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24 URBAN CHANGE AND POVERTY Urban Economic Trends Urban economies continue to be transformed by long-run struc- tural changes in the postindustrial economy of the nation. These changes, which involve the shift from an economy based on man- ufacturing to one based on services, and the shift from blue-collar to white-collar jobs (even in the manufacturing sector), result from powerful technological, institutional, and demographic forces and are reinforced by developments in the international economy (Han- son, 1983:Ch. 2; Noyelle and Stanback, 1984; Stanback et al., 1981~. These national and international economic changes are influencing the location as well as the nature of economic activities in the United States. They are changing the size and density of urban areas. Sum urbanization has led to an overall decentralization of employment and population within metropolitan areas since at least 1920 (Haw- ley, 1956~. More recently, the movement of jobs and population has gone to the exurbs and beyond, within regions and across regions (Long, 1981~. These metropolitan and regional shifts in economic activity and population have affected individual local areas in different ways and at different times, resulting in uneven development and differential growth patterns across regions and areas. With the suburbanization of jobs and people, large central cities have been declining relative to the remainder of their metropolitan areas for decades, except in the West and South where some cities have been able to annex the suburbs as they developed. As a result, older cities in the Northeast and Midwest have relatively static tax bases. They are also left with a larger share of the core poverty areas than newer growing cities in the South and West. As manufacturing moved out into the exurbs and beyond, metro- politan areas actually grew more slowly than nonmetropolitan areas for a time in the 1970s. Over the long run, there has been a redis- tribution of employment and population to the West and South and a decline in the older Northeast and Midwest regions. Theoretically, a region or area that loses one source of industrial employment and income may eventually gain another. For example, New England, which was the first area to experience the exodus of manufacturing, has finally achieved a high-technology and service-based economy that is supporting its slowly growing population (New England's population grew only 37 percent between 1940 and 1980, compared

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COMMITTEE REPORT 25 with 71 percent nationally [Bureau of the Census, 1986c:Table 24~. This process of adjustment may be more complicated for the Midwest because of increased international economic competition (Garnick, in this volume). URBAN GROWTH The 1960s witnessed metropolitan growth and central-city de- cTine. In the 1970s nonmetropolitan areas grew more quickly than metropolitan areas, and major regional shifts in population and eco- nomic activity accelerated. In the late 1970s and early 1980s media coverage of the phenomenon of gentrification led some to say that the old cities were reviving. The most recent data from the U.S. Department of Commerce's Bureau of Economic Analysis indicate that metropolitan areas as a whole have reassumed their lead in eco- nomic growth in the 1980s, although some central cities, and even entire metropolitan areas in the Mideast and North Central regions, continue to lose population and employment (see Garnick, in this volume). In the 1960s metropolitan areas grew faster than nonmetropoli- tan areas nationally (Table 5) in population, total personal income, and earnings. Nonmetropolitan areas experienced declining farm employment and large-scale out-migration of population. Manufac- turing employment began to grow in nonmetropolitan areas, how- ever, and out-migration slowed in the late 1960s. In metropolitan areas, central cities, especially in the Mideast region, lost population in the 1960s, but generally this was more than compensated for by suburban growth. In the 1970s the trends were reversed. Nonmetropolitan areas grew faster than metropolitan areas nationally for a variety of rea- sons, most of which turned out to be temporary. Manufacturing enterprises looking for campus-type locations and lower cost settings than central cities or even metropolitan suburbs were attracted to nonmetropolitan areas. Other, more temporary factors that favored nonmetropolitan areas included a slowing of the decline in the agri- cultural sector, the declining U.S. dollar in international trade in the 1970s (which favored the kind of labor-intensive manufacturing activities that were often found in nonmetropolitan areas), the boom in recreation and retirement areas, and the development of natural resources and oil during the energy crisis. In the metropolitan areas,

