Revisiting the Promise and Problems of Inner City Economic Development: The Role of Industry Clusters

(To view full article with figures, click here)

by Robin Newberger and Maude Toussaint-Comeau

Last fall, Detroit provided an illustrative backdrop for a summit on economic advancement in distressed communities, sponsored by the Initiative for a Competitive Inner City, the Upjohn Institute, Sage Publications and the Federal Reserve Bank of Chicago. The May 2016 Special Issue of Economic Development Quarterly  makes available both the new research presented at the event, as well as a discussion paper highlighting research findings and practitioner perspectives on revitalizing inner cities.

One of the main topics of discussion at the summit was the effectiveness of cluster-based development strategies in inner cities.[1] Clusters are geographic concentrations of interconnected companies and institutions in a particular field including (1) linked industries and other entities, such as suppliers of specialized inputs and specialized infrastructure; (2) distribution channels and customers, manufacturers of complementary products, and companies related by skill sets, technologies, or common inputs; and (3) related institutions such as research organizations, universities, standard-setting organizations, training entities, and others (Porter, 1998). (See Figure 1 for an illustration of the industry clusters in the Detroit Metropolitan Area and their linkages).

Over the past few decades, research by Michael Porter and others has shown that large traded industry clusters spur innovation and enhance productivity; and are prevalent in locations that achieve better economic performance. (Traded industries are industries that are concentrated in a subset of geographic areas and sell to other regions and nations. Local clusters provide services or products mostly for the local market)[2] In the Detroit Metropolitan area, traded clusters accounted for more than 600,000 jobs as of 2013, according to the U.S. Cluster Mapping Project. Although the economic situation in the city of Detroit remains challenging, the automotive sector, despite its unusual recent history, illustrates the cluster concept (it is second in terms of number employed in the MSA only to ‘business services’). Automotive and auto supplier firms working in proximity benefit from both information networks and a local pool of engineers, designers, and workers. Other important traded clusters in the Detroit area include metalworking, marketing and design, and metal manufacturing (See Figure 2).

Local clusters in the Detroit MSA generate even more employment and accounted for more than 1 million jobs as of 2013 (Figure 3).

Figure 1. Click to enlarge

industry.clusters2

Source: Reproduced based on U.S. Cluster Mapping Project

Note:  Specialization is measured by the value of a cluster’s location quotient. A Location Quotient (LQ) is the ratio of an industry’s share of total state employment in a location relative to its share of total national employment. The LQ measures the specialization or concentration of a cluster in a particular location relative to the national average. An LQ > 1 indicates a higher than average cluster concentration in a location.  Additional explanations of legend methodology explanations can be viewed at www.clustermapping.us/content/related-clusters-methodology

Figure 2. Click to enlarge

traded.clusters1

Figure 3. Click to enlarge

local.clusters1

Public Policy Support for Clusters

Cluster strategies have gained traction in recent decades to the point of becoming a part of the basic toolkit for local economic development authorities throughout the country.  Cluster-based economic development policies involve identifying (e.g., through cluster analysis) an area’s sector strengths in order to be purposeful about the way resources are directed to expand economic opportunities. A good cluster-based development strategy involves creating an environment that bolsters cluster dynamics, which includes: encouraging related businesses to locate in ways that foster knowledge transfers; supporting science and technology infrastructure; fostering policies that improve education and workforce training; building specialized infrastructure; and promoting exports.

Additional Strategies for Practitioners to Support Clusters

Many of the practitioners who attended the summit support the thinking that industry and regional clusters are effective tools for the development of regions. But they also expressed concern as to whether cluster strategies can lead to strong economic development and growth for inner cities without more targeted support. Lower levels of educational attainment often impede inner-city residents from competing in emerging high-skill and high-wage sectors in many industry clusters. Institutional or historical obstacles also play a part in whether economic development benefits inner-city residents. For example, limited access to information resources and (commercial and financial) networks among black and Latino business owners often discourages participation in the financial system, which, in turn impedes business creation and development.

Realizing more fully the benefits of cluster industries in urban areas like Detroit requires economic development, training, and business development practitioners (and funders) to make some targeted refinements. Businesses that are pervasive in urban areas and that create jobs over a wide range of skills for inner-city residents could be singled out to receive greater investment. Additional investments could be directed at workforce training that connects trainees to businesses in inner cities and regional clusters. It may also be important to designate funding to organizations that not only upgrade the skills of workers, but can also provide greater case management for the social and personal challenges that many trainees face.

In addition, investments are needed to ensure that minority business owners are better connected to services that support local entrepreneurs. Training programs may need to focus on procurement and supply chains that connect minority business owners to both local and regional clusters. Programs may also be needed that construct resource networks for minority business owners, including accountants, attorneys and other professionals.  With respect to credit access, trainers may need to focus on financial literacy and recordkeeping to improve the capital-readiness of small businesses, and identify best-practices among financial institutions that encourage minority businesses to seek bank financing. Local regulations or other mechanisms may also be needed to ensure that resources reach traditionally disadvantaged groups.

If industry cluster-based development policies are to represent a promising means of revitalizing inner cities, these strategies must address a range of issues and barriers facing residents. A fuller set of interventions related to developing human capital, business owner preparedness, credit access, and other issues may be needed for inner cities to realize the benefits of clusters and regional growth.

Summary of Recommendations

We summarize the main takeaways from the summit for optimizing the employment prospects of clusters to revitalize inner cities in ways that are also inclusive of inner city residents, business owners, and workers.

Investing in cluster development in urban areas

  • Map the cluster composition of a region and identify which of these regional clusters also have representation in the city.
  • Develop business accelerator programs that connect businesses in the inner city to the rest of the region.
  • Coordinate cluster-building strategies between city and suburban communities.
  • Support businesses that are pervasive in urban areas and that can create jobs over a wide range of skills for inner city residents.

Expanding training for workers

  • Identify the human capital and employment skills that are needed by businesses and organizations in both inner-city and regional clusters.
  • Identify or designate new sources of funding for integrating minority workers.
  • Engage employers as training programs are developed, asking them for input on market trends and curriculum development.
  • Create programs that develop social networks and other connections between people in higher poverty areas and cluster-related employment opportunities.
  • Modify the terms stipulated by funding and reimbursement sources in order to (1) help cover the costs of skills remediation; (2) recognize that completion of remediation training is a successful outcome; and (3) include interventions that address the emotional and physical health of workers as part of job readiness training.

Supporting small and minority business owners

  • Connect entrepreneurial ecosystems to small and minority business owners.
  • Encourage small business training programs to use economic development tools (not just community development tools) to link small businesses to clusters, including training on procurement, supply chains, small manufacturing and logistics solutions.
  • Offer financial literacy and training in recordkeeping to improve the capital-readiness of small business owners.
  • Identify best practices within financial institutions that hire minority loan officers to focus on opportunities and encourage business owners to seek bank financing.
  • Support minority business owners who receive funding (loans, grants, etc.) with resource networks that include accountants, attorneys, and other professionals.

