HomeMy WebLinkAboutAlaska's Economic Links A Multi-Regional Analysis 1996ALASKA’S ECONOMIC LINKS
A Multi-Regional Analysis
Commissioned by
THE NORTH SLOPE BOROUGH
Prepared by
Gross & Associates
with
Chase Economics
Northwest Strategies
Glenn Pascall
ALASKA’S ECONOMIC LINKS
A Multi-Regional Analysis
Commissioned by
THE NORTH SLOPE BOROUGH
Prepared by
Gross & Associates
with
Chase Economics
Northwest Strategies
Glenn Pascall
Table of Contents
ALASKA’S ECONOMIC LINKS A MULTI-REGIONAL ANALYSIS
List Of Tables .........ssscssssssssssssssssssesssssssessesesscsesscsesncsnesssassusassnsassnensaesssecsnssesecnssesnsssssneseseseenenese iii
List of Figures...... see V
Acknowledgments ......ccscssssssssscessssnsnssssseesesesscsssssssssesscsssnsesssscscscssseeseseseee Vi
EXECUTIVE SUMMARY ........ccscccsssssscssesssssessssnssssssscssnsnsencssecsnsssssssescscceocsssecsesssasessesensensensnsees 1
Purpose of the Study...... soe 1
Highlights of Major Findings ...sscssessessssssssssssssssssssssssensesssssasensensnsessssnsensnsensensenensensssensnseneaees 1
RESEARCH METHODOLOGY ........ccscsssssscsesscsssssesescesscecsssecessessecsccseccessessscesseseceasessecenseasencene
The Regions of Alaska .esscsessrssssessserssnserssnsensensenssnssensenssnsensesensasenss
Variations in Regional Economies...
Other Data Sources
The Model ....ssessecssessesssseessssseseneseens
Measurement of Economic [Mpa ct .eressesereresessssrsssesssrecssssessssssenssesecssssseree
ALASKA’S ECONOMIC PROFILE.......csssscsssssssssosssscecescessnceseccscenceesceesecsssesseseseessesensensecsecsese 9
Alaska’s Natural Resource ECONOMY ussececesssssssrsssesssssssssnssssssscssencecscssecssssssseseneasecssssesseesesess 9
The Anchorage Core ...secsessseresesssssesenessensssenssssnssssnsenssnssssassnsasensnsassessscsscssssacssesssesssenenesssesataes 10
Core and Periphery: Comparative Size and Strength ..scscsssssssssssssesssssressesssseenseseneens 10
DIMENSIONS OF ECONOMIC IMPACT .....csssscssssssssssessnsensacssssssnsnsnsssscacsssncacscsssesesenesees
Multiplier Effects and the Impact of Rural Industry on Urban Centers
Interregional Trade in Goods and Services ..cressecsssscsersesssrsssssssenenssssssensssssssesssnsnssesssneassesess
Interregional Labor and Labor Earnings FIOWS...sessessssesssssesessrsnssenssssssscssnsnescsssnenseness
REGIONAL ANALYSES .......cccsscsssssersesncecsessnsssasscsssssssasssscesssssnsenssnscencsacecsasessacesssssacensensenees 21
Concentration of Major Sectors of Employment by Region ...s.ssssssesssssersssessssessesssseeeess 21
Economic Mix by Region “
Ancchorage/Mat-Su Region .....sssscsssessecsessseersesseeeensenseansnseniensenennensseassnsassnsseesecnsseeneenensenensens 22
Rest of Alaska Periphery Region ....ssssssssssssssssssssssssssseneessessessssesnessssssesessssssesssseesesasseesssensesens 24
Gulf Coast Region
Fairbarks Region......scsccssssesssessssscsssseseseenesseneseneneenseneenes
Northern Region ....s.sssssssssessessessssserecseessessessenseneennenennees
Northwest/Interior Region..
Southwest Region..........+. oe “
Southeast REgion.......sscsesssesesessesecssesessessssssesseseesssnssseseesssesneacsasseseseseseseseseesesseesesseseeeessaeeesnenes 30
Socio Economic Variations Among ReQions.....sccseressesesssersrerensssescssscassesnssssscnenseserscensess 31
Persontal Income .......s.ssssssssssesessecsessesssecnenecsuecseensenecnecnecseccsecnesneensaeensenesnscansnnennetseneeneneenenenees 31
Cost-of-Livinng .oesssssscssssssssessssesssssnssscesensecnsssnnesscssscessanecsssnnessssnsesssnscesssesesssssnsesssssesssnsessnesess 31
Purchasing Power..... we OL
Cost of Service Delivery ......ssssccsssecsssseereernsssecsntecnessssecssneesssessseessssessussssssessssnesssneensassaesess 32
The Alaska Permanent Fund ...sccscscscsscscsssssosscsssssscsssssscssssssssoscssesssssssssscssscesessssesessescessecsese 34
Economic SCENATIOS .e.scsssssssssssssenssssssssavsnssesssnevesccesssscesesesesencoeassescnssssssssassnsnsassssscsnsasessosseae 39
Scenario I: Enhanced Petroleum Recovery ...s...ssssssssersrsesssssecesssenecsssenenenceneneenenenenensnensesserens 39
Scenario II: The Trans-Alaska Gas SyStem......scssssessssesssressessesetsnseeensenensensenennessenensnensaneneeees 42
Scenario III: ANWR Developrment .......sssssssssessesssrsessensensensenserennensenseaseasssesnesesnsneasanenensens 46
Scenario IV: The Alaska Seafood Center...........+1-s++ steossersvsesesereseserseenecnssacscecasencneaseneres 49
CONCLUSION AND SUMMARY ......ccssssssssssnessessssnsscnsensensensonsonsnssnssncenssevesnsensensssensonensecss 52
References......sscscsssssscsssssscssssssscssssesssscsnssnesnsseesssscnscucnssnsnssnsossussssnsossncnsossesosnsansensssesscsnsosacensnseses 53
Appendix I....
Appendix II... .
Appendix IIL.....sessessscesssssncesscssecncensesssesssssnssnssssessnessessncsnnssncsnessncsnssascnessnssussensconecsacnncenconsenes
ii
Table 1.
Table 2.
Table 3.
Table 4.
Table 5.
Table 6.
Table 7.
Table 8.
Table 9.
Table 10.
Table 11.
Table 12.
Table 13.
Table 14.
Table 15.
Table 16.
Table 17.
Table 18.
List of Tables
Study Regions of Alaska
Natural Resource Industries of Alaska, 1996
Alaska Total Industrial Output, Employment, Labor Income and Other
Value Added, 1996
Anchorage/Mat-Su Periphery Region Total Industrial Output,
Employment, Labor Income and Other value Added, 1996
Rest of Alaska Periphery Region Total Industrial Output, Employment,
Labor Income and Other Value Added, 1996
Anchorage/Mat-Su Core Region and Rest of Alaska Periphery Region
Goods & Services Trade, 1996
Exports from Anchorage/ Mat-Su Core to Rest of Alaska Periphery
Exports from Rest of Alaska Periphery to Anchorage/Mat-Su Core
Labor and Earnings Flows Between Anchorage/ Mat-Su Core Region and
Rest of Alaska Periphery Region, 1996
Concentration of Major Sectors of Employment by Region
Socio-Economic Variations Among Regions
Statewide Alaska: Impacts of Permanent Fund Dividend
Rest of Alaska Periphery Region: Impacts of Permanent Fund Dividend
Anchorage/Mat-Su Core Region: Impacts of Permanent Fund Dividend
Statewide Alaska: Impacts of Enhanced Petroleum Recovery Program
Rest of Alaska Periphery Region: Impacts of Enhanced Petroleum
Recovery Program
Anchorage/Mat-Su Core Region: Impacts of Enhanced Petroleum
Recovery Program
Statewide Alaska: The Trans-Alaska Gas System
ili
Table 19.
Table 20.
Table 21.
Table 22.
Table 23.
Table 24.
Table 25.
Table 26.
Table 27.
Rest of Alaska Periphery Region: The Trans-Alaska Gas System
Anchorage/ Mat-Su Core Region: The Trans-Alaska Gas System
Statewide Alaska: Oil & Gas Extraction Impacts in Arctic National
Wildlife Refuge
Rest of Alaska: Oil & Gas Extraction Impacts in Arctic National Wildlife
Refuge
Anchorage/ Mat-Su: Oil & Gas Extraction Impacts in Arctic National
Wildlife Refuge
Statewide Alaska: Operation of Alaska Seafood Center
Rest of Alaska: Operation of Alaska Seafood Center
Anchorage/ Mat-Su: Operation of Alaska Seafood Center
Alaska Gross State Product by Major Industry, 1996
iv
Figure 1.
Figure 2.
Figure 3.
Figure 4.
Figure 5.
Figure 6.
Figure 7.
Figure 8.
Figure 9.
Figure 10.
Figure 11.
Figure 12.
Figure 13.
Figure 14.
List of Figures
Study Regions of Alaska
Anchorage/Mat-Su Core Region Labor Earnings by Place of Work, 1996
Rest of Alaska Periphery Region Labor Earnings by Place of Work, 1996
Anchorage/Mat-Su Region: Wage and Salary Employment by Major
Sector, 1996
Anchorage/Mat-Su Region: Share of Total State Employment by Major
Sector, 1996
Rest of Alaska Periphery Region: Wage and Salary Employment by Major
Sector, 1996
Gulf Coast Region: Wage and Salary Employment by Major Sector, 1996
Fairbanks Region: Wage and Salary Employment by Major Sector, 1996
Northern Region: Wage and Salary Employment by Major Sector, 1996
Northwest/Interior Region: Wage and Salary Employment by Major
Sector, 1996
Southwest Region: Wage and Salary Employment by Major Sector, 1996
Southeast Region: Wage and Salary Employment by Major Sector, 1996
Alaska Permanent Fund Income and State Oil Revenue, 1976-2015
Income Paid Out for Dividends, 1976-1997
Acknowledgments
We wish to acknowledge our appreciation to the many people and business in Alaska
who contributed their time and expertise to this endeavor.
Alaska Native Medical Center
Alaska Railroad Corporation
Alaska Warehouse Equipment
Katie Alberg
Arctic Slope Telephone Association Cooperative Inc.
ASCG Incorporated
Carlile/ K&W Transportation
Albert H. Clough, Alaska Dept. of Commerce & Economic Development,
Division of Trade and Development
Construction Machinery Inc.
Continuous Printing of AK, Inc.
Michael Cushing, Alaska State Department of Community & Regional Affairs
DeLisio Moran Geraghty & Zobel, PC
Drivetrain Distributors
Engineered Fire Systems Inc.
Era Aviation Inc.
Susan Fison, Municipality of Anchorage Community Planning & Development Dept.
Kirk Flanders, Juneau Economic Development Council
Global Services Inc.
Scott Goldsmith, University of Alaska Anchorage, Institute of Social and Economic
Research
R.K. Graves, Port of Anchorage
Eddy Jeans, Alaska State Department of Education
Landis & Staefa
Maskell-Robbins Inc.
Mikundra, Cottrell & Co.
Ken Morris, Anchorage Convention & Visitors Bureau
Neal Fried, Alaska Department of Labor
Northern Air Cargo, Inc.
Parker Drilling Co.
Peak Oilfield Service Co.
Peratrovich, Nottingham & Drage, Inc.
Philip Environmental
Printers Inc.
Puget Sound Pipe & Supply Inc.
R&M Consultants
David Rose, President, Alaska Permanent Capital Management
vi
Art Scheunemann, Alaska Seafood Marketing Institute
Sea-Land Service Inc.
Superior Plumbing & Heating, Inc.
Totem Ocean Trailer Express
Ryuichi "Rudy" Tsukada, Anchorage Economic Development Council
UIC Construction, Inc.
Unitech of Alaska Inc.
University of Alaska Anchorage, Center for International Business
Watterson Construction Co.
Yukon Pacific Corp.
vii
EXECUTIVE SUMMARY
Purpose of the Study
Among American cities that are the largest metro areas in their respective states,
Anchorage has perhaps the closest economic links to outlying areas of its home state.
To an unusual degree it serves as the headquarters for industries that make a dominant
contribution to the state economy yet are located elsewhere in Alaska. Because these
industries are resource-based, Anchorage derives a crucial portion of its economic
health from natural resource activities statewide.
Over half the trade receipts and two-thirds of the services receipts in the State of Alaska
flow through Anchorage-based businesses. Most banks, and many transportation and
construction companies, are headquartered in Anchorage. Many Alaska native regional
corporations have offices and staff in Anchorage. For the city’s hospitality and retailing
industries, a major source of business is travel by Alaska residents to Anchorage.
This study seeks to document the linkages and interdependencies of Alaska's economic
components. It clarifies the effect that resource industries, based in the rural areas of
Alaska, have on the vitality of the urban core of Anchorage.
Highlights of Major Findings
e The economy of Anchorage receives enormous stimulus from the rest of Alaska.
Anchorage, the State’s economic core, exports one-third of its output of goods and —
services, and ov ese exports are desti i of
Alaska. ——
e Of the $16.9 billion in total 1996 output from the Anchorage/Mat-Su core region,
$3.4 billion - over 20 percent - were goods and services purchased by rural and other
peripheral areas of Alaska.
e In 1996, over 25,000 jobs in the Anchorage/Mat-Su core region were due directly or
indirectly to trade with the rest of Alaska. This exceeded the region’s combined
number of federal civilian and military jobs, and was also more than the total
number of state and local government jobs.
e The ratio of Anchorage/Mat-Su jobs created by 1996 trade with the rest of Alaska
was greater than one in seven. The $833 million paid to these workers exceeded the
earnings of all retail trade employees in the region and was almost as large as the
total for service sector employment.
