Increased attention is being given to the role of local services, such as child care, in economic development. While not considered a driver for growth, we argue such services are a critical component of a balanced economic development strategy. We discuss various perspectives on conceptualizing the role of local service sectors: as exports, as import substitution, as human capital investments and as social infrastructure for the broader economy. We construct input-output models for each of the 50 U.S. states and find linkage effects for these local sectors are similar or higher than other sectors that are more typical targets for economic development policy. We recommend economic development policy include support for local service sectors such as child care.
Local Services and Traded Sectors: A Balanced Growth Approach
In this paper we explore the tension between the current export/productivity focus of economic development policy and the need for investment in local services and social infrastructure. We explore different ways to conceptualize the regional economic contribution of local services and argue economic developers should pursue a balanced approach which gives attention to both export industries and local services in economic development policy. Specific attention is given to the case of child care, a local service sector that currently receives scant economic development attention.
There is a tension in economic development policy today between the traditional focus on export base promotion, recognition of the need to target investments to enhance productivity, concern over the relative importance of worker vs firm strategies, and the role of social supports. Traditionally economic development policy in the United States has focused primarily on export promotion as a means to bring new income into the regional economy. Tax abatements to attract outside investment continue to be the primary economic development strategy employed by state and local governments (Warner 2004) despite their limited effectiveness (Bartik 2003, Lynch 1996). While some success has been made in shifting economic development attention toward productivity investments through technology, management, labor, capital and physical infrastructure (Bartik 2003, Lynch 2004a), there is a lively debate over whether these strategies should be focused on export oriented industries (Porter 2003), on occupations (Markusen 2004), or on locally serving sectors which enhance quality of life (Florida 2002).
Michael Porter has pointed to the role of business clusters and a focus on traded services as a strategy to promote economic revitalization in our nation's cities (2003, 2000, 1995). He argues a sustainable economic development strategy would invest in engines for growth. The increased tax base and employment generated from investment in traded sectors could be used to cover the costs of social supports.
Recent work by Markusen et al (2004) finds that the local industry sectors are the largest component of most city economies and the most rapidly growing. Thus if job growth is a primary goal of economic development policy, then investment in locally serving sectors is justified because it provides important support to local economies and critical work experience and income development opportunities for workers. Even Porter (2003) credits local (untraded) jobs as accounting for 67% of total employment and higher rates of job growth than the traded sectors in his analysis of the entire United States. As the job commitment between workers and employers weakens, economic development policy should focus on occupations (and occupational clusters) rather than industries, as workers are a source of productivity and entrepreneurial growth in the regional economy (Markusen 2004, Feser 2003, Christopherson 1990) and they are less locationally mobile than capital.
Florida shares this focus on the worker in his 2002 book, The Rise of the Creative Class, where he argues there is a creative class of workers who promote innovation and entrepreneurship. …