The Economic Impact of the Health Sector on the Economy of Dallas County, Iowa a. Daniel Otto and Georgeanne Artz b

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1 The Economic Impact of the Health Sector on the Economy of Dallas County, Iowa a Daniel Otto and Georgeanne Artz b The importance of medical and health facilities as community service providers is well established, yet their role in generating significant economic impacts for the community is less often acknowledged. Health care facilities, such as hospitals and nursing homes, not only employ many people with a sizeable payroll, but also draw a large number of people from rural areas into the community for medical services. In this study, we attempt to identify and measure the economic importance of the health sector for the economy of Dallas County, Iowa. The specific objectives of this report are to: 1. summarize the direct economic activities of the health sector; 2. review concepts of community economics and multipliers related to healthcare; and 3. estimate the secondary impacts of the health sector on Dallas County s economy. County Demographic and Economic Data This section will illustrate the population and employment patterns for Dallas County. Table 1 presents the population figures for Dallas County. In 1990, the population of Dallas County was 29,755. By 2000, the county population had increased to 40,750. The population of Adel, the county seat, was 3,304 in 1990 and increased to 3,435 in Perry, the largest town, gained about 1,000 people. In most of the other communities in Dallas County, the population increased between 1990 and The population in the rural areas of Dallas County increased about 9 percent, from 9,416 in 1990 to 10,298 in a Based on materials originally developed for the Rural Health Works program through the Federal Office of Rural health Policy with Oklahoma State University as project leader. b Extension Economist and Extension Program Specialist respectively, Department of Economics, Iowa State University

2 Table 1. Population of Dallas County, Iowa 1990 Population Population Dallas County 29,755 40,750 Adel 3,304 3,435 Bouton Clive 100 2,369 Dallas Center 1,454 1,595 Dawson De Soto 1,033 1,009 Dexter Granger Grimes 0 1 Linden Minburn Perry 6,652 7,633 Redfield Urbandale Van Meter Waukee 2,512 5,126 West Des Moines (part) 187 3,878 Woodward 1,197 1,200 Balance of Dallas County 9,416 10,298 1 SOURCE: Population data from the U.S. Bureau of the Census, 1990, Map 1. Dallas County, Iowa 2

3 Table 2. Personal Employment by Industry Total full-time and part-time employment 11,242 12,344 15,563 17,465 Wage and salary employment 7,736 8,623 11,324 13,018 Proprietors' employment 3,506 3,721 4,239 4,447 Farm proprietors' employment 1,279 1, Nonfarm proprietors' employment 2,227 2,669 3,260 3,490 Farm employment 1,585 1,354 1,281 1,198 Nonfarm employment 9,657 10,990 14,282 16,267 Private employment 8,125 9,221 12,347 14,115 Ag. services, forestry, fishing, & other Mining (D) Construction ,257 1,441 Manufacturing 1,343 1,611 2,324 2,521 Transportation and public utilities Wholesale trade Retail trade 1,751 1,799 2,270 2,280 Finance, insurance, and real estate (D) Services 2,232 3,027 3,684 4,639 Government and government enterprises 1,532 1,769 1,935 2,152 Federal, civilian Military State and local 1,314 1,493 1,664 1,873 State Local 1,272 1,424 1,593 1,805 Source: U.S. Department of Commerce, Bureau of Economic Analysis, Local Area Personal Income and Employment, (D) Not disclosed for reasons of confidentiality (L) Less than 10 employees 3

4 Table 2 presents employment data for Dallas County; data are from the Bureau of Economic Analysis' Regional Economic Information System for years between 1980 and Similar to the population numbers, total employment in Dallas County increased. The industry sectors with the largest employment are services (4,639) and manufacturing (2,521). Retail trade (2,280), state and local government (1,873), and construction (1,441) also employ a significant number of workers in Dallas County. Table 3 presents income data for Dallas County; these data are also from the Bureau of Economic Analysis' Regional Economic Information System. Total personal income in Dallas County increased from about $295 million in 1980 to $1 billion in Accounting for inflation, personal income in the county rose 73% over this time period. Per capita income increased from $9,989 per person in 1980 to $27,286 per person in This is an increase of 40% in inflation-adjusted terms. In 1998, approximately half of the personal income in Dallas County was earned through wage and salary work or other labor income. The services ($93,956,000), manufacturing ($72,996,000) and government ($57,914,000) sectors accounted for the largest share of these earnings. The remainder of personal income in the county was derived from other sources, such as transfer payments and income from dividends, interest and rent. 4

