Report: A REMI Analysis of the Chicago Airport System to the Chicago Metropolitan Regional Economy -- An Update Using the Chicago REMI Model

Transcription

1 Report: A REMI Analysis of the Chicago Airport System to the Chicago Metropolitan Regional Economy -- An Update Using the Chicago REMI Model By Daniel T. McGrath, Ph.D. Research Associate The Great Cities Institute The University of Illinois at Chicago Report Prepared for the City of Chicago Department of Aviation June 23, 1996

2 Introduction In 1996, the Chicago airport system employed nearly 46 thousand people in the Chicago metropolitan region. The City s two major commercial airports, O Hare International and Midway, are the single biggest employers in the City of Chicago and are undoubtedly the largest driver of economic activity within the region. In total, the regional airport system accounts for $15.2 billion of the region s $283.7 billion gross regional product. The purpose of this brief report is to present the estimated economic and demographic contributions of the Chicago aviation system to the thirteen counties that make up the metropolitan Chicago region--cook, DuPage, Kane, Lake, McHenry, Will, DeKalb, Grundy, Kendall, and Kankakee Counties, as well as Lake and Porter counties in Indiana and Kenosha county in Wisconsin. This research attempts to follow exactly the methodology used in the preparation of the 1993 NERA Analysis of the Chicago aviation system that was prepared for the City of Chicago using the original Cook county REMI model 1. I refer the reader to the 1993 NERA report for the technical discussion of the specific methodology used for data input into the REMI model. The obvious central purpose of a Chicago s airport system is to facilitate the air transport needs of not only the City s residents but of the millions of residents who make up the lower Great Lakes Region. It is not hyperbole to argue that Chicago s present status as a central hub for the Nation s two largest airlines, United and American Airlines, make Chicago s airport system of vital importance to air travelers nationwide. The sheer size of the system to meet this role as the Nation s central air hub makes it the region s most important economic actor. The livelihoods of hundreds of thousands of 1 Regional Economic Modeling, Inc. (REMI) prepares computer models of the economies of states and metropolitan areas nationwide. Typically, the county level is the lowest aggregate level by which information is input and output reported. In 1995, REMI with assistance from Dr. Joseph Persky of the 2

3 workers depend directly and indirectly on the existence of the airport system within the City of Chicago. The profits of tens of thousands of business are greatly influenced by the ability of the airport system to facilitate transcontinental air transportation for cargo and passengers. In turn, the State of Illinois, Cook County, and the City s local government receive hundreds of million of tax dollars from the operation of the O Hare and Midway and from the taxpayers whose income depend on these airports existence. Following the specific methodology outlined in the 1993 NERA Report, in addition to the direct employees, that is those workers who provide labor to the air transportation industry (SIC 45), the airport system provides employment for tens of thousands of workers who produce the goods and services required to keep the system functioning. Additionally, visitors who arrive to Chicago create thousands of jobs as a result of the tourist dollars spent. In 1996, this report estimates that the total visitor expenditures amounted to $6.34 billion dollars. Food and retail expenditures at both O Hare and Midway amounted to $55.6 million. The jobs created by business and pleasure visitors who travel to Chicago via the region s airports include the obvious employment in the regions hotel, restaurant, and retail industries. These visitors also create many other jobs in the communication, banking, printing and medical industries. These two major components: 1.) direct airport employment and the associated government employment, and 2.) the expenditures of billions of visitor dollars drive the regional economic multiplier effects of the airport system. Much of these workers personal income, from direct airport employment and indirect employment, as well as the visitor expenditures in the region are spent on goods and services produced locally. University of Illinois at Chicago Department of Economics prepared a custom REMI model for the City of Chicago whereby the City of Chicago proper would be a separate region within the City s REMI model. 3

