Associate Editor: Francisco Gil-White

Facing a Growing Regional Economic Identity Crisis

Ronald G. Hellman

Eugene D. Miller

Survey of the Greater Tri-State Metropolitan Economic Region

Copyright ©1996 by Ronald G. Hellman and Eugene D. Miller.

Table of Contents

INTRODUCTION

Conceptualizing the Problem

Comparative Regional Economies

Research Method and Data

I. REGIONAL ECONOMIC CHANGE

Defining the Geographic Region

General Characteristics 

Employment and Growth Structure

Corporate Consolidation, Economic Concentration and the Tri-State Region

Employment in the Region

New York City

Areas of Employment Growth

Areas of Employment Decline or Stagnation

Regional Trends: Wage-Income/Employment

Trade

II. POLITICAL CHALLENGES

Regional Fiscal Policy

Infrastructure

III. CONCLUSION

Policy Considerations

Research Agenda: Next Steps

INTRODUCTION

Conceptualizing the Problem

This study argues that the tri-state (NY-NJ-CT) metropolitan region is experiencing an economic identity crisis. Since the late 1980s, the region has lost its sense of optimism and anticipated growth. The speculation fueled economy of the 1980s restored s ome of the region's buoyancy. However, its effects were limited: its duration brief, and since the Wall Street crash of October 1987, the region has struggled to transform a prolonged recession into a period of sustained growth. Consumer confidence remain s low, plummeting 20% in the past year and badly lagging behind the national average 1 .

The region is undergoing a protracted period of change. It has lost a significant proportion of manufacturing jobs, replaced by service sector employment. Changes in the banking and communication industries indicate a new, perhaps unprecedented, period of concentration of capital, income and economic decision-making. Combined with these developments, the region has experienced profound demographic and political changes. Its population is over 19% foreign born, and there is significant out migration from t he older, white population. National and state-level political changes have left the region with more autonomy and fewer resources to adjust to its new realities. In response, the region's political philosophy has shifted toward lower taxes and reduced go vernment spending in order to encourage private sector growth.

We are not alone in the assessment that these economic, demographic and political shifts have confronted the region with an economic identity crisis. Recent studies by the Regional Plan Association, the Manhattan Institute, and Fleet Financial Securities raise these issues and point to the depth of the changes taking place. The crisis will force the region's leaders to rethink not only its administrative divisions, but its relationship to its environmentally-based resources. Finding ways to develop these resources in a sustainable and equitable way may provide important keys to the region's future. For this reason, we are interested in seeing how the economic system as a whole operates. We want to raise a series of questions: How competitive is the region globally? What is being done to make it more competitive? Are the changes being experienced by the region cyclical or structural? What is the nature of the economic identity crisis? How is it being resolved?

In our earlier study New York and the New World Order, we examined how the economic evolution of the "New World Order"2 affected the power base of New York City in its role as the financial capital of the world. Specifically we raised the issue o f corporate consolidation as a structural challenge in the global system. The present study will move beyond a discussion of the impact of globalism, to analyze the operation of the region'spolitical economy. To do so we need to ask three core economic an d political questions: (1) is corporate consolidation leading to economic concentration 3 , and if so, is it hurting the New York region's economy?; (2) or are other forces pushing for the emergence of a new economy based on "economic diffusion?"; and (3) will the growth of small and medium sized companies be able to offset significant corporate and public sector restructuring?

Second, what is the most viable political structure for the region as it approaches the Twenty-first Century? If the process of economic concentration grows more acute, will it provoke continual intra-regional competition, and accelerate beggar-thy-neighb or incentives and tax policies? If so the existing political divisions will reinforce a declining region. On the other hand, if the area can successfully move toward a more "diffuse" economy, might a new political model provide a more complete l evel of regional coordination then now possible?

Comparative Regional Economies

Our paper focuses on understanding the economic forces and changes taking place in the tri-state region. By examining patterns of contraction and growth, this study will contribute to a growing body of literature on sub-national economies4 that uses the region as a unit of analysis (e.g. studies being done on trade, competitiveness, and economic inter-dependency by both economic and political analysts such as K. Ohmae, Richard Cooper, Joseph Nye, Paul Krugman, and others). It is further hoped that this stu dy, along with those undertaken by our colleagues on the Los Angeles-Ensenada, Silicon Valley, Vancouver-Seattle-Portland, Greater Toronto, Sonora-Tucson, and Mexico City regions will help build the discipline of comparative regional political economy.

Two additional areas of importance need to be addressed in any subsequent stage of research: the first is the political question of governance raised above. More specifically whether a coordinated level of government --based on the Greater Toronto Area, o r the tri-county Portland Metro model-- would benefit the region. The second series of questions concern themselves with quality of life issues --focused on the environment, sustainable development and the relationship between the biosphere and the politi cal economy. Both the problem of governance and sectoral development are central to a comprehensive understanding of the greater tri-state region. For now, we will limit our initial efforts to clarify what is a difficult and complex economic picture.

This study is divided into three broad sections. The first focuses on the economy, specifically employment and trade. The second examines issues of governance as they relate to fiscal budgetary policy and infrastructure development. Section three offers p olicy considerations and areas for future research.  

Research Method and Data

The present study is based on primary and secondary statistical research. Among the sources that have been used are reports produced by the Port Authority of New York and New Jersey, the U.S. Bureau of Labor Statistics, the U.S. Department of Commerce, th e U.S. Bureau of the Census, the Federal Reserve Bank of New York, the Comptroller's Office of the State of New York, the Office of Comptroller of the City of New York, the Regional Plan Association, and various statistical compilations generated by regio nally-based banking and business organizations. Because statistical compilations survey different geographic areas and populations, efforts will be made to harmonize these differences. When this is not possible, we will note significant variations.

There is also the issue of how to interpret statistical data and select a suitable time frame for establishing trends. Subsequently, it may be useful to conduct interviews with a number of key individuals.

I. REGIONAL ECONOMIC CHANGE

This paper explores a set of key issues. Given the complex nature of the tri-state region, how do we define what is common to the metropolitan economy? Does it seem to be similarly impacted by challenges, or are there major differences within the region? Are the suburbs and the core urban area of New York increasingly on a similar economic trajectory, or are they growing more distinct in their composition, challenges and responses?

Definition of the Geographic Region

The tri-state region is comprised of the 17 counties in New York and New Jersey that constitute approximately 85% (almost 16 million) of the population in the greater metropolitan region 5 . Within our examination of the 17 counties we will emphasize the 5 c ounties of New York City in which 40 percent of the region's population is concentrated. The outlying counties (not included in the 17) which comprise 15% of the regional population will be tertiary to our study. Because of the design of the existing data we have incorporated, where indicated, those areas of Connecticut normally included in the tri-state region, such as Fairfield county.

General Characteristics

Population (based on the 1990 census): Of the NY-NJ-CT CMSA's6 18 million inhabitants 12.7 (71%) are white; 3.3 million are black (18%) with the greatest concentration of black population (68%) in the New York metropolitan area (PMSA) 7 ; 5% are Asian; and 15 % Hispanic with about 70% of this population living in the NY PMSA. The region's workforce (7.5 million) as well as its population are 6% of the nation's. Of the total population over 3.5 million (19%) were foreign born, again of these 64% are concentrate d in the New York PMSA, bringing the percentage of New York's foreign born population to 27%. The region's Large Metropolitan Statistical Area (MSA) is experiencing out-migration. Over the last year it lost a net of 145,000 inhabitants, the majority from the relatively affluent white population. Demographic projections underscore the region's shifting racial composition.

