Chapter 3 Economic Structure - University of Kansas

[Pages:22]The Kansas City Economy

3 Economic Structure

Chapter 3 Economic Structure

3-0 Overview

Economic structure comprises a broad array of economic characteristics that may support (and also result from) innovation. These include the prosperity of the local economy, its employment structure, and the competitiveness of area businesses. This chapter analyzes indicators intended to capture these potential influences on MSA innovation activity.

Indicators of Economic Structure

The indicators in this section can be divided into five groups reflecting: (1) the scale of the metropolitan economy, (2) growth and migration, (3) labor market conditions, (4) business structure, and (5) competitiveness.

Living in a larger MSA has both advantages and disadvantages for local residents. The advantages have to do with variety, diversity, synergies, and amenities (related to economies of scale, scope, and agglomeration) and also with the amount of resources that can potentially be brought to bear on any one problem. The disadvantages include congestion, increased travel times, high costs of land, and negative synergies from the agglomeration of social problems.

Metropolitan areas of different sizes are adapted to different ways of organizing life. The main significance of size, therefore, is to indicate what other metropolitan areas are likely to compete with Kansas City as attractive places to live, with respect to similarities in size. The two indicators of size included here are:

? Population, the number of people who choose to live here, and

? Total personal income, the annual increment in monetary resources that can be devoted to producing a high standard of living.

A successful economy is one that is able to attract people who want to live and work in the region, creates an environment conducive to growing families, and attracts businesses that create jobs to employ them. On the other hand, too rapid growth can contribute to economic stresses on existing roads, public works, and other infrastructure. We consider three indicators in gauging the rate of growth of each MSA.

? Population growth rates reflect the combined effects of net migration into the region and natural population increase. Both are important factors in increasing regional labor supply.

? Employment growth rates directly measure the extent of new job creation in the local economy.

? Five-year migration rates--the fraction of the population that was living somewhere else five years earlier--provides a more direct measure of the extent to which economic opportunities and quality of life factors are capable of attracting migrants into the region.

Another reflection of economic success is provided by labor market conditions. A successful economy is capable of providing employment for its citizens, while offering them a high standard of living. We make use of the following four indicators to measure labor market conditions.

? The unemployment rate is a direct measure of the balance between labor supply and demand in the area. High levels of unemployment are clearly undesirable. However, unduly low levels of unemployment may indicate rising employment costs for businesses.

? Personal income per capita adjusted for the cost-ofliving is a broad based measure of economic well being. It reflects the average level of income per person in the area. Adjusting for differences in living costs across locations, it provides a dollar-value measure of differences in the standard of living available to residents in different metropolitan areas.

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The Kansas City Economy

3 Economic Structure

? Average salaries of managerial, professional, and technical workers adjusted for the cost-of-living are another reflection of economic well-being, shedding light on an important segment of the workforce.

? Average salaries of information technology professionals adjusted for the cost-of-living, are an indication of the healthiness of the labor market for a key group of workers in the new economy.

The fourth set of indicators captures aspects of the transformation of the regional economy in response to the growing importance of service sector and whitecollar jobs. These indicators measure the mix of different jobs in the labor force and provide a gauge of how far along each MSA is in the transition to the new economy. The three indicators we use are:

? The share of managerial, professional and technical jobs in total employment reflects the fraction of local workers who hold "good jobs." These white-collar jobs require above average levels of education and offer better than average pay in combination with attractive working conditions. An economy that creates more of these jobs is one that is successfully making the transition to the twenty-first century knowledge-based economy.

? The share of information technology professionals captures a narrower, but highly important, aspect of economic transition. IT is rapidly becoming important in almost every aspect of business and manufacturing. A larger share of IT professionals reflects the extent to which the local economy is a leader in this transition.

? The share of life science professionals is another indicator of regional progress in a sector that is anticipated to be a driver of future economic growth--and a sector which Kansas City business leaders have targeted.

