Planning Decisions, Inc.

THE BOTTOM LINE FROM CHUCK LAWTON

How Big Are Our Cities?

Published Sunday October 21, 2007

One of the thorny little issues in economic analysis that is generally ignored until it becomes a nuisance is the question of how we measure income. Growth, poverty, tax burden, indeed most of the topics hotly debated in public discussions of economic policy generally revolve to some degree or another around income. How much do the residents of some city or county or state make? How rapidly or slowly is it growing? From what business sector does it derive? How much of it do the citizens of the area in question have to pay in taxes? All these questions center on the level of income of the residents of a particular area.

Yet income is measured, for the most part, not where people reside but where they work. Employers file unemployment compensation reports with Departments of Labor, and income is reported at addresses of businesses not individual workers. To derive estimates of income by place of residence, the Bureau of Economic Analysis must look at commuting patterns and derive an adjustment factor to move from income by place of work to income by place of residence.

This adjustment factor is in many ways the definition of our cities. Nationally in 2006, the adjustment factor for our 363 Metropolitan Statistical Areas (MSA’s) was over $74 billion. That is to say that workers in our major cities earned over $74 billion that they took “home” to their places of residence. The New York-New Jersey MSA led the way with over $20 billion of commuter income. The Los Angeles-Long Beach-Santa Ana (MSA) was second with $19 billion. The Boston MSA was fourth with nearly $13 billion, just ahead of the Washington D.C. MSA’s $11 billion.

So what, you say. That’s the nature of cities. People work there and commute home to the suburbs.

Well not always.

Fully 148 of those 363 MSA’s have positive adjustment factors, meaning that the net effect of commuters leaving to work elsewhere and bring income back into the MSA is greater than that of workers taking their income away. The largest of these income importers is the Riverside-San Bernardino-Ontario MSA outside Los Angeles importing $15 billion in income and the Baltimore-Towson (MSA) outside Washington, D.C. importing over $6 billion in income.

Pattern of Commuter Income, New England, 2006

Source: Bureau of Economic Analysis.

Looking closer to home, it is interesting to note that all of the New England MSA’s show a positive net commuter income except the two most northerly—Bangor and Burlington. Residents of the Portland MSA bring over $260 million back home from jobs outside, an amount equal to 2 percent of earnings made within the MSA. This is relatively small compared to the 24 percent share in Worcester, the 12 percent in Providence-New Bedford and the 7 percent in Manchester-Nashua, but it does show the growing importance to southern Maine of income earned outside the area. It is interesting to note in this regard that the Lewiston-Auburn MSA brings in over $200 million in commuter income, much, undoubtedly, from the Portland MSA.

Combining these positive commuter incomes for the “second tier” MSA’s in New England with the huge negatives for New York and Boston, it seems clear that New England MSA’s are actually “neighborhoods” in the much larger, more complex urban economies of Greater New York and Greater Boston. Only Bangor and Burlington remain somewhat unconnected, serving to provide jobs for their surrounding suburbs and rural peripheries.

The lesson for economic development, it seems to me, is that we need to acknowledge and embrace the growing interconnections within our region and use them to enhance the flow of people, ideas, innovation and, ultimately, income.

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