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M A IN Y 1 THIS 9 Trends in G overnm ent Em ploym ent (Fourth District M e trop o lita n A re a s) RESERVE BANK OF 6 ISSUE The A n a to m y o f Fourth District Banking, 1 9 5 4 - 6 5 FEDERAL 6 . . 3 . 13 CLEVELAND Additional copies of the EC O N O M IC REVIEW may be obtained from the Research Department, Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland, Ohio 44101. Permission is granted to reproduce any material in this publication. MAY 1966 THE ANATO M Y OF FOURTH DISTRICT B A N K IN G , 1954-65 The number of banks, branches, and bank West Virginia (6 counties). The number of ing offices in both the United States and the new banks (28) started in the Fourth District Fourth Federal during Reserve District changed 1954-65 was relatively minimal, markedly during the 1954-65 period.1 The accounting for 1.6 percent of the 1,718 new purpose of this article is to trace out that banks established in the United States during change, comparing, where appropriate, Dis the period.Of the 28 new banks in the District, trict patterns with those in the U. S. This 21 were established in Ohio, 5 in Pennsyl article thus deals with changes in the numbers vania, and 1 each in Kentucky and in West of banks, branches, banking offices, de novo Virginia. (Of the 28, five are no longer in starts (new banks), and mergers. A future existence as a separate legal entity.) One article will consider the effects of changes in county—Cuyahoga (O hio)—had 3 de novo the numbers on the banking structure and establishments, with 5 counties—Allegheny banking markets of the Fourth District, with (Pennsylvania), Beaver (Pennsylvania), Allen particular emphasis on the "deposit con cen (Ohio), Ashtabula (Ohio), and Lake (Ohio) — tration ratio.''2 each having 2 de novo starts. (See Table I.) Seven of the 21 new banks in Ohio were in C H A N G E S IN THE N U M B E R S Fourth District General Characteristics. The the northeastern part of the State, while 4 of the 5 in western Pennsylvania were in the Fourth Federal Reserve District includes all Pittsburgh area. of Ohio (88 counties) and parts of three states TABLE I De Novo Starts, Commercial Banks, by County —eastern Kentucky (56 counties), western Pennsylvania (19 counties), and northwestern Fourth District 1 9 5 4 -6 5 Num ber of 1 End-of-year figures are used throughout the article. Counties 2 In this study, a "bank" is defined as an individual banking organization whether it consists of one main office or of a main office and several branches. "Branch'' refers to a nonmain office banking facility, and total "banking offices” encompass both main offices and branch offices of commercial banks. A "de novo” start is the establishment of either a bank or a branch where no other banking office existed previously. "Banking structure" refers to the number, type, and distribution of banks and banking facilities. N um ber of State O h io N um ber W ith M o re Largest of Than O n e Num ber De N o v o Counties De N o v o Per Counties Starts Involved Start County 3 . . . 88 21 16 4 Kentucky . . 56 1 1 0 1 Pennsylvania 19 5 3 2 2 6 1 1 0 169 28 21 6 W e st Virginia Total 1 — Source: Federal Reserve Bank o f Cleveland 3 E C O N O M IC REVIEW TABLE II Mergers and Acquisitions, Commercial Banks, by County Fourth District 1 9 5 4 -6 5 N um ber of Counties with: State N um ber of Percent of N um ber of N um ber of Counties Counties M e rg e rs and Counties Involved Involved Acquisitions M o re 2 -5 than 5 1 M e rg e r M e rg e rs M e rg e rs 2 O hio 88 45 51% 109 20 23 Pennsylvania 19 11 58 88 2 6 3 Kentucky 56 11 20 14 9 2 0 W e st Virginia Total 6 2 169 69 33 41% 4 1 1 0 215 32 32 5 Source: Federal Reserve Bank o f Cleveland There were 215 mergers and acquisitions counties of Kentucky with only two having in the Fourth District during 1954-65. The effect of the establishment and elimination of more than one. Based on the total number of banks in each Fourth District banks was a net reduction of District state (portion) at the end of 1954, 21 192 banks. (The difference does not come percent of the banks in the Fourth District out to 187 because of the five de novo banks were involved in a merger or acquisition merged or acquired.) O f the 215 mergers and during the period. However, similar to county acquisitions, Ohio had 109, Pennsylvania 88, patterns, the merger pattern by banks was Kentucky 14, and West Virginia 4. Banks in also not symmetrical throughout the District. Ohio District Thus, 8 percent of Kentucky's banks and 17 portion) dominated the merger and acqui percent of Ohio's banks were involved in sition statistics in the Fourth District during mergers, while 42 percent of the Pennsyl 1954-65, with more than one-half of the vania banks located within the Fourth District and Pennsylvania (Fourth counties in those areas involved, as contrasted were merged or acquired. A sharp reduction to about two-fifths of all counties in the District in the number of banks coupled with the (69 of 169). In Kentucky only 20 percent of marked increase in the number of branches the counties (11 of 56) had bank merger indicates that the portion of Pennsylvania in activity, and in West Virginia only one-third the Fourth District experienced the major (2 of 6). As Table II shows, 32 counties in the changes of any District subarea. District had one merger and 37 counties Comparison of U.S. and Fourth District. From Allegheny the end of 1954 through 1965, the total n u m County was by far the most active, with 44 ber o f banks in the U. S. followed an uneven experienced more than one. mergers. No Ohio county had more than eight pattern, first declining and then increasing. mergers, although more than half of the coun Thus, from 1954 through 1962, the total ties that had mergers had more than one. In number of banks in the U. S. fell from 13,840 contrast, mergers occurred in 11 different to 13,427, or a decline of 3 percent; since the 4 M AY 1966 end of 1962, the number of commercial banks has increased, returning by the close of 1965 l. to a level virtually the same as 1954. (See A LL COM MERCIA L BANKS Chart 1, where, for purposes of comparison, U.S. and Fourth District these and subsequent similar data are on an (1 9 5 4 - 1 9 6 5 ) - Ratio Scale index basis with the number of banks, branches, and banking offices in existence as of Decem IN D E X Dec. 31, 1 9 5 4 = 1 0 0 ber 31, 1954 equal to 100.) In contrast, dur ing 1954-65, the total number of banks in the Fourth District followed a marked and even pattern, but one of steady decline, from 1,035 to 843 banks (a 18.6 percent reduction from the 1954 level). As shown in Chart 1, th e n u m b e r o f b r a n c h b a n k in g o f f i c e s in the U. S. in creased by two and a half times in the past 11 years (1954-65), while