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R EG IO N AL EC O N O M IC ISSUES W o rkin g P a p e r S e rie s M a n u f a c t u r i n g 's C h a n g e o v e r to S e r v i c e s in th e G r e a t L a k e s E c o n o m y William A. Testa FEDERAL RESERVE B A N K O F C H IC A G O WP- 1989/21 Manufacturing's Changeover to Services in the Great Lakes Economy William A. Testa* The much-ballyhooed economic shift from manufacturing to services raises many important questions, not the least of which concerns our understanding of the nation’s economic structure. Is "what is good for General Bullmoose" still “good for the U.S.A.”? Are we still tied to manufacturing? The latter question is especially relevant to the Great Lakes economy because of its strong historical dependence on manufacturing as its economic base. In earlier years, it was possible to monitor the Great Lakes economic performance as an outgrowth of its manufacturing sector. Now, this understanding of the region's economic structure has come under scrutiny as the region's growth in manufacturing output has trailed total regional product, and as manufacturing’s employment share has plummeted (Tables 1-2). This paper provides information to show that, although manufacturing’s role has diminished, the manufacturing sector retains a critical role as the engine of the Great Lakes economy. When compared to the U.S., the manufacturing sector remains highly concentrated in the region. Moreover, in viewing the manufacturing industry alone, the importance of manufacturing to the Great Lakes economy is shown to be understated. Much of what used to be regarded as manufacturing in the Great Lakes region can now be found under the guise of the service sector. While the manufacturing sector has lost ground to the service sector, this can be partly explained by the service sector taking over some of the work of manufacturing companies. For this reason, the region's economic ties to manufacturing, as broadly defined to include services purchased by manufacturing companies, are shown to remain very strong. Measuring a Region's Orientation to an Industry In assessing whether the national economy is changing its orientation to manufacturing-whether the economy is deindustrializing or reindustrializingother studies have deflated manufacturing and other industry output so *The author gratefully acknowledges the research assistance of Michele L. Edwards who was provided by the Ameritech fellowship program. F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 1 as to look at shares of ’’real" product by industry. Such an approach is appropriate for large national economies wherein a large portion of what is produced by the nation is also consumed. If so, a constant share of real industry output, e.g. manufacturing, reflects the fact that the nation maintains its standard of living in producing and, ultimately, consuming goods from the industry sector. T a b le 1 Manufacturing employment Great Lakes U.S. (---------thousands ------- ) Manufacturing/ total employment Great Lakes U.S. (----- percent ---- ) Concentration index; Great Lakes vs. United States 1969 5,953 20,531 29.1 22.9 1.27 1970 5,633 19,677 27.7 21.9 1.26 1971 5,383 18,851 26.6 20.9 1.27 1972 5,506 19,344 26.5 20.9 1.27 1973 5,871 20,414 27.1 21.1 1.29 1974 5,813 20,402 26.5 20.7 1.28 1975 5,209 18,660 24.3 19.2 1.27 1976 5,403 19,375 24.6 19.4 1.27 1977 5,625 20,094 24.8 19.4 1.27 1978 5,835 20,964 24.8 19.4 1.28 1979 5,850 21,490 24.3 19.3 1.26 1980 5,338 20,776 22.8 18.5 1.23 1981 5,213 20,643 22.4 18.2 1.23 1982 4,717 19,254 20.9 17.1 1.22 1983 4,593 18,899 20.3 16.6 1.22 1984 4,885 19,850 20.7 16.6 1.24 1985 4,879 19,768 20.1 16.0 1.25 1986 4,817 19,479 19.4 15.4 1.25 Note: The Great Lakes region is herein defined by the states of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin. Source: U.S. Dept, of Commerce, Bureau of Economic Analysis. However, in assessing the importance of an industry sector to a smaller geographic area, such as a state or region, it is income accruing from the industry sector which more often reflects an industry’s importance to the F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 2 region. The industry in question as the region’s economic engine, be it manufacturing or agriculture or mining, must generate sufficient income for its residents to maintain the area's population and/or standard of living. This is so regardless of real output produced by the sector. For example, the State of Illinois may have increased soybean production by ten-fold in comparison to 20 years ago when measured by a real quantity such as bushels. But ifthe price of soybeans has fallen one hundred fold, the industry's importance in supporting jobs and income in the state will have fallen. T a b le 2 M an u fa c tu rin g and to ta l o u tp u t in T h e G re a t Lakes an d U .S .-1 9 6 3 and 1986 Manufacturing output_______ Total output_______ Great Lakes U.S. Great Lakes U.S. — ) (-------------— $ billion 1982=100)- Mfg./Total output Great Lakes U.S. 1963 130 397 416 1,863 31.3 21.3 1969 174 537 530 2,395 32.8 22.4 1979 208 697 644 3,138 32.3 22.2 1980 186 665 612 3,111 30.4 21.4 1981 183 676 612 3,166 29.9 21.4 1982 163 635 582 3,104 28.0 20.5 1983 173 675 596 3,205 29.0 21.1 1984 199 758 645 3,433 30.9 22.1 1985 208 790 669 3,569 31.1 22.1 1986 213 812 691 3,681 30.8 22.1 Source: U.S. Dept, of Commerce, Bureau of Economic Analysis, Gross State Product Estimates. Direct Earnings From Manufacturing One way of measuring the region's ties to the manufacturing sector, then, is to look at labor earnings paid out to the region's residents by manufacturing firms. These earnings, which accrue from both proprietor’s income and from the wages and salaries of employees, indicate the current share of income flowing into the pockets of the region's residents from manufacturing as opposed to other industry sectors. F R B C H IC A G O W orking P a p e r O ctober 1989,W P -1989-21 3 As recently as 1967, 38 percent of the region's earnings derived from manufacturing in comparison to 29 percent for the overall nation, the same as 1947 (See Table 3). By 1987, however, manufacturing's share of labor income had dropped precipitously in both the Great Lakes region and the U.S. Nationally, manufacturing accounted for only 20 percent of labor income by 1987. In the Great Lakes region, the share had fallen from 38 percent, down to 29 percent of labor income. Table 3 Labor and proprietor's Income In manufacturing as a share of total labor earnings 1947 1957 / 1967 1977 \/ nprr'f'nt---pwl UOIII - - \ 1987 Illinois 34.7 35.7 33.3 30.0 20.9 Indiana 38.7 43.1 42.3 41.1 33.3 Michigan 46.0 46.4 44.2 43.6 35.7 Minnesota 18.8 23.7 25.3 23.8 22.9 Ohio 41.9 44.2 41.5 39.0 31.0 Wisconsin 35.7 39.3 37.2 35.1 29.9 Great Lakes* (5) 39.5 41.5 39.3 37.3 29.2 Great Lakes (6) 37.9 40.2 38.2 36.2 28.6 Rest of U.S. 25.0 27.8 26.4 23.3 18.5 U.S. 28.2 30.9 29.1 26.2 20.4 'excludes Minnesota. Source: U.S. Dept, of Commerce, Bureau of Economic Analysis. In absolute terms, then, the manufacturing industry has been shrinking as a source of earnings for the region. Relative to the nation, however, the region remains specialized in manufacturing. The implication is that manufacturing fortunes continue to have a magnified impact on the household income of Great Lakes residents in comparison to the nation. F R B C H IC A G O W orking P a p e r O ctober 1 9 8 9 ,W P-1989-21 4 The Hidden Manufacturing Sector In tracking the manufacturing sector’s contribution to regional income, one must consider that the activities involved in manufacturing can move from one industry sector to another as the underlying economics dictate. In fact, the boundaries of the set of activities which we call "manufacturing" are fluid and not fixed. For example, a steel-producing company