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26 URBAN CHANGE AND POVERTY where growth was slower, there was a continued reduction in indus- trial activity. In particular, the old regions of the North grew more slowly. In the 1980s the trends that favored Nonmetropolitan areas have reversed: farm prices have declined, mining declined, and compe- tition from foreign manufacturers has increased. More recently, oil prices have plummeted. In general, there has been a shift back too ward metropolitan growth relative to Nonmetropolitan growth. Not all metropolitan areas have recovered, however, especially in the Mideast and Great Lakes regions. Regional shifts from the North, mostly in the Mideast and Great Lakes regions, have continued into the 1980s; metropolitan areas in these regions continue to grow more slowly in population, income, and earnings (Table 6~. The main reason for the continued decline of these regions, and of their metropolitan areas in particular, is the continuing loss of jobs in the manufacturing sector. Growth rates still favored the regions in the West and South over the older regions in the early 1980s. Despite a large decline in oil prices, the ar~nual growth rates in the Southwest and Rocky Mountain regions still exceeded the national average and were half again as large as growth in the Great Lakes region during 197~1984 (Garnick, in this volume:Table 3~. The economic success story of the 1980s is one of growth in the service sectors, even in the declining regions (Table 7~. According TABLE 5 Average Annual Growth Rates (percentage) of Personal Income, Population, and Earnings, 1959-1984 Average Annual Growth Rate Time and Area Personal Income Population Earnings 1959-1969 Metropolitan 6.98 1.60 6.83 Nonmetropolitan 6.71 0.35 6.16 1969-1979 Metropolitan 9.81 1.04 9.21 Nonmetropolitan 10.98 1.29 10.01 1979-1984 Metropolitan 9.37 1.07 8.26 Nonmetropolitan 8.46 0.84 - 6.08 SOURCE: Garnick (in this volume:Tables 1, 2, and 3~.

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COMMITTEE REPORT TABLE 6 Average Annual Growth Rates (percentages) of Total Personal Income, Population, and Earnings in Metropolitan Statistical Areas (MSAs), 1979-1984 Average Annual Growth Rate Metropolitan Statistical Personal Total Area, by Region Income Population Earnings New England 10.44 0.29 9.90 Mideast 9.20 0.17 8.26 Great Lakes 6.93 -0.05 5.23 Plains 8.73 0.71 7.55 Southeast 10.58 1.70 9.55 Southwest 11.46 2.96 10.70 Rocky Mountains 10.62 2.32 9.67 Far West 9.57 1.86 8.45 Total United States 9.37 1.07 8.26 NOTE: Data are for Bureau of Economic Analysis regions. SOURCE: Garnick (in this ~rolume:Table 3~. 27 to Garnick (in this volume), the growth in "producer" services in particular, which tend to concentrate in major metropolitan areas, has accounted for much of the increase in metropolitan area growth, relative to nonmetropolitan area growth. Producer services include the areas of finance, insurance, real estate, and professional and business services such as accounting, law, advertising, and consult- ing (Noyelle and Stanback, 1984~. For example, the growth of the producer service sector accounts for the remarkable transformation of the New England economy in the l980s, in which the growth in personal income and earnings exceeds the national averages.4 Even in the Great Lakes region, where metropolitan population growth is negative and growth in personal income is lower than nonmetropoli- tan income growth, metropolitan area earnings (which are measured by place of work and not residence) are higher than nonmetropolitan earnings; they are highest in metropolitan areas with populations of 1 million or more. 4 The average annual growth in personal income in New England between 1979 and 1984 was 10.41 percent, compared with 9.2 percent nationally in the same period and with 8.82 percent in New England in the 1970s (Garnick, in this volume:Tables 2 and 3~.

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28 URBAN CHANGE AND POVERTY TABLE 7 Percentage of Change in Nonagricultural Employment by Region and Major Industry Groups, 1980-1986 Change in Employment : Region Production Trade Service Total Northeast -8.4 16.5 14.8 8.5 North Central -12.8 6.2 8.0 1.2 South -1.0 21.7 18.0 13.3 West 1.2 16.9 15.5 12.4 NOTE: Data are for Census Bureau regions. SOURCE: Kasarda (in this volume:Table 7~. Despite the revival of some central-city economies in declining regions through the growth of the white-coDar service sector, middle- ciass people are not moving back into central-city neighborhoods in numbers large enough to have much effect. Reverse migration by middle-cIass whites has occurred in a few neighborhoods of some central cities but not on a large enough scale to counter the general out-migration of whites and more affluent minorities or to make much of an impact on the economic fortunes of those central cities (Berry, 1985; Frey, 1985; I.aska and Spain, 1980~. TH1: LARGEST CITIES In the 1960s the populations of the 50 largest metropolitan areas grew faster than the national average by a wide margin, and per- sonal income and earnings were slightly higher in those areas than nationally (Table 8~. Only the Pittsburgh metropolitan statistical area (MSA) lost population, and the loss was 0.01 percent (Garnick, in this volume:Table 4~. By contrast, in the 1970s population growth in the 50 largest metropolitan areas was well below the U.S. average. In fact, the population declined in 11 of the 50 MSAs; all 11 were located in the older regions in the Northeast quadrant: New York, Philadelphia, Detroit, Boston, St. I,ouis, Pittsburgh, Newark, Cleve- land, Bergen-Passaic, Buffalo, and Dayton-Springfield. Employment growth was also lower than the national average, again due to Tow growth in the older regions. Employment growth in the largest MSAs

