chapter 3 economic structure · indicators of economic structure the indicators in this section can...

The Kansas City Economy

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3-0 Overview

Economic structure comprises a broad array ofeconomic characteristics that may support (and alsoresult from) innovation. These include the prosperityof the local economy, its employment structure, andthe competitiveness of area businesses. This chapteranalyzes indicators intended to capture these poten-tial influences on MSA innovation activity.

Indicators of Economic Structure

The indicators in this section can be divided into fivegroups reflecting: (1) the scale of the metropolitaneconomy, (2) growth and migration, (3) labor marketconditions, (4) business structure, and (5)competitiveness.

Living in a larger MSA has both advantages anddisadvantages for local residents. The advantageshave to do with variety, diversity, synergies, andamenities (related to economies of scale, scope, andagglomeration) and also with the amount of resourcesthat can potentially be brought to bear on any oneproblem. The disadvantages include congestion,increased travel times, high costs of land, and nega-tive synergies from the agglomeration of socialproblems.

Metropolitan areas of different sizes are adapted todifferent ways of organizing life. The main signifi-cance of size, therefore, is to indicate what othermetropolitan areas are likely to compete with KansasCity as attractive places to live, with respect to simi-larities in size. The two indicators of size includedhere are:

• Population, the number of people who choose tolive here, and

• Total personal income, the annual increment inmonetary resources that can be devoted toproducing a high standard of living.

A successful economy is one that is able to attractpeople who want to live and work in the region,creates an environment conducive to growing fami-lies, and attracts businesses that create jobs to employthem. On the other hand, too rapid growth cancontribute to economic stresses on existing roads,public works, and other infrastructure. We considerthree indicators in gauging the rate of growth of eachMSA.

• Population growth rates reflect the combinedeffects of net migration into the region andnatural population increase. Both are importantfactors in increasing regional labor supply.

• Employment growth rates directly measure theextent of new job creation in the local economy.

• Five-year migration rates—the fraction of thepopulation that was living somewhere else fiveyears earlier—provides a more direct measureof the extent to which economic opportunitiesand quality of life factors are capable of attract-ing migrants into the region.

Another reflection of economic success is provided bylabor market conditions. A successful economy iscapable of providing employment for its citizens,while offering them a high standard of living. Wemake use of the following four indicators to measurelabor market conditions.

• The unemployment rate is a direct measure of thebalance between labor supply and demand inthe area. High levels of unemployment areclearly undesirable. However, unduly lowlevels of unemployment may indicate risingemployment costs for businesses.

• Personal income per capita adjusted for the cost-of-living is a broad based measure of economicwell being. It reflects the average level of incomeper person in the area. Adjusting for differencesin living costs across locations, it provides adollar-value measure of differences in thestandard of living available to residents indifferent metropolitan areas.

3 Economic Structure

Chapter 3Economic Structure


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• Average salaries of managerial, professional, andtechnical workers adjusted for the cost-of-living areanother reflection of economic well-being,shedding light on an important segment of theworkforce.

• Average salaries of information technology profes-sionals adjusted for the cost-of-living, are anindication of the healthiness of the labor marketfor a key group of workers in the new economy.

The fourth set of indicators captures aspects of thetransformation of the regional economy in response tothe growing importance of service sector and white-collar jobs. These indicators measure the mix ofdifferent jobs in the labor force and provide a gauge ofhow far along each MSA is in the transition to thenew economy. The three indicators we use are:

• The share of managerial, professional and technicaljobs in total employment reflects the fraction oflocal workers who hold “good jobs.” Thesewhite-collar jobs require above average levels ofeducation and offer better than average pay incombination with attractive working condi-tions. An economy that creates more of thesejobs is one that is successfully making thetransition to the twenty-first centuryknowledge-based economy.

• The share of information technology professionalscaptures a narrower, but highly important,aspect of economic transition. IT is rapidlybecoming important in almost every aspect ofbusiness and manufacturing. A larger share ofIT professionals reflects the extent to which thelocal economy is a leader in this transition.

• The share of life science professionals is anotherindicator of regional progress in a sector that isanticipated to be a driver of future economicgrowth—and a sector which Kansas Citybusiness leaders have targeted.

The final group of three indicators in this sectionfocuses on the competitiveness and growth of areabusinesses.

• Manufacturing exports per employee are a reflec-tion of the efficiency and competitiveness ofarea manufacturers. Success in export marketscan bolster growth in employment, sales, andmarket share.

• Manufacturing value-added per worker-hour is ameasure of the productivity of local workers.

• Share of small businesses reflects the balance ofemployment between businesses with fewerthan 20 employees to all businesses in the area.Small businesses are important because theygenerate most of the new jobs that are created inthe economy.


“Kansas City ranks18th among the 52MSAs in terms ofoverall economicstructure. Amongits peers, it ranks4th but is extremelyclose to the 3rd

place MSA,Madison.”


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Economic Structure Index

The Economic Structure Index aggregates the fourgroups of qualitative indicators into a summarymeasure of economic structure that reflects the overalleconomic success and competitiveness of the MSA’seconomy. The index is comprised of four equallyweighted subindexes, one for each group of indica-tors. Within each subindex, each indicator receivesequal weight.

Kansas City ranks 18th among the 52 MSAs in termsof overall economic structure. Among its peers, itranks 4th but is extremely close to the 3rd place MSA,Madison.

Table 3-0: Economic Structure Index


Index Rank NormalizedIndex

Top 5

1 Austinb 72.7 1 100.0%2 Raleighb 71.3 2 98.1%3 Phoenixb 64.8 3 89.2%4 Houstona 64.1 4 88.3%5 Washington, DCa 62.0 5 85.4%

Kansas Cityc 56.7 18 78.0%

Peer Group1 Austinb 72.7 1 100.0%2 Denvera 60.3 11 83.0%3 Madisonb 57.6 15 79.3%4 Kansas Cityc 56.7 18 78.0%5 Salt Lake Cityc 55.6 20 76.6%6 Indianapolisc 54.9 22 75.6%7 Columbusb 53.2 26 73.3%8 Cincinnatia 52.6 31 72.4%9 St. Louisb 52.2 34 71.8%

10 Tampab 51.7 36 71.1%11 Pittsburghb 46.0 50 63.3%

Source: Compiled by Policy Research Institute.a: CMSAb: MSAc: Expanded MSA (See Text)

Metropolitan Area


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3-1 Total Population, 2000

Why is it Significant?

