Panel Transcript – Can Upstate Cities Save Themselves? (6)



JULIA VITULLO-MARTIN: So our first panelist is Richard Deitz. Richard is an economist with the Federal Reserve Bank of New York’s Buffalo branch. And Richard is going to do for us what bankers do so well: he’s going to lay out the basic data on Upstate New York cities. So, Rich.

RICHARD DEITZ: Thanks. Don’t know what this is. Okay. Thanks. I guess it’s left up to us economists to talk about the bad news, you know. They bring people like us to talk about general conditions in Upstate New York. But I’m going to sort of do a presentation where I kind of talk about conditions in the region, sort of more broadly speaking. Not of cities in particular, but of Upstate New York as a whole, and some of Upstate’s metro areas.

And then, in particular, I’m going to focus on two forces that are shaping the economic outlook for the region (Deitz, Power Point 1). Restructuring — how restructuring is played out in Upstate New York, how, as we’ve moved away from a manufacturing based economy and toward a service based economy, how that’s affected us in the region. And how, as the work force is becoming higher skilled, how that’s affecting us in the region.

And I want to also focus on two longer-term issues that are playing out, population loss and out-migration, and I’ll show you some of what that looks like and how this is resulting in an aging population in Upstate New York that is actually aging a little bit faster than the U.S. as a whole.

So let me start by sort of showing you the most basic gauge for regional growth is jobs (Deitz, PPT 2). And if you look at sort of job growth in Upstate New York over the past 15 years or so, what you’ll see is that we really haven’t had much, that we really, in terms of the labor force are about the same size now as we were before the 1990-91 recession. Albany, I just outlined here, is doing a little better than average, but you can see it’s still far below what’s going on in the U.S. as a whole.

And if you look at this period, the decade of the 1990s (Dietz, PPT 3), the longest expansion in U.S. history, we had 20% growth in employment in the U.S. and only 5% in Upstate New York. And I’m talking about Upstate New York as a whole, so typically I’m going to be just sort of chopping off basically around Duchess County, and downward being Downstate and then upward being Upstate.

And then during the recession, during the period during which the U.S. continued to lose jobs, 2002-2003, job loss was actually not much more severe in Upstate New York. So, in other words, the swing down was not that far. But during the recovery (Dietz, PPT 4), where jobs grew by about 5% in the U.S. through 2006, we’ve seen little, if any, growth in Upstate New York as a whole.

And in fact there are some regional differences. Buffalo and Binghamton, sort of during, say, 2002-2006, sort of up from the recession up to the present for the most part, there are some parts of the economy that are continuing to shrink. Buffalo not by much, but Binghamton really got severely hit, particularly with the loss of a lot of jobs through IBM. Some other parts of the region are gaining jobs. Albany, of course, doing probably much more favorably than the rest of Upstate New York, in part because of the stability of the public sector. But you can see all of that is still far below, during this four-year period, what was the case for the U.S. as a whole.

Despite this, unemployment rates remain relatively low (Dietz, PPT 5). Albany’s unemployment rate remains below sort of the U.S., again, in part because of the presence of the public sector. But you can see that despite a relatively weak economy, unemployment rates really are not that high, and in part that’s because of our sort of slow population growth, and, as I’ll get into a little bit about migration.

So despite the fact that there is sort of little net growth in the economy overall, it sort of masks what’s going on underneath the surface because there is growth in some areas and decline in others. So we know sort of the culprit of job decline, in large part, in the region is manufacturing. So in 2001 through 2006 about a 20% decline in manufacturing jobs in Upstate New York. Very severe, a large segment of the economy. The next largest decline was information. This is sort of some of the fallout from the technology sector that also hit us in Upstate New York.

But there are segments of the economy that are growing and have been growing (Dietz, PPT 6). Education and health services, financial services, professional business services, and leisure and hospitality. These are segments of the economy that are growing. So although there is little net growth, there is a lot of churn going on in the region as a whole.

In terms of wages (Dietz, PPT 7), if you look at our average wage in Upstate New York in 1990 relative to the U.S. We compared relatively favorably for the most part, except for the smaller metro areas. But you can see that, for instance, Albany and Rochester had, actually, wages, on average, that were higher than the U.S. But by 2005 a gap had really begun to open up. Maybe less so in Albany.

But you can see that this is not because, necessarily, over this period the average worker got paid less for doing the same job in Upstate New York as they would have been paid in other parts of the country, but in large part what’s been going on is as a result of this restructuring, what we’re seeing is that the growth that we are getting is not as much in the higher paying jobs as was the case in the U.S. as a whole.

So the mix, the change in the mix of employment is really affecting the average wage in the region. We can see that that’s really been played out significantly over the past decade or so.

