View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

A review by the Federal Reserve Bank of Chicago

Business
Conditions
1965

June

Seventh District economic growth

2

Contents

Federal Reserve Bank of Chicago

Seventh District economic growth
Illinois, Indiana, Iowa,
Wis­
TL American economy has turned in a consin—was among the Michigan andgrow­
most rapidly
remarkable performance over the years. The
quantity, variety and quality of production
have enabled consumption to rise to levels
that would have astounded the early settlers
of this nation and even today are incompre­
hensible to much of the world. During the
last 100 years, national income in constant
dollars has doubled almost every 20 years.
Population has increased as well but not so
fast as production, hence the rising levels of
living. Since 1929, for example, disposable
income per capita (valued in 1954 dollars)
has risen about $800, or 70 per cent.
Beginning about 1958 there was wide­
spread discussion that economic growth was
slowing, nevertheless, expansion has con­
tinued at an impressive rate. Total output in
constant dollars between 1946 and 1957 in­
creased at a compounded annual rate of 3.5
per cent and since 1957 at only a slightly
lower rate of 3.4 per cent. Total employ­
ment rose about 9.8 million between 1946
and 1957 and has increased 5.3 million since
1957. Disposable income per capita in con­
stant dollars has also continued to rise; dur­
ing the 12 years 1946-57, the rise was $254
and in the 7 years 1957-64, $208.
For many years economic activity in the
Seventh Federal Reserve District states—

ing in the nation. Since the mid-Fifties, how­
ever, the growth in these states, as measured
by employment, has not matched that of the
United States.
Data on total employment for most states
are not available. However, a measure of
total employment can be estimated from
Bureau of Labor Statistics reports on employTotal e m p lo y m e n t*

1957

Increase
1964
Amount Per cent
(thousands)

3,822
1,645
950
2,677
1,458

3,873
1,717
985
2 ,6 6 6
1,514

51
72
35
— 11
56

1.3
4.4
3.7
— 0.4
3.8

Total

10,552

10,755

203

2.0

U nited
States

6 0 ,4 9 4

64,2 9 7

3,803

6.3

Illinois
Indiana
Iowa
M ichigan
W isconsin

*Figures are estimated from Bureau of Labor
Statistics data on employment in nonagricultural
establishments and Department of Agriculture data
on farm employment. United States total differs
from the Department of Labor household survey
estimate by about 4.5 million in 1957 and 6 mil­
lion in 1964.

BUSINESS CONDITIONS is published monthly by the Federal Reserve Bank of Chicago, Charles L. Choguill and Karl A.
Scheld were primarily responsible for the article "Seventh District Economic Growth."
Subscriptions to Business Conditions are available to the public without charge. For information concerning bulk mail­
ings, address inquiries to the Federal Reserve Bank of Chicago, Chicago, Illinois 60690.
2

Articles m ay be reprinted provided source is credited.




Business Conditions, June 1965

ment in nonagricultural establishments and
Department of Agriculture data on farm em­
ployment. (National employment has been
estimated on the same basis to permit com­
parison.)
Employment in the District states accord­
ing to these estimates has grown only 2 per
cent since 1957, while nationally it has in­
creased 6.3 per cent. With the exception of
Michigan, all of the District states experi­
enced increases although none kept pace with
the overall rise in national employment. The
relatively small increase for the District states
is primarily accounted for by the decline in
Michigan employment and the small increase
in Illinois.
While the District has had relatively slow
growth on the basis of employment, in terms

Per c a p ita p erso n al incom e

1957

Increase
1964
Amount Per cent
(dollars)

Illinois
Indiana
Iowa
M ichigan
W isconsin

2 ,505
2 ,0 2 9
1,864
2,245
1,969

3,003
2 ,529
2 ,3 7 0
2,733
2 ,4 9 2

498
500
506
488
523

20
25
27
22
27

U nited
States

2,048

2 ,5 5 0

502

25

of per capita personal income the perform­
ance has been substantially better. Between
1957 and 1964 the increases in per capita
personal income in Indiana, Iowa and Wis­
consin exceeded that of the United States;
Illinois and Michigan had smaller gains.