Table 1

Projected Population by Race (in millions of persons)

Source: Modified from Regional Plan Association (RPA) Third Master Plan.

The trend is clear: a declining white population; a stable black population; and growing Hispanic and Asian populations. If trends continue, within 25 years whites will no longer constitute the majority of the region's population. In addition through the 1990s virtually all the region's workforce expansion will come from either immigrants or their children.

The Gross Regional Product (GRP) is an estimated $640 billion dollars,9 approximately 9% of the national economy.10 Total income in the three states (NY, NJ, CT) was $611.2 billion in 1994 (in 1987 dollars) or 14% of national income.11 This percentage has remained constant since 1980. In terms of per-capita income, despite the prolonged recession in the Northeast, the three states rank 1 (CT), 2 (NJ) and 3 (NY) in the nation. The average regional wage was $36,673 with New York City having the highest average w age of $41,330. In 1993 the Metropolitan Area's per capita personal income was 35% greater than that of the nation's. In the region wage gains significantly outstripped the pace of employment growth, with the greatest gains in income being made in Somerse t, Middlesex, Staten Island, and Rockland counties. Overall the region's cost of living index is approximately 10% higher than the national average.

Employment and Growth Structure

Until the 1950s the region's economy was driven by New York City's five counties. From 1950 through the 1980s growth in outlying suburbs was dynamic. As the center city declined, Nassau, Suffolk, Westchester, Orange, Bergen, Fairfield counties became both centers of high-tech manufacturing and corporate growth. But corporate downsizing, the contraction of the defense industry, inflated real estate values, overbuilding, the recession of 1990-1992, difficulties in the pharmaceutical industry linked to the e xpansion of health maintenance organizations, and state government lay-offs have slowed suburban growth.

In looking toward the 21st Century, two questions arise: which "zone" will drive regional growth and which sectors will be the engines of that growth? The Regional Plan Association's (RPA) 25 year Master Plan suggests that growth will come from a new urban-suburban synergy brought about by the addition of new transportation links, and a sharp upgrading of the region's quality of life. The approved plan to construct a direct rail link between New York City and JFK International Airport is a signi ficant step in the transportation upgrade.

We agree that the region's infrastructure must be developed, and that economic growth needs to be linked to quality of life issues. We also believe that growth is dependent on scientific and technological advances. For reasons that we will discuss below, New York-may be well positioned to transfer these advances into economic growth. However, we are less sanguine over the implications that growth will have for income distribution. Infrastructure development is addressed in Part II. Here we focus on emplo yment, economic concentration and growth.

Corporate Consolidation, Economic Concentration and the Tri-State Region

The region's labor markets are suffering from two significant structural transformations. The first is the process of increased corporate consolidation and economic concentration driven by technological change and public policy. The second is major public sector layoffs, linked to fiscal imbalances and political and business opposition to current levels of taxation, as well as the expectation that a smaller public sector will accelerate the creation of well-paid private sector jobs.

There are five major industries (with specific geographic impacts) in which economic concentration directly affects the employment structure in the region. These are telecommunications, defense, pharmaceuticals, banking, and business machines. Major adva nces in telecommunication transmissions, combined with deregulation, have torn down pre-existing walls (for example in certain regions, telephone companies can now buy cable companies), and accelerated industry consolidation. In response AT&T has &quo t;retrenched" approximately 12,000 workers in the New York region. The prime area affected: Somerset/Morristown in New Jersey. Significant declines in military procurement since 1989 (a public policy decision linked to the collapse of the Soviet Union) has consolidated the defense industry to an unprecedented level (for example, the consolidated companies, Lockheed Martin and Northrup Grumman) resulting in major declines in defense employment and severely damaging the economies of Long Island and Con necticut. Changes in the health industry, under intense public pressure to lower costs, and subject to revisions in legislation designed to increase availability of drugs, have pushed the major pharmaceutical companies to reduce their workforces. Smaller pharmaceutical companies are developing new products and hiring workers, but are threatening to leave the Princeton-area pharmaceutical belt in an effort to lower labor costs. The next area of major consolidation is in banking. The most recent of which wa s the Chase-Chemical Bank merger, creating the largest U.S. bank ($297 billion in assets) and leading to a projected layoff of 12,000 workers, primarily in New York City.

Bank consolidation is a national process, but its effect in the New York metropolitan region is magnified. Of the top six banks (listed by assets) four were based in the tri-state region. In total the region holds over 50% of the nation's commercial banki ng assets.

Source: New York Times, August 29, 1995 (modified)

Adding to downward pressures on job availability, competition and consolidations in the business machine/computer industry forced IBM to restructure its labor force, adversely affecting New York's northern suburbs (primarily, Westchester County). The pres sure to lower overhead (which has resulted in corporate management layoffs) has directly contributed to the softening of the commercial real estate market in Connecticut's Fairfield County.

Corporate consolidation and employment downsizing have been joined by major public sector layoffs at state and municipal levels of government (NYS has lowered employment by 2% and NYC has reduced its total workforce by 25,000 since 1994.). The simultaneou s public-private layoffs have limited opportunities for labor in the region and have had important implications for the region's tax-base and consumer-based industries from housing to retail. It is unclear whether the growth of small and medium size firms will be able to generate sufficient employment to maintain and expand the job market. In 1995 the region's ability to create jobs hovered at .6%, over a point below the national average. Reflective of this, housing permits, retail sales, consumer confide nce, and the overall regional performance index have all declined 12 . A year later in November 1996 the low national unemployment rate of 5.4 percent was not replicated in the Northeast. Unemployment was 5.7 percent in the mid-Atlantic states and 7.4 percent in New York City. Consumer confidence, as measured by the Conference Board index, also lagged. It was 107.3 nationally and 73.8 in the mid-Atlantic states of New York, New Jersey and Pennsylvania 13.

Employment in the Region

The recession of the early 1990s was deeper and longer in the NY-NJ-CT region than in the rest of the nation. Between 1989 and the end of 1995 the region lost 700,000 jobs (recovering only a third), the worst jobs loss since the 1930s. From 1982-1992 the region's share of U.S. output in financial services, business services, media services, art, culture and tourism, bio-medicine, transportation and distribution, advanced machinery and fashion have all declined 14 . Still the region's share of these industries is greater than its proportion of the national population, underscoring its continuing leading economic role.

Historically, job growth in the region has averaged more than a full percentage point below the nation (reaching 2 points in recessionary times and shrinking to .5 points during recovery).

)

*Calculated separately for each state and region.

Source: Fleet Financial Group - March 26, 1996

In the NY-NJ-CT consolidated metropolitan statistical area (CMSA) 60,000 new jobs were created by the private sector in 1994. This represented a 1% annual gain in private sector employment mostly concentrated in the Northern New Jersey suburbs. Areas of g rowth were in the service economy, retail, and the relocation of financial services. In 1995 the trend continued. Net private sector job creation in the NY-NJ-CT region averaged 1.2%, despite a sharp national downturn and significant public sector layoffs which lowered overall job growth to .8% 15 .

