TECHNICAL REPORT UCED 2008/09-26 AN INPUT-OUTPUT ANALYSIS OF ECONOMIC DIVERSITY IN DOUGLAS COUNTY

Transcription

1 TECHNICAL REPORT UCED 2008/09-26 AN INPUT-OUTPUT ANALYSIS OF ECONOMIC DIVERSITY IN DOUGLAS COUNTY

2 An Input-Output Analysis of Economic Diversity in Douglas County Report Prepared by Ashley Kerna and Thomas R. Harris Ashley Kerna is an Undergraduate Research Associate in the Department of Resource Economics at the University of Nevada, Reno. Thomas R. Harris is a Professor in the Department of Resource Economics and Director of the University Center for Economic Development at the University of Nevada, Reno. University Center for Economic Development Department of Resource Economics University of Nevada, Reno Reno, Nevada (775) June 2009 The University of Nevada, Reno is an equal opportunity, affirmative action employer and does not discriminate on the basis of race, color, religion, sex, age, creed, national origin, veteran status, physical or mental disability or sexual orientation in any program or activity it operates. The University of Nevada employs only United States citizens and aliens lawfully authorized to work in the United States. 2

3 This publication, An Input-Output Analysis of Economic Diversity in Douglas County, was published by the University of Nevada Economic Development Center. Funds for the publication were provided by the United States Department of Commerce Economic Development Administration under University Centers Program contract # This publication's statements, findings, conclusions, recommendations, and/or data represent solely the findings and views of the author and do not necessarily represent the views of the United States Department of Commerce, the Economic Development Administration, University of Nevada, Reno, or any reference sources used or quoted by this study. Reference to research projects, programs, books, magazines, or newspaper articles does not imply an endorsement or recommendation by the author unless otherwise stated. Correspondence regarding this document should be sent to: Thomas R. Harris, Director University Center for Economic Development Department of Resource Economics Mail Stop 204 University of Nevada, Reno Reno, Nevada UCED University of Nevada, Reno College of Agriculture, Biotechnology, & Natural Resources Department of Resource Economics College of Cooperative Extension 3

4 AN INPUT-OUTPUT ANALYSIS OF ECONOMIC DIVERSITY IN DOUGLAS COUNTY, NEVADA Introduction For many years, Douglas County has considered ways to strengthen and broaden its economic base. At a glance, the county seems to be economically healthy. In 2007, per capita income for Douglas County was $56,555, which ranked Douglas County 40 th highest in per capita income of the nation s 3,140 counties. In 2007, per capita income in Douglas County was percent of the national average and percent of the state average. However, average earnings per job in Douglas County in 2007 were $35,150 or percent of the national average earnings per job and 76.6 percent of the state average. In 2007, Douglas County ranked 13 th among Nevada s 17 counties in average earnings per job. Given the discrepancy between county per capita income and county average earnings per job, the county is interested in alternative economic development opportunities. Also, the county is interested in diversifying its economic base. In Douglas County, the Accommodations and Food Service Sector (this includes the casino and hotel industries) had 24 percent of the county s total employment with the Real Estate, Rental, and Leasing Sector and the Retail Trade Sector having 12 percent and 10 percent of total county employment, respectively. These three economic sectors represent 46 percent of total county employment in With employment concentrated in three economic sectors, the lack of diversity may leave the county vulnerable to fluctuations in the national and global economies. A class project was initiated in the Department of Resource Economics at the University of Nevada, Reno to use a Douglas County input-output model to suggest economic diversification alternatives for the county. This report begins with a general profile of the Douglas County population and economic trends. This is followed by a discussion of economic diversification strategies. The third section discusses the implications for strengthening and diversifying the Douglas County economy. 1