Total population is an “extensive” indicator ofpotential workforce for an economy. To thrive in thenew economy, metropolitan areas must be able toattract people to work and live in the area. Totalpopulation also helps determine which other MSAs agiven MSA is most directly in competition with.

How does Kansas City Perform?

The total Census population in the US for the year2000 was 286 million. Approximately 62 millionpeople lived in the top five metropolitan areas, withabout 164 million living in the top 50 MSAs. KansasCity MSA was 24th in population with about 1.9million people (when Douglas County is included), orabout 9% of the largest MSA (New York) in size. Itspeer group MSAs (except for the much smallerMadison) have between 6% and 12% of the popula-tion of New York.

What does this Trend Mean for Kansas City?

Kansas City and its peers have the virtues andlimitations of middle-sized Midwestern MSAs. Theyare large enough to serve as major industrialheadquarters and to experience big-city socialproblems. They are small enough to enjoy bothrelatively low housing costs and relatively shortcommute times, but they lack the ability to providesome big-city amenities.


Table 3-1: Total Population, 2000d

Total Rank IndexNumber

Top 51 New Yorka 21,200 1 100.0%2 Los Angelesa 16,374 2 77.2%3 Chicagoa 9,158 3 43.2%

4 Washington, DCa 7,608 4 35.9%5 San Franciscoa 7,039 5 33.2%

Kansas Cityc 1,876 24 8.8%

Peer Group1 St. Louisb 2,604 18 12.3%2 Denvera 2,582 19 12.2%3 Tampab 2,396 20 11.3%4 Pittsburghb 2,359 21 11.1%5 Cincinnatia 1,979 23 9.3%6 Kansas Cityc 1,876 24 8.8%7 Indianapolisc 1,728 26 8.2%8 Salt Lake Cityc 1,702 27 8.0%9 Columbusb 1,540 34 7.3%

10 Austinb 1,250 38 5.9%11 Madisonb 427 52 2.0%

a: CMSAb: MSAc: Expanded MSA (See Text)d: 1,000s of Persons

Metropolitan Area

Source: Bureau of the Census, 2000 (2).


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3-2 Total Personal Income, 2001


Total personal income is the sum of all incomereceived by persons as a result of their participation inproduction (including wages, salaries, dividendpayments, and proprietors incomes) and all govern-ment transfers (such as social security and unemploy-ment insurance). It is the most inclusive measure ofeconomic activity available for MSAs and is animportant indicator of the total size of the areaeconomy.


Kansas City has total personal income equaling about7% of that of New York, the leading MSA. Its peers(except Madison) range from about 5% to 12% of NewYork. Because the cost-of-living is generally lower inthe peer group of MSAs than in New York, this indexcomparison substantially understates the capacity ofthese cities to generate a good standard of living.


Kansas City is a middle-sized city in terms of incomeas well as population.

Kansas City’s income share (7% of New York) issubstantially lower than its population share (9% ofNew York). Consequently, per capita income is lowerin Kansas City than New York. This number, how-ever, may not be very meaningful because it is notadjusted for cost-of-living (COL) differences. Asubsequent section shows comparisons that doinclude a COL adjustment.


Table 3-2: Total Personal Income, 2001d

Total Rank IndexDollars

(millions)

Top 5

1 New Yorka $882,600 1 100.0%2 Los Angelesa $513,967 2 58.2%3 Chicagoa $335,045 3 38.0%4 San Franciscoa $330,541 4 37.5%5 Washington, DCa $306,092 5 34.7%

Kansas Cityc $62,117 24 7.0%

Peer Group1 Denvera $101,425 15 11.5%2 St. Louisb $86,569 19 9.8%3 Pittsburghb $77,551 20 8.8%4 Tampab $72,660 21 8.2%5 Cincinnatia $63,471 23 7.2%6 Kansas Cityc $62,117 24 7.0%7 Indianapolisc $55,935 27 6.3%8 Columbusb $49,651 29 5.6%9 Salt Lake Cityc $44,130 35 5.0%

10 Austinb $42,147 38 4.8%11 Madisonb $15,932 52 1.8%

a: CMSAb: MSAc: Expanded MSA (See Text)d: 1,000,000s of 2002 Dollars

Metropolitan Area

Source: Bureau of Economic Analysis, 2001 (3); Bureau of Economic Analysis, 2001, 2002 (1).


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3-3 Average Annual Population GrowthRate, 1990-2000


The population growth rate is an indicator of successin generating new jobs and income, which in turnattract new population and an increased supply oflabor. While there are many reasons for migrating toor from a metropolitan area, availability of jobs isamong the most important. Mathematically, popula-tion growth depends not just on net migration, butalso on net increase (births less deaths). However, aslong as jobs are available elsewhere, populations willneither stay permanently rooted nor keep growingindefinitely in a location that doesn’t generate newjobs.

High rates of population growth are an indicationthat an MSA offers attractive employment and busi-ness opportunities. On the other hand, there is such athing as population growth that is too rapid. Ex-tremely rapid expansion leads to high tax costs usedto cover capital investments in new public infrastruc-ture. It also typically leads to a lag in public andprivate infrastructure expansion. When demand forservices outstrips the supply, it causes congestion anda reduction in quality of life. Moreover, in rapidlyexpanding cities, growth in population sometimesoutstrips growth in jobs, with more new workersbeing attracted by the expanding opportunities thanthere are new jobs for them to fill.


Between 1990 and 2000, Kansas City had a modestaverage annual population growth rate of 1.2% peryear, putting it in 31st place among the 52 MSAs. Thatrate is essentially identical to the growth rate of the USas a whole. The fastest growing MSA, Las Vegas,experienced a substantially higher rate of 6.5% peryear. Las Vegas experienced slower job growth thanpopulation growth and also does not have a highreputation for quality of life, suggesting that itsgrowth rate may be too high. The next four mostrapidly growing MSAs grew between 3% and 4% peryear. These cities generally have positive quality of lifereputations, suggesting that such growth rates,although creating fiscal and environmental stress,may not prevent an MSA from having a sustainablyhigh quality of life.

