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Joining The U.S. Export Parade


Economic Trends

JOINING THE U.S. EXPORT PARADE

Why some areas lag and others lead

Although America's spectacular export recovery in the past decade has bolstered economic growth, the Mid-atlantic states--particularly New York--have lagged behind, whereas the Midwest has come on strong (chart). Many observers assume that New York's export mix and high labor costs have held it back, and that the Midwest has benefited from the dollar's sharp depreciation since the mid-1980s.

As new studies by the Federal Reserve banks of New York and Chicago suggest, however, both assumptions are wrong. In each of the two areas, other factors appear to have played key roles in determing its current competitiveness and export performance.

The New York Fed, for example, finds that New York ships about as much of its goods to fast-growing markets abroad, including high-growth Asian economies, as does the nation as a whole. And the state's export mix is close to that of the U.S., with over half made up of capital equipment. The study also finds that New York's unit labor costs in manufacturing have declined markedly and are now more than 10% below the national average.

Thus, bank economists conclude that New York's export woes stem from its harsh business climate, rather than from high wages or a poor mix of products or customers. Infrastructure problems and the state's extraordinarily high tax burden and energy and urban housing costs (much above the Midwest's) appear to have discouraged industrial expansion.

Meanwhile, economists at the Chicago Fed find no positive impact at all of dollar depreciation on the Midwest's export growth. Indeed, because the Midwest ships a large share of its manufactured exports to Canada and Mexico, Midwest exporters have actually faced an appreciating dollar since 1988. Thus, the researchers theorize that industrial restructuring, technological expertise, and high-quality products are the real factors responsible for the Midwest's competitive revival.By GENE KORETZReturn to top

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ENDING WELFARE WITH A CARROT

Canada pays recipients to find jobs

By and large, the U.S. approach to getting people off welfare is to apply the stick--terminating benefits after a set period. Although states may cushion the blow by providing child care and other aid, such help will be small and not widely available.

Canada, by contrast, is experimenting to see whether the carrot is a more effective way to induce recipients to become self-sufficient. And the initial results look encouraging.

Starting in 1992, some 6,000 long-term welfare recipients in British Columbia and New Brunswick--mainly single mothers--entered a research project in which half were eligible to receive a biweekly subsidy if they found and stayed in a full-time job. The subsidy was equal to half the difference between their weekly wage and target wage levels--about $30,000 (U.S.) a year in British Columbia and $25,000 in New Brunswick, where wages are lower.

Those eligible to receive the subsidy were given a year to find work, and they were allowed to conceal the subsidies from their employers. Payments were linked to the recipients' wages only--not household incomes--and recipients were told the subsidy would end permanently after three years. The three-year window was designed to give people time to adjust to the world of work and build social contacts.

Although the project is still under way, and the first crop of beneficiaries is only now completing its three-year subsidy period, economists David Card of Princeton University and Philip K. Robins of the University of Miami have analyzed some early results. They found that, after 18 months, close to 25% of those eligible for wage subsidies had found full-time work, compared with just 10% of welfare recipients who hadn't been offered the subsidies. Results were similar in both provinces, even though unemployment ran higher in New Brunswick. In both areas, workers were enthusiastic about the program.

No one yet knows, of course, how workers will fare once subsidies end, especially since many took low-wage jobs. Looking at costs, the government appears to have saved money by reduced payments to those who would have stayed on welfare, but to have actually lost a little because such savings were offset by payments to those who would have found work anyhow.

Still, the results seem promising, especially because they were achieved by relying almost entirely on financial incentives rather than on training programs and other social intervention.By GENE KORETZReturn to top


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