4 To make estimates of the total dollar value of the goods and services produced locally, a sophisticated model of the regional economy is required. As previous mentioned, for this analysis the Chicago REMI model has been used. The basic approach taken is that first the REMI model is used to generate a control forecast of the regions macroeconomy. This control forecast predicts the various components of the regions economy into the future (to 2035). Then, second, a hypothetical simulation of the model estimates the impact of eliminating the total expenditures attributed to the direct airport employment and visitors to the region. The difference between the control forecast and the simulation produces a measure of the total economic impact of the airport system to the region. The year chosen for this analysis is In summary, the regional economic impact attributed to the airport system is input into the REMI model by assuming the following: 1.) 100% of the air transportation employees (SIC code 45) are eliminated from the City of Chicago and suburban Cook County and 100% of the export share of air transportation (SIC code 45) is eliminated from DuPage County. 2.) 4,640 local, state, and federal government and military personnel are eliminated from the City of Chicago 3.) $6.34 billion in visitor expenditures (in 1996$) and $55.6 million in airport concession expenditures by connecting passengers within the two airports are eliminated from the region. The REMI model is based on a national input-output table produced by Northern Illinois University. Since in many instances the Chicago REMI model assumes national averages for many important variables, adjustments must be made to the model to override these assumptions. First, the air transportation sector of the model must be adjusted to reflect differences between the residential patterns of aviation employees within the Chicago airport system and national average of airport employees nationwide. Second, the total expenditures attributed to the airport system must be allocated among 4

5 the large number of industries that support factor inputs to the air transportation industry. For the direct aviation employment and the related government employment, it is automatic. The specific list of industries which support the air transportation industry within Chicago is nested within the input-output table inside the REMI model. However, with regard to the visitor expenditures, the list of industries impacted was assumed to be identical to the national average. A number of visitor surveys were undertaken as part of the 1993 NERA study to identify the specific pattern of industries, and it was the pattern identified by these surveys that was input to the REMI model. Generally, visitor expenditures are input to the REMI model two basic ways: 1.) There is a direct reduction in sales of a number of industries who make direct sales to visitors (Restaurants, Hotel, Banking, Medical, etc.), and 2.) There is an indirect reduction in the demand of other industries due to the direct reduction in sales in the retail and wholesale industries. I refer the reader to Appendix B: NERA Modifications to the REMI Model in the 1993 NERA Report for a complete discussion of the methodology of input to the REMI model. Overall Regional Economic Contributions The Chicago REMI model provides year by year forecasts of the impact of the Chicago airport system. However, the annual contribution reported by REMI to employment and personal income for each year reflect only the short-term adjustments to the regional economy. To account for this lag effect, the REMI model was run out to the year This provides 15 years of activity to allow the regional model to estimate equilibrium conditions. Such an approach provides an estimate of the long-run effect of eliminating the airport system from Chicago s regional economy, allowing the economy 5

6 to stabilize from the initial theoretic shock in Following the NERA Reports methodology, a estimated measure of the economic contribution in 1996 of the airport system is calculated as a percentage of the contribution of the airport system identified by the REMI simulation in 2011 over what the REMI model forecasts as the magnitude of the regional economy to be without eliminating the airport system (the control forecast ) in the year This same ratio is then applied to the current regional economy in Figure 1 identifies the magnitude of the projected contribution of the Chicago airport system in terms of employment--both direct and indirect--and population from 1996 to REMI estimates that in the year 2011, the airport system contributes 400,197 jobs and 650,557 people to the regions employment and population base in 2011: 5,813,500 jobs and 9,341,385 people. As can be seen in figure 1, employment stabilizes rather quickly; however, population takes a full 15 years to stabilize. This is because it takes time for people to migrate away from the region to respond to the hypothetical loss of job opportunity due to the elimination of the airport system and the visitor expenditures. Applying this same share of jobs and population to the present, 1996, results in the estimate that the Chicago airport system contributes approximately 347,784 jobs and 592,312 people to the metropolitan regional employment and populations bases respectively. Figure 2 identifies this same information for personal income and gross regional product. 6