the number of branches within the Fourth District nearly tripled. The increases in both cases were fairly steady, and the rate of increase throughout the entire period was obviously faster in the Fourth District than in the U. S. T otal b an k in g offices in the U. S. and in the Fourth District (the sum of the number of banks and of branches) increased virtually pa ri pa ssu, or by 47 percent and 50 percent, respectively, during the 1954-65 period. This is illustrated in Chart 1, against the background of the fact that the shortfall in the number of banks in the Fourth District was more than offset by the expansion in number of branches, thereby giving a net effect similar to that of the U. S. In short, there are now considerably more banking offices in the Fourth District than at the end of 1954, as is the case in the U. S. However, the route to this result was clearly different in the District from that of the U. S. S o u r c e s of data-. B o a r d of G o v e r n o r s of t he F e d e r a l Reserve System a n d Federal Reserve B a n k of C l e v e l a n d 5 E C O N O M IC R EVIEW Banks, Branches, and Banking Offices. Chart A LL COMMERCIAL BANKS 2 shows changes in the number of banks, Fourth District and Area Portions branches, and banking offices within the ( 1 954-19 65) - Ratio Scale Fourth District—for the subareas as well as for the District as a whole. As the chart reveals, IN D EX Dec. 31, 1 9 5 4 = 1 0 0 150 the n u m b er o f banks in the Pennsylvania portion of the Fourth District declined most dramatically during the 1954-65 period, or 100 90 by 40 percent. The number of banks fell by 80 15 percent in Ohio, 8 percent in the Fourth 70 District portion of Kentucky, and 4 percent in 60 the six counties of West Virginia.3 The growth of branch banking in the Dis 50 trict is clearly evident in Chart 2. However, 800 while the n u m b er o f bra n ch es in the Dis 700 600 N UIV BE R of BR>\ N ( : h e s 500 400 K y. / / 4 200 / / 65 period, growth was clearly uneven in 1/ individual areas. Accordingly, the number of branches expanded by 195 percent in Penn y / 300 trict increased 189 percent during the 1954- / sylvania and 174 percent in Ohio, but by 573 percent in Kentucky, reflecting a basic 4D 4 change i)hi< i i i # affecting Perhaps some mention should be made at A I J A L .Y S 100 regulations during 1954-65. i I banking hibited in West Virginia, there was no change sf Pa. i in branch banking. Because branching is pro this point of the possible impact of branch banking on banking changes in the Fourth District. The laws of the individual states in 200 the Fourth District are not the same in respect to branch banking. For example, branching is prohibited in West Virginia, while in Ken tucky and Ohio it is permissible within the 100 90 80 1954 '5 6 S o u r c e of d a t a: '5 8 Federal '6 0 Reserve '62 '6 4 '66 B a n k of C l e v e l a n d 3 Since the number of banks in the relevant portion of West Virginia is small and thus subject to large per centage changes, only selected reference is made to that area in the subseguent discussion, although Fourth District totals include West Virginia's figures. MAY 1966 TABLE III C h a n g es in the N u m b er o f C om m ercia l Banks, nches, and Banking Offices Fourth District and U. S. 1 9 5 4 -6 5 Dec. 31, Dec. 31, Net Percent 1954 1965 C hange C han ge B a n k s ...................................................................... 1 3 ,8 4 0 1 3,8 0 4 — B r a n c h e s ................................................................... 6 ,3 0 6 15 ,7 5 3 + 9 ,4 4 7 + 150.0 Total Banking O f f ic e s ................................................. 2 0 ,1 4 6 2 9 ,5 5 7 + 9 ,4 1 1 + 47 .0 1 8 .6 % U n it e d S t a t e s 36 — 0 .3 % F o u r t h D istric t B a n k s ...................................................................... 1 ,035 843 — 192 — B r a n c h e s ................................................................... 510 1,474 + 964 + 190.0 Total Banking O f f ic e s ................................................. 1 ,545 2 ,3 1 7 + 772 + 5 0 .0 — 1 5 .0 % O h io B a n k s ...................................................................... 637 542 — 95 B r a n c h e s ................................................................... 345 945 + 600 + 174.0 Total Banking O f f ic e s ................................................. 982 1 ,487 + 505 + 52.0 — 4 0 .0 % P e n n s y l v a n i a (4D portion) B a n k s ...................................................................... 212 12 8 — 84 B r a n c h e s ................................................................... 15 4 455 + 301 + 1 96.0 Total Banking O f f ic e s ................................................. 366 583 + 217 + 5 9 .0 K e n t u c k y (4D portion) B a n k s ...................................................................... 161 149 — 12 — B r a n c h e s ................................................................... 11 74 + 63 + 5 7 3 .0 8 .0 % Total Banking O f f ic e s ................................................. 172 223 + 51 + 25 24 — 1 — 4 .0 % 25 24 — 1 — 4.0 31.0 W e s t V i r g i n i a (4D portion) B a n k s ...................................................................... B r a n c h e s ................................................................... Total Banking O f f ic e s ................................................. Sources: Federal Reserve Bank of Cleveland and Board of G overn of the Federal Reserve System county in which the head office of a bank is the rapid spreading of branches throughout located, with a few exceptions in the case of the Pennsylvania portion of the District. the latter.4 Pennsylvania, on the other hand, Total banking offices in the Fourth Dis permits branching within the home office trict increased 50 percent during 1954-65, county and into all counties contiguous to the reflecting the increase in the number of home office county. This somewhat more branches despite the decline in the number liberal policy has of course been reflected in of banks. As Chart 2 shows, the increase in banking offices was largest in Pennsylvania, 4 A number of branches were established outside of a county prior to the enactment of the Ohio law, and since then others have been established under extenuating followed by Ohio and Kentucky. West Vir circumstances. offices, owing to a reduction in the number of ginia experienced a decline in total banking 7 E C O N O M I C R EVIEW banks. Table III summarizes changes in the other area, reflecting the dominance of Ohio number of banks, branches, banking offices counties in District totals. However, the large in the U. S., the Fourth District, and relevant number of counties in the Pennsylvania subareas of the District. portion of the District that experienced de Fourth District