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The Utility of the Economic Base Method in Calculating Urban Growth Author(s): Homer Hoyt Source: Land Economics, Vol. 37, No. 1 (Feb., 1961), pp. 51-58 Published by: University of Wisconsin Press Stable URL: http://www.jstor.org/stable/3159349 Accessed: 31-08-2015 13:21 UTC

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This content downloaded from 129.186.252.94 on Mon, 31 Aug 2015 13:21:17 UTC All use subject to JSTOR Terms and Conditions The Utility of The Economic Base Method in Calculating Urban Growth

By HOMER HOYT* the firstdefinitions of basicand ers.6 It is asserted that the economic base SINCEnon-basic occupations by Haig in as a method is too simple and crude for 1928,1 Nussbaum in 1933,2 my own arti- the purpose of accurately forecasting the cles and reports from 1936 to 1954,3 population of an urban region, chiefly John W. Alexander's Economic Base because the ratio between basic and non- Study of Madison, Wisconsin in 19534 basic employment is not constant but and Richard B. Andrews' nine articles variable. on the economic base in Land Economics There are two different purposes for from May 1953 to February 1956,6 the using the economic base method; the first economic base concept has passed is to estimate numbers of workers and through a stage of critical examination numbers of population, and the second from 1955 to the present time by Tie- is to calculate the money flow of imports bout, Blumenfeld, Pfouts and other writ- and exports into an urban region. Con- sequently, when the economic base method is used for estimating future population, it is not necessary to take into * Consulting Land Economist and Appraiser, account the dollar of basic workers Washington, D.C. wages 1Robert M. Haig, Regional Survey of New York or the dollar value of all basic activities. and Its Environs (New York Regional Planning Committee, 1927), pp. 42, 43. in Ratio Between Basic and 2F. L. Nussbaum, A History of the Economic In- Change stitutions of Modern Europe (New York City, New Non-Basic Employment York: F. S. Crofts & Company, 1933), p. 36. 3 Homer Hoyt, Federal Housing Administration The ratio between basic and non-basic reports: Northern New Jersey, July 1937; Hartford, is to as a Connecticut, March 1938; Arthur M. Weimer and employment subject change Homer Hoyt, Principles of Urban Real Estate (New result of three factors: (1) In time of war York, New York: The Ronald Press, 1939); The the service or non-basic activities are re- Structure and Growth of Residential Neighborhoods in American Cities (Federal Housing Administra- duced to a bare minimum. As I pointed Cit- tion, 1939), p. 131; "Economic Background of out in Economic of the Land ies," The Journal of Land & Public Utility Econom- Survey ics, May 1941, pp. 188-195; The Economic Status Uses of Arlington County, Virginia7 in of the New York Metropolitan Region in 1944 1951, the ratio of to (Regional Plan Association of New York, 1944); private government Economic and Housing Survey of the Orlando Met- jobs, which was as low as 1.10 to 1 in ropolitan Region, July 1946; The Economic Base of the Brockton, Massachusetts Area, May 1948; Economic the Land Uses Evanston, Survey of of 6 Illinois, 1949; Economic Survey of the Land Uses Ralph W. Pfouts, The Techniques of Urban of Arlington County, Virginia, 1951; Economic Sur- Economic Analysis (West Trenton, New Jersey: vey of the Land Uses of Fairfax County, Virginia, Chandler Davis Publishing Co.), 1960; Reprints of June 1954; Economic Survey of Montgomery and articles by Richard B. Andrews, pp. 5-183, by John Prince George Counties, Maryland, June 1955. W. Alexander, pp. 186-212, and by Hans Blumen- ' John W. Alexander, An Economic Base Study of feld, pp. 229-277 (first published in Journal of the Madison, Wisconsin (Madison, Wisconsin: Univer- American Institute of Planners, Fall 1955, pp. 114- sity of Wisconsin Commerce Papers, Vol. I, No. 6), 132), by Charles M. Tiebout, pp. 280-306, pp. 396- June 1953. 407, and by Ralph W. Pfouts and Erle T. Curtis, 5 Richard B. Andrews, nine articles on the eco- pp. 307-393. nomic base, Land Economics, appearing in issues 7 Homer Hoyt Associates, Economic Survey of the from May 1953 to February 1955 and February 1956 Land Uses of Arlington County, Virginia, Septem- issue. ber 1951, pp. 1-2.