7 FIGURE 1 Projected Employment and Population Contribution of Chicago Aviation System 700 Jobs and Population in Thousands Population Employment Year FIGURE 2 Projected Personal Income and GRP Contribution of Chicago Aviation System Dollars ($1995 Billions) GRP Personal Income Year 7

8 The REMI model estimates that in 2011, the Chicago airport system accounts for $33.2 billion (in 1996$) in personal income (6.24% of the regional personal income base of $531.9 billion) and $19.4 billion (in 1996$) in gross regional product (5.32% of the regional GRP base of $364.4 billion). Again, applying these percentages to 1996, the model estimates that the Chicago airport system contributes approximately $15.2 billion in personal income and $15.1 billion in gross regional product to the metropolitan regional personal income and GRP bases. Table 3 presents this information in summary form. TABLE 3 Estimated Contribution of the Chicago Airport System on the Chicago Regional Economy Share of Airport 1996 Estimated Category 1996 Base Contribution Contribution Employment 5,052, % 347,784 Population 8,482, % 592,312 Personal Income ($1996 B) $ % $15.2 GRP ($1996 B) $ % $15.1 Employment Contributions by Industry and Occupation The REMI model is capable of calculating the overall employment effects by both industry and occupation groups. Table 4 is a summary of the economic contributions of the airport system by industry. REMI estimates that the largest impact on the regional economy is in the non-manufacturing sector, which accounts for nearly 90% of the 8

9 employment total--about 311,479 jobs. Interestingly, the model predicts an actual increase TABLE 4 Estimated Employment Contributed by Chicago Airport System, By Industry Estimated Share Regional Industry 1996 Base Contribution Contribution Manufacturing Durables 429,001 (2,898) -0.83% Non-Durables 309, % Subtotal 738,667 (2,092) -0.60% Non-Manufacturing Services 1,601, , % Retail Trade 816,797 83, % Air Transport 44,893 44, % Other Trans. & Public Utilities 238,013 13, % FIRE 468,851 12, % Construction 216,566 9, % Wholesale Trade 322,917 5, % Agri./Forestry/Fishing 32,107 1, % Mining 5, % Subtotal 3,747, , % Government State & Local 450,260 36, % Federal (Civilian) 66,624 2, % Federal (Military) 36, % Subtotal 553,304 38, % Farm Employment 12, % GRAND TOTAL 5,052, , % in the number of manufacturing sector jobs, which is consistent with NERA s original findings. The logic here is that in the long run, the airport system creates a higher demand for manufactured goods within the region. This higher demand raises the wages for manufacturing workers within the region. When we eliminate the airport system, the 9

10 wages for manufacturing workers is lowered and manufacturing firms move in to take advantage of the lower wage conditions. Thus, the airport system makes the region only slightly less attractive to the manufacturing sector in that it keeps wages higher than they might be if the airport system were not here. Also, as can be seen in Table 4, the aviation industry employment accounts for nearly 13% of the regional employment contribution. Table 5 presents a breakdown of the estimated employment contribution by occupation group. Consistent with NERA s findings, the largest effect is on the service sector of the economy, which accounts for 36% of the employment contribution. White- TABLE 5 Estimated Employment Contribution by Chicago Airport System By Occupation Group Share of Airport 1996 Estimated Occupation Group Contribution Contribution Managerial/Professional/Technical 22.2% 77,316 Clerical/Other Administrative 18.9% 65,591 Sales 4.8% 16,750 Services 36.3% 126,083 Other 17.8% 62,044 TOTAL 100.0% 347,784 collar occupations--the sum of managerial/professional, clerical, sales and service groups, account for 82% of the employment contribution. Other occupations, which include manufacturing and other blue-collar occupations only account for about 18% of the total. Figures 6 and 7 present this information graphically: 10