5 Population and Economic Trends In Douglas County, Nevada Former professor Gary Smith of Washington State University notes in the Pacific Northwest Regional Economic Analysis Project (PNREAP) Web site (Smith, 2009): Attracting and retaining people to live, work, raise a family, and retire underlies the economic growth of any region. Population growth is both a cause and a consequence of economic growth. Patterns of population growth and change reflect differences among regions to attract and retain people both as producers and consumers in their economy. Population With this basic understanding, data and graphs from PNREAP s web site will be examined to further clarify the economic status of Douglas County. Douglas County is located in northwestern Nevada. The county is bordered by Carson City to the north; Lake Tahoe, California s Placer and El Dorado Counties to the west; California s Alpine and Mono Counties to the South; and Lyon County to the east. The community of Minden is the county seat and population center for Douglas County. According to the U.S. Census in 2000, the population for Douglas County increased from 27,367 in 1990 to 41,259 in During this timeframe the population rank in the state for Douglas County remained at the fifth highest (Table 1). Also of interest is the growth of Nevada s urban counties (Clark, Carson City and Washoe Counties) which grew from 1,036,569 in 1990 to 1,767,708 in The rural counties of Nevada have also realized a population increase from 165,264 in 1990 to 230,549 in However, even with the rural Nevada population increase, the proportionate urban share of Nevada s population increased from percent in 1990 to percent in

6 Table 1. County Population, Rank of Population and Change in Population Rank, State of Nevada, 1990 to County Change in Population Rank Population Rank Rank Clark 1,375, , Washoe 339, , Carson City 52, , Elko 45, , Douglas 41, , Lyon 34, , Nye 32, , Churchill 23, , Humboldt 16, , White Pine 9, , Pershing 6, , Lander 5, , Mineral 5, , Lincoln 4, , Storey 3, , Eureka 1, , Esmeralda , Urban 1 1,767,708 1,036,569 Rural 2 230, ,262 TOTAL 1,998,257 1,201,831 Source: U.S. Department of Commerce. Census 2000 Redistricting Data (PL ) Summary File, Table PL1 and 1990 Census. Bureau of Census: Washington D.C and Urban counties of Nevada are Carson City, Clark and Washoe Counties. 2 Rural counties are the remaining fourteen of Nevada s 17 counties. 3

7 Douglas County population increased from 6,674 in 1969 to 45,305 in 2007, a population increase of approximately 579 percent. From Figure 1, Douglas County s population growth exceeded that of the state of Nevada and the nation significantly. Figure 1 allows for a comparison of population growth between Douglas County, Nevada, and the nation. The growth indices have a base population from 1969 (designated as 100). Each year following 1969 is designated as a percentage of Thus, the nation s population growth of nearly 50 percent fell short of Nevada s increase of approximately 430 percent, and Douglas County s population growth of approximately 579 percent. Figure 1. Population Indices, Douglas County, State of Nevada, the United States, 1969 to

8 Figure 2 highlights the short-run pattern of Douglas County s population growth by tracking the year-to-year percentage change over 1969 to The average annual percentage change for the entire 39 years is also traced on Figure 2 to provide a benchmark for gauging periods of relatively high and relatively low growth against the long-term trend. From Figure 2, the average annual percentage growth of population in Douglas County was 5.24 percent. From 1992 to 2007, the population growth rate for Douglas County is below the overall average growth rate of 5.24 percent. Douglas County decision-makers may want to address factors causing this decline in population growth. Figure 2. Annual Percentage Change in Douglas County Population, 1969 to

9 Employment According to Smith (2009), Employment numbers remain the most popular and frequently cited statistic used for tracking local area economic conditions and trends. The employment data used for Figure 3 are both full- and part-time employment by place of work. As one person can hold more than one job, the numbers are not necessarily the number of people employed. These employment numbers are by place-of-work not placeof-residence. Therefore, jobs held by neighboring county residents who commute to Douglas County are included in the employment count of Douglas County. From 1969 to 2007, Douglas County employment grew from 7,537 to 32,953 or an employment increase of percent. This growth was insufficient to keep pace with the state of Nevada employment growth rate of percent. However, Douglas County s employment growth rate was greater than the national employment growth rate of 98.7 percent. Figure 3. Employment Indices (1969 = 100) for Douglas County, State of Nevada, and the United States, 1969 to