5 Table 3. Personal Income by Industry (in thousands of current dollars) Income By Place of Residence Personal income $294,630 $548,374 $776,136 $1,005,907 Nonfarm personal income $296,128 $532,915 $750,760 $975,923 Farm income -$1,498 $15,459 $25,376 $29,984 Per capita personal income (dollars) $9,989 $18,357 $23,293 $27,286 Derivation of personal income Earnings by place of work $118,465 $200,458 $334,163 $438,107 less: Personal contrb. for social insurance $6,586 $13,305 $22,689 $29,108 plus: Adjustment for residence $88,914 $192,297 $234,415 $312,227 equals: Net earnings by place of residence $200,793 $379,450 $545,889 $721,226 plus: Dividends, interest, and rent $59,386 $104,610 $142,803 $186,062 plus: Transfer payments $34,451 $64,314 $87,444 $98,619 Earnings By Place of Work Components of Earnings Wage and salary disbursements $89,731 $137,497 $238,260 $318,985 Other labor income $10,415 $18,994 $32,328 $34,801 Proprietors' income $18,319 $43,967 $63,575 $84,321 Farm proprietors' income -$4,426 $11,653 $20,133 $23,012 Nonfarm proprietors' income $22,745 $32,314 $43,442 $61,309 Earnings By Industry Farm earnings -$1,498 $15,459 $25,376 $29,984 Nonfarm earnings $119,963 $184,999 $308,787 $408,123 Private earnings $102,273 $148,760 $261,815 $350,209 Ag. services, forestry, fishing, & other 8/ $1,493 $5,211 $6,008 $10,268 Mining $513 $665 $274 (D) Construction $9,357 $13,604 $38,903 $52,807 Manufacturing $32,269 $40,326 $64,864 $72,996 Transportation and public utilities $8,393 $11,896 $26,436 $37,345 Wholesale trade $10,378 $11,522 $20,108 $22,606 Retail trade $13,935 $19,845 $27,228 $31,730 Finance, insurance, and real estate $5,319 $12,044 $21,567 (D) Services $20,616 $33,647 $56,427 $93,956 Government and government enterprises $17,690 $36,239 $46,972 $57,914 Federal $2,570 $5,508 $6,518 $7,320 State $602 $1,940 $2,426 $2,722 Local $14,518 $28,791 $38,028 $47,872 Source: U.S. Department of Commerce, Bureau of Economic Analysis, Local Area Personal Income and Employment, (D) Not disclosed for reasons of confidentiality 5

6 The Direct Economic Activities The health sector in Dallas County most directly affects the area's economy through its employment and payroll. Federal and state employment and earnings reports can be used to measure the direct employment and income levels in the health-related sectors. The health sector is divided into the following five components: Hospitals Doctors and Dentists (includes other medical professionals) Nursing and Protective Care Other Medical and Health Services (includes home health care and county health departments) Pharmacies The total health sector in Dallas County employs 1,070 people and has an estimated payroll of $25,618,361 (Table 4). Data from the U.S. Census Bureau's 1999 County Business Patterns indicate that the health sector in Dallas County includes two hospitals, twelve physician offices, thirteen dental offices, seven nursing homes, and five pharmacies. The Hospital component employs 118 people with an annual payroll of $2,714,361. The Doctors and Dentists (& Other Medical Professionals) component employs 234 people, with an annual payroll of $7,887,000. Employment in the Nursing and Protective Care Component totals 535 people with an annual payroll of $12,119,000. The Other Medical and Health Services component employs 138 workers, with an annual payroll cost of $2,068,000. The Pharmacies component has an estimated 45 employees and a payroll of $830,000. Nursing and Protective Care facilities are a particularly important component of the health sector in many rural communities, which have a large number of elderly, including farmers who often retire in the towns to be near medical facilities. 6