100 percent of Anchorage/Mat-Su construction exports, 90% of health services
exports; 88% of wholesale trade exports; 86% of finance, insurance, and real estate
exports; and 69% of business services exports were purchased by the rest of Alaska.
Anchorage/ Mat-Su construction companies made almost 50% of their total sales to
buyers located elsewhere in Alaska. For firms in engineering, legal services, and
wholesale trade the comparable figure was over one-third. The periphery accounted
for over 60 percent of total exports and one-eighth of total sales in retail trade.
Trade between Anchorage/Mat-Su and the rest of Alaska strongly favors the core
region. Its $3.4 billion in exports to the periphery is more than three times the
reverse flow of $989 million. The periphery exports over half its total output, an
unusually high proportion. But only 4 percent is destined for Anchorage/Mat-Su,
while 28 percent of the periphery's imports come from the core region.
Alaska's economy is heavily natural resource based. In 1996, resource industries
contributed $15.5 billion share to the state's $25.85 billion total output, a 60 percent
share. Activity in oil and gas, minerals, fisheries and seafood processing accounted
for nearly 90 percent of the resource total and is based almost 100 percent outside
Anchorage/ Mat-Su.
A major benefit statewide is the Alaska Permanent Fund. Supported by oil
revenues, it creates an estimated 8.5 full-time jobs for each $1 million paid to
Alaskans. The 1996 dividend of $643 million equated to 5,383 jobs. A significant
portion of these jobs are in Anchorage as the center of medical, educational, in-state
hospitality, and retail industries on which a significant share of dividend dollars are
spent.
The benefit to Anchorage's economy from resource based industries in the periphery
is likely to be enhanced in the future by a number of probable-to-potential events.
These include:
= Enhanced petroleum recovery, with a total value of about $3.4 billion supporting
5,690 jobs and generating over $250 million in annual labor income for
Anchorage/Mat-Su.
= The Trans-Alaska Gas System (TAPS), a natural gas pipeline with a total value of
about $3.9 billion, supporting 9,000 direct jobs and 9,000 other jobs for
Anchorage/Mat-Su residents during construction, and generating over $700
million in annual labor income.
= ANWR petroleum exploration and_development, worth $16 billion in total
output over a 20-year period and generating 7,368 Anchorage/Mat-Su jobs with
an annual payroll of nearly $300 million.
= The Alaska Seafood Center in Anchorage, worth $137 million in economic
activity and 1,646 jobs in the core region during the construction phase, with
1,109 long-term jobs and $34 million in annual labor income.
Alaska's peripheral regions show wide variation in economic mix:
= The Gulf Coast is strongly diversified in tourism, fishing, timber and lumber, oil
and gas production, refining and transport, and government.
= The Fairbanks region contains Alaska's second-largest city, whose diversified
economy reflects its role as the center for interior Alaska.
= The Northern regional economy is dominated by the development of vast oil
reserves that have driven Alaska's statewide economy for the last two decades.
= The Northwest/Interior is by far the largest and most sparsely populated region,
where subsistence, mining and fisheries are the primary sources of jobs.
= The Southwest is the center of the world's richest fisheries. Commercial fishing
and fish processing are primary sources of employment.
= The Southeast, home to the state capital, is dominated by government but also
has strong sectors in tourism, timber, and fisheries.
Alaska's peripheral regions also show wide variation in socio-economic mix
compared to Anchorage / Mat-Su:
= Most other parts of the state, except for the Gulf Coast and Southeast, have a
combination of lower per capita income and higher cost of living. This results in
per capita purchasing power that is much below Anchorage. Factors of
remoteness and climatic extremes also tend to drive the cost of public service
delivery higher in outlying areas.
Anchorage/Mat-Su residents derive 8 percent of their total labor income from
working in the periphery region, while residents of the periphery earn only 1
percent of their total labor income from working in the core. More than $400 million
in net labor income flows annually from the periphery to Anchorage/Mat-Su, paid
to people who reside in the core and work elsewhere in Alaska.
RESEARCH METHODOLOGY
The Regions of Alaska
Regional groupings of the boroughs, municipalities, and census areas of Alaska have
been arranged in various ways for a variety of purposes by federal and state
government agencies and by university and private-sector analysts and researchers.
Similarly, this analysis has developed its own regional groupings. They generally
correspond to the others and are designed as shown in Figure 1 and Table 1.
ES
Table 1.
Study Regions of Alaska
CORE REGION
Anchorage/Mat-Su Region
Municipality of Anchorage
Matanuska-Susitna (Mat-Su) Borough
ES
Fairbanks Region
Denali Borough
Fairbanks-North Star Borough
Southeast Fairbanks Census Area
Gulf Coast Region
Kenai Peninsula Borough
Valdez-Cordova Census Area
Northern Region
North Slope Borough
Northwest/Interior Region
Bethel Census Area
PERIPHERY REGION
Southeast Region
Haines Borough
Juneau Borough
Ketchikan Gateway Borough
Prince of Wales Island-Outer Ketchikan Census Area
Sitka City and Borough
Skagway-Hoonah-Angoon Census Area
Wrangell-Petersburg Census Area
Yakutat Borough
Southwest Region
Aleutians East Borough
Aleutians West Census Area
Bristol Bay Borough
Nome Census Area Dillingham Census Area
Northwest Arctic Borough Kodiak Island Borough
Wade Hampton Census Area Lake & Peninsula Borough
Yukon Koyukuk Census Area
Figure 1
Study Regions of Alaska
Study Regions
Anchorage / Mat-su
Northern
Northwest / Interior
Fairbanks
Southwest
Gulf Coast
Southeast
Variations in Regional Economies
This study describes Alaska's economy by region, with a focus on basic industries that
add new dollars to the economy by exporting goods and services.
The wide variation in dominant economic activity among regions illustrates the diverse
character of Alaska as well as the corresponding range of sources of impact from
outlying regions upon Anchorage. The contribution of each region to Alaska's Gross
State Product (see Appendix III) provides a perspective on relative economic scale as
well as enabling measurement of "spillover" effects among regions. These data also
strengthen the analysis of the core-periphery relationship between Anchorage and the
rest of the state.
The Survey
The first step in the study was to survey 155 Anchorage-based firms from key industry
sectors that do business with the remainder of Alaska. These firms were asked to
provide proprietary information on a confidential basis. Fifty-six firms (36%)
responded with data allocating shares of employment, payroll, purchases, and receipts
among Anchorage/Mat-Su, rest of Alaska, rest of U.S., and foreign. Industries
surveyed included construction, industrial supply, transportation, oil and gas
extraction, oil field supply, engineering, environmental services, finance, law, and
medicine.
The purpose of the survey was to assure that the study findings were grounded in
experience-based data. These data have been used to cross-check and _ refine
mathematical relationships in an input-output model (described below) that generated
the quantitative findings of the study.
Other Data Sources
A wide range of useful data is collected by agencies of the State of Alaska and the
Bureau of Economic Analysis of the U.S. Department of Commerce. Particularly
relevant to the study are "regional economic profiles" from the latter. These contain
data that enable comparison of employment and earnings by Alaskans within each
region and among regions, capturing the degree to which individuals residing in one
region work and earn income in another region.
From state sources, other data provide valuable information on socio-economic
characteristics and public service costs in the communities and sub-regions of Alaska.
From private sector sources come listings of the major firms in each industry group that were used to identify survey recipients.
The Model
Data from the above sources were fed into an input-output model, a widely accepted method of economic analysis that served as the basic tool of this study. The model simulates complex inter-industry connections that generate direct and indirect impacts through a host of "multiplier" or ripple effects created when money is spent and re- spent in the economy.
This analysis records the economic value of both the input requirements that support production in each industry, and the output that is sold to customers in the marketplace. The analysis provides a cross-sectional view of the purchases and sales of goods and services among industries, based on the linkages or interdependencies
among producers in each industry sector.
The model establishes a set of economic accounts which track labor force and earnings flows between Alaska regions, as well as sales transactions taking place among industries within each region and between that region and the rest of Alaska.
IMPLAN, a well-known U.S. model, has been used to achieve the research goals of this study. The model has been "calibrated" to reflect the specific economic characteristics of Alaska (see Appendix). Various scenarios have been run through the model to test the accuracy of these adjustments.
A further step required to construct the model that presents a picture of Anchorage and the rest-of-state as trading partners was to consolidate data. Data from the six outlying regions was consolidated and their combined impact on Anchorage/Mat-Su measured.
Measurement of Economic Impact
The foregoing elements - data from surveys and economic literature, the model as
modified and calibrated for Alaska, and scenario information - were combined to produce the study's key finding: the impact on jobs, income, and value of output in the Anchorage economy that can be credited to demand for goods and services generated by the rest of Alaska. This impact is expressed both in dollars and as a percentage of total economic activity in the Anchorage region.
The analysis is based entirely on currently existing economic activity. The model was also used to evaluate the impact of possible future events on Anchorage, the periphery,
and Alaska statewide. These "economic scenarios" deal with the most probable among
a range of potential sources of future stimulus.
It is not surprising that scenarios with the largest quantitative effects are in the
petroleum sector. In addition, however, significant impacts would arise from a major
new Anchorage-based facility to process or handle products from fisheries, mining, or
forestry resources harvested or extracted elsewhere in Alaska. A specific example from
the fish processing industry is discussed in the study.
ALASKA’S ECONOMIC PROFILE
Alaska’s Natural Resource Economy
Natural resource based industries dominate the Alaska economy. The most recent
Gross State Product (GSP) estimates (ISER, 1997) credit resource industries with about
60 percent of Alaska's 1996 GSP - $15.5 billion of the $25.85 billion total. Three fourths
of the value of natural resource production was in unprocessed form such as crude oil,
fish, and timber. Most of Alaska's natural resources are processed out of state. Also,
virtually all production - 98.5 percent - is outside the Anchorage core region.
Table 2.
Natural Resource Industries of Alaska, 1996
Estimated Value of Production (in millions $)
Share of
1996 Percent of Sector
Estimated Total Produced in
Value of Natural Rest of
Natural Resource Sector Production Resources Alaska
TOTAL $15,494.66 100.0% 98.5%
Agriculture $12.62 0.1% 43.9% Crops $7.87 0.1% 42.1%
Livestock $4.74 0.0% 46.9%
Fisheries $1,079.00 7.0% 97.4%
Halibut $57.00 0.4% 98.2%
Salmon $477.00 3.1% 99.1%
Herring $48.00 0.3% 95.8%
Shellfish $241.00 1.6% 99.2%
Groundfish $256.00 1.7% 92.8%
Seafood processing $2,378.62 15.4% 97.3%
Mineral industry $591.03 3.8% 100.0%
Lead & zinc $413.93 2.7% 100.0%
Gold & silver $80.05 0.5% 100.0%
Miscellaneous metals $0.80 0.0% 100.0%
Sand & gravel $33.65 0.2% 100.0%
Crushed & building stone $24.40 0.2% 100.0%
Coal $38.18 0.2% 100.0%
Oil & gas industry $9,827.32 63.4% 100.0%
Petroleum refining $924.65 6.0% 89.8%
Timber $58.28 0.4% 78.4%
Forest products $623.16 4.0% 96.6%
Lumber & wood products $373.16 2.4% 94.3%
Pulp & paper : a $250.00 1.6% 100.0%
The Anchorage Core
Alaska's economy is dominated by the Anchorage metropolitan area. It is recognized as
the center of commerce for the state and is home to half of all state residents. The Port
of Anchorage, the Anchorage International Airport, and the Alaska Railroad enable
Anchorage to serve as the primary cargo distribution center in Alaska. In addition,
most major companies with operations in Alaska are headquartered in Anchorage, and
the state government workforce almost equals that in Juneau, the state capital.
While there are a significant links between the Alaska economy and the Puget Sound
region in Washington State (Chase and Pascall, 1996), Anchorage functions as the state's
financial, trade, transportation, construction, and services center. Historically,
Anchorage's economy was narrowly dependent upon a few industries, particularly
fisheries and the military. However, the 1964 earthquake was the impetus for the Port
of Anchorage to grow into a major transportation hub with modern container handling
facilities for large volumes of cargo. A few years later, oil was discovered and then
development of Prudhoe Bay elevated the state's economy to new heights. In recent
years, the metropolitan economy has become more diversified, broadly based on
businesses, retail activity, and financial, distribution, medical, and other services.
Core and Periphery: Comparative Size and Strength
The three tables that follow show industrial output, employment, labor income, and
other value added for the State of Alaska, the Anchorage/ Mat-Su core region, and the
rest-of-Alaska periphery. Major perspectives revealed by these tables include:
Employment is almost exactly divided between the core and periphery. However, the
value of output is 30.5 percent higher in the periphery. This is due primarily to the
extraordinarily high value of production per worker in the petroleum and fisheries
industries.
Not surprisingly, this effect leads to total labor income that is higher in the periphery,
yet it only exceeds the core by 10.6 percent. Thus, the periphery's edge in earnings is
just one-third as great as its edge in value of output. Much of the disparity is accounted
for by labor income at resource-industry administrative and support centers located in
Anchorage - an illustration of the economic benefit to the core from activity in the
periphery.
10
Table 3.
