Regional Disparity in New York State

Since the beginning of the current State expansion in December 1992, New York employment growth has been stymied by both corporate and government downsizing. The upstate regional economies began to gradually recover while the downstate regions were still reeling from job losses due to corporate restructuring, defense downsizing, and the aftermath of the stock market crash. However, by 1996, these trends began to reverse themselves. Job growth upstate began to weaken considerably as large manufacturing firms continued to announce layoffs and military bases closed. Meanwhile, strong Wall Street performances from 1995 onward, as well as the acceleration of the national expansion began to nourish momentum in the downstate regions, and particularly in Manhattan, Staten Island, and Suffolk County.

The State’s recent regional employment history is portrayed in Table 4.13 Between 1992 and 1995, the State’s three downstate regions — New York City, Long Island, and the Mid-Hudson region — experienced overall employment growth of 0.7 percent. Had it not been for Long Island, downstate regional growth would have been less than half of that rate. In contrast, upstate job growth stood at 2.2 percent during the same period. However, by 1997, the State’s job growth had become centered downstate (see Table 4). The downstate regions experienced job growth of 2.1 percent between 1995 and 1997, compared with an average rate of job gain of 0.1 percent upstate.
13. The second quarter of 1997 is the most recent quarter for which ES-202 data are available. ES-202 data are the most accurate employment data available, particularly at the regional level. Growth rates are calculated by comparing the first two quarters of 1997 with the first two quarters of prior years.

Below we examine industrial growth trends in each of the State’s ten regions. We look at regional sources of both strength and weakness over the period from 1992 to 1997. Tables 5 through 14 list the top three and bottom three job producing industries for each of the State’s ten regions. We also look at the period from 1995 to 1997 in isolation in order to compare the most recent developments with those of the longer period. Finally, we examine the success that the State’s regional economies have had in attracting and retaining firms from various industry groups.14
14. For purposes of the present analysis, we use the following industry group classifications: agriculture and mining, construction, durable goods manufacturing, non-durable goods manufacturing, transportation, public utilities, wholesale trade, retail trade, FIRE (finance, insurance, and real estate), health care services, educational services, community support services, business and professional services, household services, and other services. Government administration is excluded from the analysis.

New York City

New York City experienced an average rate of job growth of only 0.2 percent during the first three years of the State’s recovery, but a turnaround occurred following a strong performance on Wall Street in 1995. Between 1995 and 1997, City employment rose by 2.4 percent or 76,180 jobs, making it the fastest growing region in the State (see Table 4). However, over 75 percent of the City’s net job growth occurred in Manhattan which experienced strong job growth of 3.1 percent over the two-year period. Staten Island and Queens also exhibited solid job growth over the period of 4.7 percent and 2.2 percent, respectively. The City’s other two boroughs have not fared as well. The Bronx experienced growth of only 0.3 percent between 1995 and 1997, while Brooklyn actually lost 0.8 percent of its employment during the period.

The City’s employment picture has been further clouded by a decline in the public assistance caseload of about 340,000 since 1995. The transition of an estimated 178,000 adults from public assistance into the labor force over the last three years may be a factor forcing the City’s unemployment rate up, even while employment is rising. Moreover, the Committee staff estimates that an additional 59,000 adults will leave public assistance during the 1998-99 State fiscal year, compounding the challenge which the City faces to absorb these new labor force entrants.

A look at the top job producing industry groups over the period from 1992 to 1997 illustrates the increasing importance of the service sector in the City’s economy (see Table 5). Three of the top four industry groups in terms of job creation come from the service sector—business and professional services, entertainment services, and health services. However, more recent data indicates the loss of over 7,500 hospital jobs in New York City as a result of industry restructuring.

The worst employment declines were experienced within non-durable goods manufacturing, FIRE, and wholesale trade. FIRE saw a net loss of jobs due largely to downsizing in the commercial banking and insurance industries. In fact, every FIRE sector industry declined over the period except for securities and commodities brokers and holding and other investment offices.

Contrary to what the employment picture might indicate, New York City was more successful at attracting FIRE sector firms than any other industry group. In 1996, there were 1,789 more FIRE sector firms in the City than in 1992, representing 6.7 percent growth.15 However, even though the number of firms increased, the number of FIRE sector employees fell by 11,820. This is indicative of the extent of the downsizing that continues to take place in the industry. The professional services industry group brought 1,780 new establishments to the City, for growth of 7.3 percent. The household services industry group brought 1,226 new firms to the City, for growth of 13.4 percent.
15. 1996 is the most recent year for which firm-level data are available.

