Workforce Preparedness Measures and Characteristics: Part 2

This is the second in a three-part series of measures and comparisons of Missouri Metro Areas with other metro areas, using Chicago as our benchmark measure.

Summary Of Metro Area Status
The two metro areas closest to the New Economy are, perhaps not too surprisingly, California's Silicon Valley/San Francisco (which includes Oakland and San Jose). Silicon Valley has become synonymous with innovation and technology, while Austin, Texas, is noted for Dell Computer, Sematech (the chip-making consortium), and the University of Texas.

The other metro areas that comprise the top 10 New Economy metro areas—Seattle, Raleigh- Durham, San Diego, Washington, D.C., Denver, Boston, Salt Lake City, and Minneapolis—have more in common than just high-tech firms. They tend to have a high concentration of managers, professionals, and college-educated residents working in "knowledge jobs" (jobs that require at least a two-year degree). Most are at the forefront of the IT and Internet revolutions, with a large share of their companies and residents embracing the digital economy. Most have a solid "innovation infrastructure" that fosters and supports technological innovation, including universities that graduate a large number of scientists and engineers, conduct research, and interact with companies in the region.

In looking at the 50 most populated metro areas, we have selected most of the author's 16 indicators, divided into five categories that best capture what is new about the New Economy:

1) Knowledge jobs. Indicator measures jobs held by managers, professionals, and technicians; and the educational attainment of the workforce.

2) Globalization. Indicator measures the export orientation of manufacturing.

3) Economic dynamism and competition. Indicators in this category measure the number of fast-growing "gazelle" companies (companies with sales growth of 20 percent or more for four straight years); the rate of economic "churn" (which is a product of new business start-ups and existing business failures); and the number of initial public stock offerings (IPOs) by companies in each metro.

4) The transformation to a digital economy. Indicators measure the percentage of adults online; the number of ".com" domain-name registrations; the share of students using computers in schools; Internet backbone capacity; and number of providers of broadband telecommunications services.

5) Technological innovation capacity. Indicators measure the number of high-tech jobs; the number of science and engineering graduates from area colleges and universities; the number of patents issued; expenditures on research and development at colleges and universities; and venture capital investments.

Knowledge Jobs
In the old economy, metro areas prospered by having a large number of jobs and workers who could work on "assembly lines" to produce goods or process information. In the New Economy, globalization and the information technology revolution make it easier for more low-value-added standardized goods and information processing jobs to locate in cheaper areas. As a result, larger metro areas will prosper if their workers are good with their minds and are employed in the knowledge- and information-based jobs driving the New Economy. Many of these jobs tend to be managerial, professional, and technical positions held by individuals with at least two years of college.

Metro Area By Rank (out of 50)
Rank 35 36 37	Metro Area Chicago Kansas City St. Louis

Workforce Education
A weighted measure of the educational attainment (advanced degrees, bachelor's degrees, or some college course work) of the workforce.

Why is this important? An educated workforce is critical to increasing productivity and fostering innovation. In fact, knowledge-based jobs (those requiring post secondary, vocational, or higher education) grew from 27 percent of total employment in 1983 to 31 percent in 1993, and they are expected to grow to more than 33 percent in 2006. Metro areas with a more educated workforce are better positioned to capitalize on this trend.

Knowledge workers are important not only because the principal factor determining where high-tech firms locate is an adequate supply of skilled labor, but also because their presence boosts incomes. Paul Gottlieb found that from 1980 to 1997, the per capita incomes of metro areas with the most educated populations grew 1.8 percent in real terms per year, while those with the least-educated populations grew only 0.8 percent per year.

Finally, entrepreneurs are more likely to have higher levels of education. As entrepreneurial start-ups become more important to a region's economic success, having more knowledge workers increases entrepreneurial activity.

Metro Area By Rank (out of 50)
Rank 35 36 42	Metro Area St. Louis Chicago Kansas City

Globalization
While the old economy was national in its scope, the New Economy is global. It is estimated that more than $21 trillion of the world economy's combined output was open to global competition in 2000, up from $4 trillion in 1995. This growth was driven by global capital markets, reduced economic and trade barriers and—perhaps most important—technological change, which makes it easier to locate enterprises and sell products and services almost anywhere.

