December 2002, Vol. 125, No.12
Précis
Flows of factory jobs
Regional cycles: spillovers or common shocks?
Regional perspectives
The flows of job creation, destruction, and reallocation are far larger then the net changes that result from them. Scott Schuh and Robert K. Trieste, in the New England Economic Review, both document this general and well-known fact and explore the importance of intra-firm job shifts across regions and employment reallocation within industries in explaining the net changes in regional manufacturing employment.
In general, Schuh and Trieste confirm, manufacturing employment has tended to converge across regions since the beginning of the last century. This has largely been a reflection of sharply declining shares of manufacturing employment in New England and the Middle Atlantic States and rapidly rising shares in the South Atlantic and Pacific States. These changes in the share of employment accounted for by factory jobs have magnified the changes in population distribution from the north and east toward the south and west.
How much of the flow of jobs that underlies this change in the distribution of manufacturing employment is the result of firms shifting employment across regions? First, most employment flows are between firms; even among multi-plant firms, two-thirds of flows are between separate companies, according to the authors’ analysis of the Census Bureau’s Longitudinal Database. However, Schuh and Trieste say, "… although intra-firm and intra-industry job re-allocation between regions makes up relatively small shares of total gross employment flows, these flows account for a substantial portion of the differences in manufacturing employment growth rates across regions."
The authors point out several interesting avenues of research their findings suggest: the factors associated with a firm’s regional mobility, the magnitude of adjustment costs associated with these reallocations of employment, and any cyclical patterns of job flows. It should be noted as well that the Longitudinal Database under development at the Bureau of Labor Statistics will give researchers the ability to study sectors of the economy other than manufacturing.
Regional cycles: spillovers or common shocks?
There are, according to Michael A. Kouparitsas writing in the Federal Reserve Bank of Chicago’s Economic Perspectives, three factors to understand when studying regional cyclical fluctuations. Common shocks, such as changes in monetary, fiscal, or general demand conditions, form one such factor. A second factor might include region-specific shocks, such as a weather phenomenon or a disaster. The third possibility is of a regional shock spilling over into other regions.
Kouparitsas believes, based on the high degree of co-movement among regional incomes, that purely region-specific shocks must have little importance. Therefore, the bulk of his paper is aimed at deciding whether spillovers or common shocks are behind the high degree of correlation. His summary tool is a variance decomposition of regional income at business cycle frequencies.
He finds that while common sources of innovation account for significant shares ranging from 55 to 94 percent of variation in income in every region and within-region shocks have a statistically significant, but smaller, influence in many, there is no case in which a shock in one region has a statistically significant influence on another region.
Michael Kouparitsas used part of his research to contribute "A regional perspective on the U.S. business cycle," to the Chicago Fed Letter series of essays on issues. Two of his colleagues Rick Kaglik and Michael Munley used the same forum to issue "Using data and anecdotal evidence to understand the regional economy." Kouparitsas presents some of the factual issues that he sought to explain in his more detailed Economic Perspectives article. He finds that among the regions, the Southeast has virtually the same volatility in the growth of income as that of the U.S. aggregate and that the Great Lakes region is similar to the Southeast in this regard. Only the Plains region is more sensitive to the U.S. cycle, while the other five regions are less sensitive.
Kaglik and Munley outline the methods the Chicago Federal Reserve Bank uses to understand the regional economy the Bank serves. The regional analyses that result from these efforts is useful not only to the Federal Reserve in its economic and financial policy goals, but to the Bank’s customers and other participants in the regional, national, and even international economies.
The first step in understanding a region’s economy is to step back a bit to get some perspective on the area’s long-term dynamics. This is often done in research conferences among academic and other high-level researchers. Next, understand current statistics and short-term trends. This is the day-to-day work of the Bank’s economics and statistical staffers. Third, is to fill in the interstices between statistics and models with flesh-and-blood anecdotes gained through extensive conversations with business and labor leaders, journalists, local officials, trades associations, chambers of commerce, and, in fact anyone who can help develop a better sense of what is happening on the shop floors or the retail aisles or the office cubes or the bank counting rooms.
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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