l i n e in t h e p e r c e n t a g e e m p l o y e d b y t h e M a n u f a c t u r i n g s e c t o r a n d t h e i n c r e a s e in the p e r c e n t a g e e m p l o y e d in t h e larger N o n m a n u f a c t u r i n g sector is i n d i c a t e d in T a b l e 2.3.

Table 2.3 PERCENTAGE OF TOTAL EMPLOYMENT BY MAJOR INDUSTRIAL SECTOR: PHILADELPHIA SMSA, 1952, 1972, 1984

Total Manufacturing Durable Goods Nondurable Goods Total Nomanufacturlng Trade

(b) FIRE v ' Services

1952

1972

1984

40.4

28.1

20.0

19.4 21.0

14.3 13.8

10.7 9.3

59.6

71.9

80.0

18. 5 4. 5 11.8

21.0 5.9 19.4

23.0 6.8 26.8

SOURCE: WPEMP analysis based on data from Employment and Earnings, States and Areas, Bureau of Labor Statistics, U.S. Department of Labor. (a) Wholesale and Retail trade. (b) Finance, Insurance, and Real Estate.

10

Economic Report on the Philadelphia Metropolitan Area, 1985

T h e hypothesis that equilibrating forces are at work is supported by a review of the trend of unemployment rates in the region relative to those of the nation from 1972 to 1984 (Table 2.4) and by a comparison of the trend of e m p l o y m e n t growth rates in the region relative to those of the nation over successive national business cycles (Table 2.5).

Table 2.4 UNEMPLOYMENT RATES IN PHILADELPHIA SMSA AND U.S., 1971-84

Years

Philadelphia

1971-72 1973-81 1982-84

5.4 7.8 8.6

U.S.

Ratio of Phila. to U.S.

5.8 6.7 8.9

93.1 116.4 96.6

SOURCE: Philadelphia SMSA data from U.S. Department of Labor, Bureau of Labor Statistics, Geographic Profile of Employment and Unemployment; U.S. data from Council of Economic Advisors, Economic Report of the President, February, 1985.

Table 2.5 TRENDS IN EMPLOYMENT GROWTH RATES: PHILADELPHIA SMSA AND U.S., 1969-1984

Time Period

. .

Annual Avg. Growth Rate: Philadelphia

Annual Avg. Growth Rate: U.S.

Phila. Minus U.S.

1969-70 to 1973-74

0.23

2.16

-1.93

1973-74 to 1979-80

0.74

2.38

-1.64

1979-80 to 1980-81

0.24

0.74

-0.50

1981-82 to 1983-84

0.97

1.12

-0.15

SOURCE: WPEMP analysis based on data from Employment and Earnings, States and Areas, and Employment, Hours, and Earnings, 1909-1984, Bureau of Labor Statistics, U.S. Department of Labor. (a) Time periods are defined to correspond roughly to the national business cycle except for the last period, which is not a completed cycle.

η

Overall Economic Trends

T h e u n e m p l o y m e n t rate (the proportion of people seeking w o r k w h o are not w o r k i n g ) reflects the capacity of the region's industrial s t r u c t u r e to a b s o r b those in the region w h o want e m p l o y m e n t . T h e data in T a b l e 2 . 4 indicate that Philadelphia had a lower u n e m p l o y m e n t rate than t h e rest of the c o u n t r y in the early 1970s, a m u c h higher rate between 1973 a n d 1981 ( 2 9 % higher in 1979), and a m u c h lower rate in the past t h r e e years ( 9 % lower in 1984). In essence, the region is now a b s o r b i n g its s u p p l y of labor m o r e fully than the nation as a whole. T h e e m p l o y m e n t growth rates in the Philadelphia region have b e c o m e closer to those of the nation over successive business cycles ( T a b l e 2.5). T h i s trend constitutes a m a j o r explanation for the substantial relative i m p r o v e m e n t s in t h e u n e m p l o y m e n t r a t e s . B e t w e e n 1 9 6 9 - 1 9 7 0 a n d 1 9 7 3 - 1 9 7 4 , t h e P h i l a d e l p h i a S.MSA e x p e r i e n c e d e m p l o y m e n t g r o w t h rates almost 2 percentage points below those of the nation, but in the last few years, the difference has been less than 0.2 percentage points. A c c o m p a n y i n g these e m p l o y m e n t d e v e l o p m e n t s are population movem e n t s that show the S M S A growth in the 1980s to be moving closer to the n a t i o n ' s rate than it was in the 1970s ( T a b l e 2.2). Finally, a c o m m o n l y regarded signal of the attractiveness of a r e g i o n — the presence of h e a d q u a r t e r s of large c o r p o r a t i o n s — w a r r a n t s attention. T h e r e is little reason to t h i n k that the e m p l o y m e n t in h e a d q u a r t e r s has m o r e direct economic value to a region than any other managerial e m p l o y m e n t , but it is generally thought of as a vote of confidence in an area. In that context, the pattern of the Philadelphia S M S A S hold on h e a d q u a r t e r s of the F o r t u n e 500 corporations is of interest. In t e r m s of n u m b e r of F o r t u n e 500 m a n u f a c t u r i n g h e a d q u a r t e r s a n d of P h i l a d e l p h i a ' s r a n k c o m p a r e d with the nation's 20 largest SMSAS, Philadelphia has r e m a i n e d about the same between 1972 and 1984 (Table 2.6). O n e

Table

2.6

F O R T U N E 500 M A N U F A C T U R I N G C O R P O R A T E H E A D Q U A R T E R S : P H I L A D E L P H I A SMSA A N D 20 L A R G E S T S M S A s , 1972, 1977, 1984

N u m b e r of Firms in P h i l a d e l p h i a M e d i a n , 20 L a r g e s t SMSAs P h i l a . ' s Rank in 20 L a r g e s t SMSAs (a) N u m b e r of E m p l o y e e s ... M e d i a n , 20 L a r g e s t SMSAs P h i l a . ' s Rank in 20 L a r g e s t

SMSAs

1972

1977

1984

12 9 8

11 11 10

11 10 8

191.9 201.5 11

173.3 236.9 14

184.1 278.6 13

S O U R C E : "The Fortune 500 S p e c i a l R e p o r t , " Fortune ; May May 8, 1978, A p r i l 29, 1985.

1973,

(a) T o t a l e m p l o y e e s of firms w i t h c o r p o r a t e h e a d q u a r t e r s P h i l a d e l p h i a SMSA, in t h o u s a n d s . (b) M e d i a n n u m b e r of e m p l o y e e s , in t h o u s a n d s .

in

12

Ecoaoaic Report on the Philadelphia Metropolita· Aita, 1985

measure of the national and international economic significance of the headquarters is the number employed by them—most, of course, not in Philadelphia. This region experienced a slight decline in number of employees encompassed by the firms, as well as in rank. Essentially, the pattern in manufacturing headquarters did not reflect the decline in the sector. In Services, however, Fortune 500 headquarters data did mirror the sector's substantial growth (Table 2.7). T h e number of service headquarters increased; the region's rank, compared with the nation's 20 largest s m s a s , increased; and the number of employees in the service firms headquartered in Philadelphia increased substantially, as did the region's associated rank. If votes of confidence are reflected in headquarter locations, the Services sector in this region appears to be a frontrunner. In the next chapters, the general patterns described in this chapter will be considered in detail—which industries seem to be the underpinnings of the increased strength of the last few years, and which underlying factors have become or are relatively favorable for the area.

Table 2.7 FORTUNE 500 SERVICE CORPORATE HEADQUARTERS: PHILADELPHIA SMSA AND 20 LARGEST SMSAs, 1982, 1983, 1984

1982

1983

Number of Firms in Philadelphia Median, 20 Largest SMSAs Phlla.'s Rank In 20 Largest SMSAs

12 9.5 8

11 10.5 9

Number of E m p l o y e e s ^ . . Median, 20 Largest SMSAs Phlla.'s Rank. In 20 Largest SMSAs

169.3 140.5 8

206.0 150.1 8

SOURCE: "The Fortune Service 500 Special Report," Fortune; June 13, 1983, June 11, 1984, June 10, 1985. (a) Total employees of firms with corporate headquarters in Philadelphia SMSA, in thousands. (b) Median number of employees, in thousands.

1984 14 12 6 300.6 196.9 7

Three

Relative Strengths of Industrial Sectors in the Philadelphia Area

Public and private strategic planning require insight into the components of general e c o n o m i c trends for the development of incentive schemes appropriate to achieving goals. If maximizing employment is a major policy objective o f the city, as Mayor W . Wilson Goode has often declared, then Goode's strategists need to know which industries have the greatest potential for responding to policy interventions. I f a realestate development firm is contemplating the financing of a new building, it needs to know the potential of the industries for which the structure is designed. Identification of the industrial sectors with the largest employment potential involves more than simple extrapolations of employment numbers. Such calculations tend to give excessive credence to the most recent trends and do not reveal significant structural shifts. F u r t h e r , no one measure of strength is adequate for multiple policy objectives: if obtaining the largest n u m b e r of jobs for the region is the objective, then the secondar.' employment effects of increasing employment in an industry may be the most significant measure; if stability of employment for the hard-to-emplov is the objective, then the sensitivity o f the industry to the national business cycle may be an important measure. T o address these objectives, the W h a r t o n Philadelphia E c o n o m i c Monitoring Project has examined the following criteria for each industrial sector: relative employment growth within the metropolitan area, area employment growth relative to the nation, area share o f national e m p l o y m e n t , ability to draw on demand from outside the metropolitan area, sensitivity o f the industries in the area to the national business cycle, area employment growth relative to other SMSAS, and multiplier effects. T h e following sections address these criteria. T h e data for Philadelphia's major and selected industrial sectors are examined, conclusions are drawn for each criterion, and the major strengths of the region are summarized.

Relative knployment Growth tr Sector Within tb Metropolian Area

T h e r e are several useful ways to examine the variation in employment growth rates among the different industrial sectors: by major sectors, by smaller industrial categories, and by the components o f net employment changes (births of new firms, and expansions, deaths, and contractions of existing firms).

M

Econome Report oa the Philadelphia Metropolitan Arca, 1985

Growth rates by major sectors A straightforward way to identify the relative strengths of different industrial sectors in a region is to examine their e m p l o y m e n t levels and growth rates. T a b l e 3.1 lays out several ways of doing this. Shown are data for the n u m b e r employed by industrial sector for four selected years, the proportion of sector e m p l o y m e n t to SMSA e m p l o y m e n t , the actual c o m p o u n d growth rates of each sector for two earlier periods (1952-1972, 1972-1983) and for 1983-1984, and the c o m p o u n d growth rates after the effects of cyclical changes are removed. Certain p r o n o u n c e d trends emerge. Between 1952 and 1972, and between 1972 and 1983, the declines in M a n u f a c t u r i n g were substantial and pervasive. T h e declines were greater in the latter period, and N o n d u r a b l e M a n u f a c t u r i n g showed a greater d r o p in e m p l o y m e n t than did Durables. But in the more recent period there were some exceptions even in the shrinking M a n u f a c t u r i n g sector: Transportation E q u i p m e n t and I n s t r u m e n t s were strong growth sectors, though together they accounted for only a little m o r e than 2% of total e m p l o y m e n t . N o n m a n u f a c t u r i n g was clearly the primary source of e m p l o y m e n t growth in the Philadelphia economy, with increases becoming larger in the second period (1972-1983). Services, accounting for 27% of the e m p l o y m e n t in 1984, showed the greatest increases; T r a d e , accounting for 23%, and FIRK (Finance, Insurance, and Real Estate), accounting for 7%, also registered substantial growth. T h e 1983-1984 data reflect the upswing in the nation. Almost all the sectors joined in the buoyancy. M a n u f a c t u r i n g e m p l o y m e n t increased in the region, with the largest increases in Electric M a c h i n e r y and Transp o r t a t i o n E q u i p m e n t . N o n m a n u f a c t u r i n g c o n t i n u e d to be t h e most robust sector—with Services contributing most to the e m p l o y m e n t level increases, and T r a d e , FIRH, and Construction adding significantly to the total. W i t h i n the SMSA, t h e n , the Service sector is the leader, if relative growth rate is the criterion for strength; T r a d e and FIRE are strong; a n d , in M a n u f a c t u r i n g , Transportation E q u i p m e n t and I n s t r u m e n t s are the strongest sectors.