may shed its maintenance workforce and contract out or "outsource" maintenance work to a service sector company. Accordingly, an activity which was formerly counted as manufacturing output could now be counted under the service sector even though, perhaps, die physical amount of steel produced by the economy has remained the same. Recently, the U.S. industrial companies have been rapidly changing through takeovers, mergers, and internal restructuring as U.S. companies have divested and recombined activities under new corporate umbrellas. One motivation behind this broad movement has been the desire to "unbundle" inhouse support services such as clerical, data processing, maintenance, and strategic planning.1 In the process of producing manufactured goods, industrial manufacturing companies produce and/or purchase important services whose value becomes embodied into the final value of the manufactured goods. These business service sectors include computer and data processing, telecommunications, temporary office help, accounting, finance, insurance, real estate, wholesaling, advertising, and managerial consulting. In order to boost productivity and to trim costs, companies have increasingly chosen to purchase support services from outside firms rather than continue to generate the services within the company. In Table 4 we examine the inputs purchased from major service sectors by key manufacturing sectors in the Great Lakes economy. Generally speaking, most industries have significantly increased their purchases of service inputs when measured against their own overall activity. These industries include food processing, printing, chemicals and drugs, and communications equipment. However, other industry notables such as farm and garden machinery and engines and turbines report the opposite effect. F R B C H IC A G O W orking P a p e r O ctober 1989, WP-1989-21 5 Table 4 Purchased services by selected manufacturing industries according to the 1963 and 1983 U.S. Input-Output Tables Industry Ratio of purchased services to value added Ratio of purchases from SIC 73 to value added 1963 1963 1983 1983 Great Lakes employment Great Lakes index of concentration relative to U.S. 1986 1986 (000's) Food and kindred products .42 .48 .11 .14 291,626 1.07 Printing and publishing .29 .35 .06 .13 326,467 1.16 Chemicals and selected chemical products .23 .53 .05 .13 60,225 .89 Drugs, cleaning and toilet preparations .52 .59 .35 .37 70,985 1.24 Primary iron and steel manufacturing .25 .27 .03 .04 192,695 2.41 Engines and turbines .17 .14 .04 .03 47,795 2.62 Farm and garden machinery .30 .18 .08 .03 32,175 1.92 Construction machinery .20 .17 .03 .04 71,110 1.68 Metalworking machinery .15 .12 .03 .04 140,111 2.67 Electrical industrial equipment and apparatus .16 .20 .03 .04 89,904 1.72 Radio, T.V., and communication equipment .17 .53 .05 .15 91,939 .65 Motor vehicles and equipment .19 .20 .04 .06 303,369 2.08 Note: The services purchased are from the following sectors: transportation and warehousing, communications, radio and T.V. broadcasting, real estate and rental, finance and insurance, and business services. The SIC 73 industry is defined as business services--e.g. data processing, advertising, window washing. Source: Bureau of Economic Analysis, Survey of Current Business, and Bureau of the Census, County Business Patterns. F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 6 Although experiences were mixed among individual industries, the aggregate trend toward greater use of purchased services can be illustrated for the manufacturing sector by comparing "services purchased by manufacturing" from the 1963 and the 1983 Input-Output Table o f the United States (BEA). Therein, the ratio of purchased services to the activity of manufacturing companies increased from 25 percent to 32 percent over the 1963-83 period (Table 5). T a b le 5 Services purchased by all manufacturing industries Services as a percent of value added in manufacturing Purchased from_______________ ______________ 1963_____________________1983________________ Transportation and warehousing 6.0 7.2 Communications (except radio and T.V.) 1.1 1.2 Wholesale and retail trade 8.1 9.6 Finance and insurance 1.5 2.0 Real estate and rental 2.4 2.3 Business services 6.2 9.8 25.4 32.0 Total Source: U.S. Dept, of Commerce, Bureau of Economic Analysis, “Input-Output Tables of the U.S.” Another way of viewing the increasing importance of the service sector to manufacturing involves the manufacturing value added data that are produced by the Bureau of the Census. The Bureau's method in computing value added is somewhat peculiar because it includes, not only the manufacturing company's contribution to the value of products, but also the value of intermediate services purchased by the company. This peculiarity is useful for our purposes because a parallel "value added" (called "gross product originating") is concurrendy produced by the BEA and itdoes not include the value of purchased services. With some minor adjustments, we can estimate the value of services purchased by manufactures by taking the simple difference between Census value added for the nation and the BEA's estimate of manufacturing activity.2 As a reference point, we present purchased services as a share of total activity, both manufacturing and purchased services, i.e., Census value added in manufacturing. In doing so, it is seen F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 that these services would have comprised less than 10 percent of manufacturing value added in 1957 (Figure 1). By 1977, this figure had climbed to over 18 percent By 1987, the last reported year, purchased services were estimated to occupy 25 percent of overall manufacturing activity.3 Figure 1 Purchased services by manufacturers percent of value added At the same time that purchased services are expanding, service-type activities are also becoming an increasingly important component of the value of manufactured goods within the firm itself. One recent study reports that the payroll share of auxiliary establishments of manufacturing firms, i.e., corporate headquarters, R & D labs, data processing centers etc., increased from 6 percent in 1958 to almost 11 percent in 1986 (Israilevich and Testa 1989). In part, this phenomenon has much to do with the changing and sophisticated nature of today's products and services. As one effect, many physical products are jointly consumed by final customers in conjunction with services provided by manufacturing companies such as user training and product repair. As another effect, many more of today's manufacturing employees support the manufacturing process through advertising, product F R B C H IC A G O W orking P ap er O ctober 1989, WP-1989-21 8 design and research, and corporate planning. Still others are involved in product sales and distribution. The overall effect can best be illustrated by citing a concrete example. Xerox Corp. is reported as a manufacturing company. Yet, only one of seven of its employees are actually engaged in the activity of "manufacturing" or physical assembly of itsproducts. Manufacturing Found The upshot of the increasing service orientation of manufacturing companies and the "unbundling” of many service activities from manufacturing companies is that a growing segment of the Great Lakes economy has moved into the service sector which would have formerly been recognized as manufacturing. Consequently, by attributing these activities to the service sector, we are understating manufacturing's contribution to both the national and regional economy. Accordingly, it would be helpful if we could consistently measure, using a stable definition, a larger or "manufacturing-augmented" sector over time so as to comprehend any real changes to the region's economic base. In particular, services