Anil Rupasingha, PhD and J. Michael Patrick, PhD Department of Agr. Economics and Agr. Business Corporative Extension Service Introduction Everyone involved in CED needs to understand how their economy works--its strengths, weaknesses, and potentials What are the current economic conditions in the community? What sectors of the local economy have been growing or what sectors have been declining? What are the community's options for improving its economic future and which of those options should be pursued first? Introduction, Contd. Numerous tools and techniques can be used to give some insight to the functioning of a community's economy This insight is part of the early preparation necessary before the community can initiate an effective strategy for change By analyzing existing situations and learning about alternatives, communities can make informed decisions Introduction, Contd. CED tools provide useful information for decision-making The tools presented here are aimed at understanding the strengths, weaknesses, and potentials of communities 1
Introduction, Contd. These are important tools for CED professionals who are Interested in learning more about community development Willing to work toward improving their communities, but perhaps desiring knowledge about issues relating to community development or Looking to enhance skills necessary to make a difference Local Economic Indicators The sources of local income and employment growth What are the current employment conditions in our community? What parts of the local economy have been growing? Which industries have been declining? What are the trends in population? What are the factors leading to local employment growth? How do we identify new opportunities? Local Economic Indicators Provides a snapshot of the local economy Variety of indicators: Industry employment (www.bea.gov/regional/rims/) Unemployment (www.bls.gov/lau/) Salaries and wages (www.bea.gov/regional/rims/) Per capita personal income (www.bea.gov/regional/rims/) County economic data by industry (http://www.census.gov/epcd/cbp/view/cbpview.html) Poverty (http://www.census.gov/hhes/www/poverty/poverty.html) Population (www.census.gov/) New Homes (www.census.gov/const/www/index.html) 2
How to use these Information Gives an idea about the general trends Can concentrate efforts on industries where the chances of success are greatest When applying for community development grants, documenting current and historical conditions is important It is very important to tell the story behind data figures and tables Location Quotients (LQ) Measures the relative concentration of a given industry in a given place compared to a bigger region such as the nation, the state, or a region Indicates if a community produces more than is needed for its own use and is selling the excess to non-local markets Can tell us which types of businesses are not accommodating local needs and a sources of consumption leakages Identify local strengths, weaknesses, and opportunities Location Quotients (LQ) Calculated by dividing the proportion of the area s economic activity in an industry by the proportion of the nation s (or State s) economic activity, in that same industry Employment used most often, but income or wages and salaries can also be used Location Quotient = % of % of Local Employment National Employment in Activity X in Activity X 3
LQ: Example LQ for Mining Industry in Grant County, 2003 Grant County New Mexico Mining 562 14221 Total Employment 9141 745935 Location Quotient = (562/9141)/(14221/745935) = 0.062/0.019 = 3.26 LQ: Contd. LQ > 1: indicates that this is a basic industry and the local production can satisfy local consumption, and the excess may be exported LQ < 1: indicates that the industry concerned can not satisfy local consumption, and the difference must be imported LQ = 1: indicates production can just meet the local consumption demand. Location Quotients for Grant County, NM (2003) Industry Description New Mexico LQ Grant County LQ Industry total 1 1 Agriculture, forestry, fishing and hunting 1.819 0.228 Mining 4.871 15.707 Utilities 1.237 0.691 Construction 1.216 1.358 Manufacturing 0.431 0.208 Wholesale trade 0.678 0.405 Retail trade 1.046 1.047 Transportation and warehousing 0.776 0.146 Information 0.879 0.606 Finance and insurance 0.668 0.522 Real estate and rental and leasing 0.887 0.559 Professional and technical services 1.064 0.000 Management of companies and enterprises 0.522 0.000 Administrative and waste services 0.975 0.688 Educational services 1.136 0.000 Health care and social assistance 1.108 0.000 Arts, entertainment, and recreation 1.450 0.403 Accommodation and food services 1.240 1.423 Other services, except public administration 0.850 0.629 Public administration 1.367 1.017!"#! $ $ 4
Shift-Share Analysis (SSA) A key mechanism for community economic development is to work with existing businesses to improve their efficiency and competitiveness. This helps the community because, if existing businesses become more competitive, they will be more viable They are more likely to generate employment opportunities Shift-Share Analysis (SSA) How can a community tell if some of its businesses are more competitive than others? One way to examine this would be to look at the forces affecting their growth or decline These forces of change can come from three sources. local growth (decline) stimulated by national growth (decline). local growth (decline) stimulated because of a local concentration of businesses in relatively faster (slower) growth economic sectors. local growth (decline) arising from more (less) competitive firms locally than the national average for that sector. SSA: Components Breaks down regional employment growth into three components: National share (NS) Industry mix (IM) Regional shift (RS) National Share (NS) Component Share of regional job growth attributable to growth of the national economy How many new jobs were created locally due to national economic trends? Assumption: if the larger economy is experiencing employment growth, it is reasonable to expect that this growth will positively influence a particular locality To calculate: NS = base year (beginning year) employment in each industrial sector of the locality * the national average rate of growth for all sectors 5