Growth rates of the Kansas City peer group are verywidely dispersed. Austin, with 3.9%, was the secondmost rapidly growing MSA among the 52 MSAs andhighest among the peer group. Pittsburgh, with -0.1%,had the worst growth rate among both the peer groupand the 52.


Kansas City has been a plodder, neither a star nor aloser. As it happens, its population growth has laggedbehind employment growth over the last decade; ifemployment growth continues with at least the samerate, population growth is likely to pick up.


Table 3-3: Average Annual Population Growth Rate,1990-2000

Percentage Rank Index

Top 51 Las Vegasb 6.5% 1 100.0%2 Austinb 3.9% 2 61.0%3 Phoenixb 3.6% 3 57.0%4 Raleighb 3.3% 4 52.3%5 Atlantab 3.3% 5 51.7%

Kansas Cityc 1.2% 31 20.4%

Peer Group1 Austinb 3.9% 2 61.0%2 Denvera 2.6% 10 41.0%3 Salt Lake Cityc 2.4% 12 38.0%4 Madisonb 1.6% 22 26.0%5 Tampab 1.5% 23 25.1%6 Indianapolisc 1.5% 24 24.5%7 Columbusb 1.4% 26 22.9%8 Kansas Cityc 1.2% 31 20.4%9 Cincinnatia 0.9% 38 15.2%

10 St. Louisb 0.4% 46 8.8%11 Pittsburghb -0.1% 52 0.0%

a: CMSAb: MSAc: Expanded MSA (See Text)

Metropolitan Area

Source: Bureau of Economic Analysis, 1990-2000 (4).


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Percentage Rank IndexTop 5

1 Las Vegasb 5.9% 1 100.0%2 Austinb 4.8% 2 82.8%3 Phoenixb 3.8% 3 66.0%4 Atlantab 3.6% 4 63.4%5 Salt Lake Cityc 3.5% 5 62.1%


Peer Group1 Austinb 4.8% 2 82.8%2 Salt Lake Cityc 3.5% 5 62.1%3 Denvera 3.0% 8 54.1%4 Tampab 2.7% 9 48.4%5 Madisonb 2.1% 18 39.8%6 Kansas Cityc 1.9% 20 36.0%7 Indianapolisc 1.9% 23 35.6%8 Columbusb 1.7% 26 33.4%9 Cincinnatia 1.2% 35 25.8%

10 St. Louisb 1.0% 39 21.8%11 Pittsburghb 0.7% 46 16.5%


Metropolitan Area

Source: Bureau of Labor Statistics, 1990-2000 (1).

Table 3-4: Average Annual Employment Growth Rate,1990-2000

3-4 Average Annual Employment GrowthRate, 1990-2000


The employment growth rate measures the extent ofnew job creation in the local economy (net of joblosses). Employment growth in an economy indicatesthe health of that economy. High employment growthresults from prosperity of the businesses of that area.


Between the two business cycle peaks of 1990 and2000, Kansas City jobs grew at 1.9% per year andranked 20th among the 52 MSAs. This is a respectablerate, well in excess of its population growth. However,the five fastest growing cities were able to create jobstwo to three times as fast as Kansas City. The peergroup cities were widely dispersed, with Austin, 2nd,and Pittsburgh, 46th, among the 52. Kansas Cityranked 6th among its peers.

During the business cycle downturn from 2000 to2002, Kansas City lost jobs at the rate of 0.4% per year.That put Kansas City at 40th among the 52 MSAs andclose to the bottom of its peer group in job growth.


Kansas City has a respectable record of job creation,but it could be improved. Kansas City could benefitgreatly from a more dynamic economy that supporteda higher growth rate. That dynamism would almostsurely have to rest on increased innovativeness.

The recent job losses may be a one-time event. Even so,the trend suggests that Kansas City may need todiversify its economy further to provide more protec-tion against down-turns.


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3-5 Five-Year Migration Rate, 1999


The fraction of the population that lived somewhereelse five years earlier measures the extent to whicheconomic opportunities and quality of life factors arecapable of attracting migrants into the region. A highrate of in-migration also generates a high level ofcompetitiveness in the workforce and produces a highavailability of skilled labor.

On the other hand, many cities with high in-migrationrates also have high out-migration rates, indicating asubstantial amount of turnover. These cities are notable to hold on to all of the in-migrants they attract.


Kansas City’s in-migration rate of 2% over four yearsranks relatively low, at 38th among the 52 MSAs.Kansas City is also slightly below the middle in itspeer group at 7th place. The five leading MSAs havefrom two-and-a-half to four times as much in-migra-tion as Kansas City, while the lowest ranking MSAhas only half as much.


Kansas City has a relatively low level of in-migration,indicating that it is not viewed as a highly attractivedestination for relocations. Its in-migration ranking isconsiderably below its ranking on job creation, whichstrongly suggests that job availability is not a majorbarrier to in-migration. Instead, it is likely that outsid-ers’ perceptions of quality of life are less favorable forKansas City than for its competitors.

Kansas City’s in-migration rate is noticeably lower inrank than its population growth rank as well, indicat-ing that Kansas City has a below average amount ofturnover or population churning. In other words,while Kansas City attracts relatively few newcomers,it tends to hold on to those it does attract. This sug-gests Kansas City is a significantly better place to livethan outsiders comprehend. Kansas City should findways to dramatize the message that Kansas City is agood place to live.


Table 3-5: Five-Year Migration Rate, 1999(Percent of Residents Living Elsewhere in 1995)

“. . . while Kansas City attractsrelatively few newcomers, ittends to hold on to those itdoes attract. This suggestsKansas City is a significantlybetter place to live than outsid-ers comprehend. Kansas Cityshould find ways to dramatizethe message that Kansas Cityis a good place to live.”