The final group of three indicators in this section focuses on the competitiveness and growth of area businesses.

? Manufacturing exports per employee are a reflection of the efficiency and competitiveness of area manufacturers. Success in export markets can bolster growth in employment, sales, and market share.

? Manufacturing value-added per worker-hour is a measure of the productivity of local workers.

? Share of small businesses reflects the balance of employment between businesses with fewer than 20 employees to all businesses in the area. Small businesses are important because they generate most of the new jobs that are created in the economy.

"Kansas City ranks 18th among the 52 MSAs in terms of overall economic structure. Among its peers, it ranks 4th but is extremely close to the 3rd place MSA, Madison."

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The Kansas City Economy

3 Economic Structure

Economic Structure Index

The Economic Structure Index aggregates the four groups of qualitative indicators into a summary measure of economic structure that reflects the overall economic success and competitiveness of the MSA's economy. The index is comprised of four equally weighted subindexes, one for each group of indicators. Within each subindex, each indicator receives equal weight.

Kansas City ranks 18th among the 52 MSAs in terms of overall economic structure. Among its peers, it ranks 4th but is extremely close to the 3rd place MSA, Madison.

Table 3-0: Economic Structure Index

Metropolitan Area

Top 5 1 Austinb 2 Raleighb 3 Phoenixb 4 Houstona 5 Washington, DCa

Kansas Cityc

Index Rank Normalized Index

72.7

1

71.3

2

64.8

3

64.1

4

62.0

5

56.7

18

100.0% 98.1% 89.2% 88.3% 85.4%

78.0%

Peer Group 1 Austinb 2 Denvera 3 Madisonb 4 Kansas Cityc 5 Salt Lake Cityc 6 Indianapolisc 7 Columbusb 8 Cincinnatia 9 St. Louisb 10 Tampab 11 Pittsburghb

72.7

1

60.3

11

57.6

15

56.7

18

55.6

20

54.9

22

53.2

26

52.6

31

52.2

34

51.7

36

46.0

50

100.0% 83.0% 79.3% 78.0% 76.6% 75.6% 73.3% 72.4% 71.8% 71.1% 63.3%

Source: Compiled by Policy Research Institute. a: CMSA b: MSA c: Expanded MSA (See Text)

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The Kansas City Economy

3 Economic Structure

3-1 Total Population, 2000

Why is it Significant?

Total population is an "extensive" indicator of potential workforce for an economy. To thrive in the new economy, metropolitan areas must be able to attract people to work and live in the area. Total population also helps determine which other MSAs a given MSA is most directly in competition with.

How does Kansas City Perform?

The total Census population in the US for the year 2000 was 286 million. Approximately 62 million people lived in the top five metropolitan areas, with about 164 million living in the top 50 MSAs. Kansas City MSA was 24th in population with about 1.9 million people (when Douglas County is included), or about 9% of the largest MSA (New York) in size. Its peer group MSAs (except for the much smaller Madison) have between 6% and 12% of the population of New York.

What does this Trend Mean for Kansas City?

Kansas City and its peers have the virtues and limitations of middle-sized Midwestern MSAs. They are large enough to serve as major industrial headquarters and to experience big-city social problems. They are small enough to enjoy both relatively low housing costs and relatively short commute times, but they lack the ability to provide some big-city amenities.

Table 3-1: Total Population, 2000d

Metropolitan Area

Top 5 1 New Yorka 2 Los Angelesa 3 Chicagoa

Total Number

Rank Index

21,200 16,374

9,158

1 100.0%

2

77.2%

3

43.2%

4 Washington, DCa 5 San Franciscoa

Kansas Cityc

7,608 7,039

1,876

4

35.9%

5

33.2%

24

8.8%

Peer Group 1 St. Louisb 2 Denvera 3 Tampab 4 Pittsburghb

5 Cincinnatia 6 Kansas Cityc

7 Indianapolisc 8 Salt Lake Cityc 9 Columbusb 10 Austinb 11 Madisonb

2,604 2,582 2,396 2,359 1,979 1,876 1,728 1,702 1,540 1,250

427

18

12.3%

19

12.2%

20

11.3%

21

11.1%

23

9.3%

24

8.8%

26

8.2%

27

8.0%

34

7.3%

38

5.9%

52

2.0%

Source: Bureau of the Census, 2000 (2). a: CMSA b: MSA c: Expanded MSA (See Text) d: 1,000s of Persons

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The Kansas City Economy

3 Economic Structure

3-2 Total Personal Income, 2001

Why is it Significant?