Employment growth rates in selected industries It is worthwhile to look at the c o m p o n e n t s of the m a j o r sectors to see which specific industries are responsible for strength. Examination of the more disaggregated data can also reveal if any of the c o m p o n e n t s of the declining major sectors are b u c k i n g the overall d o w n w a r d trend. T h e data that are available for the component parts of the major sectors provide a consistent time series only f r o m the first q u a r t e r of 1975 to the second q u a r t e r of 1983 and include just the five Pennsylvania counties in the SMSA. ( H o w e v e r , the five covered counties represented nearly 80% of total SMSA e m p l o y m e n t in 1984.)

Relative Strengths of Industrial Sectors

15

Table 3.1 EMPLOYMENT AND GROWTH RATES BY MAJOR SECTORS: PHILADELPHIA SMSA, 1952-1984

Employment (000)

SIC

Industry Total Nonag. Eaployeent

20-39

Total Manufacturing

1983 ( a )

1984

1952

1972

1474.8

1799.8

1921.3

1983.7

595.9

505.6

389.0

396.3

25 32 33 34 35 36 37 38 39

Durable Goods Furniture & Fixtures Stone, Clay & Glass Primary Metals Fabricated Metals Non-Electric Machinery Electric Mach. & Equip. Transportation Equip. Instruments Other Durable Goods

286.8 7.9 13.8 34.7 47.0 46.0 59.2 46.9 13.7 13.2

258.0 8.3 16.3 31.1 44.3 51.6 55.0 21.4 16.8 13.1

204.7 7.5 10.9 18.0 30.9 45.0 42.1 22.4 19.1 8.8

212.2 8.8 11.4 17.7 31.4 45.9 44.0 24.9 18.7 9.4

20 22 23 26 27 28 29 30

Nondurable Goods Food & Kindred Textiles Apparel Paper Products Publishing Chemicals Petroleum & Coal Rubber & Plastics

309.1 53.6 53.5 62.5 20.5 33.7 35.3 22.5 10.8

247.6 45.2 21.7 43.3 21.2 39.8 39.4 15.9 17.9

184.3 32.2 9.3 27.5 17.9 36.4 36.2 11.5 12.3

184.1 32.7 8.8 27.8 18.0 36.7 36.2 10.1 13.0

Total HoManufacturing

878.9

1294.2

1532.3

1587.4

Construction Trans., Comm., & P.U. Trade FIRE Services & Mining Government Federal State & Local

75.9 122.5 272.8 66.8 173.4 167.5 88.7 78.8

83.1 104.5 377.1 107.0 348.6 273.9 81.8 192.1

71.4 92.8 436.4 129.1 510.7 291.8 73.9 217.9

78.2 95.6 455.9 135.3 533.5 288.9 74.9 214.0

15-17 40-49 50-59 60-69 14,70-89 90-97 90-97 90-97

Μ

Econoaúc Report o· the Philadelphia Metropolita· Aita, 1985 Table 3.1 (cone.) Co·pound Growth Ratea (Ζ) Actual Data

Controlled for Cycle

Ζ of Total SMSA Employment

SIC

52- 72

Total

1. 01

0..60

3..25

1. 21

1..10

100. 0

20-39

- 0 . 82

-2..38

1..88

-O..30

-1..35

20. 0

Durables 25 32 33 34 35 36 37 38 39

-0. 53 0. 25 0. 84 -0. 55 -0. 30 0. 58 -0. 37 - 3 . 85 1. 03 -0. 04

-2. 15 -1..16 -3. 67 -4..90 -3. 05 -1..24 -2.,74 0..33 1. 17 -3..45

3. 66 17. 33 4. 59 -1..67 1. 62 2.,00 4. 51 11.,16 -2. 09 6..82

0. 16 0. 39 0. 83 -0. 25 -0. 49 1. 50 0. 65 -2. 14 1. 56

-1. 02 -0..30 -1. 93 -3..60 -1. 38 -0..60 -2.,74 3.,12 3.,40 -3..75

10. 7 0. 4 0. 6 0. 9 1. 6 2. 3 2. 2 1. 3 0. 9 0. 5

Nondurables 20 22 23 26 27 28 29 30

-1. 10 -0. 85 -4. 41 -1. 82 0. 17 0. 84 0. 55 - 1 . 72 2. 56

-2. 63 -3..01 -7..06 -4..04 -1..73 -0..71 -0..82 -2..90 -3..28

-0. 11 1..55 -5. 38 1..09 0.,56 0..82 0.,00 -12..17 5.,69

-0. 77 -0..69 -3. 79 -1..12 0. 81 0.,51 1. 03 -2..02 2.,71

-1.,72 -2..28 -5.,41 -3..12 -0..36 0..20 -0..07 -1,.72 -1.,54

9. 3 1. 6 0. 4 1. 4 0. 9 1. 9 1. 8 0. 5 0. 7

1. 95

1..56

3..60

2..01

1.91

80. 0

0. 45 -0. 79 1. 63 2. 38 3. 55 2. 49 -0. 40 4. 56

-1..28 -1,.08 1,.35 1..66 3,.57 0,.58 -0,.89 1 .14

9.,52 3..02 4..47 4,.80 4..46 -0,.99 1..35 -1,.79

0.,48 -0..83 1..63 2..15 3..54 2..89 0..61 4..46

0..08 -0,.23 1..64 2 .51 3,.84 0,.53 -0,.87 1,.05

3. 9 4. 8 23. 0 6. 8 26. 9 14. 6 3. 8 10. 8

b a n . 15-17 40-49 50-59 60-69 10-14,70-89 90-97 90-97 90-97

72--83 83-•84

52--72

72-•83

1984

SOURCE: WPEMP analysis based on data from Employment and Earnings, States and Areas, Bureau of Labor S t a t i s t i c s , U.S. Department of Labor. ( a ) Data l i s t e d f o r 1983 Include revisions from 1984 rebenchmarklng. Magnitudes d i f f e r s l i g h t l y from those used to compute 1972-83 growth rates. ( b ) See Appendix B.l f o r description of procedure. ( c ) Computed using 1983 data released prior to 1984 rebenchmarklng.

Relative Strengths of Industrial Sectors

17

S e c o n d - q u a r t e r 1983 e m p l o y m e n t levels, g r o w t h rates for the p e r i o d f r o m t h e t h i r d q u a r t e r of 1975 to 1983. a n d g r o w t h in two s u b p e r i o d s are s h o w n in T a b l e 3.2 for a selected g r o u p of two- a n d t h r e e - d i g i t s i c sectors. T h e s e w e r e c h o s e n by t w o criteria: positive g r o w t h d u r i n g t h e e n t i r e p e r i o d f r o m 1975 to 1983. a n d e m p l o y m e n t e x c e e d i n g 2 , 0 0 0 in 1983. T h e t h i r d q u a r t e r of 1975 a n d the f o u r t h q u a r t e r of 1980 w e r e c h o s e n as c u t o f f dates for the g r o w t h calculations. T h e y r e p r e s e n t t h e p o i n t s in the t w o national b u s i n e s s cycles b e t w e e n 1975 a n d 1983 t h a t , based o n capacity utilization d a t a , c o r r e s p o n d r o u g h l y to t h e s e c o n d q u a r t e r of 1983. H o w e v e r , it s h o u l d be n o t e d that the period f r o m 1980 to 1983 c o n t a i n e d t h e d e e p e s t recession since the 1930s a n d w a s , t h e r e f o r e , a p e r i o d of m u c h slower g r o w t h in the nation a n d the P h i l a d e l p h i a S M S A t h a n t h e cycle covered in the 1975 to 1980 calculations. T h e i n d u s t r i e s that s h o w e d the greatest s t r e n g t h by g r o w i n g in b o t h of the selected t i m e p e r i o d s are g r o u p e d into C a t e g o r y I in T a b l e 3.2. T h e s e i n d u s t r i e s reveal a p a t t e r n very similar to that f o u n d in t h e a g g r e g a t e d a t a . T h e g r o u p of strongest sectors at the two-digit sic: level of a g g r e g a tion is d o m i n a t e d by the Services sector. B u s i n e s s Services ( s i c 73), H e a l t h ( s i c 80), a n d Social Services ( s i c 83) lead the w a y . T h e m a j o r c o n t r i b u t o r s to the g r o w t h of the leading two-digit s i c i n d u s t r i e s in the Services sector i n c l u d e s u b s e c t o r s r e p r e s e n t i n g s u b s t a n tial n u m b e r s of jobs. C o m p u t e r Services a n d D a t a P r o c e s s i n g ( s i c 737), I.egal Services ( s i c 811), Residential C a r e ( s i c 836), Services to D w e l l ings ( s i c 734), a n d O f f i c e s of P h y s i c i a n s ( s i c 801) each r e p r e s e n t e d m o r e t h a n 10,000 jobs in 1983 a n d g r e w at a rate of m o r e t h a n 5 % p e r y e a r b e t w e e n 1975 a n d 1983. E v e n m o r e i m p r e s s i v e is t h e fact that f o u r of the five s u b s e c t o r s g r e w m o r e r a p i d l y in the cycle w i t h the d e e p t r o u g h ( 1 9 8 0 - 1 9 8 3 ) t h a n in the earlier period ( 1 9 7 5 - 1 9 8 0 ) , d e s p i t e t h e fact that t h e region as a w h o l e lost jobs in t h e 1 9 8 0 - 1 9 8 3 cycle. T h e o n l y s u b s e c t o r of the five for w h i c h this was not t r u e ( R e s i d e n t i a l C a r e ) still g r e w b y m o r e t h a n 9 % per year b e t w e e n 1980 a n d 1983. O f p a r t i c u l a r n o t e is t h e recent r o b u s t g r o w t h ( m o r e t h a n 10% p e r year in the 1 9 8 0 - 1 9 8 3 p e r i o d ) of C o m p u t e r Services a n d D a t a P r o c e s s i n g , a h i g h - t e c h n o l o g y s u b s e c t o r with e x p a n d i n g national a n d i n t e r n a t i o n a l m a r k e t s . T w o o t h e r Services s u b s e c t o r s also m e r i t special a t t e n t i o n . T h e largest three-digit s i c s u b s e c t o r in the r e g i o n in n u m b e r e m p l o y e d , H o s p i t a l s ( s i c 806), m a i n t a i n e d a s t e a d y g r o w t h rate of b e t w e e n 3 % a n d 4 % d u r i n g the e n t i r e p e r i o d a n d r e p r e s e n t e d m o r e t h a n 8 0 , 0 0 0 jobs in 1983. Also s h o w i n g steady g r o w t h was the H o t e l s u b s e c t o r ( s i c 701). T h e h i g h - g r o w t h i n d u s t r i e s are not limited to Services, h o w e v e r . I n the T r a n s p o r t a t i o n , C o m m u n i c a t i o n , a n d P u b l i c Utilities s e c t o r , Pass e n g e r T r a n s i t ( s i c 41) a n d Electric, G a s , a n d S a n i t a r y Services ( s i c 49) s h o w e d t h e m o s t s t r e n g t h a m o n g two-digit s i c i n d u s t r i e s . In a d d i t i o n , C o m m u n i c a t i o n s ( s i c 48), a large sector i n v o l v i n g m o r e t h a n 2 0 , 0 0 0 jobs, s h o w e d i n c r e a s i n g g r o w t h d u r i n g t h e p e r i o d .

