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REGIONAL ECONOMIC ISSUES Working Paper Series Job Flight and the Airline Industry: T h e Eco n o m i c Impact of Airports on Chicago and Other Metro Areas William A. Testa FEDERAL RESERVE BANK OF CHICAGO WP- 1992/1 J o b Flight a n d the Airline Indus t r y : T h e E c o n o m i c I m p a c t of Airports o n C h i c a g o a n d O t h e r M e t r o A r e a s William A. Testa "It is not u n c o m m o n for airport development to be curtailed due to citizen opposition; in fact, economic impact studies are often commissioned to convince nay-sayers of the advantages of airport development." (National Council f r o Urban Economic Development 1989) What does O'Hare Field mean t th Chicago area economy? I means jobs and o e t plenty of them, a l a t according t a steady stream of s u i s flowing from the t es o tde o f c s of t e C t ' Aviation Department, A fie h iys irline Trade Associations, and Airport Planning Commissions. But how many jobs ar enough and how e vulnerable i Chicago's economic health t the expected r s i a r t a e s o ie n i r v l congestion during th 1990s? Local lead r and s a e representatives are being e es tt asked t c r f l y consider these questions a the proponents of an expanded o aeul s O’ Hare marshall t e r forces t push f r programs t a can ease the region’ a r hi o o ht s i t a e d l y . Such programs may include added runways, a new termi a , and rvl eas nl Western road access t t e O'Hare Field i addition t i s a l t o of more o h n o ntlain advanced a r t a f c systems and l g t r work loads f r overburdened t a f c i rfi ihe o rfi cnrles otolr. Some of these s l t o s w l be accompanied by s g i i a t c s s and burdens a ouin il infcn ot s w l , thereby making t e choices over whether t expand very d f i u t el h o ifcl. Expanding a r o t capacity by adding f i h operations may add t t t l a r r f ipr lgt o oa icat noise which neighboring suburbs have become l s t l r n of i recent y a s es oea t n er. So t o some argue t a f r h r a r i l growth a the O'Hare location would not o, ht u t e ifed t y e d great be e i s because l r e portions of t e Chicago area are i l s r e by il nft ag h l-evd t e r i a c s i i i y t O'Hare. Therefore, i i contended solut o s t Chicago's hi ncesblt o ts in o increasing a r t a e delays should concentrate on s t n a t i d a r o t a a i rvl iig hr ipr t d s a tl c t o . itn oain In t i manuscript, we add t t e l c l public debate by explaining the method hs o h oa by which a r o t planners a r v a "economic impact" of a r i l s Although ipr rie t ifed. "economic impact" c ntributes s g i i a t y t the p b i ' understanding of the o infcnl o ulcs r l of a r o t t regional economies, i i a s t u t a decision making can oe iprs o t s l o re ht e s l confuse "economic impact" ( s t p c l y measured) from "economic aiy a yial b n f t " The two are not th same because "economic impact" usually eeis. e includes items t a ar not net b n f t t th community. At the same time t a ht e eeis o e ht "impact" o e s a e b n f t , however, sil other important economic b n fits vrtts eeis tl ee ar often neglected i using standard a r o t planning p a t c s I p r i u a , e n ipr rcie. n atclr 2 t e value of a r passenger t a e and a r cargo convenience t many businesses h i rvl i o a e n i h rrecognized nor counted i economic impact s u i s r ete n tde. Using previous s u i s of a r o t a t v t i th Chicago Area and i other large tde ipr ciiy n e n metro a e s we i l s r t the d f i u t road t a must be traveled i evaluating ra, lutae ifcl ht n t e economic importance of a r o t a t v t i t e r g o . At the same time, we h ipr ciiy n h e i n examine t e b sis f r t e Chicago economy’ successful growth during the h a o h s 1980s, and the degree t which extensive a rt a e f c l t e have been a c i i a o i r v l aiiis rtcl element i theregion’ s c e s n s ucs. C o st-B en efit A n a ly sis Economic a nalysts have developed both a rigorous methodology and have compiled a la g body of a t a applications i comparing the costs and benefits re cul n of those pro e t t a a e ultimately decided by public consent. Cost-benefit jcs ht r a a ysis attempts t account f r a l possible c s s and b n fits t s c e y nl o o l ot ee o oit, properly weighted by t m , i connection with a public p o e t Large p ie n rjc. rojects invariably involve lo s s t some people and gains t o h r . Such t a s e s are se o o tes rnfr not usually considered i t e c s - e e i c l u a i n by economists but are l i n h otbnft acltos ad out and presented s p e arately f r consideration by policy makers. Economists o have nothing much t say about how th f u t of society should be d s r b t d o e ris itiue or what i ’ a r’so t a cost benefit a s ’ i’ f ht nalysis generally guides the policy maker with the proviso t a t e d s r b t o a e f c s are not a hindrance. These ht h itiuinl fet ’ a r e s considerations, along with t e general exigencies of p l t c and law, ’ ins” f h oiis has generally meant t a a r o t are almost never decided on the basis of s r c ht iprs tit c s - e e i ciei a o e o t b n f t rtra l n . I i ltl wonder, t e , t a t e t p c l analyses of " h economic impact of t s ite hn ht h yia te a r o t on metro economies" are t be found as separate s u i s or chapters iprs o tde within l r e regional e f r s t decide whether t build or expand a l c l agr fot o o oa a r i l ( e Table 1. Moreover, the "economic impact" of a r i l s has become ifed s e ) ifed a routinized methodology; but one t a often may not be the primary ht consideration i the d c s o . n eiin E co n o m ic B a se M ultipliers and Input-O utput Two general methods of estimating the induced economic impact of a r o t ipr a t v t e are commonly used. The most common adapts a crude s r of ciiis ot " u t p i r from a body of economic theory known as "economic base" t e r . mlile" hoy Multipliers are simply t e f c o t a , when multiplied by d r c and i d r c h a t r ht iet niet employment or income, a r v s a th t t l employment and income emanating r i e t e oa from the a rt a e - e a e i d s r . The idea of economic mul i l e s i derived i rvlrltd nuty tpir s from "economic base" theory which p s t t a , t a rough order of o i s ht o Table 1 Summary Features of the Economic Impact Studies ofMajor Airport Developments L cation o A r o t o f ipr Conducted by . . . ______ New York-New J r e esy Metro Area C-E-I-R A s c a e f rt e soits o h P r A t o i y o New York ot uhrt f i 1960 n 121.000j b os $683 M p y o l arl (99 15) Los Angeles Itl n' Arot ipr Waldo and Edwards I c n. 102.000j b os (90 17) D l a / t Worth alsF. Regional A r o t ipr Regional S i n e cec ResearchI s i u e nttt 47.000 j b os (90 17) Chicago O'Hare & Midway Landrum & Brown 124,780j b os (97 17) P r l n , Oregon otad " o to P r l n " Pr f otad Economics Research A s c so. 40,693j b os (90 17) 3 dLondon A r o t r ipr R s i lCommission okl 190.000j b os (96 16) H u t n s Hobby A r o t oso' ipr P a Marwick et 7,200j b os (97 18) A lU S a i t o l . . vain Wilbur Smith A s c so. Commissioned by P r n r h p atesi f rImproved A rT a e o i rvl $522 B l i n ilo (5.6% o GNP) f (97 18) Economic ImpactT t l oa 3 approximation, t e t t l economic a t v t of a metro area or region owes is h oa ciiy t existence t " a i " i d s r e . For the most p r , basic i d s r e have been o b sc nutis at nutis designated t include manufacturing, a r c l u e and mining, although c r a n o giutr, eti s r ices can al o be e i i l ( . . tourism) provided they are sold t outside ev s l g b e eg o r s d n s Multipliers ar i f r e by observing the r t o of t t l regional eiet. e nerd ai oa income t t a of basic i d s r e . In t e t e r , basic i d s r e (.. often o ht nutis h hoy n u t i s ie r f r e t as "export" i d s r e ) generate an i i i l round of l c l income as eerd o nutis nta oa demand f r the products a i e from outside th r g o . Subsequent rounds of o rs e ein spending of t i income i th region (including payroll spending by l c l hs n e oa workers i basic i d s r e ) generates nonbasic employment and income. In t i n nutis hs way, t t l regional income and employment depends on basic industry oa performance and growth. In many s u i s a r o t a t v t e are t e t d a basic i d s r e ; t e r l v l of td e , i p r ciiis rae s nutis hi ee economic a t v t i factored upward by regional m l i l e s t a r v a induced ciiy s utpir o rie t and t t l regional a t v t ( e P t s i l 1981 f r a review). A problem with oa ciiy s e itfed o t i approach i t a the economic base theory i s l i extremely crude. I hs s ht tef s n s o t i i mistaken t believe t a a l regional income a i e from out-of-region hr, t s o ht l rss demand f r basic industry product. I s e d s e i l z t