 

[1] In the United States, the term “inner city” often signifies lower-income residential districts in the city center and nearby areas, with the additional connotation of impoverished black and/or Hispanic neighborhoods. The Institute for Competitive Inner City (ICIC) offers a definition based on economic distress level, which has been adopted by many researchers. According to ICIC, inner cities are contiguous census tracts in central cities that have a poverty rate of 20 percent or higher, or have two of three other criteria: poverty rate of 1.5 times (or more) than the MSA; median household income of 50 percent or less of the MSA median; and unemployment rate is 1.5 times or more than the MSA rate.
[2] See http://clustermapping.us/content/clusters-101

 

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An Innovative Mortgage Product for Detroit Homebuyers Enters the Market

By Emily Engel and Taz George

In a recent article, Community Development and Policy Studies (CDPS) highlighted mortgage innovations serving low- and moderate-income (LMI) potential homebuyers. While Detroit has shown promising signs of an economic comeback, its housing market continues to struggle with a high number of blighted and vacant properties, and very limited mortgage lending activity. This blog summarizes a recently introduced intervention, Detroit Home Mortgage (DHM), which is designed to boost the supply of credit for purchasing and rehabilitating housing in need of repair.

Residential mortgage lending is all but nonexistent in Detroit, with an annual average of just 356 new purchase mortgages from 2009 to 2014, compared to an annual average of 6,103 new mortgages from 2004 to 2008, according to Home Mortgage Disclosure Act data[1]. Cash transactions account for the vast majority of residential real estate sales, many of which involve corporate investors and municipal entities such as the city’s land bank.

new.mortgages.detroit

The decline in lending is not unique to Detroit. Credit standards nationwide remain very tight relative to the early 2000s, but the state of Detroit’s housing stock make it particularly affected. For example, access to loans for low-cost housing has been especially limited, an issue for a city where the average home sale price was less than $40,000 in each month of 2015, according to Urban Institute calculations from CoreLogic data. Furthermore, Detroit leads the nation in its proportion of vacant properties, many in need of repair. The Motor City Mapping project’s 2014 survey found that roughly 1 in 3 residential or commercial properties was blighted, including 73,035 residential structures. The many properties requiring rehabilitation and high vacancy rates mean home values are very low, which in turn has made credit tighter where it is most needed: 80 percent of applications for home-improvement loans in Detroit from 2009 to 2013 were denied due to insufficient collateral, according to a Zillow analysis of records released under the Home Mortgage Disclosure Act. In other words, the cost of repair most often exceeds a home’s appraised value, creating a vicious cycle that further reduces home values. “The appraised values are based on a decimated housing stock,” says Colleen Schwarz, vice president of Affordable Housing Lending at Community Reinvestment Fund, USA (CRF), a nonprofit Community Development Financial Institution (CDFI) lender participating in the program.

Existing programs meant to provide credit for rehabilitating homes, such as the Federal Housing Administration’s (FHA) 203(k) insurance program, have gained little traction in Detroit due to the sheer scale and degree(s) of vacancy and disrepair. FHA 203(k), for instance, cannot insure a loan of greater than 110 percent of property value. For a home in disrepair that appraises at $50,000, this limit translates to a $55,000 budget for acquisition and repair[2], often far below what is needed homes which sat vacant for years, experiencing vandalism and deterioration.

With these challenges in mind, DHM’s collaborative partners designed a program that could sustainably extend credit to homebuyers to purchase and rehabilitate properties with depressed values and high repair costs. Eligible buyers include prospective owner-occupants who can meet credit history standards similar to those of an FHA loan, such as a minimum 3.5 percent down payment, mortgage payment expense to gross income ratio of 31 percent, and total credit obligation payments to gross income ratio of 43 percent. In essence, DHM provides financing to FHA conforming borrowers with non-FHA conforming properties. Five participating lenders in the Detroit area will provide loans for buyers to purchase the property, while CRF makes a second loan that covers the projected rehabilitation costs, and a roughly 15-20 percent contingency allowance. The second loan balance also covers the cost of a project manager to support the buyer in overseeing the rehabilitation. To ensure that buyers are aptly prepared for the potential risks and complications of purchasing a home in need of rehabilitation, buyers must complete special education on high combined (purchase and rehab) loan-to-value (CLTV) home financing and home rehabilitations. The education emphasizes staying within budget by prioritizing safety and livability during the construction process. Given the added complexity of DHM relative to a typical lending program, Schwarz believes that CRF’s significant experience in loan servicing and program management will be a key component of the program.

Launched in February of 2016, DHM is already working with prospective borrowers and hopes to close loans within the next 60 days, according to Schwarz. Initial interest has been high and the program has been advertised aggressively across the city. Not surprisingly, the time needed to approve an applicant and close their loan is longer than a typical loan due to some unique features of DHM, such as estimating construction costs and required borrower counseling. The process of rehabbing a home may be daunting to a perspective homebuyer, Schwarz said, but there are no other viable financing options that allow loan principal to exceed appraised value by up to $75,000 to make needed repairs, let alone one that provides education and construction support. Five lenders are participating in the program, and while they must retain the first mortgages in portfolio, they may stand to gain in the long-term from a healthier housing market and from potential CRA credit for serving low- and moderate-income communities. Funding from the Kresge Foundation supports operating costs, credit enhancement, and helps to allow a hardship exemption for borrowers facing an unexpected job loss. This means that in the case of life events (death of the borrower, divorce, major medical issues) that reduce family income, necessitating a sale, the CRF second mortgage may be forgiven.

If successful, DHM may serve as a model intervention for other cities struggling with a dilapidated housing stock and limited access to mortgage credit.

CDPS is committed to researching and understanding new innovations in mortgage lending as they emerge, and to encouraging dialogue among policymakers, community groups, action coalitions, and financial institutions working to improve access to residential mortgage credit.

[1] These figures include only owner-occupied, 1-4 unit, first lien, purchase originations.
[2] This total assumes a sale price equal to the appraised value of the home.
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CDPS Update

Every year, Community Development and Policy Studies (CDPS) researches issues that affect low- and moderate-income (LMI) communities in the Seventh District that relate to, among other topics, economic/worker mobility; access to competitively priced credit and financial services; small business development; health disparities by socioeconomic cohort; bank closure/consolidation; and affordable housing availability. Throughout 2016, CDPS will again engage individuals whose work in LMI communities can help us find ways to address the challenges faced by lower-income populations. A key tool in this endeavor is online surveys. This year, CDPS will again explore facets of various topics as they impact lower-income and lower-wealth populations including workforce development, student loan debt, small business and mortgage credit availability, and affordable rental housing, among others. Survey respondents represent a broad range of voices from the private and public sectors. This blog summarizes responses from the latest CDPS survey.

For the second survey of 2016, CDPS focused on two topics: (1) community bank closures/acquisitions and (2) student debt.

Smaller, locally-based banking institutions often have close ties to customers and communities. If the bank closes or changes hands, this can have significant ramifications on a community. Since the financial crisis, numerous community banks have been rendered insolvent and either closed or acquired by other banks.