Econoak Report on the Philadelphia Metropolitan Ana, 1985

18

Table 3.2 EMPLOYMENT AND GROWTH RATES IN SELECTED INDUSTRIES: PA PORTION OF PHILADELPHIA SMSA, I975-3Q TO 1980-4Q AND 1980-4Q TO I983-2Q 1983-2Q Employment

SIC Two digit

Three digit

Industry TotaI(b)

Two digit

Three digit

1,454,565

Compound Growth Rates 1975-3Q 1980-4Q 1975-3Q -1980-4Q -1983-2Q -1983-2Q 1.72Z

-0.64Ζ

0.95Z

Category I : Sectors Showing Growth In Both Periods 272 283 41 45 47

411 451 472

48 49

483

50-51 501 508 511 514 52-59

542 546 562 581 603

62 621 63 631 632

72 73

701 723 729 731 733 734 737 739

Manufacturing Periodicals Pharmaceuticals Trans., Comm., & P.U. Passenger Transit Local & Suburb. Trans. Air Transportation Air Trans. - Cert. Carr. Transportation Services Arrangement of Trans. Γ< W i m Ii st Ion Radio & TV Electric, Gas, San. Serv. Trade Wholesale Trade Motor Vehicles Mach., Equip., Supplies Paper Products Groceries l e t a l i Trade Meat & Fish R e t a i l Bakeries Women's Ready-to-Wear Eating & Drinking Places FIRE Mutual Savings Banks Security ft Coanodlty Brokers Security Brokers Insurance L i f e Insurance Accident & Health Ins. Services Hotels, Motels, Tour. Cts. Personal Services Beauty Shops Misc. Personal Services Business Services Advertising Mall.,Repro.,Steno. Services to Dwellings Computer & Data Processing Misc. Business Services

4,850 16,383 13,386 4,649 5,700

9,313 3,638 3,390

20,592 2,689 16,646 92,788 7,524 23,093 3,614 11,544 244,013 2,123 3,749 7,941 75,667 3,885 6,898 5,842 37,034 14,142 5,982 11,190 16,455 5,396 3,280 74,960 3,816 2,886 12,412 10,769 32,075

13.03 2.61

6.53 4.19

10.89 3.11

1.22 0.63 4.86 3.70 8.44 8.86 0.68 4.03 3.14

4.36 6.68 3.07 3.43 4.76 8.18 1.38 12.53 1.57

2.22 2.54 4.28 3.61 7.24 8.63 0.91 6.70 2.63

1.85 2.27 3.55 3.86 1.11 1.39 1.43 6.29 1.09 3.51

0.04 4.43 1.40 2.76 1.72 0.32 8.56 4.45 4.30 3.84

1.26 2.96 2.85 3.50 1.31 1.04 3.67 5.69 2.11 3.62

7.64 5.65 5.14 4.16 0.24 17.62

1.66 8.53 8.87 0.24 1.78 9.54

5.67 6.57 6.32 2.88 0.73 14.95

1.71 0.45 1.36 8.05 6.45 2.94 7.49 3.20 9.47 4.83

3.09 4.77 3.75 22.25 3.17 0.37 6.08 9.00 10.90 1.71

2.16 1.82 2.13 12.44 5.38 2.10 7.03 5.03 9.93 3.81

19

Relative Strengths of Industrial Sectors

Table 3.2 (cont.) Category X: Sectors Showing Growth in Both Periods (cont·) 1983-2Q Employment

SIC Two digit

Two digit

Three digit

75 753 80 801 802 805 806 811 83 833 835 836 89 891 893

Auto Services Auto Repair Shops Health Offices of Physicians Offices of Dentists Nursing & Personal Care Hospitals Legal Services Social Services Training & Voc. Rehab. Child Care Residential Care Miscellaneous Services Eng., Arch., & Surveying Accounting, Bookkeeping Total - Category I Ζ of Total Baployaent

Compound Growth Rates

Three digit

1975-3Q 1980-4Q 1975 -1980-4Q -1983-2Q -1983

12,431 6,966 140,893 14,256 6,841 22,882 83,479 15,299 33,105 2,515 4,038 11,172 21,320 11,809 7,003 740,870 SIX

3.19Z 3.80 5.11 4.83 5.53 8.77 3.67 6.10 10.23 16.99 17.39 17.02 3.15 4.21 4.15

3.41Z 4.23 3.80 6.37 9.73 2.55 3.16 8.62 2.55 2.32 5.48 9.38 0.24 2.06 2.26

3.26Z 3.94 4.69 5.32 6.87 6.72 3.50 6.91 7.69 12.04 13.40 14.50 2.20 3.51 3.53

473,453 33Z

Category II: Sectors Showing Growth from 1980-4Q to 1983-2Q 357

Manufacturing Off. 4 Comp. Equip.

493

Trans., Comm., & P.U. Utilities

512 54

70 79 799

Trade Drugs Food

-0.34

1.56

0.27

9,823

-0.98

3.09

0.32

2,481

-0.13 -0.34

3.18 0.76

0. O.i

-1.38 -0.97 -2.88

3.34 5.19 7.06

0. 0.' 0.:

37,009

Services Hotels, etc. Amiae. & Kec. Serv. Misc. Amuse. & Ree. Serv.

11,609 13,897

Total - Category II

62,515

Ζ of Total Baployaent

10,953

8,893

4Z

32,150 2Z

Category III; Sectors Showing Growth from 1975-3Q to 1980-4Q 286 307 354 372 384

Manufacturing Indust. Organic Chem. Misc. Plastics Metalworking Mach. Aircraft & Parts Medical Instruments

3,630 7,869 3,427 6,227 3,339

24.88 3.76 4.00 1.51 4.06

-2 . 54 -1.33 -5.42 -1.94 -0.64

1 5.: 2.< 0.1 0.: 2.!

20

EcMoaic Report on the Philadelphia Metropolita· Arta,1985

Table 3.2 (cont.) Category III: Sectors Showing Growth from 1975-3Q to 1980-4Q (cont.) 1983-2Q Employment

SIC Two digit

Three digit

415

50 502 503 506 56 57

Two digit Trans., Comm., & P.U. School Buses Trade Wholesale - Durables Furniture Lumber Elee. Goods letali - Apparel letali - Furniture

Compound Growth Rates

Three digit

1975-3Q 1980-4Q 1975-1980-4Q -1983-2Q --1983-:

2,166

27.81Z

-0.96Z

17. 7i:

2,478 3,084 10,569

3.48 9.41 6.62 5.63

-0.87 -0.78 -2.61 -3.27

2.05 6.01 3.55 2.68

2.52 2.39

-1.23 -3.21

1.29 0.55

1.11 0.50 0.95 3.91 3.33 4.64 1.15 5.09

-0.21 -0.65 -0.25 -1.47 -1.32 -1.29 -0.58 -0.62

0.68 0.12 0.56 2.14 1.81 2.69 0.59 3.22

15.43 2.75 5.83 8.47 8.26 8.80 4.18 9.51

-3.31 -1.69 -0.74 -0.61 -1.66 -2.15 -0.73 -5.45

9.01 1.30 3.66 5.45 4.95 5.14 2.57 4.44

59,754

18,005 9,167

FIRE 60

29,362 602

61 612 633 641 65 653

736 76 769 807 808 822 832 839

Comm. Banks Honbank Credit Ag. S & L's Fire & Cas. Ins. Agents & Brokers leal Estate R.E. Agents & Managers Services Pere. Supply Serv. Misc. lepair Serv. Misc. Rep. Med. & Dent. Labs Outpatient Fac. Colleges & Universities Indiv. & Fam. Serv. Misc. Soc. Serv. Total - Category III Ζ of Total Employment Total - All Categories Ζ of Total

taplojaent

23,964 8,694 4,082 14,809 10,062 15,675 6,284

11,523 4,602 2,554 2,799 4,341 38,338 10,982 4,398 145,259 10Z 948,644 65Z

176,925 12 Ζ 682,528 47Z

SOURCE: WPEMP analysis of Pennsylvania Office of Employment Security data, compiled by the Institute for Public Policy Studies, Temple University. (a) Two criteria were used for selecting sectors: (1) growth was positive for the period from 1975-3Q to 1983-2Q; (2) 1983-2Q employment exceeded 2,000. (b) Growth rate calculations for total employment were made excluding employment in Agriculture, Government, and Elementary and Secondary Education. Coverage for these sectors differed over years.

Relative Strengths of Industrial Sectors

21

In the URI·: sector, the Insurance industry ι sic 63) stands out because of its size ( m o r e than 37,000 jobs). Similarly, in the T r a d e sector, the largest three-digit sic. subsectors in both Wholesale T r a d e and Retail T r a d e in terms of n u m b e r e m p l o y e d — M a c h i n e r y , E q u i p m e n t , and S u p p l i e s ( s i c 508) in W h o l e s a l e , and Hating and D r i n k i n g Places ( s i c 581) in Retail—are included in the grouping of strongest sectors. T h e s e subsectors together represented nearly 100,000 jobs in 1983. A l t h o u g h only two subsectors in M a n u f a c t u r i n g merited inclusion in the high-growth category, one of t h e m . Pharmaceuticals (sic 283), provided m o r e jobs in 1983 ( 16,383 ) than any other three-digit s i c subsector in M a n u f a c t u r i n g . In addition. Pharmaceuticals is commonly considered to be one of the high-technology industries with excellent prospects for f u t u r e growth in the nation as a whole. T h e g r o u p of industries, t h e n , showing the most strength in the region encompasses a significant portion of the regional economy. It is not only the sectors that begin from small e m p l o y m e n t bases that are showing significant growth rates, but also m a n y of the most i m p o r t a n t , jobgenerating, industries in the region. Categories II and III in T a b l e 3.2 include other sectors that showed net e m p l o y m e n t growth between 1975 and 1983 but declined d u r i n g one of the two s u b p e r i o d s . Of special note in Category II (sectors that grew only in the later p e r i o d , from 1980 to 1983) is Office and C o m p u t i n g Equipment ( s i c 357) in M a n u f a c t u r i n g , which grew by about 1.5% per year between 1980 and 1983. Representing almost 11,000 jobs in 1983, this is another sector c o m m o n l y classified as high technology. Category III is m a d e u p of the sectors that grew f r o m 1975 to 1980 but declined in the h i g h - u n e m p l o y m e n t cycle of 1980-1983. T h e declines in the m o r e recent period are less worrisome than they might seem because overall e m p l o y m e n t in the region and the nation was declining at the same time. Sectors that are sensitive to the business cycle could be expected to experience more difficulty d u r i n g such periods. Given this, it is not surprising that of the three categories, Category III shows the greatest representation from M a n u f a c t u r i n g . Interestingly, four of the five M a n u f a c t u r i n g subsectors in this g r o u p are high-technology industries—Industrial Organic Chemicals (sic 286), Metalworking M a c h i n e r y (sic: 354), Aircraft and Parts ( s i c 372), and Medical Instrum e n t s ( s i c 384). O t h e r subsectors of note in Category III are Electrical Goods Wholesaling ( s i c 506), Fire and Casualty I n s u r a n c e ( s i c 633), Insurance Agents and Brokers ( s i c 641), Personal Supply Services ( s i c 736), Colleges and Universities ( s i c 822), and Individual and Family Services ( s i c 832). Although they experienced declines in growth in 1980-1983, each of these subsectors represented m o r e than 10,000 jobs in 1983 and grew more quickly than the region as a whole between 1975 and 1983. In s u m m a r y , an examination of the m o r e disaggregated industrial picture reveals that there have been some bright spots in the regional economy that the aggregate data obscure to a certain extent. Even in M a n u f a c t u r i n g , w h e r e the aggregate data are very sobering indeed, there

22

Economic Report on the Philadelphia Metropolita· Area, 1985

appears to b e a group o f industries, m o s t l y in high-technology areas, that has b u c k e d the overall decline in total M a n u f a c t u r i n g e m p l o y m e n t . A s a w h o l e , however, the evidence in the three-digit s i c e m p l o y m e n t data supports the earlier finding that the leading generators o f jobs in the region in recent years have been in S e r v i c e s .

Components of employment change in selected industries N e t growth or decline in e m p l o y m e n t can be separated into four basic c o m p o n e n t s — b i r t h s o f new firms, deaths o f existing firms, e x p a n s i o n s o f existing firms, and contractions o f existing firms. T h e way these four e l e m e n t s interact to d e t e r m i n e c u r r e n t e m p l o y m e n t changes is o f interest b e c a u s e different c o m b i n a t i o n s that lead to the s a m e net c h a n g e in the present m a y have different implications for future growth potential in an area or sector. F o r e x a m p l e , it may b e that the potential for future growth is greater if current growth is fueled by b i r t h s o f new firms than if the d o m i n a n t c o m p o n e n t is expansions o f existing firms. A high level o f activity in the births c o m p o n e n t is often viewed as a sign o f vitality in a sector or a region. In a sector, high birth rates m a y be an indication o f high rates o f innovation or o f the maturation o f e x p e r i m e n t a l t e c h n o l o gies. In a r e g i o n , high birth rates may indicate that the region is diversifying its e c o n o m i c b a s e , b e t t e r i n s u l a t i n g i t s e l f f r o m f l u c t u a t i o n s in individual m a r k e t s . H o w e v e r , the significance o f e m p l o y m e n t increases derived

from

b i r t h s , rather than e x p a n s i o n s , has not b e e n d o c u m e n t e d . It may b e that the downside risks for a region are lower if the i m p e t u s behind growth is c o m i n g from established firms and industries rather than from

firm

births. H i g h birth rates are likely to b e associated with high death rates, since n e w , small firms are m o r e likely to fail than are large, wellestablished firms. Similarly, e m p l o y m e n t losses resulting from c o n t r a c tions o f existing

firms

are m o r e likely to b e recovered if e c o n o m i c

c o n d i t i o n s improve than are those resulting from firm deaths. In the final analysis, the a r g u m e n t that favors policies designed to encourage births over expansions, although intuitively appealing, r e m a i n s u n p r o v e n . A j o b is a j o b , and it is not necessarily the case that j o b s created in new firms lead to m o r e j o b s , n e t , in the future than those created in existing

firms.