Alaska Total Industrial Output, Employment, Labor Income
and Other Value Added, 1996
Industrial Labor Other Value
Output a Income Added
Sector (in millions $) Em: ent (in millions $) (in millions $)
Agriculture d 2,906 39.4 9.6
Forestry 58.3 205 6.1 29.5
Fishing 1,079.0 12,530 233.6 70.3
Oil & gas 9,827.3 9,202 691.6 2,539.6
Other mining 618.7 1,563 135.3 230.9
Construction 2,483.8 19,948 1,100.2 1,185.2
Manufacturing, total 4,422.8 17,697 628.8 745.9
Seafood processing 2,378.6 10,819 335.5 226.8
Other manufacturing 2,044.2 6,878 293.3 519.1
Transport & public utilities 4,593.9 23,388 1,099.8 2,475.8
Wholesale trade 990.4 10,200 311.8 374.9
Retail trade 3,331.0 76,846 1,221.7 686.3
Finance, insurance & real estate 3,804.3 20,862 415.0 3,428.5
Services 3,404.8 65,065 1,781.4 752.7
Government, total 4,305.6 97,104 3,853.8 129.0
Federal, civilian 968.4 20,928 883.7 17.4
Federal, military 559.1 22,334 559.1 0.0
State & local 2,778.1 53,842 2,411.0 111.6
TOTAL 38,990.9 357,516 11,518.5 12,658.1
Note: Agriculture includes livestock and crops, horticultural specialties, and agricultural services.
11
Table 4.
AnchoragelMat-Su Periphery Region Total Industrial Output, Employment, Labor
Income and Other Value Added, 1996
Industrial Labor Other Value
Output Income Added
Sector (in millions $) Employment (in millions $) (in millions $)
Agriculture 48.6 2,039 27.5 5.7
Forestry 12.6 44 13 6.4
Fishing 28.3 328 6.1 1.8
Oil & gas 3,979.1 3,721 279.7 1,028.3
Other mining 45.3 159 10.2 18.2
Construction 970.4 7,004 342.6 470.0
Manufacturing, total 433.2 2,966 97.9 117.8
Seafood processing 64.3 215 6.7 4.5
Other manufacturing 368.9 2,751 91.3 113.3
Transport & public utilities 2,380.3 13,480 616.5 1,094.2
Wholesale trade 725.8 7,467 228.2 274.8
Retail trade 1,845.8 42,289 683.8 384.3
Finance, insurance & real estate 2,470.8 14,628 316.3 2,116.8
Services 1,971.0 38,081 1,041.4 422.6
Government, total 2,012.5 46,449 1,810.1 28.0
Federal, civilian 559.5 12,130 512.3 9.6
Federal, military 307.5 12,269 307.1 0.0
State & local 1,145.4 22,050 990.6 18.4
TOTAL 16,923.6 178,654 5,461.8 5,968.8
Note: Agriculture includes livestock and crops, horticultural specialties, and agricultural services.
12
Table 5.
Rest of Alaska Periphery Region Total Industrial Output, Employment, Labor Income
and Other Value Added, 1996
Industrial Labor Other Value
Output Income Added
Sector (in millions $) Employment (in millions $) (in millions $)
Agriculture 22.3 866 11.8 3.9
Forestry 45.7 161 4.7 23.1
Fishing 1,050.7 12,216 227.7 68.5
Oil & gas 5,848.2 5,483 412.0 1,511.3
Other mining 573.4 1,405 125.2 212.7
Construction 1,513.4 12,951 758.0 715.1
Manufacturing, total 4,989.6 14,745 531.4 628.1
Seafood processing 2,314.3 10,617 329.2 222.3
Other manufacturing 1,675.3 4,128 202.2 405.9
Transport & public utilities 2,213.6 9,904 483.0 1,381.6
Wholesale trade 264.5 2,728 83.4 100.1
Retail trade 1,485.2 34,547 537.7 302.0
Finance, insurance & real estate 1,333.4 6,224 98.4 1,311.7
Services 1,433.9 26,970 739.6 330.1
Government, total 2,293.1 50,660 2,043.8 101.0
Federal, civilian 408.9 8,794 371.2 7.8
Federal, military 251.6 10,062 251.9 0.0
State & local 1,632.6 31,804 1,420.7 93.1
TOTAL 22,067.3 178,862 6,056.7 6,689.3 Note: Agriculture includes livestock and crops, horticultural specialties, and agricultural services.
13
DIMENSIONS OF ECONOMIC IMPACT
Multiplier Effects and the Impact of Rural Industry on Urban Centers
Basic industries, exporting goods and services and drawing income from elsewhere into
their region, have long been recognized as engines of economic development. A fish
processing plant in Dillingham in Alaska's southwest region is an example of a basic
industry on which other local economic activity depends. In large cities, the distinction
between such basic industries and those serving only area residents may be less obvious
but it is no less valid.
Economic development specialists and local officials strive to attract new basic industry
because they know that for every job it directly supports, a much larger number of jobs
(the "multiplier effect") will be created in other, local-serving industries.
Does a basic industry in a rural area have the same multiplier effect as its urban
counterparts? Yes, in fact, a rural industry often creates demand for inputs that spill
over beyond its immediate region to benefit urban-area industries that supply a large
share of business and consumer needs in rural communities. The existence of such
rural-urban linkages is widely recognized but questions remain about the extent and
magnitude of these economic relationships. The specific impacts of demand from rural
areas in stimulating the Anchorage economy are addressed in the following section.
Interregional Trade in Goods and Services
Using the IMPLAN model and results from the business/industry survey, estimates
were made of the value of trade in goods and services between the Anchorage/ Mat-Su
core region and the rest-of-Alaska periphery region, and between those two regions and
the rest of the U.S.
Trade estimates for these regions are summarized in Table 6, which shows the
destinations for output produced in the two study regions, allocating total exports to
the core or periphery, to the rest of the U.S., and to foreign countries. The table also
shows absorption of production within each region, and distinguishes imports from the
other region versus imports from the rest of the world.
14
Table 6.
Anchorage/Mat-Su Core Region and Rest of Alaska Periphery Region
Goods & Services Trade, 1996 (in millions $)
TO
Core Periphery Rest of Total
FROM Region Region U.S. Foreign Output
Anchorage/Mat-Su Core Region Total 11,291.1 3,416.9 1,793.9 421.7 16,923.6
Goods 2,093.6 1,331.7 1,059.1 62.6 4,547.1
Services 9,197.5 2,085.1 734.8 359.1 12,376.5}
Rest of Alaska Periphery Region Total 989.4 9,703.7 8,839.3 2,535.0 22,067.3
Goods 388.3 992.5 7,796.0 2,353.2 11,530.0
Services 601.0 8,711.2 1,043.3 181.8 10,537.3)
Rest of World Total 4,643.2 8,946.8
Goods 2,492.9 7,453.4
Services 2,150.3 1,493.4
Gross Regional Demand Total 16,923.6 22,067.3
Goods 4,974.8 9,777.6
Services 1 1,948.8 12,289.7
A striking observation from the above table is the importance of trade to both regional
economies. The Alaska periphery economy is quite open, exporting 56 percent of its
total industrial output. Only 4 percent of the periphery's total output is exported to the
Anchorage/ Mat-Su core region, while over 51 percent is exported to markets in the rest
of the U.S. and foreign countries.
The Anchorage/Mat-Su core region exports about 33 percent of its total industrial
output, the majority to the periphery region. The net trade balance is strongly in favor
of Anchorage/ Mat-Su. The core region exports $3.4 billion in goods and services to the
periphery - more than three times its $989 million in imports from that region. This
implies that over $2.4 billion flows from the periphery to Anchorage/Mat-Su on the
trade account. The periphery exports very little to the core yet obtains about 28 percent
of its imports from the core.
The relative importance of each region as a buyer of the other region's goods and
services, and the associated employment and labor income effects, are summarized in
Tables 7 and 8. The flow of trade is most pronounced in services. Almost two-thirds of
Anchorage/Mat-Su’s exports of services are to the rest of Alaska.
15
Table 7.
Exports from Anchorage/Mat-Su Core to Rest of Alaska Periphery
Percent of Percent of Labor
Exports to Total Total Employment Income
Sector Periphery Sales Exports Effect Effect
Agriculture 8.0 16.5% 46.0% 336 4.5
Forestry 1.2 9.5% 50.0% 4 0.1
Fishing 3.0 10.6% 23.1% 35 0.6
Oil & gas 1,250.0 31.4% 57.4% 1,170 88.0
Other mining 22.6 49.8% 84.9% 79 5.1
Construction 419.8 43.3% 100.0% 3,034 148.4
Manufacturing, total 56.3 13.0% 24.2% 411 13.6
Seafood processing 2.0 3.1% 4.0% 7 0.2
Forest products 5.0 15.1% 29.2% 24 1.0
Other manufacturing 49.3 14.7% 29.8% 381 12.4
Transport & public utilities 449.6 18.9% 39.4% 2,549 116.6
Wholesale trade 249.4 34.4% 88.6% 2,568 78.5
Retail trade 228.1 12.4% 62.4% 5,233 84.6
Finance, insurance & real estate 265.3 10.7% 86.3% 1,573 34.0
Services, total 447.6 22.7% 70.2% 8,031 235.7
Business services 26.8 9.9% 68.6% 604 15.6
Health services 116.1 23.1% 90.5% 1,771 70.7
Legal services 27.3 35.0% 72.1% 425 20.4
Engineering & mgmt. services 127.4 36.7% 77.6% 1,861 59.0
Other services 150.1 19.4% 55.9% 3,371 69.9
Government 26.1 1.3% 100.0% 604 23.5
TOTAL 3,427.0 20.2% 60.6% 25,628 833.4
Note: Exports and Labor Income Effects are in millions of dollars.
As measured by sales, the periphery region is an important market for
Anchorage/Mat-Su businesses in wholesale trade, engineering, management, and legal
services. The largest flow, an estimated $1.25 billion annually, is petroleum-related. Oil
and gas field services and supplies, and administrative services, are exported to the
periphery where petroleum exploration, development, and production occur.
In terms of employment and labor income (wages, salaries, and proprietors’ income),
$833 million is earned annually by 25,628 workers resident in Anchorage/Mat-Su who
benefit from trade with the periphery. This translates into one out of every seven
workers in the core region who are directly or indirectly dependent on exports to the
rest of Alaska - an extraordinarily high proportion of employment and activity linked to
a single economic sector.
16
Table 8.
Exports from Rest of Alaska Periphery to Anchorage/Mat-Su Core
Percent of Labor
Exports to Total Percent of Employment Income
Sector Core Sales Total Exports Effect Effect
Agriculture 7.2 32.1% 71.6% 278 3.8
Forestry 6.85 15.0% 48.9% 24 0.7
Fishing 21.0 2.0% 3.2% 244 45
Oil & gas 169.6 2.9% 3.0% 159 119 Other mining 12.4 2.2% 2.4% 30 27
Construction 92.3 6.1% 100.0% 789 46.2
Manufacturing, total 171.3 4.3% 4.6% 490 23.5
Seafood processing 17.5 0.8% 0.8% 82 2.5
Forest products 100.5 17.0% 21.5% 383 19.8
Other manufacturing 53.3 1.3% 1.5% 25 11
Transport & public utilities 208.4 9.4% 18.4% 931 45.4
Wholesale trade 23.72 9.0% 73.7% 244 75
Retail trade 81.4 5.5% 47.1% 1,891 29.4
Finance, insurance & real estate 55.3 4.1% 73.0% 258 4.1
Services, total 140.5 9.8% 44.0% 2,741 68.3
Business services 2.9 3.1% 48.1% 64 17
Health services 15.8 4.0% 74.2% 241 96
Legal services 2.8 10.0% 50.9% 44 2.1
Engineering & mgmt. Services 31.2 20.1% 72.7% 455 14.4
Other services 87.8 11.5% 36.1% 1,937 40.5
Government 0.0 0.0% 0.0% 0 0.0
TOTAL 989.9 4.5% 8.0% 8,080 248.0
Note: Exports and Labor Income Effects are in millions of dollars.
A very different picture emerges when examining the importance of Anchorage/Mat-
Su as a regional market for goods and services exports from the periphery. With the
exception of agriculture, engineering, and management services, periphery exports to
the core account for less than one-fifth of total sales. A modest $248 million in labor
earnings and 8,080 jobs are supported by this trade - only 30 percent as large as the
reverse flow. Less than 5 percent of employment in the rest of Alaska relies on exports
to the core versus more than the 14 percent reliant on trade from the core to the
periphery.
Interregional Labor and Labor Earnings Flows
For workers who commute to jobs outside their region, the Anchorage/Mat-Su core
and the periphery are unevenly linked. Labor and earnings flows are more important
for the core region than the periphery. Data representing labor flows and
corresponding earnings payments are presented in Table 9. Labor flows are based on
1990 estimates of interregional commuting and earnings flows are constructed from
17
1990 estimates of dollar earnings by area of work and borough/census area of
residence.
Table 9.
Labor and Earnings Flows Between Anchoragel/Mat-Su Core Region
and Rest of Alaska Periphery Region, 1996
PLACE OF WORK Totals by Place of
Residence
PLACE OF RESIDENCE Core| Periphery| Elsewhere Labor Earningal
Anchorage/Mat-Su Core Region
Labor 175,650 7,654 967 184,271 |
Earnings $5,341.4 $438.5 $31.8 $5,811.8
Rest of Alaska Periphery Region
Labor 832 167,729 1,611 170,172 |
Earnings $30.0 $5,463.5 $44.3 $5,537.28
Elsewhere
Labor 2,171 3,479 |
Earnings _ $90.4 $154.7
Total Labor by Place of Work 178,654 178,862
Total Earnings by Place of Work $5,461.8 $6,056.7
Sources: U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information
System, 1997.
Note: Labor and earnings flows are estimated for 1996 based on 1990 census data. Earnings consist of
employee compensation and proprietors’ income. Earnings flows are in millions of dollars.
Journey-to-work data were used to construct a flow matrix depicting the movement of
labor services from region of residence (row) to region of work (column). This
approach is based on prior work on labor market areas by Tolbert and Killian (1987).