As the chart below illustrates, close/acquire rates for all banks within the five states in the Seventh District have recently increased. The trend is more pronounced for banks with under 100 million in assets, which includes many community banks that serve remote, rural, or lower-income urban and suburban markets.

emily.blog-chart1_cropSource: FDIC Summary of Deposits data

CDPS wanted to get a sense of the perceptions of practitioners related to bank closings and consolidations. Some contacts noted that the transitioning or closing of banks had impacted the whole community. One contact summarized the economic impact for their whole community best: “Households and businesses don’t get the same kind of service from the large banks; they don’t get personalized attention (which they often need to succeed) from the large banks; and support for local foundations, charities, schools, and youth programs all decline because the big banks don’t support those initiatives the way that the local community banks did.” However, other contacts noted that closures or acquisitions have not happened in their communities or people have changed banking relationships with little to no impact.

For the second question, all respondents (who answered the question) agreed that an area of increasing concern among consumer advocates is the extent to which student debt burdens preclude or forestall major financial decisions for people in their communities.  The item that was mentioned most often is housing. Our contacts noted that student debt is impacting the whole housing market. It affects the rental market because people are living at home longer and impacts home sales because people do not want to take on more debt. Respondents also mentioned that student debt affects the loan underwriters because of GSE (i.e., Fannie Mae and Freddie Mac) policies regarding how to underwrite loans to people with outstanding student loans. Among other considerations, borrowers cannot get student loans discharged in bankruptcy under current law.

As illustrated by the chart below, student debt is the highest among the four categories of nonmortgage debt and it is steadily increasing.

emily.blog-chart2

A few contacts also mentioned that some for-profit colleges may not consider students’ interests their top priority. One respondent said: “People think they are investing in themselves but are actually making a poorly informed decision.” Sometimes students drop out of the school before they are finished and have debt but no degree, which is even more of a problem. One contact did point out that “efforts like the federal government has made to publish more data and factors about colleges is a great step to helping the student consumer make a prudent choice. It’s all about creating the savvy consumer and often people in low/mod neighborhoods are bombarded by advertising” (promoting mostly for-profit institutions).

One intervention mentioned by many survey participants was to refinance student loans at a lower rate. If this was ever an option, refinancing could help people lower their student debt payments and possibly invest in their communities, by buying property for instance, or starting a business.

The other issues impacted by student debt that contacts noted include saving for the future, starting businesses, getting married, and starting families.

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Making Chicago Greener

By Emily Engel and Mark O’Dell

In honor of Earth Day last week, and in light of the emphasis that CDPS places on workforce development, this blog will profile two programs helping the formerly incarcerated enter or re-enter the workforce while making Chicago “greener.”

According to various reports, the United States has the world’s highest incarceration rate. None of the world’s other 33 (as characterized by UNICEF) industrialized nations ranks in the top 20 countries (most of which are small island nations) with the highest proportion of their populations in jail or prison. While the societal ramifications and racial/ethnic disparities in rates of incarceration are of deep concern to many, the economic ramifications are also compelling. A 2010 Center for Economic and Policy Research paper determined that lost productivity from persistent unemployment among those formerly incarcerated amounted to roughly $60 billion annually. Further, barriers to employment faced by ex-incarcerated represent a long-standing community development issue – as economic mobility is predicated on living-wage jobs – and many, the data reveal, return to criminal activity. The Illinois Sentencing Policy Advisory Council recently found a 48 percent three-year criminal justice system recidivism rate and a 19 percent one-year recidivism rate in Illinois.

Growing Home and Sweet Beginnings are organizations whose mission is training and employing formerly incarcerated individuals. They also concentrate their efforts on employing people they serve in ‘green’ industries.

Since 2002, Growing Home, located in Englewood, has exemplified and promoted its philosophy that “everyone deserves to have a good job, and everyone deserves to eat well.” At Growing Home, an urban farm, workers are involved in every aspect of production, from planting to selling. In 2015, the organization produced 30,000 pounds of organic produce, helped 618 people from the community learn about healthy eating and farming through community events, and had 25 farm stands that sold produce at reduced prices to Englewood residents – including people using LINK and WIC government vouchers. Growing Home also sells produce at the Green City Market in Lincoln Park and The Logan Square Market.

Growing Home’s approach involves more than job training as clients must often embrace lifestyle changes to secure lasting employment. The organization provides clients 25 hours per week of in-house work experience, as well as job preparedness, placement, retention, and GED training. The program lasts 14 weeks, although some production assistants (PAs), as clients are called, find additional, outside work after as few as seven weeks in the program.

April Harrington, Growing Home’s development director, says that Growing Home is always looking for more employment partners, and that “more and more companies want to be socially conscious in some way.” Still, many employers need to be convinced that Growing Home’s graduates will be strong employees and fit into their workplace, and the organization takes care to develop their clients’ interpersonal skills too.

Growing Home is currently working with Philip Hong, a Loyola University Chicago professor in the School of Social Work, to provide a strong soft-skills curriculum to complement its hard-skills training and certification. The program, in addition to addressing criminal records, helps address outside factors that might impact anyone seeking steady employment, including child care, housing, and medical insurance and services. The ultimate goal is self-sufficiency: Growing Home collaborates with local food-focused businesses to place clients in full-time positions. Their program performance highlights for 2015 include: 82 percent program completion; 84 percent job placement; and four people who got their criminal records sealed or expunged with their partnership with Cabrini Green Legal Aid. In addition, 80 percent of graduates hold jobs one year after graduation, and recidivism rates are around 17 percent.

A key factor in Growing Home’s impact is the trust (stemming from a ‘high-touch’ and empathy-driven approach to clients) that builds among staff, PAs, and graduates. Ms. Harrington notes that one point differentiating Growing Home from other employee training programs is that Growing Home’s staff “gets to know each and every PA.” Some 40 different partner organizations around Chicago work with Growing Home to refer applicants, but one of the most important ways applicants learn about the program is through personal referral. Growing Home accepted 50 new PAs for this year’s program, and plans to expand the class to 60 next year. However, Growing Home receives nearly ten times more applicants than it can accept, illustrating the demand for this type of holistic job training program in Chicago.

Sweet Beginnings has a “triple bottom line mission”[1]: social, economic, and product (see their full mission statement below). In 2004, the program was launched through the North Lawndale Employment Network (NLEN) with the goal of creating jobs for people with significant barriers to entry, especially those with criminal backgrounds. Brenda Palms Barber, Sweet Beginnings’ president and the executive director of NLEN, likes to point out that NLEN “accepts anyone, no matter what their background,” into their U-Turn Permitted program. Sweet Beginnings takes pride in hiring candidates who face significant challenges in finding employment elsewhere. Since its inception, over 410 people have been employed making “beelove”™ products (both body care products and honey) by producing over 1,600 pounds of honey. The jobs created get people working around honeybees and hives, and also teach them the importance of honeybees in the natural food chain and the (manmade) food supply chain. In addition, Sweet Beginnings employees hired through the U-Turn Permitted program have a recidivism rate of one-tenth of Illinois’ statewide rate (i.e., 5 percent).

sweetbeginnings.blog

Like Growing Home, Sweet Beginnings works in partnership with other organizations to address a nationwide problem at a community level. Sweet Beginnings usually hires four to six U-Turn Permitted graduates at a time, and 135 graduates annually, while NLEN placed over 600 graduates with jobs last year. Both of these programs demonstrate the impact that local organizations can have, and provide a model for reducing the linked concerns of recidivism and unemployment for ex-offenders transitioning back to their communities.