T h e detailed data on the c o m p o n e n t s o f e m p l o y m e n t c h a n g e for the five Pennsylvania counties in the SMSA provide no decisive e v i d e n c e regarding this question. A s a g r o u p , the most robust sectors in the region did not seem to outperform the rest o f the region in one c o m p o n e n t m o r e than in the others. F o r instance, in the fastest growing m a j o r s e c t o r ( S e r v i c e s ) , the birth rate was lower than the regional average b e t w e e n 1980 and 1983, while the expansion rate was higher. B u t the h i g h e r expansion rate did not explain all o f the difference between the s e c t o r ' s net e m p l o y m e n t growth and the regional average. T h e c o n t r a c t i o n rate and the death rate were each lower than the average. In g e n e r a l , the

Relative Strengths of Industrial Sectors

23

tendencies a m o n g the region's strongest sectors were similar to those that e m e r g e from the averages for all sectors—additions to e m p l o y m e n t were m o r e likely to occur as the result of expansions of existing firms than as the result of firm formations, and subtractions from e m p l o y m e n t were m o r e likely to be the result of contractions than of c l o s e d o w n s . T a b l e 3.3 shows annual rates of e m p l o y m e n t change from the third q u a r t e r of 1980 to the second quarter of 1983 attributable to each of the four c o m p o n e n t s . Data are shown for the major e m p l o y m e n t sectors as well as for a g r o u p of large, growing subsectors. T h e subsectors include the high-technology industries in M a n u f a c t u r i n g that qualified for inclusion in T a b l e 3 . 2 , all major industries (two-digit s i c ) that e m p l o y e d more than 2 0 , 0 0 0 people and experienced growth between 1980 and 1983, and all s u b s e c t o r s (three-digit s i c ) that employed more than 10,000 people and showed growth d u r i n g the period. In the region as a whole, jobs were m o r e likely to be created through e x p a n s i o n s of existing firms than by the formation of new firms. T h i s was also true for four of the six major sectors. T h e exceptions were M a n u f a c turing and T r a n s p o r t a t i o n , C o m m u n i c a t i o n s , and Public Utilities, where birth rates were slightly higher than e x p a n s i o n rates. T h e fastest g r o w i n g major sector, Services, showed the greatest difference between e x p a n s i o n rates and birth rates (10.9% and 5 . 9 % , respectively). O n the negative side, job losses were more likely to occur as the result of contractions of existing firms than through closedowns. T h i s pattern w a s true for five of the six major sectors (the exception was T r a n s p o r t a tion, C o m m u n i c a t i o n s , and Public Utilities). T h e greatest difference between contraction and closedown rates occurred in M a n u f a c t u r i n g , where the annual contraction rate was 9 . 3 % and the death rate was a lower than average 5 . 7 % . Although no single component completely dominated net employment c h a n g e in any of the major sectors, different c o m p o n e n t s did m a k e larger contributions than others in s o m e sectors. In M a n u f a c t u r i n g , for instance, contractions of existing firms were the major source of the sector's declining e m p l o y m e n t . In Services, on the other h a n d , the largest c o m p o n e n t was expansions. Births and deaths were not, in general, the major contributors to net e m p l o y m e n t change in the major sectors. N o t even in M a n u f a c t u r i n g can it be said that firm closedowns and migration were the determining factors behind regional e m p l o y m e n t patterns between 1980 and 1983. D a t a for the g r o u p of especially strong industries and subsectors also d o not settle the question of whether jobs from firm births are " b e t t e r " than those from e x p a n s i o n s . O f the 27 selected industries and s u b s e c t o r s , 15 s h o w e d birth or expansion rates higher than the regional average. S i m i l a r l y , 18 exhibited contraction rates less than the a v e r a g e , and 15 had lower than average death rates. Clearly, no single component alone e x p l a i n s the strength of these particular industries. H o w e v e r , s o m e patterns do e m e r g e from the subsector data. F i r s t , the faster g r o w i n g subsectors in Services tended to show m o r e turnover than those in the other major sectors. Birth and death rates tended to be higher

24

Ecoooak Report oa the Philadelphia Metropolita· Area, 1985 Table 3.3 COMPONENTS OF EMPLOYMENT CHANGE IN SELECTED INDUSTRIES: PA PORTION OF PHILADELPHIA SMSA 1980-3Q TO 1983-2Q

SIC Two Three digit digit

Annual Rates of Change In Employment due to: Industry Total •onagrlculture

283 286 354 357 372 384

48

-8.86Z

Total Manufacturing Pharmaceutlcals Indust. Organic Chem. Metalworklng Mach. Off. & Comp. Equip. Aircraft & Parts Medical Instr.

5.75 3.29 3.67 4.62 8.63 7.45 8.03

5.16 4.42 1.89 4.50 2.92 1.39 6.07

-5.68 -2.94 -0.38 -4.12 -0.88 -1.56 -7.93

-9.33 -1.43 -6.72 -9.19 -9.20 -8.82 -7.21

Total Btwannfactoring

6.59

9.69

-5.85

-8.21

Construction

7.74

11.66

-7.38

-15.10

Trans., Co··., t P.D. Communication

6.55 1.32

6.10 3.42

-6.48 -0.60

-6.10 -3.03

8.23 7.95 8.01 9.48 10.51

9.55 8.67 9.62 8.95 11.83

-6.71 -6.84 -9.56 -10.05 -7.34

-9.74 -9.12 -6.34 -6.98 -11.61

4.54 3.75 1.73

7.78 6.69 9.35

-5.21 -2.67 -6.18

-6.70 -7.58 -3.86

5.85 11.00 11.67 16.38 16.13 9.65 4.92 6.13 9.69 1.98 4.51 6.49 7.76 5.02 6.01

10.92 7.35 12.94 16.72 14.59 11.47 6.36 11.95 5.61 4.32 11.56 9.05 11.91 8.86 10.12

-5.23 -7.31 -11.86 -12.89 -12.16 -10.09 -3.70 -4.44 -8.56 -1.09 -3.09 -4.91 -4.88 -4.49 -4.20

-7.82 -7.16 -10.12 -14.54 -8.82 -10.34 -4.02 -8.48 -4.58 -1.92 -6.44 -7.54 -5.65 -9.22 -10.21

631

701 73 734 737 739 80 801 805 806 811 83 836 89 891

Contractions

-5.88Z

FIRE Insurance Life Insurance

63

Deaths

8.62Z

581

54

Expansions

6.43Z

Trade Mach., Equip., Supplies Groceries Food Eating & Drinking Places

508 514

Births

Services Hotels, Motels, Tour. Ct Business Services Services to Dwellings Computer & Data Process. Misc. Business Services Health Offices of Physicians Nursing & Personal Care Hospitals Legal Services Social Services Residential Care Miscellaneous Services Eng., Arch., & Surveying

SOURCE: WPEMP analysis of Pennsylvania Office of Employment Security data, compiled by the Institute for Public Policy Studies, Temple University. (a) Sectors were chosen by two criteria: (1) increasing employment between 1980 and 1983, and (2) 1983 employment exceeding 20,000 for two-digit SIC sectors and 10,000 for three-digit SIC sectors. Also Included are high tech manufacturing sectors which did not meet the criteria.

Relative Strengths of Industrial Sectors

25

in Services, especially in Business Services and in Hotels. Second, with the exception of C o m p u t e r Services and Data Processing, the hightechnology sics 283, 286. 354. 357. 372. 384. and 48 tended to showm u c h less volatility than popular conceptions might suggest. I n d e e d , Pharmaceuticals and C o m m u n i c a t i o n s , two growing, high-technology sectors, were a m o n g those industries and subsectors showing the least turnover. Finally, higher birth rates do appear to be correlated with higher death rates. T h e faster growing Services sectors may therefore be more vulnerable to economic d o w n t u r n s , though they are better able to take advantage of u p t u r n s .

Area Employment Growth Relative to the Nation

Assessment of the competitive position of the Philadelphia SMSA entails more than an assessment of the relative strengths within the region, O p t i m i s m about the potential of an industry that was doing well within the region, for example, would have to be tempered if the industry were doing poorly in the nation. Several characteristics of the relationship between regional and national growth rates are examined in the next sections: the overall relationship of regional and national growth rates d u r i n g the course of the business cycle, differences in these growth rates between 1969 and 1984, differences in the behavior of the c o m p o n e n t s of the net e m p l o y m e n t changes, and changes in the regional/national differences over time.

The business cycle in the region and the nation E m p l o y m e n t growth in the Philadelphia SMSA is clearly affected by trends in the national economy a n d , in particular, by the national business cycle. H o w e v e r , there are indications that the relationship between Philadelphia's e m p l o y m e n t growth rates and those of the nation varies over the course of individual business cycles, and that the variation is atypical w h e n c o m p a r e d to evidence on other areas experiencing growth rates lower than the national average. A 1980 s t u d y done for the Advisory Commission on Intergovernmental Relations by Janet R o t h e n b e r g Pack addressed the issue of the impact of the business cycle on regions in decline or experiencing slower than average g r o w t h . Pack concluded that growth in such areas was closer to national g r o w t h rates in periods of economic expansions than in contractions. Such areas tended to be hit very hard in downswings; so h a r d , in fact, that they could not regain their previous position relative to the nation in s u b s e q u e n t upswings even though their growth rates tended to catch u p to those of the nation. A study u n d e r t a k e n at the Philadelphia Federal Reserve Bank by John M . L. Gruenstein, however, shows that d u r i n g the 1970s and early 1980s, e m p l o y m e n t growth rates in the Philadelphia S M S A were closer to the national rates (although still lower than the national rates) d u r i n g the d o w n s w i n g s of the business cycle than d u r i n g upswings. T h e Phila-

26

Economic Report on the Philadelphia Metropolitan Area, 1985

delphia e x p e r i e n c e has therefore been somewhat a n o m a l o u s and implies that the region's slower growth over c o m p l e t e b u s i n e s s cycles has b e e n d u e m o r e to the fact that the region has not benefited as m u c h from e c o n o m i c expansions as most areas than to a special vulnerability to downswings in the national e c o n o m y .

Employment growth rates by major sectors W h e n looking at long-term trends in the regional e c o n o m y , it is the underlying growth rates, independent o f the business c y c l e , that are o f primary interest. It is sobering to e x a m i n e the data in T a b l e 3 . 4 , w h e r e growth rates for the Philadelphia SMSA are contrasted with those o f the nation. T h e i m p o r t a n c e o f the regional portion o f the nation's e m p l o y ment is shown in the last c o l u m n . Several relationships stand out. (1) T h i s area had growth rates that were less than h a l f those o f the c o u n t r y as a w h o l e , and that growth was derived mostly from the N o n m a n u f a c t u r i n g sector. ( 2 ) T h i s area had lower growth rates than the nation in every M a n u f a c t u r i n g industry except T r a n s p o r t a t i o n E q u i p m e n t : the nation was losing e m p l o y m e n t growth in P r i m a r y M e t a l s at 1% per y e a r , Philadelphia was losing it at over 3 . 5 % ; the nation was losing e m p l o y m e n t in T e x t i l e s at

1.7%,

Philadelphia was losing it at 5 . 4 % ; the n a t i o n ' s e m p l o y m e n t was increasing in E l e c t r i c M a c h i n e r y at 2 . 4 % , P h i l a d e l p h i a ' s was decreasing by 2 . 7 % . ( 3 ) Areas o f negative growth rates for the nation were reflected in the highest negative growth rates in the r e g i o n — P r i m a r y M e t a l s , T e x tiles, and A p p a r e l . ( 4 ) T h e two regional industries with the highest growth r a t e s — I n s t r u m e n t s and S e r v i c e s — h a d rates that were fairly close to those o f the nation. (5) T h e industries in this region each e m p l o y e d between 1 and 3 % o f the nation's total e m p l o y m e n t in that i n d u s t r y , except C h e m i c a l s and P e t r o l e u m , w h i c h had h i g h e r percentages. T h e c o n c l u s i o n s f r o m these observations are that there are two m a n ufacturing industries that showed particular strength relative to the n a t i o n — T r a n s p o r t a t i o n E q u i p m e n t and I n s t r u m e n t s — a n d that in Services and URI·:, the region was not far b e h i n d the national rates. T h e nation has b e e n doing relatively well in all o f these e x c e p t T r a n s p o r t a t i o n E q u i p m e n t . Increased growth in this region in I n s t r u m e n t s , S e r v i c e s , and FI RH is likely to be stimulated, t h e r e f o r e , by the n a t i o n ' s strength in these industries.

