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T1 ~ ne Economy ant cities INTRODUCTION Cities reflect the economy and express the culture of a nation. Urban areas create demands for technology and are in turn shaped by it. The mill towns of the Industrial Revolution were distinctive in form, dense and compact so workers could reach their jobs on foot or by horsedrawn public transportation. Business activity was centrally located to facilitate transactions. The city was limited by its technology for transportation, communications, building, and disposal of waste. The replacement of water power with coal and the development of railroads and public sanitary systems increased options for industrial location, expanded markets, and made feasible larger and more dispersed factories and urban settlements (Tarr, 19841. Later, major innovations in industrial technology electricity, petro- leum, chemicals, and, ultimately, the automobile were matched by new urban technologies steel girder construction, the elevator, the electric streetcar, and the bus and fostered further changes in the way cities were built and functioned (Eberhard, 19661. The rise of the business corporation, the industrial trust, national and regional financial insti- tutions, private philanthropy, labor unions, free public education, and the municipal civil service represents the beginnings of the modern service sector. Initially, business services were often appended to local industrial parents; gradually they expanded to serve industrial empires, 11

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12 Rethinking Urban Policy a region, or an industry. ~ As cities and the industrial economy matured, their economic, political, and physical relationships changed. New meth- ods of production, distribution, and marketing as well as improved per- sonal mobility and inexpensive suburban housing contributed to the dispersion of urban areas at the same time that metropolitan economic and social opportunities attracted waves of rural and foreign immigrants. Now a new generation of computer, energy, communications, bioengi- neer~ng, and other technologies, complemented by the internationalization of business institutions and markets and by substantial demographic shifts and cultural developments, is again transforming cities to meet the needs of an advanced economy.2 The economically advanced nations are experiencing similar changes in their economies and in their cities, although there are significant differences among them based on each nation's stage of indus- tnalization and urbanization. With the mechanization of agriculture early in this century, workers moved from fanns to cities to work in factories and stores. In more recent years the important shifts in the United States, Canada, and Europe have been from the extractive and transformative sectors toward services (Renaud, 1982; Singelmann, 19781. This shift accelerated during the 1970s in the 24 countries belonging to the Organization for Economic Cooperation and Development (Renaud, 19821. Projections of the labor force distribution in seven major industrial nations to the end of the century, shown in Table 1, suggest that this process of change is not over. Some industry analysts suggest that pro- jections based on past trends do not adequately account for the disconti- nuities in technology, the organization of work, and the internationali- zation of capital and labor markets. They expect that soon after the turn of the century, manufacturing employment in leading industrial nations will decline almost to the levels that agricultural employment in the United States reached by 1950 less than 10 percent of the labor force (Drucker, 198 1:2371. In a general sense the same technological, institutional, and demo- graphic forces that have contributed to the restructuring of the national ~ Several major financial institutions, such as the Morgan Guaranty Trust, the Chase Manhattan Bank, and the Mellon Bank, were started as means of providing banking and holding company services for the industrial organizations of their founders (Collins and Horowitz, 1976; Nevins, 1976; Sinclair, 1981; Trescott, 1982). 2 Throughout this report, we have used the term advanced economy rather than postindustrial economy (Bell, 1973) because the evidence indicates that manufacturing will continue to play a major role in the future economy but in a different way and in different places than in the past (Knight, 1977, 1 982b). A more accurate, although also more cumbersome characterization would be an advanced industrial-service economy.

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The Economy and Cities TABLE 1 Labor Force Distribution, by Industry Sectors for Seven Industrialized Countries, 1970 and Projected to 2000 England United States and West France and and Canada Germany Italy Japan 13 Industry Sectors 1970 2000 1970 2000 1970 2000 1970 2000 Extractive 7 5 5 4 19 10 20 5 Transforrnativea 32 28 47 40 41 35 34 40 Distributive services 23 20 17 16 15 15 23 20 Producer services 8 12 5 10 4 10 5 10 Social services 21 30 18 25 15 25 10 20 Personal services 9 6 ~ 5 7 5 ~ 5 NOTE: Percentages may not add to 100 because of rounding. For a description of industry sectors, see Chapter 2, footnote 5. aIncludes most manufacturing industries. SOURCE: Adapted from Singelmann (1978:Table 3.1). economies of advanced nations have also led to changes in the location of economic activities and therefore to substantial alterations in the size and density of urban areas. Contrasting the current situation with the earlier period of industrialization and urban concentration, one observer of urban development has concluded that "there now appear to be negative returns to urban scale: larger urban areas are either increasing much more slowly than smaller ones or are actually declining" (Hall, 1981:1~. This obser- vation should be tempered by the fact that the advantage of scale depends on the kind of activity located in an urban area. The nonulations of m~nv ~( t~ ~ 1 ~~A~ ~ ~ __ ~ 1 ~ _- V1 L11~ lilts 111~1~11~11 ~5 are still increasing, although at a much slower rate. Even though individual areas are growing more slowly or even contracting, the proportion of the total population living in all met- ropolitan areas q and even in ones of a million n~.nul~. or more r~ntinll-c ~ -- r - -or ^- Ad- ^~^~ _~1& ~1~_~ to remain nearly constant due to the graduation of slightly smaller areas into larger population-size classes (Thompson, 1980:31-331. Advantages from the agglomeration of similar economic activities that formerly were important functions are no longer as significant for certain kinds of manufacturing and other activities, such as routine office functions (Sternlieb and Hughes, 19751. Increasingly, such functions can be located in the suburbs, in smaller nonmetropolitan areas, or even in other coun- tries. That these activities can be dispersed in order to take advantage of lower land costs, lower labor costs, less labor-intensive production pro- cesses, and better market access has also accelerated the decentralization