M easuring re la tiv e grow th
Growth of the economy necessarily implies
change: rapid expansion of some industries,
occupations and areas, but slow growth or
even decline of others. The forces at work
are complex and interrelated in their effects.
Technology, natural resource availability,
population, size and skills of labor force, con­
sumer demands and governmental policies all
have important influences upon individual
areas. Furthermore, a region is not isolated
from other regions but is connected with them
through flows of goods, services, financial re­
sources and population. Forces affecting a
region, therefore, originate from both within
and without.
S h ift-s h a re analysis

All of these forces are affected by, and in
turn have the effects upon, decisions of busi­
nessmen on location and production. Conse­
quently, an analysis of regional industry



changes can provide some insight into the
economic growth of a region.
A technique known as shift-share analysis
can be used for this purpose. It consists of
comparing the direction, rates and types of
change for individual areas with the direction,
rates and types of change at the national level.
The changes for the nation are used as a
“norm,” thereby providing a basis for assess­
ing the relative magnitudes of regional
changes and giving some indications of pos­
sible causes of the differences.
Since individual regions in a highly de­
veloped economy—such as the United States
— are effected strongly by forces originating
throughout the nation, there is a strong tend­
ency for the region, during any period of
several years or more, to change at about the
same rate as the nation. In the shift-share
framework, this is known as the nationalchange effect. Usually, however, the actual

3

Federal Reserve Bank of Chicago

4

change in an area differs from the national
change. What accounts for this difference?
Obviously, the differences between the
regional and national rates of change arise
from differences in the characteristics of
regions. The mix of industries varies and all
industries do not grow at the same rate
nationally; for example, finance and service
industries have been growing more rapidly
than agriculture, mining or transportation.
Economic activity in a region with a large
proportion of the more rapidly growing in­
dustries would be expected to expand at an
above average rate and the region would be
expected to increase its share of the national
totals of employment, production and in­
come. This industry-mix effect is a measure
of expected change based on the difference
between the individual industry growth rate
and the average (all-industry) growth rate.
The regional growth rate may also differ
from the nation because certain industries in
the region are expanding more or less rapidly
than the same industries nationally. This
regional-share effect reflects the competitive
position of industries in the region. If an in­
dustry is expanding faster in a region than
in the nation, it adds to the region’s relative
growth even though, nationally, the industry
may have a below-average growth rate.
The total change in a region’s employment,
production or income can be attributed to
these three sources—national-change, indus­
try-mix and regional-share effects. If employ­
ment in Illinois, as an example, had increased
at the national rate between 1957 and 1964,
there would have been a gain of 240,000.
Because a large proportion of Illinois em­
ployment in 1957 was in the more rapidly
growing industries, the industry-mix effects
would have raised this number by 41,000,
for a total expected increase of 281,000. The
actual increase of employment in Illinois be-




Employment increases
in the District states
did not match "expected" gains
change, 1957-64 (thousands)

-2 0 0
“

I

-100
'

I

0
'

Illinois

+100
'

I

+200
T

r

expected employment increase
actual employment increase

industry—mix —
regional—share
Indiana

1

Iowa

%

Michigan

tween 1957 and 1964 was only 51,000. The
difference between the actual and the ex­
pected increase (230,000) represents the
regional-share effect; that is, Illinois indus-

Business Conditions, June 1965

tries did not increase employment as fast as
the same industries nationally. The decline
in the state’s share of total national employ­
ment, thus, is due to the relatively weak per­
formance of industries in the state and not

to the types of industries located there.
Using the shift-share technique, changes in
employment and personal income for recent
years are analyzed in the following pages for
each of the states in the Seventh District.

Em ploym ent and personal income
E m ploym en t shifts

In the District states employment increased
less between 1957 and 1964 than in the na­
tion; that is, each of the District states experi­
enced a decline in its share of total national
employment. In order to maintain the same
share of national employment, Illinois would
have had to increase employment by an
additional 189,000 workers, Indiana by 29,000, Iowa by 25,000, Michigan by 181,000
and Wisconsin by 34,000.
Illinois was the only District state to ex­
perience an increase in the relative share of
expected employment as a result of industrymix. Larger proportions of employment in
the more rapidly growing industries—trade,
finance, services and government—resulted
in positive industry-mix effects (larger ex­
pected employment). Michigan had no net
industry-mix effects; its 1957 employment
distribution was such that expected increases
in the slower growing industries offset those
in the more rapidly growing industries.
The reason for the decline in relative posi­
tion in total employment in Illinois and
Michigan was the failure of industries in
these states to expand as rapidly as the same
industries nationally. On the basis of regional
share effects, Illinois and Michigan had 230,000 and 181,000 fewer employes, respec­
tively, than if their industries had grown at
the national rates. Only agriculture and min­
ing in Illinois and agriculture and services in