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COMMITTEE REPORT 29 averaged 1.94 percent a year in the 1970s, compared with 2.16 per- cent nationally, and was especially slow in the Mideast, Great Lakes, and Plains regions (Garnick, In this volume: Table 5~. In the 1980s the average population growth in the 50 largest metropolitan areas was still slightly less than in the United States as a whole. There were eight declining metropolitan areas, all of them in the older regions of the country: Detroit, Pittsburgh, Newark, Cleve- land, Milwaukee, Bergen-Passaic, Buffalo, and Dayton-Springfield. Although four of the areas that had declined in previous decades showed population growth in the early 1980s, it was very slow growth; New York, Philadelphia, Boston, and St. Louis, which lost popula- tion in the 1960s and the 1970s, gained 0.2 percent a year or less in the 1980s (Garnick, in this volume:Table 6~. The employment picture has been similar. Average employ- ment in the largest metropolitan areas grew faster than the U.S. average in the early 1980s, but the disparities have been large and employment growth in the older regions has been slow. Employment TABLE 8 Average Annual Growth Rates (percentage) of Total Personal Income, Population, Earnings, and Employment in the 50 Largest Metropolitan Statistical Areas (MSAs), 1959-1984 Average Annual Growth Rate . Total Personal Popu- Total Total Time and Area Income ration Earnings Employment 1959-1969 Nationally 6.93 1.29 6.72 50 Largest MSAs 6.97 1.66 6.87 1969-1979 Nationally 10.03 1.10 9.35 2.16 50 Largest MSAs 9.38 0.76 8.86 1.94 1979-1984 Nationally 9.20 1.01 7.89 1.38 50 Largest MSAs 9.46 1.00 8.61 1.73 NOTE: These data are for primary, not consolidated, MSAs, which may underestimate the extent of economic activity taking place in some large urban areas. In the case of New York, for example, the primary MSA does not include northern New Jersey or Long Island. SOURCE: Data from Garnick (in this volume:Tables 4, 5, 6, and 7~.

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30 URBAN CHANGE AND POVERTY grew more slowly than the national average in New York, Philadel- phia, St. Louis, Baltimore, Kansas City, Cincinnati, New Orleans, Columbus, Indianapolis, Portland (Oregon), Rochester (New York), and Memphis; employment declined in Chicago, Detroit, Pittsburgh, Cleveland, Milwaukee, Buffalo, Louisville, and Dayton-Springfield (Garnick, in this volume:Table 6~. Overall, large metropolitan areas have been doing well in the 1980s as compared to the 1970s, except in the older urban areas. COMPARISONS AMONG METROPOLITAN COUNTIES Unfortunately, economic data are collected at the county level rather than for smaller areas. It is therefore difficult to directly compare income, employment, and other economic trends in central cities, suburbs, and nonmetropolitan areas. It is possible, however, to compare ~core" MSA counties, which contain the central cities, with contiguous MSA counties, which are suburbs, and so forth.5 Data on population, income, earnings, and employment by type of county generally show that all types of counties in a growing region tend to grow. But the data also indicate that core counties have been growing slowly overall, even in the 1980s (Garnick, in this volume:Table 93. In terms of population, the MSA core counties grew more slowly than their regions and contiguous suburban counties both nationally and in the New England, Mideast, Great Lakes, Plains, and Rocky Mountain regions. They grew more slowly in income nationally and in the Mideast, Great Lakes, Southwest, and Rocky Mountain regions (but in earnings only in the Mideast and Great Lakes). Employment growth has increased in the core counties, a different pattern from that of the 1970s, for all but the Great Lakes and Plains regions. The composition of income has also been changing over time. The wage and salary share of personal income nationally has been decreasing, dropping from 66 percent in 1959 and 1969 to 61 percent in 1979 and 54 percent in 1984 (Garnick, in this volume:Tables 1 13~. The transfer payment share has been rising, increasing from 7 percent in 1959 to 8.6 percent in 1969, 12.4 percent in 1979, and 13.2 percent in 1984. The share of proprietorships has been declining 5Garnick (in this volume:Tables 7, 8, and 9) defines eight.types of counties and presents data by time period; MSA boundaries are held constant at their 1972 boundaries.