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14 Rethinking Urban Policy of other sectors of the economy, such as retail and distribution centers. None of these trends is absolute. They are matters of degree and are affected: by types of industries, relative wage levels, transportation sys- tems, changes in styles of living, and many other factors. Concentration Amidst Decentralization Although urban settlements are generally becoming more decentralized, it is a mistake to assume that all economic activities benefit from decen- tralization. Some appear to continue to benefit from a high degree of concentration and from location in the largest urban areas. Thus, at the same time that manufacturing, retailing, back office operations, and dis- tribution centers are decentralizing, the headquarters functions of the econ- omy are becoming more highly concentrated in a relatively small number of urban areas, albeit not always in traditional central business districts. Ironically, the internationalization of business has contributed to increased agglomeration of world and national corporate headquarters and the ser- vices on which they depend (Cohen, 1 979b). The development of corporate strategy requires a concentration of highly specialized services in banking, law, accounting, advertising, and economic analysis. Urban areas in which both corporate headquarters and such advanced service firms are concen- trated have become "more than just centers for a widely dispersed network of production operations. They have become . . . centers of corporate planning and strategy formulation for large corporations" (Cohen, 1979b:451; see also Conservation of Human Resources, 19771. As this new concentration of headquarters and strategic services has evolved, some of the places that once contained nationally significant concentrations of specific industries have diminished in importance, and others, such as Los Angeles and Houston, with a major base of such services, are emerging as important international centers (Cohen, 1979a:4671. Demography and Urban Change Several important changes in national demography complement and reinforce the impact of changes in the economic structure of urban areas. The slowing of population growth and the consequent aging of the pop- ulation, the increase in women's participation in the labor force, smaller households due to declining birth rates, delayed marriages, the increased number of divorces, and greater longevity have affected cities in several ways. The population density of the older urbanized areas has declined in both central cities and close-in suburbs.

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The Economy and Cities 15 There has been an apparent movement in recent years to nonmetropolitan areas. Again, this process is not unique to the United States. It is closely associated with the changes in the economic system, such as improvements in transportation and communication, the technological and space require- ments of industry, and the growth of services that are not bound to central locations (Long, 19811. This current trend in Reconcentration of urban areas and of the population nationally is different in character from prior great migrations, such as the rural-metropolitan migration of the mid- twentieth century in which people changed their basic style of living as well as their places of residence. In many respects the current dispersion is a continuation of the urbanization of the population, rather than a return to rural or small-town life as such. It should be viewed as an organizational adaptation to changes in technology, the economy, and social organization (Long, 1981:35, 99~. One important difference in current and past demographic trends is the slight overall decline in intermetropolitan mobility for all age groups (Bureau of the Census, 19821.3 This decline has occurred even though there has been considerable Reconcentration in the population at the same time. While mobility for all age groups has declined, younger and more educated people continue to be the most mobile (Bureau of the Census, 19821. Because the population is aging, the generations that will replace the postwar baby boom generation are smaller, different regions and urban areas have substantially different age profiles and fertility ratios, and significant differences are developing among the labor forces of urban areas and regions of the country (Berry, 1981; Jackson et al., 19811. Another demographic factor that reinforces the economic forces restruc- turing the economy is increased levels of education. Higher educational attainment accelerates the capital intensification of work by increasing pressure for higher wages and for "more interesting" work by a larger proportion of the labor force (Drucker, 1981~. While these trends indicate the general tendency of population changes, it is important to remember that the averages do not tell the entire story. Although the population in general has been dispersing and cities are becoming less dense, the concentration of the poor, minorities, and im- migrants in central cities has been increasing (Bureau of the Census, 1978, 1981; Greenwood, 1980), reflecting the greater ability of more prosperous ~ Mobility within metropolitan areas, however, apparently increased between 1975 and 1980. An analysis of Current Population Survey data on interhouse moves from 1970 to 1975 and 1976 to 1980 shows an increase of 1 percent for all age groups. There is also a considerable difference in mobility among different regions of the country (New York Times, March 2, 1983).