o and trading within o nta, pcaiain t e re i n as well as productivity enhancements within th region’ borders, can h go, e s be very s g i i a t f c o s i regional growth and development. Secondly, the infcn atr n process of a r v n a t e regional m l i l e s by discriminating basic from riig t h utpir nonbasic i d s r e can be capricious a b s . Some manufacturing i d s r e , nutis t et nutis such a bread-baking and b e - o t i g are l c l y driven whereas many s r s erbtln, oal e vice i d s r e , such a investment banking or R&D, may be serving e ternal nutis s x demand. Both of these problems lead t inaccurate measures of t e m l i l e o h utpir e f c t a i applied t enhanced a r o t a t v t . As i t a i n tenough, many fet ht s o i p r ciiy f h t s' economic impact s u i s of regional a r o t do not even c l u a e t e region’ tde iprs aclt h s s e i i m l i l e but r t e "borrow" m l i l e s t a were applied i other pcfc utpir ahr utpir ht n regional economies ( e A1 Chalabi 1988, f r example). But t e basic/nonbasic se o h r l t o may d f e g e t y from region t r g o . eain ifr ral o ein A smaller number of impact s u i s use input-output models a t e r basis ( tde s hi see Waldo & Edwards 1970; Economic Research Associates 1979; Wilbur Smith Associates 1989; Regional Science Research I s i u e 1970). nttt Input-output models must f r tconstruct an extensive t b e of the r g o ' market transactions is al eins between industry s c o s between industry and household s c o s and between etr, etr, regional s c o s and th outside world. etr e Arithmetic manipulation of the t a s c i n t b e y e d a s t of m l i l e s t a can, f r i s a c , produce the rnatos al ils e utpir ht o ntne ultimate product, income, or employment r s l i g from a demand stimulus i eutn n any given s c o . Thus, an increase i a r o t a t v t can be regarded as an etr n ipr ciiy i i i l demand stimulus whose impact i d s r b t d amongst industry and nta s itiue 4 household s c o s The input-output model then produces the f n l outputetr. ia income-employment impacts a th i i i l spending impulses percolate through s e nta t e l c l economy. h oa Input-output t b e are used l s frequently because they ar c s l t build als es e oty o owing t t e la g amount of data and information needed t construct th o h re o e t a s c i n t b e However, regional models can be constructed from t e r n a t o al. h national 1-0 t b e and t e Bureau of Economic Analysis stands ready t a s s i al h o sit n these e f r s ( U.S. Dept, of Commerce 1981). Many analysts question the fot r l a i i y of t i process of ’ eiblt hs ’ regionalizing” the nat o a t b e because regional inl al economies d f e so dramatically from t e nation i t e r i t r n u t y ifr h n hi n e i d s r t a s c i n . I response t t i problem, some recent e f r s t build regional rnatos n o hs fot o 1-0 models using l c l data have been undertaken f r t e Chicago area and oa o h elsewhere ( . . I r i e i h 19 0 . eg s a l v c 9 ) Even when a proper model can be accessed f r t e regional economy, however, o h precautions should be heeded with respect t induced impacts and "created o j b " Analysts do not always recognize t a capacity c n t a n s can be os. ht osrit encountered i t e regions so t a e t e : n h h t ihr 1 t e induced economic impacts w l not be r a i e i the l c l area due t ) h il elzd n oa o capacity c n t a n s o osrit, r 2 t e induced impact w l be r a i e i the l c l a e , but only because ) h il elzd n oa ra s g i i a t in-migration ofc p t l and workers occurs.* infcn aia Studies o f the Chicago Area Studies of t e economic impact of a rt a s o t i the Chicago area have been no h i rnpr n l s p e t f l than other metro a e s although other s u i s including those es lniu ra, tde conducted f r the D l a - t Worth and New York-New Jersey areas have been o alsF. somewhat more extensive and soph s i a e (Table 2 . itctd ) The f r t extensive study of t e Chicago area was conducted by th Real Estate is h e Research Corporation (1968) i considering th impact p t n i l s t s f r a t i d n e o e t a ie o hr Chicago-area a r o t At t a ti e Mayor Richard J Daley proposed a t i d ipr. ht m , . hr a r o t s t i Lake Michigan which was being compared t seve a land i p r ie n o rl l c t o s The study estimated t a t e t i d a r o t would add upwards of only oain. ht h hr ipr 17,300 jobs by 1985, a p l r number by t e standards of l t r s u i s (and of aty h ae t d e e i t n s u i s a other metro areas i isd y . xsig tde t n t a) The assumptions t a l e behind t e s u y s findings help t explain is modest ht i h td' o t fnig. idns At t a t m , a r i l ht i e ifed capacity was s r i i g but modest by tann Table 2 Economic Impact Stud e ofAirports i th Chicago Area is n e Studv and Year Findings Chicago Airport Site Selection Studv: An Analysis o f Some o f the Major A third Airport, equivalent in size to O'Hare, would add 9,000-17,300 jobs by Considerations: Real Estate Research Corp.. 1985. March 1968. The Economic Impact of Civil Aviation on Civil Aviation’s economic impact for 111. the U.S. Economy Wilbur Smith Assoc. Commissioned by Partnership for Improved Air Travel 1987. equaled $30.8 billion in 1987, $9.1 billion in earnings, and 459,000 jobs. Chicago Metro area accounted for $20.2 billion in activity, $6.7 billion in earnings, and 349,000 in jobs (behind NYC and LA) Chicago Airport Capacity Studv Total impacts in the $3-5.6 billion range Illinois Department of Transportation & Peat Marwick; al Chalabi Group Ltd. as subcontractor for economic impact 1988. (Impact of Third Airport) are found for a range o f Chicago area sites (year 2020). Airport Impact Studv: Airport Master Plan Studv. (Chicago O'Hare Int'l Airport O'Hare and Midway contributed 124,780 jobs in 1977. Total economic impact was found to be $4.65 billion in 1977. Forecasts for 1985 and 1995 using inflation and avaition demand forecasts are also made. These fall in the $10-11 1979, Landrum & Brown; Booz Allen & Hamilton. billion range for 1985. Economic Impact of Chicago O'Hare Int'l Airport on Region: Citv o f Chicago Aviation Dept. 1987. O'Hare contributed $9 billion a year to the regional economy. 186,000 jobs created by the field with 40,800 directly employed. Lake Calumet Airport Proposal. City Department of Aviation 1990. Development of a Lake Calumet airport by 2010 estmated to generate 22,000 person-years of employment and $1.5 billion in regional expenditures on material and equipment during construction phase. When open in 2010, 200,000 jobs created, 40,000 permanent jobs at airport site. Now under bids, a 1990 Contract will be awarded by the City of Chicago Dept, of Aviation, for detailed and comprehensive study o f economic impact of air travel on Chicago region. None yet. 5 comparison t t d y s s t a i n At t e same t m , forecasted demand was not o o a ' iuto. h ie so r b s . An assumption of t a study was t a a r t a e demand i t e out ht ht i rvl n h Chicago area would be met regardless of whether a third airport was built. Accordingly, net new jobs arose only because an a t r a i e s t from O'Hare l e n t v ie would provide a d t o a or enhanced s r i e t c r a n segments of Chicago diinl evc o eti population and because i was f l t a a t i d a r o t was capable of spinning t et h t h r i p r off t e type of i t n i e land and business development t a was previously h nesv ht spurred by O'Hare. As with many s u i s of t i kind, t e methodology behind the net job c eation tde hs h r remains r t e nebulous. Passing reference t a "basic m l i l e " can be found, ahr o utpir but t e d t i s are not published. h eal A more extensive study and f r c s of economic impact was conducted by t e oeat h consulting firm of Landrum & Brown i 1979. That study used standard n planning techniques i estimating economic impact and i did so f r both n t o Midway and O'Hare f e d . I estimating economic linkages and impacts, t e ils n h study conducted surveys of a r o t t a e e s t determine o i i , length of s a , ipr rvlr o rgn ty purpose, of t i ,and expenditures of v s t r . Survey data from a rcargo and a r rp iios i i f e g t companies were a s gathered along with l c l a e purchases by a r o t rih lo oa-ra ipr oeain. prtos The 1979 study employed m l i l e s t a were s t be derived from th u t p i r ht aid o e economic base type of methodology. As r p r e , the two f e d contributed eotd ils 124,780 jobs i 1977 and an addit o a 75,000 "induced" j b . In al t e study n inl os l, h reported t a a r t a e was responsible f r 5 3 percent of the Gross Regional ht i rvl o . Product. Long term f r c s s (which included i f a i n were al o made based on oeat nlto) s e i t n t a e demand f r c s s and under four a t r a i e scenarios f r the xsig