National Center for Policy Analysis

MONTH IN REVIEW

Economy & Income
June, 1996

DOING BUSINESS IN THE STATES

The Small Business Survival Foundation recently released a study which ranks the states on how friendly each is to entrepreneurial risk-taking and economic growth. The study's authors added up nine major costs imposed by or related to the work of state and local government.

Seven of the cost factors involved taxes: personal income tax rates, capital gains tax rates, corporate income tax rates, and property, sales and death taxes -- as well as the unemployment tax rate imposed on employers based on taxable wages.
An eighth factor involved a comparison of workers' compensation rates among the states.
Finally, they included comparative rates of crime within the states.

The authors did not include regulatory costs, the most important other cost that states impose on business. The researchers found that no reliable comparative measure of these costs is now available. But they did note that heavy regulation tends to go hand-in-hand with high taxes, crime and other ills that the index does capture.

So which states are the most hospitable, and which the most hostile to small business?

The four most hospitable states are located in the northwest -- South Dakota, Wyoming, Nevada and Washington -- and the fifth is Texas.
The five states whose policies were judged most burdensome to small business are New York, Iowa, Hawaii, California and Rhode Island.
Perhaps not surprisingly, the area small business people would most want to avoid is Washington, D. C. -- 51st on the list.

The four most hospitable states do not tax personal income, capital gains, or corporate income. Low-tax Texas, New Hampshire, Tennessee, Alaska and Florida are close behind.

Source: Raymond J. Keating (Small Business Survival Foundation and Capital Hill Research), "Does Your State Hate Business?" Investor's Business Daily, June 6, 1996.

MINIMUM WAGE AND YOUNG, BLACK WORKERS

The expected increase in the nation's minimum wage will hurt one of the most vulnerable sectors of American society -- black teenage males. According to data from the Bureau of Labor Statistics, joblessness among this group tends to rise and fall in tandem with minimum wage fluctuations.

In 1954, when the minimum wage did not apply to most sectors of the economy other than manufacturing, the joblessness rate for black youths was about 14 percent -- about the same as for whites.
From 1971 to 1980, during which Congress raised the minimum six times, black family income rose just 3 percent while white income rose 8 percent.
During the eight years in which President Reagan refused to raise the minimum, inflation reduced the real minimum by 28 percent, and joblessness among black teen males declined from 38 percent to 32 percent -- the lowest rate since 1973.
During the same period, real median income rose 11 percent for black families versus 8 percent for whites.

Then in 1990-91, minimum wage hikes pushed the real floor up 16 percent and unemployment among black teen males soared to 42 percent. The jobless rate for black males ages 16 to 19 has new fallen back to 35 percent -- just in time for another hike in the minimum.

Raising the minimum wage, opponents contend, eliminates just the sort of jobs that teenagers are likely to get: the first jobs where they learn the skills to earn more. To think that business owners operating on a small margin won't cut hours or jobs to cover the hike in the minimum wage represents the triumph of faith over experience.

Source: Editorial, "Easy Compassion," Investor's Business Daily, June 7, 1996.

U.S.: WORLD PRODUCTIVITY LEADER

The McKinsey Global Institute has issued a study which finds that the U. S. outperforms Japan and Germany in the productive use of capital by one-third overall and either sets or equals the productivity standards in five selected industries: telecommunications, utilities, retailing, auto manufacturing and food processing. The goal of the research was to determine which country uses capital - both physical (machinery and buildings) and financial -- most productively.

Some of the findings:

Higher capital productivity translates into higher financial returns for U. S. savers --9.1 percent compared to 7.4 percent in Germany and 7.1 percent in Japan.
One factor in the U. S. successes was the clever and subtle trade-offs our businesses make between giving customers what they want and operating efficiently.

For example, Japanese electric utilities keep massive generating capacity in reserve to meet demand on the very hottest summer days. U. S. utilities reduce such peaks through clever pricing schemes and incentives for customers to cool their homes more efficiently.

Japanese utilities trail their U. S. counterparts by better than 50 percent in capital productivity.
The U. S. leads both Germany and Japan in telecommunications capital productivity by well over 50 percent.

