Guest opinion: West's most diverse economies weather recession best
By RAY RASKER - Monday, December 27, 2010
As Montana and the West slowly recover from the recent recession, lessons are emerging about why some local economies performed better than others. Examining these examples is essential for elected officials, businesses and communities seeking to promote future long-term economic prosperity.
Headwaters Economics recently analyzed all 413 counties of the 11 contiguous western states, and looked at how this economic downturn varies from earlier business cycles.
Prior to the 1990s, periods of economic boom and bust in the West corresponded with rapid rises and declines in commodity markets such as timber and mining. Commodities now play a much weaker role than in the past and for the past two decades people — their knowledge, skills and innovation — have been the cornerstone of the economy.
Service sector jobs
From 1990 to 2008, the West outperformed the U.S. in population growth, employment and real total personal income. This occurred in large part due to a shift from a natural-resource based economy to a human-resource based economy.
Two factors contributed to the region's growth before the most recent recession. First, changes in the economy's structure caused by new competitive strengths and the dispersal of business activities fostered by telecommunications advances and relatively inexpensive transportation costs, and second, the movement of people seeking a higher quality of life and natural amenities.
Of the nearly 12 million new jobs created in the West from 1990 to 2008, 90 percent were in service sectors. Some of the fastest job growth occurred in professional, business, and health services in both large cities and small towns.
As the West boomed, the role of commodity production in the overall economy shrank. From 1990 to 2008, farming, ranching, forestry, lumber and wood products manufacturing, hard rock mining and fossil fuel development cumulatively contributed less than 3 percent of all new jobs across the West.
In 2008, these sectors combined constituted roughly 7 percent of all jobs in the rural West, and 3 percent in the West as a whole.
Within this economic context, our research sought to explain differences in county economic performance. Specifically, we examined factors such as population growth, the timber industry, education rates, government jobs, and the change in county unemployment rates from November 2007 (just before the recession officially started) to November 2009.
We documented a relationship between the size of the boom and the size of the bust. The faster an area's population grew from 2000 to 2007, on average, the faster the area tended to lose jobs during the recession.
Similarly, those counties doing poorly at the start of the recession were more likely to continue to do poorly and lose jobs at a relatively faster rate.
Second, counties that were more timber dependent lost jobs at a faster rate during the recession. As in the past, specialization in resource extraction left counties vulnerable to sudden changes in commodity prices and in this case the housing market's decline.
Higher ed = higher employment
Third, a county's education rate (the percent of adults with a college degree) was positively associated with lower rates of job loss. This finding is consistent with the Bureau of Labor Statistics' projection that future jobs expected to be in highest demand will require a college degree.
Fourth, higher employment in government was associated with lower rates of job loss. Today, public universities and government agencies such as the Forest Service and Bureau of Land Management are the source of high-wage jobs in many small and mid-size communities.
As the West continues its shift towards a human-resource based economy, these lessons provide guideposts for future economic development efforts. Increasing the region's economic diversity to prevent over-reliance on a single sector, investing in higher education, and the stabilizing effort of public sector employment will serve communities well in years to come.
Ray Rasker, Ph.D. is executive director of Headwaters Economics, a Bozeman-based independent nonprofit research group.