purchased locally by manufacturers are conceptually equivalent to manufacturing in being part of the region’s traded goods sector or "economic base". If a local service becomes embodied into the value of a manufactured good and that good is ultimately exported from the region, then the value of the service is concurrently exported. Accordingly, we define the manufacturing sector broadly to include these "purchased services" of manufacturers. In doing so, the movement of these services between the manufacturing and service industry sectors will not affect our reckoning of the region's economic structure and base. In considering this augmented manufacturing sector which includes purchased services, a far different picture of the importance of manufacturing to the region emerges (Table 6). For the portion of the United States excluding the Great Lakes, the decline in the share of manufacturing earnings is muted (in percentage change terms) by the inclusion of purchased services, although it has still declined, from 32.4 to 24.4 over the past 24 years. This result arises from the growing role of services which was illustrated in Figure 1. Many of these related services are being outsourced to parts of the service sector. In the Great Lakes region, the role of manufacturing as a stable source of regional income is also pronounced. When services purchased by Great F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 9 Lakes manufacturers are included with the manufacturing sector proper, labor income derived from this sector amounted to 36.8 percent in 1987. Moreover, the region's concentration in manufacturing relative to the nation continued to exceed the nation by over 50 percent.4 Table 6 Manufacturing and augmented manufacturing sector earnings (Including purchased services) as a percent of total earnings Manufacturing sector earninqs/total earnings 1963____________ 1983_____________1987 Great Lakes Region 38.5 32.3 28.6 Rest of U.S. 26.5 21.8 18.5 Index (G.L./U.S.) 1.45 1.48 1.55 G.L. share of U.S. (percent) 29.3 23.8 20.4 Augmented manufacturing sector earnings/total earnings 1963 1983 1987 Great Lakes Region 47.7 41.7 36.8 Rest of U.S. 32.4 28.7 24.4 Index (G.L./U.S.) 1.47 1.45 1.51 G.L. share of U.S. (percent) 36.4 31.2 26.7 Source: U.S. Department of Commerce, Bureau of Economic Analysis; and staff estimates. As a word of caution, however, these estimates are dependent on a number of crude assumptions, not the least of which is that the region retains a share of manufacturing-supporting activities in its service sector that is proportionate or larger to its manufacturing sector proper. This could mean that services purchased by Great Lakes manufacturing companies are purchased locally and not from outside the region. Alternatively, service exports by the region's service sectors to outside manufacturers are sufficient to offset any "leakages”, i.e., services purchased by Great Lakes manufacturers from outside the region. F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 10 Location of Purchased Services: How Does the Region Fare? There isa wide geographic range over which services are traded. This implies that services purchased by manufacturers cannot be thoughtlessly assigned to the same location as the manufacturing companies themselves. It is now being recognized that, similar to traded goods, services are increasingly "exported" across regional boundaries. Two examples among many of the wide-ranging export of services can be cited from the North American continent alone (Daniels 1984). In the United States, a recent survey of 2000 firms in the Puget Sound area found that approximately 34 percent of service production was sold outside the region. Over 1100 firms drawn from the transport services, FIRE, business and professional services, and utilities and communications reported that over 10 percent of their sales were made to the outside (Beyers, Alvine, and Johnson 1985). And across our northern border in Canada, data collected from more than 400 establishments in mining, manufacturing, retailing, wholesaling, retail trade, and business services, show that only 44 percent of the flow of expenditure on business services originated within the home region consisting of the townships of eastern Quebec Province (Polese 1982). The causes behind a reported expansion of business services tell us something of the spatial implications of service location and the region-to-region direction of service flows. While the causes behind the trend toward servicerelated manufacturing are not completely understood, several reasons have been advanced. J.I. Gershuny has pushed the thesis that economies have moved toward being "self service" economies over the course of the 20th century. Much of the underlying growth in services employment overlies a transition from personal service employment to substitution of manufactured products which are operated by the consumer (1978; 1983). These products include home appliances, television, and cars. However, these products must be supported (i.e. jointly consumed) by a growing mass and variety of business service functions. Accordingly, labor has become increasingly employed in complementary functions to manufacturing such as education and training in the use of products, research and design, sales and service, packaging and distribution, and the repair of manufactured goods. This expansion of manufacturing-related service activity can be partly seen from the general expansion of business service employment. The business services sector, SIC 73, which includes such activities as computer F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 11 programming, data processing, temporary help agencies, and maintenance firms, almost doubled in employment from 1976 to 1986 in the U.S. (Table 7). Robust growth was also recorded for the closely related categories of legal services and finance, insurance and real estate. Table 7 U.S. employment in business-type services Percent of total U.S. employment 1976 1986 Change in jobs 1976-1986 Percent change 1976-1986 (000's) Transportation and communications 4.6 4.3 670.5 23.2 Wholesale trade 6.8 6.5 1,191.9 28.1 Fire, insurance, and real estate 6.9 7.4 1,872.9 43.3 Business services 6.1 9.0 3,697.1 96.7 .6 .9 382.5 105.3 25.0 28.1 7,814.8 50.0 Legal Total business services Source: U.S. Dept, of Commerce, Bureau of Economic Census, County Business Patterns. There has also been a significant tendency toward the vertical disintegration of manufacturing firms and the need to contract out service functions. The economics of specialization and division of labor has evolved into a situation in which manufacturing companies themselves are contracting out an increasing volume and proportion of related service activity. Service activities that were formerly performed by manufacturers are now performed by service companies. In summarizing the literature to this effect, P.W. Daniels states: "The ability of organizations to create their output by employing the appropriate specialist staff in-house has decreased as occupational skills and knowledge, especially in information and technologyrelated activities, have become highly specific and therefore expensive to retain. It is now becoming more cost-effective, even in large enterprises, to buy in services if only because those providing them are, through their continuing and diverse experience with the specialization, able to provide the most up-to-date and comprehensive service."5 This phenomenon is not universally true for all functions. Certainly, the advent of the personal F R B C H IC A G O W orking P a p e r O ctober 1989.W P -1989-21 12 computer has led to adoption of services "in house" for many firms (J.N. Marshall 1989). Nonetheless, most studies suggest the opposite on net. For example, Rajan and Pearson