In many industries -- particularly telecommunications, utilities and autos -- German engineers design equipment that delivers well beyond what the task at hand requires. Some phone cables are designed to be run over by a tank, for example.

The report found that German and Japanese managers tend to pay more for the equipment they buy -- relying on high-priced local sources, rather than scouring the globe for the best prices. In the food industry the potential savings could run about 10 percent; in telecommunications, they could reach 60 percent.

Source: Bill Lewis (McKinsey Global Institute), "The wealth of a Nation, "Wall Street Journal, June 7, 1996.

COMPARING REAGAN, CLINTON ECONOMIES

In the debate over tax levels and tax cuts, economic growth and family incomes, performance comparisons between the Reagan years and the recent Clinton years should provide solid guideposts to future policy. Taxes were decreased during the Reagan years; increased during Clinton's tenure.

Here are a few key statistics:

From 1983 to 1989, real gross domestic product increased at an average annual rate of 3.9 percent; but only 2.3 percent in the period 1993-95.
Over the same periods, employment increased at an average annual rate of 2.4 percent under Reagan, 2 percent under Clinton.
During the Reagan years, productivity increased at an average yearly rate of 1.5 percent; but just 0.6 percent under Clinton.
Under Reagan, real after-tax income per capita bounded ahead 2.7 percent -- a rate more than twice the 1.3 percent under Clinton.

These changes occurred within the context of a labor force increasing at a 1.8 percent rate during 1983-89 and 0.8 percent during 1993-95.

Growth in the first quarter of 1996 also happened to be 2.3 percent, although real GDP was only 1.7 percent higher than a year before.

Slower growth of output naturally results in slower growth of real income. And when people are unable to better their lot, worker frustration sets in -- a phenomenon now being reported and examined in the press.

Two additional key comparisons should be noted:

Following tax rate reductions in the 80s, income tax receipts amounted to 8.5 percent of GDP.
Higher marginal tax rates in the '90s failed to bring in widely anticipated additional government revenues -- in fact they fell to just 8.2 percent of GDP.
Despite smaller budget deficits, total national savings dropped to only 15.2 percent of GDP in the past three years -- down from 17.2 percent in 1983-89.

Economists warn that marginal tax rates are much too high, and the tax system is horribly biased against savings and investment.

The predictable result has been little or no progress in livings standards during the past seven years.

Source: Alan Reynolds (Hudson Institute), "Clintonomics Doesn't Measure Up," Wall Street Journal, June 12, 1996.

WELL-TO-DO DOING VERY WELL, THANK YOU

Not everyone's incomes are suffering under President Clinton. While those of the less-affluent have stagnated, average income for the wealthiest Americans climbed 21 percent between 1992 and 1994, according to the Census Bureau -- something of an embarrassment to an administration which emphasized the income gap theme during the 1992 campaign.

In March of this year, a study by RAND researcher Lynn Karoly found that the income gap continued to widen in the 1990s. And Federal Reserve Board Governor Lawrence Lindsey has noted that the income gap has widened under Clinton, after holding steady during the flush years.

The share of income going to the top 5 percent of Americans rose from 18.6 percent in 1992 to 20 percent in 1993 and to 21.1 percent in 1994.
Average incomes for this group climbed more than $30,000 between 1992 and 1994.
Meanwhile, incomes for the bottom fifth have declined in real terms by about $1,000 since 1989.
The share of total family income going to the richest five percent of Americans climbed to 21 percent in 1994, up from 18.6 percent when President Bush left office.

Economists say that the poverty rate remains at historically high levels for this point in an economic recovery. As of 1994, it stood at 14.5 percent of the population -- higher than in all but three years of the Reagan and Bush administrations.

While the wealthy are now paying somewhat more in taxes and the poor paying less, the share of income taxes paid by the rich soared in the 1980s -- despite the top marginal tax rate being chopped from 70 percent to 28 percent. The share paid by middle and lower income families dropped over those years, according to the IRS.

Source: John Merline, "Rich Get Richer Under Clinton," Investor's Business Daily, June 12, 1996.

ARE CITIES A PROBLEM?

Population growth in industrial cities has troubled some observers at least since Thomas Malthus sounded the alarm in the 18th century when he said the world was about to lose a "perpetual struggle for room and food."

