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2005 ASA Annual Meeting . . . Our 100th Meeting!

Philadelphia: A Metro Area in Transition

The second article in a series highlighting ASA’s upcoming 2005 centennial meeting in Philadelphia

by David Elesh, Temple University

Like many eastern and midwestern urban areas, Philadelphia’s economy has undergone a major transition in recent decades. Roughly a half century ago, manufacturing dominated the economy of both the city and suburbs, providing almost half of the city’s jobs and 58 percent of those in the suburbs. In 2003, manufacturing accounted for just 5 percent of the city’s total employment and 11 percent of suburban jobs; and it remains in decline in both areas. As manufacturing recedes, the city’s and region’s educational and health institutions have emerged quite strongly as principal drivers of the local economy. Today, education represents about 12 percent of city employment and 7 percent of suburban employment; health services, including social assistance, constitutes 18 percent of Philadelphia’s jobs and 12 percent of those in the suburbs.

Jobs in “Eds and Meds”

The largest employers in the region are health and educational institutions. A recent Brookings Institution study found that half of the top-ten and four of the top-five private employers were health or educational institutions and they accounted for 70 percent of the jobs in the top-ten. Their impact is not trivial. A 1998 study, which I conducted with two economist colleagues, found that Temple University and its associated health system alone put more than $1 billion annually into the city’s economy and another $600 million into the region. A 1997 Price Waterhouse Cooper study for the University of Pennsylvania and its associated health system found that it contributed $1.5 billion annually to the city’s economy and more than $4.3 billion to the states. Taken together, the two schools and their health systems generated more than 80,000 jobs locally. Seven and eight years later, both universities and health systems have grown significantly with commensurately larger economic impacts on the city and region.

The growing significance of educational and health institutions is hardly unique to Philadelphia. The Brookings study found that, as of 1995, “eds and meds” represented at least 5 percent of the jobs in 20 of the largest U.S. cities. Educational institutions are even being used as keystones for redevelopment: across the Delaware River from Philadelphia, Rutgers University-Camden and Camden Community College are at the center of redevelopment efforts.

Exporting Health, Education

Though health and educational institutions are often seen as local economic engines, they also play an export role and that is increasingly true of those in Philadelphia. Home to more than 80 colleges and universities, the region benefits substantially from their collective economic impact. The largest schools are in the city, and as many readers will know, prospective college students throughout the nation have been increasingly drawn to city schools for much of the past decade. Most of Philadelphia’s colleges and universities have not only seen an increase in enrollments but an increase in enrollments from outside the region.

The four academic health systems—Penn, Temple, Jefferson, and Drexel (including the Children’s Hospital of Philadelphia and the Fox Chase Cancer Center)—all attract patients from outside the region. In the mid-1990s, an SRI International study estimated that 44 percent of the output of the region’s health services were exported.

Manufacturing, Pharmaceuticals

What remains of the region’s manufacturing sector has a substantial basis in pharmaceuticals, medical devices, and biotechnology. Philadelphia’s history in the pharmaceutical industry dates to 1830 when John K. Smith opened a drugstore that evolved into the modern GlaxoSmithKline company. Wyeth and Warner Lambert also have 19th century origins in Philadelphia. Today, the sector represents more than 21,000 jobs in the region. According to a 2002 Brookings Institution study, 80 percent of the world’s largest pharmaceutical companies have a presence in the metropolitan area, and employment in the industry is second only to the New York metropolitan area. Yet these numbers actually underrepresent the true impact of the pharmaceutical industry, since available data only record for its own employment. If, for example, a chemical factory sells all of its output to a pharmaceutical firm, its jobs are counted as part of chemical manufacturing and the connection to pharmaceutical manufacturing is ignored.

Changing Employers in Philadelphia

The Philadelphia area also is shaped by its status as the cradle of the nation, drawing tourists to Independence National Park, the National Constitution Center, and Valley Forge National Park. As manufacturing has declined, federal, state, and local leaders have vigorously sought to increase tourism and have met with some success. According to the 2003 Inbound Travel Report of the U.S. Department of Commerce’s Office of Travel and Tourism Industries, Philadelphia is now one of the top-ten U.S. destinations for travelers from western Europe and, since 2000, has moved from 21st to 12th among all travelers to the United States. Another measure of Philadelphia’s success as a tourist destination is the fact that since 1993, occupancy rates of Center City hotels have remained essentially constant despite an 82 percent increase in the number of rooms. These trends are particularly impressive, given the fact that for much of the U.S. eastern seaboard, a trip to Philadelphia is easily managed in a day and does not necessarily require an overnight stay. As positive as these figures are, the tourism and hospitality industries are not the strongest urban economic foundation, as the wage structure is sharply pyramidal—relatively few middle and upper income jobs and large numbers of poorly paid ones.

Economic Agility

Historically, Philadelphia has not responded to economic contractions or economic expansions as sharply or quickly as many other metro areas. Employment is just now returning to the levels the city and region had prior to the 2000 recession. Center City appears quite vital, with throngs of people on the streets and in the stores, restaurants, and entertainment venues.

Residential real estate values have risen so sharply as to encourage the conversion of older office buildings and hotels to condos and apartments and to force many would-be residents to find housing north or south of Center City. As a result, housing values have risen strongly in areas north and south of Center City, which creates a new dynamic for economic investment, job creation, and the attractiveness of the city.

In part, the increase in values is the result of foreign immigration to the city, although it must be said that Philadelphia’s attractiveness to immigrants is not that impressive. Throughout most of the past decade, the metro area has ranked between 17th and 19th as a destination for permanent immigrants. On the other hand, those immigrants it has attracted are, on average, more educated than native born Philadelphians and natives in many of the areas receiving more immigrants such as Chicago. Thus they bring new skills to the economic mix.

The “eds and meds” economic profile of the Philadelphia area would appear to situate it well for the future, given the aging national population and continuing pressing need for “knowledge workers.” However, it is worth remembering that the revival of many of our older cities seen in the last decade and a half was hardly prominent in social scientific forecasts.