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1943, rose to 1.46 to 1 in 1947. Most of cities in the United States is now inevit- the government jobs were in fact basic ably linked with world politics and their so that, while this does not show the ex- future is inseparably bound up with its act ratio of change between non-basic to aberrations. it does afford an basic, approximation. In the year 1800, when New York, (2) As employment in any urban region Philadelphia, Boston and Charleston becomes more diversified and the com- were the dominant American cities, who munity produces more of the products would have predicted the future growth in which it consumes its own borders, of , St. Louis, Detroit and Cleve- there is less need to produce goods for land? In the year 1840 who could have export so that the percentage of total forecasted the growth of San Francisco, workers in basic activities will decline. Salt Lake City or Denver? In 1900 who (3) As real family incomes increase a could have foretold the future popula- lower proportion is spent for the basic tion of Los Angeles, Houston, Dallas or necessities of food and clothing and Miami? In the year 1960 what method more for houses, which are produced lo- will accurately predict the population cally, or for services. of our metropolitan areas in the year In using the economic base method 2000? To be sure, the great metropolitan areas are now here and few new in forecasting future population of an cities are to in urban region, allowances must be made likely spring up America but basic even for changes in the basic-non-basic ratio. many forces, excluding the atomic bomb from Planners have expected too much of the consideration, can alter the rates of of economic base method if they have growth industrial cities in thought it is a magical formula for pre- unpredictable ways. dicting future population of an urban The fundamental question is whether region. There just "ain't no sech ani- the economic base has a value in deter- mal." To predict future population it mining city growth even if it is not an would be necessary to predict what new infallible device for predicting the exact industries will locate in a given city, what amount of that growth. Can an urban demand new inventions will create for region grow without any increase in products now unknown, or what a basic activities, or are basic activities nec- Khrushchev or a Castro will do in the essary at all? cold war. The cold war created first a de- There are refugee colonies in Hong mand for military aircraft, which caused Kong, Karachi, and Jericho in Jordan a rapid growth of employment and popu- which are supported by the relief funds lation in San Diego, Los Angeles, Wich- of the United States and the United Na- ita and other cities producing aircraft; tions and in which the residents do not and then the emphasis on the missile work to pay for the food which they con- brought about a contraction in the de- sume. Unless the inhabitants of a city mand for aircraft and a reduction of em- are supported by charity, however, they ployment in aircraft factories. There is must export something to pay for the no known electronic device or method food which they consume but do not which can foretell all the myriad inter- produce in their own borders. Of course, actions which produce historical events if the boundaries of a metropolitan and which produce corresponding area are extended to include part of a changes in our economy. The growth of state, it is possible for the larger region