11 FIGURE 6 Percent Shares of Employment due to Chicago Airport System, by Occupation Clerical/Other Admin. 19% Sales 5% Services 36% Managerial/Pr ofess. 22% Other 18% FIGURE 7 Retail/ Wholesale 25% Percent Shares of Employment due to Chicago Airport System, by Industry Other Air Travel 10% 13% Government 11% Services 41% 11

12 Geographic Analysis of the Economic Contributions The thirteen counties in the Chicago metropolitan regional economy all fair quite differently as a result of the elimination of the Chicago airport system in the REMI analysis. Table 8 breaks down the 1996 employment base and the estimated 1996 employment contribution by county. Obviously, the residential distribution of Chicago TABLE 8 Estimated Employment Contribution by Chicago Airport System Attributed to Each County Estimated Share of Regional 1996 County Employment Airports' Share of County County Contribution Contribution Base Employment Base City of Chicago 164, % 1,653, % Suburban Cook 90, % 1,551, % DuPage 33, % 601, % Kane 6, % 189, % Lake 13, % 334, % McHenry 4, % 92, % Will 5, % 137, % DeKalb 4, % 41, % Grundy 2, % 15, % Kendall 2, % 21, % Kankakee 1, % 50, % Lake, IN 6, % 239, % Porter, IN 1, % 64, % Kenosha, WI 10, % 58, % TOTAL 347, % 5,052, % (mean) airport workers is different from the average residential distribution of Chicago metropolitan workers, but since the two major airports, O Hare and Midway, are within the city limits and since the general focus of visitor travel to the region is the City of Chicago itself, the concentration of the economic effect is on Chicago. The City of 12

13 Chicago accounts for 164,452 jobs--nearly half of the estimated contribution and nearly 10% of the City s employment base. As previously mentioned, the use of the new REMI model which has the capability of separating out the City as a separate region greatly increases the accuracy of the various economic contribution estimates. Following second is the rest of Cook County, accounting for 90,465 (26% of the contribution and 6% of the suburban Cook County employment base). Combining Chicago and suburban Cook County, the Chicago airport system contributes 254,917 jobs. This represents 8% of Cook County s employment base and 5% of the metropolitan region s employment base. Surprisingly, Cook County (Chicago and suburban Cook) is not the county with the highest share of the airport system s employment contribution as a percentage of its own employment base. Rather, Kenosha County, Wisconsin has a rather high share 10,631 jobs or 18.1% of Kenosha county s own employment base of 58,684. Also, DeKalb, Grundy, and Kendall counties in Illinois all have high estimated contributions in terms of their own respective employment bases--all above 10%. Table 9 presents similar results for personal income. Obviously, Chicago and suburban Cook County dominate in terms of both magnitude and percent of the 1996 personal income contribution. However, in terms of percentage of its own personal income base, Kendall County, Illinois has the highest share of personal income--7.8% of its own personal income base of $939,000. Figures 10 and 11 on page 14 present these percentages of employment and personal income contributions by county. TABLE 9 Estimated Personal Income Contrib. by Chicago Airport System Attributed to Each County

14 (1996$ M) (1996$ M) 1996 Estimated Share of Regional 1996 Personal Airports' Share of County Personal County Contribution Contribution Income Base Income Base City of Chicago $4, % $57, % Suburban Cook 6, % 87, % DuPage 1, % 30, % Kane % 9, % Lake % 20, % McHenry % 5, % Will % 9, % DeKalb % 1, % Grundy % % Kendall % % Kankakee % 2, % Lake, IN % 10, % Porter, IN % 3, % Kenosha, WI % 3, % TOTAL $15, % $243, % (mean) Economic Contribution by Township The REMI model is only capable of providing estimates of economic variables at the county level (with the aforementioned exception of the City of Chicago). To provide estimates of the 1996 county economic contribution at the township level, information provided by the Northern Illinois Planning Commission, NIPC, was used to allocate the county-level contribution by each county s constituent townships. Information at the 14