estimate that out of 700,000 jobs created in distribution, finance, and business services in the U.K between 1979 and 1985, perhaps 300,000 arose from contracting out by non-specialist producers (1986). Still another explanation for the service-growth phenomena is offered (for the U.S. economy) by Jane Sneddon Little (1989). In part, the U.S. manufacturing evolution toward service orientation derives from the dollar's 50 percent appreciation between late 1979 and 1985. As a result, employment reportedly shifted from the industries most susceptible to foreign competition to those which were less vulnerable. The latter industries include serviceoriented manufacturing industries specializing in research, design, and customer service. As a consequence, Little reports the number of nonproduction workers in manufacturing to have risen by 615,000 in the U.S. from 1979 to 1985 while production workers fellby 2 million. These changes were not subsequently reversed with the dollar's depreciation. Rather, the structural changes have become embedded in the U.S. economy. Urban Business Service Hubs The spatial and geographic implications of these trends on regional growth and development are beginning to emerge. These business service functions exhibit an agglomerative or synergistic tendency to locate in proximity to one another in large urban areas. Face-to-face contact continues to be important for many producer service functions, including those with client relationships. In addition, the attraction of a diverse and highly skilled labor pool, highly developed transport, and communication facilities also contributes to mutual siting of such functions. Highly-concentrationed business-service activity in particular urban areas accordingly flows outward in an urban-hierarchy to smaller metro areas in exchange for manufactured and other goods. Within the urban hierarchy, i.e.,the system of citiesby size class, opinions are widely shared that many of the largest metro areas have benefitted from the specialization and expansion of business services. Evidence to this effect can be found in the 1980s turn-around in urban-rural growth of the U.S. in the 1970s. Vertical disintegration and continued specialization of service functions require close proximity of these varied functions to each other. For this reason, Stanback and Noyelle believe that the expansion of producer F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 13 services is strengthening the position of the many of the larger cities in the hierarchy. Rather than harboring manufacturing functions, successful cities are those which can support a myriad of functions including producer services, financial and legal specialists, corporate headquarters and divisional offices, professional and trade organizations and other highly specialized support functions (1980; 1982). However, not all service functions have experienced a sharpened locational advantage in urbanized areas. Advances in telecommunications have allowed data processing operations such as credit card processing and airline reservations to be outsourced to rural or less urban locales where labor costs are lower. Interregional Specialization The inter-regional implications of this business service specialization are relevant in assigning manufacturing support services to particular states and regions. Across U.S. regions, these trends suggest that service flows will, if anything, tend to originate in the regions hosting business service firms and the corporate headquarters offices of manufacturers and flow toward those peripheral regions that are specialized in branch production plants. Evidence from the U.K suggests that services provided internally by the manufacturing firm are largely concentrated ator near corporate headquarterstype facilities of industrial companies. These services are either produced by the corporate facilities themselves or else purchased from nearby service producers and exported from head offices to branch locations (Marshall 1977). For example, Crum and Gudgin have found that branch plants in the U.K. have a greater tendency to maintain organizational service linkages rather than local service linkages the farther they are from London (1977). So, too, Burrows and Town report that branches are more likely to purchase services such as banking, insurance, accounting and legal services from outside the area (1971). Such tendencies have also become evident in studies of organizational changes. In a study of corporate takeovers occurring in the food, chemicals, textiles, and clothing industries in the U.K., Lee and North found that, in studying takeovers and mergers, local service linkages were severed and substituted with both internal services and service arrangements with service firms that were located in proximity to the new, aggressor company (1978) (see also Smith 1979). F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 14 However, while the bulk of the evidence suggests that a high concentration of corporate headquarters offices and other ancillary establishments to the manufacturing firm is indicative of both internal and external service flows to peripheral or "branch plant" regions, this connection cannot be made with certainty. Headquarters also rely on the purchase of specialized computer, financial, and trade services which may be purchased from outside the region. And certain internal services have displayed a decentralization tendency in the direction of branch plants. For example, in a recent study of the automotive industry in the U.K., Marshall reports that product distribution functions are being decentralized to peripheral locations which enjoy easier access to market (1989). But despite these caveats, the best working assumption in tracking the interregional flow of services related to manufacturing across U.S regions is that services purchased by manufacturers flow away from headquarters-type facilities and toward production branches. Accordingly, those regions with ample shares of corporate headquarters and other specialized service establishments of manufacturing companies are also likely to retain their respective share of services that are directly purchased by manufacturers from service firms. Manufacturing auxiliaries in the Great Lakes region The Great Lakes region has managed to hold onto its pre-eminent share of auxiliary activities over the past three decades (Table 8). The Great Lakes' share of the nation’s payroll for auxiliary manufacturing establishments has held constant at 31-32 percent of the nation. This is surprising in light of the fact that the region's share of total payroll has concurrently slipped to 27 percent and payroll at nonauxiliary establishments slipped to 26 percent. In 1958, the region's economy was no more specialized in these auxiliary service activities than the nation. Since then, the Great Lakes region has climbed to a relative specialization in auxiliary activity which was approximately 19 percent greater than the nation in 1986 (as measured by C M payroll data). Increasingly, then, the region has become more specialized in these servicetype activities that are generated by manufacturing companies themselves. F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 15 Nor has the region's increasing specialization in auxiliary activity occurred solely because manufacturing production plant activity has migrated to other regions, leaving behind an isolated and dwindling corporate headquarters presence. The auxiliary establishment base has grown in absolute terms. While the region lost over 500,000 jobs in overall manufacturing between 1976 and 1986, manufacturing employment at auxiliary establishments is estimated to have increased by over 33,000 according to County Business Patterns (Table 9). As a result, employment at auxiliary