Total personal income is the sum of all income received by persons as a result of their participation in production (including wages, salaries, dividend payments, and proprietors incomes) and all government transfers (such as social security and unemployment insurance). It is the most inclusive measure of economic activity available for MSAs and is an important indicator of the total size of the area economy.

How does Kansas City Perform?

Kansas City has total personal income equaling about 7% of that of New York, the leading MSA. Its peers (except Madison) range from about 5% to 12% of New York. Because the cost-of-living is generally lower in the peer group of MSAs than in New York, this index comparison substantially understates the capacity of these cities to generate a good standard of living.

What does this Trend Mean for Kansas City?

Kansas City is a middle-sized city in terms of income as well as population.

Kansas City's income share (7% of New York) is substantially lower than its population share (9% of New York). Consequently, per capita income is lower in Kansas City than New York. This number, however, may not be very meaningful because it is not adjusted for cost-of-living (COL) differences. A subsequent section shows comparisons that do include a COL adjustment.

Table 3-2: Total Personal Income, 2001d

Metropolitan Area

Top 5 1 New Yorka 2 Los Angelesa 3 Chicagoa 4 San Franciscoa 5 Washington, DCa

Total Dollars (millions)

Rank

Index

$882,600 1 100.0% $513,967 2 58.2% $335,045 3 38.0% $330,541 4 37.5% $306,092 5 34.7%

Kansas Cityc

$62,117 24

7.0%

Peer Group 1 Denvera 2 St. Louisb 3 Pittsburghb 4 Tampab 5 Cincinnatia 6 Kansas Cityc 7 Indianapolisc 8 Columbusb 9 Salt Lake Cityc 10 Austinb 11 Madisonb

$101,425 15 $86,569 19 $77,551 20 $72,660 21 $63,471 23 $62,117 24 $55,935 27 $49,651 29 $44,130 35 $42,147 38 $15,932 52

11.5% 9.8% 8.8% 8.2% 7.2% 7.0% 6.3% 5.6% 5.0% 4.8% 1.8%

Source: Bureau of Economic Analysis, 2001 (3); Bureau of Economic Analysis, 2001, 2002 (1). a: CMSA b: MSA c: Expanded MSA (See Text) d: 1,000,000s of 2002 Dollars

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The Kansas City Economy

3 Economic Structure

3-3 Average Annual Population Growth Rate, 1990-2000

Why is it Significant?

The population growth rate is an indicator of success in generating new jobs and income, which in turn attract new population and an increased supply of labor. While there are many reasons for migrating to or from a metropolitan area, availability of jobs is among the most important. Mathematically, population growth depends not just on net migration, but also on net increase (births less deaths). However, as long as jobs are available elsewhere, populations will neither stay permanently rooted nor keep growing indefinitely in a location that doesn't generate new jobs.

High rates of population growth are an indication that an MSA offers attractive employment and business opportunities. On the other hand, there is such a thing as population growth that is too rapid. Extremely rapid expansion leads to high tax costs used to cover capital investments in new public infrastructure. It also typically leads to a lag in public and private infrastructure expansion. When demand for services outstrips the supply, it causes congestion and a reduction in quality of life. Moreover, in rapidly expanding cities, growth in population sometimes outstrips growth in jobs, with more new workers being attracted by the expanding opportunities than there are new jobs for them to fill.

How does Kansas City Perform?

