Paul Krugman: ...[S]pace limitations prevented me from putting a lot of stuff ... into this column. So let me add a bit more about the good and bad news from New York. ...
Regional economists tend to think in terms of ... the "base-multiplier model." First, there's the metropolitan area's export base: the stuff it sells to other regions. In modern New York, that mainly means financial services. The income that people earn in that export sector gets partly spent on locally provided services, which supports a number of people working outside the export base. These people in turn spend money locally, which supports still more people, and so on. (That's the "multiplier" part of the story.) In a large metro area like New York, where a high fraction of income is spent within the region, the multiplier effect is large: a lot more people are employed outside the export base than in it. But the export industries are still the city's reason for being.
Thirty years ago there was reason to worry that New York's export base was collapsing. The geographic advantages ..., notably the Erie Canal, had become irrelevant, and the "agglomeration economies" — the advantages New York derives from its sheer scale - seemed to be eroding. The old manufacturing sector ... was in terminal decline. Corporate headquarters were moving out. Media were moving to Los Angeles. It seemed possible that the city would fall below critical mass and enter a period of irreversible decline.
The good news is that this didn't happen. Instead, the financial industry prospered, and in the end even the corporate headquarters have started to come back. And because of the multiplier effect, this meant lots of jobs overall. ...
The bad news is that, on average, the jobs created by the multiplier aren't well-paying. That's only a generalization... But by and large we're talking about relatively low-wage jobs, supplying services to the affluent... So it's a highly unequal economy, and one in which even people with incomes that would be middle class somewhere else find it hard to make ends meet.
So it's not an entirely positive picture. But I remember the deep pessimism we all felt about New York in the 1970's, and I'm glad that the city survived that crisis.
Monday, July 10, 2006
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