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16 Rethinking Urban Policy people, including minorities, to move from central areas, leaving the poor behind. It also appears to be related to the loss of jobs in manufacturing and their replacement, if at all, with some service jobs that require higher levels of skill (U.S. Department of Housing and Urban Development, 1982) and other service jobs that employ different workers, such as women instead of black men. The result has been a simultaneous increase in rates of unemployment, nonparticipation in the labor force, and welfare de- pendency for central city minorities (Kasarda, 1982), raising concerns about the development of an urban underclass that lives outside the main- stream of economic life (National Research Council, 1982a). There are also other selective countervailing trends to the general de- concentration of the population. Particularly in those cities in which head- quarters functions are concentrating, a growing number of single-person and other small households with few children have been attracted back to the central city, producing gentrification in close-in, architecturally in- teresting neighborhoods that have good access to transit and work, good- quality housing, and a varied physical and social environment (Berry, 1982). This brief look at what has happened shows that cities have already made many adjustments to shifts in economic structure and demography. To understand the full significance of the adjustments and of the capacity of cities to make them successfully, we need to examine more closely two fundamental structural changes that are likely to continue well into the next century. The first is the shift in the principal source of employment from the extractive and transformative industries to service industries. The second is the shift from blue-collar to white-collar jobs in almost all sectors of the economy. THE SHIFT TOWARD SERVICES Understanding how these prospects affect cities requires a closer ex- amination of the services themselves. While more and more people will be employed in services, the future of all services and of employment in them is not the same. The differences among the services have important implications for urban areas and urban policy. Classifying Service Industries Detailed study of the service sector is relatively recent. It is impeded somewhat by the way in which statistical information about industries and occupations is classified and reported. One of the most serious gaps in knowledge has been the lack of a satisfactory system for the classification

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The Economy and Cities 17 of service industr~es.4 Two reasonably comparable systems have been developed in recent years.5 The list on page 18 indicates how the standard industrial classification (SIC) codes have been reorganized in the most recent of these systems, which is used in this report. Distinguishing among the different types of services is valuable to the development of urban policy for several reasons. Close examination of the characteristics of each class of industries can lead to clues about the 4 Various attempts have been made to classify industries into a manageable number of broad categories in order to trace changes in the distribution of employment and income over time. One of the most widely used industrial classification systems was devised by A. G. B. Fisher (1935) and Colin Clark (1940). Their model distributed industries among three sectors: (1) primary industries agriculture, forestry, fishing, mining; (2) secondary industries manufacturing, con- struction, utilities; and (3) tertiary industries commerce, transportation, communications, ser- vices. The Fisher-Clark model has limited usefulness in studying trends in service industries because it lumps all services together in the tertiary category. The industries in this category, however, are quite heterogeneous, differing as to size, capital requirements, output, productivity, and location in cities and regions. Despite the model's shortcomings, most empirical studies of the labor force have continued to use the three-sector scheme with only minor variations, such as the separation of transportation and communications from other services. Where more detailed information is needed, it is usually restricted to the 10 groups of the standard industrial classification (SIC) developed by the U.S. Department of Commerce, Bureau of Economic Analysis: (1) agriculture, forestry, fishing; (2) mining; (3) construction; (4) manufacturing; (5) transportation, communications, public util- ities; (6) wholesale trade; (7) retail trade; (8) finance, insurance, real estate; (9) services; and (10) government. While this classification system is an improvement, the services class remains heterogeneous. 5 The first of the new systems, developed by Browning and Singelmann ( 1975), uses the traditional classification for the first two sectors, which they call extractive and transformative industries. They divide services into four classes: ( 1 ) distributive services transportation, communications, wholesale and retail trade (except eating and drinking places); (2) producer services finance, insurance, real estate, professional and business services; (3) social services health, education, welfare, government; and (4) personal services domestic, lodging, repair, entertainment. Dis- tributive services reflect the next stage (after extraction and transformation) in the development of goods as they move "from the most undifferentiated primary form to their distribution to the ultimate consumer" (Singelmann, 1978:30). While the other sectors do not follow this sequential flow, they do comprise distinctive groups of industries. Producer services mainly include industries that provide services to producers of goods or that are concerned with property matters. Like distributive services, the industries in this category provide intermediate services between the extractive and transformative industries or between them and other sectors. Social services include public, private, and nonprofit "collective" goods or services, while personal services are characterized by their orientation to the individual consumer. Stanback et al. (1981) have slightly modified Browning and Singelmann's scheme. They divided the nonservices into two categories: agriculture and extractive and transformative in- dustries. Their six classes of services are (1) distributive services transportation, communi- cations, wholesale trade; (2) retail services, which are separate because they have different locational characteristics from the other industries in the distributive services; (3) producer ser-

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18 Rethinking Urban Policy Sectors SIC Codes Nonservices Agriculture Extractive and transformative Mining Construction Manufacturing Services Distributive services Transportation, communications, utilities (TCU) Wholesale services Producer services (including headquarters) Central administrative office Finance, insurance, and real estate (FIRE) Business services Legal services Membership organizations Miscellaneous professional services Social services Nonprofit services Health Education Retail services Consumer services Hotels and other lodging places Personal services Auto repair, services, and garages Miscellaneous repair services Motion pictures, amusements, and recreation services 01, 01, 07-09 10-14 15-17 20-39 40-49 50-5 1 From each of the 10 basic SIC codes 60-67 73 81 86 89 83 80 82 52-59 70 72 75 76 79, 84 Private households 88 Government and government enterprises 91-97 SOURCE: Adapted from Noyelle and Stanback (1983). kinds of places in which they are most likely to locate. Understanding the differences in their growth rates and occupational composition is also important in formulating economic development strategies, in forecasting the performance of local economies, and in identifying opportunities or problems for the growth of particular industries or sectors. By using this system of classification, the structural changes that have already occurred and can be expected to continue to take place can be vices (virtually the same as Browning and Singelmann); (4) nonprofit services, established as a separate category from government-provided social services because it allows a closer look at a variety of activities, particularly health services; (5) government and government enterprises, which contains the remainder of Browning and Singelmann's category of social services; and (6) mainly consumer services, a category that corresponds to the personal services class of Browning and Singelmann. For a full discussion of the system and the reasoning behind it, see Noyelle and Stanback (1983:Ch. I).