The City showed particular weakness in attracting and retaining non-durable goods manufacturing firms. New York City lost a net total of 968 such firms, for an 11.1 percent decline. The City also lost 637 construction firms, or 6.3 percent of the 1992 total. The third weakest industry group in the City was durable goods manufacturing, which lost a net total of 411 establishments, an 11.0 percent loss.

Long Island

With 5.2 percent employment growth, or 53,835 jobs, this region enjoyed the highest employment growth rate in the State over the entire 1992 to 1997 period. Suffolk County experienced relatively strong growth of 7.4 percent over the five-year period, while Nassau County saw 3.3 percent growth. The region experienced average annual growth of 3.3 percent over the first three years of the period. However, growth subsequently slowed in both counties. The overall regional rate of growth slowed to 1.8 percent between 1995 and 1997, with the creation of 19,675 jobs, still the second highest growth rate in the State.

Like in the rest of the State, the services sector was the driving force behind job creation in the region over the entire 1992 to 1997 period (see Table 6). Business and professional services, construction, and health services were the largest job producers during the period. However, as in New York City, more recent data indicates the loss of over 2,200 hospital jobs in 1997 due to industry restructuring.

The worst drains on the region’s employment consisted of the durable goods manufacturing industry group, due largely to the contraction of defense and related industries, as well as the FIRE sector due to downsizing.

Business and professional services added the most new firms to Long Island between 1992 and 1996, bringing 1,012 new establishments, for a 9.4 percent increase. The FIRE sector followed with 540 new firms added, representing an 8.1 percent increase. The health services industry group came next, adding 436 new establishments, or 6.8 percent growth. On the other side of the ledger, Long Island lost the largest numbers of firms in the construction and retail trade industries. Construction lost a total of 431 firms, a loss of 4.8 percent, while retail trade lost 254 firms, a loss of 1.4 percent. The simultaneous growth of employment and loss of firms indicates that consolidation is taking place in the industry.

Mid-Hudson Region

The Mid-Hudson region experienced net job losses between 1992 and 1995, shedding 4,256 jobs. During this period, the region was particularly hurt by downsizing among such important employers as IBM and General Motors. In 1995 through 1997, the region saw a 1.5 percent increase in employment, among the highest growth rates in the State last year. Thus the three fastest growing regions, in terms of employment were the three downstate regions.

However, much of the improvement in the Mid-Hudson region after 1995 was centered in Dutchess and Westchester Counties, which experienced growth of 3.0 percent and 1.8 percent, respectively, following net declines between 1992 and 1995. Job growth in all of the other of the region’s counties actually weakened during the two-year period from 1995 to 1997.

The industry groups adding the most jobs between 1992 and 1997 were business and professional services, educational services, and retail trade (see Table 7). The worst declines were suffered in durable manufacturing, non-durable manufacturing, and FIRE.

The Mid-Hudson region saw a net increase of 881 new firms, or 12.8 percent, in the professional services industry group between 1992 and 1996, the strongest industry performance in the region. The region also witnessed the formation of a net 536 new household services firms, a 19.8 percent increase. Within the FIRE sector, 454 new firms were added, an 8.2 percent increase, the third best performance in the region. The simultaneous loss of jobs and increase in the number of firms is an indication that FIRE underwent a significant degree of downsizing during the period. The Mid-Hudson saw a net total of 491 of its construction firms shut down, the worst decline in the region. There were 41 fewer durable goods manufacturing firms in 1996 than in 1992, a 3.4 percent decrease, making this industry the second-worst performer in the region in terms of the number of firms added.

Capital Region

The Capital Region saw total employment growth of 2.7 percent between 1992 and 1997. However, all of this growth occurred during the first three years of the period. Between 1992 and 1995, the region experience average annual job growth of 3.8 percent. This collapsed to a 1.1 percent decline between 1995 and 1997.

Between 1992 and 1997, the top job producing industry groups were retail trade, educational services, and community support services (see Table 8). The Capital Region suffered serious declines in manufacturing employment as important area firms, such as General Electric Power Systems in Schenectady, continued to downsize. The industry groups losing the most jobs were durable goods manufacturing, non-durable goods manufacturing, and construction jobs.

The industry group adding the most net new firms during the 1992 to 1996 period was business and professional services, which added 303 new establishments, or 12.3 percent of the 1992 number. This was followed by the performance of retail trade which increased its number of firms by 290, or 4.7 percent. The number of community support services establishments rose by 34.1 percent, or 235 units.