Components of employment change by major sectors C o m p a r a t i v e data on the c o m p o n e n t s o f e m p l o y m e n t c h a n g e show that the separate c o m p o n e n t s have interacted differently in the Philadelphia SMSA than in the nation as a w h o l e . B e t w e e n 1980 and 1982, the SMSA relied m o r e heavily on expansion o f existing firms (as o p p o s e d to births o f

27

Relative Strengths of Industrial Sectors

Table 3.4 EMPLOYMENT GROWTH RATES BY MAJOR SECTORS: PHILADELPHIA SMSA AND THE U.S., 1972-1983

Growth Rates Industry

Phila

(a)

% of U.S. . . Employment . S . U ; in Phlla., 1983

Total Nonag. Employment

1.10

2.68

2.14Z

Total Manufacturing

-1.35

1.15

2.08

Durable Goods Furniture & Fixtures Stone, Clay & Glass Primary Metals Fabricated Metals Non-Electric Machinery Electric Mach. & Equip. Transportation Equip. Instruments Other Durable Goods

-1.02 -0.30 -1.93 -3.60 -1.38 -0.60 -2.74 3.12 3.40 -3.75

1.63 0.56 0.28 -1.03 1.68 2.90 2.42 1.60 4.92 -0.10

1.86 1.62 1.87 2.13 2.25 2.15 1.98 1.24 2.76 2.33

Nondurable Goods Food 6> Kindred Textiles Apparel Paper Products Publishing Chemicals Petroleum & Coal Rubber & Plastics

-1.72 -2.28 -5.41 -3.12 -0.36 0.20 -0.07 -1.72 -1.54

0.44 0.03 -1.70 -0.62 0. 53 2.27 1.22 0.89 2.91

2.38 1.98 1.30 2.35

1.91

3.20

2.15

0.08

2.50

-0.23 1.64 2.51 3.84 0.53 -0.87 1.05

1.86

1.82 1.87 2.13 2.35 2.60 1.85 2.69

Total Ho Manufacturing Construction Trans., Comm., & P. U. Trade FIRE Services & Mining Government Federal State and Local

3.10 3.65 4.75 1.93 0.41 2.27

2.66 2.87 3.40 5.87 1.70

1.68

SOURCE: WPEMP analysis based on data from Employment and Earnings, States and Areas, Bureau of Labor Statistics, U.S. Department of Labor. (a) Growth rates computed controlling for the national business cycle. See Appendix B.l.

28

Ecoaoak Report on the Philadelphia Metropolitan Area, 198$

new firms) for the creation of jobs than did the nation. Although additions to employment were more likely to come from expansions of existing firms in both the nation and the Philadelphia SMSA, the share for expansions was significantly higher in this region. In Philadelphia, 62% of gross employment gains came from expansions, compared to 56% in the nation as a whole (Table 3.5). On the other hand, the shares of deaths and contractions of firms in gross employment losses were roughly the same in the aggregate for the SMSA and the nation. This was not true for Manufacturing, however, where a higher proportion of total job losses in the region resulted from closedowns. As a result, the region could recover a lower proportion of gross employment losses in Manufacturing than could the nation. Table 3.5 shows the percentage shares of the components in gross employment gains and losses for the Philadelphia region and the nation. The comparative data on the components of change were developed from a large, nationwide data set that provides a wealth of comparative data but has some shortcomings when used for analysis of a single SMSA. There are two potential sources of bias (described in Appendix B.3) in the comparative data on the components of employment change that do

Table 3 . 5 PERCENTAGE SHARES OF GROSS GAINS AND LOSSES OF EMPLOYMENT COMPONENTS BY MAJOR SECTORS: PHILADELPHIA SMSA AND THE U . S . , 1980-1982 Percentage Share of Gross Gains In Employment Births

P e r c e n t a g e Share of Gross Loases I n Biployment

Expansions

Deaths

Contractions

Phila.

U.S.

Phila.

U.S.

Phila.

U.S.

Phila.

U.S.

Total i m a g . Employment

38Z

44Z

62Z

56Z

58Z

57Z

42Z

43Z

Total Manufacturing

42

47

58

53

66

61

34

39

Durable Goods Nondurable Goods

44 39

48 45

56 61

52 55

62 72

59 64

38 28

41 36

36

44

64

56

54

55

46

45

44 36 48 14 37

46 42 52 30 39

56 64 52 86 63

54 58 48 70 61

56 61 59 48 46

48 56 59 45 56

44 39 41 52 54

52 44 41 55 44

Total Bonaanufactaring Construction T r a n s . , Comm., & P.U. Trade FIRE Services

SOURCE: WPEMP c a l c u l a t i o n s from Regional Economic I s s u e s Program d a t a . REI d a t a compiled by Applied Systems I n s t i t u t e u s i n g Brookings I n s t i t u t i o n and Dun and B r a d s t r e e t d a t a .

Relative Strengths of Industrial Setto π

29

not exist in the m o r e detailed data used for T a b l e 3 . 3 . T h e net effect in the Philadelphia

S.WSA

o f these biases is that the magnitudes of e m p l o y m e n t

changes d u e to firm b i r t h s , e x p a n s i o n s , and contractions are significantly understated, while those d u e to firm deaths are only very slightly u n d e r stated. T h e c o m p a r a t i v e data, therefore, should not be added t o g e t h e r to estimate net e m p l o y m e n t c h a n g e s . H o w e v e r , if the biases in the comparative data are consistent across S.WSAS. general c o m p a r i s o n s can be made o f the roles o f the separate c o m p o n e n t s in Philadelphia and the nation. Calculations on the c o m p a r a t i v e data suggest that the two c o m p o n e n t s o f additions to e m p l o y m e n t (births and expansions) interact differently in Philadelphia than in the nation. B i r t h s contribute proportionately less to additions to total e m p l o y m e n t in the Philadelphia

S.WSA

than in the

nation ( 3 8 % c o m p a r e d to 4 4 % ) . W h e n it c o m e s to generating n e w j o b s , the

S.WSA

relies proportionately m o r e on existing firms than does the

nation as a w h o l e . T h i s general pattern carries over into all o f the m a j o r s e c t o r s , but to varying degrees. In both Philadelphia and the nation, births r e p r e s e n t e d a larger proportion o f gross e m p l o y m e n t gains in M a n u f a c t u r i n g than in N o n m a n u f a c t u r i n g . In addition, the

S.WSA

proportions m a t c h e d those for

the nation m o r e closely for M a n u f a c t u r i n g than for N o n m a n u f a c t u r i n g . H o w e v e r , it is in the largest N o n m a n u f a c t u r i n g sector. S e r v i c e s , that the proportionate share o f firm births in the

S.WSA

c a m e closest to equalling

the national average. T h i s finding can be interpreted to lend support to the hypothesis that adding jobs by way o f births is " b e t t e r , " in the long r u n , than adding an equivalent n u m b e r o f jobs by way of e x p a n s i o n o f existing

firms.

T h e relative shares o f firm deaths and contractions in gross e m p l o y ment losses were also roughly equal in the ever,

as w a s t r u e o n t h e g a i n s s i d e ,

SMSA

and the nation. H o w -

the M a n u f a c t u r i n g

and

N o n m a n u f a c t u r i n g patterns differ. In M a n u f a c t u r i n g , a greater p e r c e n t age o f total job losses c a m e from firm deaths in the

S.WSA

than in the

nation, while the relationship was reversed in N o n m a n u f a c t u r i n g . T h e implication is that a lower percentage o f the jobs lost in M a n u f a c t u r i n g in the

SMSA

were recoverable than o f those lost in the nation as a w h o l e .

C o n v e r s e l y , in N o n m a n u f a c t u r i n g — a n d especially in S e r v i c e s , w h e r e deaths were the source o f a m u c h lower percentage o f total j o b losses than in the n a t i o n — t h e

SMSA

was probably in a better position to recover the

jobs lost between 1980 and 1982 than was the nation as a w h o l e . A g a i n , the sectors showing the greatest health relative to the nation in the behavior o f the c o m p o n e n t s o f e m p l o y m e n t growth were those in N o n m a n u f a c t u r i n g , a n d , m o r e particularly, Services. T h e general t e n d e n c y for the

SMSA

to rely relatively m o r e on existing

firms ( e x p a n s i o n s ) for additions to total e m p l o y m e n t than the nation m a y partially explain the

SMSA'S

atypical behavior relative to the nation over

the business cycle. T h e r e is reason to think that downside risks are lower in sectors or regions that depend primarily on existing firms for their

30

Economic Report on the Philadelphia Metropolitan Area, 1985

e m p l o y m e n t growth (expansions rather than births ) but that the topside potential is greater in areas d e p e n d i n g m o r e on firm births than expansions. Philadelphia's relatively high reliance on established firms, therefore, may explain why the region has tended to stay closer to the national pace in recessions than in periods of high g r o w t h . T h e region's reliance on existing firms may lessen the impact of recessions, while its relatively low birth rate may prevent the region f r o m reaping the full benefits of economic expansion. T h e way that these c o m p o n e n t s of e m p l o y m e n t growth interact in Philadelphia provides a mixed blessing for the region.

Trends in employment growth rates T a b l e 3.6 shows t r e n d s in e m p l o y m e n t growth rates in Philadelphia and the nation between 1969 and 1984. T h o u g h it is clear that e m p l o y m e n t growth in the nation exceeded that of the region in virtually every major i n d u s t r i a l sector d u r i n g this time p e r i o d , it is relevant to e x a m i n e w h e t h e r or not the differences changed over the span of years. T h e first four c o l u m n s of T a b l e 3.6 list the sectoral growth rates for the region over four time periods, selected to begin and e n d at similar stages of the business cycle; the last four c o l u m n s show the differences between the Philadelphia and national growth rates. T h e s e data reveal the improved relative position of the Philadelphia region in the more recent years—a trend that has also surfaced in the pattern of u n e m p l o y m e n t rates and population. T h e gap between the total e m p l o y m e n t growth in this region and that of the nation narrowed in every successive period, with the most recent period showing a difference of only 0.15 percentage points. In M a n u f a c t u r i n g , the gap narrowed over the first three periods, but increased in the last period. Of particular interest here is the worsening position in Transportation E q u i p m e n t and I n s t r u m e n t s (two sectors showing strength by several criteria), and the improved position in Electric M a c h i n e r y , Non-Electric M a c h i n e r y , and C h e m i c a l s — t h r e e relatively large m a n u f a c t u r i n g sectors. In N o n m a n u f a c t u r i n g , this region has improved its growth rates vis-à-vis the nation in every n o n g o v e r n m e n t a l sector. Philadelphia, with its broad industrial base, is clearly tied to the economic path of the nation. W h a t becomes apparent f r o m T a b l e 3.6 is that the growth lag of the region b e h i n d the nation is diminishing. T h i s has c o m e about because of an acceleration of the e m p l o y m e n t growth rates in Philadelphia and a slowing of the U . S . rates.

Area Share of National Employment

A n o t h e r measure of how the Philadelphia S M S A has fared relative to the nation is the change in the region's share of national e m p l o y m e n t over time. Given that e m p l o y m e n t has been growing more slowly in the SMSA than in the nation for most of the period since 1950, it is clear that the region's share has been declining. H o w e v e r , the pattern across industries is not u n i f o r m , nor is the overall trend identical to that for the SMSA'S share of national population.

31

Relative Strengths of Industrial Sectors Table 3.6 TRENDS IN EMPLOYMENT GROWTH RATES BY MAJOR SECTORS: PHILADELPHIA SMSA AND U.S., 1969-1984

Industry

Phlla. Growth Rates (a)

Philadelphia Minus U.S.

