The Economic Microscope

Local economies should be closely studied in order to discern true economic trends.
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Before you make plans based on megatrends, you'd be wise to take a closer look at the local economy

Not since my younger son turned six has anyone thought me omniscient. But it's my job to follow the economy, and I like to think I'm hip to what's going down. I know that times are pretty good, and that small companies are creating most of the new jobs. I know the service sector is expanding, manufacturing shrinking. If I were running a company, I'd be keeping such trends in mind as I did my long-term planning.

Or I would have, anyway, until I looked through Sam White's economic microscope. Turn the magnification up a little, and suddenly those familiar trends don't seem so simple.

A bit of background. Most readers will recognize David Birch as the man who discovered the importance of small companies in job generation. But Birch's greatest contribution may well be his method of studying the economy, rather than his findings. Using computerized data on millions of individual businesses, Birch showed it was possible to pinpoint, as no other researcher then could, the location of major trends such as job growth. The method, he explains, is like looking through an economic microscope. You can tell the computer to focus on companies in Iowa, or companies in the machine-tool business, or companies with fewer than 100 employees. Increase the magnification, so to speak, and you can zero in on anything you want.

But when you look at the business landscape up close and personal in this way, you don't always see what you expect, as White and his colleagues discovered.

Sammis B. White is director of the Urban Research Center at the University of Wisconsin's Milwaukee campus. A couple of years ago he decided to look at his state's employment-security records -- the payroll and employment data filed by every company as part of the unemployment insurance system. Here, he figured, were the makings of an economic microscope par excellence, more complete and accurate than nationwide databases such as Birch's. Buying a decade's worth of computer tapes, he set out to study the Milwaukee economy.

At first, alas, the lens was fuzzy. A company might have plants all over the state, for example, but list all its employment as being at its downtown Milwaukee headquarters. Not too helpful. So White and a small army of graduate students began working the phones. A few thousand calls later, they had verified and corrected the records of every manufacturing company in the region, every other company with more than 50 employees, and every business where the data somehow seemed questionable. Then they began ratcheting up the magnification.

Click. At the regional level, the picture looked relatively simple. Manufacturing employment was down, as you might expect: the Milwaukee metropolitan area lost more than 50,000 factory jobs between 1979 and 1987. By contrast, employment in other sectors was up about 60,000, apparently enough to compensate. But when White focused on payroll, he found that workers' total earnings actually dropped slightly in this period. You run a consumer-products company and you wonder why Milwaukee sales are slow? Now you know. The new jobs aren't paying what the old ones did.

Click. Closer up, the slow-moving trends suddenly turn into a swirling maelstrom of change. The city of Milwaukee lost a torrent of factory jobs, with one-third of manufacturing employment vanishing. Suburban Milwaukee County was hit almost as hard. But wait! Waukesha County, just west of the city, added nearly 4,000 manufacturing jobs on top of an already-sizable industrial base. Business-to-business suppliers thrive by pinpointing booming markets. How many knew that one Milwaukee-area county was growing at a rate rivaling southern California's?

Click. What was going on in Waukesha County, anyway? White's data revealed exactly which businesses were behind the manufacturing explosion. Commercial printing: up 2,050 jobs. Plastics products: up 1,000. X-ray apparatus and tubes: up more than 700. Growing industries such as these expanded fast enough to drown out thousands of jobs lost by declining industries. Among the losers: construction machinery, down 1,160, and foundries, down more than 700.

Click. Focus in on company size: is it the small ones doing the growing? Overall, yes. The number of manufacturing establishments in Waukesha County grew three times as fast as employment, meaning that average plant size was decreasing markedly. But don't jump to conclusions about particular industries. The growth in plastics was spread evenly over many enterprises, but the growth in X-ray apparatus and tubes was thanks to a boom at General Electric Medical Systems. As for printing and publishing, some growth reflected the arrival of 23 new companies, and some the expansion of Quad/Graphics Inc., whose annual revenues went from $20 million in 1979 to $386 million in 1987.

Most of us carry pictures of the business landscape around in our heads and can talk with a modicum of clarity about where the national economy is headed. But it's wise not to let these broadbrush images obscure the details. A big country such as the United States comprises many smaller marketplaces just like Waukesha County, and what's revealed by the economic microscope can be quite different from what seems to appear in the big picture. Business planners do well to focus on the complexities of small markets as well as on what they know about the economy as a whole.

Last updated: Nov 1, 1989




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