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The Economy and Cities 19 more readily understood. Figure 1 illustrates what has happened since 1948 to the share of total national employment in each sector of the economy. What is immediately clear, beyond the common generalization of the continuing shift away from extractive and transformative industries, is that there are substantial differences in the performance of the different service sectors. The shares of jobs in some sectors, such as distributive and retail services, are stable or declining. Consumer services, which are often assumed to have grown rapidly in response to the increased affluence of American consumers, have not in fact done so, although some growth is projected for this sector in the 1980s (Personick, 19811. Nonprofit and Government Services The growth of nonprofit services reflects the rapid expansion of edu- cation services in the l950s and 1960s. That trend slowed in the 1970s, and an increase in the rate of growth for medical services occurred. Ed- ucation and health services are particularly susceptible to demographic trends, which in the current period tend to be mutually offsetting. A decline in the numbers of school-age children tends to reduce growth in education. Health services, however, can be expected to grow in the United States because of an aging and more health conscious population. Even faster growth should occur in other parts of the world as both advanced and developing countries develop or modernize their health systems (Ginzberg and Vojta, 1981:511. The share of employment in government services dropped in the last decade. When they are combined with nonprofit services, one can see a slowing of the rate of growth for services aimed at collective consumption. It is debatable whether the decline in government services is the beginning of a long-term trend. To the extent that it reflects a reduction in the numbers of education employees due to smaller public school enrollments, the trend probably is long term. Some jobs could also shift from government to private sectors as a result of the "privatization" of some public services. Government involvement in an increasing range of complex problems, however, suggests that some growth in this sector remains a possibility, especially if the private sector cannot maintain full employment in an advanced economy. As the economy of the nation and its urban areas has been restructured, the significance of government has increased, especially as a regulator of the economy, even though government plays a smaller role in the total gross national product (GNP) than it did in 1950 (Ginzberg and Vojta, 1981), and there has been no increase in employment. Most of the growth of government employment in recent decades has been due to the expan-

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The Economy and Cities 21 sion of state and local governments, not the federal government. Through- out the economy, and particularly in the urban economy, government is not only an employer but also the provider of a wide range of services on which other sectors depend (Knight, 1980~. Education and health ser- vices are particularly dependent on government financial assistance. If we view the urban economy in a slightly different way, government and other nonprofit services are an important part of the local sector those parts of the economy that serve local residents and businesses as contrasted with the traditional export sectors that send their goods and services else- where and bring money from other markets into the local economy. Like many producer services, nonprofit and government services produce in- come and provide amenities that are essential to the health of the export sectors (Business Week, 198 la; Ginzberg and Vojta, 1981~. Where gov- ernment is the principal activity, as in the case of Washington, D.C., and a number of state capitals, it acts as the export industry. Taxpayers in the rest of the state or nation "buy" its services. Government expenditure levels act as a multiplier in the economy, creating markets for other services, construction, and some manufactured goods. The Growth of Producer Services The most important finding from this examination of the changing structure of the economy is that producer services play a major role in the expansion of the service economy. Producer services include those industries that provide intermediate services to firms producing goods or other services. Such services include the planning, management, financ- ing, marketing, legal, and accounting services that are essential to large- scale business enterprise and to government. An important development in the expansion of producer services is the growth of international markets for services that once relied primarily on domestic demand. International demand for banking, insurance, and telecommunications is expected to outpace domestic demand in the next decade. Producer services' share of the labor force has grown by over 50 percent since 1959. The share has grown faster in the last decade than that of any other sector and by 1990 will account for 38 percent of the net increase in the share of total em- ployment by all services (Personick, 1981; Stanback et al., 19811. The nonprofit sector has been responsible for a larger share of the shift, but while the rate of nonprofit growth is projected to almost stabilize, the producer services sector is the only one projected for more than a 10 percent increase in the current share of employment by 1990 (Personick, 19811. There is some evidence to suggest that producer services are already