10 Dollars Per Capita Income From Smith (2009), Per Capita Income is one of the most widely used indicators for gauging the economic performance and changing fortunes of local economies. It is used as a yardstick to assess the economic well being of a region s residents and the quality of consumer markers. Per capita serves as a barometer for calibrating the economic performance of a county over time and to judge differences in relative economic prosperity between counties. Per capita income also grew in Douglas County since 1969 from $24,803 in constant 2000 dollars, to $48,067 in 2007 or an increase of 93.8 percent. Measured in terms of current or nominal dollars, per capita income in Douglas County grew from $6,264 in 1969 to $56,555 in 2007, an percent increase over the 39 year period. Figure 4 demonstrates the per capita income (expressed in 2000 dollars) of Douglas County, the state of Nevada, and the United States. Douglas County, in comparison to the state and the nation, has continuously had the highest per capita income. Figure 4. Per Capita Income Levels (2000 Dollars) for Douglas County, State of Nevada, and the United States, 1969 to Per Capita Income Levels (2000 Dollars) Douglas County, Nevada and United States, $60,000 Douglas County Nevada U.S. $50,000 $40,000 $30,000 $20,000 $10,000 $

11 Figure 5 shows that Douglas County s real per capita income growth grew at a slower pace than national and state of Nevada per capita income values. However, in 2006 Douglas County s real per capita income growth surpassed that of Nevada s. Figure 5. Per Capita Income Indices (1969 = 100) for Douglas County, State of Nevada, and the United States, 1969 to

12 The growth of Douglas County s per capita income is shown in Figure 6 as the annual percent change, tracked from year to year. The red line shows the shortterm changes in per capita income and the blue line is a long-term view of the changes. Over the 39-year study period, per capita income growth for Douglas County has been 1.82 percent. Figure 6. Douglas County Per Capita Income: Annual Percentage Change, 1970 to

13 Dollars Earnings Per Job From Smith (2009): Average annual earnings per job are computed by dividing U.S. Bureau of Economic analysis total industry earnings estimates by U.S. Bureau of Economic Analysis total full- and part-time job estimates. There is no convenient way to convert the job estimate to fulltime equivalents. In constant 2000 dollars, average earnings per job in Douglas County increased slightly from $29,657 in 1969 to $29,874 in In terms of current or nominal dollars, average earnings per job increased from $7,490 in 1969 to $35,150 in The figure below shows the comparison of the average amount earned per job for the nation, the state, and Douglas County (in 2000 Dollars). The average earnings per job were highest in the U.S., second in Nevada, and last in Douglas County. The average earnings per job in 2007 for the U.S., Nevada and Douglas County are approximately $42,000, $39,000, and $29,500, respectively. Figure 7. Earnings Per Job (2000 Dollars) Douglas County, Nevada and the United States, 1969 to Earnings Per Job (2000 Dollars) Douglas County, Nevada and United States, $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 Douglas County Nevada U.S

14 Figure 8 tracks the changes in real average earnings per job in Douglas County, relative to the state and the nation, indexed to the initial year of Douglas County s growth of 0.7 percent in real average earnings per job over the 39 years has been much slower than in the state and nation as they increased by 24.9 percent and 47.4 percent, respectively. It is important to note that within the last decade the average earnings per job decreased or remained relatively constant. Figure 8. Average Earnings Per Job Indices (1969 = 100): Douglas County, Nevada and the United States, 1969 to

15 The average earnings per job in Douglas County have varied over the last 30 years with the largest decrease occurring between 1998 and Overall, Douglas County s real average earnings per job grew on average at an annual rate of merely 0.06 percent over the 39 year study period. Figure 9. Douglas County Average Earnings Per Job: Annual Percentage Change, 1970 to

16 Dollars Comparison Between Earnings and Income Per Capita The comparison between per capita income and earnings per job is crucial in determining the health of the economy. The Headwaters Economics Organization (2009) reiterates this by stating that per capita income is often used as a measure of economic performance, but it should be combined with changes in earnings per job for a realistic picture of economic health. Per capita income, alone, is not reliable to determine the health of the economy. This is due to the fact that per capita income includes non-labor income such as 401(k) plans, transfer payments, dividends, interests, and rents. These non-labor incomes, according to Headwaters Economics Organization (2009), can cause per capita income to rise, even if people are earning less per job. Figure 10 provides a comparison of the average earnings per job and per capita income in Douglas County. Until 1980, the average earnings per job surpassed per capita income. Since 1980, however, per capita income has exceeded average earnings per job with per capita income in 2007 at $48,067 and average earnings per job at $29,874. Douglas County is a prime example of the important a role that non-labor income can play in per capita income. Figure 10. Earnings and Per Capita Income Douglas County, 1969 to $60,000 Earnings and Per Capita Income Douglas County, $50,000 $40,000 $30,000 $20,000 Earnings Income $10,000 $