But better farming technology and the demands of the free market fed the masses. Now a new alarm has been sounded by a United Nations report: for the first time in history more than half of all people live in cities, up from one-third 50 years ago.

But that is simply a function of growing economies.

When the U.S. was a developing economy, fewer than one in 20 lived in cities; now more than three in four do.
Doomsayers predicted the cities would become sinkholes of poverty and filth, ignoring the fact that rural areas often had poverty and filth -- and no jobs.
Many of the governments now decrying overpopulation in the cities forced people to go there by controlling food prices so severely no one could make a living from the land.

Another reason for the population boom in cities is that people are staying healthier and living longer. Housing and nutrition have gotten better. But rather than seeing more people as an asset, the UN report sees them as a burden. That's understandable in a perverse sort of way.

Most countries stifle people's ability to earn a living by burdening the private sector with taxes, red tape, corruption and public monopolies. Rather than freeing up their abilities to create wealth, governments keep people from creating wealth then blame them for costing too much.

As for the appalling living conditions in many cities around the world, they stem partially from the universal dislike of landlords that was turned into law. Landlords were slapped with rent controls and heavy regulation, hurting those who need cheap housing the most. It's worse when, as is often the case, housing is state-owned. Then, there is no incentive to improve someone elseÕs property. Too often the crisis of the cities represents the failure of government.

Source: Perspective, "Malthus Lite," Investor's Business Daily, June 14. 1996.

REMEMBER THE GASOLINE PRICE FLAP?

Late last week, the Department of Energy released a study which confirmed that soaring gasoline prices just two months ago were a result of market forces, not some oil industry cabal. Prices increased on average 20 cents a gallon between mid-February and mid-May.

Here are some of the findings:

Gas prices shot up because crude oil prices increased due to tight inventories.
The reason gas prices escalated even higher in California than in other states was that state's tough clean-air laws which forced motorists to use a type of gasoline not sold anywhere else.
But higher prices have brought more oil to market and much of the recent rise will be reversed during the summer.
Prices have already dropped about 3 cents a gallon, and should go down another 10 cents over the next three months.

Experts say that President Clinton's panicked decision to sell 12 million barrels of oil from the nation's Strategic Petroleum Reserve cost taxpayers nearly $140 million. In addition to $40 million in costs for storage, the U. S. lost by selling oil it had purchased at $27 a barrel for $21 a barrel.

When pressed, an Energy Department official admitted that there was no way the department could prove that the move had any effect one way or the other on gasoline prices.

Source: Perspective, "Gas Prices and Politics," Investor's Business Daily, June 17, 1996.

BALANCING THE BUDGET NO PANACEA

For several reasons, balancing the budget does almost nothing for the economy. Too often it's seen as an end in itself rather than a means to an end.

The goal of all economic policy should be to improve the well being of the American people. Some say that lower deficits will increase savings, which will lead to increased investments. Higher investments ultimately bring greater productivity and, thus, higher real income and living standards.

The problem with this linkage is that it is not as clear-cut as it appears.

While there is some evidence that over the long-run domestic savings are associated with domestic investment, the linkage is weaker than most people think.
In an open economy, it is quite possible to import capital for a long time when domestic investment opportunities exceed domestic savings.
Conversely, some countries, such as Japan, have more savings than they have domestic investment opportunities -- so they export their excess savings to other countries where returns are higher.

There is little evidence that lower deficits increase the pool of savings. Most deficit reduction legislation in recent years has relied heavily on higher taxes rather than lower spending -- thereby discouraging savings by reducing after-tax returns.

President Clinton's 1993 tax increase actually lowered saving by more than the deficit.

In 1992, individuals saved 5.9 percent of their disposable income -- compared to an average of 4.3 percent since then.
As a result, there was $242.2 billion less in personal savings over the last three years than if the savings rate had stayed at its pre-Clinton level.
Over that same period, the deficit fell from $280.9 billion to $162.6 billion last year -- for a cumulative reduction of $235.5 billion.
Thus there was $7 billion less savings available, even though the deficit fell sharply.
According to a new report from the Congressional Budget Office, balancing the budget will have no effect at all on unemployment or inflation, and will add just one-tenth of one percent to the annual growth rate.