[1]For an expanded discussion of Seventh District organizations providing workforce training services for difficult to employ populations, see https://chicagofed.org/publications/profitwise-news-and-views/2015/pnv-issue2-workforce-development-programs.
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Dairy Farming in the 21st Century

By: Steve Kuehl

On a recent tour of Spotted Cow Acres, LLC., located in Owen, Wisconsin, Jared and Justin Eloranta, brothers who own the farm, spent the morning demonstrating their new high-tech barn and robotic milking machines. With huge ceiling fans whirling over hundreds of cows, humans seemed totally out of place. A decades-long trend is that jobs in manufacturing and other industries have been replaced with robotic equipment and other automation; the trend toward automation on farms is more recent, and is in many ways redefining what it means to work on a farm. After their demonstration, the Eloranta brothers explained why it made sense for their 280-head dairy farm to make a big investment in a new state-of-the-art farm technology.

America’s Dairyland

Wisconsin has a well-earned reputation as America’s Dairyland, being home to more than 10,000 dairy farms – more than any other state – and 1.27 million cows.[1] The dairy industry itself contributes $43.5 billion annually to Wisconsin’s economy.[2] By comparison, citrus contributes $9 billion annually to Florida’s economy and potatoes, $6.7 billion annually to Idaho’s economy.[3],[4] The average number of dairy cows on a farm in Wisconsin is 124.[5] However dairy farms vary greatly in size. As figure 1 indicates, when Wisconsin dairy farms are analyzed by herd size, small farms (those with herds of 99 cows or less) comprise 8,277 farms or 75 percent of the total farms; mid-size farms (those with herds between 100 and 499 cows) comprise 2,399 farms or 22 percent of the total farms; and large farms (those with herds of 500 cows or more) comprise 387 farms or 3 percent of the total farms.[6],[7]

Figure 1:

lg_wi_dairy_farms_herd_size_LatestYr_crop

Mid-sized Dairies are the Sweet Spot for Robotic Milkers

Spotted Cow Acres 280-herd is considered a mid-sized dairy. Discussions with dairy industry experts indicate that mid-sized dairy farms represent the entry point, size-wise, to realize the economies of scale to justify investment in robotic milkers; smaller farms cannot spread the costs over enough cows. Larger scale technologies, such as rotating milking parlors,[8] are available to bigger dairies and offer advantages beyond those of robotic milkers.

Transponders Control Milking Frequency

Despite grocery store milk containers depicting cattle lazily grazing in pastures sporting cowbells, today’s cow is more likely to be wearing a transponder around its neck. Whereas the old cowbell just let the farmer know a cow’s rough location, transponders convey individualized data on each cow. The transponder and the milking robot work together to enable the cow to be milked at will, day or night. Cows can be milked approximately four to six times per day, but the transponder controls the gates to the milking robot, which will not open if the last milking is too recent.

Robotic Milkers

Robotic milkers resemble car washes for cows, except the action occurs below rather than above. Separating each milker is a small control room situated about two feet below grade where the farmer can look out and observe each robot moving methodically about its herd.

The robot uses lasers to scan each cow’s udder and attaches itself without any human involvement. In addition to milking, it tracks an array of data about each cow including: individual milk yields; fat/protein/hormone and enzyme levels in each cow’s milk; whether the cow is ready to reproduce; and it automatically calculates the right feed levels for each cow. Further, it analyzes daily milk samples to ensure that the cow is in good health – long before any external signs of illness would be visible. This data is captured by software and is accessible in real time on smart phones.

Longwood-20150820-00559-1

Changing Roles

Robotic milkers have dispensed with the old rule of thumb that every 50 dairy cows required one human worker. Although the robots cost as much as $250,000, farmers with large enough herds look upon them as essentially prepaid labor with no overtime, sick days, or holidays. Farmers who installed the robots have commented they spend less time as a people manager and more time as a herd manager – looking after their cows. As robots take over more of the monotonous farm labor tasks, and barns get equipped with high technology, younger workers are taking renewed interest in new era farming careers.[9]

[1] Wisconsin Department of Agriculture, Trade and Consumer Protection, “Wisconsin Agriculture by the Numbers,” available at http://datcp.wi.gov/Newsroom/Facts_and_Figures/index.aspx.
[2] Ibid.
[3] Florida Citrus Mutual, “Citrus Statistics,” available at http://flcitrusmutual.com/citrus-101/citrusstatistics.aspx.
[4] Taylor, Garth, Paul Patterson, Joe Guenthner, and Lindy Widner, 2007, “Contribution of the Potato Industry to Idaho’s Economy,” © University of Idaho, July (revised October 2007), available at http://www.cals.uidaho.edu/edcomm/pdf/CIS/CIS1143.pdf.
[5] Wisconsin Milk Marketing Board, “2016 Dairy Data: A Review of Wisconsin’s Dairy Industry,” available at http://www.wmmb.com/assets/images/pdf/WisconsinDairyData.pdf.
[6] Wisconsin Milk Marketing Board, “Wisconsin Dairy Farms by Herd Size, 2012,” available at http://media.eatwisconsincheese.com/assets/images/statistics/lg_wi_dairy_farms_herd_size_LatestYr.gif.
[7] Ibid. Note that the total number of farms in Wisconsin in 2012 was 11,063, while by 2015 that number had declined to 10,290. According to industry experts, the decline was due to industry consolidation. Further, 2012 was the most recently available breakdown of dairy farms by herd size.
[8] Rotating milking parlours bear some resemblance to merry-go-rounds. The cows walk onto a circular raised platform, allowing the farmer and/or robots to attach the milking machine from below. The platform rotates very slowly, and the cows eat while they are being milked, after which the machine is detached and the cows exit the platform. “What is a Rotary Milking Parlour?” available at http://www.thisisdairyfarming.com/discover/dairy-farming-facts/what-is-a-rotary-milking-parlour.
[9] The 2012 Census found a small increase in the number of farmers in the cohort between the ages of 25 and 34. While this modest increase is not substantial enough to offset the baby boom farmers reaching retirement age, it is a break in a former trend that does suggest more young people are seeking agriculture as a first career option. National Sustainable Agriculture Coalition blog, 2014, “2012 Census Drilldown: Beginning Farmers and Ranchers,” May 28, available at http://sustainableagriculture.net/blog/2012census-bfr-drilldown. See also, Jeff Wuorio, 2015, “A younger generation of farmers gets in the dirt,” Deseret News National blog, September 1, available at http://www.deseretnews.com/article/865635599/More-young-people-are-pursuing-a-career-in-agriculture.html?pg=all. For more information on younger tech-savvy workers taking a renewed interest in farming careers, see Jeannine Otto, 2014, “Young farmers deal with old challenges in new ways,” AGRINEWS blog, September 1, available at http://www.agrinews-pubs.com/Content/Livestock/PorkNews/Article/Young-farmers-deal-with-old-challenges-in-new-ways-/9/30/11072. See also, Marie Lawrence, 2012, “Big Bots in Little Agriculture,” June 1, Slate blog, available at http://www.slate.com/articles/technology/future_tense/2012/06/automated_farm_equipment_and_small_scale_farmers_.html.

