February 2004, Vol. 127, No. 2
Précis
Trade and the city
Europe’s shorter work years
Human capital on the hoof
International trade is most often accounted for in national terms. There are some data available on exports from specific metropolitan areas and there have been occasional efforts to allocate imports regionally, generally at a very broad level of geographic detail. In the fourth quarter 2003 issue of the Federal Reserve Bank of Chicago’s Economic Perspective, William Testa, Thomas Klier, and Alexei Zelnev seek to measure the degree of international import and export competition faced by manufacturers in the largest American cities.
Their crudest measure of import competition is total imports attributed to the metropolitan area as a percent of their estimate of gross metropolitan product. Using this metric, the Detroit-Ann Arbor-Flint area has the highest level of import competition at 19 percent, Washington-Baltimore the lowest at 2.1 percent, while Cleveland-Akron and San Diego straddle the average of about 9.5 percent.
Another measure—import penetration—is a more specific way to reflect the competition faced by an area’s manufacturing industries. As the authors describe the concept, "Import penetration measures the ratio of imports for a particular industry to the sum of imports plus that portion of domestic production that is not exported abroad. … [T]his measure of import penetration shows the share of domestic sales of a good that is imported rather than domestically produced."
When the measure of import penetration is aggregated across all local manufacturing industries, the metropolitan areas facing the highest import penetration are San Diego, San Francisco-Oakland-San Jose, Boston-Worcester-Lawrence, and Portland-Salem. Facing the lowest penetration are Kansas City, Washington-Baltimore, Atlanta, and Sacramento-Yolo.
Testa and his colleagues also provide a measure of export intensity—exports as a percent of gross metropolitan product. The most export intensive metropolitan areas are Seattle-Tacoma-Bremerton, Detroit-Ann Arbor-Flint, and Miami-Ft. Lauderdale. The least export intensive areas were Denver-Boulder, Kansas City, and Washington-Baltimore.
Workers in France and Germany work fewer hours in a year than do Americans—the equivalent of 6 to 9 regular workweeks fewer, according to International Labor Organization figures cited by Douglas Clement, editor of the Federal Reserve Bank of Minneapolis quarterly, The Region. Writing in the December 2003 issue, Clement outlines the somewhat controversial explanation of this phenomenon offered by Professor Edward C. Prescott of Arizona State University (and a senior monetary advisor to the Minneapolis Fed).
While many analysts look to cultural and legal difference between the United States and Europe (see the August 2003 issue’s Précis for an example of the latter), Prescott believes that European workers are simply responding to a different set of economic incentives than are Americans. Clement cites Prescott: "French, Japanese, and U.S. workers all have similar preferences. The French are not better at enjoying leisure. The Japanese are not compulsive savers." The reason the average French worker spends about 6 weeks fewer at work than does the average American instead comes down to the fact that the tax system in France, and many other European countries, drives a much larger wedge between what a worker earns and what that worker gets to keep after taxes.
Prescott’s work has highlighted the importance of understanding the relative prices of consumption and leisure, continues Clement. That set of relative prices is determined by the tax rate on consumption—sales taxes, excises, property taxes, and so forth,—and the taxes on labor—income taxes, social insurance taxes, and the like. While none of this seems particularly controversial, Prescott’s introduction of the concepts into a standard growth accounting model has attracted some skeptics. Although the results of the model seem to produce a fairly good representation of reality—predicted hours worked per week were very close for Germany and the United Kingdom, a little low for the North American economies, and a bit high for others—Clement cites Peter Lindert of the University of California at Davis as seeing the work as "a theoretical model, heavily laden with assumptions. … educated, intelligent, plausible fiction."
On the other hand, Clement summarizes the results of an econometric study by labor economists Steven Davis (University of Chicago) and Magnus Henrekson (Stockholm School of Economics) that found that a 12.8- percentage point difference in tax rates results in 122 fewer hours supplied per worker and about a 5-percentage point decrease in the employment to population ratio.
As we pointed out in our October 2003 Précis of work by Paul D. Gottlieb and Michael Fogarty, retaining or attracting college graduates to an area can have a positive impact on average per capita income for that area. Thus, the recent examination in the Federal Reserve Bank of Cleveland’s Economic Trends of the migration patterns of college graduates may be of interest. As it turns out, the highest State retention rates in 2001 of graduates in the Class of 2000 were in Idaho, Maine, Texas, California, and New Jersey. The lowest retention rates were in Delaware, Vermont, Rhode Island, North Dakota, and Iowa.
We are interested in your feedback on this column. Please let us know what you have found most interesting and what essential reading we may have missed. Write to: Executive Editor, Monthly Labor Review, Bureau of Labor Statistics, Washington, DC. 20212, or e-mail MLR@bls.gov |
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