Between 1990 and 2000, Kansas City had a modest average annual population growth rate of 1.2% per year, putting it in 31st place among the 52 MSAs. That rate is essentially identical to the growth rate of the US as a whole. The fastest growing MSA, Las Vegas, experienced a substantially higher rate of 6.5% per year. Las Vegas experienced slower job growth than population growth and also does not have a high reputation for quality of life, suggesting that its growth rate may be too high. The next four most rapidly growing MSAs grew between 3% and 4% per year. These cities generally have positive quality of life reputations, suggesting that such growth rates, although creating fiscal and environmental stress, may not prevent an MSA from having a sustainably high quality of life.

Growth rates of the Kansas City peer group are very widely dispersed. Austin, with 3.9%, was the second most rapidly growing MSA among the 52 MSAs and highest among the peer group. Pittsburgh, with -0.1%, had the worst growth rate among both the peer group and the 52.

What does this Trend Mean for Kansas City?

Kansas City has been a plodder, neither a star nor a loser. As it happens, its population growth has lagged behind employment growth over the last decade; if employment growth continues with at least the same rate, population growth is likely to pick up.

Table 3-3: Average Annual Population Growth Rate, 1990-2000

Metropolitan Area

Top 5 1 Las Vegasb 2 Austinb 3 Phoenixb 4 Raleighb 5 Atlantab

Percentage Rank

6.5%

1

3.9%

2

3.6%

3

3.3%

4

3.3%

5

Index

100.0% 61.0% 57.0% 52.3% 51.7%

Kansas Cityc

1.2%

31

20.4%

Peer Group 1 Austinb 2 Denvera 3 Salt Lake Cityc

4 Madisonb 5 Tampab 6 Indianapolisc 7 Columbusb 8 Kansas Cityc

9 Cincinnatia 10 St. Louisb 11 Pittsburghb

3.9% 2.6% 2.4% 1.6% 1.5% 1.5% 1.4% 1.2% 0.9% 0.4% -0.1%

2

61.0%

10

41.0%

12

38.0%

22

26.0%

23

25.1%

24

24.5%

26

22.9%

31

20.4%

38

15.2%

46

8.8%

52

0.0%

Source: Bureau of Economic Analysis, 1990-2000 (4). a: CMSA b: MSA c: Expanded MSA (See Text)

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The Kansas City Economy

3 Economic Structure

3-4 Average Annual Employment Growth Rate, 1990-2000

Why is it Significant?

The employment growth rate measures the extent of new job creation in the local economy (net of job losses). Employment growth in an economy indicates the health of that economy. High employment growth results from prosperity of the businesses of that area.

How does Kansas City Perform?

Between the two business cycle peaks of 1990 and 2000, Kansas City jobs grew at 1.9% per year and ranked 20th among the 52 MSAs. This is a respectable rate, well in excess of its population growth. However, the five fastest growing cities were able to create jobs two to three times as fast as Kansas City. The peer group cities were widely dispersed, with Austin, 2nd, and Pittsburgh, 46th, among the 52. Kansas City ranked 6th among its peers.

During the business cycle downturn from 2000 to 2002, Kansas City lost jobs at the rate of 0.4% per year. That put Kansas City at 40th among the 52 MSAs and close to the bottom of its peer group in job growth.

What does this Trend Mean for Kansas City?

Kansas City has a respectable record of job creation, but it could be improved. Kansas City could benefit greatly from a more dynamic economy that supported a higher growth rate. That dynamism would almost surely have to rest on increased innovativeness.

