When a job is more than a job

by Colin Read, January 25, 2010

Regional economists inevitably focus on jobs and job creation. This emphasis makes sense on one level because jobs provide income that puts food on the table. Payrolls from these jobs, when added to the income of businesses and to owners of property, and to the income of other factors of production, make up the bulk of our Gross Regional Product.  However, not all jobs contribute equally to the regional economy. Economic symbiosis is also important.

In Clinton County in 2008, various economic sectors contributed to the income earned, and the income ultimately spent:


Gross Regional Product – Clinton County 2008


Total income of $2.795 billion is matched by spending in other economic sectors. Household consumption, represents 78.7% of spending, government purchases of goods and services constitutes 32% of spending, capital investments  represents 11% of spending, and exports from the County, balanced against import outflows, drain 20% of income.

If 61% of our income comes from employee compensation, and almost 79% of our spending comes from households, we might conclude that the consumer-worker is king. However, there is more to these figures than meets the eye. Let us first look at comparable Gross Regional Product figures for neighboring counties and the state as a whole:


Gross Regional Product – Essex County 2007


Gross Regional Product – Franklin County 2007


Gross Regional Product – New York State Overall 2007


We see that Clinton County is larger than both our neighboring counties combined, even though our household consumption is smaller than that the sum of Essex and Franklin County consumption. Clinton County’s greater diversification means that it does not suffer the imbalance in imports over exports as do our neighboring counties. Clinton County is less diversified than the state, though. New York has a surplus of exports over imports to other regions. 

The health of our regional economy depends both on how much we produce and how well our industries interact with one another.  For instance, we see from the Clinton County Gross Regional Product figures that we are net importers of goods and services. In other words, we bring more goods in than we send back out.

There are a number of reasons for the dependence of a small region on other regions in the state and the country. A small region cannot produce the wide range of goods and services its residents demand. For instance, Clinton County is not a resource rich area that can mine, pump, or grow a commodity the world demands. And, its population is low, and cannot attain the economies of scale necessary to be economically self sufficient in more than a few of the goods and services we consume.

If a region is unable to provide to the rest of the state, country, and world an equivalent amount of goods and services as they provide to it, how does a regional economy remain viable and in balance?

This balance is redressed in two ways. First, other regions choose to invest in Clinton County by building factories, developing land, or building homes with income from outside our region. Most significantly, Canadian companies invest in Clinton County because of its ability to serve as a gateway to U.S. markets. Second, government is willing to invest in Clinton County because of its strategic location along the U.S. Canada border.

We can measure the diversity of a regional economy through the Shannon-Weaver Diversity Index. If there are a large number of industries, and if employment is evenly distributed across these industries, a regional economy is best able to meet the diversity of its industrial and consumption needs. Larger regions are likely to be more diverse because they typically contain more industries. A Shannon-Weaver index of one is perfect, and an index of zero indicates all eggs are concentrated in a single basket. In the following table, we see that Clinton County’s diversity index is stronger than our neighboring counties.



However, not all jobs are created equal. An economy is most viable when its constituent industries depend on one other in a symbiotic manner. An industry that relies on another industry in the region for raw materials and intermediate goods or services creates a circular flow of income that remains in the community. It is this ability of an economy to be self sufficient that strengthens economic vitality.

Factors that enhance economic vitality include a high level of regional investment, a high consumption rate as a percentage of regional income, and net exports (over imports) that is positive and large. Alternately, a high savings rate combined with a low regional investment rate may direct investment elsewhere, and imports that exceed exports, act as leakages of income to fuel consumption of goods purchased elsewhere. These factors can combine to ensure additional spending in any sector has a multiplied effect on income as it flows in and out of various sectors in the region. Next month, we will look into the details of this multiplier effect for various industries. We will look at Clinton County’s top ten industrial sectors (by employment) and show the various multiplier effects each has on the overall economy.

 

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