If this is the payoff for balancing the budget, it suggests there may be better ways to improve real incomes -- such as cutting taxes.

Source: Bruce Bartlett (National Center for Policy Analysis), "Of Deficit Fixations and the GOP Mind," Washington Times, June 17, 1996.

BENEFITS OF INDEXING BONDS TO INFLATION

Both the Nixon and Reagan administrations considered offering government bonds whose yield would increase to compensate for inflation. Now President Clinton's Treasury Department has resurrected the idea.

Economists generally support the plan, which would go a long way toward protecting millions of Americans from the inflation tax which undermines entrepreneurship, risk-taking and traditional work-ethic values of personal responsibility.

Over the past 15 years, roughly 20 percent of the British government bond market has been absorbed by inflation-indexed bonds.
U.S. investors could look forward to a real yield averaging better than 3.5 percent on a compounded annual basis.
Proponents point out that indexed bonds would make an ideal vehicle for the proposed private investment of Social Security payroll tax contributions -- which under the current system are forecast to net only 1 percent or less before inflation.
Such bonds would also be a safe harbour for Medical Savings Accounts, when approved legislatively.

Private corporations would probably see the need to issue their own inflation-indexed bonds to compete with the safety of the new Treasury paper -- with even more wide-spread benefits accruing to savers and, thus, the economy.

During the 1960s, when the dollar was linked to gold and inflation remained low, real long-term bond yields averaged 2.1 percent.
When inflation soared in the 1970s, real yields dropped to just 0.7 percent.
Since then, as the Federal Reserve Board has succeeded in bringing inflation down, real yields have climbed to 5.1 percent.

For savers, the real yield variance sets up huge risks.

Investing $1,000 over 40 years at a 0.7 percent real yield generations only $1,330 pretax return.
lBut at a 5.1 percent real yield, the same investment over the same time period creates $7,280 pretax return.
Using the British index-linked bond approach, in which real yields averaged 3.8 percent over the past eight years, would have brought a $4,390 gain.

A side benefit would be that, by subtracting the real yield from the market yield of a Treasury bond, U.S. policy makers -- such as those at the Federal Reserve -- would have at their fingertips a daily calculation of market inflation expectations.

Source: Lawrence Kudlow (Laffer, Canto & Assoc.), "Inflation Indexed Bonds: Great News for Consumers," Wall Street Journal, June 19, 1996.

U.S. LEADS IN LABOR, CAPITAL PRODUCTIVITY

While much attention is paid to rates of labor productivity, capital productivity matters also. How well a country uses its capital stock -- such as machines and buildings -- to produce goods and services also determines its standard of living.

A recent study by the McKinsey Global Institue compares capital productivity in the United States, Germany and Japan.

It found that both Germany and Japan get about 30 percent less bang for their capital bucks than does the U.S. -- even though those countries start off with more capital per person.
Put that together with the U.S. lead in labor productivity, and the result is that U.S. citizens enjoy a higher standard of living.
The U.S. gross domestic product per person is about 26 percent higher than that of Germany and 23 percent higher than that of Japan, adjusted for buying power.

Although the Japanese save more and put a greater share of their population to work, comparatively lower overall productivity means that Japan gets less return on the time, money and energy it invests.

And while Germany has far more capital to work with, their workers are less productive than Americans because German firms do not use their capital well.

What factors contribute to the less efficient utilization of capital?

Greater competition in the U.S. forces managers to squeeze as much out of every resource as they can.
In Germany and Japan, stiff regulations -- from zoning laws to trade barriers --ease the pressure on managers, while red tape raises entry barriers to new firms and cuts competition.

McKinsey found that the U.S. has a big lead even in such monopolistic-type industries as utilities and telecommunications, because they are owned by private investors here -- rather than government -- who pressure managers through stock prices to employ their capital assets well.

While the U.S. net savings rate is half Japan's and two-thirds that of Germany, experts say it's gross business investment that really counts. And over the past two decades, those levels have been only about 20 percent higher in Germany and Japan than in the U.S.

