New York's merchandise export performance has trailed the nation's for several years. The cause of this gap is not easy to identify: the state maintains a relatively healthy mix of customer markets, remains well represented in industries with strong foreign demand, and continues to enjoy declining labor costs. A broader look at New York's competitiveness, however, reveals that high nonlabor costs may be hurting the state's manufacturing sector and thus its volume of exports.Exports ; Manufactures ; New York (State)

Howard Howe

Mark Leary

English

Research Papers in Economics

New York State’s Merchandise Export Gap
Howard Howe and Mark Leary
New York’s merchandise export performance has trailed the nation’s for several years. The
cause of this gap is not easy to identify: the state maintains a relatively healthy mix of 
customer markets, remains well represented in industries with strong foreign demand, and
continues to enjoy declining labor costs. A broader look at New York’s competitiveness, 
however, reveals that high nonlabor costs may be hurting the state’s manufacturing sector and
thus its volume of exports.
Since 1990, New York State’s merchandise export per-
formance has lagged that of the United States as a
whole. From 1990 to 1995, the state’s foreign exports
grew only 2.9 percent per year, while the nation’s
exports grew a substantial 8.3 percent per year. By
1995, New York’s share of U.S. merchandise exports
had fallen to 5.6 percent, from 7.3 percent in 1990
(Chart 1). The contrasting export performances of state
and nation have had significant repercussions for eco-
nomic growth: while the rapid acceleration in U.S.
exports added momentum to the nation’s economic
recovery in the first half of the 1990s, the slow growth
in New York’s exports has done little to spur the more
tentative comeback in the state.1
This edition of Current Issues seeks an explanation
for the troubling slippage in New York’s merchandise
exports. We look first at the state’s customer markets
and the mix of goods it sends abroad—two factors that
can influence demand. We then consider whether the
area’s labor costs could be driving up the price of 
New York’s exports. Surprisingly, we find that none of
these factors can satisfactorily explain the gap in
export performance. As a result, we look for evidence
of more fundamental competitive problems affecting
New York’s manufacturing sector as a whole. We con-
clude that the state’s nonlabor costs—including high
energy prices and burdensome taxes—may be hurting
production for both domestic and foreign markets.
Are New York’s Customer Markets and Export
Composition the Problem?
The most obvious explanation for deteriorating export
performance is weak customer markets. If New York
catered to low-growth economies, we would expect its
export performance to flag. Fast-growing economies,
however, are as well represented in the state’s export
markets as they are in the nation’s. New York’s export
share to Canada—the largest contributor to U.S. export
growth over the past five years—is even greater than
the U.S. average (Table 1).2 In addition, 11 percent of
both New York’s and the nation’s exports are sold to
high-growth markets in Asia. A significant portion of
the state’s merchandise exports goes to the established
markets of Europe and Japan, although New York does
trail the nation in the proportion of goods it exports to
fast-growing Mexico (3 percent as opposed to 9 percent
for the United States).
Overall, the geographic breakdown of New York’s
export markets explains only a small part of the state’s
overall lag in export performance. Indeed, differences
in the geographic composition of the state and national
export markets can account for a mere 0.1 percentage
November 1996 Volume 2  Number 12point decline in New York’s relative export performance
from 1990 to 1995.
The industrial composition of New York’s merchan-
dise exports also fails to explain the state’s export gap.
Electrical machinery, industrial machinery, chemicals,
transportation equipment, and instruments led U.S.
export growth from 1990 to 1995. In New York, the
export concentration in these top five categories, 
62 percent, corresponds closely to the U.S. average of
60 percent (Table 2). Clearly, New York manufacturers
have a presence in industries experiencing strong for-
eign demand. 
Although the state and national concentrations in
these industries are similar, New York’s exports grew at
a slower pace than the U.S. average in three of the five
categories (Table 2). The most notable gap between