Michigan performed favorably compared
with the national industry changes. While
employment in agriculture and mining de­
clined both in the United States and in
Illinois and Michigan, the declines were less
rapid in these two District states than in the
nation.
In contrast, regional-share effects were
positive for Indiana, Iowa and Wisconsin. In
Indiana, employment grew more rapidly in
mining, manufacturing, finance, services and
government than in the same industries na­
tionally. Employment in Iowa advanced at a
higher rate in manufacturing and finance and
declined less rapidly in agriculture and min­
ing than in the United States. Manufacturing,
finance and government employment in Wis­
consin also had a greater rise than in the
nation.
The regional-share effects in these states
were not, however, large enough to offset the
negative effects of the industry-mix. These
states had relatively larger proportions of
slower growing industries than the nation as
a whole. The major negative industry-mix
effect came from agriculture in which em­
ployment nationally had declined almost 20
per cent between 1957 and 1964. Since agri­
culture is more important in Indiana, Iowa
and Wisconsin than it is nationally, slower
growth would have been expected in these
states.
On the basis of the shift-share analysis, the
District states that were closest to matching

5

Federal Reserve Bank of Chicago

the national change in employment—Indiana,
Iowa and Wisconsin—had higher rates of in­
crease in employment on balance in their ma­
jor industry sectors than the corresponding
national rates. Because of location or other
relative advantages, or possibly, the specific
plants or firms within the broad industry
groups, these states were able to compete
effectively with other regions in the nation.
This advantage was offset, however, by the
drag resulting from an industrial composition
weighted more heavily by the slower growing
industries—primarily agriculture. Illinois, on
the other hand, where employment increased
only slightly, had a favorable combination of
rapid and slow growing industries relative to
the United States. Industry-mix effects in
Illinois were offset, however, because the
state did not compete as effectively as a
location for employment increases as had
other areas of the nation.
P ersonal incom e shifts

6

Another aspect of recent economic growth
in the Seventh District is evident in the per­
sonal income statistics. In addition to wages
and salaries, personal income includes other
labor income, proprietors income, income
from property and transfer payments (the
latter consists of payments not associated
with current productive effort, such as unem­
ployment compensation and social security
benefits). Personal income is commonly used
as a measure of consumer income and pur­
chasing power.
For an analysis of structural changes with­
in and among regions, personal income is
deficient since it includes two items—prop­
erty income and transfer payments—that are
not necessarily the result of participation in
the current production of the region. For pur­
poses of analyzing industry changes using
shift-share analysis, participation income—




wages and salaries, other labor income and
proprietors income—is a better measure.
Participation income by industry for 1964
is available only for the nonagricultural sec­
tor. Consequently, the results of the shift-

O n ly Iow a exceeded "expected"
growth in nonagricultural
participation income

Business Conditions, June 1965

share analysis are somewhat different than
they would be if agricultural income were in­
cluded. Income in agriculture has been de­
clining and because of this a negative indus­
try-mix effect would be expected for the
District states. Even with agriculture ex­
cluded, useful indications of the nature of
relative changes of income in the District
states can be obtained.
N o n a g ric u ltu ra l p a rtic ip a tio n incom e

1957

Increase
1964
Per cent
Amount
(million dollars)

Illinois
Indiana
Iowa
M ichigan
W isconsin

19,123
7,398
3,109
13,920
5 ,6 8 4

2 4 ,5 2 4
9,835
4 ,3 3 0
17,871
7 ,7 6 8

5,401
2 ,437
1,221
3,951
2 ,084

28
33
39
28
37

Total

49 ,2 3 4

64,3 2 8

15,094

31

2 6 5 ,9 6 2 3 6 5 ,2 1 9

9 9 ,2 5 7

37

U nited
States

Nonagricultural participation income
(NPI) increased more than 37 per cent be­
tween 1957 and 1964 for the United States.
In Illinois, Indiana and Michigan the rate of
increase was less than that nationally. NPI
in Iowa, in contrast, expanded more rapidly
than it did in the nation and the gain in Wis­
consin almost matched the national rate. The
larger increase in NPI than in total personal
income for Iowa reflects the drag on income
created by the agricultural sector as well as