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The Economy and Cities 27 however, the ratio of nonproduction to production workers is increasing in almost all goods-producing industries. And there are some disturbing signs that technology could indeed eliminate many kinds of service jobs that have previously been taken for granted, particularly in clerical oc- cupations (Schwartz, in press). Segmentation of the Labor Market As employment shifts to services, the structure and behavior of the labor market of the service industries become increasingly important. Not only do services employ fewer craftsmen and operatives than manufac- turing industries, but also lower-level jobs in services tend to pay less and be less sheltered (for example, they lack retirement plans and union con- tracts) than lower-level jobs in manufacturing (Stanback and Noyelle, 19821. A much higher proportion of them are part-time jobs, as shown in Table 4, and a very large proportion are filled by women. As one moves toward the bottom of the occupational hierarchy, service jobs are increas- ingly filled by black women (Treiman and Hartmann, 19814. Nonwhites generally have had more success in finding employment in certain services (for example, food service, education, public administration), but even in these industries they are not well represented in the higher-level oc- cupations. A particular problem for those concerned with the implications for urban areas is presented by the fact that while black female participation in the labor force has been increasing, the participation rate of black men has been declining and will probably continue to decline slightly unless the economy enjoys a period of extremely high growth (Fullerton, 19801. Table 5 projects growth in each occupational class from 1978 to 1990. While the overall profile of occupations is projected to remain fairly stable during the decade, the greatest rates of growth are expected in professional, technical, and related occupations and in service workers. Operatives and laborers, the traditional entry points to the labor market, show the least growth. These trends, particularly when read together with the occupa- tional structure of the services that seem most likely to experience high future growth rates, suggest that a dual labor market could be emerging, "with a growing separation between relatively good jobs and relatively bad jobs" (Stanback et al., 1981 :So).6 6 For further discussion of this problem, see Beck et al. (1978), Berger and Piore (1980), and Bluestone (1970). For an extensive discussion of the debate among labor economists about the existence of a dual labor market, see Cain (1976).

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The Economy and Cities TABLE 5 Percentage Distribution of Civilian Employment in Occupations With 25,000 or More Workers 29 Actual Projected Change Occupation 1978 1990 1978-1990 Professional, technical, 16.0 16.7 30.3 and related (15,570) (20,295) Managers, officials, 9.0 8.8 21.3 and proprietors (8,802) (10,677) Sales workers 6.6 6.7 25.4 (6,443) (8,079) Clerical workers 18.3 18.6 26.37 (17,820) (22,519) Crafts and related workers 12.0 12.1 25.6 (11,679) (14,668) Operatives 14.6 13.7 16.8 (14,205) (16,584) Service workers 14.8 15.8 33.3 (14,414) (19,220) Laborers 6.0 5.8 19.9 (5,902) (7,078) Farmers and farm workers 2.8 2.0 - 16.3 (2,775) (2,327) Total, all occupations 100.0 100.0 24.4 (97,610) (121,297) NOTE: Numbers in parentheses represent thousands of workers. Percentages may not add to 100 because of rounding. SOURCE: Carey (1981). This problem can be illustrated by the medical and health occupations, which have been among the fastest growing services and are expected to continue to expand rapidly during the next decade (Carey, 1981; Sekcen- ski, 1981~. There is a clear separation of the market levels of pay and degree of shelter between credentialed professionals (doctors, nurses, tech- nicians) and paraprofessionals (nurses' aides, practical nurses) and service workers (orderlies, food and laundry workers).7 This structure offers little chance for mobility between occupational categories and very short career ladders within each occupational group. That may not differ markedly from the situation in manufacturing in which few shop workers ever 7 During the last decade, the proportion of professional and technical workers in the health industries increased. Clerical workers also increased, but the proportion of service workers declined. Women make up 75 percent of all workers in health services, but throughout the industry they earned less than men in equivalent occupations. About 20 percent of all health employees work part time (Sekcenski, 1981).

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30 Rethinking Urban Policy become executives. The difference is that shop jobs are paid well and have fringe benefits, security, and protection from unfettered managerial discretion. By contrast, many health service jobs have low pay, few fringe benefits, and little security. It could be argued that health services have traditionally had a highly segmented employment pattern and are not typical of the occupational structure of the services. There is at least tentative evidence from early research on banks and department stores in New York City that these industries, which traditionally offered long career ladders that progressed from sales or teller positions into the management hierarchy, are increas- ingly developing two separate career tracks. Entry into the management track depends on college or higher-level professional education prior to entry. Sales and clerical positions are viewed as being on a separate track, with little opportunity to move into a management position unless one enters these positions as a college trainee.8 Thus increased college at- tendance by minorities has been important in offsetting the tendency to- ward a dual labor market. In contrast to manufacturing and construction jobs, which in the past provided entry into the labor market for a large proportion of workers, entry-level jobs in the services today tend to be poorly paid and poorly sheltered and to offer less opportunity for future income and occupational progress. These lobs are often Dart time and are more likely to emolov minority women than minority men (Stanback and Noyelle, 19824. ~ ~ ~ - 1 J Intermediate-level jobs are not necessarily drying up; they are, however, changing. Access to them from lower occupations is not as common as it was in the past in the manufacturing industries or in many of the traditional service industries, such as retailing, distribution, and banking.9 The one sector in which career ladders have been long and open is gov- ernment. Public employment traditionally has been important in the oc- cupational mobility of minorities. For the short term, however, the reduction in the growth rate of public sector jobs may reduce the access of minorities to middle- and higher-level occupations (Harrison, 1972; Jones, 19791. ~ Progress report on research, presented by Thomas M. Stanback, Jr., at the meeting of the Committee on National Urban Policy, Woods Hole, Massachusetts, July 25, 1982. Also see Bluestone (1981). 9 In some cases, this results in the imposition of higher skill or knowledge requirements than some jobs actually require, because of the rising educational levels of much of the population (Berg, 1971).