1 Miamia 7.9% 1 100.0%2 San Franciscoa 5.7% 2 71.7%3 Houstona 4.9% 3 62.8%4 Dallasa 4.8% 4 60.6%5 New Yorka 4.7% 5 60.0%


Peer Group1 Austinb 4.4% 8 56.3%2 Denvera 3.9% 15 49.5%3 Salt Lake Cityc 3.6% 18 45.7%4 Madisonb 2.9% 24 36.5%5 Tampab 2.6% 26 33.3%6 Columbusb 2.2% 32 27.5%7 Kansas Cityc 2.0% 38 24.8%8 Indianapolisc 1.7% 40 21.8%9 St. Louisb 1.4% 45 18.3%

10 Cincinnatia 1.2% 50 14.9%11 Pittsburghb 1.0% 52 12.1%


Metropolitan Area



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3-6 Average Unemployment Rate,1990-2000


The unemployment rate directly measures the balancebetween labor supply and demand in the area. Highlevels of unemployment are clearly bad for citizens.However, unduly low levels of unemployment couldindicate rising employment costs for businesses.Falling unemployment rates indicate that new jobs arebeing created faster than the workforce size isincreasing.


During the 1990-2000 business cycle, the Kansas Cityunemployment rate averaged 4.3%, placing it at arespectable 18th position among the 52 MSAs. Twopeer group cities, Madison and Austin did consider-ably better, with rates of 1.9% and 3.3% respectively,placing them first and third among the 52. The worst-off peer group city, Pittsburgh, was 40th at 5.5%. Peergroup cities on average did better than non-peergroup cities, suggesting that middle-sized and Mid-western are not bad characteristics to have in terms ofunemployment consequences for citizens of an MSA.

The 2001 recession and the slow recovery that fol-lowed have led to increasing unemployment rates.The problem was exacerbated in Kansas City, wherethe economic downturn preceded the nationaldownturn. Between the business cycle peaks in 1990and 2000, the average rate of decline in the unemploy-ment rate for all US metropolitan areas was 1.5percent, while the decline in Kansas City was slightlybetter at 1.6 percent. However, from 2000-2002, whilethe unemployment rate rose by 1.9 percent for allmetro areas of the U.S., it rose by 2.4 percent in KansasCity to a rate roughly equal to that of the nation. Thisindicates Kansas City was hit harder than average bythe recession.



Top 51 Madisonb 1.9% 1 100.0%2 Raleighb 2.5% 2 87.7%3 Austinb 3.3% 3 73.9%4 Minneapolisb 3.3% 4 73.6%5 Columbusb 3.5% 5 69.9%


Peer Group1 Madisonb 1.9% 1 100.0%2 Austinb 3.3% 3 73.9%3 Columbusb 3.5% 5 69.9%4 Indianapolisc 3.5% 6 69.2%5 Salt Lake Cityc 3.6% 9 67.5%6 Denvera 3.8% 11 64.0%7 Kansas Cityc 4.3% 18 54.3%8 Cincinnatia 4.4% 21 51.9%9 Tampab 4.6% 24 49.7%

10 St. Louisb 5.0% 34 40.7%11 Pittsburghb 5.5% 40 32.2%


Metropolitan Area


Table 3-6: Average Unemployment Rate, 1990-2000


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Historically, Kansas City has done an above-averagejob of matching people with employment, but im-provement is still possible. It remains to be seenwhether the current recessionary dip is merely anaberration or is symptomatic of a deeper problem. Ineither case, increased job growth is necessary toreduce the unemployment rate, and that is attainable.


Table 3-6a: Unemployment Rate, 1990-2002

Kansas CityAll Metro Areas

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002


Percent8

7

6

5

4

3

2

1

0


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3-7 Personal Income per Capita Adjustedfor Cost-of-Living Differences, 2001


Personal income per capita is a fairly broad measureof economic well being. It reflects the average level ofincome per person in the area. After adjusting fordifferences in living costs across locations, it mea-sures a major component of the standard of living(namely, command over market goods). A prosperouseconomy provides opportunities for households toenjoy a high standard of living. Per capita incomeincreases when the economy creates wealth fasterthan its population grows. High per capita incomeprovides a region with a competitive edge in attract-ing and retaining skilled workers.

However, income per capita does not provide acomplete picture of the average standard of living.Most importantly, there are non-monetary quality oflife differences between MSAs that are very hard tomeasure objectively. A secondary problem is that thereare differences in average household compositionacross MSAs. Thus, a retired couple may need lessincome than a working couple in order to achieve acomparable level of well-being.


Kansas City is 5th among 52 MSAs, with 85% theadjusted per capita income of the number one MSA,West Palm Beach—a very wealthy city that is wellahead of second place Minneapolis. Within the peergroup, Madison ranks first and is barely ahead ofKansas City. Seven other peers follow close behindKansas City, but Tampa and Salt Lake City aresignificantly worse off.


Kansas City, even more than most of its peers, issucceeding remarkably well at providing its citizenswith the things money can buy. The explanation liesin a combination of a moderate Midwestern cost-of-living, competent Midwestern productivity, andaccumulated wealth.


Dollars Rank Indexper Capita

Top 5

1 West Palm Beachb $39,141 1 100.0%2 Minneapolisb $35,008 2 89.4%3 Houstona $34,927 3 89.2%4 Madisonb $33,425 4 85.4%5 Kansas Cityc $33,402 5 85.3%

Kansas Cityc $33,402 5 85.3%

Peer Group1 Madisonb $33,425 4 85.4%2 Kansas Cityc $33,402 5 85.3%3 St. Louisb $33,226 7 84.9%4 Indianapolisc $32,898 10 84.1%5 Cincinnatia $32,282 12 82.5%6 Denvera $31,555 14 80.6%7 Austinb $31,502 15 80.5%8 Pittsburghb $31,463 16 80.4%9 Columbusb $30,717 20 78.5%

10 Tampab $27,028 41 69.1%11 Salt Lake Cityc $25,071 46 64.1%

a: CMSAb: MSAc: Expanded MSA (See Text)d: 2002 Dollars

Metropolitan Area

Sources: Bureau of Economic Analysis, 2001 (3); Bureau of Economic Analysis, 2001, 2002 (1); Realtor.com, 2003.

Table 3-7: Personal Income per Capita Adjusted forCost-of-Living Differences, 2001d

The moderate cost-of-living depends, to a substantialextent, on an important resource shared by manymidsized Midwestern cities: the availability of wideexpanses of open land located not far from the centralcity. This open land tends to moderate land valuesand rents. This comparative advantage is likely topersist in the foreseeable future.