the slower expansion of income from transfer
payments and property income.
Only Iowa among the District states ex­
perienced positive income effects from both
industry-mix and regional-share influences.
The large proportion of more rapidly grow­
ing industries—finance, services and govern­
ment—resulted in an expected increase in
NPI from industry-mix. The favorable re­
gional-share effect was primarily in manufac­
turing income which increased 40 per cent in
Iowa compared with 28 per cent nationally.
Wisconsin increased its share of NPI in
construction, manufacturing, transportation,
communications and public utilities and gov­
ernment. These increases more than offset
losses in other sectors. The positive regionalshare effect, nevertheless, was not sufficient
to overcome negative influence on income
growth from industry-mix.
The declining share of NPI in Illinois,
Indiana and Michigan was associated with
both an industrial composition heavily
weighted by industries that are growing more
slowly nationally—a negative industry-mix
effect—and slower rates of income expansion
in the local industries than in the nation— a
negative regional-share effect. In Illinois and
Michigan the regional-share effects were
more important than the industry-mix effects
in accounting for the relative decline in the
total share of the states NPI; the reverse was
true in Indiana where the unfavorable indus­
try-mix effect was an important factor ac­
counting for the decline.

Industry and a re a trends
Economic growth in the United States, as
in most nations, has been based largely upon
the utilization of natural resources. In the
language of the regional economist, the nat


ural resource industries— agriculture, fores­
try, mining and fishing— are considered
“primary” industries. The “secondary” indus­
tries—manufacturing—developed initially to

7

Federal Reserve Bank of Chicago

serve the needs of the primary industries
and to process the products of these indus­
tries. Trade, finance, service and government
—“tertiary” industries — accompanied in
some form the development of the natural
resource and processing industries and ex­
panded in variety and complexity as the
economy grew and incomes rose.
P rim a ry in d u s trie s -n a tu ra l resources

Of the many factors contributing to the
economic growth of the Seventh District
states, none has been as important through­
out the years as the natural resource advan­
tage.1 The current industrial structure of
these states still reflects this influence in its
agricultural production, wholesaling and
processing of foodstuffs, furniture manufac­
turing, transportation networks and other re­
lated processing, trade and service activities.
Agriculture is the most important “pri­
mary” industry in the District. Although em­
ployment in this sector has been declining
both in the United States and the District, it
still accounts for 27 per cent of Iowa’s total
work force, 16 per cent of Wisconsin’s and
almost 11 per cent of Indiana’s. More than
18 per cent of the nation’s agricultural work­
ers were in the District states in 1964.
With abundant land suitable for cultiva­
tion, the District was an obvious location for
agricultural development. Prior to the mid1800s the District already had a sizable share
of total agricultural activity. With the devel­
opment of transportation, regional eco­
nomic interdependence and the growth of
foreign and domestic markets, activity de­
veloped even more rapidly in the District

8

'Material for the discussion on primary, second­
ary and tertiary industries was largely drawn from
Harvey S. Perloff and Others, Regions, Resources
and Economic Growth (Baltimore, Johns Hopkins
Press, 1960).




than in the nation. By 1870 almost 21 per
cent of all agricultural workers were in the
District.
The share of agricultural employment in
the District began to decline after 1870 as
activity expanded faster in other regions.
Wheat had been an important crop in the
District up to this time. Illinois, Indiana, Iowa
and Wisconsin, in 1870, accounted for al­
most 40 per cent of all wheat threshed. Poor
yields, price fluctuations, an increased de­
mand for livestock products and increased
competition from the West—arising from im­
proved railroad transportation—resulted in a
shift to livestock and milk production in the
following years.
The decline in agricultural employment
both absolutely since early 1900 and as a
share of total employment since about 1870
is explained by several factors. With increased
specialization, activities previously carried on
in the agricultural sector have been taken
over by the manufacturing, trade and service
industries. As a result of technological
change, the productivity of agricultural em­
ployes has increased and there has been
strong competition from synthetic fibers.
Finally, demand for farm products is rela­
tively unresponsive to income changes and
consequently, as incomes rise, agriculture’s
share of total demand declines.
Trends in mining employment among the
District states tend to be much more erratic
than those in agriculture. Mining develops
rapidly as new deposits are found or when
changes in market sites or the structure of
demand make it profitable to exploit lower
grade deposits. But mining can also decline
precipitously as deposits are depleted.
Coal and copper have been the major min­
eral deposits exploited in the five Seventh
District states. Prior to the mid-1800s, this
area of the Midwest had only a small amount