17 Economic Base and Growth Industries of Douglas County, Nevada In order to determine the health of the economy and subsequently, to recommend development strategies, it is important to understand what drives the regional economy. One way in which this is done is to determine the region s economic base, or the sectors of the economy that bring money into the region from outside the market. This means that the region s economic base would consist of sectors that export goods and other sectors that bring in money from outside the area, such as tourism. Location Quotients A common way to determine which sectors export and therefore which sectors are included the economic base is to use location quotients. Location quotients (LQ) compare the structure of employment in the county, state, and United States. It is calculated by taking the local share of employment in a specific sector and dividing it by the national share in the same sector. The sectors in which the LQs are greater than one are sectors where basic employment exists. This means that this particular sector is specialized and produces more than enough for the region and therefore exports the extra goods. The sectors where the LQs are greater than 1 are the economic base of the county. Tables 2 and 3 demonstrate the economic base of Douglas County. Table 2 demonstrates the location quotients of Douglas County compared with the United States. When the LQ is greater than one in a given sector, the relative concentration of employment in Douglas County is greater than in the national economy. The two sectors that have an LQ greater than one are the Construction Sector and the Leisure and Hospitality Sector. Both, however, have realized decreases in location quotient value. LQs can be an indicator of economic diversity and because there are only two sectors in which the LQ is greater than one, it is evident that Douglas County is not very diverse. Of interest may be the Manufacturing Sector. In 2007, its location quotient value was close to one and its location quotient value increased from 2002, third quarter, to 2008, third quarter. 14

18 Table 2. Douglas County Compared to National- Employment Location Quotients. Douglas County Employment rd Quarter rd Quarter National Employment LQ Douglas County Employment National Employment LQ 2002/2008 LQ % Change Natural Resources and Mining 163 1,794, ,015, Construction 1,640 7,150, ,504 7,530, Manufacturing 1,749 15,257, ,027 13,443, Trade, Transportation and Utilities 2,327 26,662, ,750 27,444, Information 261 3,466, ,141, Financial Activities 748 7,830, ,064, Professional and Business Services 1,153 16,283, ,664 18,009, Education and Health Services 1,750 24,949, ,196 28,140, Leisure and Hospitality 10,114 12,928, ,056 14,359, Other Services 361 4,339, ,576, Public Administration 1,006 7,249, ,074 7,559, Unclassified 209, , Total 21, ,122, , ,523,

19 Table 3 demonstrates the location quotients of Douglas County in comparison with the state of Nevada. When the LQ is greater than one in a given sector, the relative concentration of employment in Douglas County is greater than in Nevada s economy. The sectors that are exporting are the Manufacturing Sector and the Leisure and Hospitality Sector. The Unclassified Sector is a statistical analysis of sectors that cannot be classified. Even in 2008, third quarter, with a location quotient greater than one, this ambiguous sector will not be investigated. Table 3. Douglas County Compared to Nevada- Employment Location Quotients. Douglas County Employment rd Quarter rd Quarter Nevada Employment LQ Douglas County Employment Nevada Employment LQ 2002/2008 LQ % Change Natural Resources and Mining , , Construction 1,640 95, , , Manufacturing 1,749 42, ,027 48, Trade, Transportation and Utilities 2, , , , Information , , Financial Activities , , Professional and Business Services 1, , , , Education and Health Services 1, , , , Leisure and Hospitality 10, , , , Other Services , , Public Administration 1,006 58, ,074 65, Unclassified , Total 21,273 1,050, ,792 1,253,