Counties. Although there is clines placed that area well above other areas not complete agreement on the definition of in relative terms. Perhaps most significant is a banking market area, many analysts have the fact that the bulk of reduction in the total used the county an d/or the Standard Metro number of banks (192) occurred in just 39 politan Statistical Area (SMSA) as approxi of the 169 District counties. That is to say, mations of such an area. Accordingly, figures with 28 counties losing only one bank, 39 have been assembled on changes in the counties in the District absorbed the loss of number of banks, branches, and banking the other 164 banks. In fact, the counties in offices by county and SMSA for the state and the Pennsylvania portion of the District alone portions of states that lie within the Fourth accounted for a loss of 84 banks, with Alle gheny County (Pittsburgh) by itself absorb District. As shown in Table IV, the n u m b e r o f ing 26 losses. banks (main offices) increased in only ten of Changes in the n u m b er o f bra n ch es by the 169 counties of the Fourth District during county in the Fourth District were not dis 1954-65, despite the aforementioned fact similar to the pattern of changes in the number that 28 new banks were chartered. More than half of the District counties had no net change of banks. Thus, the net increase of 964 in the number of banks during the period. fairly concentrated, as was the case with the This was especially true in Kentucky, where number of banks. As shown in Table V, the in 44 of the 56 counties the number of banks number of branches was unchanged in 54 did not change. More counties in Ohio showed counties of the District, and declined by one a net decline in the number of banks than any in a single county of Pennsylvania. With 26 branches in the District during 1954-65 was TABLE IV Changes in Number of Commercial Banks, by County Fourth District 1 9 5 4 -6 5 Num ber o f counties where number o f banks: State Num ber Increased of By M o re Increased Not Did Decreased D ecreased Counties Than O ne By O ne C ha n ge By O n e By M o re Than O n e N et C h a n ge in N um ber of Banks O hio 88 1 5 41 17 24 — Kentucky 56 0 2 44 7 3 — 12 Pennsylvania 19 0 1 4 3 11 — 84 6 1 0 3 1 1 — 1 169 2 8 92 28 39 W e st Virginia Total Source: Federal Reserve Bank o f Cleveland 8 95 — 192 MAY 1966 TABLE V Changes in Number of Branch Commercial Banks, by County Fourth District 1 9 5 4 -6 5 N um ber of counties where number o f branches: Increased Net B y M o re Num ber State Decreased Did Than O n e of By M o re D ecreased N ot Increased Counties Than O ne By O n e C h an ge By O n e But Less Than Ten Increased By Ten O r M o re C ha n ge in Num ber of Branches O hio 88 0 0 16 15 39 18 Kentucky 56 0 0 29 9 17 1 + Pennsylvania 19 0 1 3 2 6 7 +301 W e st Virginia 6 — 169 0 Total 6 — 1 54 — — — 26 62 26 + 600 63 — +964 Source: Federal Reserve Bank of Cleveland TABLE VI Changes in Number of Commercial Banking Offices, by County Fourth District 1 9 5 4 -6 5 N um ber o f counties where number of banking offices: Net Increased C ha n ge in Num ber By M o re State N um ber Decreased of By M o re Decreased Counties Than O n e By O n e Than O n e Increased of Increased But Less By Ten Banking C h an ge By O n e Than Ten O r M o re O ffices +505 Did Not O hio 88 0 2 16 11 47 12 Kentucky 56 0 2 32 6 15 1 + Pennsylvania 19 3 3 1 0 9 3 +217 6 1 1 3 0 1 0 — 169 4 8 52 17 72 16 W e st Virginia Total 51 1 +772 Source: Federal Reserve Bank o f Cleveland counties experiencing an increase of only Eighteen of the 88 counties in Ohio accounted one branch, the remainder of the 9 6 4 —or for 426 of the 600 new branches; and in the 9 3 8 —were accounted for by 88 counties in Pennsylvania portion of the District, seven the District. Interestingly, in 26 of the counties counties accounted for 256 of the 301 new there were more than ten branches estab branches. lished during the period, all in communities As would be expected, changes in the with populations over 50,000. The largest n u m b er o f ba n k in g offices in subareas of number of branches were established in the District reflect the relative dominance of Allegheny County, Pennsylvania (168), with changes in number of banks or changes in Cuyahoga number of branches, respectively. As shown County, Ohio (118), second. 9 E C O N O M IC REVIEW in Table VI, increases in the number of bank ing offices in Ohio were widespread, with only two of the 88 counties showing a net reduction during the 1954-65 period, and 16 counties showing no change. In contrast, TABLE VII Changes in Selected Commercial Banking Statistics of S M S A ’s as a Percent of Changes in Fourth District and Subarea Totals (signs omitted) 1 9 5 4 -6 5 in the Pennsylvania area of the District, which in total experienced a 59-percent increase in the number of banking offices, there were six counties (of 19) in which the number of N um ber S M S A C hanges as Percent of: Fourth District Pennsylvania Kentucky Num ber of of of Banking of O ffices M e rge rs Banks . . banking offices decreased. Obviously, the 12 counties in which banking offices increased N um ber . . . . . . Branches 61% 70% 72% 61% 60 73 74 62 66 72 75 63 42 39 48 36 100 — 100 100 had to register substantial gains in order to W e st Virginia bring the total figure up to the 217 banking Source: Federal Reserve Bank o f Cleveland . . . Num ber offices shown in the last column of the table— which they did. These developments are in with a central city of at least 50,000 popu deed indicative of the considerable but un lation). W hile a number of SMSA's include even changes that occurred in banking offices only one county—for example, Lima, Ohio, in the portion of Pennsylvania within the and Fourth District. The situation in Kentucky was three or more counties—for example, Cleve strikingly dissimilar, with a majority of coun land, Dayton, and Pittsburgh. Four of the Lexington, Kentucky—others contain ties having no net change in the number of SMSA's—Toledo, Cincinnati, lohnstown, and banking offices during the period under Huntington-Ashland—include counties that review. are outside the Fourth Federal Reserve Dis In short, 64 of the 169 counties in the Fourth District did not experience an increase trict; those counties are not included in the statistics or in the following discussion. in the number of banking offices during the Only 39 of the 169 counties in the Fourth period. In addition, while expansion of the District are within SMSA's. However, from number of banking facilities in the Fourth the end of 1954 through 1965, the prepon District was substantial during 1954-65, in derance of changes in the District occurred fact relatively greater than for the nation as in the counties of the SMSA's—61 percent of a whole, the