New York’s and the nation’s growth rates was in electri-
cal machinery. In this category, the state’s exports grew
only 1.1 percent per year, while for the United States as
a whole exports rose at a healthy 14.2 percent rate. New
York’s exports of instruments—which represent 11 per-
cent of total exports in the state, or more than twice the
national level—grew at less than half the U.S. pace. For
chemical exports, the difference in the two growth rates
was a sizable 3.8 percentage points.
In two categories—industrial machinery and trans-
portation equipment—exports broke from the general
pattern of slower growth in New York. The state’s
exports of industrial machinery (including computers)
grew 11.6 percent per year, 2.5 percentage points faster
than the U.S. average. In the transportation equipment
category, New York’s exports advanced 4.4 percent per
year, while the nation’s exports grew 3.8 percent per
year. Superior performance in these two industries,
however, was not enough to offset the state’s lagging
performance in the other major export sectors.
Moreover, New York’s slightly faster growth in trans-
portation equipment stemmed entirely from a spurt in
1995 and may not prove sustainable.
FRBNY 2
CURRENT ISSUES IN ECONOMICS AND FINANCE
Table 1
Major Export Markets, New York and the United States
Percent of  Total Exports, 1990-95 Average
Market New York State United States
Canada 24 21
Asia 11 11
United Kingdom 9 5
Japan 8 11
Switzerland 7 1
Germany 4 4
Mexico 3 9
Total 65 63
Sources:  MISER (1996); authors’calculations.
Notes:  Asia comprises Hong Kong, Taiwan, South Korea, and Singapore. Figures
may not sum to totals because of rounding.
Table 2
Composition of Exports, New York and the United States
Percent of  Total Exports, 1990-95 Average
Industry Category New York State United States
Manufacturing
Industrial machinery 17 (11.6) 16 (9.1)
Transportation equipment 14 (4.4) 17 (3.8)
Electrical machinery 14 (1.1) 12 (14.2)
Instruments 11 (3.7) 5 (8.4)
Miscellaneous (excluding jewelry) 9 (4.6) 1 (9.7)
Chemicals 6 (5.0) 10 (8.8)
Other manufactures 27 (-2.9) 32 (8.7)
Nonmanufacturing
Agriculture 1 (5.6) 6 (5.3)
Mining, oil, and gas 0 (-9.0) 1 (0.7)
Total 100 (2.9) 100 (8.3)
Sources:  MISER (1996); authors’calculations.
Notes:  Annual growth rates appear in parentheses. Figures may not sum to totals
because of rounding.
Percent
1990￿
￿
0
2
4
6
8
10
Chart 1￿
New York State’s Share of U.S. Exports
Sources:  MISER (1996); authors’￿ calculations.￿
￿
1991 1992 1993 1995 1994
7.3
6.5
5.8
6.2
5.8 5.6
The geographic breakdown of New York’s export
markets explains only a small part of the state’s
overall lag in export performance.New York’s Labor Costs Are Competitive
Another factor that can contribute to declining export
performance is high labor costs. Although not the only
production cost, labor is the largest input cost and a
commonly used indicator of competitiveness. In this
section, we compare manufacturers’unit labor costs,3
export performance, and output in New York State and
the nation.
For manufacturing as a whole, and for most major
industries, New York’s unit labor costs relative to the
nation’s have declined markedly since the mid-1980s
(Chart 2). This cost advantage has not, however, pro-
duced an overall acceleration in manufacturing output
or merchandise exports. In fact, as Chart 2 shows, 
New York’s manufacturing output has slipped progres-
sively behind U.S. manufacturing output since 1982.
In one sector, industrial machinery, New York’s
export performance appears consistent with the sector’s
relative unit labor cost trend (Chart 3). New York’s unit
labor costs in industrial machinery have been declining
relative to the U.S. average since 1985, and New York’s
exports of industrial machinery have outperformed U.S.
exports in this category since 1990, even though state
output has lagged U.S. output since 1986. In the other
major export sectors, however, the gap in New York–
U.S. merchandise exports has continued to widen
despite the state’s unit labor cost advantage.
What Other Factors Can Explain the Gap?
Our review of New York’s customer markets, export
composition, and labor costs leaves the slow growth of
the state’s exports largely unexplained. We do know,
however, that the slippage in the state’s export perfor-
mance has coincided with a general falloff in the state’s
manufacturing output. These parallel developments
raise the question, What other factors could be creating
a negative business environment and discouraging man-