Table 3-4: Average Annual Employment Growth Rate, 1990-2000

Metropolitan Area

Top 5

1 Las Vegasb 2 Austinb 3 Phoenixb 4 Atlantab 5 Salt Lake Cityc

Percentage

5.9% 4.8% 3.8% 3.6% 3.5%

Rank

1 2 3 4 5

Index

100.0% 82.8% 66.0% 63.4% 62.1%

Kansas Cityc

1.9%

20

36.0%

Peer Group

1 Austinb

4.8%

2

2 Salt Lake Cityc

3.5%

5

3 Denvera

3.0%

8

4 Tampab

2.7%

9

5 Madisonb

2.1%

18

6 Kansas Cityc

1.9%

20

7 Indianapolisc

1.9%

23

8 Columbusb

1.7%

26

9 Cincinnatia

1.2%

35

10 St. Louisb

1.0%

39

11 Pittsburghb

0.7%

46

Source: Bureau of Labor Statistics, 1990-2000 (1). a: CMSA b: MSA c: Expanded MSA (See Text)

82.8% 62.1% 54.1% 48.4% 39.8% 36.0% 35.6% 33.4% 25.8% 21.8% 16.5%

The recent job losses may be a one-time event. Even so, the trend suggests that Kansas City may need to diversify its economy further to provide more protection against down-turns.

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The Kansas City Economy

3 Economic Structure

3-5 Five-Year Migration Rate, 1999

Why is it Significant?

The fraction of the population that lived somewhere else five years earlier measures the extent to which economic opportunities and quality of life factors are capable of attracting migrants into the region. A high rate of in-migration also generates a high level of competitiveness in the workforce and produces a high availability of skilled labor.

On the other hand, many cities with high in-migration rates also have high out-migration rates, indicating a substantial amount of turnover. These cities are not able to hold on to all of the in-migrants they attract.

How does Kansas City Perform?

Kansas City's in-migration rate of 2% over four years ranks relatively low, at 38th among the 52 MSAs. Kansas City is also slightly below the middle in its peer group at 7th place. The five leading MSAs have from two-and-a-half to four times as much in-migration as Kansas City, while the lowest ranking MSA has only half as much.

What does this Trend Mean for Kansas City?

Kansas City has a relatively low level of in-migration, indicating that it is not viewed as a highly attractive destination for relocations. Its in-migration ranking is considerably below its ranking on job creation, which strongly suggests that job availability is not a major barrier to in-migration. Instead, it is likely that outsiders' perceptions of quality of life are less favorable for Kansas City than for its competitors.

Kansas City's in-migration rate is noticeably lower in rank than its population growth rank as well, indicating that Kansas City has a below average amount of turnover or population churning. In other words, while Kansas City attracts relatively few newcomers, it tends to hold on to those it does attract. This suggests Kansas City is a significantly better place to live than outsiders comprehend. Kansas City should find ways to dramatize the message that Kansas City is a good place to live.

Table 3-5: Five-Year Migration Rate, 1999 (Percent of Residents Living Elsewhere in 1995)

Metropolitan Area

Top 5

1 Miamia 2 San Franciscoa 3 Houstona 4 Dallasa 5 New Yorka

Percentage Rank

7.9%

1

5.7%

2

4.9%

3

4.8%

4

4.7%

5

Kansas Cityc

2.0%

38

Index

100.0% 71.7% 62.8% 60.6% 60.0%

24.8%

Peer Group 1 Austinb 2 Denvera 3 Salt Lake Cityc 4 Madisonb

5 Tampab 6 Columbusb 7 Kansas Cityc 8 Indianapolisc

9 St. Louisb 10 Cincinnatia 11 Pittsburghb

4.4%

8

3.9%

15

3.6%

18

2.9%

24

2.6%

26

2.2%

32

2.0%

38

1.7%

40

1.4%

45

1.2%

50

1.0%

52

Source: Bureau of the Census, 1999 (3). a: CMSA b: MSA c: Expanded MSA (See Text)

56.3% 49.5% 45.7% 36.5% 33.3% 27.5% 24.8% 21.8% 18.3% 14.9% 12.1%

". . . while Kansas City attracts relatively few newcomers, it tends to hold on to those it does attract. This suggests Kansas City is a significantly better place to live than outsiders comprehend. Kansas City should find ways to dramatize the message that Kansas City is a good place to live."

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