Who wins from local economic development? “Who Wins From Local Economic Development? A Supply Decomposition of U.S. County Employment Growth,” Economic Development Quarterly, February 2009 Mark D. Partridge, Dan S. Rickman, and Hui Li 1

Who wins? When a new or expanding local employer announces new jobs, the demand for labor increases. The quantity of labor supplied will consequently rise to meet demand, but who comprises this labor supply? 2

Who wins? In other words, when local jobs are created, who takes them? – Local residents? – Commuters? – In-migrants? This study is the first to estimate the commuting labor supply. 3

Who wins? The study decomposes county job growth into four parts: – Commuting, – Unemployment, – Increased labor force participation, and – Migration. 4

Who wins? Employment by a firm (e f ) can be decomposed as: e f = (e f /e r ) x (e r /lf) x (lf/pop) x pop – Terms on the right-hand side: Commuting ratio, Employment rate, Labor force participation rate, and County population. 5

Who wins? – First term: (e f /e r ) is the ratio of employment by place of work to employment by place of residence; this is the commuting ratio. If the number of commuters is greater than the number of working residents, the ratio is greater than one. – Second term: (e r /lf) is ratio of employment by place of residence to the labor force; this is the employment rate (complement of the unemployment rate). This figure rises when more in the labor force are employed. 6

Who wins? – Third term: (lf/pop) is the ratio of labor force to employment by place of residence; this is the labor force participation rate. When more of the population chooses to work or search for work, the ratio rises. – Fourth term: (pop) is the population of the county. 7

Who wins? The authors work with growth rates of these variable instead of levels. Thus, the growth of labor supply depends on: – commuting growth, – employment participation growth, – labor force participation growth, – and population growth. 8

Who wins? Each labor supply component is modeled as a function of employment growth and ‘fixed effects’: – Component Growth = f(employment growth, fixed effects) – Fixed effects adjust for county differences other than employment growth. 9

Who wins? More specifically: – Commuting growth = β 1 emp growth + α 1 fixed – Employment participation growth = β 2 emp growth + α 2 FIXED – Labor participation growth = β 3 emp growth + α 3 FIXED – Population growth = β 4 emp growth + α 4 FIXED Since the four components add to total employment growth, the four β coefficients add to one. 10

Who wins? Equations are estimated using ordinary least squares regression. Data cover the period Every county in the US is included; approximately 3,200. Data are from the Bureau of Economic Analysis and the Bureau of Labor Statistics. Including trend variables in the fixed effects means that the β coefficients represent deviations from the trend. 11

Who wins? Results 12 Commuting dominates the short-term labor supply response, filling 59% of the growth in the first year at the county level. Commuting is followed by increased labor force participation (LF Rate), filling 29% of the new jobs at the county level. In-migration is not a very important source of filling jobs within the first year.

Who wins? Results 13 Migration (population) becomes much more important: – when the time frame is longer (15 years), or – When the geographic unit is larger (metro or state).

Who wins? Conclusions Commuting is generally the largest component of new labor supply. However, job growth can benefit original residents, especially in non-metropolitan areas (employment rate and LF Rate). The level of geographic analysis matters: studies based at the metro level underestimate the benefits of job growth for local residents. 14