7 Component Table 4. Direct Economic Activities of Health Sector in Dallas County, Iowa Estimated Employees Estimated Payroll Hospital 118 $2,714,361 Doctors and Dentists 234 $7,887,000 Nursing and Protective Care 535 $12,119,000 Other Medical Health Services 138 $2,068,000 Pharmacies (Health and Personal Care) 45 $830,000 TOTALS 1,070 $25,618,361 In summary, the health sector, as a large community employer, is valuable to the community's economy. In addition to this direct employment impact, firms in the health sector and their employees purchase many goods and services from businesses in Dallas County. These purchases are referred to as secondary impacts to the economy. Before the secondary impacts of the health sector are discussed, several basic concepts of community economics will be presented. This will provide a context for understanding the relationships between different sectors of the local economy. Some Basic Concepts of Community Economics and Income and Employment Multipliers A community s economy can be viewed as an interrelated flow of goods and services. Figure 1 illustrates the major flows of goods, services, and dollars of any economy. The foundations of a community's economy are those businesses which sell some or all of their goods and services to buyers 7

8 outside of the community. Such a business is called a basic industry. The two arrows in the upper right portion of Figure 1 represent the flow of products out of, and dollars into, a community. To produce these goods and services for export outside the community, the basic industry purchases inputs from outside of the community (upper left portion of Figure 1), labor from the residents or households of the community (left side of Figure 1), and inputs from service industries located within the community (right side of Figure 1). The flow of labor, goods, and services in the community is completed when households use their earnings to purchase goods and services from the community's service industries (bottom of Figure 1). It is evident from the interrelationships illustrated in Figure 1 that a change in any one segment of a community's economy will have impacts throughout the entire economic system of the community. Consider, for instance, the closing of a hospital. The services section will reduce employment and dollars going to households will decline. Likewise, hospital purchases from other businesses and the related dollar flow will stop. This decreases income in the households segment of the economy. Since earnings decrease, households reduce their purchases of goods and services from businesses within the services segment of the economy. This, in turn, decreases these businesses purchases of labor and inputs. Thus, the change in the economic base works its way throughout the entire local economy. Because some of the supplies are specialized and not available locally, and because of consumer preferences for non-local goods and services, part of this spending leaks out of the community. The total impact of a change in the economy consists of direct, indirect, and induced impacts. Direct impacts are the changes in the activities of the impacting industry, such as the closing of a 8

9 hospital. The impacting business, such as the hospital, changes its purchases of 9

10 Inputs $ Basic Industry $ Products Labor $ $ Inputs Goods & Services Households $ Services $ $ Figure 1. Community Economic System 10

11 supplies and services as a result of the direct impact. This produces an indirect impact in the business sectors. Both the direct and indirect impacts change the flow of dollars to the community's households, who alter their consumption accordingly. The effect of this change in household consumption upon businesses in a community is referred to as an induced impact. In economics, the summary measure that describes the total effects created by an increase or decrease in economic activity is called the multiplier effect. An economic multiplier is defined as the ratio between the sum of the direct, indirect, and induced effects (employment, income, etc.) to the direct economic effect stimulated by the industry initially experiencing a change in final demand. It is the total change in the local economy resulting from the initial change. This report provides Type II c multipliers for income and employment effects. For example, an employment multiplier of 2.2 indicates that if one job is created by a new industry, 1.2 jobs are created in other sectors due to business (indirect) and household (induced) spending. Secondary Impacts of Health Sector on the Economy of Dallas County, Iowa The IMPLAN model was used to calculate employment and income multipliers for Dallas County. IMPLAN was developed by the U.S. Forest Service d and is a model that allows for development of county-level multipliers. The Dallas County Type II employment multipliers for each of the five components of the health sector are shown in Table 5, column 3. The Type II employment multiplier for the hospital component is This indicates that for each job created in that sector, 0.34 jobs are created throughout the area due to business (indirect) and household (induced) spending. c Type II multipliers include household spending effects based on new income generated d For complete details of model, see [1], [2], and [3]. 11