One can estimate the number of workers commuting from outside a particular region
by reading down that region’s column in Table 9. For example, of the 178,654 workers
in the Anchorage/Mat-Su region (labor total under column one), over 98 percent
(175,650) also lived in the core region, while 832 workers (0.5 percent) commuted from
the periphery and 2,171 workers (1.2 percent) commuted from elsewhere (e.g., other
states). For the periphery, 94 percent (167,729) of the total 178,862 workers resided
there, while 7,652 workers (4.3 percent) commuted from the Anchorage/ Mat-Su region,
and 3,479 workers (1.9 percent) commuted from elsewhere. In relative terms, the
difference between the core and periphery regions is substantial and reversed from
other core-periphery studies (Holland and Weber, 1996). More than nine times more
workers residing in the core region commute to job sites in the periphery compared
with those periphery residents commuting to the core region.
18
Earnings flows also appear in the table beneath the corresponding labor flow which generated it. The figures below illustrate total labor earnings of residents working in various locations. For Anchorage/Mat-Su residents, 91 percent of earnings ($5,341 million) were from the Anchorage/Mat-Su region, while 8 percent ($438 million) was earned from labor exports (i.e., payment for work performed at job sites in the
periphery).
Figure 2
Anchorage/Mat-Su Core Region Labor Earnings by Place of Work, 1996
Periphery estos
8% 1%
In contrast to the labor earnings of Anchorage/Mat-Su residents, only one percent of
total labor earnings of periphery residents was due to commuting to the Anchorage/Mat-Su core region. Only $30 million of total labor earnings was derived
from the export of labor services, while 98 percent of 1996 earnings ($5,464 million) was
received from payment for work performed within the periphery (Figure 3).
19
Figure 3
Rest of Alaska Periphery Region Labor Earnings by Place of Work, 1996
Elsewhere _ Core
1% \1%
| 98%
Perhaps the most significant finding from this portion of the analysis is that core
residents earned more than $400 million more from working elsewhere in Alaska than
periphery residents earned in Anchorage/Mat-Su region. In other words, residents in
the core region of Anchorage/Mat-Su depend much more heavily on the periphery for
income than vice versa.
20
REGIONAL ANALYSES
Concentration of Major Sectors of Employment by Region
The employment concentration table (Table 10) indicates the various industries that drive the regional economies in Alaska. For instance, the Anchorage/Mat-Su region specializes in a wide range of service industries, particularly construction; finance,
insurance, and real estate; wholesale and retail trade; transportation and _ utilities;
services; and government (Federal government, civilian). In contrast, the Northern
regional economy is driven by oil and gas activity as well as construction and
government (state and local).
Table 10 provides a direct measure of over- and under-concentrations in each industry within each region, compared to the state as a whole.
The table below shows variations in economic mix by region, as reflected in the concentration of jobs. The state-wide average is 1.00. Thus, for example, the ratio of jobs in agriculture, forestry, and fishing to total employment in Anchorage/Mat-Su is 40.7 percent the state average, while in Southwest it is 283.7 percent of the state average.
Table 10.
Concentration of Major Sectors of Employment by Region _ :
Anchorage/ Gold Northwest
Major Sector Mat-Su Fairbanks Coast Northern Interior Southeast Southwest Ag, forestry, fishing 0.41 035. #238 O11 209 1.96 2.84
Mining 0.81 0.46 1.30 13.13 1.05 0.16 0.01
Construction 1.10 1.02 1.05 1.01 0.28 1.01 0.53
Manufacturing 0.34 0.23 1.76 0.01 0.54 1.74 5.85
Transport & public utilities 1.11 2.53 0.98 0.68 0.96 0.92 0.71
Wholesale trade 1.48 0.12 0.80 0.02 0.14 0.50 0.44
Retail trade 1.10 2.81 0.99 0.41 0.67 1.01 0.58
Finance, insur, & real estate 1.29 0.14 0.71 0.42 0.83 0.87 0.47
Services 1.13 1.00 0.95 0.43 1.00 0.86 0.58
Government, Total 0.89 7.60 0.73 1.12 1.37 1.04 0.89
Federal, civilian 1.20 1.01 0.33 0.20 0.49 0.82 0.49
Federal, military 0.96 1.08 0.31 0.10 0.29 0.38 1.47
State and local 0.76 2.40 1.05 1.89 2.16 1.42 0.76
The notion that a region’s employment concentrates in a particular industry suggests
that the region produces more than it needs and therefore exports the surplus. In the
above table, a concentration index greater than 1.00 suggests that the region produces a surplus in that good or service which is exported elsewhere. An index number of 1.00
would indicate little or no trade while an index number less than 1.00 would suggest that the region imports the good or service.
21
Economic Mix by Region
The regions of Alaska display significant economic variation in the mix of activities that
are dominant. The following section explores these profiles.
Anchorage/Mat-Su Region
Figure 4
AnchoragelMat-Su Region: Wage and Salary Employment by Major Sector, 1996
Services Sean!
Total Trade [RiGee em eeu nS Sa
Government [FE
Transport & Utilities /SSeemaes
Construction am
Mining/Oil & Gas Feary
i Manufacturing [gem
| Ag, Forest & Fish [iq
' — —— —— i |
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
Number of Employees
|
| |
Source: Alaska Department of Labor, Research & Analysis Division.
Note: FIRE = finance, insurance & real estate; total trade includes both wholesale and retail trade.
Anchorage is the center of commerce in Alaska and is home to about half of all state
residents. Anchorage serves as the state’s primary distribution hub. The metropolitan
economy has become more diversified in recent years, broadly based on trade,
government (including military), and services. Many industries and government
agencies have located their administrative headquarters in Anchorage. Also, in recent
years, trade and services within the metropolitan center have reaped the benefits of
tourism.
The Matanuska-Susitna (Mat-Su) Borough is placed in the same region due to the fact
that a large share of its resident labor force commutes to the Municipality of Anchorage
for work. Mat-Su Borough is the one of the fastest growing regions of the state.
Between 1980 and 1996, its population nearly tripled—an annual growth rate more than
22
three times that of the state. The borough is more dependent upon natural resource-
based activities of agriculture, tourism, forestry, and mining than Anchorage.
Subsistence is an important activity for both native and non-native residents of Mat-Su.
Overall, Anchorage/Mat-Su has slightly more than half of the state’s total employment.
Reflecting its importance as a center for distribution, trade, services, and government,
the Anchorage/Mat-Su region has over three-fourths of the state’s wholesale trade
employment; two-thirds of the state’s finance, insurance and real estate employment;
sixty percent of the state’s Federal government (civilian) workforce; and well over half
of the state’s total employment in transportation and public utilities, construction, retail
trade, and services. Anchorage figures prominently in mineral extraction employment,
functioning as the administrative headquarters for petroleum companies operating in the North Slope and Cook Inlet as well as the vast array of oil service and supply firms.
Anchorage also has a strong military presence, with nearly 9,000 military personnel
stationed at Fort Richardson and Elmendorf Air Force Base.
During the past few years, growth in regional employment has been slow—around 1
percent annually. Modest increases in services and trade jobs have offset cutbacks in petroleum industry employment.
Figure 5
Anchorage/Mat-Su Region: Share of Total State Employment by Major Sector, 1996
Totalemployment [Eas
Privateemployment fFe@
Ag, forest & fish EE EEeE
Mining —=
Construction
Manufacturing FER
Transport & pub. utilities
Wholesale trade [EREEEES
Retail trade
Finance, insur. & realestate Fae
Services
| Government [Ea
Federal gov't, civilian FER
Federal gov't, military [=a State and local [2
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%
23
Rest of Alaska Periphery Region
Figure 6
Rest of Alaska Periphery Region: Wage and Salary Employment by Major Sector, 1996
Government [#33
Services
Total Trade [eeeeeee
Manufacturing [2
Transport & Utilities [Rgeieees
Mining/Oil & Gas fj
Construction
FIRE |& Ag Forest & Fish [J
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
Number of Employees
Source: Alaska Department of Labor, Research & Analysis Division.
Note: FIRE = finance, insurance & real estate; total trade includes both wholesale and retail trade.
24
Gulf Coast Region
Diversification is the strong economic asset of the Gold Coast region of Kenai and Valdez-Cordova, with strong sectors in tourism, fishing, timber and lumber, oil & gas production, transportation and refining, and government. Within the region are ports
of shipment for crude oil from Prudhoe Bay and coal from Usibelli Mine. Kenai is the center of oil and gas industrial activity for Cook Inlet drilling and exploration. Refining of North Slope and Cook Inlet crude occurs at Nikiski. Oil companies, Alyeska
Pipeline, and oil support and transportation services are major employers for Valdez- Cordova. Valdez is the southern terminus of the Trans-Alaska pipeline.
Figure 7
Gulf Coast Region: Wage and Salary Employment by Major Sector, 1996
Government
Services
Total Trade
Manufacturing [SRESa eee ean
| Transport & Utilities Fee Sete
Oil & Gas }eseeepeeeeae
Construction bi
Ag Forest & Fish [Za]
0 1,000 2,000 3,000 4,000 5,000 6,000 |
Number of Employees
Source: Alaska Department of Labor, Research & Analysis Division.
Note: FIRE = finance, insurance & real estate; total trade includes both wholesale and retail trade.
Fisheries have become more diverse in recent years. With real prices of salmon at
historic lows, shellfish (particularly oysters) and bottom fishing have helped support the fishing industry in the region. Seafood processors continue to be significant
employers. Local, state, and federal government agencies provide a major share of jobs.
Despite gains in diversification, the Gulf Coast region suffers from high rates of unemployment. This is due to the seasonal nature of work for natural resource-based
sectors within the region.
25
Fairbanks Region
The Fairbanks region of Denali Borough, Fairbanks-North Star Borough, and Southeast
Fairbanks Census Area includes Alaska’s second largest city. As the regional center for
interior Alaska, Fairbanks offers a diverse range of services including transportation,
communications, financial, retail, medical and government.
Figure 8
Fairbanks Region: Wage and Salary Employment by Major Sector, 1996
Government
Services
i Total Trade Regul
| Transport & Utilities
Construction [es
Mining FE
Manufacturing [fay | \
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000
Number of Employees
Ag, Forest & Fish
pF
Source: Alaska Department of Labor, Research & Analysis Division.
Note: FIRE = finance, insurance & real estate; total trade includes both wholesale and retail trade.
The dominant government sector is due to the presence of several major employers
including Fort Wainwright, Eielson Air Force Base, University of Alaska, and Denali
National Park. Although mining is not a major employer, the sector represents one of
the region’s bright prospects. A number of new hard-rock mines are scheduled to come
on-line within the next few years.
26
Northern Region
The North Slope Borough is home to the vast oil reserves that have driven the Alaskan
economy for the last two decades. The Prudhoe Bay oil fields provide over 4,000 jobs in drilling, pipeline operations, cargo transportation, and a variety of support and service
positions. Barrow, with 4,300 residents, is the seat of the Borough government and is
the center for supplies and services to the region’s villages. Subsistence represents a
substantial element of the local economy in the borough’s outlying villages.
Figure 9
Northern Region: Wage and Salary Employment by Major Sector, 1996
Oil & Gas fae
Government
Services
Total Trade
Transport & Utilities F
Construction
Manufacturing
Ag Forest & Fish -.
Number of Employees |
Source: Alaska Department of Labor, Research & Analysis Division.
Note: FIRE = finance, insurance & real estate; total trade includes both wholesale and retail trade.
Although no dramatic changes are expected for the region’s economy, significant
increases in jobs, income and tax revenues would be envisioned if ANWR oil
development and construction of a gas pipeline parallel to the existing oil pipeline
become reality.
27
Northwest/Interior Region
This region, composed of Bethel, Nome, N' orthwest Arctic, Wade Hampton, and Yukon
Koyukuk, is by far the largest and most sparsely settled region of Alaska. Government
jobs predominate, with over 44 percent employed by the government sector. Other
major employers include Native regional for-profit corporations, commercial fisheries
and fish processing, and mining. The Red Dog Mine near Kotzebue, operated by
Cominco, represents the region’s largest private employer.
Figure 10
Northwest/Interior Region: Wage and Salary Employment by Major Sector, 1996
——
Government ~
Services Rag
Total Trade [iene
Transport & Utilities
Manufacturing
| Construction |
Ag, Forest & Fish |
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
| |
\
| ' Number of Employees
Source: Alaska Department of Labor, Research & Analysis Division.
Note: FIRE = finance, insurance & real estate; total trade includes both wholesale and retail trade.
28
Southwest Region
The Southwest region, consisting of the Aleutians, Bristol Bay, Dillingham, Kodiak, and
Lake & Peninsula, is at the center of the world’s richest fishing grounds. Commercial
fishing and fish processing are the primary sources of employment within the region,
providing nearly 10,000 jobs through the year with a seasonal peak in July and August.
Fleet services, such as fuel, repairs and maintenance, and wholesale trade and
transportation, are important economic activities within the region. The fishing
industry, focused on bottomfish, salmon, and crab, will continue to be the mainstay for
the regional economy.
Figure 11
Southwest Region: Wage and Salary Employment by Major Sector, 1996
Total Trade
FIRE
Ag Forest & Fish Fj]
Transport & Utilities
| | Mining
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 |
Number of Employees |
Source: Alaska Department of Labor, Research & Analysis Division.
Note: FIRE = finance, insurance & real estate; total trade includes both wholesale and retail trade.
29
Southeast Region
Government, tourism, timber and wood processing, commercial fishing and seafood
processing, mining, and transportation are primary employers in the Southeast region.
With the capital located at Juneau, state government accounts for more than a third of
all employment in the region. Tourism is a major industry; cruise ships on the Inside
Passage bring over 300,000 visitors annually to the region.
Figure 12
Southeast Region: Wage and Salary Employment by Major Sector, 1996
Services 52
Total Trade
Manufacturing
Transport & Utilities
Construction [#3 |
|
|
Ag, Forest & Fish [7 i | '
i
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 «9,000 10,000 11,000 12,000 13,000 |
Number of Employees
Source: Alaska Department of Labor, Research & Analysis Division.