rvl oeat lentv o r g o ' f t r a r i l development. Under th robust development s e a i , e i n s u u e ifed e cnro which included th main elements of t e City’ development plans f r Midway e h s o and O'Hare, forecasted regional product was estimated i the $10-11 b l i n n ilo range f r 1985. o These fo e a t numbers, along with th spade work conducted then on a r o t rcs e ipreconomy l n a e , have formed t e b s s of most subsequent impact s u i s f r ikgs h ai tde o t e Chicago a e . A 1988 study conducted under t e auspices of the I l n i h ra h lios Department of Transportation (IDOT), evaluated t e economic impacts of h p t n i l s t s f r a t i d regional a r o t The study considers a t r a e s t s o e t a ie o hr ipr. l e n t ie and ranks them on individual economic c i e i including a c s i i i y t rtra cesblt o regional o f c c n e s a c s i i i y t areas of high unemployment (and t fie etr, cesblt o o 6 households and employment g n r l y , and d s r b t o of i d r c and induced eeal) itiuin niet j b . I so doing, th study borrows m l i l e s from t e 1979 Landrum and os n e utpir h Brown s u y although independent a alysis i al o conducted f r other td, n s s o segments of the s u y General findings i d c t t a t i d a r o t s t s would td. n i a e h t h r i p r ie generate economic impact i th range of $3-5.6 b l i n by 2020 (presumably n e ilo t i f g r i not adjusted f r f t r i f a i n . hs i u e s o u u e nlto) Studies conducted by the City of Chicago i s l have a subsequently r l e tef lso eid heavily on t e 1979 Landrum and Brown study on a l a t two occasions. A h t es 1987 update of the 1979 study focused on t e O ’ h Hare f e d and concluded t a il ht O’ Hare was responsible f r 186,000 d r c , i d r c , and induced jobs i the o iet niet n Chicago area economy. Moreover, completion of th C t ' current a r o t e iys ipr development plan would r s l i a $13 b l i n per year impact by 1996 while eut n ilo otherwise, 46,000 jobs would be l s . ot More r c n l , the City has announced is i t n i n t consider a t i d a r o t eety t neto o hr ipr surrounding Lake Calumet r t e than supporting the four a t r a i e chosen by ahr lentvs th 1988 IDOT s u y e td. With t i l cation the City envisions 13 million hs o enplaning passengers and 340,000 f i h operations a the s t by 2010. When lgt t ie opened, t e a r o t could c e t 40,000 d r c jobs and 200,000 t t ljobs f r t e h ipr rae iet oa o h Chicago r g e ion. The City argues t a , because is proposed s t i closer and ht t ie s more accessible t population and business than t e proposed a t r a i e , jobs o h lentvs and development w l be g e il r ater than th a t r a i e s t s which include Gary, e l e n t v ie Peotone, Kankakee, and a s t on the I d a a I l n i border. ie nin-lios The City i now i the process of commissioning an extensive update of the s n economic impact of t e a i t o industry on the r g o ' economy. Presumably h vain eins work w l begin during t e f rthalfof 1990. il h is One other notable study has covered t e Chicago r h egion, t a being a 1987 ht nationwide study commissioned by t e Partnership fo Improved Air Travel. h r The study employed th RIMS I input-output model which i produced by the e I s BEA. This model was "regionalized” t each of the 50 s a e and t major o tts o metro a e s I doing s , a m l i l e of around th e times d r c a r o tjobs i ra. n o utpir re iet ipr s found f r t e a r o t i d s r . According t the methodological discussion, the o h ipr nuty o study followed impact guidelines a suggested by the Federal Aviation s Administration (FAA 1986). The 1987 study concluded t a a l l c l c v l a aviation (which included ht l oa iiin manufacturing segments) accounted f r $20.2 b l i n i the Northeast I l n i o ilo n lios region and 349,000 j b . I ise t mation, t e Chicago area ranked t i damong os n t si h hr 7 metro a e s behind New York City and Los Angeles, i aviation economic ra, n impact. In evaluating s u i s of t e Chicago a e , i i s f t say t a th studies’ tde h ra t s ae o ht e findings are not generally out of l n with s u i s i other l c l s or i ie tde n oae n comparison t t e s l externally-sponsored study of Chicago area a i t o . o h oe vain Sil i observing t e wide range of study findings here and elsewhere, i i also tl , n h ts evident t a ltl confidence can be placed i t e reported economic impact t h t ite n h o any precise degree of accuracy. Coupled with t e weak methodological h underpinnings of Chicago area and almost a l other s u i s which suggest t a l tde, ht economic impact and economic b n f t ar not one and t e same, i would be eeis e h t advisable f r policy makers t be cautious before considering o o "economic impact”a b n f t t be compared t c s s s eeis o o ot. Redeeming Value o f Economic Impact While i i t u t a estimates of economic impact should be viewed with t s re ht ca t o , i i a t u t a these s u i s serve an important f n t o . That i t u i n t s lso r e h t tde ucin s o i l s r t and increase public awareness of t e linkages and importance of a r lutae h i t a e t regional economies. Impact s u i s illuminate these connections even rvl o tde i i i not s r c l t u t a a l reported jobs owe t e r existence s l l t f t s tity r e h t l hi oey o existence of t e a r o t To t i e t n , i can be argued t a , as a r s l of h ipr. hs x e t t ht eut economic impact s u i s more informed decisions w l be made i deciding t tde, il n o in e t i f r h r a r o t c p c t . I t e process of attempting t quantify vs n ute ipr aaiy n h o economic impact, s e i i i t r c i n between a r t a e and th region’ well pcfc neatos i rvl e s being become c e r r i t e public t i k n . For example, i d r c jobs r l t d lae n h hnig niet eae t convention/tourism industry are c e r y linked t wide-ranging, fre u n , and o lal o qet low-priced a rt a e connections. i rvl Moreover, i most e i t n s u i s many s g i i a t economy-airport linkages n x s i g tde, infcn a e neglected, perhaps because t e linkages a e d f i u t t quantify with any r h r ifcl o degree of c r a n y From time t t m , a r o t impact s u i s do, i f c , etit. o ie ipr tde n at mention these b n f t and linkages i passing, noting t a , i t e attendant eeis n ht f h b n f t were t be counted, economic b n f t would surely be higher than eeis o eeis those t a a e reported t e e n But i such economic linkages are important ht r hri. f enough t be mentioned, they a e su e y worthy of c o e examination. o r rl lsr Airports and the Business Traveler Many types of businesses highly value a c s i i i y t a major a r o t f r is cesblt o ipr o t ef f ectiveness t t e r work product. The a i i y t send out s l s force or o hi blt o ae maintenance crews or management s e i l s s with convenience and low c pcait ost can undoubtedly make o break some businesses. r 8 However, because a r o t q a i y i but one of many important l c l business ipr ult s oa conditions, i i d f i u t t quantify is r l t v importance. A promising t s ifcl o t eaie s a t n point i t i respect i t i e t f those business f c l t e and i d s r e trig n hs s o dniy aiiis nutis t a a e most dependent on high q a i y a r t a e . Air passenger f c l t e are ht r u l t i rvl aiiis e s n i l t many service-type f c l t e and i d s r e While c r a n goodsseta o aiiis nutis eti producing i d s r e a e a s highly-dependent on a rcargo f c l t e . nutis r lo i aiiis Survey Findings Most of the survey and s a i t c l work on firm l c tion decisions t a has been ttsia oa ht conducted t date has focused on p o lant l c tion d c s o s These tend t rank oa eiin. o a r o t access as only a minor consideration, i i i mentioned a a l (see ipr f t s t l Schmenner 1982, f rexample). o With the r s n importance of white c l a employment i t e U.S. and abroad, iig olr n h much more a t n i n i now being given t th f c o s involved i s t n o f c teto s o e atr n iig f i e f c l t e ( . . Daniels 1979). Office f c l t e vary widely i t e r r l and aiiis eg aiiis n hi o e f n t o , with most o f c s i t r c i g with nearby customers. For t i reason, ucin fie neatn hs th locat o s of t e general or generic " f i e have not come t be closely e in h ofc” o associated with access t a r o t . Nonetheless, one important s t s l c i n o iprs ie e e t o f c o can be broadly construed t encompass a r t a e . "Locational access t atr o i rvl o markets, customers, and c i n s i reported t be highly valued. For example, let" s o t e survey of403 CEOs of la g corporations ranked t e Chicago area very high h re h i two categories t a can be i t r r t d as associated with a r t a e ( e Table n ht nepee i rvl se 3 . The f r t category l s e t e e n "access t markets, customers, and c i n s ) is itd h ri, o let" f n s Chicago