69/70 73/74 79/80 81/82 -73/74 -79/80 -80/81 -83/84

69/70 73/74 79/80 81/82 -73/74 -79/80 -80/81 -83/84

0..23

O. 74

0. 24

0. 97

-1.93

-1.64

-O.50

-2.87

-2.07

-2.54

-2.70

-2.84

-2.26

-O.46

Durable Goods Furniture & Fixtures Stone, Clay & Glass Primary Metals Fabricated Metals Non-Electric Machinery Electric Mach. 4 Equip. Transportation Equip. Instruments Other Durable Goods

-2.61 -2.65 1.05 -2.49 -0.03 -1.93 -5.20 -4.58 0.98 -4.28

-1.59 -2.58 -1.84 -1. 99 -1.98 -7.01 -3.84 -5.95 -2.09 -3.55 -0. 76 1.08 -3.87 -0.99 2. 51 -2. 10 3.82 -1.03 -3.97 -13.02

-2.65 6. 22 -4.37 -8. 35 -5.11 -3.44 1.36 -0.97 -5.24 2. 51

-2.79 -3. 97 -0. 51 -2. 36 0. 17 -3.82 -5.37 -2. 14 1.85 -4.85

-2. 10 -0.92 -1.03 -2.64 -1.93 -3.43 -4.95 2. 55 0. 17 -2.91

-0.01 1. 39 -1.90 -0.63 0.21 0. 81 -0.44 2. 22 -3.80 -8.85

Nondurable Goods Food & Kindred Textiles Apparel Paper Products Printing & Publishing Chemicals Petroleum & Coal Rubber & Plastics

-3.12 -2.96 -5.77 -7.29 -2.84 0.53 -2.10 -3.48 3.89

-2.58 -2.50 -2.73 -2.39 -4.69 -2.23 -6.93 -7.34 -10.11 -4.43 -1.67 -2.56 -0.97 -3.46 -2.21 2.68 -2.69 -0.49 -1.01 -1.08 0.15 0.25 -6.84 -2.93 -2.97 -10.81 -2.40

-2.84 -2.00 -5.06 -7.28 -2.71 0.20 -2.13 -5.06 0.67

-2.34 -2.35 -4.57 -2.70 -0.82 -2.24 -1.97 -3.33 -3.96

-1.17 -2.91 -3.77 0.65 -2.16 1.43 -1.06 -0.98 -7.98

-2.33 -1.68 -7.28 -1.48 -1.95 -5.15 1.60 -2.55 -5.25

>tal Booag. bployaent rotai Manufacturing

4.59 -2.81

-0.80 -2.92 0.13 -1.01

-1.77 -4.97 4.15

Total Nonaanufacturing

1.59

1.73

1.09

1.99

-1.41

-1.38

-0.50

0.32

Construction Trans., Comm., & P.U. Trade FIRE Services & Mining Government Federal State & Local

0.01 -0.86 1.08 2.12 2.85 2.00 -3.04 4.38

-1.26 -0.66 1.17 2.08 3.63 1.55 -0.96 2.53

-1.36 -2.28 0.22 1.75 3.68 -0.10 1.41 -0.59

1.98 -0.34 2.60 1.80 3.80 -1.05 0.02 -1.41

-2.41 -2.11 -1.85 -1.26 -0.92 -1.05 -2.80 0.44

-2.35 -2.13 -1.76 -1.47 -1.21 -0.88 -2.02 -0.22

1.77 -2.56 -0.66 -1.44 -0.63 -0.37 1.37 -0.92

0.75 -0.42 0.60 -0.47 0.27 -0.92 -0.11 -1.23

SOURCE: WPEMP analysis based on data from Employment and Earnings, States and Areas, and Employment, Hours, and Earnings, 1909-1984, Bureau of Labor Statistics, U.S. Department of Labor. (a) Time periods are defined to correspond roughly to the national business cycle except for the last period, which is not a completed cycle.

32

ECOBOWC Report OB the Philadelphia Metropolitan Ana, 1985

T a b l e 3.7 confirms the d o w n w a r d trend in the regional share of national e m p l o y m e n t . T h e S M S A ' S 1972 share of total nonagricultural e m p l o y m e n t was 0.61 percentage points lower than the 1952 share. T h i s was followed by a f u r t h e r 0.33 percentage point decline f r o m 1972 to 1984. Consistent with the growth data, the rate at which the region's share of total U . S . e m p l o y m e n t was declining fell slightly f r o m 0.031 percentage points (0.61 divided by 20 years) per year between 1952 and 1972 to 0.028 percentage points (0.33 divided by 12 years) per year f r o m 1972 to 1984. T h i s contrasts with the population patterns. Data f r o m the Censuses of Population reveal that the S M S A ' S share of total U . S . population fell by only 0.39 percentage points (from 2.41% to 2.02%) for the entire period f r o m 1950 to 1984. H o w e v e r , the rate at which the share was falling more than tripled between the early and later periods (increasing f r o m 0.006 percentage points per year to 0.023 percentage points per year). As a result, the proportional declines in the population and e m p l o y m e n t shares were about the same in the later p e r i o d — a n o t h e r indication of equilibrating forces at w o r k . T h e region's share of total U . S . e m p l o y m e n t fell in every sector between 1952 and 1972, and declined f u r t h e r between 1972 and 1984 in every significant sector except T r a n s p o r t a t i o n E q u i p m e n t . Although the only increases came in M a n u f a c t u r i n g , the declines in M a n u f a c t u r i n g as a whole were m u c h m o r e p r o n o u n c e d than in N o n m a n u f a c t u r i n g . Looking at the full period f r o m 1952 to 1984, the sizeable M a n u f a c t u r i n g sectors that maintained the greatest percentage of their 1952 national m a r k e t share were Non-Electric M a c h i n e r y and Chemicals. In the later period, T r a n s p o r t a t i o n E q u i p m e n t joined the list. T h e sectors that fared least well b y this m e a s u r e w e r e T e x t i l e s , E l e c t r i c M a c h i n e r y , a n d Apparel. In N o n m a n u f a c t u r i n g , the Services sector did best at holding its share in b o t h the entire period and the later period. T r a d e and F I R E also fared relatively well in the later period, maintaining nearly 9 0 % of their 1972 shares. T h e overall pattern is that the region is continuing to decline in its national market share but at a slower rate than in 1950s and 1960s. A l t h o u g h M a n u f a c t u r i n g sectors tend to be losing their m a r k e t shares at a faster rate than N o n m a n u f a c t u r i n g sectors, a few M a n u f a c t u r i n g industries have m a n a g e d to retain significant proportions of their 1952 shares. In N o n m a n u f a c t u r i n g , the Services sector again shows the most strength in holding its share of the national m a r k e t .

Demand from Outside the Metropolitan Area

A strong export orientation is generally regarded as a positive economic characteristic of a regional industry. Advantages come f r o m several sources. F i r s t , an i n d u s t r y that exports a high proportion of its output has the potential to sell to a m u c h larger market than a regional market. Second, expansion in such an industry can occur without diverting the

33

Relative Strengths of Indnstrial Sectors

Table 3.7 SHARES OF U.S. EMPLOYMENT BY MAJOR SECTORS: PHILADELPHIA SMSA, 1952, 1972, 1984

Ζ of U.S. Employment In P h i l a d e l p h i a Industry

1952

1972

1984

3. 05

2. 44

2. 11

3. 65

2. 65

2. 02

Durable Goods Furniture & F i x t u r e s Stone, Clay & Glass Primary Metals Fabricated Metals N o n - E l e c t r i c Machinery E l e c t r i c Mach. & Equip. T r a n s p o r t a t i o n Equip. Instruments Other Durable Goods

3. 07 2. 17 2. 61 2. 82 4. 51 2. 76 5. 46 2. 77 4. 43 3. 86

2. 34 1. 65 2. 48 2. 50 3. 18 2. 73 2. 98 1. 21 3. 67 3. 02

1. 82 1. 82 1. 89 2. 02 2. 13 2. 07 1. 97 1. 29 2. 59 2. 43

Nondurable Goods Food & Kindred Textiles Apparel Paper Products Printing & Publishing Chemicals Petroleum & Coal Rubber & P l a s t i c s

4. 42 3. 46 4. 48 5. 21 4. 08 4. 38 4. 59 8. 86 4. 05

3. 06 2. 60 2. 18 3. 15 3. 08 3. 67 3. 91 8. 20 2. 86

2. 31 1. 99 1. 17 2. 31 2. 64 2. 70 3. 41 5. 38 1. 63

Total Bo n u m i f a c t o r i n g

2. 75

2. 37

2. 13

Construction T r a n s . , Comm., & P.U. Trade FIRE S e r v i c e s & Mining Government Federal State & Local

2. 88 2. 93 2. 65 3. 42 3. 20 2. 53 3. 67 1. 88

2. 17 2. 31 2. 36 2. 71 2. 81 2. 05 3. 05 1. 80

1. 81 1. 85 2. 09 2. 39 2. 58 1. 81 2. 69 1. 62

Total Noaag. Employment Total Manufacturing

SOURCE: WPEMP a n a l y s i s based on data from Employment and Earnings, S t a t e s and A r e a s , Bureau of Labor S t a t i s t i c s , U.S. Department of Labor.

Ecoaoaic Report on the Philadelphia Metropolita· Area, 1985

34

r e g i o n ' s p u r c h a s i n g p o w e r f r o m o t h e r firms a n d s e c t o r s . T h i r d , in a r e l a t i v e l y s l o w g r o w t h a r e a — a s P h i l a d e l p h i a h a s b e e n — f i r m s that e x p o r t can tap into stronger markets. T a b l e 3 . 8 lists t h e p r o p o r t i o n o f o u t p u t e x p o r t e d b y s e c t o r f r o m t h e P h i l a d e l p h i a SMSA to t h e rest o f t h e U . S . a n d to t h e w o r l d . C l e a r l y , this r e g i o n e x p o r t s t h e b u l k o f its m a n u f a c t u r e d g o o d s . M a n u f a c t u r i n g i n d u s tries in t h e r e g i o n are m a i n l y d e p e n d e n t o n n a t i o n a l m a r k e t s . relatively strong Transportation E q u i p m e n t and Instruments

The

sectors

h a v e a m o n g t h e h i g h e s t e x p o r t ratios, as d o C h e m i c a l s , a n d E l e c t r i c a n d

Table 3.8 PERCENTAGE OF OUTPUT EXPORTED FROM THE REGION BY MAJOR AND SELECTED SECTORS: PHILADELPHIA SMSA, 1981 Major Industries T o t a l Booag.

Ζ Output Exported

bplopent

T o t a l Manufacturing

87

Durable Goods Furniture & F i x t u r e s Stone, C l a y , & Glass Primary Metals Fabricated Metals N o n - E l e c t r i c Machinery E l e c t r i c Mach. & Equip. T r a n s p o r t a t i o n Equip. Instruments Other Durable Goods

90 90 29 87 97 95 97 96 98 95

Nondurable Goods Food & Kindred Textiles Apparel Paper Products Printing & Publishing Chemicals Petroleum & Coal Rubber & P l a s t i c s

84 89 91 93 93 83 95 74 97

T o t a l •onaanufacturlng Construction T r a n s . , Comm., & P.U. Trade FIRE S e r v i c e s & Mining

23 3 35 24 20 24

Selected Industries

Ζ Output Exported

T r a n s . , Comm., & P.U. Passenger T r a n s i t A i r Trans. Trans. S e r v i c e s Communication E l e e . , Gas, San.

40 50 41 45 11

Trade Wholesale Trade Wholesale - Durables R e t a i l Trade R e t a i l - Apparel R e t a i l - Furniture

18-28 28 5-30 29 13

FIRE Banking Nonbank C r e d i t S e c u r i t y & Comm. Brokers Insurance Real Estate

19 19 5 37 10

Services Hotels Personal S e r v i c e s Business S e r v i c e s Auto S e r v i c e s Amuse. & R e e . S e r v . Health Misc. Serv.

80 9 14 16 14 33 17

SOURCE: Regional Science Research I n s t i t u t e and Bureau of Economic U.S. Department of Commerce. See Appendix B.2.

Analysis,

Relative Strengths of Industrial Sectors

35

N o n - E l e c t r i c M a c h i n e r y . Local e c o n o m i c d e v e l o p m e n t s will not be the constraint on t h e e x p a n s i o n of these i n d u s t r i e s — n a t i o n a l a n d international factors will be the most significant influences. It is in t h e N o n m a n u f a c t u r i n g sectors, h o w e v e r , that the P h i l a d e l p h i a SMSA'S relative s t r e n g t h c u r r e n t l y exists. T h e export p r o p o r t i o n in these sectors is m u c h lower than in the M a n u f a c t u r i n g sectors, but even so, export potential exists since they c u r r e n t l y tap into national m a r k e t s for 2 3 % of their o u t p u t . T h e export ratios are highest in the industries identified in T a b l e 3.2 as e x p e r i e n c i n g the strongest g r o w t h . Of particular interest is the very large health i n d u s t r y , with twice the e m p l o y m e n t of any o t h e r leading two-digit sector, which exports o n e - t h i r d of its output. T h e r e g i o n , t h e n , d r a w s strength f r o m its capacity to t a p into the substantial m a r k e t s b e y o n d its b o r d e r s for m a n y of its relatively highg r o w t h i n d u s t r i e s . G r o w t h in these industries will not displace o t h e r e m p l o y m e n t in t h e region.