The Capital Region seemed to have the most difficulty holding on to construction firms, which fell by 249, or 8.5 percent. The second-worst reduction was in non-durable goods manufacturing, which saw a reduction in the number of firms by 12, a 2.4 percent decline. Interestingly, the number of durable goods manufacturing firms actually rose by 17, or 3.1 percent.

Mohawk Valley

The Mohawk Valley region featured a 3.7 percent employment growth rate over the entire five-year period from 1992 to 1997. However, all of this growth took place during the first three years of the recovery. Between 1992 and 1995, the region enjoyed the highest rate of employment growth in the State, at 5.1 percent.

However, between 1995 and 1997, this increase became a 1.4 percent decline. Downsizing by large manufacturers, such as Lockheed Martin, as well as the closing of the Griffiss Airbase, cost the region many jobs in 1996.

 For the period from 1992 to 1997, the Mohawk Valley region boasts the highest growth rates in the State in each of its three fastest growing industry groups—business and professional services, retail trade and entertainment services (see Table 9). The industry groups seeing the greatest declines were durable goods manufacturing; transportation, communication, and utilities; and non-durable goods manufacturing.

Over the course of the period from 1992 to 1996, community support services added the most net new firms, 119, representing 49.6 percent growth, the highest in the State. Business and professional services added 45 new establishments, increasing the number by 6.5 percent of the 1992 level. As in several other regions, construction was responsible for the greatest exodus of firms, losing 12.2 percent of its total, or 127 units. The region also saw a net decline of 27 wholesale trade firms.

North Country

Between 1992 and 1995, the North Country’s overall employment grew at 1.4 percent. Between 1995 and 1997, this growth became a 0.6 percent reduction. Over the entire five-year period, the region’s employment increased by only 0.9 percent.

The services sector drove what little job creation there was in the North Country region during the five-year period. Community support services, health services, and membership organizations led the region in job growth (see Table 10). Meanwhile, the area suffered the greatest employment losses in entertainment services; transportation, communication, and utilities; and durable goods manufacturing.

The community support services industry added 77 new firms, a 26.7 percent increase, making it the industry that was most successfully attracted to the region during the period from 1992 to 1996. Health services added 73 new firms, or growth of 14.7 percent, producing the second-highest number of net new firms. Business and professional services added 64 firms, growth of 12.1 percent.


Like elsewhere in the State, the North Country had the most difficulty retaining construction firms, of which the region lost 141, for a 14.3 percent decline. The number of household services firms also fell by a net total of 31, or 13.3 percent of the 1992 total.

Central New York

Central New York stands out as one of the most troubled regions in terms of job growth between 1992 and 1997. Employment rose by 0.6 percent between 1992 and 1995, falling back to virtually no growth between 1995 and 1997. Over the entire five-year period, the region experienced growth of 0.6 percent, the lowest growth rate in the State.

Between 1992 and 1997, the three best-performing industry groups in Central New York, in terms of employment growth, were all in the service sector— education services, health services, and business and professional services. A number of industry groups experienced poor rates of job creation in Central New York—non-durable goods manufacturing, FIRE, and construction. The region’s rate of construction jobs loss was the worst in New York State (see Table 11).

 Central New York was most successful in nurturing business and professional services firms, adding 138 firms between 1992 and 1996, a 7.7 percent increase. Community support services brought in a net total of 89 new firms, for growth of 20.3 percent. The FIRE sector did almost as well, adding 83 new firms, for a 5.8 percent increase. The industry group which experienced the largest decline in the number of firms was construction, which lost 148 establishments, a 7.1 percent fall.

Southern Tier

The Southern Tier experienced modest employment growth of 0.7 percent during the period 1992 to 1997. After 0.5 percent employment growth through 1995, employment slowed to 0.3 percent between 1995 and 1997.

The bright spots in the Southern Tier between 1992 and 1997 were to be found in the service sector. The top job producers were business and professional services, education services, and community support services. Meanwhile, durable goods manufacturing, and non-durable goods manufacturing suffered the worst job losses during the period (see Table 12).

The Southern Tier added 113 new community support services establishments over the four-year period, from 1992 to 1996, a 22.1 percent increase. The region also gained 65 household services firms, also representing a 22.1 percent improvement. The FIRE sector brought in 59 net new firms, a 5.1 percent increase. In contrast, the number of construction firms fell by 221, or 15.2 percent, during the period. The Southern Tier also lost 84 establishments in the retail trade industry group, representing a 2.0 percent decline.


Western New York

Job growth in Western New York weakened significantly from 1.9 percent between 1992 and 1995, to 0.8 percent between 1995 and 1997. Overall, regional employment grew 2.7 percent over the entire period from 1992 and 1997.