ranking a excellent and good. No doubt, much of Chicago's id s convenience r f e t market access within t e Chicago area or nearby driving elcs h distance and t e e o e does not r f e t any a r t a e or a r cargo c a a t r s i s hrfr elc i rvl i hrceitc of the re i n However, Chicago a s ranked well i " n e n t o a access" go. lo n itrainl which, aside from telecommunications i f a t u t r , more l k l implies t a nrsrcue iey ht t e r g o ' i t r a i n l a r connections a e a big drawing card t many o f c h eins nentoa i r o fie type f c l t e . aiiis I i only when we look a s e i i types of o f c a t v t t a t e importance of ts t pcfc fie ciiy ht h a r t a e comes t t e f r . One study conducted by Dow Jones & Co., I c i i rvl o h oe n. n 1977 surveyed th r l t v importance of s t l c t o f c o s f r each of seve e eaie ie o a i n a t r o ral types of company f c l t . I doing s , t e survey d f e e from previous aiiy n o h ifrd surveys by distinguishing p ant f c l t e from d s r b t o c n e s regional l aiiis itiuin etr, di i i n o f c s R & D f c l t e , and corporate headquarters (s e Table 4 . v s o fie, aiiis e ) Across all types of f c l t e , a r o t f c l t e ranked 7th out of 14 f c o s aiiis i p r a i i i s atr. However, i considering o f c s devoted t purely admi i t a i e corporate n fie o nsrtv, c n r l and research and development f n t o s a r o t ranked extremely oto, ucin, iprs Table 3 Ratings ofChicago Area f r O f c Locationo fie Survey of403 Major Corporations, 1987 Excellent Good Fair Poor 39% 15% 39% 31% 8% 29% 2% 8% 12% 17% 7% 13% 26% 30% 41% 33% 27% 27% 10% 11% 7% 2% 25% 12% 29% Not Sure Chicago Office Facilities Access to markets, customers, clients Cost and availability of labor Government created business climate Quality of life International access Source: Cushman & Wakefield Inc. Table 4 Importance of 14 Major Relocation Factors by Type of Facility All company facilities incentives Transportation facilities Air Highway Rail Water Availability of raw materials Accessibility to markets Established New Availability of financing Large land area Right to work laws Availability of executive/ professional talent Availability of energy/fuel Distribution center Rank Availability of labor Tax abatements/ Manufacturing plant %* Rank Rank 1 93 1 79 4 43 6 31 4 18 5 18 12 56 10 49 9 33 9 20 8 13 6 17 7 64 90 66 41 75 7 34 60 38 37 14 20 19 8 8 1 2 12 13 24 10 13 2 3 14 13 3 6 14 39 13 3 6 14 8 63 4 5 Regional divisional office Rank R&D facility Rank %* Corporate headquarters Rank 59 34 1 6 14 43 23 1 2 13 14 26 5 61 13 23 12 14 12 11 14 8 85 77 4 7 65 55 2 3 58 53 4 5 33 31 10 11 11 11 10 11 13 12 13 9 11 51 63 58 12 46 53 54 11 10 8 31 32 34 10 9 8 11 8 20 18 20 9 6 7 13 13 13 7 8 16 14 9 14 10 62 11 46 12 29 3 34 1 22 3 22 2 91 2 78 5 43 7 29 5 18 4 20 9 *Weighted Response. On a four-point scale; a critical rating (1) by a respondent received 100%; a very important rating (2) received 75%; a somewhat important rating (3) received 25%; and a slight or of no-importance rating (4) received 0%. Thus, if all respondents rated an item 2, it would have 75% weighted response. Source: "Business on the Move," Dow Jones & Co., Inc., Market Research Dept., 1977. 9 h g . In p r i u a , a r o t ranked a t e first p i r t f r regional d v sion ih atclr iprs s h roiy o ii o f c s i ranked second (behind a a l b l t of professional t l n ) f r R & D fie; t viaiiy aet o f c l t e ; and rankedfirst again f rcorporate headquarters f c l t e . aiiis o aiiis Of these administrative-type establishments, corporate headquarters have been studied most i t n i e y t d t . Corporate headquarters f c l t e have been n e s v l o ae aiiis reported as esp c a l r l a t on e cellent a rconnections. A recent study of th e i l y ein x i e headquarters lo a i n of t e n t o ' companies having g ctos h ains reater than $100 million i s l s was conducted by M. Ross Boyle (1990). The study r i e a e n ae etrtd t e b l e t a " h a i i y t maintain contact with those f c l t e and markets h e i f ht t e blt o aiiis through a r passenger t a s o t t o and telecommunications ser i e " was i rnprain vcs among t e most strongly i f u n i l f c o s i determining headquarters h nleta at r n l c t o s ^ And i a recent survey of th major business users of Hobby Field oain. n e i t e Houston a e , headquarters f c l t e reported espec a l heavy re i n e on n h ra aiiis ily lac passenger a i t o . In Houston, f r example, these included t e Schumberger vain o h Technology Corporation ( s e i l s i petroleum exploration and production a pcait n employing 2000), and Texas Eastern Transmission Corp. ( d v r i i d n t r l a iesfe aua gas pipeline and petroleum se v c s company). Both of these corporations rie originated heavy and frequent t a e by isheadquarters employees. rvl t The Chicago area ranks second among U.S. metro areas i is concentration of n t corporate headquarters of i d s r a companies, hosting such i d s r a bulwarks nutil nutil a Amoco, Sara Lee, Motorola, Baxter I t r a i n l Quaker Oats, and Abbott s nentoa, Labs, ( e Tables 5 and 6 . I a d t o , headquarters of service firms are also se ) n diin well represented (Table 6 . ) Aside from corporate headquarters, appropriate s a i t c l information ttsia concerning administrative establishments from region t region i quite s a c . o s cre S a i t c a e not generally colle t d by type of facility,but focus instead on ttsis r ce employment or s l s or establishments by type of industry. One exception, ae however, can be found i th Countv Business P n e atterns (CBP) data which r p r s on an amalgam of s e i i f c l t e which a e c i c d n a l , closely eot p c f c aiiis r, o n i e t l y r l t d t those same c t eae o a egories of i t r s h r . The CBP category of " u i i r neet ee axlay and administrative establishments" records employment a R & D f c l t e , t aiiis corporate headquarters, regional d v sion o f c s and other a x l a y f c l t e of ii fie, u i i r aiiis companies and i does so f r each broad industry category. All of these f c l t t o aiiy types ranked a r o t high i th Dow Jones survey. iprs n e I examining t e employment concentrations of a x l a y employment i l n h uiir n arge MSAs, i can be seen t a t ese f c l t e comprise an i ordinately l r e share of t ht h aiiis n ag metro area economies ( e Table 7 . I i too s m l s i t think t a superior a r se ) ts ipitc o ht i connections i t e only f a u e t a draws corporate headquarters and s m l r s h e t r ht iia Table 5 The Fortune 500 Largest U S I d s r a Corporations .. nutil i th Chicago Area-1990 n e Company. Citv & State Rank 1989- 1988 12 34 48 63 87 90 94 12 34 111 52 64 88 94 122 57 113 117 118 113 113 116 119 136 143 149 137 159 169 170 182 194 198 200 234 240 242 243 247 292 294 304 321 329 341 345 352 373 374 375 407 412 425 449 454 484 492 Amoco - Chicago, IL Sara Lee - Chicago, IL Motorola - Schaumburg, IL Baxter International - Deerfield, IL Quaker Oates - Chicago, IL Abbott Laboratories - Abbot Park, IL Stone Container - Chicago, IL Beatrice - Chicago, IL Navistar International - Chicago, IL Inland Steel Industries - Chicago, IL Whitman - Chicago, IL FMC - Chicago, IL Sales (millions) 24,214.0 11,738.3 9,620.0 7,399.0 5,724.3 5,453.5 5,360.7 4,498.0 4,296.0 4,146.7 4,023.8 3,461.0 R.R. Donnelley & Sons - Chicago, IL 3,127.6 Brunswick - Skokie, IL Zenith Electronics - Glenview, IL Premark International - Deerfield, IL Tribune - Chicago, IL Morton Thiokol - Chicago, IL 2,826.1 2,610.7 2,600.6 2,454.8 2,269.0 152 USG - Chicago, IL 2,201.0 213 233 247 237 251 * Illinois Tool Works - Chicago, IL Square D - Palatine, IL Dean Foods - Franklin Park, IL Outboard Marine - Waukegan, IL Sundstrand - Rockford, IL Great Amer. Mgmt. & Inv. - Chicago, IL Fruit of the Loom - Chicago, IL Hartmarx - Chicago, IL IMC Fertilizer Group - Northbrook, IL Newell - Freeport, IL Nalco Chemical - Naperville, IL Amsted Industries - Chicago, IL WM Wrigley Jr. - Chicago, IL Int'l Minerals & Chemical - Northbrook, IL CF Industries - Long Grove, IL AM International - Chicago, IL Pittway - Northbrook, IL Gaylord Container - Deerfield, IL 2,172.7 1,722.0 1,686.0 1,678.0 1,666.1 159 178 181 183 333 304 * 338 335 343 357 254 345 280 377 412 1,643.1 1,320.9 1,312.0 1,232.7 1,122.9 1,093.9 1,014.3 1,010.7 982.9 855.9 855.1 854.0 746.0 717.4 447 497 Alberto-Culver - Melrose Park, IL Commerce Clearing House - Riverwoods, IL Helene Curtis Industries - Chicago, IL Bell & Howell - Skokie, IL Molex - Lisle, IL 458 Allied Products - Chicago, IL 564.6 443 437 * 692.2 629.2 622.6 575.7 Table 6 Fortune 1000 Headquarters Locations i 26 SMSAs --1984 n Industrial 500 Service 500 Total 46 32 78 2 7 5 8 7 Baltimore Boston Cleveland Dallas-Fort Worth Denver-Boulder Detroit Houston