Business Conditions, June 1965

of mining activity. From the 1870s to 1910,
mining employment rose steadily as indus­
try’s need for materials and fuels increased.
In Michigan, extraction of iron and copper

Illinois experienced
positive industry-mix effects
in tertiary industries
Illin o is
thousand employes

1957-64

r e g io n a l- s h a r e
thousand

em ployes

*Tran sp ortation

includes

tran sp ortation,

communica­

tions and public utilities. Finance includes finance, insur­
ance and real estate.




ores between the 1870s and 1880s resulted
in employment increases at a more rapid rate
than the national growth in mining employ­
ment. Coal production also expanded mar­
kedly, especially in Illinois but also in Indiana
and Iowa.
The increases were not sustained, how­
ever. By the end of the nineteenth century,
copper mining in Michigan had declined
sharply. As industry consumed more oil as a
fuel, coal mining in Illinois, Indiana and
Iowa declined compared with the nation.
Mining employment had begun to decline
absolutely in Iowa and Michigan by 1910
and in Illinois and Indiana by 1920.
As in agriculture, gains in productivity re­
sulting from changes in technology contri­
buted to the relative and absolute decline of
mining employment nationally. The increas­
ing use of substitutes such as plastic and
rubber was also a factor accounting for the
decline in mining employment. The growth
in mining that has occurred has been largely
in oil and gas. Since these sectors contribute
relatively less employment than other mining
for the same output, both absolute employ­
ment and the share of total employment in
mining have declined.
Forestry is now only a minor activity in the
Seventh District.2 Current statistics are not
readily available but the proportion of the
District states’ employment in forestry and
logging is probably even below the national
proportion of less than 1 per cent of total
employment. Although presently unimpor­
tant, the forestry and logging industry was
sizable in the 1800s and spawned a number
of related manufacturing activities.
Most of the forestry activity was centered
in Michigan and Wisconsin. Although lum•For a further discussion of forestry in the Mid­
west see “Depressed Areas— Some Lessons from
the Past,” Business Conditions, June 1961.

Federal Reserve Bank of Chicago

bering operations had their start prior to the
mid-1800s, it was not until after the Civil War
that activity spurted. The region’s employ­
ment growth in forestry surpassed the na­
tional rate by the mid-1870s and continued
to do so until the 1890s when the peak was
reached. By that time Michigan had one of
the largest proportions of forestry workers to
total employment of any state in the nation
and Wisconsin also ranked very high.
In Wisconsin, employment in forestry de­
clined between 1890 and 1910 and then in­
creased to a new high between 1910 and
1920 as hardwood production offset the ex­
haustion of the white pine forests. But the

Industry-m ix effects in Indiana
generally outweigh regional-share
effects in employment
In d ian a
1957-64

thousand employes

regional-share
thousand employes

♦ 20

~resr

‘ Transportation
10

includes

tran sp ortation,

communica­

tions and public utilities. Finance includes finance, insurance and real estate.




increase was short-lived and by 1930 em­
ployment had declined significantly. Michi­
gan forestry employment also spurted in the
early 1900s but did not reach the highs of the
1890s. Exhaustion of forests, improvements
in transportation and the expansion of domes­
tic pulpwood requirements all led to the de­
cline.
S eco n d ary industries— m an ufactu rin g

Manufacturing activity in the Seventh
District in the mid-1800s was oriented to the
primary industries—agriculture, mining and
forestry. Machine shops arose to serve the
lumber camps and saw mills. Wagons, tools
and other farm machinery were produced for
the agricultural sector and processing indus­
tries such as flour milling, meat packing and
dairy and lumber products began operations,
usually at junctions in natural transportation
routes and close to raw materials.
In Illinois and Wisconsin, meat packing
and dairy product processing contributed
substantially to manufacturing employment
growth, and these states were among the
leaders in paper products manufacturing and
printing and publishing. Furniture manufac­
turing based on the lumber industry was on
its way to a boom in Illinois and Michigan.
Iron and steel manufacturing and, in turn,
steel-using industries began developing in
Illinois, Indiana and Wisconsin.
Manufacturing workers in the United
States increased more than 4.5 million or 172
per cent from 1870 to 1900. Among the Dis­
trict states, only Iowa with a 161 per cent
increase failed to exceed the national rate.
Illinois and Wisconsin led the District with
increases in manufacturing employment of
272 and 263 per cent, respectively, while
Indiana (175 per cent) and Michigan (181
per cent) were closer to the national rate.
Employment growth in manufacturing