20 Figure 12 shows a pictorial display of location quotient value and change in location quotient value. If a sector s location quotient value is greater than one then this sector is an exporter and designated as a strong economic sector. The x-axis is the change in sectoral location quotient value between two time periods. If the location quotient change is positive, the sector is growing, while negative location quotient value means a declining sector. So if a sector is in Quadrant 1 of Figure 11, this sector is classified as strong and growing. This is a sector candidate for export enhancement. In Quadrant II, the sector is strong but with negative change in location quotient values between two time periods, it is classified as a declining sector. This sector could be a candidate for export enhancement but reasons for location quotient value decline between two time periods need to be explained. In Quadrant III, the sector is weak and declining. In this quadrant, the sector has a location quotient value of less than one and its location quotient value has declined over two time periods. These sectors may not be considered for targeted economic development. In Quadrant IV, the sector is designated as weak but growing. In this quadrant the sector s location quotient value is less than one but its location quotient value between two time periods is growing. Local economic development decision-makers may want to find the reason for this location quotient growth and may target this sector as an emerging sector in their economy. Figure 11. Depiction of Location Quotient and Change in Location Quotient Value. 17

21 A graphical representation of the location quotient values in 2008, third quarter, and the percent change of the location quotient values from 2002 to 2008 allows a further analysis of Douglas County. These figures demonstrate which sectors are currently exporting, but also if these sectors are expanding their export sales. Figure 12 below shows that the Construction Sector and the Leisure and Hospitality Sector are the only strong sectors, but both are decreasing. There are, however, seven weak sectors in the Douglas economy that are growing. This is significant because Douglas County officials can target these sectors for economic development. Figure 12. Location Quotient Growth Compared to Nation, Douglas County. 18

22 Figure 13 shows that there are two strong sectors in Douglas County: the Leisure and Hospitality Sector and Manufacturing Sector. The Leisure and Hospitality Sector is declining while Manufacturing Sector is growing. It also shows that there are six weak sectors that are growing with one of them, the Public Administration Sector, almost attaining a location quotient value of one. Figure 13. Location Quotient Growth Compared to Nevada, Douglas County. 19

23 Shift-Share Analysis Shift-share analysis is a technique used to identify growing industries and indicate the reasons for this growth. Shift-share analysis shows the proportion of an industry s growth due to the overall growth of the nation, the overall growth of that industry, and the growth due to the competitive advantage of the region the industry is located in. When looking at a region s economy, it is important to look at industries that are growing faster in the region than in the nation. Shift-share analysis shows this by calculating the competitive effect of an industry s growth. Industries with a positive/high competitive effect are growing faster in that region than in the nation. This is evidence that that region has a competitive advantage in that industry over the nation. Furthermore, when a sector is growing faster than the nation and faster than the rest of the local economy it is considered to have a competitive position. As Weber, Sorte and Holland (2002) state they are sectors in which the local economy may be gaining national market share and in which the local economy is becoming more specialized. The results of the shift-share analysis for Douglas County are presented in Table 4. The first column shows that national employment growth in all industries grew by five percent. The second column, industry mix, demonstrates how quickly the national sector grew in comparison to the overall national employment growth. The third column, competitive effect, designates the sectors in which the region has had a change in its comparative advantage. As McLean and Voytek (1992) quickly point out, however, the definition of competitive effect is oversimplified when it only considers a change in comparative advantage. They suggest that it is better to understand the competitive effect as the result from other factors that distinguish the local economy from other areas that bear further investigation. They also state that generally negative local shits indicate problems in the local economy. The final component of the shift-share analysis is the county s competitive position. The sectors with a positive competitive position are of interest because they are sectors that are growing faster than the nation and faster than the local economy. 20