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3-8 Average Salary in Managerial,Professional, and Technical JobsAdjusted for Cost-of-LivingDifferences, 2001


Average salary, after adjusting for cost of living,determines the total real amount of private marketgoods available to typical workers. Managerial,professional and technical jobs are of particularinterest because these jobs are targeted by manyeconomic development strategies. Their adjustedaverage salary substantially affects the standard ofliving that typical professionals can obtain in theMSA. It also affects the attractiveness of the MSA forrecruiting new professional workers.

These data could be somewhat misleading, however,because of differences across MSAs in the composi-tion of the labor force. Thus, a city that specialized inlawyers might have a higher average salary than asecond city that specialized in artists, even if lawyersand artists both had lower salaries in the first citythan in the second. Nevertheless, the average salarydoes represent the real level of prosperity, whether itis caused by wage levels or job composition.


Kansas City performs extremely well with respect tothis criterion. It is 5th out of the 52 MSAs, with paylevels at 93% of the top-ranked Houston. Within thepeer group, Austin is marginally higher, whileCincinnati is marginally lower.


First, Kansas City is delivering a high level of realmonetary rewards to its professional workers. That isan important achievement.

Second, high real wages should be an extremelyuseful recruitment tool for firms that need to hire newprofessional workers from outside Kansas City. It isimportant to share this information widely.

The main long-term threat to high real wages typicallycomes from increasing land values because land rentsare a major direct and indirect component of regionalprice differences. However, land rents are likely toremain moderate in Kansas City because of thecombination of open land surrounding Kansas Cityand good transportation systems making that landaccessible.


Dollars Rank Indexper Capita

Top 5

1 Houstona $46,873 1 100.0%2 Dallasa $46,273 2 98.7%3 Austinb $44,269 3 94.4%4 Detroita $43,932 4 93.7%5 Kansas Cityc $43,783 5 93.4%

Kansas Cityc $43,783 5 93.4%

Peer Group1 Austinb $44,269 3 94.4%2 Kansas Cityc $43,783 5 93.4%3 Cincinnatia $43,611 6 93.0%4 St. Louisb $42,244 12 90.1%5 Indianapolisc $42,237 13 90.1%6 Columbusb $42,016 17 89.6%7 Denvera $41,208 18 87.9%8 Pittsburghb $40,373 26 86.1%9 Madisonb $39,102 36 83.4%

10 Salt Lake Cityc $38,682 39 82.5%11 Tampab $37,090 44 79.1%


Metropolitan Area

Sources: Bureau of Labor Statistics, Occupational Employment Survey, 2001 (1); Bureau of Economic Analysis, 2001, 2002 (1); Realtor.com, 2003.

Table 3-8: Average Salary in Managerial, Professional,and Technical Jobs Adjusted for Cost-of-LivingDifferences, 2001d


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3-9 Average Salary of InformationTechnology Professionals Adjustedfor Cost-of-Living Differences, 2001


The Information Technology (IT) sector is presentlythe most technologically innovative component of theKansas City economy. High real salaries in IT aresignificant because they can help the sector recruitnew workers from outside the region when the sectorachieves rapid growth.


Kansas City ranks 8th among the 52 MSAs withrespect to real IT salaries, with a level averaging 91%that of 1st place Austin. Other than Austin, two otherpeers rank higher than Kansas City (St. Louis andCincinnati).


Kansas City pays high adjusted IT salaries in realterms—an important competitive advantage forattracting and holding workers. Moreover, becausethese high real salaries are based more on cost-of-living advantages than on high nominal wages, theyare achieved at very moderate costs to employers.

It is noteworthy that IT powerhouses San Franciscoand San Diego rank at the very bottom in terms of realsalaries. The extreme costs of housing on the WestCoast are placing real limits on the ability of those ITcenters to add to their labor force.

One cannot assume, however, that high real wagesachieved at moderate business cost is enough to keepKansas City IT growing. Substantially lower rankedMSAs, such as Minneapolis and Boston, have man-aged to perform quite well in IT. Also, in the short run,IT is still facing a nation-wide recession. In the longerterm, there is the danger that IT jobs will be out-sourced to well-educated, yet inexpensive, workers inIndia or China.


Dollars Rank Indexper Worker

Top 51 Austinb $62,053 1 100.0%2 Dallasa $61,480 2 99.1%3 Houstona $59,383 3 95.7%4 St. Louisb $58,257 4 93.9%5 Cincinnatia $58,197 5 93.8%

Kansas Cityc $56,444 8 91.0%

Peer Group1 Austinb $62,053 1 100.0%2 St. Louisb $58,257 4 93.9%3 Cincinnatia $58,197 5 93.8%4 Kansas Cityc $56,444 8 91.0%5 Columbusb $55,552 11 89.5%6 Denvera $54,877 15 88.4%7 Indianapolisc $53,431 20 86.1%8 Pittsburghb $51,796 26 83.5%9 Tampab $50,666 31 81.6%

10 Madisonb $49,280 39 79.4%11 Salt Lake Cityc $46,489 45 74.9%


Metropolitan Area

Sources: Bureau of Labor Statistics, Occupational Employment Survey, 2001 (1); Bureau of Economic Analysis, 2001, 2002 (1); Realtor.com, 2003.

Table 3-9: Average Salary in Information TechnologyProfessionals Adjusted for Cost-of-Living Differences,2001d


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3-10 Share of Managerial, Professional,and Technical Occupations in theLabor Force, 2001


The share of managerial, professional, and technicaljobs in total employment reflects the fraction of localworkers who hold “good jobs.” These white collarjobs require above average levels of education andgenerally offer better than average pay in combinationwith attractive working conditions. An economy thatcreates more of these jobs is one that is successfullymaking the transition to the twenty-first centuryknowledge-based economy.


Kansas City ranks above average, 20th out of 52 MSAs.The fraction of Managerial, Professional, and Techni-cal workers among all jobs is 18% lower in KansasCity than Washington, DC, the leader. Because ofextensive federal government employment, thenation’s capital is well ahead of second place Austin,a peer group member. Other peer group members areclustered near Kansas City, with Indianapolis andTampa under-performing.


Maintaining or improving Kansas City’s moderatesuccess in growing good jobs is essential to maintain-ing Kansas City’s strong success in cost-of-livingadjusted income. In the future, good jobs will increas-ingly be generated by innovative industries. Therefore,Kansas City will need to focus on innovation in orderto maintain its level of good jobs.


