Seeking a Good Fit for Economic Growth
May 12, 2007
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The Cincinnati area’s economic development is a hot public policy topic. The current mantra of many policy makers is to attract businesses that will create high-tech jobs in fast-growing industries. While there isn’t anything inherently wrong with this approach, many economists feel that these criteria -- high tech and fast-growing businesses-- are a bit narrow. Most economists argue that an equally important and frequently overlooked consideration is the extent to which the recruited business’s needs are consistent with the special strengths of the local economy?
To identify these special strengths requires some knowledge of the area’s comparative advantage. One way to ascertain the comparative advantage is to ask those who already have been in the economic trenches, namely, the variety of employers who have experience in this region. Simply put: What does the market tell them?
Take the example of motor vehicle and parts manufacturing. Conventional wisdom would say these are old line, tired (if not dying) industries that hold little promise for our region. But considering the motor vehicle and parts manufacturing businesses in the context of the comparative advantage of this region leads to different conclusions.
For instance, during the period 2001 to 2005 -- a particularly interesting time since it involves both a prosperous economy and a recessionary one -- private (i.e., non-governmental) employment in the U.S. grew by 1.5 percent. This compares to a decrease of about 1 percent in Indiana, Kentucky and Ohio employment. Now consider the motor vehicle and parts manufacturing industries. During the same time period employment in these industries decreased by more 11 percent at the national level compared to a 3 percent decrease in Indiana, Kentucky and Ohio. While a 3 percent decrease might seem to be bad news, it also indicates that these three states fared better than the nation as a whole and they may hold a marked advantage for the motor vehicle and parts industries.
The distribution of total employment in these industries gives more information. In the nation, these auto industries make up 0.71 percent of the employment; in Ohio, Kentucky and Indiana they make up 2.65 percent. The higher percentage of employees suggests that many employers find more benefits in these states than in most areas in the U.S.
Results are similar in the Greater Cincinnati area, but indicate an even stronger advantage for these auto industries. Although data are not available for the motor vehicle manufacturers, the parts industry shows that while jobs decreased in the nation by almost 12 percent, Cincinnati area employment in the parts industry actually increased – a demonstration of a strong comparative advantage. Finally, the average annual pay in our region for motor vehicle and parts industries was $65,487 in auto industries compared to $40,343 in all industries.
Auto related industries may or may not hold the key to our future, but they are an example of an industry that is well-fitted for this region. Finding and attracting companies that are a good fit with the overall economic environment of our region is a sound approach in economic policy decision–making. The right fit for one region (e.g. high tech and fast growing industries) is not the answer for all.
George Vredeveld, Director of the Economics Center for Education & Research and the Alpaugh Professor of Economics at the University of Cincinnati, College of Business