Sensitivity of Metropolitan Area Industries to the National Business Cycle

If m a x i m i z a t i o n of e m p l o y m e n t growth is the m a j o r policy objective of business a n d g o v e r n m e n t l e a d e r s h i p , then the sensitivity of an i n d u s t r y to t h e b u s i n e s s cycle is not likely to play an i m p o r t a n t role over any sustained period of time. It is, h o w e v e r , an i m p o r t a n t criterion if a c o m p a n i o n policy objective is to e m p l o y the h a r d - t o - e m p l o v . T h e relatively very high rates of u n e m p l o y m e n t of minorities a n d y o u t h s (see T a b l e D . l , A p p e n d i x D ) are persistent. Industries that are m o r e cyclically sensitive are less likely to provide stable e m p l o y m e n t for this g r o u p . In b o o m p e r i o d s , they will be t h e last h i r e d , a n d in c o n t r a c t i o n s , they will be the first to be laid off. T h e k n o w n high sensitivity to national business cycles of the M a n u f a c t u r i n g sector relative to the N o n m a n u f a c t u r i n g sector is d o c u m e n t e d in T a b l e 3.9 for P h i l a d e l p h i a . O v e r the last d e c a d e , national u n e m p l o y m e n t rate increases of o n e p e r c e n t a g e point w e r e , on the average, reflected in the region by a 2 . 7 % decline in e m p l o y m e n t in M a n u f a c t u r i n g a n d less than 1% decline in N o n m a n u f a c t u r i n g . T h e e x p a n d i n g size of the N o n m a n u f a c t u r i n g sector has h a d the effect of r e d u c i n g the cyclical sensitivity of the region over the last 30 years. A o n e - p e r c e n t a g e - p o i n t increase in the U . S . u n e m p l o y m e n t rate translated into a 2 . 4 % decline in total regional e m p l o y m e n t in the earlier y e a r s — b u t , as Services, Ι IRI:, and T r a d e e x p a n d e d , a n d M a n u f a c t u r i n g d e c l i n e d , the o n e - p e r centage-point increase translated into only a 1.2% decline regionally in t h e later years. I n d i v i d u a l sectors, of c o u r s e , b e h a v e d with s o m e variation. Of t h e sectors of particular interest, T r a n s p o r t a t i o n E q u i p m e n t a n d I n s t r u m e n t s were a m o n g t h e most cyclically sensitive, a n d C h e m i c a l s , T r a d e , ι IRI·;, a n d Services were a m o n g the least sensitive. T h e r e is c o n s i d e r a b l e c o i n c i d e n c e , t h e n , between the industries that a p p e a r relatively s t r o n g by a n u m b e r of criteria a n d t h e industries that are

Economic Report oo the Philadelphia Metropolitan Area, 1985

Table 3.9 CYCLICAL SENSITIVITY OF EMPLOYMENT BY MAJOR SECTORS: PHILADELPHIA SMSA, 1952-1972, 1972-1983

Σ Change in Employment per 13 Point Change in U.S. Unemployment Industry Total b u g . Employment

1952-1972

1972-1983

-2.42

-1.21

-3.38

-2.64

-4.65 -3.07 -1.93 -3.55 -3.19 -4.43 -2.32 -12.16 -4.85 n.a.

-2.97 -2.53 -4.26 -4.04 -4.00 -1.43 -0.86 -6.30 -4.06 -2.11

-2.06 -0. 74 -4.34 -3.43 -1.16 0. 38 -1.66 0. 11 -3.29

-2.26 -1.93 -4.96 -2.31 -3.34 -1.55 -0.55 -1.49 -5.58

Total Nonaanufacturlng

-1.84

-0.79

Construction Trans., Comm., & P.U. Trade FIRE Services & Mining Government Federal State & Local

-4.32 -1.72 -1.52 0.50 1.21 -2.70 -A.60 -0.96

-4.02 -1.73 -0.93 -1.58 -0.57 0.14 0.23 0.14

Total Manufacturing Durable Goods Furniture & Fixtures Stone, Clay & Glass Primary Metals Fabricated Metals Non-Electric Machinery Electric Mach. & Equip. Transportation Equip. Instruments Other Durable Goods Nondurable Goods Food & Kindred Textiles Apparel Paper Products Printing & Publishing Chemicals Petroleum & Coal Rubber & Plastics

SOURCE: UPEMP analysis based on data from Employment and Earnings, States and AreaB, Bureau of Labor Statistics, U.S. Department of Labor. See Appendix B.l.

Relative Strengths of Industrial Sectors

37

cyclically insensitive. This suggests that policies stimulating employment in most of the industries with the greatest growth potential will also be policies that provide relatively stable employment for the hard-toemploy.

Philadelphia Employment Growth Relative to Other Metropolitan Areas

The assessment of the competitive strengths of the Philadelphia SMSA has so far focused on comparisons between the economic patterns of the region and the nation as a whole. An even more precise assessment is the comparison of the economic patterns of this region with those of the other large SMSAS. Karlier sections established that the general dispersion of population and industry that has characterized the nation has characterized the region. In essence, the region's declines in its share of the national employment and its lower growth rates have been part of a nationwide pattern of decentralization. How Philadelphia's employment patterns compare with those of the other large S.WSAS in the country will reveal whether any additional disadvantaging factors are at work in the region. As will be shown in the following sections, the evidence demonstrates that the region has operated with some relative disadvantages, but that its industrial structure has responded and accommodated. The signs of comparative disadvantage are diminishing.

Employment growth rates by major sectors The employment growth rates of sectors in the Philadelphia SMSA ranked low when compared to the 20 largest SMSAS in the country (Table 3.10). The conclusion to be drawn is that the region had problems beyond those shared by other densely populated S.WSAS. T h e aggregate employment growth rate in the 20 largest SMSAS was more than double that of Philadelphia, and in Manufacturing, individual sectors in the Philadelphia region (with the exception of Transportation Equipment and Instruments) showed even lower growth rates. In Nonmanufacturing, only Services and I-IRK had growth rates relatively close to the average values for the 20 largest SMSAS. Table 3.10 indicates that even when comparisons were made with a narrower set of SMSAS—the Northeast-Midwest (NH-MW) SMSAS—the Philadelphia growth rates were low. This suggests that it has not been just the fast-growing southern and western SMSAS that have outperformed this region. The columns in Table 3.10 indicating the rankings make the comparisons more precise. T h e Philadelphia region ranked at the top of the bottom quartile in most of the major industrial sectors, even in the robust Services and FIRE sectors. Only in Transportation Equipment and Instruments, did Philadelphia compare much more favorably. Further, while the Philadelphia SMSA'S overall growth rates fared much better

38

Econoaic Report on the Philadelphia Metropolitan Arca, 1985

Table 3.10 EMPLOYMENT GROWTH RATES BY MAJOR SECTORS: PHILADELPHIA SMSA AND 20 LARGEST SMSA'S, 1972-1983

(a) Compound Growth Rates Industry Total Nonas. Bmployeent

Phlla. 1..10

20 Largest 2..41

-1,.35

0..84

Durable Goods Furniture & Fixtures Stone, Clay, & Glass Primary Metals Fabricated Metals Non-Electric Machinery Electric Mach. & Equip. Transportation Equip. Instruments Other Durable Goods

-1.,02 -0..30 -1..93 -3..60 -1..38 -0..60 -2.,74 3..12 3..40 -3..75

Nondurable Goods Food & Kindred Textiles Apparel Paper Products Printing & Publishing Chemicals Petroleum & Coal Rubber & Plastics

Total Manufacturing

Total Boimanufacturlng Construction Trans., Comm., & P.U. Trade FIRE Services & Mining Government

20 Largest 15/20

NE-MW 8/13

-O..37

19/20

12/13

1..15 1..35 -0..20 -1..38 0..47 3..06 2.,26 0..64 3.,25 0,.22

-0.,27 -2..05 -1.91 -2..03 -0.,72 1..61 0.,27 -0..19 2.,02 -2..68

15/18 7/11 11/14 17/17 12/18 16/18 17/18 4/19 8/13 6/7

9/12 2/6 5/8 11/11 7/12 9/11 10/11 2/12 4/8 3/4

-1..72 -2..28 -5..41 -3..12 -0.,36 0,.20 - 0 . ,07 - 1 , .72 -1..54

0..25 -1..14 -4..27 -0..84 0.,17 1..66 1. ,05 0. .26 2.,54

-0.,82 -2.,24 -5.,52 -2.,38 -0.,34 0. .73 0 . ,42 -1..56 1.,07

20/20 14/20 8/10 12/15 10/18 16/19 13/16 8/10 13/13

13/13 7/13 4/6 7/10 4/11 10/13 7/10 5/7 9/9

1, .91

2,.87

1..99

15/20

8/13

0 . ,08 - 0 . .23 1..64

2.,32 1,.41 2.,65 3..27 4..66 1..33

0 . 36 0. .39 1. .64

14/20 19/20 16/20 15/20 15/20 14/20

7/13 12/13 9/13 8/13 8/13 8/13

2..51 3.,84 0. .53

NE-MW^ 1..45

Phlla.'s Ranking

2..23 4.,00 0. .87

SOURCE: Computed from Employment and Earnings, States and Areas, Bureau of Labor Statistics, U.S. Department of Labor. (a) Growth rates controlled for the national business cycle. See Appendix B.l. (b) Northeast-Midwest SMSAe: Philadelphia, Baltimore, Boston, Chicago, Cleveland, Detroit, Minneapolis, Nassau, Newark, New York, Pittsburgh, St. Louis, Washington, D.C.

39

Relative Strengths of Industrial Sectors

in comparison with those of the N H - M W g r o u p of SMSAS, its relative rankings were similar to those obtained in the comparisons with the 20 largest SMSAS.

Components of employment change by major sectors W h e n c o m p o n e n t s of e m p l o y m e n t change in the Philadelphia SMSA were c o m p a r e d to those in the 20 largest SMSAS, the patterns revealed were very similar to those f o u n d in the comparisons between Philadelphia and the nation as a whole (Table 3.11j. Between 1980 and 1982, Philadelphia relied more heavily on existing firms for additions to total e m p l o y m e n t than did the g r o u p of 20 SMSAS on average. T h i s was true for each of the m a j o r sectors as well. For the region's total e m p l o y m e n t , firm deaths and firm contractions each accounted for about the same portion of job losses as they did in the 20 largest SMSAS. T h e pattern differs, however, between M a n u f a c t u r i n g and N o n m a n u f a c t u r i n g . In M a n u f a c t u r i n g , a greater proportion of job losses occurred f r o m firm deaths in the Philadelphia SMSA than in the

Table 3 . 1 1 PERCENTAGE SHARES OF GROSS GAINS AND LOSSES OF EMPLOYMENT COMPONENTS BY MAJOR SECTORS: PHILADELPHIA SMSA AND THE 20 LARGEST SMSAs, 1980-1982 P e r c e n t a g e Share of Gross Gains i n Employment Births 20 P h i l a . SMSAs

Expansions 20 P h i l a . SMSAs

P e r c e n t a g e Share of Gross Losses inι Employment Deaths 20 P h i l a . SMSAs

Contractions 20 P h i l a . SMSAs

T o t a l Nonag· E e p l o y e e n t

381

43Z

62 Ζ

57X

58Z

59Z

42Z

41Z

Total Manufacturing

42

45

58

55

66

62

34

38

Durable Goods Nondurable Goods

44 39

47 42

56 61

53 58

62 72

62 62

38 28

38 38

36

43

64

57

54

57

46

43

44 36 48 14 37

46 43 51 31 40

56 64 52 86 63

54 57 49 69 60

56 61 59 48 46

47 60 62 48 57

44 39 41 52 54

53 40 38 52 43

Total Nonaanufacturing Construction T r a n s . , Comm., & P.U. Trade FIRE Services

SOURCE: WPEMP c a l c u l a t i o n s from Regional Economic I s s u e s Program d a t a . REI d a t a compiled by Applied Systems I n s t i t u t e u s i n g Brookings I n s t i t u t i o n and Dun and B r a d s t r e e t d a t a .

