The Metropolitan Statistical Area of Cleveland, Ohio An Industrial Structure Analysis

Transcription

1 The Metropolitan Statistical Area of Cleveland, Ohio An Industrial Structure Analysis Victoria Price September 21, 2009

2 Table of Contents Introduction... 3 Economic Base Analysis of Cleveland, Ohio... 3 Largest Basic Industries... 4 Largest Non-Basic Industries... 4 Economic Diversity and Dependence... 5 Viability of Basic Industries... 6 Local Industry Clusters- How the Economy Fits Together... 7 Conclusion... 7 Appendices... 9 Bibliography

3 Introduction The Urban Planning profession demands an understanding of geographic, social and economic principles in order to provide guidance for regional development. This involves analysis of population and business patterns of a region. Counting persons and households is essential to understanding the future and prospects for an area. Equally important is an understanding of the strengths, weaknesses, and changes within the local economy. Economic Base Theory provides a framework for understanding the local economy and points towards several techniques for analyzing the local economy. Theory often falls short in practice, but in studying the economic base of the Metropolitan Statistical Area (MSA) of Cleveland, Ohio (OH) the potential applicability of quantitative data provided by this framework is apparent. The techniques that have developed from this theory produce calculable and tangible evidence for economic analysis. The data used to develop this evidence is provided by the 2000 County Business Patterns, provided by the United States Census Bureau. The comparison of national data can provide insight about a local economy. Historically, Cleveland, OH experienced great prosperity as transportation technology evolved in the nineteenth century. The first half of twentieth century reflected this trend, but as the nature of manufacturing business practices changed in the United States, Cleveland s economic strength waned. This could be a related to a failure to embrace new technology or the diminishment of factory jobs for unskilled workers. While these hypothesizes may have merit, without economic base analysis no conclusions can be drawn about Cleveland s prospects. Economic Base Analysis of Cleveland, Ohio Economic Base Theory assumes that all local economic activities can be identified as basic or non-basic. The basic sector drives the local economy. The local economy is strongest when it develops those economic sectors that are not closely tied to the local economy. The presence of industries that rely primarily on external markets is a strong indication of economic stability. If the region has to produce more than its own consumption for surrounding regions, their product of service is considered a specialization. The local economy benefits from the external profitability. The non-basic sector s existence is contingent upon this influx. To determine whether an industry is in the basic or non basic sector, the table below demonstrates the economic base analysis technique called 3

4 location quotient. By comparing the local employment ratios of Cleveland to that of the country, a determination can be made about the sector type. When the product of this comparison is greater than one, it is clear that the external market benefits from that industry. Largest Basic Industries Cleveland s largest basic industries consist of manufacturing, financial services, hospitals and performing arts, spectator sports and related industries. Cleveland has always has factories, and the trend persists. The products produced vary from organic and non-organic chemicals to motor-vehicle parts. Electrical equipment, such as appliances and components are produced as well. Hospitals are very prevalent here and this may be due to the statistical growth of the health care industry nationally. Financial services here relate to real estate and investment trusts. Cleveland s central location between the east and Midwest may contribute to the location of this industry. Cleveland s history also supports the performing arts, spectator sport and related industries. There are claims that the term rock-n-roll was coined here and has a long tradition of professional athletic teams. Manufacturing no longer serves the large role it did traditionally in Cleveland s past. This being said, hospitals and finance are both strong industries to introduce into an economy. The potential for their growth is nearly immeasurable. Largest Non-Basic Industries The non-basic sector is composed of those industries that depend largely upon local business conditions. For example, a local grocery store sells its goods to local households, businesses, and individuals. These industries rely heavily on the returns from the basic industries. The economic base theory provides a unit of analysis to explain this relationship. It is called the base employment multiplier. It is used to 4

5 estimate how a loss or gain of a job in the employment sector will impact the non-basic sector. This number is derived from dividing the total employment of all the basic industries by the total employment of the region. In Cleveland s case, the result is four. That means for every one job lost or gained in the basic industries, three additional jobs are impacted at a non-basic level. The table below lists the largest industries that are in this sector. While some of the basic industries, such as manufacturing and hospitals are present, the majority of the large industries are service related, which is to be expected. Establishing the character of Cleveland s economy was the first necessary step to the process of drawing a conclusion about its well being and future. Determining the vulnerability or potential of a region can be difficult and relies on many factors. Research and analysis has identified some basic qualities of a healthy economy. These are: diversity in its base, industry corporate dependence and the viability of potential stability or growth. Economic Diversity and Dependence A diversified economic base helps expand the local economy and reduces a community's vulnerability to a single business sector. So when the fairly predictable fluctuations in business patterns occur, about every four years, the economy will not suffer irreparable damage. In Cleveland, the basic industries exhibit a good deal of diversity. Six employment sectors comprise the base: manufacturing, retail, financial services, hospitals, performing arts spectator sports and related industries and a sector called other services. The variety of opportunities available as well as the multitude of skill sets necessary for jobs in the industries of these sectors indicates that Cleveland is likely to fare fine in economic change. The capability of developing and surviving as a relatively independent economy is critical. Large companies can compromise a region by leaving quickly for better profits. In the past, Cleveland has been 5