24 From Table 4, overall employment in Douglas County from 2002, third quarter, to 2008, third quarter, declined by 2.0 percent. If Douglas County from 2002, third quarter, to 2008, third quarter, followed overall national employment growth, sectoral employment growth would have been 5.0 percent. This is the National Growth Effect in Table 4. The Professional and Business Services Sector in Table 4 realized an industry mix growth rate of 6.0 percent. This means that this sector had a growth rate of 6.0 percent greater than the national average. Overall Douglas County had a competitive employment growth rate of 7.0 percent. This means overall competitive employment growth in Douglas County for 2002, third quarter, to 2008, third quarter, has been uncompetitive. However, sectoral competitive effect growth rates yields information about the Douglas County economy. The Leisure and Hospitality Sector, which includes legalized gaming, realized a competitive growth rate of percent. This sector has been impacted by growth in legalized gaming by the California Native American Reservations and the national recession. However, the competitive effect for the Professional and Business Services Sector and the Manufacturing Sector in Douglas County was 34.0 percent and 28.0 percent, respectively. These sectors have shown competitive growth in the local economy. In addition, the Professional and Business Services Sector and the manufacturing Sector realized large competitive positions when compared to other county economies. These two sectors should be targeted for economic development. Also, local economic development practitioners may want to see if the Leisure and Hospitality Sector and the Construction Sector can be assisted during the recession. 21

25 Table 4. Douglas County Shift-Share Rate Results. SECTOR NATIONAL INDUSTRY MIX COMPETITIVE EFFECT TOTAL COMPETITIVE POSITION Natural Resources and Mining Construction Manufacturing Trade, Transportation and Utilities Information Financial Activities Professional and Business Services Education and Health Services Leisure and Hospitality Other Services Public Administration Unclassified Total Input-Output Analysis Although location quotients are useful in determining the economic base, they are imperfect indicators. It is not uncommon to find a sector with and LQ over one (signifying that they are part of the economic base) that provides only a small percentage of employment in the local economy. The economic base of a region is better captured by an input-output model. The general idea of the input-output model is to track the flow of a dollar to see how it affects the economy as a whole. A dollar that is received from outside the economy (through an export sale, for example) will be spent multiple times within the economy before leaking out (through the purchase of an import). The re-spending of the dollar then translates into the multiplier effect. Essentially the input-output model is capable of tracking the impacts of a change within one sector throughout the whole economy. These impacts are broken up into three categories: direct effects, indirect effects, and induced effects. Direct effects are the changes in the industries to which a final 22

26 demand change was made. Indirect effects are the changes in interindustry purchases as they respond to new demands of the directly affected industries. Lastly, induced effects reflect changes in spending from households as income increases or decreases due to changes in production. These effects are then used to calculate the multipliers. The input-output model uses the same idea that exports drive the economy; however, it is more thorough because the sector s contribution to the local economy is not only from the outside demand for that sector s goods and services but also the re-spending associated with the original outside demand. Therefore the contribution by the sector is calculated not only by the jobs that it directly creates but by the jobs it creates indirectly through other sectors that are dependent or sectors that are somewhat related. In order to more fully analyze the local economy and the contribution from one sector one can compare the physical amount of jobs within the sector with the amount of jobs that are dependent on that sector s production that is exported outside of the local economy. Table 5 demonstrates this by showing the number of jobs in each sector compared to the number of jobs from all sectors in the local economy that are dependent on the exports from that given sector. The export-dependent employment estimates were calculated using the input-output model for Douglas County. The sectors with the highest employment are the Accommodation and Food Services Sector, the Retail Trade Sector, the Real Estate and Rental Sector, and the Construction Sector with each contributing 22.6 percent, 10.9 percent, 10.7 percent, and 8.8 percent to the local economy, respectively. Looking at the export-dependent employment it becomes obvious that income to households from outside Douglas County, such as Social Security, pensions, dividends, commuter s income, rental income and other sources of income from outside the County are an important part of the economic base. The sectors with the highest export-dependent employment are the Households Sector with 25 percent, the Accommodation and Food Services Sector with 20.1 percent, the Construction Sector at 8.6 percent, and the Local Government Sector at 7.4 percent. 23

27 Table 5. Douglas County Export-Dependent Employment. Sectoral Employment Sector Number of Jobs Share (%) Export-Dependent Employment Number of Jobs Dependency Index (%) Ag, Forestry, Fish & Hunt Mining Utilities Construction Manufacturing Wholesale Trade Retail trade Transportation & Warehousing Information Finance & insurance Real estate & rental Professional- science & tech services Management of companies Administrative & waste services Educational services Health & social services Arts- entertainment & recreation Accommodation & food services Other services Government & non NAICS % Households Local Government Total