Indianapolis Kansas City Los Angeles-Long Beach 4 10 13 12 3 12 11 2 1 16 5 10 8 22 5 Miami Milwaukee Minneapolis-St. Paul Nassau-Suffolk New York Newark Philadelphia Pittsburgh St. Louis 1 7 13 1 84 8 10 NE ILLINOIS Anaheim-Santa Ana Atlanta San Diego San Francisco-Oakland Seattle-Everett Washington NE ILLINOIS RANK 15 9 2 10 2 4 2 9 18 5 4 37 6 15 9 20 21 34 8 21 29 7 5 53 7 11 27 3 4 14 2 61 12 10 5 8 145 20 20 20 17 4 17 6 10 6 27 8 14 3 2 Source: Fortune. April 30 and June 11, 1984, as reported by the Northeast Illinois Planning Commission, A Comparative Guide to Northeastern Illinois ans 25 other Metropolitan areas. Table 7 Concentration ofEmployment i Auxiliary -Type F c l t e n aiiis i Major Metro Areas i 1986 n n Employment Concentration Relative to the U.S. Number o f domestic cities served by direct flights Atlanta 82,749 1.84 141 Baltimore 27,283 2.86 109 Boston 94,767 1.32 106 204,169 1.79 175 Dallas-Ft. Worth 93,652 1.99 141 Denver 35,079 1.29 134 Houston 115,042 2.36 109 Indianapolis 22,665 1.22 64 Memphis 17,908 1.33 84 Milwaukee 24,150 1.08 63 N ew York 181,734 1.37 151 Philadelphia 91,430 1.32 109 Richmond 22,230 1.73 30 San Francisco 37,203 1.14 110 Washington D.C. 46,331 1.12 143 Chicago Source: U.S. Department o f Commerce, County Business Patterns: and Official Airlines Guide, North American Edition, April 1990. 10 f c l t e t l r e metro a e s Yet, i i highly probable t a l rge hub-type aiiis o a g ra. t s ht a a r o t are an important necessary condi i n Three c t e t a are noted f r iprs to. iis h t o t e r l rge scope of a r connections-Atlanta, Chicago, and Dallas-Ft.Worth-all hi a i enjoy notably high concentrations of these f c l t e . Furthermore, the s a i t c l aiiis ttsia c r e a i n between t e number of " u i i r and administrative employees" and orlto h axlay t e measure of a r t a e scope l s e i Table 5 r g s e e a positive c r e a i n h i rvl itd n eitrd orlto of . 6 which i s a i t c l y s g i i a t a the 3 percent l v l 5 s ttsial i n f c n t ee. The Chicago area’ employment concentration i a x l a y f c l t e i greater s n u i i r aiiis s than t a of th nation i most industry categories ( e Table 8 and Figure 1. ht e n se ) Overall, f r a l c t g r e , Chicago’ concentration i almost twice the nation’ o l aeois s s s and exceeds New York and Los Angeles. More importantly, Chicago has added over 33,000 jobs from these f c l t e from 1976 t 1986, a period t a par l e e aiiis o ht alld rapid growth a O ’ t Hare. Employment growth within four categories of a x l a y uiir fclte-osrcin taec a i i i s c n t u t o , r d / ommunication/utilities, wholesale t a e and rd, service-outperformed th nation and they did so a a time when Chicago's e t o e a l employment was growing by l s than h l of th national r t of vrl es af e ae growth. Figure 1 Concentration of headquarters / administrative facilities in the Chicago area C n e t a i nidx 1 8 o c n r t o ne , 9 6 05 . 00 . 10 . 15 . Mnn iig Cntuto osrcin Mnfcuig auatrn Tasot t o , rnpr a i n cmuiain & omncto, pbi uiiis ul c tlte Fr,i s r n e ie n u a c , & ra e t t el s a e ALL AUXI ( e sc n e t a e Ls ocnrtd t a US) h n .. ( ore c n e t a e M ocnrtd t a US) h n .. 20 . 25 . Table 8 Employment a Auxiliary Establishments i t e t n h Chicago Area--1976 t 1986 o Employment 1986 Concentration Index 1986 Growth 1976-86 Relative* Growth Mining 2,440 .54 600 1.34 Construction** 1,735 2.47 1,360 40.9 Manufacturing 103,374 2.21 4,014 1.04 5234 .74 2,974 3.47 Wholesale Trade** 21,969 2.09 7,366 3.30 Retail Trade 43,363 1.53 2,127 .25 3692 .58 1,768 1.74 22,362 2.29 13,517 2.71 204,164 1.79 33,726 1.30 TCPU** F.I.R.E. Services** All Auxiliaries *Ratio o f (sector growth/total job growth) in Chicago area to similar ratio for the nation. **Indicates sector where Chicago area percent growth exceeded the national from 1976 to 1986. Source: U.S. Department o f Commerce, County Business Patterns. 11 Survey findings a reported t a a r o t can be a important i bringing i lso ht iprs s n n business a s c a e and customers as i sending out s l s people and managers. soits n ae The National Aeronautics and Space Administration (NASA) i Houston n heavily r l e on Houston's Hobby Airport f r isown employee business t a e eis o t rvl but an equal amount of incoming passengers are represented by contractors t a e i g t NASA. Houston's Methodist Hospital, the nation’ seventh l r e t rvln o s ags, c t d t e convenience of Hobby as a c i i a f c o i a t a t n p t e t from ie h rtcl a t r n t r c i g a i n s throughout the Southwest. The importance of a r o t i f a t u t r t s r i p r n r s r c u e o e vice firms helps t confirm an o important economic trend t a has only r ht ecently become apparent. I c easingly, nr service-generating i d s r e have become the engine of economic growth i nutis n many la g metro areas including Chicago. Formerly, analysts commonly re considered s r i e t be outside t e "economic base" of l r e c t e . I s e d evcs o h a g iis n t a , manufacturing, t a e and t a s o t t o were often highlighted as generating rd, rnprain urban jobs while s r i e were der v t v from the income generated from basic evcs iaie idsre. nutis L t r s a i l separation of f c l t e within manufacturing a e , pta aiiis companies, ie corporate headquarters and R & D from production p a t , .. lns accelerated across th U.S landscape and urban analysts began t recognize t a e o ht administrative s ervice f c l t e of i d s r a companies ( . . corporate aiiis nutil eg headquarters and t e s e ialized business ser i e firms who serve them) often h pc vc comprised a s g i i a t p r of t e urban economic base (Stanback & Noyelle infcn at h 1982). More r c n l , s u i s of th Puget Sound, Northeast Ohio, and eety tde e Montreal areas have documented t e f c t a se v c s a e exported widely from h at ht r i e r metro areas (Beyers and Alvine 1985; Goe 1990, Harrington and Lombard 1989; and Polese 1 982). Findings from Northeast Ohio f r h r i d c t t a ute niae ht these se v c i d s r e j s as often s l t other service firms as t goodsr i e nutis ut el o o producing i d s r e (Goe 1990). This economic t a s t o has been e p nutis rniin s ecially hl e pful f r metro a o reas i th Northeast and Midwest regions such a P t s u g , n e s itbrh Cleveland, I d a a o i , and Chicago t a have been heavily impacted by ninpls ht declining manufacturing s c o s although f r some, such as Buffalo, New York, etr, o no such economic t a s t o has ye unfolded. rniin t These recent s u i s a s i e t f those producer service i d s r e t a most tde lo dniy nutis ht intens v l s l t customers outside of t e rregion of domicile. In t e Chicago i e y el o hi h a e , these i d s r e a e well represented a measured by employment i 1986 ra nutis r s n ( e Table 9 and Figure 2 . Advertising, computer and data processing, se ) accounting and a d t n , management/public r l t o s and l g l s r ices a l uiig eain ea ev l display employment concentrations t a ar gr a e i the Chicago area than the ht e e t r n n t o . By i p i a i n commercial passenger t a e by a r i a c i i a f c o ain mlcto, rvl i s rtcl a t r f r these i d s r e who must e t e send out s r o nutis ihr e vice agents or bring i n customers by ar i. This is not to say that Chicago's excellent air connections Figure 2 Concentration of business service industries in the Chicago area (with strong linkages to air travel) C n e t a i nidx 1 8 o c n r t o n e, 9 6 00 . 05 . 10 . Artaso t t o i rnpr a i n Tourism & convention E t n a dd i k n a i g n r nig Htl/oes oesmtl Museums a d n gleis alre Business services Avriig detsn Egneig niern, ac.& s r e i g rh u v y n Com u e a d ptr n dt poesn aa rcsig Nnomril ocmeca R&D l b as Acutn, conig adta db o ui n o k Managament a d n pb i rltos u l c eain L g ls r i e e a evcs Mmesi ebrhp ognztos raiain F1R.E. Dpstr eoioy isiuin ntttos Nneoioy odpstr isiuin ntttos Scrt a d euiy n c m o i yb o e s o m d t rkr I s r n ecrir n u a c ares I s r n ea e t nuac gns a db o e s n rkr R a ett e l sa e H l i ga do h r o d n n te i v s m n ofcs n e t e t foe 15 . 20 . T 25 . 