Human Capital Investment for Central City Revitalization

Fritz Wagner, Timothy Joder, Anthony Mumphrey Jr., Fritz Wagner, Timothy Joder, Anthony Mumphrey Jr.

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781134827619
• Edition: 1
• Topic: Arquitectura
• Subtopic: Planificación urbana y paisajismo

Viewing poverty as a condition that is fed and renewed on a daily basis by social and economic structures, this book focuses on the ways in which poor residents can be helped to improve their own situations, their living conditions, and the central city itself. Also includes four maps.

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Human Capital Investment

ROBERT W. BECKER AND ROBERT A. COLLINS

Many strategies that have been designed to revitalize the central city focus on the physical redevelopment of decaying infrastructure. Still other strategies involve the use of subsidies and tax breaks to attract business. In contrast to these prescriptions (physical redevelopment and financial incentives), lies the idea of human capital investment.

Wagner, Joder, and Mumphrey in Urban Revitalization: Policies and Programs report that one weakness of urban-revitalization policies and programs, in general, is that they fail to develop human capital:

It is clear that physical redevelopment alone will not bring prosperity to central cities. Much greater attention must be paid to investing in human capital as an effective strategy for long-term economic improvement. The federal government must ensure that its programs, in whole or in part, encourage training and educational efforts designed to increase the skills of the workers so they are ready for the economic opportunities of the twenty-first century (1995: 209).

Our colleagues at the National Center for the Revitalization of Central Cities undertook a three-year project, beginning in 1995, to analyze and evaluate locally-based revitalization strategies among several American cities. In this book, Human Capital Investment for Central City Revitalization, they analyze four methods that offer central city residents the ability to improve their standard of living. These include initiatives for urban education such as school-linked services, tenant-based management, community reinvestment agreements, and empowerment zones.

In this introductory chapter, we define the term human-capital investment (HCI), provide a cursory review of the literature, and lay out the organizational structure of the book.

Human Capital

What is human capital? It is the sum total of a person's knowledge and skills. Human capital may also be described as the stock of knowledge (educational attainment) and training skills (occupational distribution) that exists in a particular geographic area. Lucas (1988) and Rauch (1992) contend that the geographic concentration of human capital raises productivity in metropolitan areas. Higher levels of productivity imply increased economic growth and development as well as a better standard of living for metropolitan residents. In other words, it is investment in people—through schooling, on-the-job-training, health care, child care, housing, recreation, transportation, access to information—that delivers measurable benefits to individuals in terms of increases in personal income and to society in terms of economic growth and development (Lucas 1988; Becker 1975; Hansen 1963). Thus, programs and policies directed at human capital investment play a key role in central city revitalization.

Human capital investment is a people-based strategy while physical redevelopment projects and financial incentives are place-based. While one might assume that one of the two approaches may be more effective, Fainstein and Markusen (1993) counter that the people-based versus place-based debate is a false dichotomy. They believe that only an integrated approach involving both people-based and place-based programs will succeed in the long term. This lack of an integrated approach has been the cause of many program failures:

Independent social and economic policies [have] had a perverse result: they failed to halt capital outmigration, deepened urban poverty in the inner city, and cut into resources that state and local governments had … to reverse [urban decline]. This time around, an effective urban policy must blend social and economic policy if inner cities are to be revitalized and their residents provided a life of adequate employment and hope (Fainstein and Markusen 1993: 1463).

Michael Stegman (1993), a former Assistant Secretary of the U.S. Department of Housing and Urban Development (HUD), also supports a holistic approach that blends economic investment (a place-based policy) with education and training (a people-based policy). He suggests that economic and human capital investment strategies would strengthen and expand community-based development organizations which have partnered with public agencies and with private businesses to create housing and economic development projects. Education and training strategies emphasize asset accumulation, community self-help, home ownership (including resident management), and the creation of economic opportunities that are largely independent of social service agencies, government institutions, the main stream economy, and corporations. David Rusk (1993), based on his analysis of several central cities, concludes that uncoordinated urban revitalization programs are ineffective in the long term. His data indicate that cities with piecemeal programs tend to show decline across most economic indicators. Cities with comprehensive urban-revitalization plans, on the other hand, tend to show growth across most economic indicators. A comprehensive plan would combine physical redevelopment, financial investments and business incentives with education, training, community organizing, and other forms of human capital investment.