subareas and individual counties the decrease in the number of banks, 70 per of the District did not share proportionally. cent of the increase in the number of branches, But this should not be surprising, in that, as and 72 percent of the net change in banking alluded to earlier, changes in banking offices offices (see Table VII). Changes in the SMSA's tend to concentrate in areas that are more of Ohio and Pennsylvania, as compared with heavily populated. This is revealed by analysis the respective totals of those two areas, closely of the figures on an SMSA basis. paralleled the relationships of all SMSA's to Fourth District S M S A ’s. The Fourth District the District as a whole. In Kentucky, the pro contains all or parts of 19 SMSA's (an area portions accounted for by SMSA's were con 10 M AY 1966 siderably smaller, as shown in Table VII. It should not be surprising that a large pro offices increased in the District, in the subareas, in all of the SMSA's, and in most of the portion of changes in the banking statistics counties. By implication, the numbers sug took place in the SMSA's of the District. Such gest that bank competition is greater in the concentration of activity reflects a number of Fourth District currently than it was at the factors: population distribution, heavier com end of 1954, despite the reduction in the petitive pressures, increasing integration of number of banks. Unfortunately, competition banking and credit markets, and so forth. In cannot be measured by numbers—or by short, no SMS A in the Fourth District failed to counting—alone, although some insights into have some type of change during 1954-65, the phenomenon can perhaps be gained by and no SMSA closed the 11-year period "looking at the numbers.'' without increasing the number of banking offices. The proportion of mergers and acquisitions As has been shown, most changes in the Fourth District during 1954-65 took place in the metropolitan areas. With the decline in in the District accounted for by the SMSA's the number of banks confined to 67 counties closely paralleled (disregarding signs) that in the District (of the other 102 counties, 10 of the decline in the number of banks during gained banks and 92 experienced no change), 1954-65 (see Table VII), as would be expected. the location of the decline tended to be rela Again, relative changes in the SMSA's of tively concentrated. On the other hand, the Ohio and Pennsylvania, insofar as mergers number of banking offices decreased in only and acquisitions are concerned, paralleled 12 District counties during 1954-65, and those in the District. The majority of mergers increased in 105 counties. Only four counties within SMSA's can be classified as "acqu i in the entire District can be said to have suf sition of suburban outlets.” That is to say, there was little intracity merging during fered an appreciable reduction in the number 1954-65, with the bulk of the mergers in to determine what would be an appropriate volving large city banks that acquired smaller or desirable number of banking offices, for banks on the periphery of a banking service example, from the standpoint of most efficient area in order to enlarge the sphere of service. allocation of banking resources. However, if In other cases, of course, banks established new branches in similar locations. the number of banking offices can be used as a criterion for making a judgment about S U M M A R Y O F THE N U M B E R S ing offices in the Fourth District did increase of banking offices. Admittedly, it is impossible competition, the fact that the number of bank In the preceding discussion, it was shown appreciably during 1954-65 suggests, at that during 1954-65, the number of banks least intuitively, that competition is unlikely declined in the Fourth District as a whole, in to be less intense currently than 11 years ago. the subareas of the District, in most of the (This involves of course the heroic assumption counties, and in all of the SMSA's. At the that the District may be considered as a bank same time, however, the number of banking ing market entity.) 11 E C O N O M IC R EVIEW With reference to the impact of mergers and acquisitions, it has been pointed out that end of 1965 than at the close of 1954. Finally, the chartering and opening of new there were 215 mergers in 69 counties of the banks in the Fourth District was of relatively District during 1954-65. These led to losses in minor importance during the 1954-65 period. total banking offices in only 12 counties in Of the 28 new banks chartered, 21 were the District, suggesting that the impact of established in Ohio; only 7 banks were started mergers and acquisitions was relatively mini in the other 3 subareas of the District. O f the mal during the period under review. Even in 28 banks established since the end of 1954, areas where mergers were heavily con cen 5 have since been eliminated through merger trated, there were more banking offices at the or acquisition. 12 M AY 1966 TRENDS IN GOVERNMENT EMPLOYMENT (Fourth District M etrop olitan Areas) Nonagricultural employment in the United vices were accounted for by rising employ States increased from 43.9 million persons in ment in government agencies at the Federal, 1947 to 60.4 million in 1965, or at the rate state, of 1.8 percent per year.1 In line with the trend e d u ca tion ). The governm ent com pon en t and local levels (including public toward a service-type economy, employment of the service sector grew at a 3.4 percent during 1947-65 grew faster in service-produ annual rate over the entire 18 years and a 3.7 cing industries than in goods-producing indus percent annual rate during the last ten years. tries, or at an annual rate of 2.3 percent com C onsequently, govern m ent em ploym ent pared with 0.9 percent.2 That the goods sector boosted its share of total employment from 13 contributed only 20 percent of the net employ percent in 1947 to 17 percent in 1965, a gain ment gain during 1947-65, despite a remark not equalled by any of the other four major able increase in 1965, was due largely to components of the service sector. losses sustained in the second half of the The long-term pattern of government em 1950's, particularly in manufacturing employ ployment in the nation cannot be totally trans ment. lated to the regional level. However, some i. Reflecting a much faster rate of growth, service-type industries raised their share of total employment from 58 percent in 1947 to N O N A G R IC U LTU R A L E M P L O Y M E N T , U .S . Selected Years M i l l i o n s of P e rsons 64 percent in 1965, as indicated in Chart 1. Four points of this six-point gain by the ser- 60 1 Unless otherwise stated, "employment" throughout this article refers to nonagricultural wage and salary employment (establishment series). 