The job market is volatile, creating opportunities and insecurities. Looking more closely at the region's net job growth in 1995, 440,000 private sector jobs were created while 400,000 were lost, leaving a net private sector job creation of 40,000, again partially off-set by public sector layoffs 16 . The size and complexity of the market are redefining work relationships, raising questions regarding the workforce's economic identity. Corporate economic concentration is mirrored by job diffusion (mobility, pa rt time employment, consultants and home work). With lessened security, workers are increasingly free agents, and must become more self-reliant and inventive. How these changes affect workers of different ages, educational backgrounds, income levels and i mmigrant status will shape the future labor force and have important political implications.

New York City

Modest growth in regional private sector employment generated by small to mid-size companies has been offset by corporate and public sector restructuring. For example, in 1994 New York City experienced a net loss of employment due to reductions in municip al employment 17 . In the analysis that follows New York City's economy is divided into two broad sectors: (1) goods and services produced for consumption outside the region (exports), and (2) goods and services produced for consumption in the region (domest ic).

Areas Of Employment Growth

First, there are clusters of good news.

--New York is able to retain many major companies. From 1983 to 1990 the number of Fortune 500 companies in New York remained steady, despite the stock market collapse in 1987.

--As seen below in Table 4 the New York area ranked first, by almost a five-fold margin, of all U.S. cities in the total assets of the largest financial institutions.

Source: Manhattan Institutes's City Journal Spring 1992

The New York region maintains its dominance in the important financial sector, particularly in the dynamic investment industry. Seven out of the top ten investment managers (those firms with assets over $100 billion) were based in the NY metropolitan regi on 18 . Goldman Sachs with its extensive portfolio is emblematic of the importance and increasingly growing role of New York-based investment firms.

The region and, in particular, NYC are able to generate thousands of new businesses each year. In 1994-1995 NYC created 32,000 new businesses, with a net gain of 20,000; in the region: total job creation was 52,000, with a net gain of 36,000. Many of the se businesses are in new growth areas in the emerging media/communication/entertainment industry. The challenge facing the region is to devise policies that promote, retain and help businesses expand 19 .

· Tourism continues to grow: New York ranks fifth in the country in the percentage of tourist-related sales to its total business sales (3.5% compared to a national average of 4%) after Las Vegas, Orlando, Honolulu, and San Francisco. The ranking understa tes the importance of the tourist industry in New York because NYC's economy is far larger than that of the top four listed cities. The redevelopment of Times Square and the Disney Corporation's prominent role is enlarging the role tourism plays in the ci ty's economy.

· Rates of personal income growth and job growth have reversed their sharp fall and are showing significant though tentative signs of recovery.

We will take a closer look at these areas of growth, in terms of employment directed toward export markets (goods and/or services consumed outside New York) and those tied to domestic consumption.

Export Markets

Areas tied to the export markets include:

The FIRE sector (Financial Services, Insurance and Real Estate), New York's largest export employer, accounts for 15% of NYC employment but pays 27% of all wages and salaries 20 . This underlines New York City's dependency on this sector for over one-quarter of its tax revenue. The external competitive nature of this sector exposes NYC's economy to market volatility and exchange rate fluctuations. Since the crash of 1987 many FIRE management positions have been eliminated and back-offices established. The lat ter have gone to the outlying counties (Fairfield, Nassau, Westchester, Bergen, Middlesex and Morris). However, even though each of these counties have registered significant employment gains in the FIRE sector, there is evidence that these gains are comp lementary -rather than competitive with Manhattan-based employment 21 . Since 1988 total employment in the FIRE sector has declined 13%, with the loss of over 70,000 jobs. FIRE employment is expanding though not to pre-1988 levels. The expansion is led by fin ancial service employment which hit a low in 1992 of approximately 125,000, and is now (1995) at 147,000.

Culture and media employs 162,000 people and has been growing at a notable 8.1%. The strongest areas of growth are films and TV. More films are produced in New York than in Hollywood; NYC's share of national employment in movie production is over 10%. To tal employment in this sector is only 5% of the city labor force but is growing. For reasons discussed below, the nexus between media and cyberspace companies has the potential to form a new, rapidly growing knowledge-based industry.

Culture and media, comprising the print and electronic media, museums, theatres and motion pictures, are linked to the wider economy through national and international distribution networks, and in its role as a core attraction for tourist dollars.

Tourism and Recreation: The tourist industry is closely linked to culture and media and tied inversely to the strength of the dollar. Historically, when public policy has favored a weak currency, New York's tourist economy has benefited. (The early 1980s is the most recently example.) Analysis of the composition of NYC tourists buttresses the argument. Although foreigners compose 15% of visitors, they account for 40% of all expenditures. The industry's foreign consumer base insulates it from downturns ca used by U.S. regional or national recessions. (For domestic tourism the most important variable is U.S. regional economic growth and job creation.)22 Tourism is a broad indicator. Beyond hotel occupancy, restaurant and souvenir sales, tourist are attracted to the city's cultural, entertainment, and media environments. The sector has experienced steady growth. Between 1977 and 1994 employment growth in tourist and related industries was six times greater than job creation in the city as a whole. In 1994 jobs rose 2.2% (to 32,100); revenue increased 2.4%; and hotel occupancy up 5.0% is now at 75.2%, the highest since 1988. These trends continued through 1995.

In addition to exchange rate policy, the rise in tourism reflects a number of successful public policy initiatives: New York's preeminence as a cultural/media center; declining crime rates; the success of public/private cooperation, the refurbishing of 42 nd Street, and the city's strong specialty and high-end retail environment.

Computer field: Though starting from a low base line, the computer field is experiencing dynamic growth. Data-processing and computer software companies comprise 10% of the business service jobs. Revenues for these companies grew at an accelerated 57% in 1994 and are projected by industry analysts to grow at 45% annually through 1998. A significant segment of this industry relies on exports (as defined above). Sixty percent of software revenues are from outside the region.

New Growth: A convergence between cyberspace technologies and entertainment and media companies has generated the creation of a "new media" industry. The number of companies in this field have more than doubled between 1993 and 1995 to over 4,20 0. New media is a $3.8 billion industry employing more than 71,500 workers (18,000 full time) in the NY-NJ region 23 . By comparison San Francisco had 2,200 companies supporting 62,000 workers. For a number of reasons New York is uniquely posed to take the le ad in the field.

The growth of "high tech" industries and applications raise a series of important questions for the future of the region and its economic identity. On one hand older more established population groups are leaving, being replaced by younger and i mmigrant populations. Much of the region's infra-structure is old. Fiscal imbalances and debt are additional burdens.

On the other hand, if advanced technology applications provide an important key to sustainable development, the region has decided advantages. It remains a major national center of higher education. Not only housing such first tier institutions as Columbi a, Princeton, Yale, and New York University, but scores of other universities and colleges, including the country's largest urban public university system, the City University of New York. The university core educates the region's population, provides inn ovative services to the region's business and policy communities, and draws young talent to the area as well.

Second, the new immigrant populations are coming from societies with rigorous academic traditions and strong work ethics. The ability to culturally and linguistically respond to these groups is a major challenge facing the region's, especially New York Ci ty's, educational infra-structure. In the industrial era the region prospered from the powerful demographic shifts caused by large influxes of immigrants. This may again prove to be the case in a post-industrial economy.