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COMMITTEE REPORT 31 as farms disappear. And the share of income earned from capital interest, dividends, rents, and royalties has been increasing. In general, a great deal of regional homogeneity has developed over time in the composition of income, but there remain differ- ences between core counties and suburban counties in the shares of income from each source. In 1984 income maintenance transfers (mostly public assistance payments) constituted 1.54 percent of to- tal personal income in MSA core counties and only 0.79 percent in contiguous counties. Other transfers (primarily unemployment insurance and Social Security, government, and railroad retirement benefits) accounted for 9.59 percent of total personal income in MSA core counties and 11.32 percent in contiguous counties (Garnick, in this volume:Table 13~. SUMMARY Long-term regional shifts are continuing. Population and eco- nomic activities are still moving out of the declining regions of the country, although the main source of the out-migration has shifted from the Mideast in the 1970s to the Great Lakes in the 1980s.6 This movement is caused by continuing technological, economic, and demographic forces that make it more efficient and less costly to do business in the West and South. Drastically declining of} prices may affect this trend by depressing growth in energy-producing regions of the South and West. Thus far in the 1980s, these regions have grown faster than the national average (although they are growing more slowly than they did in the 1970s). The earnings statistics of the Bureau of Economic Analysis sug- gest that growth in earnings may be occurring more rapidly in the declining regions than in some of the growing regions. This seemingly paradoxical situation may arise because of the higher productivity of the professional services sector developing in some of the older cen- tral cities. Nevertheless, the statistics suggest that economic activity will continue to shift to the South and West. The urban core areas in the declining regions are not gaining a proportionate share of recent increases in national prosperity. Even in New England, central-city fortunes have been aided greatly by growth in counties adjacent to the core. The slower growth in core resee Sternlieb and Hughes (1978) for data on the movement of people and jobs from the Mideast region in the 1970s.

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32 URBAN CHANGE AND POVERTY counties that is indicated by the data may be an understatement of relative well-being. If there are substantial shifts in the demographic composition of the poor in core counties accompanying the slower growth in population, and if there are regional biases to this process, then the relative position of poor areas in the declining regions may be even worse than the data show. All of these economic trends have long-term implications for the fiscal health of cities. The ability of local and state governments to finance the services they need to deliver both currently and prospectively- is an issue, given the increased need for fiscal self- sufficiency of those governments in the face of federal aid cutbacks. Although the central cities that are declining will have fewer people to serve, few governments have found a way to reduce expenditures, in part, probably, because the remaining populations have lower incomes and use more government services. These facts have revenue implications as well as expenditure implications, especially for local governments that rely heavily on the property tax. There will be more old people in cities who will probably increase the expenditures of local governments. At the same time the school-age population is declining, although the costs of educating a smaller but poorer population may not decline. State and local governments will have to find a way to adjust to these continuing patterns in the 1980s. Commuter patterns are continuing to change in the 1980s. More service sector activity, especially in professional or producer services, will continue to increase the tax base of cities. But more and more higher income central-city workers live in the suburbs, and few cities are able to tax commuters. Cities will also find it difficult to tax the health sector, another area experiencing great growth in employment and economic activity. The shift in the composition of personal income has implications for urban finance. Wage and salary income, which is a more accessible tax base, constituted a smaller share of personal income in core urban counties in 1984, when it was 63 percent, than it did in 1959, when it was 71 percent (Garnick, in this volume:Tables 10 and 13~. There has been an increase in nonIabor income in the form of fringe benefits, which are much harder to tax. There has also been a substantial increase in transfer payments and capital income. If capital income comes more from interest income than from dividends and royalties (as it did in the past), the recent federal tax changes that lower marginal tax rates will make it possible for state and local governments to capture a greater share of such income if they choose.