50 2 Service-producing industries as used in this article include transportation and public utilities; wholesale and retail trade; finance, insurance, and real estate; business and personal services; and government. Goodsproducing industries include mining, construction and manufacturing, as well as agriculture. The latter cate gory is excluded from the figures used in this article. Some analysts consider transportation and public utilities as "related" to the goods-producing industries and include it with the goods sector. G O ODS-PRODUCING 36% 40 INDUSTRIES * 40% 42% 30 647. SERVICE-PRODUCING IN D U S T R IE S ** 20 60% 58% 10 0 1037.) ! (M%)I im n 19 4 7 1955 1965 <3 Go ve r n m e n t *ln c lu d e s M in in g , C on struction, a n d M a n u fa c tu rin g * * ln c lu d e s T ra n sp o rta tio n -P u b lic Utilities, Trade, F inanceIn su ra n c e -R e a l Estate, Service s, a n d Governm ent. Source of data : U.S. D ep artm en t of L a b or 13 E C O N O M IC R EVIEW TABLE I Employment in Selected Industry Divisions as a Percent of Total Nonagricultural Employment Ten Largest S M S A ’s in the Fourth District and U. S. 1965 are employed in government as in the special service industries, but substantially more are employed in trade, and an even larger number in manufacturing industries. The average for the ten areas tends to con Manu A k r o n .................. Special facturing Trade Services Governm ent 44% 19% 12% 12% ceal differences among the individual areas as to the proportions of government to total C a n t o n .............. 50 18 12 9 employment. In two areas, as much as one Cincinnati . . . . 35 21 14 12 worker in five (Columbus) or one in six Cleveland . . . . 38 20 14 12 Columbus . . . . 26 21 15 21 41 18 13 18 In Columbus, this is due to the large number of state employees—almost 40 percent of the D a y t o n .............. (Dayton) is currently in public employment. T o l e d o .............. 38 21 14 12 Y o ungstow n-W arren 48 18 13 10 E r i e ..................... 49 17 13 10 Pittsburgh 37 20 16 11 central government or with The Ohio State . . . . statewide total—connected with the State's A v e ra ge , 1 0 a reas 38 20 14 13 University.3 In Dayton, the high proportion of United States . . . 30 21 15 17 government employment reflects the sizable Sources: U. S. Departm ent o f Labor; Division of Research and Statistics, O h io Bureau o f Unemployment Com pensation; Pennsylvania State Employment Service contingent of Federal workers at WrightPatterson Air Force Base. At the opposite end of the range, government employment in perspective on recent trends in government employment in the Fourth Federal Reserve Canton, Erie, and Youngstown-Warren ac counts for as little as one-tenth (or a shade less) District can be obtained by considering de of total area employment. velopments in the District's ten largest met If data for Columbus and Dayton are ex ropolitan areas. Specifically, this article is cluded from statewide totals for Ohio, the concerned with the relationship of govern ment employment to total employment in those proportion of government employment to total employment in the remaining portion of the metropolitan areas and with the growth of state— 12.5 percent (not shown in Table I) — public employment in recent years as com exceeds the proportion for each of the six pared with other types of employment. remaining metropolitan areas in Ohio, which G O V E R N M EN T EM PLOYM ENT C O M PARED W IT H TOTAL E M P L O Y M E N T employment in Ohio is higher outside than suggests that the ratio of public to private An average of one out of eight persons currently employed in the ten largest metro politan areas of the Fourth District is working for an agency of government, as compared with one person in six employed in the U. S. as a whole (see Table I). In the metropolitan areas, virtually the same number of people 14 within metropolitan areas. 3 For a more detailed analysis of employment in the Columbus area see "An Economic Profile of Columbus, Ohio,” Economic Review, Federal Reserve Bank of Cleveland, Cleveland, Ohio, January 1966, p. 3. Government employment in 23 state capitals for which published employment data are available ranges from one-eighth to one-third of total area employment, with a median of one-fifth. MAY 1966 level (and close to being significant at the 1- TABLE II Employment in Government and in Manufacturing as a Percent of Total NonGovernment Employment percent level).4 A similar test with a larger group of metropolitan areas throughout the Ten Largest S M S A ’s in the Fourth District and U. S. 1965 Governm ent Percent M anufacturing Rank Percent A k r o n ............................ .....1 3 % 5 50% C a n t o n ............................ .....10 1 55 Rank Population density is associated even more strongly than manufacturing activity, in an inverse relationship, with the relative size of 8 40 2 6 44 5 C o lu m b u s ..............................2 6 10 33 1 ..............................2 2 9 50 6 T o le d o ............................ .....14 7 43 4 Y o ungstow n-W arren 2 53 8 11 of employment.5 7 C in cin na ti..............................14 . . . cant relationship between the two categories 10 C l e v e l a n d ..................... .....14 Dayton country likewise shows a statistically signifi public employment. This is indicated by the following figures, which show the range and the median of public employment as a per cent of private employment for 48 states E r i e ................................ 11 3 54 9 grouped by number of inhabitants per square P i t t s b u r g h ..................... 13 4 41 3 mile (1960): A v e ra ge , 10 areas . . . . 15 — 44 — United S t a t e s .................. 20 — 36 — Sources: U. S. Departm ent o f Labor; Division of Research and Statistics, O hio Bureau o f Unemployment Com pensation; Pennsylvania State Employment Service Sharper focus on the size of government G rou p 1 G rou p 2 G rou p 3 2 .6-49.2 6 2 .5 -9 9 .6 1 0 0 .4 -8 1 2 .4 Range 1 8 .4 -4 0 .0 % 1 3 .6 -2 6 .8 % 1 1 .9 -2 2 .9 % M e d ia n 2 8 .1 % 19 . 2 % 15 . 