 

 

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Community Development and Policy Studies (CDPS) Update

Every year, Community Development and Policy Studies (CDPS) researches issues that affect low- and moderate-income (LMI) communities in the Seventh District that relate to, among other topics, economic/worker mobility; access to competitively priced credit and financial services; small business development; health disparities by socio-economic cohort; bank closure/consolidation; and affordable housing availability. For example, in previous years survey respondents raised the issue of the mismatch between skills required by companies looking to hire and of prospective workers in their labor markets. Respondents also discussed local approaches by businesses and educational institutions to address these issues.  In 2016, CDPS will again engage individuals whose work in LMI communities can help to address the challenges faced by lower-wealth, lower-income populations. One way in which CDPS will accomplish this is through online surveys. Our surveys will address workforce development, student loan debt, small business credit availability, mortgage credit availability, and affordable rental housing, among other topics. Survey respondents represent a broad range of voices from private and public sectors. This blog summarizes responses from the latest CDPS survey.

The first survey of 2016 had two questions that related directly to credit availability for small businesses and for people with low credit scores seeking mortgage credit. Almost all respondents agreed that business owners in economically struggling communities presently have difficulty obtaining traditional small business loans, and that mortgage credit is not available to prospective home buyers with marginal/below prime credit scores.

In response to the first question, two contacts pointed to Community Development Financial Institutions as organizations that can help small businesses obtain loans at reasonable rates. Most of the other contacts noted that small businesses would have to pay higher rates for financing and consider nonbank lenders because their business would be considered too “risky.”

Last year, the Chicago Fed published an article, Measuring Small Business Financial Health, that identifies “key drivers that are associated with businesses in a state of strong or weak financial health.” The paper’s objective was to explore a set of reliable metrics to determine financial health of businesses and raise awareness of information resources for entrepreneurs. The research revealed three key characteristics of financially strong businesses: 1) thorough knowledge of financial products available to small ventures; 2) ready access to credit through either banks, vendors, or otherwise; and 3) (longer) tenure, (larger) size, and (degree of) planning expertise.

For the second question, most contacts agreed that prospective home buyers who have marginal credit scores are unable to find mortgage credit. However, one contact mentioned that there are some lenders catering to borrowers with lower credit scores. Varying reports from trade journals indicate that borrowers with lower FICO scores (620 is often the lower limit for many lenders) may be able to obtain FHA mortgages or work with niche lenders that offer mortgages to higher risk borrowers.

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Redefining Rustbelt: Cross-City Perspectives on Connecting Health and Community Development

(To view full article with figures, click here)

By Robin Newberger, Maude Toussaint-Comeau and Susan Longworth

On March 16, the Robert Wood Johnson Foundation released its 2016 County Health Rankings [1] showing a worsening of conditions in some “rustbelt” counties like Wayne County (Detroit), and Philadelphia County, ranking them lowest in their respective states in terms of the social and economic factors and physical environment that affect health. In order to improve economic and physical health in communities, especially in low-and-moderate income neighborhoods, the Federal Reserve Banks of Chicago-Detroit Branch, Cleveland and Philadelphia recently held a joint videoconference entitled Connecting Health and Community Developmentto share strategies for developing and investing in community assets. The conference’s focus on ‘healthy communities’ built upon broad efforts and initiatives undertaken by Federal Reserve community development units across the nation to convene public health and community development groups. These meetings have explored common objectives between the fields, the potential for community health needs assessments [2] to address built infrastructure (strategies) in addition to health/healthcare disparities, and facilitate communication across existing public and private funding sources, including community development banks and community development financial institutions. [3]

Chronically disinvested places in cities that line the nation’s ‘rustbelt’ such as Detroit, Cleveland and Philadelphia, lack many of the interconnected socioeconomic, physical, and environmental attributes that make for healthy communities, that is places with consistent investment in people and infrastructure. See Figure 1 for composite measure indicators of health factors, health outcomes, and socio-economic factors in the three cities. The health of residents in a neighborhood often has more to do with the community assets that shape their environment, such as access to recreation spaces, quality housing, and healthy foods, as it does with the presence of health care services. For decades, the public health field has documented correlations between negative health outcomes such as high incidence of asthma, obesity, and hospitalization, and socioeconomic factors such as low educational attainment, unemployment, and the physical and institutional make-up of neighborhoods.[4]

Figure 1.
zscore.2016

Source: A Robert Wood Johnson Foundation Program and the University of Wisconsin Population Health Institute. www.countyhealthranking.org
Note: Health factors are measured based on weighted scores for health behaviors (i.e., smoking, obesity, food environment index, physical environment, etc…), clinical care (i.e., lack of insurance, physician care), social and economic factors (i.e., graduation rate, unemployment rate, income inequality etc…). Z-Score = (Measure in county – Average of state counties)/(Standard Deviation). Scores rank between -3 and 3. The more positive the score the worse the conditions underlying these factors relative to average measure for counties in the respective state.

Traditionally, the public health and community development sectors have been viewed as operating in separate spheres. However, given the socioeconomic determinants of health and the connection between health and economic outcomes, it has become clear that the potential for improving conditions in underinvested and less healthy communities can increase if both sectors work together. At the videoconference, coalitions of public health leaders, community organizations, philanthropies, and others discussed ways in which they develop projects and test programs to address the substandard conditions and amenities in neighborhoods to improve both socioeconomic and health outcomes. This article presents some highlights of the discussion that took place at the videoconference. (See Table 1 for an overview of community partnerships that were highlighted during the videoconference discussion).

Improving Access to Healthy Food

Public health and community development organizations have long recognized the high value of improving access to fresh fruits and vegetables and encouraging healthy eating. Interventions have focused on increasing the availability of food, as CDCs and CDFIs locate and finance grocery stores and farmers markets in urban neighborhoods. Eastern Market Corporation in Detroit, in partnership with Goodwill Industries, recently inaugurated its Red Truck Fresh Produce project, which creates a mini-produce store within a popular meat market staffed by veterans returning to the workforce. To drive demand, Michigan’s Double Up Food Bucks doubles the amount of food assistance for purchases of state-grown fruits and vegetables. Ohio’s fresh food financing fund combines state funding with financing from a national CDFI. Philadelphia’s Food Trust is piloting a USDA Food Insecurity Nutrition Incentive (FINI) grant to allow patrons to get reimbursement when using EBT to buying produce at grocery stores as well as at farmers markets.

Addressing “Upstream” Health Risks through Data Analytics and Sharing

Partnerships in each of the cities have also emerged to address “upstream” determinants of health. The Health Improvement Partnership in Cuyahoga County (Cleveland) is a partner-led coalition that identified neighborhood-level social, economic, and environmental factors that contribute to community health, in order to develop a neighborhood health plan to address them. Likewise, the City of Cleveland public health and housing departments and Metro Health Hospital worked with a local community development corporation and others to address asthma and lead poisoning in city housing. By sharing data, the hospital and city housing department were able to identify families on both lists of asthma patients and households whose housing has been subject to code violations, in order to target interventions. In Detroit, with a similar goal of targeting interventions and using resources more efficiently, the Healthy Environments Partnership was formed in 2000 to identify factors linked with higher incidence of cardiovascular disease in the city including low physical activity, high stress, and poor access to healthy food. The goal of identifying and collecting data on these upstream factors is to develop community-responsive healthcare interventions and repair programs that keep people from living in unhealthy environments.