Third, there is growing public policy awareness that the region must focus on issues of infrastructure development. Regional plans, of which RPA's is the most prominent, clearly articulate the need. The rezoning of lower Manhattan and the commitment to bu ild a rail link from NYC to its major international airport are indicative of public policies that recognize the direct correlation between infrastructure development and economic competitiveness.

Domestic Market

The three areas of domestic job market growth (health, social services and professional service) are tied either to declining government expenditures, or in response to structural changes in the job market. This raises a series of questions: Are the healt h and social service sectors of the economy over-expanded? Do they serve as a drag on the economy and do they need to be restructured? If this is the case, can the economy absorb (and create jobs) for the growing number of health and social service worker s whose employment is increasingly less secure? The importance of this question is intensified because segments of the in-migration patterns fit the profile of workers in these sectors.

The Health Industry

In 1995 in New York City the total number of people employed in the healthcare industry was 372,000 (of which 80 percent were employed by the private sector). Approximately 90% of NY's health workers provide healthcare delivery services. The balance are l ocated in the pharmaceutical and health insurance industries.

Regionally, since the early 1980s, the health sector has grown at 3.3% annually, faster than any other major industry and adding 8-10,000 workers per year 25 . Though the rate of growth has slowed since 1995, during the region's economic downturn from 1989-19 92 it was the only major sector to grow. Total rates of growth from 1993-1995 were in NY 7.5%; in NJ 7%; and in CT almost 13%.

Total NY and NJ employment in the health services and health-related industries is 687,7000 or 12.6% of the regional labor force. With the shift towards managed care, the crises in Medicare and Medicaid, and the proposed privatization of municipal hospita ls there is discernable pressure to reduce employment in this sector. This has particular social policy and income distribution implications because the recipients of public health care, and many of the health care providers are drawn from poor and minori ty populations.

Two 1996 private reports emphasize this prognosis. The Health Systems Agency predicts a loss of 15,000 hospital beds (almost half the current total) and a decline of between 65,000 and 80,000 jobs by the year 2000. A parallel report, out of New York Unive rsity's Robert F. Wagner's Graduate School of Public Service places the job loss at 20,000 26 . NYC's financial strapped Health and Hospital Corporation is developing plans to consolidate and eliminate medical facilities. In January 1997 NYS lifted price cont rols on the services hospitals provide to Medicare patients. These initiatives are designed to foster competition, but have also forced hospital closings and mergers.

Though the majority of health services are consumed within the region, about 4% of total employment in the sector is geared toward export (either foreign or to other regions of the U.S.). These workers are concentrated in the pharmaceutical industry. Also New York hospitals are world renown. The state of the art, high end care they provide attracts individuals in need from other regions in the U.S. as well as from foreign countries. To assess the economic importance of New York in the global health system requires additional research.

Business and Professional Services: This is an area that is difficult to classify as export or domestic. It employed 384,500 people in 1994, expanding at an annual rate of 1.5 percent. One of its strongest areas of growth was employment agencies providing temporary work, reflecting the movement in the private sector away from full-time employment (when possible) to temporary or part-time workers. The practice is a way to lower labor costs, and is closely linked to the growth of consultants and the practic e of out-sourcing.

Social services: Many of the same dynamics in the health industry are present in the social services which have grown between 4 and 5% annually and now employ 152,000 people. The 1996 welfare reform will have a major impact on reducing employment in the s ocial service sector.

Areas of Employment Decline or Stagnation

Manufacturing: The decline in manufacturing has been long-term and steep, though the rate (-1% in 1995) has slowed considerably. In 1994, 8,200 jobs were lost and since 1988, the city has lost 94,000 manufacturing jobs --a 29% decline! In NYS total manufa cturing over the 24 year period from 1970 to 1993 declined 45%, a loss of almost 800,000 jobs 27 . Particular areas of weakness were the New York City suburbs due to cuts in defense spending (Long Island) and corporate restructuring in electronic office equip ment in the northern suburbs (Westchester).

The manufacturing jobs that remain are concentrated in non-durables. There is evidence that job growth is occurring in the high-end, specialized areas of manufacturing, such as in medical equipment. This needs to be examined in order to determine whether there is a significant shift toward high-skilled, knowledge-based manufacturing production.

Banking: From 1992-1995 employment in the banking sector has declined over 10% in NY; and 9% in NJ and CT. Since 1988 bank employment in NYC fell by 26%. In 1995 commercial banking diminished by 5,500 jobs or 8% of its total. With the Chase-Citibank merge r thousands of additional jobs have been lost. At the same time the industry has enjoyed record profits.

Source: Fleet Financial Service, in NYT, February 19, 1996.

Public sector: More than offsetting the modest gains in private sector employment, total New York City government employment, including part-time workers, was reduced by 25,000 jobs in 1994 28 . The reduction reflects budgetary constraints, and disproportionately affects minority populations. Increasingly the city is insisting that wage increases be paid for with productivity gains. However, the teacher's contract rejected in Fall 1995, revised and approved in Spring 1996, imposed no productivity conditions.

In NYS government employment fell by 2% in 1995. The decline in state employment, integral to the fiscal pressure for smaller government, is having and will have different effects across the state. NYC and its suburban counties compose well over one-half of the state's population, but account for only 20% of the state employees. In this regard the metropolitan region (excluding Suffolk county with a state employee/population ratio of 1:90; NYC's is 1:550) will be partially insulated from economic dislocat ions arising from government downsizing 29 .

Transportation and Utilities: 2,400 jobs were lost mostly in communications. In addition, AT&T, as noted earlier, has reduced its workforce by approximately 12,000 workers in the tri-state metropolitan region. 

Retail including restaurants, and wholesale: Total employment in these sectors (approximately 540,000) has shown no growth. This is in spite of relatively strong growth in retail (2.9%) and wholesale sales. Though there was employment growth in eating and drinking establishments (1.9%), in part due to the expansion in the tourist industry, it was offset by the decline in employment (8.3%) in general merchandising stores, indicating that increased sales were concentrated in the wholesale sector and that th e greater volume has translated into little job growth. Indeed the region's retail sector has experienced an overall decline steeper than the nationwide industry. Many regional mid-sized retailers are on weak financial ground, having sought, or are poised to seek, court protection from their creditors. Chains such as Caldors, Bradleys, Ames and Jamesway are finding it increasingly difficult to compete with national chains such as Walmart and with large wholesale clubs. But there is evidence that high end, specialty retailers are expanding by catering to a more affluent clientele.

Housing: After steady increases since 1991 single-family housing starts and sales showed greater monthly variation in 1995. From 1991 through 1994 new homes sold annually rose from 12,700 to 18,100 (still below the 23,400 sold in 1987). The pattern has pe rsisted despite declines in fixed and variable mortgage rates. Requests for construction permits for residential units in New York City between 1989 and 1994 (excluding 1993) have declined every year and in 1994 they hit a decade low. Construction employm ent (90,000) remains well below mid 1980s levels.

Regional Trends: Wage-Income/Employment

What is the relationship between jobs and wages? We have two concerns here: equity (income distribution) and correlation between income and educational levels.

The following table shows relative wage/employment rates for the New York City in 1994.