establishments increased from 42 percent above the nation in 1976 to 62 percent by 1986. Table 8 Great Lakes shares of auxiliary and nonauxiliary payroll ____________________Great Lakes share of U.S. manufacturing Total payroll___________________ Auxiliary payroll_______________ Nonauxiliary payroll 1958 30.7 31.0 30.7 1963 30.7 32.3 30.6 1967 30.7 32.8 30.6 1972 30.9 33.0 30.7 1977 30.9 34.8 30.6 1982 25.2 32.5 24.4 1986 26.9 31.9 26.3 Concentration index of auxiliary payroll-Great Lakes versus U.S. Illinois 1958 1.01 Indiana .29 Michigan 1.84 Minnesota Ohio Wisconsin Great Lakes 1.19 .79 .55 1.01 1963 1.07 .34 1.74 1.25 .87 .63 1.05 1967 1.05 .27 1.73 1.62 .90 .70 1.07 1972 1.09 .32 1.61 1.54 1.00 .55 1.07 1977 1.28 .35 1.57 1.80 .95 .69 1.13 1982 1.59 .31 1.74 1.67 1.23 .82 1.29 1986 1.40 .33 1.42 1.82 1.14 .80 1.19 Source: U.S. Dept, of Commerce, Census of Manufactures. F R B C H IC A G O W orking P a p e r O ctober 1989, WP-1989-21 16 Table 9 Employment concentration in selected business service industries-Great Lakes Region Manufacturing auxiliaries Other industry auxiliaries Motor freight-transport and warehousing Water transportation Transportation by air Transportation services Communications Wholesale trade-durable goods Wholesale trade-nondurable goods Depository institutions (SIC 60 & 61) Securities and commodities brokers Insurance (SIC 63 & 64) Real estate Real estate and combined Holding & other investment offices Business services -advertising -mailing, reproduction, art and photo -services to buildings -computer programming & software -computer-related services NEC -research and development labs -management and public relations Legal services Membership organizations Engineering and architectural service Noncommercial research organizations Accounting, auditing, bookkeeping Total (all above services) Index of concentration versus U.S. 1976 1986 G.L. employment 1986 Change in employment 1976-1986 (000's) (000‘s) 406.5 336.1 33.3 106.0 17.4 1.42 .92 1.07 1.62 93 1.08 .6 27.0 23.5 -9.4 98.8 62.8 94.6 29.1 81.1 24.4 -1.4 .24 .61 .76 .80 .98 .86 .89 .69 .97 .80 .69 -5.6 408.6 12.2 23.5 36.6 19.8 7.4 5.0 57.3 53.9 107.5 39.4 -1.5 30.9 1,221.1 1.19 .85 1.04 1.01 .76 .71 .56 .89 .82 .82 1.07 .78 .46 .93 .93 .32 .73 .81 .78 1.00 .95 .90 .76 1.05 .72 .65 .86 274.1 10.4 72.9 47.7 190.8 626.7 408.1 429.7 55.8 390.5 170.3 3.1 35.1 808.7 38.4 44.3 101.2 27.4 9.1 19.5 97.2 120.1 362.7 99.1 4.7 76.2 4,922.4 .90 1.06 1.15 .82 .63 .69 .68 .89 .83 1.10 .72 .34 .91 .95 Source: Bureau of Economic Analysis, County Business Patterns. F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 17 Other business service categories are generally less concentrated in the region than in the U.S., though this reflects a high employment concentration in manufacturing rather than weakness in service industry per se (Table 9). In addition, auxiliaries of nonmanufacturing industry sectors are less concentrated here, although the Great Lakes region has gained slightly on the U.S. in this regard. And overall, business services increased in concentration in the Great Lakes region over the 1976-86 period. Of course, unlike manufacturing auxiliary employment, these business services serve nonmanufacturing industries as well as manufacturing. Accordingly, trends in these business service categories alone do not necessarily reflect any increasing tendency in backward linkages,from manufacturing companies to service firms over the 1976 to 1986 period. The fact that the region hosts a significantly larger share of its manufacturing activity in auxiliary activity than the nation suggests that the region is a net exporter rather than a net importer of inter-regional service flows between the service sector and manufacturing. On the other hand, some particular services may run counter to this assumption. For example, New York’s pre-eminence in the advertising industry probably represents net regional import of services by the Great Lakes region's manufacturers of consumer products. However, the increasing tendancy of the Great Lakes region as an intra-firm service provider to manufacturing suggests that this assumption of net service export ismore reliable in the present than in the past. Conclusions The role of the Great Lakes region continues to evolve away from manufacturing production activity and towards service provision. Nonetheless, this should not be confused to mean that the region maintains a weak linkage to manufacturing. Much of the apparent growth in service activity is closely linked with manufacturing activity within the region and elsewhere. Moreover, manufacturing activity itself, as measured by labor income derived from this industry, remains significantly above the nation's average. For these reasons, the strength of manufacturing nationwide and within the region will continue to call the tune of the Great Lakes economy in the foreseeable future. F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 18 Footnotes ^For a discussion see Peter F. Dracker, "Sell the Mailroom", Wall Street Journal, Tuesday, July 25,1989. 9 xThe BEA gross domestic product includes indirect taxes (except property). For comparison purposes with Census value added, the BEA figure is reduced by 4 percent. The other notable difference is that the Census calculates inventory change using the data as reported by the manufacturer. BEA adds to these "book value" inventories an inventory valuation adjustment which converts themto a replacement cost valuation (see CM 1977 p. XXHI). o This data construction is only meant to be suggestive of the overall growth of service inputs into the manufacturing process. The value of purchased services themselves will include purchases from other sectors including manufacturing, construction, and government. In other words, the value of purchased services is not strictly a "value added" by the service sector alone. ^The methodology is as follows: First, we estimated the purchased services percent of manufacturing value added for each 2-digit manufacturing industry for the U.S. by subtracting U.S. value added (adjusted for indirect taxes) fromBEA GPO in manufacturing: % purchased service = (V A ^ j - GPO^j) - (GPO^j) for each industry i. This percent or augmentation factor was applied to both the industry-specific earnings distribution for the Great Lakes region and for the U.S. Accordingly, the differing industry mix between the region and U.S. will affect the estimated volume and proportion of purchased services. In addition, we are assuming that aU services are purchased locally although, as we will discuss in the following section, this need not be the case. ^See P.W. Daniels, Chapter 7, p. 157. F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 S e rv ic e In d u s trie s : A G e o g ra p h ic a l A p p ra isa l , Methenen, London, 1985, 19 References Beyers, William B., Michael J. Alvine and Erik G. Johnsen, The Service Economy : Export o f Services in the Central Puget Sound Region,April 1985. Browne, Lynn E., "High Technology and Business Services", New England Economic Review ,July/August 1983 p. 5-17. Burrows, M. and S. Town, Office services in the East Midlands, East Midlands Economic Planning Council for the Department of the Environment, London,1971. Buss, Nicholas, The Integration o f High Tech Industry in a Local Economy: A Study o f Linkage Structure in the Chicago Region, Dept, of Geography, University of Illinois. Crum, R. and G. Gudgin, "Non-Production activities in United Kingdom manufacturing industry", Regional Policy Series 3 , Commission of the European Communities, Brussels, 1981. Daniels, P.W., "An Exploratory Study of Office Location Behavior in Greater Seattle", Urban Geography,no. 3,1982, pps. 58-77. Daniels, P.W., Service Industries: A Geographical Appraisal, Methenen, London, 1985. Gershuny, J.I.,After