This content downloaded from 129.186.252.94 on Mon, 31 Aug 2015 13:21:17 UTC All use subject to JSTOR Terms and Conditions UTILITY OF ECONOMIC BASE METHOD 53 to be self-supporting and to require to increase substantially without any in- neither imports nor exports to pay for crease in employment in export indus- imports. But this is not true of any metro- tries? It is true that refugees in Hong politan region within the United States Kong, Karachi and Jericho have in- which has a high degree of specialization. creased the population of those cities, Critical articles on the economic base but the basic support of the refugee col- tend to obscure the vital facts, first, that onies is relief funds supplied by the some basic activities are necessary in United States, Great Britain or the every urban community without which United Nations. There is abundant evi- it cannot exist; second, that strong and dence that the growth of most American pronounced growth in the population cities in recent decades has been the di- of any community cannot take place rect result of the increase in basic em- without a corresponding growth in basic ployment. Examples can easily be cited employment; and third, that the popu- of this relationship between basic em- lation of any urban region will decline ployment and population of urban re- if there is a reduction in the level of gions in the 1950-1960 decade. basic income below the amount required Houston, Texas. The increase in the to pay for its imports. population of the Houston metropolitan area (Harris County) from 806,701 in Past Relation Between Increase in Basic 1950 to 1,232,179 in 1960 was made pos- Activity and Population sible by the increase of its manufacturing (chiefly basic) from 68,574 Criticisms of the method have been employment in 1950 to 96,400 in March 1960, and its directed toward its usefulness in esti- total employment from 325,300 to 502,- mating urban community growth. The 500 in the same first to be answered is whether period. question Dallas, Texas. The population of the or not there is be- any past relationship Dallas metropolitan area (Dallas tween increase in basic and employment County) increased from 398,564 in 1940 of If there is such growth population. to 614,799 in 1950 and to 943,963 in a in the it is reasonable relationship past, 1960, as a result of the growth in manu- to assume that the same will relationship facturing employment from 26,700 in continue in the future. On the other 1940 to 52,100 in 1950 and to 107,100 hand, if cities without grow rapidly any in 1960, and total basic employment from increase in as export activities, entirely 74,446 in 1940 to 134,730 in 1950 and to a result of the number of serv- increasing 216,000 in 1960.9 ice or non-basic workers, then there is no The economic base principle has a reason to use the economic base logical worldwide application. The population method as a forecasting tool. of Delhi State in India increased from The of the plain, simple principles 488,188 in 1921 to 636,246 in 1931, to economic base have been obscured by 917,939 in 1941 and to 1,744,072 in 1951, such statements as: "the distinction be- as a result of a growth in employment tween 'basic' and 'non-basic' seems to dis- solve in thin air" and that non-basic activities are the permanent and constant s Hans Blumenfeld, "The Economic Base of the element, indeed the truly constant ele- Metropolis," Journal of the American Institute of ment in the metropolitan area economy.8 Planners, Fall 1955 in Pfouts, op. cit., p. 277. 9Southwestern Bell Telephone Company, Dallas, Is it possible for a city or urban region Texas.

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from 202,290 in 1921 to 268,307 in 1931, Just as the population growth of an to 351,014 in 1941 and to 639,129 in urban region is caused by an increase in 1951. It is significant to note that in- basic employment, so also are declines creases in industries that are chiefly basic in population brought about by a drop was most pronounced for the entire pe- in basic employment. riod 1921 to 1951, with gains in manu- The effect of the increase and decrease facturing from 52,737 to 155,814, in of basic employment upon population public force and administration from is shown by the case of Akron, Ohio. 10,924 to 118,672, in transport and com- Akron was one of the fastest growing munications from 11,260 to 33,494 and cities in the United States from 1910 to in banks and finance from 2,287 to 10,- 1920, when its population jumped from 086. Thus, population increased three- 69,067 to 208,435 as a result of the up- and-a-half times because manufacturing surge in factory employment, chiefly employment tripled and government in the manufacture of automobile tires, employment increased ten times. from 23,450 in 1910 to 87,898 in 1919. Examples could be multiplied of met- When rubber tire employment dropped ropolitan regions whose past growth has from 87,898 in 1919 to 46,100 in 1921, been the result of the increase in basic the Akron population fell from 208,435 activities. The spectacular growth of the in 1920 to 172,000 in 1922. When the Chicago area in its present city limits rubber factories and other Akron fac- from 32,949 in 1850 to 309,635 in 1870, tories again increased their number of to 1,112,575 in 1890, to 3,372,936 in workers from 46,100 in 1919 to 68,596 1929 was caused chiefly by the increase in 1926, with 65,726 in 1929, the Akron in the value of its manufacturing prod- population increased from 172,000 to ucts (largely basic) from $2.6 million 249,000. When again factory employment in 1850 to $76.9 million in 1870, to in Akron dropped from 65,726 in 1929 $664.6 million in 1890 and to $3,885 mil- to 38,500 in 1932, Akron population lion in 1929.10 dropped from 255,000 in 1930 to 238,000 in 1933, with thousands of workers on The population of the Washington, relief. when Akron em- D.C. metropolitan area grew rapidly Again, factory from 378,605 in 1900 to 571,882 in 1920 ployment rose from 38,500 in 1932 to and to 1,968,562 in 1960 as a result of the 117,942 in 1943, Akron population rose from in 1933 to in 1944. growth in basic federal employment from 238,000 274,000 26,500 in June 1900 to 90,559 in July A decline in basic employment in an 1920 and to 228,000 in 1960. urban region is not necessarily registered San Diego, California. In the San immediately in commensurate decline in Diego metropolitan area, where the pop- population of the region. Some transient ulation increased from 556,808 in 1950 workers leave the city; other workers who to 1,008,522 in 1960, the manufacturing are discharged continue to live in the employment in the period 1947 to 1956 city but receive unemployment compen- increased from 21,600 to 57,600, and the sation or live on past savings. However, total employment from 88,600 to 156,900. the weakening effect of a reduction in basic workers upon the economy of the region soon becomes apparent. 10 Homer Hoyt, One Hundred Years of Land Val- The Wichita, Kansas case illustrates ties in Chicago (Chicago, Illinois: Press, 1933), pp. 481, 482. what happens when there is a substantial