So what are some forces shaping this outlook (Dietz, PPT 8)? Well, first the restructuring of the economy has played out in a way that’s been relatively unfavorable for the region (Dietz, PPT 9). You can think of what drives regional growth as being things that you produce in the region and sell to people outside the region. Right, so a region doesn’t grow by simply re-circulating and doing each other’s laundry, but it’s by growing its export industry. So that could be either through manufacturing or it could be through services. It could be through services that you produce and sell to people outside the region like data processing services, or financial services. Or it could be by bringing people into the region for things like tourism.

So what I did is sort of look at this in the longer term. So if you take the past 15 years, 1990 to 2005, and you separate out this export segment of the economy, and you look at the goods side, in terms of goods, production and distribution — so a lot of this is manufacturing and the distribution of goods — over this 15 year period there is a 26% decline in the number of people working in that segment of the economy.

But there is growth in the service side of the economy. Producer services, which would be sort of services that are sold to other businesses, so you might think of that as sort of data processing services, legal services, accounting services, things like that. And consumer services, so this would be, for example, higher education and maybe some parts of the health-care industry. But you can see for — and actually zero growth in locally consumed goods and service, in part because we’ve had no population growth, and some growth in the public sector in terms of the government.

But you can see this compares much more unfavorably to the U.S., where we had a much more significant decline in the goods side and much less growth in producer services and consumer services. And again, as you can see from the average wage, probably less growth in the higher wage segments of that part of the economy.

The other main force that’s been affecting the region is the growth in higher skills and skill upgrading that’s been going on in the U.S. economy a whole. So we know that — and this is sort of tied to the restructuring issue — we know that there has been a decline in the demand for lower skilled labor in the U.S. economy, particularly in manufacturing (Dietz, PPT 10). So you can think of this as primarily the result of sort of two forces. One, technological advances, which has made workers more productive and has sort of displaced a lot of lower skilled labor, but also globalization. Basically anything that can be done with relatively low skilled labor can be done at much more lower cost in places like China and India and other places around the world.

That has hit us particularly hard in Upstate New York because we’ve had an economy that’s had more of that sort of segment than maybe elsewhere in the country. At the same time we’re seeing an increase in the demand for high skilled labor (Dietz, PPT 11). So this would be sort of an arena in which the U.S. has a competitive edge, higher level of human capital. Higher skilled labor is actually a segment of the economy that is growing. It’s even growing within manufacturing. So if you look at the decline in manufacturing jobs overall, what you would actually see is that there’s been an increase in high skill jobs within manufacturing.

There also has been growth — and there’s likely to be more demand—for workers that service an aging population (Dietz, PPT 12). We know that this is the case nationwide, that as the population ages, there’s going to be an increase in the demand, for example, for healthcare services, and so there’s likely to be a significant increase in workers needed in that segment of the economy, and in, say, travel and tourism.

And also more workers needed to supply consumer services through personal contact. So, at least, right now, whether these are high skilled or low skilled doesn’t matter, but there are certain jobs that you can’t replace with technology or low-cost workers in other countries.

So, for example, when I go see my psychiatrist, I still need to see somebody in person. I’m not willing to do that with a worker in China that I can’t see, or with a machine. Maybe in our future, but at least not yet. But we may see things like remote surgery, for example, that could be a player. But this might be one area where, if there’s likely to be any growth in jobs for lower-skilled workers, it’s likely to be jobs like these.

And if you look at how this is played out, in Albany for example, this is sort of a similar case for many parts of Upstate New York. If you look at the 1990s, and you separate all jobs into sort of five wage classes, and you look at the growth over this period, the only growth were in higher wage jobs. There was an actual — there was a continued decline in jobs that paid sort of below average.

For the U.S. you can see, again, there was much less growth in this very high wage segment, those jobs that paid over 50,000 a year, and there was some growth in this very low end, which probably relates, again, more to some of these services that are provided through personal contact, maybe retail, for example, and we’ve had less growth of that in Upstate New York because of low population growth (Dietz, PPT 13).

So in terms two sort of longer term issues that are affecting the region, one is the population growth or lack thereof. It’s a longer term issue. I know we tend to think that maybe this is something that sort of happened recently because of high taxes. But if you look at sort of the longer term picture throughout the century, we really haven’t had any growth in the population in Upstate New York for the past three decades at least.

This is the case for a lot of the Northeast. There’s a similar picture if you look at places like Western Pennsylvania and parts of Ohio and Michigan along the Great Lakes. This is sort of a structural issue that’s affected a lot of the Northeast for a long period of time, and it’s not something that’s a result of simple forces. In fact, we’ve always grown a little bit more slowly than other parts of the country.

If you look at this by metro area there are some differences. Places like Buffalo — this is between 1980 and 2005, so a 25-year period — Buffalo lost population, as did Utica and Binghamton. There was some growth in Rochester and sort of the eastern part of the state, in Albany and Glens Falls (Dietz, PPT 14). But all these population growth rates are much, much slower than the 30% growth that was in the U.S. over that period.