 Between 1992 and 1997, the service sector led the way in job creation in this region, just as it did elsewhere in the State. Regional job growth was led by business and professional services, community support services, and health services (see Table 13). Interestingly, two industry groups which shed jobs in most regions actually gained jobs in Western New York—construction and durable goods manufacturing. Two industry groups led the region in job declines—non-durable goods manufacturing and entertainment services.

Between 1992 and 1996, Western New York added 323 business and professional services firms, growth of 10.9 percent, the best performance among all industry groups. The region also gained 250 community support services establishments, for a 33.7 percent increase. In addition, this region saw a net increase of 154 new establishments in education services, a rise of 6.5 percent. The construction industry was the only one to shed a significant number of firms. It lost 104 firms, or 2.9 percent of its 1992 level, another indication of consolidation within that industry.

Finger Lakes Region

The Finger Lakes region experienced employment growth of 3.1 percent between 1992 and 1997, the third best performance in the State. However, like many other upstate regions, this growth slowed significantly between 1995 and 1997. Through 1995, the Finger Lakes region saw employment growth of 2.5 percent. Growth subsequently fell to 0.6 percent over the next two years as large area firms, such as Weyerhauser and Quebecor, continued to downsize.

 The service sector figured very prominently in this region’s job creation over the five-year period of 1992 to 1995. Business and professional services led the way in the addition of new jobs, along with entertainment services and education services (see Table 14).

Both the region’s durable and non-durable manufacturing groups declined significantly during the period. A total of 3,490 durable goods manufacturing jobs were lost, a 3.3 percent decline. Non-durable goods manufacturing shed 2,181 from its workforce, a 6.7 percent loss. The recent announcement of additional layoffs by Kodak indicates that the Finger Lakes region will continue to suffer job losses due to corporate downsizing for some time to come.

The Finger Lakes region had 283 more business and professional services firms in 1996 than it had in 1992, a 2.9 percent increase. This growth was trailed only slightly by the retail trade industry group which added 278 establishments, a 4.6 percent increase. The FIRE sector added 170 new firms to the region, representing a 9.0 percent improvement. The only industry group which saw a net decline in the number of firms was construction, which lost 88 firms, a 3.2 percent decrease.

The Role of Small Business in New York

Above we explored how the strength and longevity of the national expansion have stimulated job growth in New York. However, the growth of employment in the State has not been spread evenly between small and large businesses.16 During the period 1992 to 1996, small business employment increased by 15.4 percent, while large businesses experienced a 6.4 percent decline.17 In addition, small businesses raised their share of State employment (excluding government administration) from 47.3 percent to 49.6 percent.
16. For the purpose of this study, a small business is one employing 99 or fewer.

17. We chose this period because 1992 is estimated to be the last year of the State’s recession; 1996 is the most recent year for which full employment and establishment data are available. For the purpose of this study, a firm is classified by size based upon the size of its workforce at the beginning of the study period, no matter how large its labor force eventually gets. This method reduces the distortion which can arise from the transition of a firm over time from small to large, or vice-versa.

These trends appear consistently across all of the regions of the State. Below, we show that the extensive downsizing which occurred among large businesses during the early 1990’s, as well as extensive small firm startup activity, has increased the importance of the State’s small businesses as engines of job growth. We also examine whether industry wage trends differ by firm size in order to assess the impact of small business growth on overall State wage growth.

Small Business Job Growth

The excess of net small business job creation over large firm growth can come from three possible sources. First, the number of workers affected by small firm startups may have dramatically increased over the period, relative to the number of workers affected by large firm startups. Second, the number of large firms’ closing or moving out of the State may have increased compared to the number of small firm exits. Third, continuing large firms, firms which survived throughout the study period, may have downsized significantly more than have existing smaller firms.

Firm Startups. Between 1992 and 1996, 224,081 small firms startups created 1.3 million jobs (see Table 15). This level represents 39.1 percent of the 1992 small firm workforce. Large firms created about 863,194 positions, 22.2 percent of 1992’s large firm workforce, via the startup of 3,138 establishments. This level represents 32.8 percent fewer jobs than were created by small firm startups. We therefore conclude that some of the difference between large and small firm rates of job creation and retention is related to the high rate of startups among small firms.

