Geoscience Reference
In-Depth Information
terms of employment has been the fastest growing segment of the economy, rose
from $61,300 per person-year to $102,100, an annual growth rate of just 1.3 %.
In general, a strict focus on employment may give a misleading impression of
the nature of regional economic change:
Consider an economy with two workers. The first manufactures one airplane per year,
which is sold for a dollar. The income is used to purchase a hamburger, which is produced
by the second worker. Ten years later, the aircraft worker, because of productivity gains,
can build two airplanes, which earn him two dollars. He buys two hamburgers, which now
require two workers to make, since the hamburger industry has not become more efficient.
From the standpoint of employment, it appears that the hamburger industry is responsible
for all of the growth, when in fact it is the aircraft industry that has caused the economy's
output and income to double and employment to increase by one-half.
Some economists have overstated the importance of small businesses for this
same reason. David Birch (
1988
) concluded that most of the net jobs created in
Washington between 1983 and 1987 were attributable to firms with fewer than
100 employees. This observation failed to recognize that much of the growth in
small businesses, especially in trade and services, was due to shorter work weeks
and lagging labor productivity. As a consequence, the growth of these small
businesses in terms of labor income (wages, salaries, and proprietors' income)
was considerably less impressive. For example, between 1970 and 1990, eating
and drinking places accounted for 7.4 % of the total employment growth in
Washington but only 2.5 % of the total gain in labor income. In contrast, the aircraft
industry (principally Boeing, the state's largest private employer) accounted for
only 3.5 % of the employment growth but 5.5 % of the income growth. Thus, if one
were to conduct an analysis of economic change using income rather than employ-
ment statistics, one would draw substantially different conclusions regarding the
contributors to regional growth.
Birch's interpretation of employment growth also neglects to take into account
the indirect job impact—the multiplier effect—taking place when large businesses
expand. Between 1983 and 1987, Boeing directly accounted for 8.2 % of the job
growth in Washington. According to simulations with the Washington Projection
and Simulation Model, the aircraft industry employment multiplier (specifically,
the short-run multiplier over this period of time) was 3.0. In other words, for each
aircraft job, the industry indirectly created two other jobs in the economy. This
finding implies that the aircraft industry accounted for nearly one-fourth of the jobs
created during this period, including a significant fraction of the new employment
found in small businesses, such as eating and drinking places.
Export industries can conceivably contribute to regional growth without increas-
ing their own employment, as the airplane-hamburger story illustrates. Since the
typical export industry (especially ones in manufacturing) experiences relatively
large productivity and real wage gains over time, it will support an increasingly
greater number of jobs in the economy per job in the industry, even if its output
multiplier remains constant.
Simulations of the agriculture, lumber and wood products, and aircraft industries
illustrate how multipliers can change over time. Consider lumber and wood