12 The Type II employment multipliers for the other health sector components are also shown in Table 5, column 3. The Type II income multiplier for the hospital sector is 1.36 (Table 5, column 6). This indicates that for each $10.00 of payroll created in that sector, $3.60 is created throughout the area due to business (indirect) and household (induced) spending. The Type II income multipliers for the other four health sector components are also given in Table 5, column 6. Applying the employment multipliers to the employment levels for each of the five health sector components yields an estimate of each component s employment impact on Dallas County (Table 5, columns 2, 3, and 4). For example, the hospital has 118 employees; applying the Type II employment multiplier of 1.34 to this employment number brings the total employment impact of the hospital to 158 employees (118 x 1.34 = 158). The Doctors and Dentists component has 234 employees. With the application of the Type II multiplier of 1.38, the total impact comes to 324 employees (234 x 1.38 = 324). The Nursing and Protective Care component has 535 employees and an employment multiplier of 1.20, bringing the total impact to 643 employees (535 x 1.20 = 643). The Other Medical & Health Services component has a direct effect of 138 employees, an employment multiplier of 1.21, and a total employment impact of 167 employees (138 x 1.21 = 167). The Pharmacies component has an estimated 45 employees and a total impact of 50 employees, applying the employment multiplier of 1.10 (45 x 1.10 = 50). The total employment impact associated with the health sector in Dallas County is an estimated 1,342 employees (Table 5, total of column 4). Similarly, applying the income multipliers to the income (payroll) for each of the five health sector components yields an estimate of each component s income impact on Dallas County (Table 5, columns 5, 6, and 7). The Hospital component has a total payroll of $2,714,361; applying the Type II 12

13 income multiplier of 1.36 brings the total Hospital income 13

14 Table 5. Economic Impact of the Health Sector On Employment and Income in Dallas County, Iowa (1) Health Sector Component (2) Employment (3) Type II Multiplier (4) Employment Impact (5) Income (6) Type II Multiplier (7) Income Impact (8) Retail Sales Hospitals $2,714, $3,686,998 $651,742 Doctors & Dentists $7,887, $10,271,532 $1,815,675 Nursing & $12,119, $14,389,386 $2,543,578 Protective Care Other Medical & $2,068, $2,887,358 $510,392 Health Services Pharmacies $830, $982,512 $173,676 TOTALS 1,070 1,342 $25,618,361 $32,217,785 $5,695,063 SOURCE: 1998 IMPLAN Data Base. 12

15 impact to $3,686,998 ($2,714,361 x 1.36 = $3,686,998). The Doctors and Dentists sector has a total income impact of $10,271,532 ($7,887,000 x 1.30 = $10,271,532), based on the application of the income multiplier of 1.30 to the payroll of the Doctors and Dentists component of $7,887,000. The Nursing & Protective Care component has a payroll of $12,119,000, and a multiplier of 1.19, resulting in an income impact of $14,389,386 ($12,119,000 x 1.19 = $14,389,386). The Other Medical & Health Services has an income impact of $2,887,358, based on the direct payroll of $2,068,000 and the income multiplier of The Pharmacies component has an income impact of $982,512, based on the direct payroll of $830,000 and the income multiplier of The total income impact associated with the health sector in Dallas County is a projected $32,217,785 (Table 5, total of column 7). Income also affects retail sales. Based on the ratio between retail sales and income in the county over the past several years, the quantity of retail sales directly and indirectly supported by the health sector and its employees totals an estimated $5,695,063 (Table 5, total of column 8). The bottom line is that the health sector not only contributes noticeably to the medical health of the community, but also to the economic health of the community. Summary The health sector in Dallas County contributes significantly to the area's economy. It directly employs approximately 1,000 people with an annual payroll of $25.6 million. In total, through its relationships with the local economy, this sector supports an estimated 1,342 employees and $32.2 million in payroll within the county. Availability of quality health care is often thought of as important for the attraction and retention of industrial firms, businesses, and retirees. Yet the fact that a prosperous health sector also contributes to the economic health of the community is often overlooked. The health sector employs a large number 15

16 of residents and generates economic benefits similar to a large industrial firm. The secondary impacts occurring in the community are sizeable and contribute to the total impact of the health sector. An increase or decrease in the size of the health sector affects not only the medical health of the community but the community's economic health as well. 16

17 References [1] Palmer, Charles and Eric Siverts, IMPLAN ANALYSIS GUIDE. U.S. Department of Agriculture, Forest Service Land Management Planning Systems Section, Rocky Mountain Forest and Range Experiment Station, Fort Collins, Colorado, [2] Siverts, Eric, Charles Palmer, Ken Walters, and Greg Alward, IMPLAN USER'S GUIDE, U.S. Department of Agriculture, Forest Service, Systems Application Unit, Land Management Planning, Fort Collins, Colorado, [3] Minnesota IMPLAN Group Inc. USER S GUIDE, ANALYSIS GUIDE, DATA GUIDE, IMPLAN Professional, Version 2.0,