Note: FIRE = finance, insurance & real estate; total trade includes both wholesale and retail trade.
30
Socio Economic Variations Among Regions
Table 11 displays socio-economic conditions throughout the State of Alaska. By using
data for Anchorage as a base level 100, a direct assessment can be made of comparative
conditions in various areas of the state.
Personal Income
The Fairbanks, Gulf Coast, Northern, Southeast, and Southwest regions of Alaska each
have per capita personal income levels comparable to Anchorage. There are wide
variations within Southeast and Southwest depending on whether a location is a center
of resource exports or depends on a subsistence economy. The Northwest/Interior
region has incomes much lower than Anchorage because its economy is subsistence
throughout.
Cost-of-Living
The Fairbanks, Gulf Coast, and Southeast regions of Alaska have a cost-of-living
comparable to Anchorage. The Northern, Northwest/Interior, and Southwest regions
have a cost-of-living that is 30-50 percent higher than Anchorage. Generally, the cost of
food and transportation is less in Anchorage than elsewhere in the State. Due to lower
residential land costs, the cost of housing in the Gulf Coast and Southeast is lower than
in Anchorage and this offsets higher food and transportation costs. In the Northern,
Northwest/Interior and Southwest, all costs including housing are higher due to the
combination of remoteness and severe climatic conditions.
Purchasing Power
When per capita incomes are adjusted for cost-of-living, the resulting data shows
average purchasing power - how far each dollar “goes”. Fairbanks, the Gulf Coast
region, and urbanized portions of the Southeast enjoy purchasing power comparable to
Anchorage. Elsewhere, only Bristol Bay matches the Anchorage level. Per capita
purchasing power lags far behind Anchorage in the remainder of the Northern,
Northwest/Interior, and Southwest regions.
31
Cost of Service Delivery
Closely paralleling the cost of living is the cost of delivering public services. The same
factors of remoteness and severe conditions that make the cost-of-living high in the
Northern, Northwest/Interior, and Southwest regions add costs to the delivery of
services. The expense premium that is imposed in more remote parts of the state ranges
from 108 percent of Anchorage costs on Kodiak Island to 150 percent in the North Slope
region.
32
Table 11.
Socio-Economic Variations Among Regions
(Anchorage = 100)
Per Capita Purchasing
Region Income Cost of Living Power
Anchorage/Mat-Su
Anchorage 100 100 100
Matanuska-Susitna 67 103 65
Fairbanks
Denali 85 111 76
Fairbanks-North Star 100 102 98
Southeast Fairbanks 74 111 67
Gulf Coast
Kenai Peninsula 99 99 100
Valdez-Cordova 112 110 102
Northern
North Slope 107 154 69
Northwest/Interior
Bethel 64 137 47
Nome 64 140 46
Northwest Arctic 76 144 53
Wade Hampton 44 134 33
Yukon Koyukuk 69 130 53
Southeast
Haines 103 105 98
Juneau 114 104 110
Ketchikan 122 100 122
Prince of Wales 73 86 85
Sitka 103 101 103
Skagway-Hoona 96 100 96
Yakutut 90 123 73
Southwest
Aleutians East 101 139 73
Aleutians West 96 134 75
Bristol Bay 134 137 98
Dillingham 81 133 61
Kodiak Island 95 100 95
Lake & Peninsula 76 134 57
Cost of
Service
Delivery
100
100
112
103
111
101
113
149
139
138
143
137
134
103
102
103
108
102
106
120
134
132
n/a
131
108
134
Source: Regional accounts, U.S. Bureau of Labor Statistics, 1997; School District Study: Regional
Differentials, Alaska Department of Education, 1990.
The Alaska Permanent Fund
The clearest and most direct impact on Anchorage - and all of Alaska - from economic
activity in a peripheral region is the Alaska Permanent Fund. Its financing is based
entirely on state revenues derived from North Slope oil production. The initial deposit
of $734,000 was made on February 28, 1977. As of June 30, 1997, the Fund was a $22.1
billion asset.
The Fund was created by Alaska voters in November, 1976 through a constitutional
amendment that set aside a portion of revenues generated by the North Slope’s huge
petroleum resource. Three years later in 1980, the Legislature created the Alaska
Permanent Fund Corporation (APFC) as an independent entity to manage the Fund’s
growing assets and to separate the savings functions of the Fund from the spending
functions of the state. By legislative mandate, the Fund must “be conservatively
invested to safeguard its principal while maximizing its return within acceptable levels
of risk”.
In fiscal 1996, the Permanent Fund for the first time produced more earnings from its
investment portfolio than the state’s General Fund received in oil revenues. This
milestone was due in part to the Fund’s gains from a surging U.S. stock market and is
not expected to be repeated for several years. However, it is a harbinger of the future.
Annual oil revenues are expected to slowly decline while Fund assets accumulate and
generate ever-larger earnings. (see Figure 13).
Figure 13
Alaska Permanent Fund Income and State Oil Revenue
4,000
3,500 +
3,000 | (7 Fund Income |
7 —@ Oil Revenue '
€ 2,500 +
3 > 2,000 +
3 y le off
1,000 +
500 + | |
ot __all |
2009 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2012 #82015
Source: Alaska Permanent Fund Corporation, 1996 Annual Report.
34
The Fund’s economic impact occurs in two ways. First, the Dividend Program
distributes per capita payments to Alaska residents. Distributions are based on the
Fund’s average net income in the preceding five years divided by eligible population.
During 1981-1996, a total of $5.8 billion was distributed. At more than $1000 per
recipient, the 1996 distribution was $643 million (Figure 14). This exceeds the total
payroll of all but two Alaska industries: petroleum and the U.S. government.
Figure 14
Income Paid Out for Dividends, 1976-1997
3 ae
Millions of dollars yo Qa Senter + +
; | : H
Re tz | Ek
Lo n A A in il
1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Source: Alaska Permanent Fund Corporation, 1996 Annual Report.
The other source of Fund-related economic impact are policies to assure that Alaska-
based entities are directly involved in the Fund’s investment process. A “directed
brokerage program” ensures that Alaska firms share in the commissions generated by
the Fund’s stock trades. The Fund’s real estate portfolio is invested in Alaska properties
when they generate rates of return comparable to out-of-state properties. On the fixed-
income side, $300 million is allocated to Alaska financial institutions for purchase of
certificates of deposit which add to the capital available for loans to in-state businesses.
North Slope petroleum revenues are the primary source not only of dedicated state
revenues for the Fund but are also of financing for state special appropriations and
inflation-proofing. Since its inception the Fund has received five special legislative
appropriations which constitute the single largest source of growth in principal to date.
Two of these, totaling $1.8 billion, occurred in 1996 and increased the Fund’s principal
35
by 13%. Currently, $5.8 billion in Fund principal (36%) is due to special appropriations,
$5.7 billion (35%) is due to dedicated state revenues, and $4.6 billion (29%) is due to
inflation-proofing. The latter is a provision designed to preserve the value of Fund
assets on an inflation-adjusted basis by transferring a portion of General Fund income
into the Permanent Fund.
In mailing the dividend checks for 1995, the APFC included an Alaska resident survey
which generated the following information. Twenty-five percent of respondents said
they intended to save the entire dividend, 33 percent said they would spend the entire
amount and 42 percent planned some combination of spending and saving.
Both saving and spending the dividend benefit Alaska’s economy. Savers’ priorities
included education, a rainy day fund, retirement and vacations. Of those who intended
to spend all or part of the dividend, 76 percent said their spending of dividend dollars
would be done within the state. Priority uses of spending included paying off bills,
meeting day-to-day expenses, paying medical costs, and traveling in Alaska. Each of
these expenses stimulates the Alaska economy.
Permanent Fund Economic Impact: The economic impact analysis estimates that each
$1 million dispersed in dividends supports 8.4 full-time jobs within the state. Six of
those jobs are within the Anchorage/Mat-Su core region. When applied to the 1996
dividend of $643 million, this ratio generates the equivalent of 5,383 jobs and $146
million in labor earnings (i.e., wages and salaries and proprietors’ income); 3,152 jobs
are estimated to be supported in Anchorage/Mat-Su core region, the remainder of 2,231
jobs are supported within the periphery region. Jobs and earnings linked to the
economic impact of the Permanent Fund dividend arise both directly through consumer
spending and indirectly through job (and labor earnings) creation financed by dollars
that dividend recipients have saved and invested.
The following three tables (Tables 12, 13, and 14) show Permanent Fund economic
impacts statewide and in the core and periphery regions.
36
Table 12.
Statewide Alaska: Impacts of Permanent Fund Dividend
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. services, forestry, fisheries 1.2 31 0.5 0.2
Mining, Total 8.9 12 1.4 4.1
Other mining 0.3 1 0.1 0.1
Oil & gas extraction 8.7 11 13 4.0
Construction 14.0 117 6.0 2.7
Manufacturing, Total 15.2 66 2.5 2.8
Durable manufacturing 1.1 11 0.3 0.1
Nondurable manufacturing 14.2 55 2.2 2.6
Transport & public utilities 36.9 210 9.0 9.7
Wholesale trade 14.7 151 5.8 3.0
Retail trade 85.3 2,125 46.1 14.2
Finance, insurance & real estate 108.1 467 10.2 60.2
Services 104.6 2,062 57.8 11.0
Government & gov't. enterprises, Total 18.2 142 6.6 3.3
Federal, civilian 5.2 83 3.1 0.5
State & local 13.0 60 3.5 2.8
TOTAL 407.2 5,383 146.0 111.0
Table 13.
Rest of Alaska: Impacts of Permanent Fund Dividend
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. services, forestry, fisheries 0.5 11 0.2 0.1
Mining, Total 5.4 7 0.9 2.4
Other mining 0.2 1 0.1 0.1
Oil & gas extraction 5.2 6 0.8 2.4
Construction 7.0 59 3.2 13
Manufacturing, Total 10.1 27 1.2 1.7
Durable manufacturing 0.5 4 0.1 0.1
Nondurable manufacturing 9.7 23 1.1 1.6
Transport & public utilities 16.3 88 3.8 4.6
Wholesale trade 3.9 40 1.5 0.8
Retail trade 36.7 928 20.0 6.1
Finance, insurance & real estate 21.9 148 2.5 10.1
Services 43.3 852 24.0 4.4
Government & gov't. enterprises, Total 9.9 70 3.3 2.0
Federal, civilian 2.3 37 14 0.2
State & local 7.6 33 1.9 1.8
TOTAL 155.0 2,231 60.6 33.6
37
Table 14.
Anchorage/Mat-Su Core Region: Impacts of Permanent Fund Dividend
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. services, forestry, fisheries 0.7 21 0.3 0.1
Mining, Total 3.5 4 0.5 1.6
Other mining 0.0 0 0.0 0.0
Oil & gas extraction 3.5 4 0.5 1.6
Construction 7.0 58 2.8 1.4
Manufacturing, Total 5.1 39 1.2 1.1
Durable manufacturing 0.6 7 0.2 0.1
Nondurable manufacturing 45 32 1.0 1.0
Transport & public utilities 20.6 122 5.2 5.0
Wholesale trade 10.8 111 4.2 2.2
Retail trade 48.6 1,197 26.2 8.0
Finance, insurance & real estate 86.2 319 8.0 49.9
Services 61.3 1,210 33.9 6.5
Government & gov't. enterprises, Total 8.3 72 3.3 1.2
Federal, civilian 2.9 45 1.7 0.3
State & local 5.5 27 1.6 1.0
TOTAL 252.2 3,152 85.6 77.2 SS
38
Economic Scenarios
Thus far, the study has dealt with data related to current realities. However, a further
dimension is included in the evaluation of rural Alaska’s impact on the Anchorage
economy. A number of events on the near horizon carry a medium-to-high degree of
probability that they will become future realities. Each of these events would augment
the already strong links between Alaska’s regions. While they involve some degree of
uncertainty, these economic scenarios are essential to complete the picture of Alaska’s
economic partnership.
These scenarios illustrate the connective economic linkages between the
Anchorage/Mat-Su core region and the rest of Alaska periphery. In each of the
following scenarios, impact estimates are provided for the State of Alaska and its core
and periphery regions.
Scenario I: Enhanced Petroleum Recovery
As recently as four years ago, the oil industry and the Alaska Oil & Gas Conservation
Commission projected that North Slope production would decline 42% from its 1995
level of 1.55 million barrels per day to 900,000 barrels per day in the year 2001.
Updated projections now call for production to fall until 1999 and then begin to
rebound toward 1.3 billion barrels per day in 2001. What has changed?
The earlier projection has been revised upward by a combination of recent advances in
oil-recovery technology, lower operating costs, and state laws encouraging
development of fields that until now have been considered marginal.
New technology is being applied to squeeze more oil out of older fields at Prudhoe Bay
and Kuparuk. At these fields, 125 new wells will be drilled in 1997, the most in any
year since the early 1980s. Of the four to six billion barrels the industry believes can be
added to Alaska oil reserves over the next ten years, 60 percent would come from
application of enhanced recover techniques at existing fields.
Recoverable reserves will also be increased by drilling at West Sak, the North Slope’s
huge reservoir of heavy oil. It is expected to yield up to 300 million barrels of crude
from one core area. Internal management efficiencies, cost-reduction technology,
advanced recovery methods and an improved investment climate created by
cooperation between the industry and the state contribute to make this effort feasible.
The industry is also targeting “satellite” accumulations of untapped pools in and
around fields currently in production. An example is the Tarn prospect, a pool of high
quality crude adjacent to the Kuparuk field.
39
More intensive oil recovery at existing fields and development of new opportunities
have boosted five-year capital spending plans by $1 billion at BP and $500 million at
ARCO. An example is the 120-million barrel Badami deposit 35 miles east of Prudhoe
Bay. It will be in production in late 1997 at a cost of $300 million. Investments include a
26-mile pipeline where crude will connect with existing infrastructure at the Endicott
field.