This content downloaded from 129.186.252.94 on Mon, 31 Aug 2015 13:21:17 UTC All use subject to JSTOR Terms and Conditions UTILITY OF ECONOMIC BASE METHOD 55 cut in basic employment. As a result of cause of the rapid upsurge in population the government requirements for mili- from 1947 to 1957 and that the decline in tary aircraft, employment in Wichita military aircraft employment, not coun- (Sedgwick County) area aircraft factories teracted by an increase in other basic (basic employment) jumped from 5,160 employment, was primarily responsible in 1947 to 42,850 in 1957, with 33,000 for the slackening of the rate of growth employed at the peak in the Boeing plant from 1957 to 1960. alone. Total shot from employment up Forecast Future 60,870 in 1947 to 130,500 in 1957,11 while of Population by Economic Base Method the population of Sedgwick County rose from an estimated 203,149 to 312,131, a With such overwhelming evidence of gain of 53.6 percent in the same period. the causal relationship between increase As a result of the curtailment in pro- in basic employment and population, duction of military aircraft, aircraft pro- planners, public utility companies, duction in Sedgwick County was reduced chambers of commerce, market analysts from 42,850 in 1957 to 30,150 in July and population experts have projected 1960. In the summer of 1960 there were future population growth of specific ur- 12,000 to 16,000 persons seeking employ- ban regions upon the predicted growth ment in the Wichita labor market area; of basic employment and particularly of department store sales dropped 17 per- basic manufacturing. cent; there were hundreds of vacant Denver, Colorado. The median fore- houses and apartments advertised for cast of the increase of population of the sale or rent and permits for new dwell- Denver metropolitan area, consisting of ing units in Wichita City dropped from Denver, Jefferson, Arapahoe and Adams 3,045 in 1955 to 1,144 in 1959. The pop- Counties, from 780,000 in 1957 to 1,600,- ulation of the area has registered a slight 000 in 1980, made by the Inter-county gain since 1957, but it is at a very slow Regional Planning Commission of Den- rate compared to that of the ten years ver, was based on the premise that its from 1947 to 1957. In the three years manufacturing employment would in- from January 1, 1957 to December 31, crease from 48,800 in 1957 to 126,452 in 1959, the number of electric meters in- 1980; that federal government employ- creased by only 2,356, or at the rate of ment would increase from 20,700 to 785 a year, while in the ten years prior 39,276 in this period and that total em- to that the increase was 52,808, or at the ployment would rise from 296,526 to rate of 5,281 a year. 576,000 in this 23-year period.12 The Wichita metropolitan area has Los Angeles and Other California other basic sources of employment be- Cities. The Los Angeles metropolitan sides military aircraft, such as trade, area increased in numbers from 4,000,- finance and other manufacturing, since it 000 in 1947 to 6,000,000 in 1957 as its had a population of 203,149 in 1947 as a manufacturing employment rose from distributing center before aircraft pro- 387,100 to 771,800 in the same period. duction became dominant, but it is ob- Quoting Dean James Gillies of the Uni- vious that the increase in military aircraft versity of California at Los Angeles: employment-all basic-was the primary I Inter-County Regional Planning Commission, Future Population Denver Metropolitan Area, " Kansas State Employment Service. March 15, 1960, Table I.

