Conceptualizing the Local Economy. The most common theory planners use to conceptualize and then analyze the local economy is Economic Base Analysis . The local economy is conceptualized as having two sectors of activity:.
Basic Sector (aka Non-local Sector): Consists of firms and parts of firms whose economic activity is dependent upon factors external to the local economy.Classic Examples: Manufacturing, Agriculture, Forestry State/Fed Government
Non-Basic Sector (aka Local Sector): Consists of firms and parts of firms whose economic activity is dependent largely on local economic conditions.Classic Examples: Services (Restaurants, Drycleaners), Local Government, TCU, Retail Trade
1) EB assumes that the basic sector is the primary cause of local economic growth; that is, it is the economic base of the local economy.Basic Industries Non-Basic Industries --Is this a reasonable assumption? --Are there any conceivable times when this assumption might be violated?
2) EB assumes that all local economic activities can be assigned to either the basic or non-basic sector. --How might we assign activities to these two sectors? --What problems might we encounter in making these assignments?
BM = Total Employment Basic Employment
--What methodological problems might arise from using this technique?
--What problems might arise in the use of an economic base multiplier? --Why do economic developers love these statistics so much?
1) Area to be Studied (Geography)
2) Unit of Analysis (Measure of the Economy)
3) Data to be Used(Source for Input Data)
4) Technique(s) to be Used (Analytical Method(s))
County: The most commonly used study area because of excellent data availability
MSA: Best unit for urban analysis; Built on counties, so excellent data availability as well
Economic Region: A shopping area or media area is useful, but poor data availability makes this a rarely used analysis area
State: A study area that is too aggregated and likely to undercount basic sector activity.
Pros: Most widely used; Annual data widely available; Jobs are readily understoodCons: Dealing with part-time employees, seasonal jobs, commuters; Changes in productivity are not considered
Pros: Reflects hours worked and wage rates; Recognizes that all jobs are not equal; Good data availabilityCons: Not as readily understood (not jobs); Overemphasizes importance of income in the economy (One $250K job vs. nine $25K jobs)
Pros: Easily understood by firms and government; Tax revenues are related to salesCons: Can have double-counting; Poor data availability
Pros: Eliminates the double-counting problemCons: Very poor data availability; Difficulty with intangibles of the economy
County Business PatternsPros: Available annually; A widely used data set that includes employment, payroll, and salesCons: Derived from a combination of sources; Does not include public administration (Gvt) employment
Economic Census:Pros: An excellent dataset (a census!), Contains employment, payroll, and sales (as well as other data)Cons: Collected only every five years but not available until several years later
ES202 Data:Pros: Available annually and by quarter; Quick data turnaround; Includes employment and payroll Cons: Not always available for all areas; Not available for non- unemployment compensated firms
One of the key steps in this technique is determining which industries should be considered Basic and which should be considered Non-basic. Numerous techniques are available to determine this.
Economic Base Analysis Techniques
Economic Base Projection Techniques