9 % Coincidentally, manufacturing employment employment in the metropolitan areas may be as a percent of private employment presents obtained by measuring it against private em this pattern: ployment rather than total (public plus private) employment. Table II shows that public em Range 5 .5 -4 5 .2 % 1 9 .4 -5 1 .5 % 3 2 .0 -4 8 .8 % M e d ia n 2 4 .5 % 3 3 .6 % 4 3 .4 % ployment ranges between 10 percent and 26 percent of private employment in the ten The full significance of the relationship areas and that the average for the areas is between government employment and popu smaller than the corresponding percentage lation density is not readily apparent. While for the U. S. as a whole. Visual inspection of there are instances where Federal installations the data in Table II indicates that the pro are purposely placed in sparsely populated portion of government employment is in areas, or in areas lacking opportunities for versely related to the amount of manufactur industrial employment, the explanation seems ing activity in a given area. Thus, the three to reflect primarily the activities of local gov areas ranking highest in manufacturing em ernments. As indicated by data in the 1962 ployment—Erie, Canton, and YoungstownW arren—rank lowest in government employ ment. The visual judgment is confirmed by a rank correlation test producing a correlation coefficient that is significant at the 5-percent 4 The r2 = — 0.73 (for all ten areas) or 0.74 (for eight areas, excluding Columbus and Dayton). 5 The r2 = — 0.66 (for 26 areas), which is significant at the 1-percent level. 15 E C O N O M IC REVIEW C ensus o f G o vern m en ts, per capita local government employment in states with similar population sizes but different population den sities is generally higher in low-density states. This is true for both total local government TABLE 111 Federal, State, and Local Government Employment as a Percent of Total Government Employment Ten Largest S M S A ’s in the Fourth District and U. S. 1965 employment and employment in public edu Federal cation (the largest component), suggesting . 10 % f that some governmental functions invoke the . Ilf benefits of economies of scale. With refer ence to the lower proportion of employment 9% 12 Local 81% 77 C in c in n a ti......................... . 24 5 71 Cleveland ..................... . 25 5 70 C o lu m b u s ......................... . 20 48 32 . 56 5 39 . 12f 9 79 . . . • 12f 6 t 82 + + 82 § in public education in densely populated as against sparsely populated areas, C ensus o f State* Y oungstow n-W arren P opu la tion data show that, in the nation as . 13 a whole, private schools account for a much . 18 . . . 26 14 60 26 19 55 larger percentage of total school enrollments A v e ra ge , 8 O hio a re a s 87§ in urban areas than in rural areas. United S t a t e s .................. G O V E R N M E N T E M P L O Y M E N T M IX * State government employment for O hio S M S A ’s, unless specifi cally shown in the published statistics, w as obtained b y subtrac tion of Federal and local government employment from total government employment. The amount of government employment in any local area involves a "m ix" between local and central government.6 W hile agen cies of local government are indigenous to an area, central government agencies are at particular locations only at the discretion of the central authority. In general, and with explainable exceptions, the government em . | Estimated b y Federal Reserve Bank of Cleveland on the basis of 1 9 6 4 data. X D ata for state government not availa ble separately. § State and local government employment combined. Sources: U. S. Department of Labor; Division of Research and Statistics, O hio Bureau of Unemployment Compensation; Pennsylvania State Employment Service readily discernible pattern other than a con ployment ''m ix'' in the metropolitan areas of centration of Federal employment in the the District tends to be one of fairly stable pro larger population centers or for special cir portions of local and central government cumstances as in the case of Dayton.7 While employment (see Table III). By far the largest portion of all public employment—roughly between 70 and 80 percent of the total, ex cept in Columbus and Dayton—is found at the local government level. The balance of public employment is divided between state and Federal employment according to no 6 Central government refers to Federal and state govern ment agencies; local government covers all other gov ernment units, including cities, counties, and special districts. 16 7 It should be borne in mind that the distinction between Federal government and state and local government employment is somewhat formalistic in that programs enacted by Federal legislation are often administered by employees carried on state or local payrolls under Federal grants-in-aid. While such arrangements may be of long standing in some cases, for example, state em ployment services or unemployment compensation agencies, the practice of delegating the administration of Federal legislation to state or local government agen cies has increased in recent years with the enactment of such programs as manpower training, the fight against poverty, and urban redevelopment, among others. MAY 1966 the average for the eight metropolitan areas in the Ohio portion of the District shows a distribution of public employment among Federal, state, and local governments fairly TABLE IV Percent Changes in Employment in Govern ment, Manufacturing, and A ll Industries Ten Largest S M S A ’s in the Fourth District and U. S. 1 9 5 8 to 1 9 6 5 similar to the national pattern, there is no Governm ent Manufacturing All Industries semblance of similarity between the distri bution in any of the individual areas and in the U. S. as a whole.8 As the situations in Columbus and Dayton show, heavy concen + 32% — + 17 + 17 1% + + 13 6% Cincinnati* . . . . + 18 — 4 + C le ve la n d * . . . . +28 + 6 + 10 Colum bus* . . . . 4 + 32 + 13 + 21 trations of either state or Federal employment D a y t o n * .............. + 10 + 15 + 17 can drastically alter the "normal" mix and T o l e d o * .............. +22 + 7 + 7 Youn gstow n -W arre n + 21 + 7 + 9 +24 + 16 +24 — 4 A v e ra ge , 1 0 a re a s . +23 + 4 United States +28 + 13 also raise the proportion of public to private employment in an individual area.9 C H A N G E S IN G O V E R N M E N T EM PLOYM ENT As previously stated, government has been a "growth" industry in terms of employment. With vigorous expansion in recent years it has helped, together with several other in dustries in the service-producing sector, to Pittsburgh . . . . . . . + 10 + t 8 + 18 * D ata for 1 9 6 5 m odified b y Federal Reserve Bank o f C leveland for com parability with 1 9 5 8 data, f Less than — 0 . 5 % . Sources: U. S. Departm ent o f Labor; Division o f Research and Statistics, O hio Bureau o f Unemploym ent Com pensation; Pennsylvania State Employment Service offset relative employment losses in slowgrowing or declining industries in both the 8 A comparison of distribution patterns between areas in the District and metropolitan areas in other parts of the country is precluded by lack of published data, as government employment in many instances is not broken down at all or else only into two categories, Federal and state-and-local employment. In 15 metropolitan areas outside the District for which a limited breakdown of public employment is published, the Federal share of government employment ranges from 11 percent (in Paterson, New Jersey) to 67 percent (in Norfolk-Portsmouth, a situation similar to Dayton's), while state and local government employment combined accounts for the remainder. 