ufacturers from producing goods in New York for both
foreign and domestic markets? Although the evidence is
thin, some studies indicate that manufacturers encounter
high nonlabor costs when operating in New York.
To evaluate New York’s nonlabor costs, we consult
an annual benchmark study that compares business
costs across states and assesses the fifty states’over-
all business climates (Corporation for Enterprise
Development 1995).4 Using a set of twenty-four indica-
tors,5 the study measures each state’s development
capacity, that is, its potential for future growth and
recovery from economic adversity. Significantly, the
study assigns a grade of  “C” to New York State’s devel-
opment capacity in three of the past five years. Several
of the development indicators cited in the study may
3
Index 1990 = 100
Chart 2￿
Exports, Output, and Unit Labor Costs in New York and the United States
1990 1977 85 85 91 95 90 90 92
Sources:  MISER (1996); Bureau of Labor Statistics; Bureau of Economic Analysis; authors’￿ calculations.￿
100
120
140
160
80
100
120
140
160
0.86
0.88
0.90
0.92
0.94
0.96
0.98
Index 1980 = 100 New York State/United States
Merchandise Exports Manufacturing Output Relative Unit Labor Costs ￿
in Manufacturing 
92 93 94 80 92
United States
New York State
United States
New York State
1975 80
80
For manufacturing as a whole, and for most
major industries, New York’s unit labor costs 
relative to the nation’s have declined markedly
since the mid-1980s.
New York has the highest unit energy costs of
all the states and ranks among the highest in
urban housing costs.help explain the deteriorating trends in manufacturing
exports and output. New York has the highest unit
energy costs of all the states and ranks among the high-
est in urban housing costs. Additionally, New York
scores poorly in bridge adequacy and sewage treatment
needs.
The state’s heavy tax burden may also discourage
business activity. A study by M&T Bank compares state
and local tax levels in New York with those in seven
similar states—California, Texas, Florida, Ohio,
Pennsylvania, Michigan, and Illinois (M&T Bank
1995). In 1992, New York’s combined state and local
taxes were the second highest per capita among these
states. The local component of these taxes was the high-
est in the nation and more than twice the U.S. average.
Even excluding New York City’s high taxes, New York
State’s per capita local taxes were still 75 percent above
the U.S. average and more than 50 percent higher than
those in the next highest taxed state in the study,
Illinois.6The M&T study finds that state-mandated ser-
vices and spending as well as multiple layers of local
government contribute to New York State’s heavy tax
burdens.
These nonlabor factors together can inhibit manu-
facturing activity in several ways. Companies facing
higher energy costs and higher taxes cannot price their
goods competitively. Steep urban housing costs mean
that companies will find it difficult to recruit and retain
workers. Infrastructure problems can increase construc-
tion costs and complicate the shipping of both supplies
and finished goods. Although such effects are not easily
quantified, these nonlabor factors would very likely
discourage companies from locating in New York—or
from expanding their existing operations in the state—
and hence dampen production for export.
Conclusion  
We set out to uncover factors that could explain New
York’s declining share of manufactured exports. We
find that export composition and labor costs compare
favorably with those of the United States as a whole and
therefore cannot account for the gap between the state’s
export performance and the nation’s. New York’s
exports have been well represented in high-growth mar-
kets, and the five fastest growing export categories rep-
resent the same share of total exports for New York as
for the United States. Finally, New York’s manufactur-
ing labor costs are below the U.S. average and declining
relative to that average.
Why, then, have New York’s merchandise exports
failed to keep pace with U.S. merchandise exports? The
relatively harsh business climate for New York’s manu-
facturing sector may be the answer. New York is sad-
dled with the nation’s highest energy costs. Moreover,
infrastructure indicators point to key deficiencies rela-
tive to other states. Finally, New York’s state and local
tax burdens rank high compared with those of similar
states. Although none of these factors alone can explain
the decline in New York’s manufacturing performance,
together they add up to burdensome costs for manufac-