The Study of Human Capital

The study of human capital has long been the province of the economics discipline. Sweetland (1996) explains that the economist's interest in human capital investment (HCI) stems from the fact that a significant fraction of national economic growth could not be explained by conventional economic models. To address that problem, researchers from various economic sub-fields—labor economics, public finance, welfare economics, growth theory, and development economics—designed a theory of human capital as well as econometric models to measure it.

Five Nobel laureates from economics (Theodore Shultz, Gary Becker, Milton Friedman, Simon Kuznets, and Robert Solow) are credited with conceiving human capital theory. Based on their construct, empirical analyses of the subject have proceeded in three directions: production function, human capital formation, and measures of the returns to schooling. The last has also received attention from other disciplines including sociology, psychology, political science, planning, human-resource development, and business administration. Despite the broad academic interest in this aspect of human capital investment, most essays tend to focus on the quantitative: i.e., cost-benefit analysis (Raymond and Sesonowitz 1975; Hansen 1963; Koster 1990; Bluestone 1990). Few studies have considered human capital investment in the context of urban revitalization or have investigated the program- and policy-oriented impacts of a human capital investment strategy.

In the following pages, we give an overview of (1) the work on returns to schooling, (2) the impacts of economic restructuring, (3) the state of urban poverty, and (4) federal programs.

Returns to Schooling

Becker (1993: 17) asserts that “Education and training are the most important investments in human capital.” His analysis indicates a positive correlation between years of education and income. The more years of education or training a person has—that is, educational attainment—the higher that person's annual income tends to be. Educational attainment represents ability, motivation, and socioeconomic status (Raymond and Sesonowitz 1975). Most studies which measure returns to schooling apply a cost-benefit model. Costs are defined as the amount of money lost by going to school, school related expenses, and other resource costs. Benefits are defined as the average income of an individual per age and years of schooling. Hansen (1963) found—based on his study of the educational attainment of white males in 1949—that the rate of return (increase in income) on investment (cost of schooling per year) has consistently increased. The annual income of a white male with only an elementary education was nearly nine percent greater than the white male who did not complete his elementary education. And a college graduate earned nearly 16 percent more than a man without an elementary education.

The importance of an education—as it relates to economic well-being— has been inculcated into the American psyche since the 1950s. Bluestone (1990: 304) stated, “An individual's education helps to determine that individual's relative but not absolute position in the labor market (wage) queue.” Koster (1990) discovered that, in the 1980s, the income gap among high school graduates, college graduates, and professionals was wider than it had been at any time in American history. Peterson and Vroman (1992) found that college-educated workers and those with post graduate studies along with some job experience enjoyed rising incomes (in real terms) while workers with a high school education or less suffered a drop in earnings. Berman, Bound, and Griliches (1994) examined changes in the demand for skilled labor in the manufacturing industry. As investment in research and development and in computer technology has increased, blue-collar jobs (particularly unskilled labor) have declined: the share of blue-collar occupations fell from 71.4 percent in 1973 to 62.8 percent in 1987. Operators—who are usually unskilled—comprised 62.3 percent of all blue-collar occupations in 1973; fourteen years later, operators comprised 57.6 percent of all blue-collar occupations. Berman and his colleagues (1994) also found that the number of white-collar jobs in the manufacturing industry had grown 8 percentage points between 1973 and 1987, from a 29 percent share to 37 percent.