28 Economic Impact Scenarios The significance of input-output models is that they can predict the impacts on the local economy from a specific event. This paper will use the input-output modeling system IMPLAN to hypothesize the effects of three different scenarios. The first scenario involves the construction and operation of a new warehouse in Douglas County. The second scenario is a 25 percent employment reduction in the gaming industry. Lastly, the final scenario involves the implementation of a Research and Development Park. Scenario 1 - New Warehouse The City of Minden is in the process of developing a warehouse/distribution facility for Fox Racing. The employment impacts of this development will be divided into two parts: the construction impacts and the operation impacts. Table 6. Douglas County Scenario 1- Construction Phase Employment Impacts. Sector Direct Indirect Induced Total Ag, Forestry, Fish & Hunt Mining Utilities Construction Manufacturing Wholesale Trade Retail trade Transportation & Warehousing Information Finance & insurance Real estate & rental Professional- science & tech services Management of companies Administrative & waste services Educational services Health & social services Arts- entertainment & recreation Accommodation & food services Other services Government & non NAICS Total

29 The new facility is estimated to be 300,000 square feet at a price of $33 per square foot. Therefore the estimated costs of construction for this project are $9,900,000. By inputting this value into the Construction Sector in IMPLAN the direct, indirect, induced employment impacts can be determined. The direct effects of the construction will be an increase in employment of almost 70 jobs in the Construction Sector. The indirect effects anticipated are in the Retail Trade Sector, the Professional- Science and Tech Sector, and the Manufacturing Sector for a total of 23 new jobs. The induced effects are expected to create almost 17 more jobs in the local economy. The highest sectors with these increases in order of magnitude are the Retail Trade Sector, the Real Estate and Rental Sector, and the Accommodation and Food Services Sector. Finally, the total employment effect expected from the construction of the new warehouse is 109 employees. Table 7. Douglas County Scenario 1- Operation Phase Employment Impacts. Sector Direct Indirect Induced Total Ag, Forestry, Fish & Hunt Mining Utilities Construction Manufacturing Wholesale Trade Retail trade Transportation & Warehousing Information Finance & insurance Real estate & rental Professional- science & tech services Management of companies Administrative & waste services Educational services Health & social services Arts- entertainment & recreation Accommodation & food services Other services Government & non NAICS Total

30 Once the facility has been built, the company is expected to employ 80 people in the operation phase. Impacts of the operation phase are presented below: The direct employment impact of the operation of the warehouse is 80 jobs. The indirect employment effects are expected to be 20 jobs, with the largest increase of 3.7 jobs in the Administrative and Waste Sector. There are 14 jobs gained from the induced effects, with the main increase in the Real Estate and Rental Sector. The total employment impact of the operation phase of the warehouse is approximately 114 jobs. 27

31 Scenario 2 - Slowdown in the Gaming Industry Leisure and hospitality is major sector in the economic base of Douglas County, so it is important to analyze how vulnerable it is to changes in gaming subsector. As of 2008 the total annual employment in gambling and casinos is 5,164. Therefore 1,291 jobs would be lost due to a 25 percent reduction in the industry. Table 8. Douglas County Scenario 2 - Reduction in Gambling Industry Employment Impacts. Sector Direct Indirect Induced Total Ag, Forestry, Fish & Hunt Mining Utilities Construction Manufacturing Wholesale Trade Retail trade Transportation & Warehousing Information Finance & insurance Real estate & rental Professional- science & tech services Management of companies Administrative & waste services Educational services Health & social services Arts- entertainment & recreation Accommodation & food services -1, , Other services Government & non NAICS Total -1, ,

32 The effects of a 25 percent decrease in the gambling subsector of the Accommodation and Food Services Sector are as follows: The direct effect is a loss of 1,291 jobs. The indirect effects include 27 jobs lost in Real Estate and Rental Sector and the Government (a non NAICS Sector), and 23 jobs in the Administrative and Waste Services Sector for a total of 195 jobs indirectly lost. There are also 193 jobs lost from the induced effects. The Retail Sector realized the largest impact of a job loss of nearly 51. The total effect of a 25 percent reduction in the gambling industry is a decrease in employment by 1,679 jobs. 29