40

ECOIMMÜC

Repon on (be Philadelphia Metropolitan Area, 1985

group of the 20 largest, implying that a lower percentage of total Manufacturing job losses in the SMSA were recoverable. In Nonmanufacturing, the opposite was the case: a lower percentage of total job losses occurred from firm deaths in the SMSA than in the comparison group, and the greatest differential was in Services. What is most striking in the comparative data on the components of employment change is that Philadelphia's proportionally greater reliance on existing firms for job creation is not a characteristic shared with other large SMSAS. The comparison group of the 20 largest SMSAS shows interactions among the components that are much more similar to the national averages than to those in the Philadelphia S M S A . This finding, strengthened by the similar finding for the U.S.-Philadelphia comparisons, lends support to the hypothesis that this unique characteristic of the region is relevant to understanding its atypical growth patterns relative to the nation over the business cycle. The relatively low dependence on firm birth limits the region's ability to respond to economic expansions, but somewhat insulates the area in downturns.

Trends in employment growth rates Though it is clear that employment growth rates in the 20 largest SMSAS exceeded those in the Philadelphia region in every major industrial sector over the 11-year period from 1973 to 1984 (Table 3.12), it is important to determine whether these differences have narrowed over time. Table 3.12 disaggregates the years into three periods, each of which roughly covers the peak-to-peak of a business cycle. (For the last period, of course, the cycle is incomplete.) As can be seen in the table, employment growth overall has picked up in the most recent period, with Nonmanufacturing increasing substantially and Manufacturing declining at a slightly faster rate. Further, over the three time periods, the growth rate differential between Philadelphia and the 20 largest SMSAS has narrowed for total employment. In the Nonmanufacturing sector, the employment growth rate in the early 1980s exceeded the average rate of the other large SMSAS. Services and Trade were responsible for this strength. In the Manufacturing sector, the recent years suggest that Philadelphia has a comparative advantage in Electric Machinery and Equipment and Chemicals, but has developed an increasing disadvantage in Transportation Equipment and Instruments. The analysis of the data over successive time periods suggests modification of the rankings of some industries that, based on the whole time period, were identified as relatively strong industries: Transportation Equipment and Instruments seem to be less favorably positioned in the last few years; Electric Machinery and Chemicals seem more favorably positioned. Services, FIRK, and Trade remain consistently strong. Multiplier Effects in die Metropolitan Area

When such events as the departure of a large industrial firm or the receipt of a large defense contract occur, business and government leaders of the community are intensely interested in the effect on the employment

41

Relative Strengths of Industrial Sectors

Table 3.12 TRENDS IN EMPLOYMENT GROWTH RATES BY MAJOR SECTORS: PHILADELPHIA SMSA AND 20 LARGEST SMSAs, 1973-1984 Phi la. Growth R a t e s ^

Phlla. Minus 20 Largest^

73/74 -79/80

79/80 -80/81

81/82 -83/84

73/74 -79/80

79/80 -80/81

81/82 -83/84

0. 74

0. 24

0.97

-1.,12

-O.69

-O. 12

-2.07

-2.54

-2.70

-1.81

-0.41

-0.60

Durable Goods Furniture & Fixtures Stone, Clay & Glass Primary Metals Fabricated Metals Non-Electric Machinery Electric Mach. & Equip. Transportation Equip. Instruments Other Durable Goods

-1.59 -1.84 -1.98 -3.84 -2.09 -0.76 -3.87 2. 51 3.82 -3.97

-2.58 -1.99 -7.01 -5.95 -3.55 1.08 -0.99 -2. 10 -1.03 -13.02

-2.65 6. 22 -4.37 -8.35 -5.11 -3.44 1.36 -0.97 -5.24 2. 51

-1.49 -0.93 -0.55 -1.85 -1.25 -2.63 -4.26 3.41 0. 58 -3.40

0. 15 1.00 -1.62 -0.78 1.20 0. 58 -0.87 3. 19 -1.45 -9.82

0.47 5. 84 -0.98 2. 40 -2.05 -2.80 4.33 -0.93 -3.81 1. 18

Nondurable Goods Food & Kindred Textiles Apparel Paper Products Printing & Publishing Chemicals Petroleum & Coal Rubber & Plastics

-2.58 -2.39 -6.93 -4.43 -0.97 -0.49 -1.01 -2.93 -2.97

-2.50 -4.69 -7.34 -1.67 -3.46 2. 68 -1.08 0. 25 -10.81

-2.73 -2.23 -10.11 -2.56 -2.21 -2.69 0. 15 -6.84 -2.40

-1.94 -0.91 -1.36 -2.66 -0.23 -1.81 -1.69 -2.76 -4.94

-1.07 -2.48 -1.96 -0.66 -0.31 1.81 -0.98 -1.93 -12.08

-1.40 -0.63 -10.26 0. 81 -1.65 -4.23 2.38 -3.02 -2.82

Total Nonmanufacturing

1. 73

1.09

1.99

-O.78

-0.70

0.09

Construction Trans., Comm., & P.U. Trade FIRE Services & Mining Government Federal State & Local

-1.26 -0.66 1. 17 2.08 3. 63 1. 55 -0.96 2. 53

-1.36 -2.28 0. 22 1. 75 3.68 -0.10 1.41 -0.59

1.98 -0.34 2.60 1. 80 3.80 -1.05 0.02 -1.41

-1.80 -1.32 -1.04 -1.26 -0.62 -0.25 -2.33 -0.35

1.38 -2.92 -0.76 -3.11 -0.68 0. 29 -0.33 -2.38

-0.12 -0.41 0.45 -1.34 0. 16 -0.43 0.11 -0.77

Industry Total Hooag. Eaployaent Total Manufacturing

SOURCE: WPEMP analysis based on data from Employment and Earnings, States and Areas, Bureau of Labor Statistics, U.S. Department of Labor. (a) Time periods are defined to correspond roughly to the national business cycle except for the last period, which is not a completed cycle. (b) The average growth rates for the twenty largest SMSAs were computed from yearly data, by sector, summed over the SMSAs.

Econoak Report on the Philadelphia Metropolitan Afta, 1985

42

levels of the area. T h e interest is in the c o m b i n e d impact of direct and secondary e m p l o y m e n t arising from the initial event. T h i s impact is estimated by regional e m p l o y m e n t multipliers, n u m b e r s that measure the effect o n total e m p l o y m e n t in each industry of the initial increase in e m p l o y m e n t or value of output. Table 3.13 lists these estimates for the Philadelphia SMSA. T h e first c o l u m n , s h o w i n g the effects of changes in e m p l o y m e n t , reveals that e m p l o y m e n t multipliers in the more robust of the Manufacturing sectors ran b e t w e e n 1.6 and 1.8. H o w e v e r it is worth noting that

Table 3.13 EMPLOYMENT MULTIPLIERS BY MAJOR SECTORS: PHILADELPHIA SMSA, 1981

Industry

Total Employment Change Per Change of 1 In Sector Employment

Total Employment Change Per Change of $100,000 in Sector Output

Total Manufacturing

1.9

1.7

Durable Goods Furniture 4 Fixtures Stone, Clay & Glass Primary Metals Fabricated Metals Non-Electric Machinery Electric Mach. 6 Equip. Transportation Equip. Instruments Other Durable Goods

1.8 1.5 1.9 2.2 1.6 1.6 1.7 1.8 1.6 1.8

2.1 1.6 2.2 1.4 2.0 2.1 2.3 1.7 2.6 2.2

Nondurable Goods Food & Kindred Textiles Apparel Paper Products Printing & Publishing Chemicals Petroleum & Coal Rubber & Plastics

2.0 1.9 1.5 1.4 1.7 1.8 2.3 3.9 1.7

1.2 1.3 1.9 2.8 1.6 2.1 1.6 0.3 1.9

1.5

3.6

1.8 2.1 1.4 2.6 3.3 1.8 1.4

2.2 2.1 4.2 1.9 1.4 2.2 3.8

Total Nonaanufacturlng Construction Trans., Comm., & P.U. Wholesale & Retail Trade Wholesale Trade-Durables Wholesale Trade-Nondurables FIRE Services & Mining

SOURCE: WPEMP analysis of Regional Science Research Institute and Bureau of Economic Analysis data. See Appendix B.2.

Relative Strengths of Industrial Sectors

43

Chemicals, w h i c h includes the h i g h - g r o w t h P h a r m a c e u t i c a l s s u b s e c t o r , had a 2.3 m u l t i p l i e r — o n the average, an increase of one e m p l o y e e in the sector would increase e m p l o y m e n t in the region by a total of 2 . 3 e m ployees. T h o u g h not s h o w n in the table. C o m m u n i c a t i o n s , one of t h e h i g h - t e c h n o l o g y i n d u s t r i e s , h a d a relatively h i g h m u l t i p l i e r of 2 . 5 . N ' o n m a n u f a c t u r i n g , characterized by the u n f a v o r a b l y low export ratios described in T a b l e 3.8, t e n d e d , in a d d i t i o n , to have m u c h lower e m p l o y ment multipliers. Services a n d T r a d e generated multiplied effects of only 1.4. t h o u g h ι IRK was in the range of the M a n u f a c t u r i n g sectors. S o m e strong N ' o n m a n u f a c t u r i n g subsectors not shown in the table, h o w e v e r , showed the capability of large e m p l o y m e n t effects as they e x p a n d — I n s u r a n c e (4.7). W h o l e s a l e T r a d e of d u r a b l e goods (2.6), W h o l e s a l e T r a d e of n o n d u r a b l e s (3.3>, a n d N'onbank Credit Agencies (4.8). T h e second c o l u m n in T a b l e 3.13 indicates a n o t h e r way of assessing the impact of industrial c h a n g e s in the region, w h i c h is to examine the effects on e m p l o y m e n t of c h a n g e s in the value of industrial o u t p u t . T h e N ' o n m a n u f a c t u r i n g sector fared m u c h better than M a n u f a c t u r i n g — a S100.000 increase in the value of Services o u t p u t w o u l d result in the hiring of 3.8 additional e m p l o y e e s , but the same increase in the C h e m i c a l i n d u s t r y ' s o u t p u t would result in only 1.6 additional persons. T h e two sets of m u l t i p l i e r s , t h e n , reveal several features of the region, relevant to the effectiveness of stimulating different sectors. In sectors w h e r e wages are relatively low (such as Services a n d Retail T r a d e ) , the secondary effects of hiring o n e m o r e w o r k e r are l o w — h e n c e , the low Services and Retail T r a d e e m p l o y m e n t multipliers. But those industries are relatively labor intensive, resulting in p r o p o r t i o n a t e l y m o r e hiring w h e n the value of sales increases. In industries w h e r e wages are relatively high (such as C h e m i c a l s ) , t h e secondary effects of hiring one m o r e w o r k e r are h i g h — h e n c e , the high C h e m i c a l s e m p l o y m e n t multiplier. But those industries tend to be relatively capital intensive, resulting in p r o p o r t i o n a t e l y less hiring w h e n the value of sales increases. In s u m m a r y , increasing e m p l o y m e n t in certain i n d u s t r i e s (Chemicals, C o m m u n i c a t i o n , W h o l e s a l e T r a d e , I n s u r a n c e , B a n k i n g , and N o n b a n k Credit Agencies) will have significant multiplicative e m p l o y m e n t effects. Increasing the value of o u t p u t in o t h e r industries ( T r a n s p o r t a t i o n Services, Retail T r a d e , Security and C o m m o d i t y B r o k e r a g e , Personal Services, H e a l t h , H o t e l s , Social Services, a n d A m u s e m e n t and Recreation Services ) will have similar potential. M a n y of the f o r e r u n n e r industries of the region have the capacity to significantly increase e m p l o y m e n t as their n u m b e r s a n d o u t p u t value e x p a n d .

Summary: The Strong Industrial Sectors

P h i l a d e l p h i a ' s c u r r e n t e c o n o m i c strength lies mostly in its N o n m a n u f a c t u r i n g sector, but t h e r e are s o m e M a n u f a c t u r i n g i n d u s t r i e s , particularly some associated with high t e c h n o l o g y , that s h o w considerable vitality in employment. A n u m b e r of criteria w e r e used to gauge the relative strength of the m a j o r industrial sectors in t h e region. T a b l e 3.14 lists the m a j o r sectors

Ecommüc Report on the Philadelphia Metropolita· Aita, 1985

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