Table 3-10: Percentage of Managerial, Professional, andTechnical Occupations in the Labor Force, 2001


1 Washington, DCa 44.2% 1 100.0%2 Austinb 41.5% 2 93.9%3 Raleighb 41.2% 3 93.1%4 Hartfordb 41.1% 4 93.0%5 Bostona 41.1% 5 92.9%


Peer Group1 Austinb 41.5% 2 93.9%2 Madisonb 39.2% 6 88.7%3 Denvera 38.0% 12 86.0%4 St. Louisb 37.1% 16 83.9%5 Kansas Cityc 36.4% 20 82.2%6 Columbusb 35.6% 27 80.4%7 Pittsburghb 35.3% 30 79.7%8 Salt Lake Cityc 34.8% 34 78.7%9 Cincinnatia 34.5% 40 78.0%

10 Indianapolisc 32.7% 44 73.9%11 Tampab 32.3% 45 73.1%


Metropolitan Area

Sources: Bureau of Labor Statistics, Occupational Employment Survey, 2001 (1).


33

3-11 Share of Information TechnologyOccupations in the Labor Force, 2001


In the New Economy, growth and development ofexisting and new high tech industries are necessaryfor competitiveness. These high tech industriesrequire knowledge- and information-based jobs.Successful and innovative metropolitan economies donot need to compete in every segment of high tech orcutting-edge industry, but they generally do need tocompete in some of those segments. Growth and newwealth creation takes place highly disproportionatelyin those industries; not to compete in high tech ispractically a decision for slow growth.

Information technology, or IT, is among the mostimportant of those high growth segments, represent-ing a key aspect of the economic transition. The shareof IT professionals in the employed workforcecaptures the extent to which the local economy is aleader in this transition. IT is rapidly becomingimportant in almost every aspect of business andmanufacturing, and Kansas City already has asubstantial investment in that industry.

However, IT job share, or intensity, is not the onlyrelevant indicator. Sheer size of the IT workforce alsomatters. The large mass of workers concentrated inSilicon Valley can cover more aspects of the industryand make more connections than are possible forworkers in Kansas City. Also, Silicon Valley candevelop economies of scale not available to therelatively smaller mass of workers in Kansas City.

IT jobs include computer scientists and professionals,data base managers, engineers, and system analysts7.Advanced telecommunications, semiconductors, andcomputers led the way to IT jobs.


Table 3-11: Percentage of Area Employment inInformation Technology Occupations in the Labor Force,2001


Top 51 San Franciscoa 5.2% 1 100.0%2 Washington, DCa 5.0% 2 94.7%3 Raleigh b 4.9% 3 93.0%4 Austinb 4.7% 4 89.9%5 Denvera 4.7% 5 89.1%


Peer Group1 Austinb 4.7% 4 89.9%2 Denvera 4.7% 5 89.1%3 Madisonb 3.7% 8 70.8%4 Kansas Cityc 3.1% 12 59.9%5 Columbusb 2.9% 16 54.9%6 Salt Lake Cityc 2.7% 18 52.2%7 St. Louisb 2.4% 27 46.5%8 Cincinnatia 2.2% 31 42.3%9 Tampab 2.1% 33 40.1%

10 Pittsburghb 2.0% 34 38.7%11 Indianapolisc 1.8% 39 35.1%


Metropolitan Area



In 2001 Kansas City ranked fairly high in IT intensityat 12th among the 52 MSAs, with 3.1% of its labor forcein IT. That amounts to 60% of the IT intensity of SanFrancisco CMSA, the leading MSA, which includesSilicon Valley.

“Information technology, or IT,is among the most importantof those high growth segments,representing a key aspect ofthe economic transition.”


34

With respect to total employment in IT, Table 3-11ashows that Kansas City’s ranking drops to 20th, still arespectably competitive position. The top five MSAshave four to eight times the IT workforce of KansasCity, but all are much larger cities.

Kansas City also does well in comparison with itspeer group. Two peer MSAs, Austin and Denver, wereamong the top five MSAs in IT intensity, and Denverhas about 1.5 times the IT employment of Kansas City.However, Kansas City ranked 4th among its peers inboth intensity and total employment.


Kansas City has a healthy competitive advantage inIT. It is important to maintain this advantage withsupportive infrastructure and public policy. Forexample, it is important to support and improvepublic and private educational institutions thatproduce skilled IT workers. It is also important toprovide capital for IT entrepreneurs, who keep theinnovation process in motion.


Table 3-11a: Total Number of Employees inInformation Technology Occupations in the Labor Force,2001


Top 51 New Yorka 242,650 1 100.0%2 Washington, DCa 195,680 2 80.6%3 San Franciscoa 178,680 3 73.6%4 Los Angelesa 128,970 4 53.2%5 Bostona 113,140 5 46.6%

Kansas Cityc 30,930 20 12.7%

Peer Group1 Denvera 65,300 11 26.9%2 St. Louisb 31,290 18 12.9%3 Austinb 30,970 19 12.8%4 Kansas Cityc 30,930 20 12.7%5 Tampab 25,230 23 10.4%6 Columbusb 24,560 24 10.1%7 Salt Lake Cityc 22,990 26 9.5%8 Pittsburghb 21,770 28 9.0%9 Cincinnatia 21,610 29 8.9%

10 Indianapolisc 16,700 34 6.9%11 Madisonb 10,060 43 4.1%


Metropolitan Area



35

3-12 Share of Life Science Occupationsin the Labor Force, 2001


The share of life science professionals is anotherindicator of regional progress in an emerging hightech region that is anticipated to be a driver of futureeconomic growth. Kansas City leaders have made acommitment to make the region more competitive inlife science R&D, and it is important to understandfrom what level the city is starting.

As with IT, the employment share in life sciences is anincomplete indication of competitive position. It isalso important to look at total employment.

Life Science occupations were defined to includescientists, teachers, researchers, and technicians withspecialties or degrees in life sciences.8 However,medical practitioners were excluded from the tablespresented below; most medical personnel are engagedin direct services rather than R&D, and the data didnot provide any way to distinguish their roles. As ithappens, however, Kansas City’s rankings would notbe significantly changed by adopting a broad defini-tion of life science occupations that includes medicalpersonnel. Rankings would also be unchanged by theaddition of St. Joseph MSA to the Kansas City MSA.How does Kansas City Perform?