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The Economy and Cities 31 Summary The complex shift from blue-collar to white-collar occupations reflects not only the shift of employment from manufacturing to services but also important changes in the nature of the work being done in all industries. An increasing proportion of the jobs in manufacturing requires education and training acquired before entry or acquired off the job. There are fewer jobs for low-skilled manual laborers. At the same time that the average level of knowledge required for employment is increasing, some jobs are being broken into components that demand less skill or are being routin- ized, while the knowledge requirements for other jobs are increasing. In many of the services there also appears to be a tendency for the labor market to divide between occupations that require higher education or special training and those that do not. The higher-level occupations offer better incomes and opportunities for advancement and are sheltered in other ways. The lower-level occupations tend to be part time, less sheltered than either the high-level service jobs or traditional manufacturing jobs, and filled by women. These changes in the structure of employment produce problems, both of entry into the labor market and in career advancement for those who are poorly trained or educated. In light of our history of racial, ethnic, and gender-based discrimination, they pose special problems for the em- ployment of minority men and for the equality of women in the labor force. The number of intermediate-level jobs is not necessarily declining, but the requirements for access to those jobs are different in an advanced economy than they were in an earlier time. An economy based heavily on services seems less likely to offer unskilled workers the same expec- tations of rising incomes and benefits that were once common in growing manufacturing industries. Thus there is some possibility that an advanced economy could produce sharper class distinctions than have existed in the post-World War II period. THE CONTINUING IMPORTANCE OF MANUFACTURING In discussing fundamental structural shifts toward services and white- collar employment it is important to keep in mind that while the trans- formative and extractive industries will employ a relatively smaller pro- portion of the work force, their contribution to the gross national product will not necessarily decline correspondingly. As Figure 3 shows, the share of GNP of the nonservice sectors has fallen over the last 30 years but at a much slower rate than their share of employment. The Bureau of Eco- nomic Analysis long-range projections even show a gain in the nonser-

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32 ACTUAL 1948 Services Nonservices 1968 Services Nonservices 1 978 Services Nonservices PROJECTED 1 990 Services Nonservices 2010 Services Nonservices 2030 Services No nserv ices Rethinking Urban Policy ............... ,, _ ...................................................................... .~ , ................................... ......... . .......................................................................................................................................... ......................................... . . .......................................... .. .. ............ ....... , , - - - ~ ....................................................... ........................................... ... ........................ .................................................... . . j . . .. ........ ......................... .................................................................................................................................................................... . ............................................................................................. , ................. .. ~ ..... .... ... ................................................... -.- ::::::::::::::::::::::::::::::: :::::-:: ::::::::::::::::::::::::::::::: ::::::::::::::::::::::::::::::::::::-:-:::::::::::::::::::::::: ::::::::::::::::::::: :::::::::::::::::::::::::::::::::::::-: :::: :::: :::::: :::::::: ::::: :::::::::::::: ::::::::::: ::: :: ::::::::::::: ::::::: ::: :::::::::::::::::::::::::::::::::::::::::::::::: ''''''' ''''''' ''' '''I'''''''" '''' 1''''''''''''''''''''''''' '''' '''''' ''''' 1 1 1 0 20 40 60 80 1 00 PERCENTAGE OF GROSS NATIONAL PRODUCT FIGURE 3 Shares of the gross national product for services and nonservices, 1948- 1978 and 1990-2030. SOURCE: For 1948 and 1968, Ginzberg and Vojta (19811; for 1978 and projections, Bureau of Economic Analysis (1981~. vices' share of the economy in 2030. This implies that the earnings per worker in manufacturing will rise faster than average; thus, those people and places that can survive in the contracting manufacturing sector will be well rewarded. Also, while the proportion of the labor force employed in manufacturing can be expected to decline, the absolute number of jobs in manufacturing industries may increase slightly (Bureau of Economic Analysis, 1982; Personick, 1981:38-391.~ ~ Even the low-growth scenario of the Bureau of Labor Statistics projects actual growth in all major sectors except private household employment (Personick, 1981:38). We caution again, however, about reliance on projections. There is need for closer study of changes in the workplace and of the behavior of firms and employees as new technology is introduced.

