The economic performance of cities

"This paper examines the determinants of employment growth rates in metro areas. To obtain growth rates, we use a Markov-switching model that separates a city's growth path into two distinct phases (recession and expansion), each with its own growth rate. The simple average growth rate over some period is, therefore, the weighted average of the recession and expansion growth rates, with the weight being the frequency of recession. We estimate the effects of a variety of factors separately for the recession and expansion growth rates, along with the frequency of recession. We find that growth in expansion is related to human capital, industry mix, and average firm size. In contrast, we find that recession growth rates are mostly related to industry mix, specifically, the relative importance of manufacturing. Finally, the frequency of recession appears to be related to the level of non-education human capital, but to none of the other variables. Overall, our results strongly reject the notion that city-level characteristics influence employment growth equally across recession and expansion"--Federal Reserve Bank of St. Louis web site.