Kansas City MSA presently ranks a disappointing40th among MSAs in intensity of life science occupa-tions. The top five MSAs have nearly two to threetimes as high a share of life science employees.Kansas City is also fairly low among its peer group,ranking 9th among the 11.



Top 51 Raleighb 0.53% 1 100.0%2 Bostona 0.41% 2 77.7%3 Washington, DCa 0.36% 3 67.7%4 New Orleansb 0.32% 4 61.5%5 Oklahoma Cityb 0.32% 5 59.8%


Peer Group1 Indianapolisc 0.29% 8 54.7%2 Tampab 0.26% 13 48.5%3 Columbusb 0.23% 20 43.0%4 Cincinnati a 0.22% 22 41.1%5 St. Louisb 0.21% 26 40.4%6 Salt Lake Cityc 0.21% 28 39.9%7 Madisonb 0.19% 37 35.6%8 Austinb 0.19% 38 35.1%9 Kansas Cityc 0.18% 40 35.0%

10 Pittsburghb 0.17% 42 32.4%11 Denvera 0.16% 44 30.5%


Metropolitan Area

Source: Bureau of Labor Statistics, Occupational Employment Survey, 2001 (1).

Table 3-12: Percentage of Area Employment in LifeScience Occupations in the Labor Force, 2001


36



Top 5

New Yorka 26,350 1 100.0%Washington, DCa 14,090 2 53.5%Los Angelesa 12,790 3 48.5%Bostona 12,330 4 46.8%Chicagoa 9,430 5 35.8%

Kansas Cityc 1,820 30 6.9%

Peer Group1 Tampab 3,080 16 11.7%2 St. Louisb 2,740 18 10.4%3 Indianapolisc 2,620 19 9.9%4 Denvera 2,250 22 8.5%5 Cincinnatia 2,120 24 8.0%6 Columbusb 1,940 27 7.4%7 Pittsburghb 1,840 29 7.0%8 Kansas Cityc 1,820 30 6.9%9 Salt Lake Cityc 1,770 31 6.7%

10 Austinb 1,220 40 4.6%11 Madisonb 510 52 1.9%


Metropolitan Area

Source: Bureau of Labor Statistics, Occupational Employment Survey, 2001 (1).

Table 3-12a: Total Number of Employees in Life ScienceOccupations in the Labor Force, 2001

With respect to the absolute number of Life Scienceworkers, Kansas City is slightly better off, with a rankof 30th. However, Kansas City Life Sciences employ-ment numbers are only about one-third to one-ninth ofthe number of workers of a top five city (all of whichare much larger than Kansas City).


Using either narrow or broad definitions of lifesciences, Kansas City would have to approximatelydouble its life science labor force to be competitive inintensity with the top five MSAs. That goal would notseem to be completely out of reason, but it wouldrequire very major investments in life science R&D.

On the other hand, Kansas City is not in a position toachieve the total scale of employment that large citiescan achieve. It would need at least four times as manyworkers to be competitive with the top four cities.


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3-13 Average Annual Value ofManufacturing Exports perEmployee, 1993-1999


Exports reflect global competitiveness. Manufacturingexports per employee reflect the efficiency and com-petitiveness of area manufacturers. Success in exportmarkets can bolster growth in employment, sales, andmarket share. Also, markets outside the US provide adiversified hedge against recession in the US.Unfortunately, the data on this topic are not totallyreliable. For example, there may be a tendency forexports to show up in the city of the exporter orshipper rather than the manufacturer. Since KansasCity and its peers are not port cities, this suggests thatthe data may actually understate their competitiveposition.


Kansas City ranks 22nd among the 52 MSAs, whichindicates a reasonably competitive position. The topfive cities are measured as exporting about 2.5 to fourtimes as much per worker as Kansas City. All of thetop five cities are significant ports, which suggeststhat their data are inflated and that the true ratio issubstantially lower.

Kansas City does even better among its peers, ranking3rd, with exports only slightly behind the leader(Austin).


The data suggest that Kansas City is an effectiveproducer of value in international markets. Theseexports are a source of stability during economicdownturns. Policy makers should identify the impor-tant local exporters and take steps to ensure thatpublic policy is supportive of those industries.


Dollars Rank Indexper Worker

Top 5

1 Miamia $124.6 1 100.0%2 Seattlea $122.1 2 98.0%3 Richmondb $92.2 3 74.0%4 San Franciscoa $86.7 4 69.6%5 Houstona $75.1 5 60.3%

Kansas Cityc $32.0 22 25.7%

Peer Group1 Austinb $38.1 16 30.6%2 Cincinnatia $34.4 19 27.7%3 Kansas Cityc $32.0 22 25.7%4 Indianapolisc $31.8 24 25.5%5 Pittsburghb $29.6 26 23.8%6 Salt Lake Cityc $24.8 34 19.9%7 St. Louisb $24.7 35 19.8%8 Tampab $23.9 37 19.1%9 Madisonb $17.4 45 14.0%

10 Columbusb $17.2 47 13.8%11 Denvera $15.6 49 12.6%

a: CMSAb: MSAc: Expanded MSA (See Text)d: 1,000s of 2002 Dollars

Metropolitan Area

Sources: International Trade Administration, 1993-1999; Bureau of Economic Analysis, 1993-1999, 2002 (1).

Table 3-13: Average Annual Value of ManufacturingExports per Employee, 1993-1999d


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Table 3-14: Value-Added per Production Worker-Hourin Manufacturing, 1997d

3-14 Value-Added per Production Worker-Hour in Manufacturing, 1997


A manufacturing establishment (unlike most servicefirms) typically produces goods that compete innational and international markets at competitiveprices. One measure of success in that competition isthe total income, or “value-added,” it produces. Thisincome has three components: profits, salaries andbenefits paid to workers, and taxes paid to govern-ment. Because value-added is viewed as a fungibledollar output that could be produced by locating theestablishment in a variety of alternative places, it isgenerally not adjusted for local cost of living.

Therefore, value-added per worker-hour is a measureof the productivity of local manufacturing workers. Itis important to understand, however, that laborproductivity depends not only on labor force quality,but also on capital investment per worker. It alsodepends on other factors, such as agglomerationeconomies (e.g. specialized local resources) and costsand quality of intermediate inputs. Also, value-addedis probably much more closely related to industrialcomposition than to labor force quality. (For example,the motor vehicle industry typically has a highervalue-added per worker than the plastic moldingindustry.) The industrial composition of an MSA isstrongly related to historical development and usuallychanges slowly over time.