Source:Ney York State Comptroller's Office (1995)

The city's economy is producing wage increases only in certain sectors, such as FIRE, and in top-level job categories. Net job creation is modest. Many new jobs pay significantly lower wages than positions that were eliminated through corporate and govern mental restructuring. Low paying service jobs are a well known component of this process. But even high-tech new media industries pay workers significantly less than established media and communications companies 30 . Combined, these processes are contributin g to income/employment disparity 31 .

Income disparities rose during the 1980s; New York City ranks fifth in the nation among cities with the widest income disparities, up from eleventh in 1980. In 1992 during the national recession, the region's income/employment disparity was 3.3%. As the e conomy recovers, it is projected to decline to 1.5%, but remain higher than the national average because of three basic factors: (1) the decline of manufacturing and retail jobs; (2) the presence of high wage jobs (in the FIRE sector and in corporate head quarters); and (3) the high percentage of income residents receive from dividends and transfer payments.

A look at Suffolk county employment, with its 1.3 million people reinforces the pattern towards lower wages in newly created jobs. In 1986 Suffolk county had 182,000 manufacturing jobs. Employment declined 38% to 113,000 in 1995. At the same time the numb er of service sector employees rose 13% to 339,000. The average wage in the manufacturing sector is $37,000, in the service sector, $26,000 32 . This is a serious problem. The Suffolk County Labor Commissioner Michael Falcone noted: "They made $60,000, now they're making $35,000 ... its tough."33 It is tough as well on the county finances; 46% of which are drawn from sales receipts.

Labor Market Demographic Breakdowns/Mobility

Declines in the NYS unemployment rate reflect the shrinkages of the available labor pool, not the growth of jobs. The total number of employed persons in NYS in 1994 was 7.978 million up slightly from 7.969 million in 1993. Reflecting migration patterns, during that time both the state's total population and available civilian labor force declined slightly. In NJ, unemployment dropped to 6.5% from 7.1%. Unlike NYS, NJ's population and the available civilian labor force grew 34 .

These demographic shifts are reflected in the total net out-migration of the NY-NNJ-LI-CT region of 145,000 thousand. The total out-migration (from 3/93-3/94) was 342,000 while the total immigration was 196,000 during the same period. Of note is that the largest net losses are among whites (93,000) and age groups 30-44 (30,000) and 45-64 (61,000). The latter representing an individual's peak earning and tax paying years, placing additional downward pressure on the region's fiscal balance.

The demographic shifts in the labor market indicate that by the year 2020 the majority of the region's inhabitants will be of Hispanic, African-American or Asian background. Of these the most dynamic sectors are the immigrant Hispanic and Asian population s. There is also a high level of immigration from the countries of the former Soviet Union. This will place tremendous pressure on the region's educational system to assimilate and train this population. There is a direct and increasing correlation betwee n higher levels of education and high wages 35 , and, as this study argues, the potential for economic (and job) growth lay in precisely those industries that require a highly skilled and knowledgeable workforce.

Unionization

The region, and specifically New York, is the most unionized area in the country. Union members made up 28.9 percent of the NY state's work force, directly attributable to the 72.9 percent of public sector employees who belong to unions. Unionization in N ew Jersey (24.9%) and Connecticut (20.3%) is also higher than the national average of 15.5%. Even these bright spots for unions fall within the declining rates of unionization. In the early 1980s, 32% of NYS workers belonged to unions, in NJ, 30%, and in CT, 25 percent. (The national average of unionization was 30% in the 1960s.) Membership in private manufacturing sector unions are substantially lower: in CT, 14%, in NJ, 22.7% and in NY, 24.2%. 36

Private sector unions are undergoing a period of consolidation, best illustrated by the merger of the ILGWU and ACTWU to form UNITE. (The consolidation reflects the declining number of apparel workers in New York, having lost 7,000 jobs in 1994 and 1995.) Along with the textile workers, hospital workers (Local 1199) are the most dynamic in the private sector. It remains to be seen whether revitalized unionization is a new process of concentrating labor's collective power, or a rear guard action to foresta ll the continuing diffusion of the workforce.

Trade

The region's economy is increasingly reliant on trade in services. The only available data on service exports is national data. No regional breakdown of service exports exists raising a number of important questions about being able to understand the regi on's economy and its complex relationship to the global economy. It is a recommendation of this study that a mechanism to collect service export data be established 37 .

Because industrial production involves different phases of manufacturing and assembly, it is difficult to locate data that reflects the place of manufacture of exports. There are two sets of figures that follow: the first reflect the total volume of trade passing through the ports of New York and New Jersey. They are point of shipment origin breakdowns and do not differentiate between place of manufacture, assembly or shipment. (The category is US Exports through the New York Customs District by US Region of Origin.) The second set of statistics, state of origin of movement to port better reflects state exports by industry.

Point of shipment origin

In 1994 over $140 billion worth of goods passed through the ports of New York and New Jersey. Of these the largest percentage went to Europe (48%); the Far East (10.1%); South America (17.7%); Central America and the Caribbean (8.0%); and North America (5 .1%) 38 .

In 1993 the figure was $132.7 billion (one-fourth of the region's total economy [GRP]). Imports accounted for $77.4 billion; exports: $53.3 billion. This represented 11% of total US trade and generated 250,000 jobs.

The origination of these goods were as follows: NY-NJ, $ 21 billion (39%); 39 New England, $7.7 billion (14%); Mid-West, $7.2 billion (14%); Mid-Atlantic, $4.4 billion (8%); Pacific, $3.2 billion (6%); South Atlantic, $1.6 billion (3%); and Mountain, $.8 bil lion (2%).

The top export commodities were: office machines (26%), electric machinery (17%), instruments (9%), precious stones and metals (6%), aircraft (5%), vehicles (5%), and works of art (3%).

State of origin of movement to port

State of origin breakdowns are the closest we can come to estimating state exports, the working assumption is that state of origin is a good indicator for state of manufacturer.

In 1994, the NY, NJ, CT region exported over $53.475 billion worth of goods. Of these 88% were from NY (63.6%) and NJ (24.4%). Ranked by value the six leading commodities were: Industrial Machinery and Computer Equipment (14.6%); Electronics and Electroni c Equipment, excluding computers (10.7%); Chemicals and Allied Products (10.3%); Transportation Equipment (9.7%); Instruments and Related Products (9.3%); and Primary Metal Industries (8.8%). Totaled these products account for more 63% of the region's exp orts.

In 1988, the NY, NJ, CT region exported $39.097 billion worth of goods. Of these over 90% were from NY (69%) and NJ (21%). Ranked by value the six leading commodities were: Industrial Machinery and Computer Equipment (13.9%); Primary Metal Industries (13. 8%); Transportation Equipment (13.8%); Chemicals and Allied Products (10.3%); Instruments and Related Products (10.2%); and Electronics and Electronic Equipment, excluding computers (10%). Totaled, these products account for 72% of the region's trade.

Notable in comparing the 1988 to the 1994 figures is the total growth of exports -up by 27%.40 Exports in CT have grown by 40%; NJ by 36.4% and NY by 20%. New York's export economy is the largest, more than two and a half times that of NJ, though the gap ha s narrowed since 1988. Both NY's and NJ's exports have shown strong growth increasing by well over 20% between 1992 and the 2nd Quarter of 1995. (Though NY exports dropped by 6.5% from 1993-1994, they show a healthy recovery in the first two quarters of 1 995.) CT exports are the weakest. After growing sharply from 1992-1993, CT exports have been flat, attributable to declines in the defense industry.