Industrial Society? The Emerging Self-Service Economy, Macmillan, London, 1978. Gershuny, J.I. and I.D. Miles, The New Service Economy, Frances Pinter, London, 1983. Hansen, Niles, "Regional Consequences of Structural Changes in the National and International Division of Labor", International Regional Science Review , Vol. 11, no. 2 (1988), pps. 121-36. Israilevich, Phillip, and William A. Testa, "The Geography of Value Added", Economic Perspectives, September/Oct. 1989. Lee, R. and D. North "The spatial consequences of takeovers in some British industries and their implications for regional development", in F.E.I. Hamilton ed. Contemporary Industrialization: Spatial Analysis and Regional Development,London, Longman, 1978 pps. 158-81. F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 20 Little, Jane Sneddon, "Exchange Rates and Structural Change in U.S. Manufacturing Employment, New England Economic Review, March/April 1989, pps. 56-70. Marshall, J.N., "Linkages Between Manufacturing Industry and Business Services",Environmental Planning A , 14,1982, pps. 1523-40. Marshall, J.N. "Corporate Reorganization and the Geography of Services: Evidence from the Motor Vehicle Aftermarket in the West Midlands Region of the U.K.", Regional Studies, vol. 23, no. 2,1989, pps 139-50. Polese, M., "Regional Demand for Business Services and Inter-regional Service Flows in a Small Canadian Region", Papers o f the Regional Science Association, vol. 50,1982, pps. 313-331. Noyelle, Thierry J., "The Rise of Advanced Services; Some Implications for Economic Development in U.S. Cities", American Planning Association Journal, Summer 1983, pps. 280-90. Rajan, A., and Pearson, R., U K Occupation and Employment: Trends to 1990, Butterworth, London, 1986. Reifler, Roger F., "Implications of Service Industry Growth for Regional Development Strategies", Annals o f Regional Science, July, 1976, vol. X, pps. 88-104. Smith, IJ., "The effect of external takeovers on manufacturing employment change in the Northern Region 1963-73", Regional Studies, vol. 13, pps. 421437. Scott, A. J. Industrialization and Urbanization: A geographical agenda. Annals o f the Association o f American Geographers vol. 76, no. 1, 1986, pps. 25-37. Scott, A. J. Industrial organization and location: Division of labor, the firm, and spatial process. Economic Geography vol. 62, no. 3,1986, pps. 215-31. Sneddon Little, Jane, "A Low Dollar Couldn't Fix Harm a High Dollar Did", Wall Street Journal, July 11,1989, p. 14. Stanback, T.M., and Noyelle, T.J., Cities in Transition: Changing Job Structures in Atlanta, Denver, Buffalo, Phoenix, Columbus, Nashville, and Charlotte, Allanheld, Osmun Totowa, NJ., 1982. Stoiper, M. and S. Christopherson, "Flexible specialization and regional industrial agglomerations: The case of the U.S. motion picture industry” Annals o f the Association o f Geographers, vol. 77, no. 1,1987 pps. 104-17. F R B C H IC A G O W orking P a p e r O ctober 1989, WP-1989-21 21 U.S. Department of Commerce, Bureau of Economic Analysis, Input-Output Tables o f the United States, 1963. U.S. Department of Commerce, Bureau of Economic Analysis, Input-Output Tables o f the United States, 1983. U.S. Department of Commerce, Bureau of Economic Analysis, Survey o f Current Business, (various issues). U.S. Department of Commerce, County Business Patterns, (data tape). U.S. Department of Commerce, Bureau of the Census, Census Manufactures and Annual Survey o f Manufactures (various issues). of Wood. P.A., "Anatomy of Job Loss and Fob Creation: Some speculations on the role of the 'Producer Service Sector", Regional Studies, 1985. F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 22 A p p e n d ix I Business Services Concentration by State States in the Great Lakes region vary widely in their propensity to host business service activities. Accordingly, the following disaggregated tables are offered as evidence to this effect (and for the general interest and use by analysts and planners working at the state rather than at the regional level). F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 23 Appendix l-a Auxiliary payroll as a percent of total payroll (In manufacturing) Illinois Indiana Michigan Minnesota 1958 5.8 1.7 10.5 6.8 1963 7.1 2.3 11.6 8.3 1967 6.9 1.8 11.4 10.7 1972 8.6 2.5 12.7 12.1 1977 10.7 2.9 13.1 15.0 1982 16.0 3.1 17.5 16.9 1986 15.0 3.6 15.1 19.5 Ohio Wisconsin Great Lakes United States 1958 4.5 3.1 5.8 5.7 1963 5.8 4.2 7.0 6.6 1967 5.9 4.6 7.1 6.6 1972 7.9 4.3 8.4 7.9 1977 7.9 5.7 9.4 8.3 1982 12.4 8.2 13.0 10.1 1986 12.2 8.6 12.7 10.7 Source: U.S. Department of Commerce, Bureau of the Census, Manufactures. F R B C H IC A G O W orking P a p e r O ctober 1 9 8 9 ,W P-1989-21 Census ofManufacturesand Annual Surveyof 24 Appendix l-b Employment concentration of Great Lakes States in business service lndustries-1976 and 1986 Illinois rndiana Michigan Ohio Minnesota Wisconsin 197a 1986 1976 1986 1976 1986 1976 1986 t976 1986 1976 1986 Manufacturing auxiliaries 1.51 1.58 .56 .50 1.27 1.68 1.74 1.89 Other industry auxiliaries 1.11 1.15 .78 .75 2.20 2.36 .69 .65 .89 1.00 1.01 1.28 Motor freight-transport and warehousing 1.05 1.01 1.16 1.33 .86 .92 1.17 1.10 1.13 1.02 .80 1.16 .43 .59 1.09 1.26 .35 .36 .23 .11 .15 .32 .57 Transportation by air 1.18 1.35 .17 .24 .35 .38 .28 .33 Transportation services 1.31 1.27 .36 .41 .69 .74 .49 .61 .81 .93 .46 j61 .79 .78 .76 .79 .88 .75 .80 .74 .71 .73 .84 Water transportation Communications .23 .82 .82 .13 .15 .22 1.41 1.78 .26 .17 .30 Wholesale trade-durable goods 1.09 1.15 .90 .89 .85 .92 .98 1.01 1.13 1.05 .85 Wholesale trade-nondurable 1.00 1.06 .85 .87 .64 .74 .76 .98 1.14 1.07 .92 .97 Depository institutions 1.01 1.09 .82 .81 .85 .82 .83 .81 .83 .84 Securities and commodities brokers 1.32 1.54 .24 .28 .42 .44 .45 .46 .49 .53 Insurance 1.21 .134 .88 .96 .85 .80 .80 .93 .83 .54 .65 .58 .73 .77 .89 .85 .66 1.09 1.19 .37 .41 .27 .34 1.04 .76 .75 .58 .78 .99 .83 .84 .91 .96 .68 .69 Real estate .98 .89 Real estate and combined .98 .86 Business services 1.09 1.06 .51 .65 .87 .95 .82 .86 1.01 1.10 .99 1.15 .52 Advertising 1.74 1.64 .43 .64 .95 1.05 .75 .76 .97 1.12 .71 .70 Mailing, reproduction, art and photo 1.76 1.64 .31 .59 .94 1.55 .75 .75 .80 1.00 .68 .89 .76 Services to buildings .88 .86 .58 .67 .65 .69 .84 .94 .76 .92 .65 Computer and related services .79 1.25 .32 .46 .77 1.40 .54 .71 1.60 .90 .63 .51 Research and development labs 1.79 1.08 .09 .16 .22 .83 1.35 .77 .19 .22 .15 .22 Management and public relations 1.15 1.14 .46 .80 .71 .80 .88 .90 74 .91 .50 .49 .95 1.07 .58 .54 .81 .82 .74 .72 .92 .92 .86 .76 Legal services .94 .97 Engineering and architectural .96 .78 .48 .49 .92 .93 .68 .68 .82 .76 .58 .50 Noncommercial research organizations .26 .32 .29 .26 .59 .54 .68 .25 .49 .49 .43 .13 Accounting, auditing, bookkeeping 1.13 1.00 .65 .69 .96 .85 .84 .89 .99 1.14 .85 .85 Total (all above services) 1.08 1.11 .77 .77 .88 .90 .87 .92 1.06 1.07 .79 .84 Membership organizations Source: U.S. Department of Commerce, F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 1.15 1.08 1.03 1.12 1.00 1.06 1.33 1.30 1.12 1.28 CountyBusiness Patterns. 