30 . “1 Table 9 Other I d s r e with Linkages t Passenger Air Travel nutis o i t e Chicago Area-1986 nh Employment 1986 Air Transportation Tourism & Convention Eating & Drinking Hotels/Motels Museums & Gallaries Business Services Advertising Engineering, Architecture and Surveying Computer and Data Processing Concentration Index 1986 Growth 1976-86 Relative* Growth 33,150 1.80 10,484 2.08 172,472 34,208 3,955 .86 .75 2.95 42,669 6,949 2,010 1.27 1.15 4.24 14,133 2.09 2,810 .94 7,017 .92 23,461 .98 25,221 893 5,172 3.79 2.66 1.05 32,567 1.63 Noncommercial R&D Labs Accounting, Audit & Book Management & Public 152 17,267 .35 1.11 Relations Legal Services Membership Organizations 29,546 32,247 59,077 1.46 1.20 .96 15,561 16,128 8,734 1.70 2.28 .71 66,504 32,848 1.12 1.12 11,686 11,350 1.61 1.64 27,619 71,218 2.03 1.50 14,516 7,938 2.26 1.40 24,007 47,671 1.11 1.08 7,968 5,900 1.82 10,104 1.33 4,466 5.21 Finance. Insurance & Real Estate Depository Institutions Nondepository Insitutions Security & Commodity Brokers Insurance Carriers Insurance Agents and Brokers Real Estate Holding & Other Investment Offices Source: U.S. Department of Commerce, County Business Patterns. .69 12 have created these industries but only t a the r l t o between the two ht eain a t v t e i symbiotic, each depending on t e o h r I i also noteworthy t a ciiis s h te. t s ht these i d s r e have grown rapidly over the 1976-86 p nutis eriod. In f c , with at regard t Chicago’ o e a l employment growth relative o s vrl to the nation,many of these producer service i d s r e have been the growth l nutis eaders f r the region o including banking, s c r t and commodities brokers, insurance, investment euiy ofcs fie, management and public rltos eain, lgl ea srie, evcs and accounting/auditing/bookkeeping. Foreign O ffices and Investment To d t , s u i s have found t a the l c t o a decisions of foreign d r c ae tde ht oainl iet investment f c l t e i th U.S. are generally driven by the same forces as aiiis n e domestic investment, e g market growth, c s s of doing business, a a l b l t of .. ot viaiiy s i l d l b r and access t t a s o t t o f r shipment (Glickman 1989; Kahley kle ao, o rnprain o 1987). However, a study of the Southeast England area of th U.K. has c e r y e lal demonstrated t a foreign o f c s value proximity t major i t r a i n l a r o t ht fie o nentoa iprs as important i linking home o f c s with branch l c l s (Hoare 1975). In t a n fie oae ht s u y the need t be within a c r a n time distance from Heathrow Airport gave td, o eti r s t a notable l c t o a c u t r n of foreign-domiciled firms i Southeast ie o oainl lseig n England. Closer t home, a research team a Camegie-Mellon School of Public o t A ffairs recently evaluated the presence of i t r a i n l a r connections on l c l nentoa i oa area economic development. The study examined D l a - t Worth’ alsF. s itrainl s n e n t o a ervice and concluded t a " n e n t o a service a D F W i ht itrainl t s considered t be responsible f r c eating over 25,000 regional jobs and o o r a t a t n 140 foreign-owned companies between 1984 and 1986".^ In deciding trcig on f c l t e l cations within r gions, t e , access t a r t a e can be important aiiis o e hn o i rvl t foreign o f c s and investment. o fie Foreign Trade Zones (FTZs) are a noted a an important c t l s f r foreign lso s aayt o investment, e p s ecially i conjunction with major a r o t (CUED 1989). These n iprs t a e zones allow foreign imports t be brought i t the country f r f r h r rd o no o ute processing without imposition of import d t e . I imported FTZ products are uis f re-exported, d t e need never be p i . So f r a r o t such as Akron-Canton uis ad a, i p r s and Dulles i t e Washington D.C. area have acquired FTZ s a u . n h tts From 1982 t 1987, I l n i has led a lother Great Lakes s a e i a t a t n FDI o lios l tts n t rcig (see Figure 3 . At t e same t m , t e Chicago area remains the Midwest focus ) h ie h of foreign-based banking. Owing t t e area’ favorable regulatory climate fo o h s r foreign banks, along with q a i y i f a t u t r including a r t a e , Chicago ult nrsrcue i rvl hosts 53 foreign banks. 1 3 Figure 3 Foreign direct investment in the U.S. P r e tg o t ( 9 2 1 8 ) ecn r wh 18-97 15 r 2 Canada -5 2 ____ l _____l ____ l _ _ _____ l ____ i _ ______l ____ l _____l _ _ US .. GLS I L I N OH Wl MN PA The U.S. and Canada have recently scheduled the d a t c lowering and, i some rsi n c s s elimination of t a e b r i r . Some a a ysts believe t a t i action w l ae, r d ares nl h t hs il spur th growth of "second c t e " such as Toronto and Chicago a the locus of e iis s economic a t v t s i t aways from c a t l export c c i i y hfs osa enters such as New York and Los Angeles and toward mid-continent (Kresl and Morici 1989). Moreover, one analyst views Chicago and Toronto as key competitors i achieving n dominance as the a m n t a i d i s r t ve/financial center of th expanded continental e market (Kresl 1989). As p r of iseconomic development s r t g , Toronto has at t taey commissioned a study t guide i i is i t r a i n l l n a e . One very major o t n t nentoa ikgs element of t i s r t g i is "Headquarters Program", which i designed t hs t a e y s t s o convince foreign corporations t s t up t e r main North American o f c s i o e hi fie n Toronto. With respect t i t r a i n l a r t a e f c l t e , Toronto has the jump on o n e n t o a i r v l aiiis modernizing is f c l t e . I s new terminal i now under construction and w l t aiiis t s il open during 1991. While Chicago has recently moved t expedite the o construction of is new and expanded i t r a i n l passenger ter i a , t e t nentoa mnl h f c l t w l open during 1994 a t e e r i s . aiiy i l t h alet Convention and Tourism Expenditures by t u i t and convention v s t r ar commonly and c r e t y orss iios e orcl included i economic impact s u i s The importance of th convention/tourism n tde. e t a e t t e Chicago area study probably exceeds most other metro areas with rd o h 1 4 t e exception of r s r - y e or t u i t communities such as Miami and New h eottp ors Orleans. The convention/trade show business i Chicago has grown apace with n O'Hare (and Midway before i) making Chicago known as the one of a handful t, of premier convention/trade show areas i th nation (see Figure 4 . Within the n e ) Midwest region, Chicago reportedly drew well over t hree times the number of convention and t rade show delegates as is c o e t competitor, D t o t i 1987 t lss eri, n ( e Table 1 ) se 0. Figure 4 Attendance at conventions, trade shows, and corporate meetings Mlin ilos Table 10 Recent Attendance a Conventions/Trade Shows t f rMajor Great Lakes Cities-1987 o Citv Conventions Trade Shows Delegates Illinois Chicago 863 2,321,039 Indiana Indianapolis 141 450,067 Michigan Detroit 514 653,000 Minnesota Minneapolis 258 261,869 Ohio Cleveland 253 84,619 Wisconsin Milwaukee 204 201,974 Source: Great Lakes Commission. 1 5 The Chicago Convention and V s t r Bureau r p r s t a a l t ree categories of iios eot ht l h business t a e e attendance-conventions, t a e shows, and corporate meetingsrvlr rd -have grown s g i i a t y over the 1980s ( e Table 1 ) Spurred by expansion infcnl se 1. of display f c l t e such as McCormick P ace, t a e show attendance has grown aiiis l rd by almost 50,000 per year from 1983 t 1989. Trade show v s t r are o iios espec a l coveted as business t a e e s Estimates made by the I t r a i n l ily rvlr. nentoa Association of Convention Bureaus report t a tr d show v s t r spend the ht a e iios most money during v s t and st y t e longest period of t m . iis a h ie Table 1 1 Chicago Attendance a Conventions, Trade Shows, t and Corporate Meetings-1983-1990(est.) Conventions Attendance in Thousands Trade Shows Corporate Meetings 1983 445.9 1,472.0 815.3 1984 510.5 1,559.8 885.6 1985 483.7 1,596.2 868.7 1986 495.4 1,531.3 870.0 1987 505.3 1,528.8 860.3 1988 538.3 1,782.9 862.4 1989 503.8 1,769.3 841.1 1990(est.*) 550.0* 1,850.0* 870.0* Annual growth per year 1983-89 9.7 Source: Chicago Convention & Visitors Bureau Inc. 49.6 4.3 1 6 Air Cargo Facilities Air cargo i no l s important t economic development than passenger s r i e s es o evc. Recently, several a r cargo hubs have been developed with great success and i fanfare i medium-sized metro a e s The City of Memphis has expanded isa r n ra. t i f e d and become t e a r hub center f r Federal Express. Simil r y Louisville il h i o al, has invested many millions of d l a s i expanding is a r o t and ground olr n t ipr t a s o t i f a t u t r so as t r t i a la g United Parcel Service f c l t . The rnpr nrsrcue o ean re aiiy l t e i notable because many r s d n s neighborhoods, and businesses were atr s eiet, uprooted as t e cost of t e a r o t expansion. In t r , these metro areas have h h ipr un used t e a rcargo f c l t e a a magnet and marketing t o t a t a tr l t d and h i aiiis s ol o trc e a e connected i d s r . Air cargo expansion has recently peaked with the opening nuty of Fort Worth's Alliance A r o t Backers of t e p ipr. h roject are touting the a r i f c l t as t e f r tmajor a r o t exclusively serving i d s r a customers. aiiy h is ipr nutil Generally speaking, manufacturers choose t ship high-value low-weight o products by ar Many such products ar produced by the so-called high tech i. e i d s r e including computers, e e t o i components, semiconductors, and