Because of the U.S. higher level of productivity, its lower level of investment actually generates a higher rate of return.
One thousand dollars invested twenty years ago yielded $5,666 in the U.S., but only $4,139 in Germany and $3,957 in Japan.

The conclusion is that -- through deregulation and lower trade barriers -- raises living standards. And firms that focus on their stock prices as a gauge to their performance benefit investors and the whole economy as well.

Source: Perspective, "The Productivity Puzzle," Investor's Business Daily, June 20, 1996.

WHO'S RESPONSIBLE WHEN AGING "BOOMERS" SAVE LESS?

With the oldest baby boomers turning 50 this year, a recent study warns that middle-aged Americans need to triple their rate of retirement saving to live securely in their golden years.

Merrill Lynch and Co.'s fourth annual "Baby Boomer Retirement Index" -- a ratio that measures how much someone needs to save to maintain current living standards later -- hasn't budged from last year's 36 percent.

But some policy-makers question whether the 76 million Americans born between 1946 and 1964 are justly blamed for not saving more when costly government programs -- such as Social Security and Medicare -- are handing wealth to the elderly, who tend to consume more, at the expense of boomers and other Americans, who tend to save more.

In 1975, the nation's personal savings rate was 9 percent of disposable income.
But by 1994, it had dropped to 3.8 percent.
And, although the lifetime net tax rate for someone born in 1900 was 23.6 percent of earnings, it climbed to 36.2 percent for someone born in 1992, according to a study by Laurence Kotlikoff and Alan J. Auerbach.

Others say there are some signs boomers aren't complete slackers when it comes to saving.
According to a study from the Congressional Budget Office:

Median wealth of households headed by someone aged 25 to 34 years was $9,000 in 1989 -- compared to $6,100 in 1962, stated in 1989 dollars.
The median wealth of households headed by someone 35-44 was $54,200 in 1989 -- compared to $29,300 in 1062.

Researchers warn that unless government social spending programs are cut soon, there is the very real prospect that higher taxes and program cuts will be inescapable just as the baby boomers reach retirement.

Source: Laura M. Litvan, "Are Baby Boomers Lousy Savers?" Investor's Business Daily, June 18, 1996.

ECONOMISTS CHANGE THEIR STORY

Supporters of increasing the federal minimum wage have made much of an October 1995 statement of support signed by 101 economists, including three Nobel Prize winners. However, some of the signers of the statement were not always in favor of increasing the minimum wage or even attempting to mandate the price of labor by a federal minimum wage law and/or have admitted that raising it causes unemployment.

For example, look at the following comments from signers of the statement.

Economist James Tobin, 1981 Nobel laureate, was quoted in 1994: "People who lack the capacity to earn a decent living need to be helped, but they will not be helped by minimum wage laws .... the more likely outcome of such regulations is that the intended beneficiaries are not employed at all."
Boston University economist Kevin Lang wrote in 1995: "[L]ow-wage employers may be substituting workers they prefer for more disadvantaged workers. If so, minimum wage laws are a very undesirable anti-poverty measure."

Harvard economists Lester Thurow and Robert Heilbroner (a co-signer of the statement) wrote in 1987: "Minimum wages have two impacts. They raise earnings for those who are employed, but may cause other people to lose their jobs."

The above comments are not surprising, since polls show more than 90 percent of professional economists agree with the prediction that a higher minimum wage reduces employment.

Source: John S. Tottie, "Some Surprising Quotes on the Minimum Wage," Issue Analysis No. 29, June 12, 1996, Citizens for a Sound Economy Foundation, 1250 H Street, NW, Suite 700, Washington, DC 20005, (202) 783-3870.

GOVERNMENTS AT ALL LEVELS GOBBLE UP PRODUCTIVITY

In fiscal year 1995, federal, state and local governments took 30.4 percent of gross domestic product, according to a recent Office of Management and Budget study. This compares to the 23 percent of GDP they consumed as recently as 1947.