There’s been a lot of sort of debate about this — actually it’s not been much of a debate. The main conclusion that people seem to draw from this is that there has been a vast out-migration of the population from the region (Dietz, PPT 15), and particularly a large brain drain. I think, to some extent, this is a misunderstanding of what’s going on.

If you sort of look at — if you look at population flows, there’s always people moving around. There’s always some out-migration, there’s always some in-migration. People naturally move about the country. So in order to understand, really, to what extent there is an out-migration of the population, I took some data from the 2000 census, separated out in-migration trends from out-migration trends, sort of cut off New York state and Upstate New York and treated Upstate New York as if it were a separate state. And the 2000 census sort of tracks if people moved between 1995 and 2000.

So what I did was take the working age population, took out basically anybody who was a college age student at the time that they moved, because a lot of that movement may be due to people sort of coming in and out of the state just to go to school, and sort of said, all right, if you look at the core working age population, those aged 25-60 at the time of a move, if you look at the rate of out-migration for Upstate New York during that period, we actually rank right about middle compared to other states. So our out-migration is actually not particularly high.

But if you look at in-migration (Dietz, PPT 16), we rank sort of almost at the bottom; 50th out of 51 states. So for a net, that leaves us with a net migration rate, if you sort of look at the difference between the two, of negative 2.2% over that five-year period, and that ranked us basically third from the top, fourth from the top in terms of the highest net out-migration rate.

Further, if you separate out and look at the educated population, those with a Bachelor’s — those with four or more years of college — and do the same sort of exercise, what you see is that, first of all, these migration rates are higher. And we talk a lot about the brain drain. People are concerned that their kids won’t have jobs in the region. One thing to keep in mind is that people talk about how their kids don’t stay in their hometowns and where they went to school. They talk about that all across the country; it’s not just a problem in Upstate New York.

We tend to think that this is a bigger issue in Upstate New York because of our economic problems and because of our lack of population growth. But actually, parents say the same thing in Boston. “My kids won’t stay in Boston to get a job.” You know, people talk about this story all around the country. So the question is, how much more of an issue is it for us than other parts of the country?

So if you look at the out-migration rate for those with four or more years of college in Upstate New York, we rank 29th. But for the in-migration rate, if we were a state, we would be dead last in terms of the in-migration rate. So the problem isn’t so much that we have a vast outflow of the population; the problem is as this population naturally moves around and looks for their best job opportunities, we rank at the bottom.

Now that may be because we don’t have jobs for them, but it also may be because they want to live in other locations. And so it’s a similar ranking if you look at those with less than four years of college.

Now partly what’s going on as a result of these trends is that we have a population that’s aging (Dietz, PPT 17 — and we know this is the case throughout the U.S. — and we’re actually aging a little faster in Upstate New York (Dietz, PPT 18). If you look at — because of this trend of our population under 65 actually declining, it’s resulting in the share of the population that is, say, over 65 rising more rapidly — higher and rising a little bit more rapidly in Upstate New York. So one in ten was over 65 in 1970 in Upstate New York. That’s risen to about one in seven — or fallen to — and it’s expected to fall to about one in five by 2030. Really significant demographic shifts that we’re probably not even aware of the full consequences.

And our upstate metro areas are amongst the oldest in the nation. Buffalo (Dietz, PPT 19) ranks eighth in terms of the metro area, in terms of population over 65. Albany (Dietz, PPT 20) ranks twelfth, Syracuse 21st (Dietz, PPT 21), and Rochester 22nd (Dietz, PPT 22).

This — the most significant impact that I think this has for our region is something that we also have not focused on, and that is we have continually focused on growth being limited in Upstate New York by our lack of employers in the region, the lack of jobs, and the solution to that is to grow jobs so that people can stay in the region. There definitely is some truth to that.

But as the population ages, what’s likely to start shifting is that we’re actually going to have more job opportunities in Upstate New York — and this is actually starting to happen, especially in some of the higher skilled jobs that we have available — and the question is not going to be, “How do we create jobs?” The question is going to be, “How do we get people to come here to take those jobs?” How do we become attractive relative to other parts of the country when we’re competing for the best and the brightest, the highest skilled, the most mobile, the ones that have choices throughout the country, how do we compare? And so I think we’re likely to finding problems in the region that are limiting our growth, at least in some part, due to our inability to attract workers to fill key positions.

So, some conclusions (Dietz, PPT 23). Growth has been sluggish across Upstate New York, although Albany and Glens Falls have been somewhat bright spots. Manufacturing continues to shed workers, while there are some growing segments of the economy in terms of financial services, health care, and education. Boomer retirements are likely to create many new jobs to fill in the region. And one of the key findings is that finding and retaining workers is likely to become much more of an important issue for us as a region.

MS. VITULLO-MARTIN: Thank you, Rich, for a truly useful and coherent analysis of what’s happening upstate. I think the point on being at the bottom in migration is really worth thinking about, and will lead very nicely into our third panelist, Paul Hagstrom.