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The Economy and Cities 33 Several things are important in interpreting this information. First, the new jobs are not likely to be of the same kind as in the past. Second, within each industry there will continue to be replacement of blue-collar, manual-labor jobs with white-collar and other jobs requiring a greater knowledge. Over 35 percent of all employees in nonservice industries already are in nonproduction occupations. Third, the slow growth in man- ufacturing jobs also reflects displacement of labor with robots and other machines. Thus, a smaller proportion of the work force will be engaged in actually making things, and a greater proportion will be managing, planning, selling, and inventing the things that are produced. Fourth, those aspects of manufacturing that remain labor-intensive will increasingly be performed by workers in other countries (Drucker, 1981~.'i While the trend toward overseas production of labor-intensive goods may be retarded by stringent legislation restricting imports, it is unlikely to be fully pre- vented. Clearly the demand for labor is changing in both national and urban markets. Almost all urban areas have some jobs that the local labor force cannot fill and some workers who cannot find jobs that can use their skills (Cetron and O'Toole, 19721. Because of the historic concentration of specialized industrial production in particular urban areas, the restructuring of manufacturing produces local labor surpluses, whether the direct cause is technological change within an industry or product substitution in the marketplace, as in the replacement of steel with aluminum and plastics in construction and manufactured goods. Other areas of the country that house a higher proportion of new or expanding industries may experience a temporary labor shortage (Ballard and Clark, 1981; U.S. Department of Housing and Urban Development, 19801. This analysis assumes that the shift from manufacturing to services will continue at a moderate rate, in national terms. If imports of manufactured goods increased sharply, however, the decline in U. S. manufacturing employment could be massive and could strip many areas of their sources of export types of jobs. New jobs and skills could not be substituted fast enough to prevent the stagnation and even significant contraction of some areas. The widespread alarms of economic collapse, however, rarely are realized. "Doomed" Altoona, Pennsylvania, for example, still exists. Moreover, in 1980 it still had 97 percent of its 1940 population. ~ ~ For an illustration of this process, see "U.S. Auto Makers Using More Mexico Plants," New York Times, July 7, 1982, p. I.

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34 Rethinking Urban Policy REGIONAL GROWTH AND DECLINE Structural changes in manufacturing have had their most dramatic effect in the old-line industrial areas. As factories closed or reduced their work forces, urban decline began to replace uncontrolled urban growth as the major concern of public policy (Bradbury et al., 1982; Hanson, 19821. Even without the recession, structural changes were producing high levels of unemployment in some industrial areas. Physical deterioration and fiscal stress in such places are also common (Bradbury et al., 1982; Burchell and Listokin, 1981). There has been a tendency to interpret the redistribution of population and employment among the multistate census regions of the country that has accompanied these developments as a zero-sum game between Sunbelt and Frostbelt regions. It has also been suggested that the decline of older cities and the rise of newer ones are inevitable as the inexorable forces of change in a postindustrial society work themselves out (Hicks, 1982; President's Commission for a National Agenda for the Eighties, 1980; U.S. Department of Housing and Urban Development, 19821.~2 Some important interregional adjustments are taking place. The pr~n- cipal generator of employment growth in the Sunbelt, however, has not been the migration of firms from the older Frostbelt cities. The principal source of new jobs in the southwestern and mountain regions has been the expansion of existing firms (Armington and Odle, 1982~. The low rate of job formation in the Frostbelt stems from low rates of large firm expansion, high rates of large firm contraction, and high rates of firm death (Armington and Odle, 1982; Garnick, 1978~. Thus the differences in regional employment growth (or decline) stem principally from differ- ences in rates of expansion and birth of firms (Armington and Odle, 1982; Birch, 1981; Norton and Rees, 1979; Rees, 1979a). While firms as such may not have moved, capital in the form of liquid assets has moved and has been used to start new firms in new places instead of reinvesting in older firms and communities (Bluestone and Harrison, 19821. Another important factor in the decline of manufacturing jobs in many Frostbeit cities is that older industrial plants located in those places are often the least productive because of obsolete equipment, manufacturing processes, and plant designs. When shut down for cyclical reasons, they ~2 Interestingly, The President's National Urban Policy Report, 1982 (U.S. Department of Housing and Urban Development, 1982) argues that the most serious urban economic problems stem from structural changes in the economy, but the report recommends that policy rely primarily on a cyclical remedy: the economic recovery program of the administration. r

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The Economy and Cities 35 are the least likely to reopen. If they are modernized, they become more capital-intensive and do not recall all of the laid-off work force. The key factor, however, is not regional location but obsolescence, as the shutting of steel mills in California and Alabama illustrates. The geographic concentration of energy industries and the growth of military-related employment, influenced by national policies that have encouraged flows of capital and labor into these industries, have also been significant forces in the development of Sunbelt cities. 13 Other factors are also important: the migration of older people with considerable amounts of retirement income to more benign climates offered by Sunbelt states, higher fertility rates, lower participation rates for women in the labor force (although the rates are quite high in some regions, such as the South Atlantic), and the presence of large numbers of immigrants who provide a pool of labor at relatively low cost for some kinds of enterprises. ~4 The factor almost uniformly overlooked in the Frostbelt/Sunbelt con- troversy is that the Frostbelt has consistently captured more than its share of corporate headquarters and producer services (Stanback et al., 1981 :98- 991. In fact, during the 1970s many of the Frostbelt cities appear to have reinforced their comparative advantage in producer services. This seems due in large part to the existence of a strong base for a service economy because of the historic concentration in the major Frostbelt metropolitan areas of the most highly sophisticated of those services, such as inter- national banking, stock exchanges and other financial services, specialized law firms, accounting headquarters, and advertising and mass media firms (Stanback and Noyelle, 19821. Part of the reason for overlooking this phenomenon is the statistical illusion created by the way in which the service sectors are reported. By combining many producer and consumer services into one aggregate service category, some of the fast-growing producer services are offset by the more slowly growing consumer ser- vices. In addition, the employment data on the manufacturing sector nor- ~3 Much of the new growth in manufacturing in the Sunbelt has also been in new industries, such as energy, aerospace, and electronics. Perry and Watkins (1977) identify six dominant growth industries they believe to be primarily responsible for the growth of Sunbelt cities: agriculture, defense, advanced technology, oil and natural gas, real estate and construction, and tourism and leisure. |4 See Jackson et al. (1981:36-46) and Bureau of Economic Analysis (November 1981) for a discussion of these trends in different parts of the country. The availability of low-wage, low- skilled labor was found significant in studies of specific Sunbelt labor markets in which there has been growth in manufacturing and retail employment. See particularly the discussion of Phoenix in Stanback and Noyelle (1982:102-104).

