Commentary Todd

Economists have long been interested in the performance of specific regional economies and the forces driving a particular economy. The McCarthy–Steindel and Kuttner– Sbordone studies of the New York metropolitan area follow in this tradition. McCarthy and Steindel focus on documenting the performance of New York relative to that of the nation and distinguishing the roles of national and regional factors in area employment, income, and wages. Kuttner and Sbordone pick up where McCarthy and Steindel leave off, examining the role of industry as well as national and regional factors in New York area employment. More recently, economists have been interested in whether regional economic fluctuations are driven by region-specific forces that should be viewed as macroeconomic phenomena. Macroeconomists have generally taken the view that the performances of regional economies differ over the business cycle only to the extent that industry mixes vary across regions. Recent studies by Norrbin and Schlagenhauf (1988), Altonji and Ham (1990), and Clark (forthcoming) have challenged this view. Although Kuttner and Sbordone do not explicitly take up the issue, their analysis provides some evidence on the question. Kuttner and Sbordone measure the role that an area-specific factor plays in New York employment fluctuations, controlling for the effects of national and industry forces. In conjunction, the McCarthy–Steindel and Kuttner–Sbordone studies provide interesting and thought-provoking evidence on the performance of the New York economy and the factors affecting New York, as well as on the importance of a perhaps " macroeconomic " New York–specific factor. McCarthy and Steindel show that although recent employment growth in New York has been poor relative to that of the nation, income growth has been considerably stronger. They also find that the strength of the linkage between New York and the nation has varied over time. Detailed analysis of the 1989-96 period indicates that region-specific factors initiated the slowing of the New York economy while national factors played an important role in perpetuating the slowdown. Kuttner and Sbordone show that national, industry-specific, and region-specific factors have all been important sources of fluctuation in the New York area economy. The national and area economies tend to move together closely over the business cycle. However, the relationship between the national and area economies has been significantly affected by shifts in New York's industry mix. Although important, national and industry-specific factors account for only about half of the business cycle variation in New York employment …