turers.
Notes
1. A rise in exports can stimulate the domestic economy through
increased demand for intermediate inputs, higher incomes, and
economies of scale. See, for example, Bauer and Eberts (1990).
2. Export data are from the Massachusetts Institute for Social and
Economic Research (MISER) of the University of Massachusetts.
MISER makes adjustments to state export data compiled by the
U.S. Census Bureau. See MISER (1996).
FRBNY 4
CURRENT ISSUES IN ECONOMICS AND FINANCE
Index 1990 = 100
Chart 3￿
Exports, Output, and Unit Labor Costs in the Industrial Machinery Sector, New York and the United States
1990 1977 85 85 91 95 90 90 92
Sources:  MISER (1996); Bureau of Labor Statistics; Bureau of Economic Analysis; authors’￿ calculations.￿
80
100
120
140
160
180
200
70
80
90
100
110
120
130
140
0.85
0.90
0.95
1.00
1.05
1.10
Index 1980 = 100 New York State/United States
Exports Output Relative Unit Labor Costs 
92 93 94 80 92
United States
New York State
United States
New York State
1975 80We exclude gold, jewelry and precious gems, and works of art
and antiques from total exports. A disproportionately high share of
these goods is shipped out of New York City, but only a small por-
tion of their value is produced in New York State. (See Howe and
Leary [1995] for details on excluding these categories from the
data.)
3.  The unit labor cost for each industry equals the average hourly
earnings of each worker divided by productivity. Productivity is
measured by the ratio of industry output to industry employee-hours
(industry output / (employment x average weekly hours)). Industry
output is based on nominal gross state product. Employment, hours,
and earnings data are from the Bureau of Labor Statistics. Gross
state product data (available only through 1992) are from the
Bureau of Economic Analysis.
4. The study draws on data from the Edison Electric Institute
(1994), the Department of Housing and Urban Development
(1994), and the Environmental Protection Agency (1993), among
other sources.
5.  Not all of the twenty-four indicators apply to the manufacturing
sector directly.
6. The M&T Bank study also compares the tax structure of
Wyoming County, a small rural county in New York State, with that
of similar counties in the peer states. Although Wyoming County’s
tax burden is 28 percent below the state average, its per capita tax
revenues and local government expenditures are still 20 percent and
27 percent, respectively, above the average for similar counties in
the other states.
References
Bauer, Paul W., and Randall W. Eberts. 1990. “Exports and
Regional Economic Restructuring.” Regional Science
Perspectives  20.
Corporation for Enterprise Development. 1995. The 1995
Development Report Card for the States. Washington, D.C.
Edison Electric Institute. 1994. Statistical Yearbook of the Electric
Utility Industry, 1993. Washington, D.C., December.
Howe, Howard, and Mark Leary. 1995. “New York Merchandise
Exports.” Federal Reserve Bank of New York Research Paper
no. 9529, December.
M&T Bank. First Empire State Corporation. 1995. “Analysis of
Local Government Tax Burden and Expenditure Trends.”
Massachusetts Institute for Social and Economic Research
(MISER). 1996. U.S. Foreign Trade Reports.
U.S. Department of Housing and Urban Development. 1994.
“Section 8 Housing Assistance Payments Program; Fair Market
Rents Final Rule.” Federal Register, September 28.
U.S. Environmental Protection Agency. Office of Water. 1993. 1992
Needs Survey Report to Congress. EPA 832-R-93-002.
Washington, D.C., September.
FRBNY 5
About the Authors
Howard Howe is a research officer and senior economist in the International Research Function of the
Research and Market Analysis Group; Mark Leary, formerly an assistant economist in the Function, is
currently an MBA candidate at New York University’s Stern School of Business. 
The views expressed in this article are those of the authors and do not necessarily reflect the position of
the Federal Reserve Bank of New York or the Federal Reserve System.
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Environmental Protection Agency. Office of Water.

First Empire State Corporation.

New York Merchandise Exports.” Federal Reserve Bank of New York Research Paper no.

Section 8 Housing Assistance Payments Program; Fair Market Rents Final Rule.” Federal Register,

New York state's merchandise export gap

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New York state's merchandise export gap

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