New York State manufacturing exports, have grown at a slower pace than those of the nation's. Although state and national concentrations in key export industries are similar, the state's export rate of growth has lagged in the majority (notably, electric al machinery and instruments) of the top five export categories. Only with industrial machinery and transportation equipment did state rates outgain national averages. After discounting uncompetitive wage levels and target markets, a study by the Federal Reserve Bank of New York attributed New York's relatively weak performance to high energy costs, infrastructure deficiencies, and high tax burdens. All three issues, especially the high-cost of energy, are discussed later in the paper. The caveat expresse d at the outset of this section bears repeating: not being able to determine the mix of industrial and service exports, limits the analytic strength of the state national comparison 41 .

In 1988, 18.2% of the tri-state region's exports went to North America [Canada(15%) and Mexico (3.2%)]. In 1993 the percentage of trade with North America rose to 27.6% [Canada (24.2%) and Mexico (3.4%)]. Figures for 1994 reflect the inclusion of Mexico i n the free trade agreement: trade with Canada increased to $13.323 billion (24.9%) and Mexico to 2.131 billion (4%) for a total trade with North America of 28.9%. Trade with Mexico has fallen since the peso crisis in December 1994. Comparing figures for t he first two quarters of 1995 with the corresponding period a year earlier shows an overall decline of over 25% with Mexico, while trade with Canada has increased by 21%. 42

In examining the region's exports a number of basic points emerge. One, these exports indicate a mature economy. Export industries have a high-level of value added, employing high-end technology and specialized labor. The export figures indicate that the region's manufacturing sector continues to evolve toward industries employing a small, better paid and better educated workforce. Two, the importance of exports to the economy has increased. Finally, since 1988 more of these exports have gone to North A merica. The importance of Mexico as a buyer of exports has increased, but, not surprisingly, has shown variability due to the peso crisis.

II. POLITICAL CHALLENGES

Regional Fiscal Policy

A number of issues immediately present themselves. What is the relationship between fiscal balance and economic performance? Second, federal, state, and local governments are in protracted fiscal crises. What are the causes of these crises? Are they struc tural? How can structural balance be attained? Third, the political question of taxation needs to be addressed.

Regional economies do not correspond to administrative boundaries. A "beggar thy neighbor policy" all too often is the outcome of inter-state competition for private sector dollars. The same holds true in tax policy, both for individuals and cor porations. Can competition be replaced by effective regional coordination? What administrative structure can best further such coordination?

Municipal Finance: New York City43

From 1991 through 1994 in order to balance its budget (which is required by law) New York City (cumulatively) cut spending by $3.9 billion and raised taxes by $1.7 billion. This did not bring the budget into structural balance and the Giuliani 1995 budget was forced to address a $3 billion deficit.

There are a series of reasons structural balance is so difficult to achieve.

State Finance: New York State

In 1996 New York State was mired in budgetary battles for 103 days. Governor Pataki's proposed budget was rigorously opposed by the state's Democratic-controlled Assembly. Pataki's proposal rested on four principles: (1) smaller government will spur growt h; (2) longer prison sentences deter crime; (3) reduced welfare benefits encourage work; and (4) block grants dispersed by localities promote efficient spending. The governor received only part of what he sought, primarily in the areas of tax and health p olicy. His efforts to revamp the state's welfare system and impose sharp cuts in education were rebuffed.

County Finance: Nassau, Rockland, Suffolk and Westchester Counties

Local budgets mirror many of the same problems of state budgets. If we look at Suffolk County's 1993, $1.6 billion budget- 46% of its revenue comes from the volatile sales tax; 29% from increasingly constrained state and federal aid; and 12% from borrowing 43 . It is in this context that we need to ask whether devolution of power is driven by a belief that local government governs better, or are we seeing a fragmentation of power driven by fiscal constraints born by a political rejection of taxation?

*Excluding the five counties of New York City.

Source: Special Report on Municipal Affairs, 1993

*Includes revenue sources not listed in the above table.

Source: Special Report on Municipal Affairs, 1993

*Includes expenditures not listed in the above table.

**Current operations/equipment and capital outlay

*** Principal/Interest

Source: Special Report on Municipal Affairs, 1993

Analysis of 1993 fiscal data (Tables 7-9) reveals both differences and similarities in how some of the major suburban counties dealt with the recession of the early 1990s. For all four counties expenditures outstripped revenue sources, though Long Island' s Nassau and Suffolk counties were the most vulnerable. Suffolk county's 1993 outstanding debt comprised over 100% of its 1993 revenue; Nassau, 79%. For Rockland and Westchester counties the figures were 56.7% and 36.4% respectively.

The largest sources of revenues are real estate and sales taxes. Again with Nassau and Suffolk the most dependent (28.5% and 33.7%, respectively -in Suffolk this has soared to 46%) on the economically sensitive sales tax. On the other hand Rockland (28.8% ), Westchester (25%), and Suffolk (25.9%) received a substantially larger portion of the revenues from the state and federal governments than Nassau (15.7%).

On the expenditure side: with the exception of Nassau (17%) the cost of government (executive, legislative and judicial branches) consumes between 10 and 12% of total revenue. Along with spending for the central government, the most significant budget ite m is the cost of police and other public safety measures. These vary: again Nassau and Suffolk public safety accounts for over 20% of the budget while less than 10% in the two northern counties.

The percentage of debt payments relative to total expenditures underscores the relative depth of fiscal difficulty experienced by the Long Island counties. Debt payments for Nassau and Suffolk (both principal and interest) were 10.6% (12% in 1995) and 9.3 %; for Rockland (5.7%) and Westchester (4.9%). Part of this is explained (in the case of Nassau county) by the relatively high percentage (15.3%) of capital outlays and equipment expenditures, concentrated in the areas of government (facilities) and educa tion. For the other counties capital expenditures comprised between 4.2% (Suffolk) and 7.4% (Westchester) of the total budget. By comparison NYC has alotted 15% of its budget for capital outlays.

If, as this study argues one of the keys for achieving sustainable development in the region is the maintenance and construction of infrastructure, the examination of the fiscal situation of four counties raises some serious questions. What level of debt can the region (especially the counties under examination) carry -both as a yearly charge against revenues and as a percentage of total outstanding debt to revenue? The question is particularly pressing given the expensive Pataki proposal to restructure energy generation and delivery on Long Island (see below), and evidence that the region's debt is mounting.

Infrastructure: Governance and Development

Maintenance and expansion of the region's infrastructure is vital for its continued economic competitiveness. The size of the region, the scope of public works which need to be undertaken and their tri-state nature underline the need for well-thought out and well coordinated plans. This raises a series of questions about governance, public finance, and public-private cooperation. The need for infrastructure development is great. Here we indicate two areas (transportation and energy) and examine one (energ y). In the conclusion we raise a third area (education). It remains to be seen whether the current fiscal approach to growing the economy by decreasing the size government and lowering tax rates is compatible with major infrastructure construction. Can pr ivate sector-government partnerships successfully complete large scale transportation, communication and energy development? Or will government, in order to accelerate infrastructure improvement, need to design and fully fund public works projects?

