Midwest Economy Blog

Exploring urban economic bases: Which types of people and industries are drawn to central cities?

February 25, 2011

This year the 2010 U.S. Census findings have started to become public. Thus far, these findings show that central cities of Midwest metropolitan areas, like Chicago and Detroit, experienced a rough decade. For example, the city of Chicago lost almost 7 percent of its population over the 2000s, although it had gained 4 percent during the 1990s. Indianapolis’s population continued to grow in the 2000s, but by 4.8 percent, down from 8.3 percent during the 1990s. Weakness in the general U.S. and Midwest economies over the decade explains much of the weakness. In addition, the housing boom through 2006 dampened cities in comparison to their suburbs. Although redevelopment and resettlement took place in some central cities, the housing boom generally propelled new construction in the urban fringe during the past decade.

Since most major housing markets remain depressed, decentralization of the metro area population from the central cities to their suburbs will likely abate. Still, the previous decade’s losses of population (and jobs) have left some city governments and schools systems, including those in Chicago and Detroit, with yawning fiscal deficits, which make it very difficult to sustain essential services. Services are financed through local taxes on residential property and consumer sales, which tend to fall along with population. At the same time, fewer households do not always translate into fewer public service burdens because physical infrastructure (schools, roads, bridges, and sewers) must be maintained; indeed, the delivery networks of public services do not easily or quickly scale down dollar for dollar.

City services are also financed from taxation of the job base and commercial activity. With regard to the job base of central cities, the U.S. Census Bureau has not yet released detailed 2010 Census data that can document job gains or losses in central areas. Yet, job declines usually accompany population declines. There are many reasons why such declines go hand in hand. For one, households spend locally on food, recreation, and home repair, so when people leave central cities to live elsewhere, workers with jobs tied to these activities may be let go. For another, most people want to reduce their costs spent in time and money getting to and from work. Accordingly, many employers have followed the people who have moved from central cities to the suburbs, especially if moving their operations translates into easier recruitment and lower costs

That said, the recent decline in home construction jobs are likely being felt been more keenly in the urban fringe, where much of new construction was focused earlier in the decade. Across the U.S., residential construction jobs have declined 44 percent since their peak in 2006. So, for the time being, construction does not appear to offer any positive prospects for suburban and central city economies alike.

As the economic recovery continues to unfold, central cities will be searching for avenues to rebuild their job bases. In statistical work being conducted by Bill Sander of DePaul University and me, we examine many characteristics of central city workers. Even after we control for where these workers live—city versus suburb—we find that the central city is a more attractive location for those jobs that are occupied by workers who have higher educational attainment. The reasons for this are difficult to disentangle. Some of the attraction to central cities for highly educated workers (and their employers) may be cities’ relatively greater density of highly educated workers. This density may facilitate better productivity, perhaps through easier face-to-face information exchange, which can generate new ideas or learning. Or, it may also be that firms in those industries that tend to employ highly educated workers find central location attractive for other reasons, such as proximity to their customers.1

During the course of our work, we constructed some charts of the relative location of city jobs versus suburban jobs for specific industry sectors (see below). The charts are revealing, but they do bear some explaining. The charts show the general tendency of jobs in specific industry sectors to be located in cities (versus the suburbs). A dot below the red line indicates a suburban concentration. For instance, construction jobs turn out to be more suburban-oriented than total jobs across all 15 metropolitan areas. Manufacturing and retail trade jobs show the same tendency.

Central City Share of Total Jobs in Metro Area versus Central City Share of Sector-Specific Jobs, 2004

U.S. Dept of Commerce, County Business Patterns 2004 and U.S. Census Bureau, Census 2000 (Public Administration only)

Our charts clearly show that some industry sectors are more city-oriented than others. Industries that are more city-oriented industries are health care and social assistance; finance and insurance; arts, entertainment, and recreation; education services; and public administration. Other industries—such as professional, scientific, and technical services; transportation and warehousing; and management of companies and enterprises—vary across individual metropolitan areas.

No doubt, cities and suburbs alike will use such information to focus their energies and efforts to revamp their economic bases. For cities, information-rich sectors will continue to draw investment interest by employers of workers having high educational attainment.


1 Those with higher educational attainment tend to occupy jobs in the city relative to the suburbs, even after controlling for the broad industry under which the jobs fall. That is, for example, workers in retail trade jobs tend to have higher educational attainment in the city versus the suburbs (in most instances).

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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