Firm Exits. Between 1992 and 1996, 2,839 large firms, 29.5 percent of the 1992 total, either failed or moved out of State. These firm exits resulted in the elimination of 975,740 jobs, more than the number created by startups (see Table 15). Meanwhile, 191,979 small firm exits, 41.1 percent of the 1992 total, eliminated 1,018,678 positions, 20.7 percent fewer than the number which was created by small firm startups. Hence, large firm exits eliminated 4.2 percent fewer jobs than did small firm closings. This finding clearly indicates that firm flight or closure is not an important factor explaining the difference between job growth at small and large firms.

Continuing Firms. Continuing small firms—that is, firms that operated continuously between 1992 and 1996—increased their aggregate employment by 240,146 positions, or 9.4 percent, while continuing large firms lost 134,347, or 8.6 percent of their jobs (see Table 15). This difference confirms that, as a group, continuing small firms have been increasing their employment, while large firms, as a group, have been downsizing.

The analysis presented here shows that, between 1992 and 1996, employment growth and retention among small firms exceeded that of large firms, for mainly two reasons. One reason was that small firm startups created significantly more jobs than did large firm startups. Another was that while continuing small firms grew in size, continuing large firms were downsizing. Despite their high turnover rate, small firms have become the primary engine of State employment growth.

Small Business and Wage Growth

What impact is the strength of small business growth having on New York’s wage picture? The following facts might produce cause for concern. First, the average wage among small business employees in 1996 was 27.5 percent below the average large business wage (see Table 16). Moreover, between 1992 and 1996, the average wage among large businesses grew by 15.4 percent, while that among small businesses grew by only 13.2 percent. These data suggest that the State’s dependence upon small business employment might be resulting in an exchange of high-wage jobs lost due to corporate restructuring for lower-wage jobs offered by small business. Shall we then conclude that the contraction of large firm employment is constraining the growth of state wages? A closer look at wage and employment growth within individual industry groups, for the period from 1992 to 1996, indicates that the State’s increasing reliance upon small businesses to create jobs is not diminishing overall State wage growth.18
18. The year 1996 is the latest year for which data on small business wage and employment growth are available.

Although on average large firms pay higher wages than small firms, there are industry groups in which the average small business wage paid in 1996 was higher than that for large firms. One of these groups was business and professional services, the fastest growing industry in the State (see Table 17). In this industry the average wage paid by small firms in 1996 was over $4,000 higher than that paid by large firms and almost $5,500 above the statewide average wage of $36,624. Thus, the fact that small business employment in this industry is growing faster than large business employment is having a favorable impact on State wages.

Another industry in which small businesses pay a higher average wage than large businesses is the health care industry. In 1996, the average small business wage was over $5,000 above that of large firms. Moreover, large businesses in the health care industry, primarily hospitals, are shedding employment. Only small firms exhibited positive job growth during the period.

Despite the overall trend, there are some industry groups where large firm employment growth does exceed small firm growth. These include construction, business and professional services, entertainment services, and retail trade. All of these industries contributed significantly to statewide job growth in both 1996 and 1997, with entertainment services being one of New York’s fastest growing industries. In each of these industry groups, the average wage paid by large firms in 1996 was higher than that paid by small business, and in the construction and wholesale trade industries, average wages paid in 1996 were over $10,000 above the statewide average wage. Hence, the pattern of job growth in these industries is also having a favorable impact on the State’s overall wage picture.

In a number of the State’s growing industry groups where large firms pay more than small firms, there is evidence that small firms may be starting to catch up. In the education, transportation, consumer services, membership services, retail trade, and community support services industry groups, average wages over the period grew faster among small firms than among large firms. This development bodes well for the State’s longer-run wage picture.

Figure 12

Large-firm restructuring resulted in the loss of many jobs over the period, with much of those losses occurring in middle income groups. Figure 12 shows what happened to the distribution of wages among large firms between 1992 and 1996. There is substantial evidence of net employment loss among individuals earning incomes between $20,000 and $30,000 per year. In contrast, in all of the income groups above $30,000, employment in 1996 was higher than the 1992 levels, bringing up the statewide average large firm wage.

Figure 13 indicates that small firm wages also improved somewhat over the period from 1992 to 1996 without the decline in middle class jobs observed among large firms. There were fewer small firm employees earning less than $10,000 per year in 1996 than in 1992. There were only marginally more workers earning between $10,000 and $20,000, and no change in the number of employees earning between $20,000 and $30,000. However, there was significant growth in the number of employees in all of the income groups above $30,000 per year. We conclude that there is strong evidence that although small business has come to dominate State employment growth, the impact of this trend on wage growth has not been a negative one.


Economic Report
[ Previous section ] [ Next section ]

New York State Assembly
[ Welcome Page ] [ Reports ]