A Measure of the Anchor Economy’s Impact and Importance

The communities in which we live are economic ecosystems in their own rights. But within these ecosystems, there are institutions that stand apart - large, public-facing, public-serving institutions whose jobs and services support local economic activity and that serve as a community's beating heart, whether it be economic, social, cultural, or all of the above.

These are what we call anchor institutions. Now, many companies may lay an arguable claim to being a region's anchor - think of a particular long-standing manufacturing plant or even a sports franchise. But two sectors, in particular, can make the most credible cases for being the most solid anchors. In numerous parts of the country, institutions of higher education and health care - so-called "eds and meds" - are among the leading organizations in a region and many times are the largest employers.

The Philadelphia Fed introduced the Anchor Economy Initiative to take a deep dive into the economic impacts of hospitals and institutions of higher education in regions across the nation. Part of this work includes an interactive dashboard that details several economic measures in 524 U.S. statistical areas, as well as a reliance index to measure how reliant a region is on its eds and meds sectors for economic stability and growth.

Here in Philadelphia, for example, in 2019 (the latest year for which we have complete data) these anchors directly and indirectly supported nearly 496,000 jobs, which generated nearly $34 billion in employment income and benefits. Moreover, anchors contributed more than $51 billion to our regional GDP.

Now, with the addition of 2004 data on the dashboard, we are gaining greater perspective. Looking again at the Philadelphia region, in 2004, direct and indirect anchor employment was lower by roughly 117,000 jobs, and the share of regional GDP derived from these institutions was 41 percent lower than in 2019. Obviously, the region's anchors grew, but by how much in relation to other sectors?

The dashboard shows that the Philadelphia region's economy grew slightly more reliant upon its eds and meds. In 2004, the region's reliance rating was 1.31 (a rating of 1 being the national average). In 2019, it had increased to 1.39. So as the economy grew between 2004 and 2019, the eds and meds sectors grew even more, and in turn, so did the region's reliance on them.

In Philadelphia's case, we see signals that our anchor institutions are a strength. There are many diverse institutions in both the higher ed and hospital sectors contributing to this impact. We may be a bit of a college town, not because we have one dominant school or campus, but because we have so many. And there's evidence that our eds and meds sectors are driving innovation, in life sciences in particular, but in other areas as well.

However, increasing anchor reliance could also signal a concern. For example, in some postindustrial cities, anchor jobs and GDP were an increasing share of the regional economy between 2004 and 2019 because other employers and industry sectors displayed slower growth or decline. In other words, this increasing reliance has come in the context of more sluggish general economic trends. This increased reliance on anchor institutions, while helping to keep these economies moving forward, could also come with a downside should anchor growth slow or reverse because of closures and consolidations, technological changes impacting higher ed and health care, or simply market saturation for these services. In these scenarios, a higher reliance rating may actually be a cautionary over-reliance rating

In other regions, economic shifts are found to have the opposite effect of lowering overall anchor reliance. The Scranton-Wilkes-Barre region in Pennsylvania has an anchor reliance index value of 1.06 as of 2019. In 2004, it was 1.31. What happened? The region's 13 colleges and universities remained open, as did its two large health-care networks - and the combined GDP of these anchors grew 3.4 percent during that time. So, the likely root cause of this change is an increase in local jobs in industries that are independent of higher education and health care anchors.

Yet even here is a challenge. While economic diversity in regions is essential, anchor institutions play crucial roles in local economies and serve as drivers of upward mobility for many residents. Ensuring they have skilled people to fill their jobs and economic resources to continue serving their communities is a critical balance to strike.

The basic lens through which the dashboard should be viewed reveals that each institution and region comes with its own sets of priorities, opportunities, and challenges. But the dashboard's value - and the Anchor Economy Initiative's overall promise - is in tying together individual institutional impacts to show how important they are collectively to regions

The anchor economy dashboard documents that impact. And its data can spur collective action among anchor leaders and other stakeholders to strengthen overall regional economies for the long term. The power of data is the power to make positive change, and the dashboard is a tool for local officials to use in their own economic development planning.

Leveraging these data to understand both underlying trends and future needs is critical for growing talent, driving innovation, and creating equitable economic opportunity. It's critical for healthy communities. And it is something we hope regions will take on.

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