Scenario I Economic Impact: Oil production funds more than 80 percent of the state
budget and is the foundation of Alaska’s economy. The commitment of North Slope
producers to a goal of “No Decline After ‘99” represents an important shift away from
projections that the sector would diminish in importance. Combined with the proposed
gas pipeline (see below), this suggests a high-level petroleum presence will be sustained
in the economy.
In total, ARCO and BP believe reserves from dozens of satellites on the North Slope
could hold one billion barrels of crude. Tarn, another field, could contain as much as
200 million barrels. Using a ratio of 55 cents per barrel in taxes and royalties for state
and local governments in Alaska, Tarn would yield state and local revenues of over
$100 million, with $400 million added by other satellite fields, The same ratio generates
revenues of $750 million from heavy oil recovery at new fields and $1.2-1.8 billion from
enhanced recovery at existing fields.
The impact of an enhanced petroleum recovery program, assuming that it will add
400,000 barrels of crude oil production, that the price of oil would be roughly $15 per
barrel, and the enhanced recovery program is valued at $2.20 billion annually, shown in
Tables 15, 16, and 17 below.
40
Table 15.
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. Services, forestry, fisheries 2.5 94 15 0.1
Mining, total 2,322.9 2,923 349.3 1,077.6
Other mining 0.5 2 0.2 0.1
Oil & gas extraction 2,322.4 2,921 349.1 1,077.5
Construction 434.3 3,959 290.1 70.2
Manufacturing, total 29.5 155 5.8 4.6
Durable manufacturing 2.9 29 0.9 0.3
Nondurable manufacturing 26.6 126 4.8 4.3
Transport & public utilities 69.4 421 16.9 16.8
Wholesale trade 19.9 205 7.8 4.1
Retail trade 77.5 1,933 41.6 12.7
Finance, insurance & real estate 313.2 1,722 20.2 173.0
Services 133.1 2,603 72.2 14.0
Government & gov’t enterprises, total 31.0 221 10.3 6.3
Federal, civilian 7.2 116 4.2 0.9
State & local 23.8 105 6.1 5.4
TOTAL _ eS 14,236 815.8 1,379.4
Table 16.
Rest of Alaska Periphery Region: Impacts ; of Enhanced Petroleum Recovery Program
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. Services, forestry, fisheries 0.8 29 0.5 01
Mining, total 1,382.6 1,740 207.9 641.3
Other mining 0.5 2 0.2 0.1
Oil & gas extraction 1,382.1 1,738 207.8 641.2
Construction 416.8 3,814 283.2 66.8
Manufacturing, total 19.7 66 2.9 2.6
Durable manufacturing 15 13 0.4 0.2
Nondurable manufacturing 18.2 53 2.5 2.5
Transport & public utilities 31.1 175 7.3 8.4
Wholesale trade 5.3 55 2.1 1.1
Retail trade 33.2 842 18.0 5.5
Finance, insurance & real estate 108.4 682 6.4 57.9
Services 52.7 1,032 28.6 5.4
Government & gov’t enterprises, total 17.2 111 5.3 3.8
Federal, civilian 3.3 52 1.9 0.4
State & local 13.9 59 3.4 3.4
TOTAL _ 2,067.8 8,545 562.1 792.9
41
Table 17.
Anchorage/Mat-Su Core Region: Impacts of Enhanced Petroleum Recovery Program
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. services, forestry, fisheries 1.7 65 1.1 0.1
Mining, total 940.4 1,183 141.4 436.3
Other mining 0.0 0 0.0 0.0
Oil & gas extraction 940.3 1,183 141.4 436.3
Construction 17.5 145 7.0 3.4
Manufacturing, total 9.8 89 2.8 2.0
Durable manufacturing 1.4 16 0.5 0.1
Nondurable manufacturing 8.4 73 2.3 1.8
Transport & public utilities 38.2 246 9.6 8.5
Wholesale trade 14.6 150 5.7 3.0
Retail trade 44.2 1,091 23.6 7.2
Finance, insurance & real estate 204.8 1,039 13.8 115.1
Services 80.4 1,571 43.7 8.6
Government & gov’t enterprises, total 13.9 110 5.0 2.5
Federal, civilian 4.0 64 2.3 0.5
State & local 9.9 46 2.7 2.0
TOTAL 1,365.5 5,690 253.6 586.5 eS
Scenario II: The Trans-Alaska Gas System
The Trans-Alaska Gas System (TAGS) is a proposal by Yukon Pacific Corporation, an
Anchorage-based business unit of CSX Corporation. The TAGS project would include a
gas-conditioning plant on the North Slope and an 800-mile, 42 inch diameter buried
pipeline paralleling the existing Trans-Alaska Pipeline System (TAPS) used to transport
petroleum from Prudhoe Bay to Valdez.
The primary market served by TAGS would be large electric and gas utilities in Japan,
South Korea and Taiwan. The economic rationale for the project is grounded in
projections of East Asia demand for natural gas. Soon after the year 2000, serving these
markets will require bringing at least one major new supplier on line.
Yukon-Pacific Corporation has secured or satisfied the needed legal approval and
requirements to export North Slope natural gas to Asia, including a completed project-
wide Final Environmental Impact Statement from twenty-one federal and state
agencies, and authorization from the President of the U.S. and the Department of
Energy to market Alaska-produced Liquefied Natural Gas (LNG) in Asia. Government
authorities have also issued specific approvals for pipeline corridor right-of-way and
for construction of the port facility at Anderson Bay near Valdez.
42
During the first half of the 1990s, definitive progress on the TAGS project was slowed
by complicating factors. Other extensive natural gas resources that might serve East
Asia are located in Indonesia, Australia, New Guinea, Oman, Qatar, Yemen and the
Soviet Far East (Sakhalin). Several companies operating in Alaska also hold reserves in
the Middle East and Southeast Asia, making it difficult to predict their priorities in
developing resources to serve specific markets.
One central issue is state policy toward oil and gas taxation. TAGS proponents have
argued that a project of this magnitude requires stable planning assumptions, including
the portion of income that must be set aside for state taxes. Also, since the pipeline
crosses multiple jurisdictions, tax policy must assure uniformity at the local level.
There has been forward movement. In 1997, memoranda of understanding were signed
between the Governor of Alaska, Yukon Pacific, and ARCO, BP, Exxon, and Phillips
Petroleum to work together on gas pipeline issues including state fiscal policy impacts,
project cost minimization, and hiring of Alaskans on the project. A task force charged
with finding ways to produce and sell North Slope natural gas was appointed to
address these issues and report early in 1998.
Yukon-Pacific enjoys three advantages over potential alternative sources. First, proven
reserves and established gas handling facilities on the North Slope. Second, trained
experienced resident workforce in place to construct and operate the system. Third, the
geo-political stability of Alaska as part of the United States.
Having secured the necessary environmental and construction permits, Yukon Pacific’s
forward movement on TAGS now depends on negotiating long-term sales agreements
with North Slope producers of natural gas and purchase agreements with buyers who
will sell to final consumers in Asia. These agreements are crucial to project financing.
Scenario II Economic Impact: Yukon-Pacific has commissioned several independent
studies on the construction of TAGS. The latest cost estimate, which incorporates
savings through design changes, is $13.3 billion. Including detailed engineering and
design, the project is expected to take seven years to build. It would employ a labor
force of 10,000-12,000 direct contract workers receiving total earnings of $3.5 - $4.5
billion during the construction phase.
These numbers compare with the $22.5 billion total spent on North Slope oil
development in then-current dollars from 1980 through 1994. If the same Alaska-to-
USS. ratio held for TAGS, the state’s share related to construction of the gas pipeline
would be $2.93 billion. During operation, a payroll of $25-30 million a year would
support 600 direct employees.
43
What are the statewide and regional impacts related to building the Trans-Alaska Gas
System? The Trans-Alaska Gas System represents an estimated $2.2 billion in-state
expenditure by Yukon Pacific Corporation. As in the case of the enhanced petroleum
recovery program, both the Anchorage/Mat-Su core region and the periphery clearly
benefit from the infusion of capital in constructing the gas pipeline.
Table 18.
Statewide Alaska: The Trans-Alaska Gas System
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. services, forestry, fisheries 3.5 123 2.0 0.3
Mining, total 22.3 29 3.4 10.2
Other mining 0.5 1 0.2 0.1
Oil & gas extraction 21.8 27 3.3 10.1
Construction 2,846.2 25,856 1,315.4 816.5
Manufacturing, total 46.3 229 8.3 7.3
Durable manufacturing 8.8 85 2.7 1.1
Nondurable manufacturing 37.5 144 5.7 6.2
Transport & public utilities 92.8 618 23.4 22.0
Wholesale trade 45.0 464 17.7 9.3
Retail trade 197.8 4,825 107.6 33.4
Finance, insurance & real estate 228.5 969 22.8 126.5
Services 394.4 6,962 212.2 40.6
Government & gov’t enterprises, total 37.4 310 14.3 6.1
Federal, civilian 12.3 193 75 1.0
State & local 25.1 117 6.8 5.1
TOTAL 3,914.3 40,384 1,727.0 1,072.0
teks 19.
iene ~ Labor Other
Output Income Value Added
Sector (millions $) Employment | (millions $) (millions $)
Ag. Services, ‘forestry, fisheries 1.2 40 0.7 0.1
Mining, total 13.4 18 2.1 6.1
Other mining 0.5 1 0.2 0.1
Oil & gas extraction 12.9 16 19 6.0
Construction 1,834.6 16,771 853.6 529.8
Manufacturing, total 29.6 117 4.7 4.2
Durable manufacturing 4.8 50 15 0.4
Nondurable manufacturing 24.8 67 3.1 3.8
Transport & public utilities 49.6 261 14.5 10.3
Wholesale trade 12.0 124 4.7 2.5
Retail trade 84.2 2,091 46.1 14.2
Finance, insurance & real estate 43.1 230 6.5 18.0
Services 146.2 2,422 84.0 9.7
Government & gov’t enterprises, total 20.0 162 71 3.8
Federal, civilian 5.5 49 3.4 0.5
State & local 14.5 113 3.7 3.4
TOTAL 2,233.9 22,235 1,023.8 598.8
Table 20.
Lie Anchorage/Mat-Su Core Region: The Trans-Alaska Gas System _
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. Services, forestry, fisheries 2.3 83 1.3 0.1
Mining, total 8.8 11 1.3 4.1
Other mining 0.0 0 0.0 0.0
Oil & gas extraction 8.8 11 1.3 4.1
Construction 1,011.7 9,085 461.8 286.7
Manufacturing, total 19.2 134 3.7 3.1
Durable manufacturing 4.0 54 1.2 0.2
Nondurable manufacturing 15.2 81 2.5 2.8
Transport & public utilities 43.2 357 8.8 11.7
Wholesale trade 33.0 340 13.0 6.7
Retail trade 113.7 2,734 61.5 19.1
Finance, insurance & real estate 185.5 739 16.3 108.5
Services 248.2 4,540 128.2 30.9
Government & gov’t enterprises, total 17.4 64 7.2 2.3
Federal, civilian 6.8 59 4.1 0.6
State & local 10.6 4 3.1 1.7
TOTAL 1,682.9 18,086 703.2 473.2
45
Scenario III: ANWR Development
Sixty-five miles east of Prudhoe Bay is an area that various U.S. Department of Interior
studies say has a 19%-42% prospect of containing 3 to 9 billion barrels of recoverable oil
reserves. At peak production, this field alone would account for 33% of U.S. output.
The site is located on the coastal plain portion of the Arctic National Wildlife Refuge
(ANWR). Opening the area to oil production has become highly politicized.
Proponents note that the “footprint” for the field would be contained within 12,000
acres (18.75 square miles), an area less than 1% of the ANWR coastal plain. Supporters
of ANWR development include the Alaska Federation of Natives, oil producers and
75% of Alaskans responding to public opinion polls. Opponents include environmental
organizations in the Lower 48 and the G’wichin native people, whose subsistence
lifestyle is based on the resident caribou herd.
The national economic argument for opening ANWR to oil exploration and
development begins with the fact that current petroleum imports of 9 million barrels
per day account for over 50% of U.S. consumption and could climb to 65% early in the
next century, absent new domestic sources of production. This level of imports
generates nearly half the U.S. balance-of-payments deficit in world trade.
Recently, a 100 million barrel discovery was announced at Sourdough, adjacent to the
western border of ANWR, and exploration is planned at Camden Bay off-shore from
the coastal plain. This activity is part of continued development of smaller fields east of
Prudhoe Bay and west of ANWR. Rather than focusing on the next “big hit”, this
strategy focuses on developing a diverse mix of known prospects.
The economics are at times complex since some fields cannot be developed until the
infrastructure of neighboring fields is in place. Yet, proven reserves are significant and
production has begun on some portions of this resource. ANWR has even greater
potential. It would likely be a major force in bending oil production forecasts upward,
beyond recent positive revisions.
Scenario II] Economic Impact: The benefits of ANWR development to the state
economy and state revenues would be both short-term (the construction phase) and the
long-term (the production phase). In this scenario, the focus is estimating the economic
impacts during a peak production year. Estimated at providing one-third of total U.S.
crude oil output, ANWR production alone would represent the equivalent of another
entire petroleum industry within Alaska.
As seen in the accompanying tables, the economic impact of opening the Arctic
National Wildlife Refuge to oil and gas development would be very large. Clearly, the
development of ANWR would be a boon for Alaska. The periphery region, particularly
the North Slope Borough, would capture the majority of the economic benefits
46
including nearly two-thirds of the additional employment of 19,414 workers. The
Anchorage/Mat-Su regional economy would also benefit enormously from the oil
development in ANWR.