Funding Healthy Communities through New Partnerships

The Affordable Care Act (ACA), including the provision expanding Medicaid, provides a fresh opportunity to consider resources to promote community health and well-being. While federal money may be diminishing, non-profit hospitals and clinics are expanding their roles in transforming communities. The new ACA mandated Community Health Needs Assessments and Community Benefit Agreements compel these institutions to engage with their communities about disease prevention and general health improvement. Many are recognizing the importance of their economic impact toward these goals, and assuming more substantive roles in planning and financing built improvements and service delivery.

In addition, Medicaid expansion is shifting incentives around state health care spending. According to one participant in Cleveland, the expansion of Medicaid in Michigan, Ohio, and Pennsylvania has motivated new strategies for addressing the social determinants of health.  In Ohio, for example, the state is conditioning (withholding) one percent of its payments to managed care plans on realizing better health outcomes at lower costs. Another “pay-for-success” model in Detroit is based on the concept of “hot spotting.”  Several nonprofits have entered into contracts with an area hospital to receive a flat payment for three months of intervention with high-hospital users (to help coordinate their care), with the opportunity to share in half of the cost savings if health expenditures decline over the following year. These examples illustrate steps that health systems are taking to shift money into community development-type activities – that is, away from treatment and towards upstream prevention.

Foundations and local governments are also vital to hospital/community partnerships. Philanthropies are supporting coalitions both as funders and as neutral conveners. In Cleveland, county and city agencies, including the Cuyahoga Board of Health and the Cleveland planning commission, have worked with foundations and local nonprofits to develop Cuyahoga Place Matters a health improvement plan taking a ‘health in all policies’ approach to land use, education, agriculture, housing, transportation, and urban development.  Cities are also funding cross-departmental positions, as in Philadelphia where the planning and health departments are looking to integrate health impacts into plans for the whole city. In Detroit, the city council is developing incentives for businesses to invest in neighborhoods, approving zoning changes and sidewalk ordinances to encourage a built environment more conducive to health and well-being.

Some creative and nontraditional partnerships have formed as well. Neighborhood organizations in Cleveland have sponsored a series of community-based artist projects to provide an alternative channel for information focusing on exercise, healthy eating, and stemming domestic violence in order to reach overlooked audiences. Other unconventional participants include restaurant associations in Philadelphia working with the city to decrease the sodium content at restaurants that populate many poor neighborhoods; and CDFIs in Detroit which have created a fund to finance grassroots food businesses as a way to increase neighborhood investment and improve healthy food access.

Lessons Learned from Existing Partnerships and Takeaways from the Discussion

While cooperation between the community development and health sectors is in its early to intermediate stages, many cross-disciplinary, innovative, and inclusive coalitions operate in each of these cities, involving community developers, public health leaders, philanthropies, food-justice activists, and residential groups.  The videoconference was an opportunity to share information and strategies, as the experiences described in each city resonated with participants in other cities, and there was talk in the different sites to explore possibilities of working together, including collaborating on planning grants and sharing tips for applying for federal monies.

Policymakers, economic and community development professionals, and more recently hospital administrators charged with community engagement, are better understanding the interrelationship and confluence of factors that impact community well-being and (ultimately) health. For example, a fresh food market is an important community asset, but planners must consider city transportation infrastructure to insure that people can get to it safely and on a convenient schedule, and co-location or proximity with complementary businesses and service providers, such as a pharmacy, daycare provider, bank/credit union, etc. In addition, initiatives have to be constructed to meet the reality of neighborhood and home environments, as residents may not have the time, the money, or the tools to prepare fresh foods. According to some participants, operating affordable neighborhood groceries is only getting more difficult with cutbacks in public funding.

Despite the many successful programs and collaborations highlighted, participants noted persistent challenges. For example, some community development practitioners remain unaware of the ACA requirements for hospitals to conduct community health assessments, or the incentives for insurance companies to fund preventative programs. In addition, joint work by the public health and community development communities does not always mesh with philanthropic agendas. In Cleveland, for example, the hospital foundations ended up not funding what appeared to be an arts rather than a community health program. Engaging the community is also a challenge. According to videoconference participants, some coalitions of community development and health practitioners do not yet reflect the voices of neighborhood residents they seek to serve. In some cities, neighborhoods have not effectively organized to deliver a clear message about what quality of life looks like for them. Governments respond to organized interests, but cross-disciplinary coalitions cannot problem-solve without properly engaging the people whom they are trying to impact.

Finally, advances in health data analytics help to clarify the impacts of poor socioeconomic conditions and improve the efficiency of health-focused interventions, but participants noted the limited scope and small scale of many of the interventions thus far. A better understanding of these programs is needed to make them scalable and to identify preventative interventions that yield meaningful cost savings. Scaling the types of programs and collaborations highlighted in the videoconference discussion also requires a longer timeline for documenting and measuring their impacts. The long-term savings realized from preventative care and sound, safe neighborhoods and infrastructure, should be evaluated against the high costs of socioeconomic exclusion and remedial health care down the road.

Table 1. Selected Resources for Healthy Communities

PROGRAM
LOCATION
ACTIVITIES
Red Truck Fresh Produce
Detroit
Creates mini-produce store within meat market staffed by veterans
Eastern Market
Detroit
Manages farmers markets and improves food access throughout Detroit
Fresh Prescription
Detroit
Provides pregnant women, families with young children, or people with chronic disease coupons to purchase fresh food and vegetables at farmers markets.
Healthy Environments Partnership
Detroit
Examines and develops interventions to address aspects of the social and physical environment that contribute to racial and socioeconomic disparities in cardiovascular disease
Double Up Food Bucks
Michigan
Doubles the funds available on SNAP Bridge Card when purchasing fresh fruits and vegetables grown in Michigan
Michigan Good Food Fund
Michigan
Finances healthy food production, distribution, processing, and retail projects that benefit underserved communities throughout Michigan
Michigan Power to Thrive
Michigan
Organizes a network of organizations in health, housing, education, transportation and other sectors to adopt a “health in all policies” approach
Fresh Food Financing Fund
Ohio
Supports the development of new and existing grocery stores and other healthy food retail in underserved areas throughout Ohio
Health Improvement Partnership
Cuyahoga County
Creates project to share data between the hospital and the housing departments
Place Matters
Cuyahoga County
Engages policy makers and community members to develop policies that create conditions for optimal health and reduce inequities
Redlining and Health Equity
Cleveland
Examines history of race, redlining and their relationship to health equity
HEAL Report
Cleveland
Tests the feasibility of a community-led approach for healthy eating and active living
The Arts and Healthy Living
Cleveland
Funds creative projects to spur new conversations about community health and preventative care
Edwin’s Restaurant
Cleveland
Works towards reducing community stresses related to post-incarceration
Food Trust Healthy Corner Store Initiative
Philadelphia
Increases the availability and awareness of healthy foods in corner stores in Philadelphia.
Philly Food Bucks
Philadelphia
Supports projects to increase the purchase of fruits and vegetables among low-income consumers participating in the Supplemental Nutrition Assistance Program (SNAP)
Delaware Valley Health Communities Task Force
Philadelphia
Brings together public health, planning, and related professionals to integrate planning and public health sectors
Health, Recreation and Literacy Center
Philadelphia
Provides healthcare, literacy and recreational services under one roof for children and families in South Philadelphia
[1] See http://www.countyhealthrankings.org/.
[2] See CDC description of CHNAs at: http://www.cdc.gov/stltpublichealth/cha/plan.html.
[3] See http://www.frbsf.org/community-development/initiatives/healthy-communities/.
[4] See, “Socio, Economic and Environmental Determinants of Health”, Chapter 4. Durham County Community Health Assessment retrieved at http://www.dconc.gov/home/showdocument?id=1351.
Also see http://cuyahogaplacematters.com/wp-content/uploads/2013/05/The-History-of-Race-Real-Estate-Cuyahoga-County-Final-Report-February-2015.pdf.
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Low- and Moderate-income Survey Results