Impact of Restructuring

The decline in blue-collar jobs and the concomitant relative fall in the wages of moderate- and low-income families is usually explained in terms of global and national economic restructuring (Harrison and Bluestone 1988). A February 1989 issue of the Pittsburgh Post-Gazette, for example, dramatizes the impact of restructuring: Jim Bates earned $37,000 per year at USX Corporation until 1985 when he was laid off. Since then, he has worked as a medical-waste handler at West Penn Hospital where he earns $13,500 per year. By transferring from a manufacturing industry to a service industry, his income declined a staggering 63.0 percent. Earnings in the service industry seem tied to education. The starting salary for an entry-level personal service worker, in 1995 for example, was $8,382 per year. The mean annual salary for a sales or clerical worker was $20,472 ($10.66/hr); for technical workers, the mean annual salary was $26,784 ($13.95/hr); and for managerial and professional workers it was $34,104 per year ($17.76/hr) (Census Report 1995). Unless an individual held a white-collar job or was a skilled tradesman in the manufacturing industry, or was a technical or professional worker in the service industry, that person was unlikely to benefit from the country's burgeoning economic expansion of the 1990s. Thus, it would appear that a large segment of the population has been left behind. While some of these people are no better off now than they were before the economic expansion, a great many are worse off.

Studies by Nord and Sheets (1992), Sassen (1989), and Wilson (1987) indicate an ever-widening gap between the haves and the have-nots. The have-nots tend to cluster in the urban core. These have-nots include the working but poor, recent immigrants, and the underclass.

Nord and Sheets (1992) surveyed labor market hardship rates among 100 large metropolitan areas. Labor market hardship is the inability of workers to exceed poverty level earnings through their jobs. The authors measured labor market hardship by industry category by earnings. They found that 20 percent of manufacturing industry employment, 50 percent of advanced corporate services (ACS) employment, and 65 percent of consumer service industry employment were low-wage. Their analysis also revealed that 66 percent of all female employment in all types of service industries (social service, consumer service, distributive service, and ACS) was low wage. The data further show that African-Americans and Hispanics comprised a significant share of the low wage service industry labor market.

Another group that did not benefit from the thriving economy was the underclass. Wilson (1987) has defined the underclass as a group of individuals who lack training and skills; experience long-term unemployment or are not members of the labor force; contain members who engage in street crime and other forms of aberrant behavior; and whose families experience long term spells of poverty and/or welfare dependency.

The fact that individuals who are working but poor or who are members of the underclass did not capitalize on the economic upturn is not due to the lack of opportunity but is due to the lack of preparation. Central city residents— many of whom make-up society's have-nots—remain unprepared because of poverty and its associated stigma.

Urban Poverty

According to the 1990 U.S. census, 14.8 percent (33.6 million) of all individual Americans had incomes that placed them below the official poverty line. Of those, 42.6 percent (14.3 million) lived in central cities: about one in five central city residents was poor (O'Sullivan 1993). A recent study by the U.S. Department of Housing and Urban Development (1999) indicated that, despite the economic gains experienced in the United States since 1993, one out of every three central cities had poverty rates of 20 percent or higher: for example, 34 percent of the population in New Orleans lived in poverty; 43 percent in Miami; 33 percent in Detroit; 30 percent in St. Louis; 24 percent in Philadelphia; and 20 percent in the District of Columbia (U.S. HUD 1999).

Older central cities also suffer from long-run population outmigration and relatively higher unemployment. As middle- and upper-income house-holds leave the central city, the city's tax base contracts. Because the local government has fewer fiscal resources, it cannot meet all the demands of the remaining central city residents (many of whom are poor and elderly) and of central city businesses. To recover lost revenue, the local government increases taxes on landlords and other business owners but neglects needed infrastructure improvements. This leads to business closings and relocations and to financial disinvestment. These actions—i.e., heavy taxation and loss of business—further erode the central city tax base (Swanstrom 1996). Central city decline, however, marks not only the loss of economic assets but also the loss of human and social capital.

Any historical survey of census data will reveal that some pockets of poverty have persisted for generations. In the case of the central city, pockets of extreme poverty are referred to as ghettos. Today's ghetto neighborhoods are populated almost exclusively by the most disadvantaged segments of the black urban community. These residents live outside the American occupational and social system; they reinforce and perpetuate a conduct of behavior that opposes the no...