Transportation: In its 25 year plan, the RPA called for building railroads and highways to more effectively tie together the inner city and its outlying counties. The plan estimated that the 25 miles of rails links would cost $25 billion dollars. Clearly, improved railroad and highway linkages between the region's core urban center and its suburbs are needed; especially increased use of public transportation to alleviate environmental pressures. But the political climate is opposed to government sponsored public works projects, particularly at the federal level. The cost is large and it is unclear whether municipal or regional bond markets can absorb the level of debt that would be needed to fund such projects. This leaves as alternatives different mixes of public-private initiatives.

In January 1997 Mayor Guiliani proposed construction of a freight tunnel to connect New York City with the rest of the country. New York is almost completely reliant on traffic- and pollution-producing vehicular transport. The proposed tunnel, at a estima ted cost of $800 to $900 million, would reduce congestion, and linked with a plan to revitalize Brooklyn and Staten Island waterfront, could generate a projected 53,000 jobs. Financing for the project remains unspecified.

Close examination of the energy sector and the proposed state take-over of Lilco on Long Island may provide elements of a framework for future large-scale development projects.

Energy: The long island lighting company (Lilco)

At the close of 1996 a "merger" agreement between the Long Island Lighting Company (Lilco) and the Brooklyn Union Gas Company was announced 47 . The merger is designed to solve a series of longstanding energy-related problems. Foremost among them is the provision of affordable clean energy to the residents and businesses of Long Island. The agreement, which will create a single holding company from the two utilities, raises several issues: the role of the state in the management of public utilities, the issuance of pubic debt for infrastructure development; and how to ensure efficient manag ement.

Energy costs in the NY region are high and have continued to mount. In constant (1982-1984) dollars the annual 1960 residential electric bill was $283; in 1992 it was $538 or $764.41 (1992$s). At the same time the revenue per unit consumed has fallen, in 1982-1984 dollars, from $0.1089/Kwh (1960) to $0.0903 (1992).

In this spiralling price structure Lilco rates on Long Island are the second highest in the country (after Maui Lighting in Hawaii). Lilco serves a 1,230 square mile area with a population of 2.7 million. It has 1 million customers for its electricity and another 442,000 purchase natural gas.

The origin of the crisis lay with the failed Shoreham Nuclear Power Plant which never went on line. Nevertheless, rate hikes (to cover the $4.5 to $5 billion cost of construction) were approved by the state regulatory agency.

The high energy costs are a burden on Nassau and Suffolk county residents and businesses, contributing to the region's high cost of living, the loss of defense industry contracts, and its slow recovery from the recession of the early 1990s.

Three key issues are outside the merger agreement.

Implications:

Combining Brooklyn and Long Island's power companies to create a single utility with a customer base of over 2.6 million, parallels the process of consolidation that we have witnessed in other sectors of the economy from the defense to health industies. S erious questions arise whether the merger, occurring as the energy industry is preparing for deregulation, is the first in a series of takeovers and acquisitions that will see the rise of regionally-based power companies. In the long run will the industry be oligopolistic or competitive, and what role will be played by the state?

The immediate reaction to the merger has been positive, though disposition of the $4.5 billion debt and LIPA's role remains undecided. Pending deregulation will allow residents and businesses to choose energy utilities the way they now choose phone compan ies. Con Edison, the region's largest supplier of energy, will face stiff competition from the newly formed company. Prior to the merger Brooklyn Union Gas took a number of steps to competitively position itself within the regional market. It has been adv ocating "fuel-neutral" solutions in which customers will receive the optimum mix of energy sources. Analysts argue that Brooklyn Union's operational expertise combined with Lilco's large customer and infrastructure base will position the new com pany to be a effective player in the Northeast regional energy market.

That the Pataki Administration took an important role in the Lilco-Brooklyn Union Gas merger underscores the scope of the problem and the state's willingness to commit significant resources to its solution. This is particularly noteworthy given that Gover nor Pataki, a Republican, has proposed conservative (less government) solutions to public issues. However, the scope and quality of the state role remain to be seen. How much control will LIPA exert over the new company? In a broader sense, what superviso ry role will the state play after deregulation, and how, in a regional markets will state oversight operate?

Two other areas left out of the merger deserve attention: first, infrastructure (transmission) development as opposed to power generation. It may be that a key to the region's successful re-development will be the constructions of large capacity transmiss ion systems. This would enable the region to import cheap energy (from Canada) benefiting both local consumers and Canadian providers. The potential for increased trade and improved quality of life would be enhanced. The second area that needs to be exami ned is the development of more ecologically sound and efficient energy uses and sources.

III. CONCLUSION:

Policy Considerations

We suggest the following concluding points:

Economic Concentration and Governance: There is a dual process underway in the region. Economic power is being concentrated in the hands of fewer corporate players. Concentration combined with competitive pressures has forced a significant restructuring o f the labor market. At the same time the public sector is pursuing policies that are translating into smaller government, deepening the immediate difficulties in the labor market. Expansion is occurring in new high-technology small to medium size firms, a countervailing process of economic diffusion. Public policies need to be designed (through the development of state-of-the-art infrastructure) that encourages the growth, and long-term regional stability of these companies. It is perhaps at the regional level where such policies can best be designed and implemented.

There is a disjuncture between political structure and economic reality. This goes beyond issues of taxation and political will to questioning to what extent the economy of the region we are studying cuts in a disadvantageous way across political sub-divi sions. Relocation of businesses within the region (often due to tax incentives as well as quality of life issues) indicates that a cohesive regional development model is not in operation. A "beggar thy neighbor" tax strategy has weakened the reg ion's fiscal base, and has prompted difficult exchanges among the region's political leadership. Even as tax revenues have fallen, tax breaks to companies have increased 48 . For example, to prevent the Cotton and Tobacco Exchange, along with the Cocoa Exchan ge from moving to NJ, the Giuliani Administration offered to subsidize the building of a new facility to house the exchange and offered a fifteen year tax abatement. The number of jobs involved were relatively small (5,000) but the administration argued i t moved to retain the exchanges to protect NYC's reputation as a world financial center. Regional coordination is a key point in the RPA's Third master Plan. They propose a series of tri-state coordinating structures (including an infrastructure bank) to maximize regional development. We suggest that a more formal coordinating body, such as that of the Greater Toronto region or tri-county Metro Portland, be considered for further study.

Exports: The manufacture and transhipment of goods for export are a significant and growing part of the region's economy. Increasingly exports are a high-skill, high value-added sector. However, without data on service exports it is impossible to assess a ccurately the sector's total impact on the region's economy.

Growth in income inequality. Disparities between well-educated professionals, especially in the expanding sector of the economy, and less-skilled workers in the declining sector of the economy is growing. This is part of a national pattern which now sees income disparities at their highest level since 1947. There is the wide disparity of income between extremely well paid corporate executives and employees 49 . Income inequality is a result of many factors, but clearly international competition and changing t echnologies are among the most significant. The level of the New York region's exposure to the international environment makes this an important question, particularly in light of the reality that much of New York City's economy is both "knowledge an d information based." Given the region's developed communications infrastructure, information can and does flow in and out from everywhere. What will be the effect on the region's economy if these "information services" are out-sourced? Wil l it feed the growing wage disparities in the region? 50

In analyzing this question, we must make a distinction between information (which is increasingly a "cheap" commodity) and knowledge-based skills (a "dear" commodity). It is a proposition of this paper that New York and the metropolita n region are rich in knowledge-based skills, and that this asset will provide a significant platform for the area's future economy. However, because knowledge-based skills tend to be value- not labor-intensive, it is also important to examine this process in terms of the region's changing demographics and the quality of the region's educational infrastructure, both private and public.