Table 21.
Statewide Alaska: Oil & Gas Extraction Impacts in Arctic National Wildlife Refuge
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. services, forestry, fisheries 3.5 128 2.1 0.2
Mining, total 3,167.6 3,986 476.3 1,469.4
Other mining 0.7 3 _ 02 0.2
Oil & gas extraction 3,166.9 3,983 476.1 1,469.3
Construction 592.2 5,399 395.7 95.7
Manufacturing, total 40.2 213 8.1 6.0
Durable manufacturing 3.9 40 15 0.2
Nondurable manufacturing 36.3 173 6.6 5.9
Transport & public utilities 94.6 573 23.0 23.0
Wholesale trade 27.1 279 10.6 5.6
Retail trade 105.6 2,636 56.7 17.3
Finance, insurance & real estate 427.1 2,348 27.5 235.8
Services 181.5 3,550 98.5 19.1
Government & gov’t enterprises, total 42.3 302 14.0 8.6
Federal, civilian 9.9 158 5.7 1.2
State & local 32.5 144 8.4 7.4
TOTAL : 4,681.8 19,414 1,112.6 1,880.8
47
Table 22.
Rest of Alaska: Oil & Gas Extraction Impacts in Arctic National Wildlife Refuge
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $)} (millions $)
Ag. Services, forestry, fisheries 1.1 39 0.7 0.1
Mining, total 2,202.0 2,773 331.1 1,021.4
Other mining 0.7 4 0.2 0.2
Oil & gas extraction 2,201.3 2,769 330.9 1,021.3
Construction 568.3 5,201 386.1 91.1
Manufacturing, total 26.8 90 4.0 3.6
Durable manufacturing 2.0 18 0.6 0.2
Nondurable manufacturing 24.8 72 3.4 3.4
Transport & public utilities 42.4 238 10.2 16.8
Wholesale trade 7.2 75 2.8 15
Retail trade 45.3 1,148 24.5 7.5
Finance, insurance & real estate 147.9 931 8.7 78.9
Services 71.9 1,407 39.0 7.4
Government & gov’t enterprises, total 23.4 152 7.2 5.2
Federal, civilian 44 71 2.5 0.6
State & local 19.0 81 4.7 4.7
TOTAL 3,136.5 12,054 814.4 1,233.4
Table 23.
AnchoragelMat-Su: Oil & Gas Extraction Impacts in Arctic National Wildlife Refuge
Industry Labor Other
Output Income Value Added
Sector id (millions $) Employment (millions $) (millions $)
Ag. services, forestry, fisheries 2.3 89 14 0.1
Mining, total 965.6 1,215 145.2 448.0
Other mining 0.0 0 0.0 0.0
Oil & gas extraction 965.6 1,215 145.1 448.0
Construction 23.9 198 9.5 4.7
Manufacturing, total 32.2 127 4.0 2.5
Durable manufacturing 19 24 0.9 0.0
Nondurable manufacturing 30.3 104 3.2 2.5
Transport & public utilities 67.9 335 13.3 25.3
Wholesale trade 19.9 205 7.8 4.1
Retail trade 60.3 1,488 32.2 9.9
Finance, insurance & real estate 279.2 1,417 19.1 156.6
Services 109.6 2,143 59.5 11.7
Government & gov’t enterprises, total 18.9 150 6.8 3.4
Federal, civilian 5.4 87 3.1 0.7
State & local 13.5 63 3.7 2.7
TOTAL 7 7 i __1,579.9 7,367 298.8 666.2
48
Scenario IV: The Alaska Seafood Center
The Alaska Seafood Center, Inc. (ASC) is a notable example of the economic partnership
between rural Alaska and the Anchorage/Mat-Su region. Ground was broken near the
Anchorage International Airport in June for the first large-scale, value-added, high
volume fish processing plant in Alaska. The high-tech manufacturing facility is
expected to produce 100 million pounds of prepared seafood annually from pollock,
cod, salmon, halibut, and flatfish for shipment to domestic and overseas markets.
ASC’s state-of-the-art processing line equipment will be suitable for coating, saucing,
and topping prepared food entrees, surimi products, kamaboko, and frozen and fresh
portions of salmon, halibut and groundfish.
Presumably, much if not all of the fish will come from Bristol Bay and Dutch Harbor in
Alaska’s Southwest region. Company officials say they considered Anchorage to be the
only practical location in Alaska for the facility because it must be near a major
transportation hub and in a community large enough to supply hundreds of year-
round workers and to attract experienced executives.
Scenario IV Economic Impact: The Alaska Industrial Development Export Authority
(AIDEA) will provide $48 million in funding for the $125 million project, which will
employ about 450 direct year-round jobs at the Anchorage facility and 350 additional
indirect jobs in related business sectors including transportation. There will also be
nearly $100 million in construction spending and jobs. The facility will strengthen the
seafood industry in Alaska by enhancing the cold storage and freight forwarding
capacities in Anchorage. Over the long term it is anticipated that ASC will pay more
than $9 million per year to the State in fish taxes and in excess of $1.9 million annually
in real estate taxes to the Municipality of Anchorage.
The ASC complex will include a 40 million pound cold storage adjacent to the
processing plant. Americold Corp., the largest cold storage company in the country,
will construct, own and operate the plant. While ASC will be its primary customer, the
cold storage will be a public facility available to other users.
- This scenario explicitly accounts for the impacts associated with operating the proposed
Alaska Seafood Center. Under the construction phase, the principal beneficiary is the
core region of Anchorage/Mat-Su where the facility is to be located. In addition,
benefits of the construction spill over into other regions of Alaska.
49
Table 24.
Statewide Alaska: Operation of Alaska Seafood Center
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. services, forestry, fisheries 5.7 110 3.2 1.0
Mining, total 0.9 1 0.1 0.4
Other mining 0.0 0 0.0 0.0
Oil & gas extraction 0.9 1 0.1 0.4
Construction 1.6 13 0.7 0.3
Manufacturing, total 127.0 862 26.8 11.2
Durable manufacturing 0.1 0 0.0 0.0
Nondurable manufacturing 126.9 862 26.8 11.2
Transport & public utilities 8.9 73 2.3 18
Wholesale trade 7.3 75 2.9 1.5
Retail trade 4.4 110 2.4 0.7
Finance, insurance & real estate 6.5 29 0.6 3.6
Services 7.4 142 4.0 0.8
Government & gov't enterprises, total 1.4 9 0.4 0.3
Federal, civilian 0.3 5 0.2 0.0
State & local 1.0 4 0.2 0.3
TOTAL 171.0 1,424 43.6 21.5 ES
Table 25.
Rest of Alaska: Operation of Alaska Seafood Center
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. Services, forestry, fisheries 5.2 95 3.1 0.9
Mining, total 0.6 1 0.1 0.3
Other mining 0.0 0 0.0 0.0
Oil & gas extraction 0.5 1 0.1 0.2
Construction 0.2 7 0.4 0.1
Manufacturing, total 5.3 32 1.1 0.5
Durable manufacturing 0.0 0 0.0 0.0
Nondurable manufacturing 5.3 32 1.0 0.5
Transport & public utilities 3.9 31 1.6 13
Wholesale trade 1.9 20 0.7 0.4
Retail trade 1.9 48 1.0 0.3
Finance, insurance & real estate 1.4 9 0.2 0.6
Services 2.9 66 1.6 0.3
Government & gov’t enterprises, total 0.8 5 0.2 0.2
Federal, civilian 0.2 1 0.1 0.0
State & local 0.6 4 0.1 0.1
TOTAL _ 24.0 312 9.9 5.0
50
Table 26.
Anchorage/Mat-Su: Operation of Alaska Seafood Center
Industry Labor Other
Output Income Value Added
Sector (millions $) Employment (millions $) (millions $)
Ag. services, forestry, fisheries 0.5 15 0.2 0.1
Mining, total 0.4 0 0.1 0.2
Other mining 0.0 0 0.0 0.0 Oil & gas extraction 0.4 0 0.1 0.2
Construction 1.4 7 0.3 0.2
Manufacturing, total 121.6 830 25.8 10.6
Durable manufacturing 0.1 0 0.0 0.0
Nondurable manufacturing 121.5 830 25.8 10.6
Transport & public utilities 5.0 42 0.7 0.4
Wholesale trade 5.3 55 2.1 1.1
Retail trade 2.5 62 14 0.4
Finance, insurance & real estate 5.1 20 0.5 2.9
Services 4.5 76 2.4 0.5
Government & gov’t enterprises, total 0.6 3 0.2 0.1
Federal, civilian 0.2 2 0.1 0.0
State & local 0.4 1 0.1 0.1
TOTAL 147.0 1,109 33.7 16.5
51
CONCLUSION AND SUMMARY
The economy of every state is bound together by complex linkages that are seldom fully
understood even by those who benefit from them. Each region within a state has a
tendency to think of itself as autonomous and independent. Yet, analysis reveals that a
complex network of supplier, producer, and consumer relationships binds regions
together and provides a higher level of economic activity than each of them would
enjoy in isolation.
In Alaska, these factors are particularly strong. Outlying areas of the state benefit from
high-quality goods that are produced in the Anchorage core and from specialized
services that are available only in Anchorage. This pattern is typical of all states. What
is unique to Alaska is the proportion of benefits Anchorage receives from the periphery.
By a ratio of eight to one, more of its residents commute to the rest of Alaska for jobs
and income than commute from the periphery into the core. This is opposite to the
pattern in most states.
An even greater benefit to Anchorage is its role as the administrative center and the
staging area for resource industries statewide. Anchorage residents holding jobs
related to this role do not commute from the core area, yet their incomes depend on
demand from the rest of Alaska for Anchorage-based goods and services.
The jobs of 25,000 Anchorage-area residents - one job in every seven - are supported
directly or indirectly by the economic vitality in the rest of Alaska. As described, this
happens in three ways: commuting to on-site work in the rest of Alaska, demand from
businesses located in rural areas for vital production inputs from Anchorage-based
firms, and consumer purchases of goods and services made in Anchorage by residents
of the Alaska periphery.
Anchorage exports a large portion of its output - one-third of the total - and 60 percent
of this goes elsewhere in the state. The net effect of linkages to rural Alaska is a $2.4
billion favorable “balance of trade” with the rest of the state: $3.4 billion in Anchorage
earnings and sales, offset by an outflow of less than $1 billion in the reverse direction.
Thus, the economic ties between the two regions are not only strong but are highly
beneficial to Anchorage.
A linked economy profits Anchorage and serves Alaska. With continued good fortune,
a cooperative spirit, and a strategy based on realism, these beneficial ties can and
should continue into the future.
52
References
Alaska Agricultural Statistics Service. Alaska Agricultural Statistics, 1997. May, 1997.
Palmer, AK.
Alaska Department of Commerce and Economic Development. Alaska Economic
Development Projects: Regional Attributes and Opportunities. August, 1996. Juneau, AK.
Alaska Department of Commerce and Economic Development, Division of Trade and
Development. Alaska Economy Performance Report, 1996. June 1996. Anchorage, AK.
Alaska Department of Community and Regional Affairs. Alaska Regional Profiles:
Economy, Employment and Public Assistance. January 1996. Juneau, AK
Alaska Department of Labor, Research & Analysis Section. Alaska Economic Trends,
various issues. Juneau, AK.
Alaska Department of Labor, Research & Analysis Section. Employment and Earnings
Summary Report for Alaska and 27 Census Areas, 1994, 1995, and 1996 (draft). Juneau, AK.
Alaska Department of Natural Resources, Division of Geological & Geophysical
Surveys. Alaska’s Mineral Industry 1996: A Summary. April 1997. Juneau, AK.
Alaska Department of Revenue. Revenue Sources Book: Forecast and Historical Data,
Spring 1997. May 1997. Juneau, AK.
Alaska Permanent Fund Corporation. 1996 Annual Report. Juneau, AK.
Chase, Robert A. and Glenn Pascall. Jobs Today—Jobs Tomorrow: The Puget Sound-Alaska
Partnership. An Economic Impact Analysis. Commissioned by the Tacoma-Pierce County
Chamber of Commerce and Greater Seattle Chamber of Commerce, February, 1996.
Holland, David W. and Bruce A. Weber. Rural-Urban Interdependence and Natural
Resource Policy. May, 1996. Corvallis, OR: Oregon State University, Western Rural
Development Center.
Krugman, Paul. Geography and Trade. Cambridge, MA: The MIT Press, 1991.
Municipality of Anchorage, Community Planning & Development Department.
Anchorage Indicators, 1997. March 1997. Anchorage, AK.
53
Tolbert, C. and M. Killian. Labor Market Areas for the United States. Pub. No. A93.44:
AGES-870-721, U.S. Department of Agriculture, Agriculture and Rural Economy
Division, Washington, D.C.
U.S. Department of Commerce, Bureau of Economic Analysis. Annual Revision of the
National Income and Product Accounts, Annual Estimates, 1993-1996 and Quarterly
Estimates, 1993:1-1997:1” Survey of Current Business, Vol. 77, No. 8 (August 1997): 6-167.
U.S. Department of Commerce, Bureau of the Census. Annual Survey of Manufacturers,
various years.
U.S. Department of Commerce, Bureau of the Census. Census of Finance, Insurance, and
Real Estate, 1992.
U.S. Department of Commerce, Bureau of the Census. Census of Manufacturers, 1992,
Alaska.
U.S. Department of Commerce, Bureau of the Census. Census of Retail Trade, 1992,
Alaska.
U.S. Department of Commerce, Bureau of the Census. Census of Services, 1992, Alaska.
U.S. Department of Commerce, Bureau of the Census. Census of Wholesale Trade, 1992,
Alaska.