Business Conditions, June 1965

Perform ance in Iow a
agricultural sector affected
state employment growth
Iow a
thousand employes

r e g io n a l- s h a re
thousand employes

‘ Transportation includes transportation, communica­
tions and public utilities. Finance includes finance, insur­
ance and real estate.

prior to the twentieth century was facilitated
by the availability of resources indigenous to
the region but the expansion of demand set
the pace of that growth. By the early 1900s
manufacturers were serving a national mar­
ket. Shipping costs had been reduced, levels
of income had risen sharply and technology
and management techniques had advanced.
Production for a readily accessible mass mar­
ket contributed to the further rapid expan­
sion of District manufacturing.
United States manufacturing employment
between 1910 and 1950 increased 35 per



cent. Michigan led the nation with an in­
crease of nearly 170 per cent. Illinois, Indi­
ana and Wisconsin manufacturing employ­
ment increased 50, 70 and 47 per cent,
respectively, while in Iowa there was a small
decline.
The rate of increase in manufacturing em­
ployment has slowed in more recent years.
Technological advances and managerial effi­
ciencies have led to increased productivity.
Consequently, manufacturing output has in­
creased without a corresponding increase
(and in some industries a decline) in the
number of workers required. Consumers
have been spending a growing proportion of
their income on services—travel, recreation,
medical care and education.
In the last several decades the growth
rates of industries within the manufacturing
sector have shifted. Employment expansion
in firms that produce nondurable goods (for
example, food and apparel) and that require
large inputs of raw materials has declined
compared with firms that produce durable
goods (automobiles and appliances).
Until the early Fifties the District states
with sizable durable goods producing facili­
ties were able to capitalize on the shift in
demand. After the Korean war, however,
competition from other areas of the nation
became stronger. With a shift in defense de­
mand to missiles and electronic hardware,
the lure of climate in the South and Far West
and the resulting expansion of these mar­
kets, District manufacturing employment ex­
pansion declined relative to the nation.
Nevertheless, the Seventh District still re­
tains a dominant position in manufacturing
— more than 20 per cent of national manu­
facturing employment in 1964.
T e r tia ry industries

Agriculture, mining, forestry and manu-

11

Federal Reserve Bank of Chicago

12

facturing (primary and secondary industries)
account for only about 37 per cent of total
employment in the nation. The remainder
(more than 40 million workers) are engaged
in a variety of activities including construc­
tion, transportation, communications and
public utilities, wholesale and retail trade,
finance and insurance, services and govern­
ment.
Analysis of this broad sector is compli­
cated by the variety of activities. Trends of
the components differ and are influenced by
many factors; historical data on many of the
subgroups are not available.
Employment in the transportation, com­
munications and public utilities trade and
finance categories during the last half of the
1800s and the early part of the 1900s was
growing more rapidly than total employment.
By 1910, transportation and communications
employment in the United States was six
times its 1870 level and trade and finance
employment had increased more than four
and a half times.
In the early twentieth century, however,
with major transportation facilities already
completed, the growth of transportation em­
ployment began to decline relative to other
categories. Total tertiary sector employment,
however, continued to advance. Employment
in this sector between 1910 and 1950 in­
creased 170 per cent.
Employment in the tertiary sector of the
Seventh District states has not had the same
importance nor the same rate of growth as
it has nationally. In the late 1800s construc­
tion, transportation, wholesale and retail
trade and financial employment expanded
rapidly. By 1900, 35 per cent of District
employment was in this sector—a slightly
higher proportion than in the nation (33 per
cent). Such employment in the District continued to increase between 1900 and 1950




rising to 57 per cent of total employment;
63 per cent of national employment was in
these activities. United States tertiary em­
ployment grew more rapidly than in the
District while the rate of increase in total
national employment was slower. There was
no change in either the District or United
States proportion between 1950 and 1964.
In the recent period, 1957-64, the most
rapidly growing employment components of
N eg ative regional-share effects
account for Michigan's
less rapid rate of growth
M ichigan
thousand employes

1957-64

-60 I

‘ Transportation

includes

tran sp ortation,

communica­

tions and public utilities. Finance includes finance, insur­
ance and real estate.