by Emily Engel and Mark O’Dell

The Federal Reserve Bank of Chicago Community Development and Policy Studies Department participated in administering The Federal Reserve Bank of Kansas City’s low- and moderate-income survey to respondents in the Seventh District. The survey is administered online twice a year to measure “economic conditions of low- and moderate-income (LMI) populations and the organizations that serve them.”  As a point of reference, LMI is defined as the incomes of individuals below 80 percent of “median income.” Median income is defined as “metropolitan median income for urban residents and state median income for rural residents.”

Additionally, survey questions were emailed to approximately 1,500 contacts that work with LMI populations within the Seventh District. There was sufficient participation to analyze the data as a non-scientific poll (about a 10 percent response rate). Respondents have a wide variety of backgrounds, including real estate development, finance, financial counseling, economic development, banking, consumer advocacy, small business development, philanthropy, law, higher education, agriculture, manufacturing, and human services. Survey questions included (among other areas) demand for services, jobs, affordable housing, financial well-being, access to credit, and access to capital. Additionally, to make sure that the respondents felt their voices were heard, the survey also had an expository component where respondents could provide additional detail about their concerns.

Our first set of findings from the initial responses will be published in the upcoming ProfitWise News and Views. Upon reviewing the second set of survey responses, we decided to look at two topics that were reoccurring: (1) low-wage jobs and (2) decreases in social service funding.

Many of the jobs held by LMI populations are part-time and/or low wage. Sometimes they provide for a lower standard of living than full-time jobs and fewer (if any) benefits. During the economic recovery, “lower-wage occupations were 21 percent of recession losses, but 58 percent of recovery growth.” This caused a higher percentage of employed workers to be in poverty, as indicated in the chart below.

Employed Workers in Poverty

Source: American Community Survey, 2005-2014 (data for Illinois, Indiana, Iowa, Michigan, Wisconsin).

A higher proportion of low-wage jobs may also explain the difference in survey respondents’ outlook on financial well-being. Although 18 percent of respondents see a long-term decrease in job availability, 40 percent expect a long-term decrease in financial well-being in their communities. Increased low-wage jobs may be augmented by a decrease in social services funding that is supported by the survey responses. As shown by the chart below, the survey respondents expect to see a decrease in funding across all states.

Long tern funding changes by state

Two respondents captured the majority sentiment on cuts in social services: “Lack of a state budget and cuts to social services funding has reduced available resources to address lower-income peoples’ needs and is destabilizing nonprofits that provide services.” And “In rural southwestern Wisconsin unemployment is not the major problem. But low wages and lack of benefits is increasing the need for our services.” The respondent comments from Wisconsin are supported by the Center for Economic Development’s “Is Wisconsin Becoming a Low-Wage Economy? Employment Growth in Low, Middle, and High Wage Occupations: 2000-2013” article that highlights that the employment growth in Wisconsin has been concentrated mostly in low-wage occupations.

However, it is important to note that not all respondents were in agreement. There were a few outliers that pointed out “As the economy continues to grow, the LMI population will experience economic upward mobility.”

The Chicago Federal Reserve is looking to increase participation in this survey. If you work with LMI populations around the Seventh District and would be interested in participating in this survey, contact Emily Engel at Emily.Engel@chi.frb.org.

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Designing Entrepreneurial Solutions to Address Urban/Inner City Problems

By Robin Newberger, David Tarver, and Maude Toussaint-Comeau

Encouraging business formation, increasing employment, and improving quality of life in inner cities are a few of the most important but most challenging goals for both policymakers and community development professionals serving economically marginalized urban areas. Urban/social entrepreneurs are taking on many of these challenges, designing market-based solutions to address urban problems in the transportation, education, housing, and safety spheres, among others. Self-employment and business creation (including sole proprietorships) have been on the rise in urban areas away from central business districts, including in some inner cities throughout the country, in many instances at rates comparable to surrounding suburbs. (See Figures 1 and 2 for trends in self-employment and small businesses in the U.S.). Employment clusters in the transportation, health, entertainment, education, medical, and technology sectors are making inner cities more competitive, and offering opportunities for business expansion particularly responsive to urban and inner city settings.1

Trends in Small Businesses Across Neighborhoods

Source: Authors’ calculations based on Dun and Bradstreet and geocoding analysis of Local Origin-Destination Employment Statistics (LODES) data (Hartley et al, 2015, “Are America’s Inner Cities Competitive? Evidence from the 2000s”).

Trend in Self-Employment / Entrepreneurship

Source: Authors’ calculations of (imputed) trends based on American Community Survey and geocoding analysis of Local Origin-Destination Employment Statistics (LODES) data (Hartley et al, 2015, “Are America’s Inner Cities Competitive? Evidence from the 2000s”).

In October 2015, the Urban Entrepreneurship Initiative held its annual Urban Entrepreneurship Symposium in Detroit, co-hosted with the University of Michigan, Michigan State University, Wayne State University, and the New Economy Initiative, bringing together entrepreneurs, academics, community development experts and funders to discuss the challenges and opportunities in urban inner city areas, and showcase examples where entrepreneurs have turned business ideas into success, creating employment for inner city residents across skill levels.2  Most of the discussions centered on contextual problems in Detroit, although the issues are similar in many other U.S. cities.

The premise of the meeting was that urban entrepreneurship is distinct from entrepreneurship more generally, in that urban entrepreneurs often create their businesses with an awareness of a particular urban problem, consistent with the adage that the business owner can “do well while doing good.”3 This is an emerging way of thinking about entrepreneurship and the business opportunities in inner cities, and the discussions at the conference were designed to showcase this orientation. In this blog, we summarize some of the main lessons learned from the conference discussions, built around this new urban entrepreneurship paradigm.

Urban Problem Mining

The new approach to entrepreneurship highlighted at the conference involves mining the intersection of technology, business development and community engagement to bring about greater opportunity within cities. In contrast to standard business training, which emphasizes business plans as the first step, this paradigm encourages entrepreneurs to consider “the problem space” in a given urban setting, and then how to tailor a business idea in a way that addresses it. This approach parallels approaches that have gained currency in engineering schools across the country, where the focus of learning has moved away from designing products and towards designing solutions.