9 Since the published employment statistics for 22 other areas that include a state capital do not show separate figures for state government employment, it is not pos sible to compare the proportion of state government employment in Columbus, where the large figure rep resents both employees of the state's central adminis tration and the staff of the state's largest public university, with that in other state capitals. goods and service sectors. In the U. S. as a whole, public employment between 1958 and 1965 expanded by 28 percent, a gain substantially larger than that of 18 percent in total employment or of 13 percent in manufacturing employment (see Table IV).10 The pattern of employment changes in the District's metropolitan areas between 1958 and 1965 was similar to that in the country as a whole in general direction, but not in specific details, as the table shows. On average, the ten areas came close to matching the national gain in public employ ment; gains in individual areas, however, 10 Analysis is limited to this seven-year span since pub lished data for metropolitan areas in Ohio are not avail able for earlier years. 17 E C O N O M IC R EVIEW fluctuated widely about the national figure. a military base in Dayton. The fact that private employment, especially The largest percentage increases in public in manufacturing industries, advanced more employment during 1958-65, in both the slowly in most areas of the District than in the metropolitan areas of the District and the U. S. as a whole makes the amount of growth nation, occurred at state and local levels (see of the areas' public employment all the more Table V). Undoubtedly, a very substantial significant. portion of the rise in state and local govern During 1958-65, as shown in Chart 2, public ment employment represented increased employment grew faster than total employ staffs for numerous state and local govern ment in all areas of the District except Dayton, ment functions, including public schools and in some instances by a substantial margin. universities (where employment may be in In six of the areas, government experienced flated by students employed in part-time the largest percent rise of employment among positions financed through Federal aid). the major industry divisions. The wide vari ation of growth in public employment, from Columbus and Akron, reflects such local TABLE V Percent Changes in Federal, State, and Local Government Employment factors as the substantial curtailment of Fed Ten Largest S M S A ’s in the Fourth District and U. S. eral em ploym ent at W right-Patterson A ir 1 9 5 8 to 1 9 6 5 10 percent in Dayton to over 30 percent in All Levels of Force Base retarding government employ ment in the Dayton area, or the unusually Governm ent Federal State* + 32% + 13%J +33% Local + 35% large increase in state government payrolls Canton (including state education) in Columbus. C in c in n a t if .............. + 18 + The broad range of employment changes at C l e v e l a n d f .............. +28 +27 C o l u m b u s f .............. + 32 + 19 + 28 +47 different levels of government in the metro D a y t o n f .................. + 10 — + 16 +33 politan areas of the District is apparent from T o l e d o f .................. +22 -1 7 J + 15 +32 Y oungstow n-W arren + 21 - st — 10 + 28 .................. . Table V. Changes at the local government + 17 0 ot 9 3 +23 9 +22 +38 +27 + 0 § +26# level, despite the wide range of increases P i t t s b u r g h .............. +24 + 3 § +30# between 22 percent and 47 percent, were at A v e ra ge , 8 O hio a rea s + 23 + 9 +25 + 29 United States +28 + 9 +38 +35 least consistent as to direction. In marked contrast, changes at the Federal and state levels involved employment losses inter mingled with gains. The latter is actually not + 24 . . . . * State government employment for O hio S M S A ’s, unless specifi cally shown in the published statistics, w as obtained b y subtrac tion of Federal an d local governm ent employment from total government employment. surprising, since the "normal'' growth pat f D ata for 1 9 6 5 m odified b y Federal Reserve Bank of Cleveland for com parability with 1 9 5 8 data. tern of public employment at the state and J Federal governm ent employment for 1 9 6 5 estimated b y Federal Reserve Bank o f Cleveland. Federal levels is more subject to disruption by § Data for state government employment not sep arate ly available. legislative or administrative action, such as § the creation of a new state university in C leve Sources: U. S. Departm ent of Labor; Division of Research and Statistics, O h io Bureau of Unemploym ent Com pensation; Pennsylvania State Employment Service land or the reduction of Federal personnel at 18 State and local governm ent employment combined. TOTAL EMPLOYMENT A N D G O V ER N M EN T EMPLOYMENT U.S. a n d 10 L a r g e s t S M S A ’ s in F o u r t h D istric t A nnual A verages UNITED STATES IN DEX 19 58 -59 =1 00 IN D E X 1 9 5 8 - 5 9 = 1 0 0 S o u r c e s of d a t a : U.S. D e p a r t m e n t of L a b o r ; D i v i s i o n of R e s e a r c h a n d Statistics, O h i o B u r e a u of U n e m p l o y m e n t C o m p e n s a t i o n ; P e n n s y l v a n i a St ate E m p lo y m e n t S e rv ice . E C O N O M IC R EV IEW TABLE VI Net Changes in Total Employment and Government Employment employment (see Table I, column 4). Public employment in the ten metropolitan areas in the District, on average, was responsible for Ten Largest S M S A ’s in the Fourth District and U. S. 1 9 5 8 to 1 9 6 5 33 percent of the total gain in employment, Governm ent or more than double its share of total employ as Percent ment (13 percent). In five of the areas — Total Governm ent o f Total Employment Employment Employment Akron, Cincinnati, Cleveland, Columbus, and G a in * Toledo—public employment accounted for at (0 0 0 ) (0 0 0 ) A k r o n f .................. + 10 + 4 44% least one-fourth of the area's total employment C a n t o n .................. + 13 + 2 11 Cincinnati! . . . . gain during 1958-65. In some cases, notably + 14 + 7 53 C le ve la n d f . . . . + . . . . + D a y t o n j .............. + 68 + 19 28 Akron and Cincinnati, large percentage gains 52 + 14 28 were more the reflection of a rather small rise 40 + 4 11 11 + 3 27 13 + 3 21 in manufacturing employment—than the mark Colum busf T o l e d o f .............. + Y oungstow n-W arren . + in total employment—usually due to a loss E r i e ..................... + 8 + 2 21 of exceptionally strong growth in public em P ittsb u rg h .............. — 2 + 17 t ployment. In only one area—Dayton—did A v e ra g e , 