Business Conditions, June 1965

this broad sector were services, government,
finance, insurance and real estate and whole­
sale and retail trade. The less rapidly grow­
ing industries included contract construction,
transportation, communications and public
utilities. A large part of this growth is ex­
plained by higher incomes and population
expansion. However, the increased demand
for specialized business services—advertis­
ing, public relations and management con­
sultants—increasing urbanization and chang­
ing views on the use of leisure time, the role
of credit, insurance and savings have all
contributed significantly to the growth of
these activities.

Regional-share effect in Wisconsin
closely matches national rate of
employment growth
W isconsin
thousand employes

1957-64

Trends in Illinois

Of the District states, Illinois has the
largest number of employes. Manufacturing
and wholesale and retail trade employment
account for more than half of the total. With
what might be termed a rapid growth indus­
try-mix, Illinois could have been expected to
increase its employment faster than the
nation.
Only agriculture and mining employment
have increased in Illinois relative to the na­
tion. In both industries, employment declined
absolutely between 1957 and 1964 but less
in the District than in the nation. Relative
strength in employment in the state would be
expected in these sectors because of the high
productivity of Illinois land and the con­
tinued use of local coal by the state’s indus­
tries.
The decline in Illinois manufacturing, in
part, is accounted for by the changing de­
mand conditions of the last few years both in
types of manufactured goods and market
locations. Expansion of Illinois steel manu­
facturing as currently contemplated and con­
tinued demand for investment goods may
result in an improved competitive position



‘ Transportation includes transportation, communica­
tions and public utilities. Finance includes finance, insur­
ance and real estate.

for Illinois manufacturing in the future.
More rapid population growth outside the
Seventh District also tends to explain the rela­
tive declines in trade, services and govern­
ment. Areas of more rapid population growth
may have a deficiency in these activities and,
therefore, a higher rate of increase.
G ro w th in In d ia n a

Indiana had the highest rate of employ­
ment growth in the District between 1957
and 1964, but the overall rate of increase
(4.4 per cent) did not match the national
gain (6.3 per cent). Rates of increase com­
pared with the nation were especially large

13

Federal Reserve Bank of Chicago

for services, government, finance, insurance
and real estate, although manufacturing em­
ployment also increased more rapidly than in
the nation and mining declined less in Indi­
ana.
Because of the different rates of growth in
Indiana industries, the industrial structure
shifted between 1957 and 1964. Consistent
with the national trends, the proportions of
total employment in the resource and manu­
facturing industries declined. Service employ­
ment increased from 7.4 to 9.3 per cent of
Indiana employment, trade from 16.4 to 17.4
per cent and transportation, communications
and public utilities, finance, insurance and
real estate and government increased at a
slower rate.
Because of Indiana’s industry-mix, it had
a net loss in the national share of employ­
ment. More than 62 per cent of employment

in 1957 was in the slower growing industries
— agriculture, mining, manufacturing and
transportation, communications and public
utilities.
During the 1957-64 period, then, Indiana
experienced significant growth given an in­
dustrial structure heavily weighted by slower
growing industries nationally. Manufactur­
ing firms have competed effectively in the
national and local markets and employment
in a number of industries have more than
kept pace with national employment gains.
A g ricu ltu re— m an u factu rin g in Io w a

The two largest sectors of the Iowa econ­
omy are agriculture and manufacturing with
27 and 18 per cent, respectively, of total em­
ployment. The importance of agriculture to
the Iowa economy is greater than that repre­
sented by farm workers alone. Nearly onethird of Iowa’s manu­
facturing workers are
T e rtia ry em ploym ent in Illinois
in food processing and
about 10 per cent are
matches United States
employed in farm ma­
tr a d e
— anzzzZZZZ^
chinery firms.
f in a n c e *
The a g ric u ltu re ­
s e r v ic e s
manufacturing combi­
g o vern m en t
nation in Iowa results
in an industrial struc­
ture oriented to what
are slow growth indus­
tries nationally. The
negative industry-mix
effect in Iowa between
1957 and 1964 was
larger and more im­
portant in comparison
to total employment
than in any of the
other District states.
During the 1957-64
*Transportation includes tran sp ortation, communications and public utilities.
period, Iowa experiFinance includes finance, insurance and real estate.