33 Scenario 3 - New Research and Development Park The last scenario examined is the employment effects of a new research and development facility in Douglas County. The estimated construction cost for this 65,000 facility is $150 per square feet for a total of $9.75 million. Table 9 describes the direct, indirect, and induced impacts of the construction of the research and development facility. Table 9. Douglas County Scenario 3 - Construction Phase of R & D Facility Employment Impacts. Sector Direct Indirect Induced Total Ag, Forestry, Fish & Hunt Mining Utilities Construction Manufacturing Wholesale Trade Retail trade Transportation & Warehousing Information Finance & insurance Real estate & rental Professional- science & tech services Management of companies Administrative & waste services Educational services Health & social services Arts- entertainment & recreation Accommodation & food services Other services Government & non NAICS Total

34 The direct effect is an increase of nearly 69 jobs in the Construction Sector. Over 20 jobs are indirectly created by the construction of the research and development facility with a majority of the jobs being created in the Retail Trade Sector and the Professional-Science and Tech Services Sector. Also, there are almost 17 jobs gained through induced effects. The total effect of the construction phase of the project is a creation of nearly 108 jobs. In addition to the construction employment effects there are also the operation effects. The research and development facility is expected to employ 100 people once the construction phase has been completed. Table 10 demonstrates the employment effects of the operation of the R & D facility. Table 10. Douglas County Scenario 3- Operation Phase of R & D Facility Employment Impacts. Sector Direct Indirect Induced Total Ag, Forestry, Fish & Hunt Mining Utilities Construction Manufacturing Wholesale Trade Retail trade Transportation & Warehousing Information Finance & insurance Real estate & rental Professional- science & tech services Management of companies Administrative & waste services Educational services Health & social services Arts- entertainment & recreation Accommodation & food services Other services Government & non NAICS Total

35 The direct effect is 80 people employed at the facility in the Professional-Science and Tech Services Sector. The total indirect employment effect is 26 jobs with the sectors most influenced being the Professional-Science and Tech Services Sector, the Administrative and Waste Services Sector, and the Real Estate and Rental Sector. Thirty-one jobs are created through the induced effects with a majority in the Real Estate and Rental Sector and the Health and Social Services Sector. The total employment impact of the research and development facility in the operation phase is 157 jobs. 32

36 Summary Economic diversification is the process of expanding the number of economic activities in which the economy is specialized and deepening the interindustry linkages within the economy. A number of implications emerge from the broad sectoral analysis of this report. There are several export sectors that may be candidates for expansion, although identification of targeted industries would require further study. Diversification involves not only expansion of the number of export sectors and/or strengthening the competitiveness of these sectors through agglomeration. This would involve deepening the interindustry linkages through import substitution. While local businesses appear to import large shares of business services, these services tend to be concentrated in urban areas. McDonald (1997) analyzed empirical studies on sectoral employment growth and found that legal and accounting services area sectors that grew when there was a large employment base. The only other sector identified as centralizing in larger cities was the Wholesale Sector. On the other hand, these are service sectors such as the Health Care Sector that could be import substitution candidate. Douglas County with its large share of Dividends, Interest, and Retirement and Transfer Payments may be an economic target for the Retirement Sector. Diversifying an economy involves both export enhancement and expansion so that there are multiple and complementary specializations and import substitution so that local firms and households increase their local purchase of goods and services. The effective targeting of export enhancement and import substitution may yield broader economic diversification results. 33

37 References Headwaters Economics. A SocioEconomic Profile, Douglas County, Nevada. Economic Profile System, McDonald, John. Fundamentals of Urban Economics. Prentice Hall: Upper Saddle River, New Jersey, McLean, Mary and Kenneth Voytek. Understanding Your Economy: Using Analysis to Guide Local Strategic Planning. Planners Press: Chicago, Smith, Gary. Pacific Northwest Regional Economic Analysis Project U.S. Department of Commerce. Census 2000 Redistricting Data (PL ) Summary File, Table PL1 and 1990 Census. Bureau of Census: Washington D.C., 1990 and Weber, Bruce, Bruce Sorte and David Holland. Economic Diversity in Benton County: An Input-Output Analysis. Oregon State University Cooperative Extension: Corvallis, Oregon, Special Report 1034,