Kansas City holds a respectable 11th place among the52 MSAs and places 2nd within its peer group. How-ever, Kansas City produces only 54% as much incomeper worker as Austin (the top performer among all 52MSAs and within the peer group). At the same time,Tampa (bottom performer in the peer group) producesonly 57% as much income per worker as Kansas City.


There is very wide dispersion in value-added permanufacturing worker. This implies there are poten-tial opportunities for great improvement. Thoseopportunities would depend, however, on capturingnew and lucrative markets—a tough order in these

times of declining importance for manufacturing inthe world, and especially US, economies. Manufactur-ing declines are likely to continue for several reasons.Manufactured goods are becoming less important inthe household budget as people grow richer anddemand more services. They are also becoming rela-tively cheaper as production processes and productdesigns improve. And, increasingly, they may beoutsourced to low-wage countries.

Kansas City’s best strategy may be to try to keep themanufacturing markets it already has while puttingits best energies into creating new non-manufacturingsources of wealth.


Dollars per Worker-Hour Rank Index

Top 51 Austinb $221 1 100.0%2 Richmondb $173 2 78.5%3 West Palm Beachb $163 3 73.9%4 Raleighb $153 4 69.2%5 San Franciscoa $147 5 66.5%

Kansas Cityc $120 11 54.4%

Peer Group1 Austinb $221 1 100.0%2 Kansas Cityc $120 11 54.4%3 Cincinnatia $107 13 48.4%4 Denvera $105 14 47.7%5 Indianapolisc $103 16 46.5%6 St. Louisb $97 20 43.9%7 Columbusb $94 22 42.7%8 Salt Lake Cityc $78 39 35.5%9 Pittsburghb $73 43 33.3%

10 Madisonb $71 46 32.3%11 Tampab $68 48 31.0%


Metropolitan Area



39

Table 3-15: Share of Small Business with Less than 20Employees, 2000

3-15 Share of Small Businesses with LessThan 20 Employees in Total, 2000


The share of MSA employment in businesses withfewer than 20 employees measures the importance ofvery small businesses in the local economy. (MSArankings are not much different using businesseswith less than 100 employees.) Small businesses areoften credited with being a major source of new jobs.Moreover, large numbers of small businesses arelikely to create conditions conducive to entrepreneur-ial activity.

Most small businesses are very small and do not growmuch beyond their initial size. However, a minority ofsmall businesses do achieve substantial growth. Boththe establishment and growth of a successful businessresults from entrepreneurial innovations that create orcapture a business niche. Much of this innovation ison a very small scale, is not based on university R&Dor high technology, and cannot be patented or copy-righted; it simply reflects improvements or variationsin business practice or service. This might be referredto as “below the radar” innovation.

New jobs generated by entrepreneurial smallbusinesses pay less on average than typical jobs inlarge firms and may have inferior employee benefits.However, new jobs often mature into older jobs withbetter pay and benefits. Often a successful smallbusiness will be purchased by a larger business,which then transforms the emerging business lineinto an established business line with stableprospects.

Existence of a large employment share in smallbusiness does not guarantee that a high level ofentrepreneurialism is now occurring in an MSA, onlythat it has occurred in the past. Also, MSAs differ inthe extent to which new businesses level-off quickly orkeep growing. However, the presence of many smallbusiness firms does create a substantial reservoir oflocal businesspeople with the skills needed forrunning a business. As a result, opportunities forentrepreneurial action exist that would not be presentin an economy dominated by a few large, slowmoving, and routinized corporations.


Kansas City ranks 36th of 52 MSAs. While belowaverage in rank, it still has 92% of the small businessintensity of top-ranked Miami. Kansas City is in themiddle of its peer group at 6th.

The particular size cutoff used for the rankings is notcritical—Kansas City ranks about the same withrespect to businesses with less than 100 employees.

Differences between the 52 MSAs are not especiallylarge—bottom ranked Madison, with 77% of itsemployees in very small businesses, has 87% thesmall business intensity of Miami. It is clear that all 52MSAs have a major resource in the form of manysmall businesses.



Top 51 Miamia 88.7% 1 100.0%2 West Palm Beachb 87.8% 2 99.0%3 New Yorka 87.5% 3 98.7%4 Tampab 86.5% 4 97.6%5 Providenceb 85.0% 5 95.8%


Peer Group1 Tampab 86.5% 4 97.6%2 Denvera 83.7% 16 94.4%3 Pittsburghb 83.6% 18 94.2%4 St. Louisb 82.8% 24 93.3%5 Salt Lake Cityc 82.2% 29 92.7%6 Kansas Cityc 81.7% 36 92.1%7 Austinb 81.1% 40 91.4%8 Indianapolisc 80.3% 44 90.6%9 Columbusb 79.4% 49 89.5%

10 Cincinnatia 78.9% 50 89.0%11 Madisonb 77.0% 52 86.8%

a: CMSAb: MSAc: Expanded MSA (See P. 2)

Metropolitan Area



40


Kansas City’s small business presence, while some-what lower than some competitors, represents animportant entrepreneurial resource. Moreover, KansasCity’s good performance in job growth indicates that“below the radar” innovation is actually taking place.

On the other hand, Kansas City has a relatively weakperformance in technology-based innovation (asdiscussed in Chapter 1). Technology-based innova-tion tends to generate important advantages for thelocal economy, as compared with other forms ofinnovation. First, in some cases, intellectual propertyrights make a technological advantage easier toprotect against competitors. Second, new technology

is often associated with new markets that have a highgrowth potential, high wages, and a high rate ofreturn on investment. Third, technology innovationtends to be part of a dynamic process in which eachinnovation leads to other innovations. Fourth, tech-nology innovation often has local “spillovers,” suchas new sales by local suppliers and knowledgedissemination, allowing other innovators to get intothe act.

Therefore, the challenge for Kansas City is to translateits existing entrepreneurialism potential into a moreintensive technology-based entrepreneurialism.Because many of the needed tools and resources arealready in place (see Chapter 4), this goal is eminentlyachievable.


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