Business Conditions, June 1965

growth industries in
the nation.
Finance, insurance
tr a d e
and real estate was the
only m ajor rapid
growth industry group
in which Iowa employ­
ment growth exceeded
Iowa
th a t in the U nited
States.
The lower rates of
growth as compared
w ith the natio n in
wholesale and retail
tra d e , services and
government, in part,
can be explained by
the slower growth in
Iowa population. In
addition, the transition
and public utilities.
in Iowa from a rural to
a more urbanized so­
ciety has led to the
consolidation of activities—school districts,
medical and trade facilities—which, in turn,
might have provided for the increased de­
mands of businesses and individuals in Iowa
with a smaller increase in employment.

M anufacturing and agriculture account for
nearly half of employment in Indiana and Iowa
a g ric u ltu r e
m in in g
c o n t r a c t c o n s tr u c t io n
m a n u fa c t u r in g
tr a n s p o r ta t io n *

Indiana

1964

per cent of total

‘ Transportation includes transportation, communications
Finance includes finance, insurance and real estate.
Hess than 0.5 per cent.

enced significant employment expansion but
the increase was not sufficient to offset the
industry-mix influence, therefore, the share
of total employment declined.
The largest increase in share of national
employment occurred in agriculture even
though actual employment declined. As in
Illinois, the rate of decline in Iowa was less
than in the nation because of the relatively
favorable agricultural conditions.
Iowa also had a substantial gain in manu­
facturing employment. The bulk of the in­
crease was in the fabricated metals, non­
electrical and electrical machinery and mis­
cellaneous manufacturing (pens, pencils,
advertising signs and displays) firms. The
increases in fabricated metals and nonelectri­
cal machinery employment are indicative of
Iowa’s competitive strength for some types of
manufacturing since both are among the slow




A ctiv ity in M ichigan

Employment in Michigan between 1957
and 1964 decreased both absolutely and as a
share of total national employment. With a
combination of fast and slow growing indus­
tries such that the industry-mix effects were
zero, the state’s declining share of total na­
tional employment was entirely accounted for
by the regional-share effects.
Agricultural employment in Michigan de­
clined less rapidly than in the nation and
service employment increased only slightly
faster; in all other industries the share of
national employment declined from 1957 to

15

Federal Reserve Bank of Chicago

1964. The largest rela­
M anufacturing em ploym ent is predominant
tive declines occurred
in Michigan and Wisconsin
in m an u factu rin g ,
agriculture
tra d e —
wholesale and retail
mining
f in a n c e *
trade and government.
co ntract construction
s e r v ic e s
The major propor­
m anufacturing
g o vern m en t
tion of manufacturing
tra n s p o rta tio n *
activity in Michigan is
Wisconsin
Michigan
oriented to automobile
and truck production.
1964
In ad d itio n to the
transportation equip­
ment firms, the fabri­
cated metals and non­
electrical and electri­
cal machinery firms
also produce parts for
motor vehicles. Even
per cent of total
though autom obile
p ro d u ctio n has in ­
transportation includes transportation, communications and public utilities.
creased significantly in
Finance includes finance, insurance and real estate.
+Less than 0.5 per cent.
the last few years, em­
ployment in Michigan
manufacturing has not regained the 1957
petitive position of the Wisconsin economy.
The primary reason for Wisconsin’s de­
level.
cline in share of total employment between
Population has not increased as rapidly in
1957 and 1964 was the state’s industrial
Michigan as it has elsewhere in the nation
and this, in part, accounts for the slower ex­
composition. More than 62 per cent of Wis­
pansion in government and trade employ­
consin’s 1957 employment was in the slower
growing industries and the industry-mix
ment. In addition, trade employment in­
effect, consequently, was negative.
creases also may have been influenced by the
In the 1957-64 period the industrial
slower rate of growth of income in Michigan.
composition of Wisconsin employment has
Wisconsin com parisons
changed. The proportion of Wisconsin em­
The most interesting result of the shiftployment in agriculture, mining, manufac­
share analysis in the District was the rather
turing and transportation, communications
unique regional-share effect in Wisconsin.
and public utilities has declined while other
With the exception of the government sector,
industries have increased. If industries na­
the rates of employment increase approxi­
tionally retain their same positions as slow
mated the rates of increase in the same indus­
and fast growing, the industry-mix effect
tries nationally. This regional-share effect
should have less influence on the Wisconsin
may be viewed as an indication of the com­
economy in the coming years.
16





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102