25 A p p e n d ix I I Nonproduction Occupations in Manufacturing Further evidence on the service orientation of Great Lakes manufacturing can be gleaned from data covering employment by occupation within the manufacturing sector. In the last section of the preceding paper, employment at auxiliary establishments (i.e. service-only establishments of manufacturing companies) are examined to illustrate the Great Lakes trend of rising service orientation. However, service functions in manufacturing occur at all manufacturing establishments, including production plants and not only at auxiliaries such as R & D and corporate headquarters establishments. In fact, activities such as strategic planning, advertising, R&D, warehousing, and the like can be found at manufacturing establishments which are classified as operating plants. Accordingly, a look at occupational data covering all establishments can bear further evidence on the rising service orientation of manufacturing companies. A word of caution concerning the occupational data reported herein. Occupational data, which is gathered by the decenial Census of Population, is self-reported. Census respondents identify their own industry of employment and their own occupation. Aside from a possible high degree of error in identifying industry, there may be differences in the professions that people identify from region to region, even for identical occupational activities. For 1980, the data show that, unlike the auxiliary data reported earlier, the Great Lakes region displays a slightly lower intensity of service occupations relative to the nation. This holds for professional and specialty occupations in manufacturing including scientists and engineers, and executive and administrative positions. Some occupations, including service and transport and material handling occupations are more concentrated than the nation. These tendencies display a wide variation across Great Lakes states. Illinois and Minnesota report a higher-than-national share of service occupations in manufacturing. Michigan's high concentration of scientists and engineers is also notable. Over time, specifically from 1970 to 1980, the Great Lakes orientation toward service activity in manufacturing has risen, albeit very modestly. At the same time, intra-region specialization has widened with Illinois, Michigan, and F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 26 Minnesota all increasing their service intensity relative to the nation; Wisconsin decreasing its service orientation; and Ohio and Indiana remaining much the same. F R B C H IC A G O W orking P a p e r O ctober 19891 W P -1989-21 27 Appendix ll-a Service-oriented occupational activities within Great Lakes manufacturing industries-1980 Great Lakes employees Great Lakes share of total manufacturing employment (-p ercen t-) Concentration index: Great Lakes relative to U.S. manufacturers 756,533 13.7 .94 Executive, administrative and managerial 457,036 8.3 .95 Professional specialty occupations 299,497 5.4 .92 178,174 3.2 .98 21,769 .4 .87 Managerial and professional occupations -engineers, architects, and surveyors -computer system s analysts and scientists, operations system s and mathematical scientists -natural scientists Technical, sales, and administrative support 18,975 .3 .93 1,013,512 18.3 .97 .92 Technical and related support 160,426 2.9 S ale s occupations 156,683 2.8 .90 Administrative support, including clerical 696,403 12.6 1.00 Service occupations 139,566 2.5 1.12 Transportation and material moving occupations 248,777 4.5 1.08 2,158,388 39.0 .98 Total service oriented occupations Source: U.S. Department of Commerce, Bureau of the Census, F R B C H IC A G O W orking P a p e r O ctober 1989, W P-1989-21 1980Census of Population. 28 Appandlx ll-b Concentration of employment In nonproduction actIvltieB In manufacturing industries 1970-1980 Illinois Indiana 1970 1980 1.06 1.07 .86 .86 .91 .94 1.16 1.19 Ohio .96 .96 Wisconsin .94 .93 Great Lakes Region .97 .98 Michigan Minnesota Share of employment In nonproduction activities In manufacturing industrles-1970-1980 1970 1980 42.4 Illinois 39.9 Indiana 32.2 34.3 Michigan 34.4 37.5 Minnesota 43.7 47.5 Ohio 35.9 38.1 Wisconsin 35.5 36.9 Great Lakes Region 36.5 39.0 U.S. 37.6 39.8 Note; Nonproduction activities include occupations within the managerial and professional; technical, sales and administrative support; service; and transportation and material moving categories. Source: U.S. Dept, of Commerce, Census of Population. F R B C H IC A G O W orking P a p e r O ctober 1989 , W P-1989-21 29 Appendix ll-c ■Manufacturing employees by occupation-concentration Index relative to U.S. In 1980 IL Managerial and professional occupations Executive, administrative and managerial Professional specialty occupations -engineers, architects, and surveyors IN Ml MN OH Wl 1.04 .73 .95 1.29 .91 .84 1.t3 .71 .87 1.34 .91 .90 .91 .76 1.06 1.21 .90 .74 .88 .86 1.22 1.16 .98 .76 .84 .61 1.06 1.67 .77 .59 -computer system s analysts and scientists, operations system s and mathematical scientists -natural scientists Technical, sales, and administrative support 1.03 .96 .88 1.04 1.01 .55 1.11 .84 .87 1.23 .95 .93 .86 .85 .80 .89 1.59 .91 S ale s occupations 1.13 .69 .77 1.21 .85 .85 Administrative support, including clerical 1.17 .89 .89 1.14 .98 .97 1.09 1.19 1.23 .97 1.08 1.08 .96 1.26 1.12 .83 1.12 1.13 1.07 .86 .94 1,19 .96 .93 Technical and related support Service occupations Transportation and material moving occupations Total service oriented occupations Source: U.S. Department of Commerce, Bureau of the Census, F R B C H IC A G O W orking P a p e r O ctober 1989, W P -1 9 8 9 -2 I 1980Census ofPopulation. 30 Federal Reserve Bank of Chicago R E S E A R C H STAFF M E M O R A N D A , W O R K I N G P A P E R S A N D STAFF STUDIES The following lists papers developed in recent years by the Bank’s research staff. Copies of those materials that are currently available can be obtained by contacting the Public Information Center (312) 322-5111. Working Paper Series— A series of research studies on regional economic issues relating to the Sev enth Federal Reserve District, and on financial and economic topics. Regional Economic Issues •WP-82-1 Donna Craig Vandenbrink “The Effects of Usury Ceilings: the Economic Evidence,” 1982 David R. Allardice “Small Issue Industrial Revenue Bond Financing in the Seventh Federal Reserve District,” 1982 WP-83-1 William A. Testa “Natural Gas Policy and the Midwest Region,” 1983 WP-86-1 Diane F. Siegel William A. Testa “Taxation of Public Utilities Sales: State Practices and the Illinois Experience” WP-87-1 AJenka S. Giese William A. Testa “Measuring Regional High Tech Activity with Occupational Data” WP-87-2 Robert H. Schnorbus Philip R. Israilevich “Alternative Approaches to Analysis of Total Factor Productivity at the Plant Level” WP-87-3 Alenka S. Giese William A. Testa “Industrial R & D An Analysis of the Chicago Area” WP-89-1 William A. Testa “Metro Area Growth from 1976 to 1985: Theory and Evidence” WP-89-2 William A. Testa Natalie A. Davila “Unemployment Insurance: A State Economic Development Perspective” WP-89-3 Alenka S. Giese “A Window of Opportunity Opens for Regional Economic Analysis: B E A Release Gross State Product Data” WP-89-4 Philip R. Israilevich William A. Testa “Determining Manufacturing Output for States and Regions” WP-89-5 Alenka S.Geise “The Opening of Midwest Manufacturing to Foreign Companies: The Influx of Foreign Direct Investment” WP-89-6 Alenka S. Giese Robert H. Schnorbus “A New Approach to Regional Capital Stock Estimation: Measurement and Performance” ••WP-82-2 "Limited quantity available. ••Out of print. 