6 the home to major corporations, such as Standard Oil, but presently, the majority of the basic industries employers are relatively small. In the manufacturing of motor vehicles and electrical appliances there are large companies, but proportionally speaking, the number is quite low it is a tiny fraction of all employers. The financial industry however seems less independent, 15% of the industry relies on a large corporation related to real estate and investment trusts. Another industry that may be slightly at risk is the hospitals, 14 out of the 65 of these are large companies. These numbers are not astronomical, and while the latter industries may suffer a large company left, their survival would not be in jeopardy. Viability of Basic Industries The current economic character of Cleveland according to the base analysis is that of a healthy region by two of the three assertions the previously mentioned. It has a diverse base and has a variety of employers in that base, its future should also be considered. In the November 2005 issue of The Monthly Labor Review, economist Jay Berman s article, Industry Output and Employment Projections to 2014 appears. Berman uses macroeconomic factors for industry analysis. By incorporating previous growth rates with societal changes, Berman arrives at an informed estimation of an industry s likely situation in To apply this to Cleveland s basic industries, the total employment of an industry must be multiplied by Berman s average rate of growth prediction for each industry; the product is only representative of one year and must then be multiplied by ten to be accurate. That product and the original number of total employment for each industry should then be combined to produce a total for all the basic industries. That total then must be multiplied by the previously described economic base multiplier, in Cleveland s case, 4, to accurately derive the total impact of the projections on the economic base. By combining the total of the current economic base with this projected impact, an idea of the future of Cleveland s economy can be established. Cleveland s future looks bright based on Berman s projections. While the manufacturing industries may decline, the hospitals and arts are both estimated to experience a great deal of growth. The estimation indicates a 62% increase overall. The planning and policies that will occur in Cleveland should be aware of this potential. Perhaps the growth of the art community could be encouraged by planning for better use of the downtown area and affordable housing. Knowledge of these sectors potential may incline the region to better anticipate the needs of its individual industries. 6

7 Local Industry Clusters- How the Economy Fits Together One factor in that can influence the success of an industry is the grouping of related industries and institutions in an area. This is called a cluster. The industries are inter-linked and connected in many different ways. Some industries in the cluster will be suppliers to others; some will be buyers from others; some will share labor or resources. The important thing about a cluster is that the industries within the cluster are economically linked, they both collaborate and compete and are, to some degree, dependent upon each other; and ideally, they take advantage of synergies. In Cleveland, hospitals comprise the major part of both the basic and non-basic economy base. The industries that hospitals rely on in the area can be derived by reviewing input-output tables. These data sources list commodity by industry direct requirements. The numbers listed beside the top five local suppliers in the table below are the requirements of the hospitals per dollar of output from each industry. All of the industries the hospitals rely on are present in Cleveland. The two industries that are slightly smaller than the listed five are drugs and rubber and plastic products, these are manufactured locally as well. The presence of this support system may have been an incentive for the hospitals to aggregate in this region. Conclusion In reviewing the quantitative data obtained from the economic base analysis, Cleveland s economy seems healthier than the initial hypothesizes suggested. It has become the location of many diverse 7

8 industries that have created positive trends of growth. The data analysis indicates that healthcare has become an increasingly larger source of economic activity, generating billions of dollars, employing thousands, and creating jobs even for those not directly employed in patient care. Cleveland has grown as a hub for healthcare research; and expansions at area hospitals have created jobs for many employed in the skilled trades, including electricians, plumbers and those who work in construction. As the region looks to the future, the healthcare industry holds great promise for a healthy, vibrant economy. The priority of state and local governments should be continuing to provide the resources that initially created the settlement of their currently successful and viable industries and to encourage the existing relationships between industries for optimal function and innovation.. 8

9 Appendices 9

10 10

11 11

12 12

13 13

14 14

15 Bibliography Anderson, Robert J., "A Note on Economic Base Studies and Regional Econometric Forecasting Models," Journ. of Regional Science 10(3), 1970, pp.325ff. Andrews, Richard B "Mechanics of the Urban Economic Base: Historical Development of the Base Concept." Land Economics 29: Archer, B.H "The Anatomy of a Multiplier." Regional Studies 10: Berman, Jay ( Industry Output and Employment Projections to 2014, Monthly Labor Review, November 2005: Blair, J.P., chapter 7: Additional Tools & Perspectives on Economic Growth, pp Blumenfeld, Hans "The Economic Base of a Community." Journal of the American Institute of Planners 21: 114:132. Galambos, Eva & Arthur Schreiber: Economic Base: What Our Jobs Are Tied To, in Making Sense Out of Dollars. Washington, DC: National League of Cities, Gibson, Lay James, and Marshall A. Worden "Estimating the Economic Base Multiplier: A Test of Alternative Procedures." Economic Geography 57: Klosterman, Richard E Community and Analysis Planning Techniques. Rowmand and Littlefield Publishers, Inc. Savage, Maryland. See Chapters Lane, Theodore "The Urban Base Multiplier: An Evaluation of the State of the Art." Land Economics 42: Lawson, Anne M.: Benchmark Input-Output Accounts for the U.S. Economy, 1992, Survey of Current Business, December 1997, Bureau of Economic Analysis Martin, Randolf C. and Harry W. Miley, Jr "The Stability of Economic Base Multipliers: Some Empirical Evidence." Review of Regional Studies 13: Schreiber, Eva & Arthur. Economic Base: What Our Jobs are Tied To, Making Sense Out of Dollars. Washington, D.C.: National League of Cities,1978. Williamson, Robert B "Regional Growth: Predictive Power of the Export Base Theory." Growth and Change 6: U.S. Census Bureau County Business Patterns (NAICS). Online. Available: Yeates, Maurice. The North American City. New York: Addison Wesley Longman, Inc