Economist Bruce Bartlett, of the National Center for Policy Analysis (NCPA), says that most of the overall growth in taxes over the past few years has occurred at the federal level.

l Between fiscal years 1993 and 1995, federal receipts as a share of GDP rose 0.9 percentage points to 19.3 percent.
l But state and local taxes declined as a portion of GDP by 0.2 percentage points to 11 percent.
He points to two reasons for this trend.
l First, two federal tax hikes in 1990 and 1993 helped push federal receipts upward.
l Even though federal tax rates are indexed to inflation, they are not indexed for real GDP growth.

Just as a tax cut of some type was enacted in the past as the overall tax burden rose, so one should now be passed to adjust for the upward trend of recent years, Bartlett contends.

According to an NCPA study, the ideal size of all government receipts would be between 21.5 and 22.9 percent of GDP. Once tax levels exceed that share, government starts to become a net drain on the private sector. This is because money spent by the private sector -- rather than the public sector -- tends to get spent where it will achieve the best economic rate of return.

Source: Perspective, "Taxing Times," Investor's Business Daily, June 24, 1996.

LAYOFFS NOT A NEW PHENOMENON

Economic research shows that, contrary to headlines that treat corporate layoffs and job insecurity as new developments, they are part of a normal process of change in a dynamic market economy.

A University of Chicago economist, Steven J. Davis, reports that:

Over a typical 12-month period, one in 10 U.S. manufacturing jobs disappears -- and does not open up again at the same location within the following two years.
Other jobs, however, are being created at the same time.
For example, there was no change in the number of factory jobs in 1988, but 1.6 million jobs disappeared that year -- and 1.6 million jobs were created.
The reasons for plant shutdowns and layoffs overwhelmingly have to do with individual products, plants and companies -- not industries, regions or trends.
However, the proportion of permanent layoffs has been rising over time.

He found that while temporary layoffs accounted for most of the unemployment increase during the recession in the mid-1970s, in subsequent recessions the "layoffs" were largely permanent.

Source: Rob Norton, "Job Destruction/Job Creation," Fortune, April 1, 1996.

WHY UNIONS LIKE "LIVING WAGE"

Congress is debating raising the federally mandated minimum wage from $4.25 an hour to $5.15 or $5.25. But the deceptively named living wage movement, which wants government to order wages raised even higher, is spreading -- backed by unions and coalitions of community groups and religious organizations.

The immediate target of living wage laws is private firms with government contracts.

Baltimore, Milwaukee and Santa Clara, Calif., have already enacted laws requiring contractors to pay workers more than the federal minimum wage.
More than 20 other cities -- including New York, Los Angeles and Chicago -- and several states are considering it.
Baltimore, for example, began requiring city contractors to pay their employees at least $6.10 per hour in 1994, and this will rise automatically to $6.60 on July 1, 1996 and to $7.70 in 1998.

Unions like the idea because it reduces the difference between union wages and nonunion (market) wages, increasing their ability to compete for city contracts. Others view it at as a costless anti-poverty effort. The city of Baltimore, for example, estimates it will only cost the city $3.5 million per year after 1998, less than 1 percent of the city's annual budget.

Some critics suggest the primary aim is to halt privatization efforts. For example, the New York City Council is considering a compromise that applies only to contracts for security, food service, cleaning and temporary work -- the areas where the city has been contracting out the most.

Sources: Ed Carson, "Contract Revisions," Reason, July 1996, Reason Foundation, 3415 Sepulveda Blvd., Suite 400, Los Angeles, CA 90034, (310) 391-2245; and Steve H. Hanke, "Looks Like Charity, Smells Like Pork," Forbes, May 6, 1996.

THE JOB MARKET AND ECONOMIC GROWTH

There is evidence that economic growth -- about 2.3 percent a year in the first quarter of 1996 -- is not as fast as it can or should be.

Compare today's labor market with 1988.

Then as now, the United States was in the sixth year of an economic recovery and unemployment was 5.5 percent, about equal to today's 5.6 percent.
However, only 1.2 million new jobs were created in the past year, versus 2.5 million in 1988.
Job openings, including posts that become vacant when workers retire, die or quit the labor force, are 20 percent lower today, according to the Conference Board.
And inflation-adjusted wages are rising at a tepid 0.6 percent a year, about half the pace of the 1980s recovery.

Source: Aaron Bernstein, "This Job Market Still Has Plenty of Slack," Business Week, June 24, 1996.