nutis lcrnc telecommunications equipment ( Table 1 ) The p ivate-public partnership see 2. r behind F . Worth's recent Alliance Airport venture has recognized t i high tech t hs a t a t o and r l t d area development includes t e Maguire Thomas-IBM trcin eae h corporate campus and a 250,000 square fo t Tandy Corp. manufacturing p a t o ln. High tech industry tends t concentrate i l r e metro areas such as Boston, Los o n ag Angeles, t e Bay Area, New York, and Chicago. The high qu l t of a r h aiy i service-both cargo and passenger service-hardly c n t t t s a s f i i n osiue ufcet condition f r these i d s r e . Numerous s u i s have revealed t a the o nutis tde ht availability o f sk illed labor, access to capital, quality of life , and access t o s m l r industry and specia i e business ser i e are also paramount. iia lzd vcs Nonetheless, a rcargo and passenger t a e are p and parcel of the complex of i rvl art f c o s t a make such i d s r e viable t e e I i equally t u t say t a such atr ht nutis hr. t s re o ht i d s r e cause a r o t growth as the other way around. nutis ipr But a b t e etr understanding i t recognize t a t e a r o t and high tech industry are mutually so ht h ipr dependent. Not only high tech products but al o many mundane high-value low-weight s products choose t ship by a r ( e Table 1 ) These include printed m t r a s o i se 3. aeil, footwear, and l a h rproducts. ete Many of t e heaviest users of domestic a rf e g tdisplay high concentrations of h i rih employment i the Chicago area as of 1986 ( e Table 12 and Figure 5 . These n se ) include medical instruments, communications equipment, instruments, p rinting Table 12 I d s r e Shipping Domestic Freight By Air 1983 nutis ( smeasured by percent o t n ) a f os Industry Footwear Medical Instruments Communications Equip. Instruments Leather Products Printing & Publishing Computer & Office Equip. Aircraft and Parts Greeting Cards General Ind. Mach. Footwear Cut Stock Motorcycles, Bicycles Manifold Bus. Forms Household AV Equip. Industrial Mach. Electronic & Elect. Equip. Photographic Equip. Drugs Electric Lighting Equip. Employment Percent Change 1976-86 Chicago U.S. Percent in U.S. bv Air Employment 26.0 20.7 15.1 13.6 10.1 9.8 9.7 8.7 7.0 6.3 5.9 4.7 4.3 4.2 4.0 3.5 3.3 3.2 3.0 .10 1.10 1.43 1.28 .37 1.48 .48 .05 1.13 1.65 .05 -84.1 -32.1 -3.1 -21.7 -57.8 4.4 -16.9 43.3 .30 1.13 1.22 1.21 1.26 1.16 -92.6 33.4 -84.1 -20.7 -18.8 -51.2 -11.1 11.2 Concentration Index 1986 1.69 2.28 -.3 5.5 n.a. -48.6 33.8 53.2 17.8 -45.1 34.1 60.3 40.8 38.1 -4.4 -36.1 -26.7 29.9 -36.4 -.5 25.2 -2.1 16.3 6.7 Source: U.S. Department o f Commerce, Bureau of Census, Commodity Transportation Survey. Fgr 5 iue Chicago area concentration of manufacturing industries shipping domestic freight by air C n e t a i nidx 1 8 o c n r t o ne, 9 6 00 . 05 . Fowa oter M d c le u p e t eia q i m n Cmuiain omnctos eupet qimn Isrmns ntuet L a h rp o u t ete rdcs Pitn a d rnig n pbihn ulsig Co p t ra d mue n ofc e u p e t fie q i m n Arrf a dp r s icat n a t Getn crs reig ad G n r lidsra e e a nutil mciey ahnr F o w a c ts o k o t e r u tc Mtryls oocce, bcce iyls Mnfl aiod bsns frs uies om Hueod oshl AV e u p e t qimn Idsra m c i e y nutil a h n r E etoi a d lcrnc n eetia e u p e t lcrcl q i m n Poorpi htgahc eupet qimn Dus rg Eeti lgtn lcrc ihig eupet qimn 10 . 15 . 20 . T 2 . Table 13 U Industry Exporting Abroad By Air 1988 and Chicago Area Employment 1986 .S. ( smeasured by percent ofshipment v l e a au) Industry Percent in U.S. bv Air Employment Concentration Index 1986 Elec, computer equip. Aircraft engines Office & computer mach. 84.7 84.4 82.4 .05 .08 .48 Measuring devices Drugs Instruments Musical instruments Watches & clocks 76.6 74.2 73.4 1.68 1.69 1.28 Switchgear Special ind. mach. Turbines Printing machinery Apparel Aircraft & parts Hand tools Food prod. mach. Printing Toys & sporting equip. 56.9 48.9 43.3 43.0 33.9 33.1 32.4 Metalworking mach. Textile machinery Pumps 63.4 57.4 26.9 26.7 26.3 26.2 25.9 25.0 Employment Percent Change 1976-86 Chicago U.S. 36.8 2.7 2.19 2.05 1.04 n.a. 2.56 .29 .05 1.22 -16.9 -6.0 -11.1 -21.7 -77.8 260.6 -17.1 -41.2 n.a. 19.3 -36.5 43.3 -18.3 2.59 1.48 1.30 18.5 4.4 -49.5 1.92 .12 -11.1 18.3 -55.6 1.55 1.09 Source: U.S. Department of Commerce, Bureau of Census, 87.8 36.8 60.3 21.8 16.3 17.8 -48.1 -52.5 -13.5 -9.5 -51.3 27.7 -18.2 40.8 -7.9 -14.5 34.1 -26.0 -4.3 -38.2 -16.9 1 7 and publishing, general i d s r a equipment and machinery, drugs and nutil pharmaceuticals, e e t o i equipment, and photographic equipment and lcrnc s p l e . Despite a general expansion of a r o t operations over the 1976-86 upis ipr pe i d however, these i d s r e have performed s m l r y t t e Chicago area’ ro, nutis iial o h s o e a l manufacturing b s . As measured by employment, th Chicago area’ vrl ae e s manufacturing job base has declined. Not s r r s n l , overseas shipments display an even g upiigy reater propensity f r a r o i t a s o t (s e Table 1 ) The most important of these i d s r e i the Chicago rnpr e 3. nutis n area include measuring devices, drugs, musical instruments, watches and c locks, switchgear, p i t n machinery, hand t o s food production machinery, rnig ol, metalworking machinery, and toys and sporting equipment ( Figure 6 . see ) Many service i d s r e are a s heavy users of a rcargo s r i e although these nutis lo i evc, i d s r e a e d f i u t t i e t f by standard c a s f c t o . The vast majority n u t i s r ifcl o d n i y lsiiain of i t r r g o a bank t a s c i n ( i paper check) continue t r l on a r ne-einl rnatos va o ey i se v c f r v r f c t o of t a s c i n . S m l r y i i not uncommon t find rie o eiiain rnatos iial, t s o claims processing and data entry by insurance companies and f n n i l iaca companies are shipped overseas by a r f e g t For example, New York Life i rih. ships many of isdomestic insurance claims t Ireland f rprocessing. t o o Ending Remarks A recent surge i a rt a e , spurred perhaps by th deregulation of th i d s r , n i rvl e e nuty has l f t e n t o ' a r t a f c system s r i i g a c p c t . For Chicago, the et h a i n s i r f i tann t aaiy question of s r i e capacity i not merely t a of passive i t r s as one of tand s ht neet s v r l key hubs on the nat o a wheels of t a s o t and commerce. Owing t eea inl rnpr o t e Chicago economy's sharp t a s t o away from o d l n manufacturing h rniin l-ie i d s r e , the r g o ' second and dual r l a a wholesaler, t a s o t r and nutis eins oe s rnpre, provider of s ecialized business s r ices has become more c u i l t is p ev rca o t economic v t l t . This r l maintains a high degree of dependency on much of iaiy oe is public i f a t u t r including is roads and bridges, is public t a s t is t nrsrcue t t rni, t meeting and entertainment f c l t e , is telecommunications a i i y and is aiiis t blt, t a r o tf c l t e . i p r aiiis With regard t a r o t i f a t u t r , t e Chicago a e ' policy makers face a o ipr nrsrcue h ras multitude of d f i u t d c s o s Air capacity i the Chicago area has been ifcl e i i n . n s r i e t a grea e degree than the nation while the capacity of the a r tand o tr i t a s o t system means more t t e Chicago a e ' economy than i does t most rnpr o h ras t o other metro a e s ra. Chicago must plan both long term and s o t A t i d a r o t w l ease capacity hr. hr ipr il c n t a n s i the f r f t r but many believe t a t i w l take up t 20 years t osrit n a uue h t hs i l o o Fgr 6 iue Chicago area concentration of manufacturing industries shipping foreign exports by air C n e t a i nidx 1 8 o c n r t o ne , 9 6 00 . 05 . 10 . Eetia lcrcl cmue eupet optr qimn Parity Arrf e g n s icat n i e Ofc a d fi e n cmue mciey optr ahnr M a u i gd v c s e s r n eie Dus rg Isrmns ntuet Mscl uia isrmns ntuet W t h a dc o k a c s n lcs Sicga wther S e i lidsra p c a nutil mciey ahnr T r i e not available ubns Pitn rnig mciey ahnr Aprl pae Arrfsa dp r s icat n a t Hand tos ol F o pouto o d rdcin mciey ahnr Pitn rnig Ty a d os n sotn e u p e t prig q i m n Mtlokn m c i e y eawrig a h n r Txiem c i e y etl a h n r Pumps ( e sc n e t a e Ls ocnrtd t a US) h n .. 15 . 20 . T (M r c n e t a e o e ocnrtd t a US) h n .. 