Political change: Traditionally, the major municipalities in the metropolitan region (such as New York and Newark) have long been Democratic party strongholds. Now, all three states have Republican governors and New York, as well as other cities have Repu blican mayors. Is this an enduring shift? Will the high levels of insecurity and lack of confidence translate into political volatility? How will region's political future be affected by changing demographics? How will future political alignments shape mo dels of development?

Research Agenda: Next Steps

The next stage of the project involves expansion on three levels: methodological, conceptual, and research areas.

Methodological: Having underscored the statistical basis of the study, further stages should incorporate interviews with key individuals in the political and economic spheres.

Conceptual: The issue of sustainable growth, is not limited to an assessment of how to best grow the economy. More economic activity is not necessarily better. Economic activity needs to be analyzed within a broader context that emphasizes the "quali ty of life."

Research Areas: It will be important to analyze potential areas of dynamic economic change.

 1. New York Times, December 31, 1996; Conference Board, Consumer Confidence Survey, February 1996.

2. Ronald G. Hellman and Eugene D. Miller, "New York and the New World Order" Bildner Center Working Paper, and "Nueva York y el nuevo orden mundial" in Mito y Realidad de la Declinación de Estado Unidos, ed. Rosa Cominsky (CISAN, Universidad Nacional Autónomo de México: Mexico D.F.) 1992.

3. By concentration we are primarily referring to industry patterns, though we refer in the paper as well to patterns of personal income distribution.

4. This research is part of a project, MEXNY-21: An International Urban Laboratory for the Twenty-First Century City, organized by the Bildner Center for Western Hemisphere Studies, City University Graduate School, and the Instituto Tecnológico Autónom o de México (ITAM) in Mexico City.

5. This adheres to the Port-Authority definition of the region. But definitions vary. The Regional Plan Association, for example, incorporates 31 counties in NY, NJ, and CT into its studies.

6. NY-NNJ-CT Consolidated Metropolitan Statistical Areas, as defined by the U.S. Census Bureau.

7. PMSA primary metropolitan statistical area, as defined by US Census Bureau. It encompasses a larger area than that defined by the Port Authority's 17 counties.

8. defined by the U.S. Census Bureau.

9. Estimated in RPA Master Plan, 1996.

10. In 1991 the three states' combined gross state product was $893 billion. The three largest sectors were FIRE $186 billion; Services $171 billion; Manufacturing $124 billion; and Government $115 billion. US Statistical Abstract, 1995, Nos. 703 and 70 4.

11. Note the GRP is a regional figure, while income is a tri-state total.

12. Conference Board, Regional Economics and Markets, Fourth Quarter 1995.

13. New York Times, December 31, 1996.

14. Fleet Financial Group Report (in NYT,) February 19, 1996.

15. New York Federal Reserve Bank, Current Issues, February 1996.

16. Crains, Dec. 11, 1995

17. New York State Comptroller's Office (1995), Recent Trends in the New York City Economy, p. 12.

18. Mark Hurley, et al, The Coming Evolution of the Investment Management Industry: Opportunities and Strategies, October 1995.

19. This is discussed in Noyelle.

20. Certainly parts of this sector, especially Real Estate which represents approximate 25% (or 120,000) of employment, are tied to the domestic market.

21. The argument made by Thierrey Noyelle is that the sizable wage differentials between Manhattan-based FIRE employment and surrounding county FIRE employment indicates that there is not direct job competition. See City Journal, The Competitiveness Debate, Spring 1992.

22. Federal Reserve Bank of New York, Current Issues, October 1995.

23. Coopers & Lybrand Report in New York Times, April 15, 1996.

24. In 1994 the primary vacancy rate was 17.2%; the rate for secondary space was 26.5. Trends in New York City's Economy.

25. Federal Reserve Bank, Current Issues: Volume I Number 5, August, 1995.

26. New York Times, April 6, 1996.

27. NYS Statistical Year Book, 1994.

28. New York State Comptroller's Office (1995), Recent Trends in the New York City Economy, p. 31.

29. New York State Statistical Yearbook, 1994.

30. Full time wages in New Media are 30 to 50% lower than in the established media and entertainment industries. New York State Department of Labor, in the New York Times, April 15, 1996.

31. Income/job disparity rates measure the gap between the rates of real income and total employment.

32. Suffolk County Department of Labor.

33. NYT, February 19. 1996

34. From 1993 to 1995 NJ's total population rose from 6.035 million to 6.057 million and its available civilian labor force from 3.954 million to 3.991 million. U.S. Department of Labor Statistics.

35. The literature on this is abundant. See for example Federal Reserve Bank Quarterly -April 1995.

36. US Statistical Abstract 1995, No. 697.

38. Exports to Canada and Mexico through NY/NJ ports.

39. Again, these statistic do not indicate that 39% of total exports were produced in the NY/NJ region, only that they were assembled or packed for shipment in the region. This data only includes goods that pass through the region's port facilities. The y do not include services.

40. These figures are not adjusted for inflation.

41. New York Federal Reserve Bank, Current Issues, November 1996.

42. Miser Exports by State of Origin data.

43. Much of the background material is drawn from Carol O'Cleireacain, NYC Budget Situation, MEXNY-21 Background Documents.

44. The number refers to those full-time employees who are paid through the city's payroll system. It includes, the Board of Education, Police, and most city agencies. It excludes employees of the Health and Hospitals Corporation, libraries, and cultura l institutes. These institutions receive lump sum appropriations from the city, and pay their workers directly. O'Cleireacain, NYC Budget Situation, 11.

45. SUNY's total operating expenses are $1.51. billion.

46. Suffolk County Revenue by Source.

47. Is it a merger or a takeover? The agreement will form a holding company to run the two utilities. Lilco's chairman, Dr. William J. Catacosinos' tenure as head of the holding company will be restricted to one year. He will be succeeded by Robert C. C atell, chairman of Brooklyn Union Gas. In addition, Brooklyn Union Gas stockholders will receive one share in the new company for each share they now own. Lilco stockholders will receive .803 shares for each share currently owned. Not surprising, given Li lco's $4.5 billion debt burden, Brooklyn Union Gas' stock fell after the announcement, while Lilco's rose.

48. See NYT July 5, 1995, Lower Budgets Don't Cut Flow of Tax Breaks.

49. For example, AT&T Chairman Allen annual earnings totalled $16 million at the same time the corporation announced the lay-off of 40,000 workers.

50. For the linkage between wage structure and the out-sourcing of services see, George J. Borjas, "The Internationalization of the U.S. Labor Market and the Wage Structure" in Economic Policy Review (Federal Reserve Bank of New York, January 1995.)

51. Nuala Beck, Shifting Gears: Thriving in the New Economy. 1995.

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