Industry Mix (IM) Component Captures the fact that nationally (or regionally) some industries grow faster or slower than others and these differences are reflected in local industry structure. How much growth can be attributed to the region s mix of industries? To calculate: IM = base year employment in local industrial sector X * (the national average growth rate for sector X - the national average growth rate for all sectors) A positive industrial mix indicates the majority of local employment is in sectors growing faster than national total employment Regional Shift (RS) Component Perhaps the most important component How many jobs are created/not created as a result of the region s competitiveness? For the same industry groups, sometimes the locality may not follow the national trends with the same magnitude. Identifies the region s leading and lagging industries To calculate: RS = base year employment in local industrial sector X * (the local growth rate for sector X - the national average growth rate for sector X) A Shift-Share Example Compare a county to the U.S. economy. We ll use 2000 and 2006 with total employment divided into six sectors. Rule of thumb is to use two time periods 5 or fewer years apart. Analysis can be quite different for different time periods. Shift-Share Analysis for Grant County, 1998-2003 Industry Description National Growth Share Industrial Mix Share Local Share Actual Growth Industry total 313.91-4886.04 1007.21-1334 Agriculture, forestry, fishing 19 Mining 562 Utilities 1.53-2.87-8.65-10 Construction 22.24 55.56-152.79-75 Manufacturing 0.81-5.63 193.82 189 Wholesale trade 6.53-4.12-58.42-56 Retail trade 38.66-12.38-193.28-167 Transportation and warehousing 1.59-2.24 0.65 0 Information 4.44-6.09-2.34-4 Finance and insurance 5.63 8.14 15.22 29 Real estate and rental and leasing 2.28 2.22 3.50 8 Professional and technical services 0.00 0.00 0.00 0 Administrative and waste services 3.36 1.26 259.39 264 Educational services 0.00 0.00 0.00 0 Health care and social assistance 19.00 56.42-709.42-634 Arts, entertainment, and recreation 1.20 4.00 17.81 23 Accommodation and food services 37.55 65.81-298.36-195 Other services, except public administration 5.93 7.06-16.99-4 Public administration 15.52 21.55-35.08 2 6
Input-Output Analysis (I-O) % #& $ #& Communities need information To help anticipate and respond to economic change To help expand their economies Local leaders and citizens increasingly face difficult questions about the impacts of changes: Business growth The decline of traditional industry What if scenarios Input-Output Analysis This tool can be used in many different settings and for a variety of reasons, including: To describe the likely effects of an economic stimulus (change event) in the community To describe the contribution of a particular sector of the economy to the whole To document the effects of a proposed or on-going project or program To provide objective data to economic development officials about a proposed project Input-Output Analysis Input-Output analysis creates a picture of a regional economy describing flows to and from industries and institutions Input-Output analysis can be used to predict changes in overall economic activity as a result of some change in the local economy 7
Interrelationships in an Economy Sectors purchase from other sectors Sectors sell to other sectors Sectors sell outside the local economy Sectors buy outside the local economy What are Multipliers? Multipliers measure total change throughout the economy from one unit change for a given sector Three Types of Multipliers are calculated from Model: 1. Output 2. Employment 3. Income IMPLAN Software Regional Purchase Coefficient (Self-Supply over Demand) The proportion of the regional demand for a good or service that is fulfilled by regional production, as opposed to being fulfilled by imports from other regions. Example: RPC = 0.25 for a given commodity Means that for each $1 of local need, 25% will be purchased from local producers 1-RPC for each commodity represents import proportion (domestic and foreign) Example: RPCs for Rio Ariba Sector RPC Grain farming 0.044339 Vegetable and melon farming 0.178191 Greenhouse and nursery production 0.774510 Cattle ranching and farming 0.972762 Oil and gas extraction 1.000000 Meat processed from carcasses 0.057062 8
More Tools More Tools Trade Area Analysis (TAA): TAA is used to identify the characteristics of the area around a store or network of stores Workforce Analysis These provide comprehensive workforce planning information such as occupational outlooks and workforce and skills gap analysis Economic and Fiscal Impact Analysis Can be used to forecast how changes in population, employment, and income patterns will lead to changes in expenditures and revenues for government agencies Industry Cluster Analysis Can be used to identify clusters (industry clusters and supply-chain clusters) located within the community, or other clusters in nearby communities so that a community can participate in Data can be Misleading It is crucial to use a variety of information sources Data collected from various agencies is a starting point It is also important for the analyst to incorporate the insights that local citizens have about their community and its economy If there are differences, then both sets of information need to be challenged to determine which more accurately reflects current conditions Qualitative Analysis Refers to identifying and assessing factors that may not be easily quantified Allows analysts to both find out why certain trends in data have occurred and complete the story quantitative analysis provides 9
Qualitative Analysis: Examples Though not easy to quantify, following qualities of an industry may be important to a locality environmentally clean utilizes high-tech processes is family friendly, contributes positively to the local quality of life may attract other businesses to the area provides training and skill enhancement has manageable infrastructure needs Sources Hustedde, Ronald J., Ron Shaffer, and Glen Pulver. Community Economic Analysis: A How To Manual. North Central Regional Center for Rural Development. Ames, IA. May 2005. Klosterman, Richard E. 1990. Community and Analysis Planning Techniques. Rowmand and Littlefield Publishers, Inc. Savage, Maryland. PSU. Community Economic Toolbox. http://www.cdtoolbox.net/ 10