2 Working Paper Series (confd) WP-89-7 William A. Testa “Why has Illinois Manufacturing Fallen Behind the Region?” WP-89-8 Alenka S. Giese William A. Testa “Regional Specialization and Technology in Manufacturing” WP-89-9 Christopher Erceg Philip R. Israilevich Robert H. Schnorbus “Theory and Evidence of Two Competitive Price Mechanisms for Steel” WP-89-10 David R. Allardice William A. Testa “Regional Energy Costs and Business Siting Decisions: An Illinois Perspective” WP-89-21 William A. Testa “Manufacturing’s Changeover to Services in the Great Lakes Economy” Issues in Financial Regulation WP-89-11 Douglas D. EvanofT Philip R. Israilevich Randall C. Merris “Technical Change, Regulation, and Economies of Scale for Large Commercial Banks: An Application of a Modified Version of Shepard’s Lemma” WP-89-12 Douglas D. EvanofT “Reserve Account Management Behavior: Impact of the Reserve Accounting Scheme and Carry Forward Provision” WP-89-14 George G. Kaufman “Are Some Banks too Large to Fail? Myth and Reality” WP-89-16 Ramon P. De Gennaro James T. Moser “Variability and Stationarity of Term Premia” WP-89-17 Thomas Mondschean “A Model of Borrowing and Lending with Fixed and Variable Interest Rates” WP-89-18 Charles W. Calomiris “Do 'Vulnerable" Economies Need Deposit Insurance?: Lessons from the U.S. Agricultural Boom and Bust of the 1920s” Macro Economic Issues WP-89-13 David A. Aschauer “Back of the G-7 Pack: Public Investment and Productivity Growth in the Group of Seven” WP-89-15 Kenneth N. Kuttner “Monetary and Non-Monetary Sources of Inflation: An Error Correction Analysis” WP-89-19 Ellen R. Rissman “Trade Policy and Union Wage Dynamics” •Lim ited quantity available. ••Out of print. Working Paper Series (cont'd) WP-89-20 Bruce C. Petersen William A. Strauss “Investment Cyclicality in Manufacturing Industries” WP-89-22 Prakash Loungani Richard Rogerson Yang-Hoon Sonn “Labor Mobility, Unemployment and Sectoral Shifts: Evidence from Micro Data” 'Lim ited quantity available. "O u t of print. 4 Staff Memoranda— A series of research papers in draft form prepared by members of the Research Department and distributed to the academic community for review and comment. (Series discon tinued in December, 1988. Later works appear in working paper series). •♦SM-81-2 George G. Kaufman “Impact of Deregulation on the Mortgage Market,” 1981 ••SM-81-3 Alan K. Reichert “An Examination of the Conceptual Issues Involved in Developing Credit Scoring Models in the Consumer Lending Field,” 1981 Robert D. Laurent “A Critique of the Federal Reserve’s New Operating Procedure,” 1981 George G. Kaufman “Banking as a Line of Commerce: The Changing Competitive Environment,” 1981 SM-82-1 Harvey Rosenblum “Deposit Strategies of Minimizing the Interest Rate Risk Exposure of S&Ls,” 1982 •SM-82-2 George Kaufman Larry Mote Harvey Rosenblum “Implications of Deregulation for Product Lines and Geographical Markets of Financial Instititions,” 1982 •SM-82-3 George G. Kaufman “The Fed’s Post-October 1979 Technical Operating Procedures: Reduced Ability to Control Money,” 1982 SM-83-1 John J. Di Clemente “The Meeting of Passion and Intellect: A History of the term ‘Bank’in the Bank Holding Company Act,” 1983 SM-83-2 Robert D. Laurent “Comparing Alternative Replacements for Lagged Reserves: Why Settle for a Poor Third Best?” 1983 •♦SM-83-3 G. O. Bierwag George G. Kaufman “A Proposal for Federal Deposit Insurance with Risk Sensitive Premiums,” 1983 ♦SM-83-4 Henry N. Goldstein Stephen E. Haynes “A Critical Appraisal of McKinnon’s World Money Supply Hypothesis,” 1983 SM-83-5 George Kaufman Larry Mote Harvey Rosenblum “The Future of Commercial Banks in the Financial Services Industry,” 1983 SM-83-6 Vefa Tarhan “Bank Reserve Adjustment Process and the Use of Reserve Carryover Provision and the Implications of die Proposed Accounting Regime,” 1983 SM-83-7 John J. Di Clemente “The Inclusion of Thrifts in Bank Merger Analysis,” 1983 SM-84-1 Harvey Rosenblum Christine Pavel “Financial Services in Transition: The Effects of Nonbank Competitors,” 1984 SM-81-4 •♦SM-81-5 ♦Limited quantity available. **Out of print. Staff Memoranda (coni'd) SM-84-2 George G. Kaufman “The Securities Activities of Commercial Banks,” 1984 SM-84-3 George G. Kaufman Larry Mote Harvey Rosenblum “Consequences of Deregulation for Commercial Banking” SM-84-4 George G. Kaufman “The Role of Traditional Mortgage Lenders in Future Mortgage Lending: Problems and Prospects” SM-84-5 Robert D. Laurent “The Problems of Monetary Control Under Quasi-Contemporaneous Reserves” SM-85-1 Harvey Rosenblum M. Kathleen O ’Brien John J. Di Clemente “On Banks, Nonbanks, and Overlapping Markets: A Reassessment of Commercial Banking as a Line of Commerce” SM-85-2 Thomas G. Fischer William H. Gram George G. Kaufman Larry R. Mote “The Securities Activities of Commercial Banks: A Legal and Economic Analysis” SM-85-3 George G. Kaufman “Implications of Large Bank Problems and Insolvencies for the Banking System and Economic Policy” SM-85-4 Elijah Brewer, III “The Impact of Deregulation on The True Cost of Savings Deposits: Evidence From Illinois and Wisconsin Savings & Loan Association” SM-85-5 Christine Pavel Harvey Rosenblum “Financial Darwinism: Nonbanks— and Banks— Are Surviving” SM-85-6 G. D. Koppenhaver “Variable-Rate Loan Commitments, Deposit Withdrawal Risk, and Anticipatory Hedging” SM-85-7 G. D. Koppenhaver “A Note on Managing Deposit Flows With Cash and Futures Market Decisions” SM-85-8 G. D. Koppenhaver “Regulating Financial Intermediary Use of Futures and Option Contracts: Policies and Issues” SM-85-9 Douglas D. EvanofT “The Impact of Branch Banking on Service Accessibility” SM-86-1 George J. Benston George G. Kaufman “Risks and Failures in Banking: Overview, History, and Evaluation” SM-86-2 David Alan Aschauer “The Equilibrium Approach to Fiscal Policy” ♦Limited quantity available. ♦♦Out of print. 6 Staff Memoranda (cont’d) SM-86-3 George G. Kaufman “Banking Risk in Historical Perspective” SM-86-4 Elijah Brewer III Cheng Few Lee “The Impact of Market, Industry, and Interest Rate Risks on Bank Stock Returns” SM-87-1 Ellen R. Rissman “Wage Growth and Sectoral Shifts: New Evidence on the Stability of the Phillips Curve” SM-87-2 Randall C. Merris “Testing Stock-Adjustment Specifications and Other Restrictions on Money Demand Equations” SM-87-3 George G. Kaufman “The Truth About Bank Runs” SM-87-4 Gary D. Koppenhaver Roger Stover “On The Relationship Between Standby Letters of Credit and Bank Capital” SM-87-5 Gary D. Koppenhaver Cheng F. Lee “Alternative Instruments for Hedging Inflation Risk in the Banking Industry” SM-87-6 Gary D. Koppenhaver “The Effects of Regulation on Bank Participation in the Market” SM-87-7 Vefa Tarhan “Bank Stock Valuation: Does Maturity Gap Matter?” SM-87-8 David Alan Aschauer “Finite Horizons, Intertemporal Substitution and Fiscal Policy” SM-87-9 Douglas D. Evanoff Diana L. Fortier “Reevaluation of the Structure-ConductPerformance Paradigm in Banking” SM-87-10 David Alan Aschauer “Net Private Investment and Public Expenditure in the United States 1953-1984” SM-88-1 George G. Kaufman “Risk and Solvency Regulation of Depository Institutions: Past Policies and Current Options” SM-88-2 David Aschauer “Public Spending and the Return to Capital” SM-88-3 David Aschauer “Is Government Spending Stimulative?” SM-88-4 George G. Kaufman Larry R. Mote “Securities Activities of Commercial Banks: The Current Economic and Legal Environment” SM-88-5 Elijah Brewer, III “A Note on the Relationship Between Bank Holding Company Risks and Nonbank Activity” SM-88-6 G. O. Bierwag George G. Kaufman Cynthia M. Latta “Duration Models: A Taxonomy” G. O. Bierwag George G. Kaufman “Durations of Nondefault-Free Securities” •Limited quantity available. ••Out of print. 7 Staff Memoranda (corn'd) SM-88-7 David Aschauer “Is Public Expenditure Productive?” SM-88-8 Elijah Brewer, III Thomas H. Mondschean “Commercial Bank Capacity to Pay Interest on Demand Deposits: Evidence from Large Weekly Reporting Banks” SM-88-9 Abhijit V. Baneijee Kenneth N. Kuttner “Imperfect Information and the Permanent Income Hypothesis” SM-88-10 David Aschauer “Does Public Capital Crowd out Private Capital?” SM-88-11 Ellen Rissman “Imports, Trade Policy, and Union Wage Dynamics” Staff Studies— A series of research studies dealing with various economic policy issues on a national level. SS-83-1 ••SS-83-2 Harvey Rosenblum Diane Siegel “Competition in Financial Services: the Impact of Nonbank Entry,” 1983 Gillian Garcia “Financial Deregulation: Historical Perspective and Impact of the Garn-St Germain Depository Institutions Act of 1982,” 1983 •Lim ited quantity available. **Out of print.
@FedFRASER