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"Between 1947 and 1956 the population diversification, but a new impetus to of California increased from to 9,672,000 growth must come primarily from basic 13,260,000, or 3,592,000. the by During employment. same period the total private non-agricul- tural employment increased by 1,174,000 The fact that a large urban region with and manufacturing employment increased its plants, pools of skilled workers and all 494,000, or about 59,000 a by by positions of its service workers is in a position to year." attract new basic industries to "Assuming no change in the economic supplant base of the state, and this is a conservative declining basic industries does not refute assumption, it will be necessary to provide the economic base analysis, but only con- approximately 2,000,000 positions in manu- firms it. If all the basic activities were facturing between 1960 and 1980 if the withdrawn from a it would have no forecast for the state is city, population growth means of for its and its to be maintained."'13 paying imports "While a newly developing area can ex- residents would starve to death unless pand as a result of an inflow of investments they were supported by relief, invested from other regions, it is rather generally income or some form of income from that in the run no area can accepted long outside the area. A metropolitan area grow and develop without some base indus- tries. Base industries are defined as those may coast for a while, living on accu- that produce goods and services for sale mulated savings, but no metropolitan outside of the immediate area in which area of any size can continue to maintain are they located. This sale generates a flow itself if its economic base, with its export of income and capital into an area, which is Our own causes an of and activities, seriously impaired. expansion plant equip- affords too short a time to ment, which in turn creates new employ- history pass ment opportunities and induces population judgment. Our great metropolitan cen- to come to the region."14 ters are in a nation still rapidly growing in wealth and with a Thus, in the opinion of Dean Gillies, the population, higher and of income expected population growth of Califor- higher proportion going nia will not be realized without an in- for services, for advertising, amusement and recreation, tobacco and Still crease in basic manufacturing: liquor. in the decade from 1950 to 1960, of the "If the demographers are correct in their central cities in 24 areas in of California's metropolitan prediction population the United States a of growth, the of the is having population corollary proposition or all have lost that there will be (1) tremendous expan- 1,000,000 over, popula- sion of manufacturing operations within tion except Los Angeles, Houston, Dal- the state, or (2) large scale unemployment las, Milwaukee, Kansas City, Atlanta, within the or the state, (3) growth simply Seattle and San Diego. It is significant will not take place."1'5 to note that the metropolitan areas which In short, it has not yet been demon- have had the greatest rate of growth in strated that an urban region can grow the past decade-Los Angeles (53.2 per- substantially in population by an increase cent), Houston (56 percent), Dallas (44 its in non-basic industries only. It may percent) and San Diego (80.2 percent)- reduce its reliance on imports by greater have also had a corresponding rate of growth in manufacturing employment, 13James Gillies, Industry's Role in Metropolitan as I have shown in this article. While the Growth, a Public Management Problem (Los An- entire areas of the other geles, California: Real Estate Research Program, metropolitan University of California, 1960), No. 9, pp. 41. urban regions have continued to grow 14 Ibid., p. 38. 15 Ibid., p. 40. in the past decade, which, if an examina-

This content downloaded from 129.186.252.94 on Mon, 31 Aug 2015 13:21:17 UTC All use subject to JSTOR Terms and Conditions UTILITY OF ECONOMIC BASE METHOD 57 tion were made would doubtless be due population was just as much due to a de- to some expansion in basic activities in cline in this power base-its economic some form or other, none had a rate of base-as if its population had been sup- growth higher than 30 percent except ported on the exports of jars of olive oil. Washington, D.C. with 34.5 percent. The Nineveh and Babylon were once great striking growth of the metropolitan areas cities, Ninevah having a power base and where the increase of basic employment Babylon a power and commercial base, has been the highest certainly will not and both are now only mounds of clay. refute the economic base theory or gain The recent growth of Moscow, New converts for those who would abandon Delhi, Karachi, Cairo and Athens was it. If export industries are expendable all due to a power base-increasing gov- and replaceable so easily, the mayors and ernment employment at the capital. Blu- chambers of commerce of these great cen- menthal cites Leningrad as a striking ex- tral cities such as New York, Philadel- ample of the ability of a city to survive phia and Boston, which have lost popu- despite loss of its basic functions. Lenin- lation, certainly want to know the ad- grad's population had expanded to 2,- dress of the new industries that will be 416,000 in 1916, as a result of the growth so attracted by the fact that these metro- of basic war industries, but by 1920 its politan areas have the largest number population had fallen to 722,000 after and variety of consumer services in the Moscow became the new capital. Lenin- world. If the presence of consumer serv- grad was able to increase its population ices is so powerful a force, why has to 1,690,061 in 1926, and to 3,191,000 at the rate of growth of New York, Chi- the latest census, only by securing new cago, Philadelphia, Boston and Detroit, basic industries. On the other hand, Mos- which have the most of these services, cow, which had a population of 2,000,- declined in the past decade while the 000 in 1917, or less than that of Lenin- rate of growth of Los Angeles, San Diego, grad, after declining to 800,000 in 1920, Houston and Dallas, which started out increased in numbers as the new capital at a far lower level of consumer services, and power center of Russia to 4,137,000 far outstripped that of the older, larger in 1939 and to over 5,000,000 according cities? Is it not a fact that these Califor- to the last census. Certainly these are nia and Texas cities grew because they "striking examples" of the immediate offered more opportunities for the 'effect of the rise and fall of basic activi- growth of basic employment? ties upon the population of a city. Hans Blumenfeld's statement that no There are of course numerous exam- community (i.e. metropolitan area) in the United States of cities whose which the last the ples during century passed population has drastically declined after half million mark has lost population, is their sole economic base was exhausted, offered as that cities of that size proof such as the mining cities of the West. will maintain themselves indefinitely.16 The population of Virginia City, Nevada Rome, with a population of 1,000,000 at declined from 40,000 in 1873 to 603 in the time of declined to Augustus, 17,000 1950, and the of Leadville the ninth based population by century and, although fell from 40,000 in 1880 to 4,081 in 1950. on and wealth,' the decline in its 'power The chief present support of these once glamorous mining camps is tourists. The of Illinois has re- 16 Hans Blumenfeld, in Pfouts, op. cit., pp. 276-7. population Decatur,