15 FIGURE 10 Percentage Shares of Employment due to Airport System by County Lake, IL 4% DuPage 10% Other 13% Chicago 47% Suburban Cook 26% FIGURE 11 Percentage Shares of Personal Income due to Airport System by County Lake, IL 5% DuPage 9% Other 14% Chicago 29% Suburban Cook 43% 15

16 township level was not, however, currently available for DeKalb, Grundy, Kendall, and Kankakee counties in Illinois and non-illinois counties of Lake, Porter, and Kenosha. Table 12 presents the estimated employment and personal income contributions for the townships of the Illinois counties: Cook, DuPage, Kane, Lake, McHenry, and Will. TABLE 12 (1996$ Mil.) LOCATION JOBS INCOME City of Chicago 164,452 $4,349.8 Suburban Cook 90,465 $6,451.8 Barrington 408 $76.9 Berwyn 892 $105.5 Bloom 2,281 $170.0 Bremen 2,303 $204.7 Calumet 503 $33.5 Cicero 1,084 $105.5 Elk Grove 8,862 $320.1 Evanston 4,233 $199.8 Hanover 648 $166.3 Lemont 254 $33.5 Leyden 5,467 $197.3 Lyons 2,952 $281.6 Maine 6,574 $384.6 New Trier 1,504 $328.8 Niles 5,939 $276.7 Northfield 5,886 $362.3 Norwood Park 788 $62.0 Oak Park 1,446 $145.2 Orland 1,350 $170.0 Palatine 3,526 $409.4 Palos 1,407 $146.4 Proviso 6,132 $335.0 Rich 1,805 $151.4 River Forest 500 $39.7 Riverside 858 $42.2 Schaumburg 5,457 $471.5 Stickney 1,555 $69.5 Thornton 5,576 $313.9 Wheeling 4,948 $514.9 Worth 5,325 $336.2 (1996$ Mil.) LOCATION JOBS INCOME DuPage County 33,159 $1,426.3 Addison 6,058 $131.3 Bloomingdale 2,235 $170.0 Downers Grove 4,578 $270.0 Lisle 3,224 $203.1 Milton 3,113 $206.3 Naperville 2,092 $93.5 Wayne 460 $70.1 Winfield 1,408 $55.6 York 9,993 $228.0 (1996$ Mil.) LOCATION JOBS INCOME Kane County 6,835 $436.4 Aurora 2,304 $97.2 Batavia 348 $25.2 Big Rock 19 $3.7 Blackberry 40 $6.5 Burlington 7 $2.8 Campton 14 $11.2 Dundee 909 $65.4 Elgin 1,712 $105.6 Geneva 449 $26.2 Hampshire 51 $6.5 Kaneville 17 $2.8 Plato 57 $5.6 Rutland 9 $4.7 St. Charles 831 $58.9 Sugar Grove 40 $7.5 Virgil 29 $4.7 (1996$ Mil.) 16