Urban Entrepreneurship Model

Source: David Tarver, Urban Entrepreneurship Initiative

Shocking the (Urban) World

The conference featured several urban businesses–large and small–that demonstrate this new type of thinking. For example, where many see a lack of quality education as a problem in urban areas, urban entrepreneurs have created small tutoring companies that use technology like Google Hangout to reach students throughout the country. At a larger scale, the transportation company Uber has responded to the absence of reliable, flexible transportation in many urban areas by deploying telecommunications and GPS technologies. Detroit’s Splitting Fares, another ride service, uses technology to facilitate communication and transportation. Metro EZ Ride, also in Detroit, partners with faith-based and workforce development organizations to rent unused vehicles for people who do not have access to transportation to jobs located outside of the city. According to the representative who spoke at the conference, they have hired 50 drivers to drive as many as 250 people per day to work in warmer months, and 800 per day during colder weather. Shotspotter uses technology to provide real time alerts to law enforcement in various cities as to where gunfire occurs, contributing to safer communities and improving the business environment of inner cities.

Obviously, cities still need more traditional businesses like restaurants and retail merchants. However, the urban entrepreneurship model provides tools for businesses to build upon a location’s comparative advantage(s), and address contextual disadvantages. This includes large businesses like Shinola, a manufacturer of watches, bicycles, and leather goods that provides entry-level jobs and skilled employment to more than 550 people in Detroit. As a representative of Shinola explained, the company chose Detroit with the understanding that they could build upon the manufacturing and steel production experience of workers.

Engaging the Community

It takes knowledge of a community to come up with business-based solutions to urban problems. As with any group of people, inhabitants of inner cities often distrust the idea of people from outside of their areas imposing solutions to local problems. As a presenter from the session on community engagement strategies put it, “anything for us, without us, is not about us.” That is why community engagement and even community organizing are integral to this model. Presenters at the conference spoke to the range of methods that have been used for soliciting community participation, including surveys, data analysis, interviews, focus groups and other methods. For example the Detroit Dialogues undertook a bike and walking tour initiative that went door to door collecting people’s personal accounts of what it means to them to be in their neighborhoods.4 Using a multiplicity of ways to engage with the community also reveals what works and what does not in terms of understanding a community and its concerns.

Accessing Capital and Funding

A model-based approach to addressing urban problems is not all that is needed to support business growth and formation and create jobs. Entrepreneurs and small business owners in many cities report difficulties in getting access to financing. Limited access to bank credit, equity capital, or even personal networks creates genuine barriers for many business owners and aspiring entrepreneurs (e.g., Figure 4 shows trends in CRA-reported small business bank loans). For the Urban Entrepreneurship Initiative, these financing challenges make an even stronger case for conceptualizing an urban business as one that responds to an urban problem.

Bank Loans to Small Businesses

Source: Authors’ calculation based on CRA small business loans and geocoding analysis of Local Origin-Destination Employment Statistics (LODES) data (Hartley et al, 2015, “Are America’s Inner Cities Competitive? Evidence from the 2000s”).

Conclusion

The Urban Entrepreneurship Initiative is pursuing the same fundamental goals as many other initiatives focusing on inner cities, that is, to support businesses that provide products and services for people in urban areas. Their contribution to the discussion is the recognition that the same techniques that architects and planners have used for generations to apply design solutions to buildings, roads, and public spaces, can now be applied to urban challenges like education, public safety, transportation, and others. Using this approach, the intent is to bring new technologies to old problems, and in doing so, inspire students, academics, business people, and funders to test new ways to improve the quality of life in urban areas. Moving forward, the goal is to integrate scalable strategies into the model, to bring about the kind of businesses that will create jobs and economic development a more significant way.

1. Newberger and Toussaint-Comeau, “Revitalizing Inner Cities: Connecting Research and Practice,” November 2015, Chicago Fed Letter No. 346. https://www.chicagofed.org/publications/chicago-fed-letter/2015/346
2. https://www.youtube.com/playlist?list=PLmNrnoyQ30KvLo1XXFkAc5GnuNod7EWfZ
3. Osorio, A.E., and B. Ozkazanc-Pan, “Defining the ‘Urban’ in Urban Entrepreneurship: Implications for Economic Development Policy,” Academy of Management Proceeding, January 2014. http://proceedings.aom.org/content/2014/1/12486
4. Clack, A., “How Storytelling heals and strengthens communities,” http://www.springboardexchange.org/features/aspenartsfeature3.aspx. Also see the New York Time Magazine, July 13, 2014, “Detroit Through Rose-Colored Glasses” for a collection of photos and stories of people in Detroit. http://www.amazon.com/The-New-York-Times-Magazine/dp/B00LZ0EG4U
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Upcoming Chicago Fed conference: Labor Issues Facing Agriculture and the Rural Midwest

by David Oppedahl

On November 17, 2015, the Federal Reserve Bank of Chicago and the Upjohn Institute will hold a conference to explore labor issues affecting agriculture and the rural Midwest. The conference will be preceded on November 16, 2015, by the performance of a play that deals with immigrant experiences in agriculture, followed by a policy discussion. Visit www.chicagofed.org/events/2015/annual-agricultural-conference for more details and to register. Feel free to contact David Oppedahl at 312-322-6122 with any questions about these events.

Concerns about population losses, work force vitality, employment skills, health issues, and economic growth that lags that of urban areas have persisted for years in the rural Midwest and throughout the U.S. This has led to much discussion of a rural/urban divide in the nation (see an example from Governing).

Manufacturers often complain that a skills gap prevents them from expanding and hiring additional workers. Agricultural businesses also face challenges to meet their labor needs, and sometimes rely on immigrant workers. There are implications for rural areas not only due to a shortage of U.S. workers, but also to matters related to worker compensation (see, for instance, a recent Department of Labor ruling). Moreover, non-farm employment can be vital for the livelihood of many agricultural families, even as farm employment remains a key component of rural income in the Midwest. In addition, health insurance coverage continues to be a critical factor for farm households and rural workers.

At the upcoming conference, experts from academia, industry, and policy institutions will discuss work force trends, labor challenges, and ways to improve living standards in the rural Midwest. The goals of the conference include: understanding key issues related to rural and farm labor; describing the effects of labor challenges in rural areas; examining policies that affect rural and farm jobs; and discussing possible strategies to position the midwestern economy and agriculture for a prosperous future.

In the final panel discussion of the day, moderator Bill Testa will provide an overview of trends in skilled worker location. As skilled workers, especially younger workers, gravitate toward large metropolitan areas and their central cities, smaller metropolitan areas, towns, and rural areas increasingly struggle to develop, attract, and retain the skilled work force they need for existing and new businesses and investment. And from an individual worker’s perspective, the choice to work outside of a large labor market area may result in a narrower set of career and skills acquisition opportunities, as well as a loss of wage income. The panelists will address: 1) how communities can best address these challenges; and 2) how workers can choose a smaller town or rural location without unduly sacrificing career opportunities and high wages.

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