September 29, 2004

In a study I presented to a seminar sponsored by the Regional Leadership Institute, I found several surprising factors that have changed economic conditions in metropolitan Atlanta since this decade began. 

Since 2000, employment in Atlanta has increased at a slower pace than in the nation.  I cannot remember another 4 year stretch where that has been true since the 1950s.  Moreover, employment appears to have increased only slightly more than eleven thousand in the past year.  Nationwide, job gains over that same time period are more than 1.1 million.

In other words, Atlanta suffered a greater recession than the nation and is recovering at a slower rate than nationwide. 

In order to discover why this is occurring, I begin with a concept called location quotients. 

In August 2004, metro Atlanta accounted for 1.663 percent of the jobs that exist nationwide.  If we were a pure microcosm of the national economy, every sector should have that percentage of jobs in comparison to the nation.  If that occurred, the location quotient would be 1 for all sectors. 

Of course, metro areas have different economic reasons for being.  Indeed, city forming industries are dramatically different in many metro areas.  These city forming industries are jobs created because goods or services are exported to other regions of the country or even to the rest of the world.  In Los Angeles, entertainment is a city forming industry.  In Boston, financial management is a major factor forming that city. 

Those city forming functions have location quotients far in excess of one. 

Cities also have city filling industries.  While there are some fluctuations based upon the intensity of retail activity, I normally find that retailing almost always has a location quotient between 0.9 and 1.1 for large cities.  (Small economic units could have much higher retail location quotients as they distribute goods for a much larger area outside the economic unit relative to the economic unit).

Anyone in economic development should be aware of these separate functions.  The city filling functions arrive because customers are there.  Therefore, you do not use your development dollars to provide benefits for retailers or for normal services, such as dry cleaning, movies, etc.  For example, do not use development dollars for Walmart stores.  Walmart distribution centers, on the other hand, may create jobs and stimulate growth that otherwise would not occur. 

What about those sectors with location quotients far below 1?  If Atlantans have the same tastes as in the nation, these low quotient sectors reflect import needs (and also identify opportunities where local production might substitute for imports).  Of course, they may also reflect differences in tastes. 

Now, the poor performance of Atlanta could be the result of four factors:  1) We could be losing our competitiveness in our city forming functions.  2)  Our city forming functions may be industries that were harder hit in the recession than other activities.  3)  We had large imbalances in our city filling functions that needed to be corrected.  4) We are becoming even more import dependent than four years ago. 

So, what are the Atlanta sectors with the highest location quotients?  By far the most important is air transportation, followed by telecommunications, computer systems designs, accounting, and wholesale trade. 

Some of the areas of import activity (or altered tastes) are surprising.  Our low employment in exploiting natural resources is not surprising. But the weakness in production of computers, arts and entertainment, the manufacturing of transportation equipment, and state government is.  Clearly, in the manufacturing of transportation equipment, we have lost a great deal of competitive advantage over the years. 

However, most city forming functions remain about as important in Atlanta relative to the nation as they did in 2000.  We just suffered the unfortunate result of having, as our most important industries, those that were most heavily impacted nationwide by the recession. 

Also, two of our city filling functions, retail trade and construction, were above national norms in 2000.  They are now at or below norms today.  Now that we have corrected those excesses, our job recovery should be more in line with national trends.  However, there is no reason to believe that those 2000 excesses will reappear. 

We may be losing our competitiveness in gathering temporary workers, as the location quotients for employment agencies have fallen from 1.6 to 1.15 in only four years.  (As our population growth remains strong while unemployment is well below national norms, I find this result hard to believe.  Could we have a data problem here?)

We are becoming more significant in one area: eating and drinking places.  Perhaps we are becoming party town USA. 



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