This content downloaded from 129.186.252.94 on Mon, 31 Aug 2015 13:21:17 UTC All use subject to JSTOR Terms and Conditions 58 LAND ECONOMICS cently declined and there are 1,100 va- terms of numbers of persons; and sec- cant houses there because a large industry ond, the value of the imports or exports closed down. Large metropolitan areas of an urban region, which is measured in have diversified supports-the residents dollars. often have income from capital invested If the purpose of a study is to estimate elsewhere-so that it is a complex prob- future population, then it must be recog- lem to show the exact effect of the nized that there is no magic formula for decline or increase in any single basic predicting future historical events or the support. When the single basic support is population of any specific urban region. isolated the effect on population of any If future population growth of any ur- change in it becomes immediately ap- ban area is considered a desirable goal or parent. a requisite for planning, then a careful The most important contribution of study must be made of what new basic the economic base theory, in my opinion, industries or services may be attracted to is its function in furnishing a sound the specific city, or what existing basic method of analyzing the economic struc- activities or services might expand their ture of an urban region. The basic sup- employment. It is a study of possibilities ports of any metropolitan area are not or probabilities only, and not of certain- constant but are subject to continual ties, and it is not possible to predict or fluctuations. The ratio between basic and estimate the exact effect of the new basic non-basic employment is not fixed but employment upon total population. The variable. In our affluent society a con- overwhelming weight of the evidence stantly higher percentage of the national does indicate, however, that if there is no income is devoted to services so that the fresh accession of the numbers engaged value of exports of any city that is re- in basic employment or in the dollar in- quired to pay for imports of food and comes of those engaged in basic activities, products not produced in that city may the particular urban region will there- diminish. Future studies of the economic after grow very slowly if it grows at all. base of urban regions should seek to An entirely different approach is nec- measure these changes, and by applica- essary if the problem is to determine the tion of a consistent method of measure- dollar value of the imports or exports of ment of the economic base, show the an urban region. There is of course a re- changes in the proportion of basic em- lationship between the amount of wages ployment. Material for future studies is or salaries of basic workers and the num- provided by the United States Census of ber of non-basic workers, since high-in- Population by national, state and local come families can support more in the tabulations of employment by types for service lines than the low-income fami- cities and metropolitan regions. lies. However, a different technique can Further analysis of the economic base be employed in measuring the dollar should consist of two different types of amount of imports or exports of an ur- inquiry: first, those relating to future ban region from that which is applicable basic employment, total employment to the problem of numbers of basic or and population, which is measured in non-basic workers.

Editor's Note. In the May 1961 issue of Land Economics Homer Hoyt will describe a new method by which the dollar value of the imports into any urban region in the United States can be approximately determined.

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