Metro Area By Rank (out of 50)
Rank 22 23 41	Metro Area Kansas City Chicago St. Louis

Export Focus of Manufacturing
Manufacturing exports sales per manufacturing worker.

Why is this important? Trade has become an integral part of the United States' and world's economies. The combined total of U.S. exports and imports has increased from less than 5.5 percent of GDP in 1950, to 11 percent in 1970, to 24 percent in 1999. Moreover, the United States is increasingly specializing in more complex, higher-value-added goods and services, reflected in the fact that the average weight of a dollar's worth of American exports is less than half of what it was in 1970. That focus on higher-value-added goods and services benefits many American workers. Workers employed in export-oriented firms earn 10 percent more than workers in similar firms that export less, or don't export at all. As a result, metropolitan areas whose companies are not global traders will be left behind.

Metro Area By Rank (out of 50)
Rank 22 24 41	Metro Area Kansas City Chicago St. Louis

Economic Dynamism
Large companies facing limited competition in stable, cost-based markets epitomized the old economy. The New Economy is all about economic dynamism and competition—typified by fast-growing, entrepreneurial companies. The ability of firms to innovate and get to market faster is becoming a more important determinant of competitive advantage. Likewise, the ability of metro economies to rejuvenate themselves through formation of new, innovative companies is a key to determining their economic vitality. This is reflected in the fact that the amount of job churning was the indicator most closely correlated with growth in overall employment in the previous 10 years (a correlation of 0.56). It was also closely correlated (0.33) with growth in per capita income.

The dynamism indicators in this section measure three things: 1) the share of jobs in fast-growing "gazelle" firms; 2) the degree of job churning (which is a product of new business startups and existing business failures); and 3) the value of companies' IPOs.

Metro Area By Rank (out of 50)
Rank 18 20 25	Metro Area St. Louis Kansas City Chicago

Gazelle Jobs
Jobs in gazelle companies (companies with annual sales revenue growth 20 percent or more for four straight years) as a share of total employment.

Why is this important? The degree to which a metro's economy is composed of new, rapidly growing firms, known as gazelles, indicates the degree to which the economy is dynamic and adaptive, which is a key driver of the New Economy. It is not small firms per se that are the key; it is the relatively small number of fast-growing firms of all sizes that account for the lion's share of new jobs created in the 1990s. Between 1994 and 1998, gazelles (which

Why is this important? The degree to which a metro's economy is composed of new, rapidly growing firms, known as gazelles, indicates the degree to which the economy is dynamic and adaptive, which is a key driver of the New Economy. It is not small firms per se that are the key; it is the relatively small number of fast-growing firms of all sizes that account for the lion's share of new jobs created in the 1990s. Between 1994 and 1998, gazelles (which number over 355,000) generated practically as many jobs (10.7 million) as the entire U.S. economy (11.1 million).

Metro Area By Rank (out of 50)
Rank 10 13 28	Metro Area St. Louis Kansas City Chicago

Job Churning
A rank based on the number of new startups and business failures within each metro.

Why is this important? Steady growth in employment masks the constant churning of job creation and destruction, as less innovative and efficient companies downsize or go out of business and more innovative and efficient companies grow and take their place. For example, a total of 3.5 million private-sector jobs were added to the U.S. economy between 1994 and 1995, but that was after new firms had created 5.7 million jobs, failing firms eliminated 4.5 million jobs, expanding firms added 10.5 million jobs, and contracting firms eliminated 8.2 million others. This churning has accelerated over the last three decades as the number of new startups and existing business failures per year has grown. While such turbulence increases the economic risk faced by workers, companies, and even regions, it is also a major driver of economic innovation and growth.

Metro Area By Rank (out of 50)
Rank 17 20 30	Metro Area Chicago St. Louis Kansas City

Source:
Edited excerpts from The Metropolitan New Economy Index, by Robert D. Atkinson and Paul D. Gottlieb, April 2001.

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Authored by: Jim Shonkwiler, Business and Industry Specialist, University of Missouri Extension
Source: Creating Quality Newsletter, Volume 10, Number 11, November 2001

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