The following is an excerpt of a speech in Newark by Patrick Harker, president of the Federal Reserve Bank of Philadelphia and former President of the University of Delaware. Harker’s views do not represent those of the Federal Reserve System.
I had a chance to walk around the STAR campus yesterday and, quite frankly — was amazed at what I saw. Like some of you, I remember when there used to be a Chrysler factory here. I also remember when after the 2008 financial crisis, there was a shuttered Chrysler factory here. That was a terrible time.
I was president of UD when the Chrysler plant closed, and I was intimately involved in the university’s decision to purchase the land. But I have to say, what I saw yesterday surpassed even my own optimistic expectations for what would happen. This is now a thriving, mixed-use community where academia, industry, and government are collaborating to perform pathbreaking research focused on clean energy, biotechnology, and, of course, health sciences, among other fields. Instead of Durangos, this area now produces innovations in health care.
I would argue, that the STAR campus serves as a metaphor for transitions occurring across our entire country. Traditional manufacturing remains an important component of our economy, but its relative share of employment is declining. This is an extraordinarily painful transition for millions of our fellow Americans and for communities across the country. More must be done to support workers, their families, and their communities as the economy changes.
With the growth of the healthcare economy leading the way. In 1960, total national expenditure on health care represented about 5 percent of gross domestic product. By 1990, that figure was up to 12%. Today, about a fifth of our GDP is composed of healthcare spending. Healthcare outlays are also the federal government’s number one category of spending.
The growth of the sector is evident in employment data as well.
The tragic experience of the last two years demonstrated not only how important the healthcare sector is to our national fabric, it is extraordinarily important to our economy as well.
A number of factors account for health care’s growing share of national spending. More Americans have health insurance and are able to access — and spend on — care. Life-saving technologies and therapies have been developed. And the country’s population is aging, a reflection, in part, of longer life spans. As people get older, they tend to spend more on health care.
But other cost drivers are less desirable. The tight supply of physicians in the United States keeps costs high, for instance. As a Fed president, I stay neutral on political matters, and as a former UD president, I remain neutral on the fact that Delaware is one of only four states without a medical school. But it is a fact that Delaware has relatively few doctors to serve its population, and it is an iron law of economics that when supply is constrained, prices rise. Delaware has a relatively old population, too, which drives demand.
Anchor Institutions
With all this said, there can be no doubt that what we call eds and meds — colleges, universities, and nonprofit medical institutions — drive economic activity. These institutions are often referred to as anchor institutions because of the multiple ways they are tied to a place. Unlike corporate headquarters, manufacturing facilities, or sports franchises that can pick up and move higher-education institutions and hospitals may sometimes close, but they aren’t going anywhere.
In the coming months, the Philadelphia Fed is going to launch what we are calling the Anchor Economy Dashboard. The Anchor Economy Dashboard will be a new, first-ever, national data set that captures the importance of anchor institutions to their regional economies. Anchor institutions include higher-education institutions and hospitals. While the dashboard is not live yet, we have the data underlying it.
The State of Delaware has 38 anchor institutions encompassing both eds and meds. Employment impacts from Delaware eds and meds total 65,316 jobs. That’s the total number of jobs — direct, indirect, and induced — supported by higher education and hospitals.
Direct jobs comprise those employed directly by anchor institutions; indirect are those working in fields that directly support anchor institutions, for example, IT contractors supporting a hospital. And induced jobs are those that are supported by the economic activity that anchor economies generate. The folks working over at Klondike Kate’s have jobs that are induced by UD.
One thing that makes the Anchor Economy Dashboard so neat is that it also calculates a reliance score for each region. The reliance score provides a summary measure of how dependent a regional economy is on anchor institutions.
For Delaware, our data support what I suspect a lot of us know intuitively: This state is quite reliant on anchor institutions. So, while Delaware’s total employment in eds and meds ranks 46th out of 50 states and the District of Columbia, that is largely a result of the state having a small population. Delaware’s reliance score, we calculate, is 1.23. Delaware is 23 percent more dependent on eds and meds for jobs, income, and gross value added than the United States as a whole. By comparison, Pennsylvania is ranked 15th.
The data clearly demonstrate how economically impactful having one (medical school) can be. Hershey, which has hosted Penn State’s medical school since 1967. The Harrisburg metropolitan statistical area, which encompasses Hershey, has a total population of 587,291, about half the size of the State of Delaware. But the total employment impact of eds and meds for the Harrisburg MSA is 48,338 — 74% of the employment impact in Delaware.
Regions rich with anchor institutions have benefited from the way these institutions fortify the economy. But economic dependence on anchor institutions may increasingly come with risks as technology disrupts health care. The pandemic, for instance, accelerated telehealth, creating opportunities for healthcare institutions but also loosening the “anchor” that hospitals have traditionally represented. There’s a lot to ponder today — and in the weeks, months, and years ahead.