25 . T 30 . " 1 1 8 achieve. Other metro areas such as th Denver area have recognized t a e ht e i t n a r o t f c l t e must be expanded even while ambitious new plans are x s i g i p r aiiis proceeding. In the near term, t e , th Chicago area must consider and evaluate hn e expansion a isexi t n a r i l s In a d t o , the choice must be made whether tt s i g ifed. diin t expand o via construction of new f c l t e versus pot n i l regulatory, aiiis eta economic, and technological solut o s t isex s i g but congested airways. As in o t itn always, t e process of p l t c l and s c a concensus w l be the most d f i u t h oiia oil il ifcl hurdle toward t i end. hs A Note on Economic Impact Economic impact has come t mean those expenditures, p y o l or income t a o arl, ht can be linked t exi t n or impending a r i l a t v t . "Economic impact" o sig ifed ciiy does not r a l t a s a e i t "economic b n f t " a a l (although impact i often ely rnlt no eeis t l s used interchangeably with " e e i s i s b n f t " n everal consulting r p r s . Important eot) d s i c i n are t made between these "impacts" and economic b n f t . itntos o eeis Generally, b n f t are only eeis those jobs and income that would not arise in anv other form and that do not accrue to outside residents. Yet, economic impact often includes the former along with bona fide economic b n f t . eeis Three types of economic impacts t a are i e t f e by v r u l y every a r o t ht dniid ital ipr suy td. Direct: These include jobs and expenditures made by a r t a e providers who i rvl are usually but not always located o - i e including a r i e , f e and equipment, nst ilns u l food s r i e concessions, government administrative agencies, maintenance, evc, and a r o to i p r perations. Indirect: These often include a t v t e r l t d t a rt a e e s and a rcargo. For ciiis e a e o i r v l r i example, ground t a s o t t o such a t x s and buses, a r cargo and a r f e g t rnprain s ai i i rih businesses, hotel/motel employees, entertainment and r s a r n s convention etuat, f c l t workers, and sometimes the a t v t e of p i aiiy ciiis r vate businesses i booking n a rt a e f r t e remployees or i preparing t e rproducts f r shipment by ar i rvl o hi n hi o i. Induced: These are th so-ca l d " u t p i r e f c s t a are assumed t a i e e le mlile" fet ht o rs when the payroll of l c l employees ( s enumerated i " n i e t and " i e t ) oa a n idrc" drc" proceed t spend t e r earnings l c l y on goods and s r i e . This additional o hi oal evcs spending percolates through the l c l economy, giving r s t additional jobs oa ie o and income, u t lthe spending pe e s out through "leakages" outside the r ni tr egion. In considering a l of the above as b n f t , some problems are generic t a l l eeis o l t r e To begin, the i p i i assumption of these s u i s i t a the a r o t he. mlct tde s ht iprr l t djobs are net additions t th r g o ' job s o k C r a eae o e eins t c . e t inly, t i cannot be hs 1 9 the c s . I a freely-functioning market economy, th r are almost always ae n ee s b t t t s a a l b e Needless t s y a modem, healthy metro area would be usiue vial. o a, d f c e t without la g sc l and accessible a r t a s o t t o . However, t eiin re ae i rnprain o consider a l a r t a e jobs as net gains i t say t a , i a scenario without the l i rvl s o ht n a r o t ( r without the a r o t expansion), the demand f r transp r a i n would ipr o ipr o otto not be p r l f l i l d by a t r a i e means. S a t y ufle lentv urely, i would not be d f i u t t t ifcl o imagine t a , i t e absence of a r t a e f c l t e , t a n and bus s a i n would ht n h i r v l aiiis r i ttos be l r e i only t s u t e passengers t nearby s b t t t a r f c l t e . agr f o htl o u s i u e i aiiis S m l r y employment i trucking would r s , i only t s u t e high value cargo iial, n ie f o htl t nearby a r cargo or r i f c l t e . And i i important t point out t a any o i al aiiis t s o ht downward revision t d r c and i d r c "job creation” would correspondingly o iet niet reduce any "induced" jobs or income a i i g from m l i l e impacts on the rsn utpir l c l economy. oa I a d t o , t e e are o f e t n f rces mitigating t e estimates of ac u l reduced n diin hr fstig o h ta a r t a e convenience t a would emerge i those instances when the choice i i rvl ht n s made not t expand e i t n a r o t i f a t u t r . Rising congestion a e i t n o xs i g ipr nrsrcue t xsig a r t a e f c l t e would lead t a r s i th l c l price f r a r t a e . I s , i r v l aiiis o ie n e o a o i rvl f o o i inating passengers would d s r l s t a e and they would purchase rg ei e es rvl a t r a i e goods from l c l businesses, thereby r i i g some o f e t n lentv oa asn fstig employment l s e . And f r many e i t n a r f c l t e , high congestion of oss o x s i g i aiiis limited f c l t e would f n l y induce l c l o f c a s t impose more r t o a aiiis ial o a fiil o ainl pricing p l c e on t e use of a r o t gates and runways. Market-based pricing oiis h ipr of gates and runways would induce a r i e t schedule those f i h s with f l e ilns o lgt ulr loads and t r - o t less-used o e a i n . Moreover, the pra t c of charging o erue prtos cie higher operations f e during peak t a e hours would induce a r i e and es rvl ilns t a e e s t take some t i s during l s congested hours, thereby rel e i g delays rvlr o rp es ivn and expanding c p c t . More g n r l y the higher priced a r t a e associated aaiy eeal, i rvl with congestion, and higher pri e f r attendant a r o t gates and d p rtures, cs o ipr ea would force out ( r force elsewhere) l s e valued or l s p o i a l a r o esr es r f t b e i operations including (perhaps) near-empty commercial planes and general a i tion operations such as private/corporate f i h s This would lessen th va lgt. e harmful economic impacts of congestion. Congestion c osts would be diminished by eliminating lesser-valued f i h s and by t u y maximizing the capacity of lgt rl e i t n ifatutr. x s i g nrsrcue Even when net new jobs a t a l do materialize within t e l c l area as a r s l culy h oa eut of a r o t construction or expanded a r o t opera i n , these jobs should be ipr ipr tos c r f l y s r t n z d One should be c r f l not t believe t a each job t a aeul cuiie. aeu o ht ht materializes w l be f l e by e i t n r s d n s Because many jobs are highly il ild xsig eiet. s e i l z d esp c a l those t a pay w l ,jobs created w l often be f l e by i pcaie, eily ht el il ild n migrants t t e r g o . Jobs r l t d t the construction phase may be e p cially o h ein eae o se 20 ephemeral. Contractors often come from outside t e l c l a e . Moreover, h oa ra construction pro e t are often conceived by p l t c l leaders as a jcs oiia countercyclical jobs program when th l c l labor market i slack and e oa s unemployment i hi h However, i many c s s the l c l area labor market has s g. n ae, oa recovered by t e time construction commences so t a jobs are merely s i t d h ht hfe among p t n i l pr j c s r t e than "created".^ oeta oet ahr This i not t say t a such growth i detr m n a . For one reason, a higher s o ht s ietl demand f r labor w l tend t lf wages throughout the affected labor markets. o il o it So, t o even i jobs are u o, f ltimately taken by in-migrants, we can believe t a the ht second-round or induced jobs may, i many i s a c s give r s t jobs f r l c l n ntne, ie o o oa r s d n s Overall caution should be used, however, i counting jobs where eiet. n labor markets are already t g t and unemployment i low. For such regions, ih s both d r c and induced jobs w l tend t be f l e from outside so t a the idea iet il o ild ht t a such jobs are net b n f t should be discounted.^ ht eeis Footnotes ^ There i a s b t n i l body of st d e r l t d t th r l t o between gross s usata uis eae o e eain employment increases and net increases associated with public works p o e t . rjcs For a review, see Federal Reserve Bank of Chicago, High Midwest: A n Economic Analysis,1984, (Chapter 5 . ) Speed Rail in the A recent study of regional labor markets i d c t s t a l c l area unemployment can be longer-lived than n iae ht oa previously believed so t a p t n i l job c e tion has now become more ht o e t a ra c e i l . See Timothy J B r i , "The Effects of Demand Shocks on Local rdbe . atk Labor Markets", W.E. Upjohn I s i u e f r Employment Research, Kalamazoo, nttt o MI, 1990. ^See M. Ross Boyle, "Corporate Headquarters: An Elusive Economic Development Target", Economic Development Commentary ,Volume 1 , No. 4 3 , Winter 1990, pg. 3 . 0 3As c t d i Airport ie n Growth: Creating N e w Economic Opportunities,National Council f rUrban Economic Development, December 1989, p 3 . o . 2 Critiques of 1-0 models a s say t a t e models must assume constant r lo ht h eturns t s a e production technology and t a t i assumption should be tr a e with o cl h t hs etd harsh skepticism. However, I r i e i h (1990) has recently demonstrated t a salvc ht t i assumption i not n cessarily implied by the 1-0 framework. hs s e ^For a discussion see Roger Vaughn, Public Works as a Countercyclical Device: A Review of the Issues, The Rand Corp., Santa Monica C l , 1976. a. 21 ^Ibid, High Speed Rail in the Midwest. References Baer, Herbert, William A. 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