The Economic Base ofCities and Communities

• Represents the core economic activity on which much of the community’s local economy depends.

• Even if tied to a core economic activity, communities are active (to some extent) in all four phases of the nation’s economy:

– Extracting Resources

– Producing

– Distributing

– Servicing

Historical Factors• The natural resources that were available in

the area. These helped shape the economic base that could be created in the community.

• Transportation networks available to distribute raw materials and products (ships, railroads, roads/turnpike systems). These networks helped shape where communities would be established.

What factors have brought change to the economic health of rural

communities? • Technology: has decreased the need for

workers in a variety of economic sectors.

• Although high tech industries and firms require greater proximity to skilled labor, markets and information. For these firms, the cheap land, abundant labor, and lax environmental regulations available in rural areas have seemed more appealing.

Health of Rural Communities• Shifts in Transportation Systems

– Decreased dependence on local area to meet needs

• Economic Restructuring: umbrella term for any economic changes occurring in business

– Shift to a global economy– Economic basis of many nonmetro

communities have been dominated by the production of goods which have close substitutes in other countries

– Communities dependent on a single economic base most vulnerable.

Economic Portrait of Rural Communities

• Natural-Resource-Based Communities– Agriculture, forestry, energy mining,

non-energy mining, and fishing– All have experienced declines over the

last two decades– Been susceptible to boom-and-bust

cycles in response to the price of these commodities in the international markets

Economic Portrait of Cities and Communities

• Manufacturing Communities– Grew during the 1950s, 1960s and 1970s– Became single largest employer in rural

areas by the late 1970s. 40% of rural labor force.

– Many footloose manufacturing firms left rural areas and moved overseas in search of even cheaper labor. Others struggled to maintain their operations in an environment of increased competition.

Economic Portrait of Cities and Communities

• Specialized Government Communities:– Includes military bases, prisons, universities,

public lands.– Experienced significant growth during the late

1970s and early 1980s.– While paying low wages, these jobs have been

fairly stable. However, they have limited the tax base of these communities.

Economic Portrait of Cities and Communities

• Destination-Retirement Communities– Defined as those that have experienced a net in-

migration of people 60+ years of age– Have experienced positive growth due to the

income that retirees have brought to the community

– Impact on the local infrastructure and services remains to be seen

– An area of the economy that is not clearly addressed in these four groupings is the rising importance of the Service Sector

Economic Portrait of Cities and Communities

• During the 1980s, about 12 million service jobs were created in the U.S.

• But, the service sectors experiencing the most rapid growth have exhibited a marked preference for metro locations

• Only tourism and retirement-related activities have shown an inclination for rural locations.

The Notion of Dual Economy• Proponents of the dual economy theory suggests

that industries can be grouped into two qualitatively distinct sectors --the CORE and PERIPHERY sectors.

• This current economic segmentation is the result of the historical evolution of American Capitalism. This means that:

– this segmentation is not the product of variation in the quality of labor or other attributes of workers;

– rather, it is the cause of differences in the composition or quality of labor.

Dual Economy• Job instability is not a personality

characteristic of the worker but a characteristic of the sector in which the person is employed.

• The argument has been made that the core sector firms tends to be found primarily in metro areas; peripheral sector industries are more dominant in nonmetro areas.

Theory of Dual Labor Markets

• Central thesis is that jobs are situated in primary and secondary labor markets.

• Jobs existing in one sector have a distinct set of characteristics relative to the other sector.

Primary Sector• Prominent features are:

– Internal markets are pervasive– Employment is stable and jobs secure– Wages are high– Working conditions are good– Workers are punctual and dependable– Investment in employee is extensive– Worker turnover is low– While jobs in this sector have entry level

requirements associated with them there is opportunity for upward mobility.

Secondary Labor Markets• Prominent features are:

– Few opportunities for advancement, if any– Employment unstable and jobs insecure– Virtually no requirements for gaining entry into

these positions– Wages paid and work conditions tend to be

poor– Few, if any, job training programs are extended

to workers.– Employee commitment is low, so turnover,

absenteeism, and tardiness are extensive

Bottom Line• Human capital investments are likely to pay

higher dividends to those gaining access to and advancing within the primary labor market. Adequate compensation for education and training are significantly lower for those employed in the secondary sector given the “dead end” nature of these jobs.

Theories of Human Capital

• Education as an Investment

• Status Attainment Theory (Family and Community Contributions)

• Labor Models

– Screening Model

– Job Competition

– Dual Labor Markets

• Dual Economy

Education as an Investment

Status Attainment Theory

Screening Model

Job Competition

Dual Labor Markets

• Internal Labor Markets• Stable Employment/Job

Security• Upward Mobility• Entry Requirements• Job Training• Good wages -

Conditions• Low Turnover

• No Internal Labor Market

• Unstable / No Security• No Entry Requirements• No Training• Poor Wages -

Conditions• High Turnover -

Absenteeism

Primary Secondary

Dual Economy

• Concentrated Economic Activity

• Small Number of Firms

• Large Scale Firms• Diversified Products• High Profits• Capital Intensive• High Productivity

• Low Economic Concentration

• Intensive Competition• Little Capacity to

Exercise Market Power• Small Sized Firms• Low Profits• Labor Intensive• Low Productivity

Core Sector Periphery Sector

Dual Economy

• Well-developed Internal Labor Market

• Significant Unionization

• High Skilled• Good wages and

conditions• High Investment in

Training• Low turnover

• Minimal Internal Labor Market

• Lack of Unionization• Low Job Skills• Poor Wages and

Conditions• Minimal Training• High Turnover

Core Sector Periphery Sector