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36 Rethinking Urban Policy many do not break out the internal services from the production work. Since consumer services tend to follow trends in population growth and disposable income, the high growth rate for services in Sunbelt cities disguises major qualitative differences among cities in the kind of service growth they are experiencing (Stanback et al., 1981~. There are urban areas in every census region that are undergoing severe stress from structural changes in their local economies. The problems of troubled cities in the South, such as Birmingham and New Orleans, and exceptions to regional decline, such as Columbus and Akron, Ohio (Schri- ber, 1982), and Boston, suggest that the industrial mix and the diversity and quality of the metropolitan labor market may be far more important factors in the capacity of local economies to adjust to structural changes than is mere regional location (Rees, 19801. All regions have growing, stagnant, and declining urban areas. Those urban areas that have histor- ically functioned as national and regional centers for major corporate headquarters, branch offices, or division offices; as regional distribution centers; and as centers of banking and information are making a smoother transition to the new economy, whether they are located in regions that are growing or declining. In contrast, those urban areas whose economies have depended more heavily on a single manufacturing industry or a narrow range of industries are having the most difficult time, regardless of their region (Noyelle and Stanback, 19831. This is not to say that some of the most service-oriented cities are without economic problems. They may rank high on various indices of urban distress. A city with a substantial base for local expansion of sectors that are strong in national and inter- national markets is more likely to make the transition to a new set of functions than a city that lacks such a base.iS The difficulty in generalizing about cities in census regions is partially illustrated by Figure 4, which compares the economic performance of metropolitan areas with the geographic regions within which they are located. Only in the East South Central region do all cities exceed the average performance of the region's economy. While some regional at- tributes are indeed important in the growth and decline of specific urban areas, it is important not to overstate their significance. In general, where a city is located seems less significant in forecasting its economic condition than what it does. It is therefore more useful to define regions as working urban market areas, rather than as static statistical areas. These dynamic is Size also makes a difference (Noyelle and Stanback, 1983; Stanback and Noyelle, 1982).

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The Economy and Cities 100 U) ~ ~ Z ~ t ~ 0 m Al z ~ ~ 1~ ~ I Z O: I LU O .Z G A: UJ LL' I CL I_ (an o 1~ U.' ~ O O UJ Z lo: Z ~ UJ O is: UJ CL 80 60 40 o 20 o - I 6 100 40 60 80 NORTHEAST NORTH CENTRAL :-:- -:-:-: -: : - - - :.. :.- ,,, :: : ... .-. .. of.. :.. ~ ..., ,, .. s . -:. o :-. : Z .: ::. ~ :-: :.-: it, :-- . ., UJ :- :-:. . . .:--: : ::-.:-:-:' 37 .... - .... .. ~ . ::- _ ::: :::: ~ ::: :::: - --: c :: c' s . '2z' . a,.. ., A.. . .... A. is, .. .... . . .- ..., . ., . ,.... _ .... .. c, ., ~ ,. ,..; c ... .. O .. ~ :-: ::: : - - -: ....... SOUTH .-.~.- C.~-- :: m~ o' m-~, ::: . ;-; ;:. . :-- :-: -: . WEST . :.::..:~::, Id,.... lo.. : - :: :: a:: C :-: ~ :-:- :.. ~ :. .''.. halo>. --:-:: -: I. . .-; .-:. .: :::.-.: ::.-.-.:: aft:::) . . N .-, me ,.: :-: :~.:-2 2 :~--2 -.: . ..... ; , I:.-:: It '.::::: : .:.:::: ' : .::.~.: :' I:. .. .... 'c,, ': O'.-' 0D ,-. .O '-.' 8.2.' ' ~ :-' ::. .:-.::-' :--::.-::: :-:::: ~ ,..,~,,,,~,, FIGURE 4 Economic performance of cities and their regions. SOURCE: Southern Growth Policies Board (1981:32~. regions are constantly changing. Once primarily influenced by their trans- portation networks, they are now experiencing a new set of changes made possible by the substitution of communications for some kinds of trans- portation. The economy of an urban area, as subsequent chapters discuss, may therefore depend for its vitality on invisible relationships that reach far beyond political boundaries, local markets, and commutation patterns.