FLIGHTS CHEAPER, SAFER WITH DEREGULATION

The Airline Deregulation Act of 1978 has lowered prices while giving consumers more and safer flying options, according to a new study from the General Accounting Office.

The report, based on data from 112 airports over the past 25 years, found that the long-term decline in the rate of accidents has continued since deregulation. As for fares:

The average fare per passenger mile is about 9 percent lower at airports serving small communities, adjusted for inflation.
At medium-sized facilities, fares are 11 percent lower.
At airports serving large communities, they are 8 percent lower.

The largest savings were in the West and Southwest, reflecting greater competition in those regions. However, some airports, especially smaller ones in the Southeast and Appalachia, experienced increases in fares.
Overall service has improved as well, although some small and mid-size airports in the upper Midwest have seen a decline in the number of scheduled departures.

Departures rose by 50 percent for airports serving small communities.
They rose by 57 percent for medium-sized communities.
For large airports, they rose by 68 percent.
Nonstop destinations from large airports have risen more than 20 percent since 1978.

Despite some cutbacks in nonstop flights to small and medium-size airports, service with stops along the way increased.

Source: Nick Gillespie, "User-friendly Skies," Reason, July 1996, Reason Foundation, 3415 Sepulveda Blvd., Suite 400, Los Angeles, CA 90034, (310) 391-2245.

DOWNSIZING: ACCENTUATING THE NEGATIVE

Media watchers say the press is playing up the issue of "downsizing" by some U. S. corporations, while ignoring the tremendous growth in jobs taking place virtually everywhere else across the American business landscape.

The U. S. economy has created over ten million new jobs in the last four years.
In the first quarter of this year alone, it created 660,000 new jobs.
Unemployment has tumbled from 7.8 percent to 5.4 percent over the longer period.

Yet the downsizing angle is highlighted.

Wal-Mart Stores, America's largest employer, added 41,000 U.S. positions last year -- roughly the same number AT&T is eliminating over three years -- as their payroll has grown from 270,000 to 630,000 since 1991.
Yet the AT&T story received an estimated ten media attention accorded Wal-Mart's announcement (while usually covering public opposition to Wal-Mart, often led by higher-priced competitors).
As IBM and AT&T were laying people off, other telecommunications companies were hiring -- Motorola Inc. adding 5,000 last year, Intel Corp. creating 9,800 new jobs in 1995, Hewlett-Packard adding more than 7,000 jobs since 1991 and Dell Computer Corp. expanding by 1,100.
Forbes magazine reports that employment rose by 240,000 in 1995 at 787 of the nation's top firms. And nearly 200 of the companies increased their payrolls by at least 1,000 last year.

Source: Adam Meyerson (Policy Review), Investor's Business Daily, June 27, 1996.

PUTTING BUSINESS TO PASTURE

Some rural areas are elbowing out neighboring cities in the competition to attract new jobs and businesses, according to two researchers with the Federal Reserve Bank of Kansas City.
Economists Mark Henry and Mark Drahenstott examined how 242 rural U. S. counties performed, compared with adjacent cities during the period 1981-93.

In 30 percent of the economic regions, rural rates of job growth outpaced employment growth in nearby cities.
If farm jobs are taken out of the measurements, 36 percent of the rural areas eclipsed urban regions in job growth.
During the period studied, the U. S. economy lost nearly 700,000 agriculture jobs -- which would tend to draw down many measurements of rural performance.

Other researchers point out that technology is making it easier for firms to work efficiently outside of cities. And rural areas are attractive to businesses because they often offer superior quality of life.

The Rocky Mountain region has a number of rural areas that have charted fast-paced job growth, compared to Midwest areas with few winners.
Overall, rural areas lag big cities in attracting service industries -- the fastest-growing sector of the U. S. economy.
Even rural areas that beat out nearby cities tended to do so with low-paying jobs at restaurants, non-profit membership groups and business service firms.

Several factors give advantages to some rural areas over others. These include lower costs of doing business and having a skilled, productive workforce available. Also, the presence of a cluster of businesses already in the area further helps firms operate at lower costs.

Source: Perspective, "Green Acres," Investor's Business Daily, June 25, 1996.