17 LOCATION JOBS INCOME Lake County, 13,269 $782.2 IL Antioch 257 $20.6 Avon 433 $34.6 Benton/Zion 571 $39.3 cuba 598 $46.7 Deerfield 1,368 $72.0 Ela 853 $72.0 Fremont 105 $19.6 Grant 192 $15.9 Lake Villa 164 $25.2 Libertyville 1,670 $64.5 Newport 63 $5.6 Shields 1,490 $65.4 Vernon 1,083 $100.9 Warren 921 $43.9 Wauconda 230 $15.9 Waukegan 2,149 $68.2 West Deerfield 1,122 $72.9 (1996$ Mil.) LOCATION JOBS INCOME McHenry 4,395 $344.8 County Alden * $2.8 Algonquin 1,374 $124.3 Burton 25 $4.7 Chemung 158 $8.4 Coral 15 $4.7 Dorr 754 $24.3 Dunham 83 $2.8 Grafton 144 $21.5 Greenwood 127 $13.1 Hartland 29 $1.9 Hebron 33 $2.8 Marengo 742 $59.8 McHenry 136 $9.3 Nunda 640 $54.2 Richmond 114 $4.7 Riley 6 $1.9 Seneca 18 $3.7 (1996$ Mil.) LOCATION JOBS INCOME Will County 5,512 $386.0 Channahon 57 $4.7 Crete 107 $24.3 Custer * $0.9 DuPage 538 $56.1 Florence * $0.9 Frankfort 254 $29.9 Green Garden 2 $3.7 Homer 43 $27.1 Jackson 16 $2.8 Joliet 2,339 $77.6 Lockport 585 $33.6 Manhattan 23 $3.7 Monee 170 $13.1 New Lenox 314 $24.3 Peotone 37 $3.7 Plainfield 333 $19.6 Reed 31 $3.7 Troy 463 $28.0 Washington 47 $3.7 Wesley 3 $1.9 Wheatland 46 $15.0 Will 5 $0.9 Wilmington 102 $5.6 Wilton * $0.9 (1996$ Mil.) LOCATION JOBS INCOME DeKalb,Grundy,& Kendall 9,244 $214.7 Kankakee 1,663 $66.2 Lake, IN 6,419 $328.3 Porter, IN 1,741 $150.1 Kenosha, WI 10,631 $229.8 y Tables 14 and 15 present the top ten townships in terms of employment and personal income respectively. Cook county dominates in terms of jobs and personal income. 17

18 However, two DuPage county townships, York and Addison townships, also make the topten list. The Chicago airport system contributes nearly 10,000 jobs to York township and just over 6,000 jobs to Addison township. The remaining eight townships in Cook county (including Chicago) account for 208,888 jobs which represent 60% of the total 1996 employment contribution of 347,784. In terms of personal income, all of the top ten townships are within Cook County. These ten townships (including Chicago) account for $7,812.6 million or nearly 52% of the estimated personal income contribution of $15.2 billion. TABLE 14 Top Ten Townships in Terms of Employment County Township Contribution Chicago Chicago 164,452 Dupage York 9,993 Cook Elk Grove 8,862 Cook Maine 6,574 Cook Proviso 6,132 Dupage Addison 6,058 Cook Niles 5,939 Cook Northfield 5,886 Cook Thornton 5,576 Cook Leyden 5,467 18

19 TABLE 15 Top Ten Townships in Terms of Personal Income County Township Contribution Chicago Chicago $4,349.8 Cook Wheeling $514.9 Cook Schaumburg $471.5 Cook Palatine $409.4 Cook Maine $384.6 Cook Northfield $362.3 Cook Worth $336.2 Cook Proviso $335.0 Cook New Trier $328.8 Cook Elk Grove $320.1 Summary of the Economic Contribution of the Chicago Airport System Without a doubt, the Chicago airport system is the major component to the metropolitan regional economy, and any future policy analysis will requires a comprehensive analysis of how the system links with the regional economy as a whole. As measured by the current Chicago version of the REMI model, the airport system contributes 347,784 jobs and $15.2 billion in personal income to the region. Both these measures of employment and personal income are slightly higher than the figures published by NERA in the first effort to measure the airport system s economic impact using the REMI model 2. Of the total employment contribution, 44,893 are direct air transportation industry jobs. The remaining 302,891 jobs are broken into two groups: 1.) indirect (or induced) employment created as a result of the multiplier effect of the direct 2 NERA published the contribution to be 339,300 jobs and $13.5 billion (in 1992$) using the first generation REMI model prepared for the City of Chicago. 19

20 aviation jobs, which is approximately 87,000 jobs and 2.) employment created as result of visitor and concession expenditures, approximately 215,000 jobs. The results of this analysis are consistent with the results published by NERA in the original 1993 study. The only marked differences are that, while the overall contribution in terms of employment and personal income has increased, the share attributed to the City of Chicago and Cook County has declined. The outer suburban counties have gained in their share of the overall economic contribution. This is to be expected as the outer counties continue to grow and increase in their dependence on the regional airport transportation system. 20