1 0 a reas . + 23 + 8 33 government employment fail to contribute at United States + 9 064 + 2 206 24 least its proportionate share. In another area . . . * Percentages b ase d on unrounded figures, —Pittsburgh—the gain in public employment f D ata for 1 9 6 5 m odified b y Federal Reserve Bank o f Cleveland for com parability with 1 9 5 8 data. served to offset all except a tiny portion of the J N et employment loss. net loss in private employment. Sources: U. S. Departm ent o f Labor; Division o f Research and Statistics, O h io Bureau o f Unemployment Com pensation; Pennsylvania State Employment Service The support that government employment However, the difference between employ has been able to lend to the growth of total ment expansion at the Federal as against employment, in the metropolitan areas of the state and local levels may be exaggerated due District and in the U. S. as a whole, derives to extensive use of state and local govern its strength both from the steady and above- ment personnel average growth of public employment during in the administration of Federal programs under grants-in-aid.11 periods of business expansion and from its Due to a sizable rate of gain, government immunity to decline in periods of recession. employment contributed more than its pro As shown in the upper panel of Chart 3, the portionate share to the increase in total em virtually undiminished rise in the nation's ployment between 1958 and 1965. In the government employment in 1958 and 1961, nation as a whole, public employment ac when total employment showed a cyclical counted for 24 percent of the increase in decline, indicates that the demand for the total employment (see Table VI, column 3) services of firemen and teachers, for example, although it represents only 17 percent of total continues even as the demand for the products 11 See footnote 7. dustries is reduced. or services of manufacturing and other in 0 TOTAL EMPLOYMENT A N D G O VERN M EN T EMPLOYMENT U.S. a n d 10 L a r g e s t S M S A ’s in F o u r t h D ist ric t Y e a r - T o -Y e a r Percent C h a n g e s UNITED STATES Percent c h a n g e s TOTAL NONAG RICULTURAL EM PLOYM ENT +5 — TOTAL GOVERNM ENT EMPLOYMENT -10 1 9 5 5 - ’5 6 ’5 6 - ’57 ’5 7 - ’58 ’5 8 - ’5 9 ’5 9 - ’6 0 ’6 0 - ’61 ’61-’6 2 ’6 2 - ’6 3 ’6 3 - ’6 4 ’6 4 - ’6 5 ’6 5 - 6 6 Percent c h a n g e s AKRON DAYTON rflJi n m J U ir — +5 --- 0 — -5 r—n L p m r v -, f lr n rb — CAN TO N fl r-n TOLEDO u 1 r h J i Hn +: 1 — -5 n-^ r f l — 1 lJ C IN CIN N ATI ■Tfci J l j r r -! r f l i n W A RREN L irO i-nlTI 0 l_jrn —i—.IT, m -5 CLEVELAND ERIE m^n nrflrflrnrfl I] +5 0 — — —c i x ii -5 COLUMBUS _Q n . El PITTSBURGH +5 — rOo.n.r tP -5 1958 -’59 ’59-’60 ’6 0 -’61 ’61-’62 ’62-’63 ’63-’64 ’64-’65 ’65-’66 — i-n u 1958 -’59 ’59-’60 ’6 0 -’61 ’61-’62 ’62-’63 ’63-’64 ’64-’65 ’65-’66 S o u r c e s of d a t a : U.S. D e p a r t m e n t of L a b o r ; D i v is io n of R e s e a r c h a n d Statistics, O h i o B u r e a u of U n e m p l o y m e n t C o m p e n s a t i o n ; P e n n s y l v a n i a St ate E m p lo y m e n t Se rvice. E C O N O M IC REVIEW A similar pattern during recession of de C O N C L U D IN G C O M M E N T S clining (or barely rising) total employment combined with continued (though possibly With continued growth of the population in slower) increase in public employment pre size and degree of urbanization, the need for vailed also in the metropolitan areas of the public services in such fields as health, trans District. (Unfortunately, lack of earlier data portation, education, and general welfare permits the inclusion of only one period of will also continue to increase. This in turn recession, 1960-61, in the charts for the indi will likely lead to the introduction of some vidual areas.) In general, the loss of total measure of public participation or regulation employment between 1960 and 1961 was in new areas or the broadening of the scope greater in the metropolitan areas of the Dis of participation in existing areas. Further trict than in the country as a whole. This re growth in government employment (includ flects the cyclical vulnerability of employ ing public education) can, therefore, be ex ment in durable goods manufacturing, which pected. Such growth will affect the metro is more predominant in most areas of the Dis politan areas of the District, as well as the trict than in the nation as a whole. On the nation as a whole, and will help to perpetuate other hand, the rise in government employ the gradual shift in the industrial makeup of ment between the two years exceeded the the work force of the individual metropolitan national percentage in six of the ten areas. areas and the nation. Enlarging the employ In view of the stability of public employ ment share of industries less vulnerable to employment declines during recession should ment during recession, it is reasonable to assume that areas with a large proportion of contribute to greater stability of employment government employment will suffer less severe and income levels in the individual areas as cyclical losses of total employment than areas well as in the nation. where public employment is relatively small. A change in the industrial composition of The assumption is supported by the minor the work force due to increased government employment loss in Dayton between 1960 employment will also affect the occupational and 1961 and the absence of any loss in profile of the work force. The manpower de Columbus—the two areas ranking highest mands of the public sector will be aimed more among the District areas as to the proportion at white-collar than at blue-collar occupations of government employment. It is strengthened and will provide additional employment op further by a rank correlation test of all ten portunities in professional and semiprofes areas, which yields a correlation coefficient of sional occupations for which special edu 0.66 that is significant at the 5-percent level. cation or training may be required. 22 M AY 1966 RECENTLY FEDERAL RESERVE B A N K OF NEW YORK, NEW YO RK 10045 PUBLISHED THE APPLICABILITY OF THE FEDERAL ANTITRUST LAWS TO B A N K MERGERS Monthly Review, April 1966 THE B A N K IN G SYSTEM— ITS BEH AVIO R IN THE SHORT RUN Monthly Review, April 1966 FEDERAL RESERVE B A N K OF PHILADELPHIA, PEN N SYLVA N IA 19101 FEDERAL RESERVE B A N K OF RICHM O ND, V IR G IN IA 23213 COUNTRY BA N K S A N D THE FEDERAL FUNDS M ARKET Business Review, April 1966 THE T A X A T IO N OF CAPITAL G A IN S Monthly Review, March 1966 THE G IRO , THE COMPUTER, A N D CHECKLESS B A N K IN G Monthly Review, April 1966 FEDERAL RESERVE B A N K OF ST. LOUIS, MISSO URI 63166 BUDGET POLICY IN A HIGHEMPLOYMENT E C O N O M Y Review, April 1966 23 Fourth Federol Reserve District
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