U.S. Department of Commerce, Bureau of Economic Analysis. Regional Economic
Information System, 1969-1995. August 1997.
U.S. Department of Commerce, Bureau of Economic Analysis. State Personal Income,
1969-1996. September 1997.
University of Alaska Anchorage, Center for International Business. Value of Exports from
Alaska to Major Regions, 1991-1996. April, 1997. Anchorage, AK.
University of Alaska Anchorage, Institute of Social and Economic Research. Alaska’s
Gross State Product, 1963-1996. May, 1997. Anchorage, AK.
54
Appendix I
THE ALASKA IMPLAN INPUT-OUTPUT SYSTEM: A BRIEF DISCUSSION
INTRODUCTION
Inter-industry relationships were first described in 1753 by Francois Quesnay. Wassily
Leontief developed the concept of multipliers from input-output tables, and received
the Nobel prize in 1973 for his work.
Input-output analysis is a method of examining relationships within an economy
between businesses and between businesses and final consumers. It captures all
monetary market transactions for consumption in a given time period. Mathematical
formulae allow one to examine the effects of a change in one or several activities on an
entire economy (impact analysis).
A primary input-output study is based on data collected directly from industries.
Examples include the United States Benchmark Study of Input-Output accounts and the
Washington State Input-Output Study (last benchmark was 1972). Primary studies are
not common due to the high cost and time involved.
Secondary input-output studies rely on data collected from other sources to construct
the accounts. The inter-industry transaction information (e.g., purchases and sales)
generally comes from some other primary study. IMPLAN is an example of a
secondary input-output modeling system.
There are two phases in input-output analysis:
e Descriptive modeling
e Predictive modeling
A descriptive model includes information about economic interactions known as
regional economic accounts. These tables describe a local economy in terms of the flow
of dollars from purchasers within the region.
Trade flows are also part of the descriptive model. They describe the movement of
goods and services between a region and the outside world (regional imports and
exports).
The initial IMPLAN database details all purchases including imported goods and
services. When regional economic accounts are created, imports to the region are
A-1
removed, allowing the examination of local inter-industry transactions and final
purchases.
By adding social accounting data, non-industrial transactions such as payment of taxes
by businesses and households can be examined. Social accounting data includes tax
collection by governments and payments to households and businesses.
Essentially, input-output accounting describes the flow of commodities from producers
to intermediate and final consumers. Social accounting matrices (SAMs) show the flow
of money between institutions. Both input-output accounts and social accounting
matrices are part of the descriptive model.
The predictive model utilizes regional economic accounts that are used to construct
local-level multipliers. Multipliers describe the response of the economy to a stimulus
(a change in demand or production).
Purchases for final use (final demand) drive an input-output model. Industries
producing goods and services for consumption purchase goods and services from other
producers, who in turn, purchase goods and services. Indirect purchases (or indirect
effects) continue until leakages from the region (e.g., imports, wages, taxes, profits) stop
the cycle.
The indirect effects and the effects of increased household spending (induced effects)
can be mathematically derived as sets of multipliers. The derivation is called the
Leontief inverse. The resulting sets of multipliers describe, for example, the change of
output for each industry caused by a one dollar change in final demand for any given
industry.
Transaction accounts
The input-output analysis framework is similar to financial accounting that tracks
purchases of and expenditures on goods and services in dollars. Input-output
accounting traces the flow of dollars between businesses and between businesses and
final consumers.
An input-output accounting framework can be illustrated using a classic financial
accounting T-accounts which include receipts (income from sales to industries, sales to
institutions, and exports) and expenditures (expenses for purchases of local and
imported goods and services, investment, payroll, taxes, and distributed and retained
profits).
On one side are receipts, including income from sales of goods and services to
industries and institutions. Institutions are consumers and may be households, schools,
or government agencies. (In this framework, exports and investment are found under
institutions.)
A-2
On the other side of the T-account are expenditures made by industries for goods and
services to produce other goods and services. Like any double-entry bookkeeping
system, receipts must balance the expenditures. This is a fundamental convention of
input-output accounting. Across the entire economy, businesses and consumers receive
income and make expenditures. In a balanced set of accounts, all receipts equal all
expenditures.
Industry versus Commodity
The collection of businesses producing and purchasing goods and services are called
industries. The goods and services themselves are called commodities. Industries
derive their standard names from the primary commodity they produce (determined by
value). But industries often produce secondary commodities or by-products. IMPLAN
uses a commodity /industry economic accounting framework.
Input-Output Accounting
Within the IMPLAN framework there are several tables showing income and
expenditures as the flow of goods and services in dollars.
The use table details the dollar value of goods and services purchased by each industry
to use in its production process. A column is a single industry, the rows are the
commodities and the units are dollars.
The value added table details payments made by each industry to workers, taxes,
interest, profits, and other income; one column for each industry.
The make table gives the value of each commodity or service produced by each
industry. It is possible for a single industry to produce more than one category of
goods and services. In this table, a row is an industry and a column is a commodity and
the units are dollars.
The final demand table consists of purchases of goods and services for final
consumption. Each row is a commodity; the columns are the final demand sectors and
the units are dollars.
Other tables produced in the IMPLAN framework are:
The absorption table which is a tabular presentation of coefficients from the use table
derived by dividing each element of the use table by the respective industry’s total
dollar output. An industry will use a number of commodities to produce its products.
The absorption table shows the proportions of each commodity it uses. Each column is
an industry’s production function and shows the proportions of commodities used to
produce each dollar of output.
A-3
The byproducts table is also a coefficients table derived from the make table by dividing
each element by the make table row (industry) totals. Each industry can produce more
than one commodity. The byproducts table shows the percentage of an industry’s total
output that each commodity represents.
The market shares table is yet another coefficients table derived from the make table by
dividing each make element by the make column (commodity) total. Since some
industries produce more than one commodity, several different industries can be
producing the same commodity. The market shares table shows what percentage of the
total production of a commodity is produced by each industry.
Trade Flows
Trade flow assumptions are part of the input-output descriptive model from which
multipliers are derived. IMPLAN allows you to choose which assumption it will use to
estimate regional trade flows.
Trade flows describe the movement of goods and services between a region and the
outside world (regional imports and exports). There are several methods of estimating
how much of the local production of a commodity will be used to supply local demand
and consequently how much will be exported out of the region. These methods in
IMPLAN are: regional purchase coefficients, supply/demand pooling, and location
quotients.
Multipliers
Input models are driven by final consumption (or final demand). Industries respond to
meet demands directly or indirectly (by supplying goods and services to industries
responding directly). _ Each industry that produces goods and services generates
demands for other goods and services and so on, round by round. These iterations are
described by three different multipliers that have been developed for predictive
modeling.
Multipliers apportion the effects of stimuli on economic activity into three components:
Direct effects are the changes in the industries to which a final demand change was
made.
Indirect effects are the changes in inter-industry purchases as they respond to new
demands from the directly affected industries.
Induced effects reflect changes in spending from households as income/population
increases or decreases due to the changes in production.
There are three different multipliers commonly developed for predictive modeling, the
Type I, Type II, and Type III.
The Type I multiplier measures direct and indirect effects of a change in economic
activity. It captures inter-industry effects only; that is, industries buying from local
industries.
The Type II multiplier captures direct and indirect effects. In addition to inter-industry
effects, the Type II also takes into account the income and expenditures of households,
that are treated as industries. This internalizes the household sector (also called
“closing the model with respect to households”), including the induced, or household
spending, effects.
The Type III multiplier uses an employment-based calculation of induced effects. It
assumes full employment and therefore, each job adds or subtracts population with the
associated expenditures per person.
Key assumptions
Input-output modeling is based on several assumptions
Constant returns to scale. Since production functions for each industry are considered
linear, when additional output is required, all inputs increase proportionately.
No supply constraints. Supplies are unlimited; an industry has unlimited access to
input materials and its output is limited only by the demand for its products.
A fixed commodity input structure. Price changes do not cause a firm to buy substitute
goods. Changes in the economy will affect the industry’s output but not the mix of
commodities and services it requires to make its products.
Homogeneous sector output. Proportions of all commodities produced by an industry
remain the same, regardless of total output. An industry won’t increase output of one
product without proportionately increasing the output of all its other products.
Brief History of IMPLAN
Creating regional input-output models requires a tremendous amount of data. The
costs of surveying industries within each region to derive a list of commodity purchases
(production functions) is prohibitive. IMPLAN was developed as a cost-effective means
to develop regional input-output models. IMPLAN (IMpact Analysis for PLANning)
was originally developed by the USDA Forest Service in cooperation with the Federal
Emergency Management Agency and the US Department of Interior Bureau of Land
Management to assist the Forest Service in land and resource management planing.
IMPLAN accounts closely follow the accounting conventions used in the Input-Output
Study of the U.S. Economy by the Bureau of Economic Analysis (1980).
A-5
The IMPLAN database is created by MIG, Inc. Data consists of two major parts: (1) a
national-level technology matrix and (2) estimates of sectoral activity for final demand,
final payments, industry output, and employment for each county (or borough) in the
U.S. along with state and national totals. Data is available for 1977, 1982, 1985, 1990,
1991, 1992, and 1994 for county level economic activity for 528 sectors.
THE ALASKA MULTI-REGIONAL INPUT-OUTPUT MODELING SYSTEM
Rationale & Introduction
Many questions regarding economic development and structural change in rural areas
are best viewed within a larger regional economy that includes an urban region to
which the rural region is economic related. A more complete understanding of the
linkages between rural and urban economies would aid policy makers in addressing
interrelated problems, such as declining economic opportunities in certain rural areas
and losses of quality of life in urban areas. A better assessment of the impact of rural,
natural resource-based sectors on the urban region would also provide assistance to
decision makers.
In this context, a functional regional economy will typically consist of a central urban
core and a surrounding, largely rural, periphery. Despite theoretical popularity, very
few core-periphery models exist, generally due to empirical problems encountered in
their construction. Recent advances--such as the IMPLAN formulation--have enhanced
the ability to construct regional core-periphery input-output models.
For this study, an interregional core-periphery input-output model is constructed of the
Alaska state economy. Model construction is based on information provided by three
regional input-output models applied to the state of Alaska. One model is constructed
for the Anchorage Mat-Su urban core region. A separate model is built for the rest of
the state (the periphery), and the final model is an aggregate of the two regional
models. An additional (aggregate) model of the Alaska economy is used to estimate the
trade relationships and resulting interlinkages between the core and periphery
economies.
A Brief Digression--Central Place Theory and Core-Periphery Analysis
Central place theory within regional economics suggests a definite ordering of
communities within a region in terms of economic activities from villages and towns,
where only the lowest order (e.g. basic retail services) economic activity exists, all the
way up to primary cities, which are the main suppliers to the broader region of higher-
order services, such as health facilities and financial services. The rapid growth of such
services is an impetus to core expansion, in addition to that provided by the export-base
industries.
A-6
An urban core surrounded by a peripheral, largely rural region is essentially an
extension of this central place construct. Within a core-periphery framework, the
surrounding rural periphery is largely dependent on the central place for its supply of
higher-order goods and services. On the other hand, many periphery regions specialize
in the production of natural resource-based commodities in which they have a
comparative advantage. Trade in such goods may flow from the periphery to the core
or to other domestic and international markets. For example, crude petroleum may be
shipped from a periphery to its urban core for further refining or exported out of the
region entirely.
The Alaska Core-Periphery
The Alaska economy is dominated in a central place context by the Anchorage
metropolitan area. Other less important central places in the state are Fairbanks and
Juneau. The Municipality of Anchorage and Matanuska-Susitna (Mat-Su) Borough
comprise the urban core of the Alaska economy. The periphery is identified as the rest
of Alaska. The state boundaries of Alaska, for the most part, are reasonable estimates of
the periphery’s boundary, given the pattern of central place dominance characterizing
the Alaska economy.
Empirical Procedures
The IMPLAN modeling system is used to construct a model of the Alaska state
economy and models of the Anchorage/Mat-Su urban core and of the periphery
subregion. Estimates from the three models are used to derive trade flows between the
two sub-state regional models and between the region and the rest of the nation for the
155 commodities produced in the state.
Estimates of regional supply and demand as measured by IMPLAN for 1996 are used in
obtaining estimates of excess commodity supply and demand for core and periphery
regions. One approach used for estimating regional exports and imports for a given
commodity is the supply-demand pool (SDP) method. For any given commodity,
supply--minus local consumption and foreign consumption (excess supply)—is assumed
to be a regional domestic export. In the case of excess demand, imports from foreign or
other domestic sources are assumed to fill the gap between the local supply and local
demand.
Equations [1] -- [6] show trade relationships for the three-region approach. The system
of simultaneous equations represents trade flows between the core, the periphery, and
the rest of the United States and between the aggregate Alaska economy and the rest of
the United States:
A-7
Ey =XutXpu
E,=X,,+X.,
E, =X put Xpe
Ty, =X,,+X,,
1, =X,,+X,,
1, =Xy+Xw Equations [1]-[6]
where E,, represents domestic exports to, and /,, represents domestic imports
from, the rest of the U.S. for the Alaska economy; E, and I, represent domestic
exports and domestic imports for the core economy; and E, and J, represent
domestic exports and domestic imports for the periphery economy. For
shipments X,, the ith subscript represents the shipping region while the jth
subscript the receiving region (e.g., X., represents shipments from the core
economy to the rest of the U.S.). The variables on the left side (estimated by the
regional models) are useful in solving for the unknown shipments between the
regions (the X;,, variables.).
The six equations above fail to yield unique estimates of the trade-flow variables if there
are nonzero trade flows between all regions. however, the equations can be
manipulated to derive consistent estimates of total trade between the two subregions
from both the import and export side. For example, from the import side:
T,. = 1+ 1, — Wa
T,. = (X,. +X,.)+(Ky+Xp)- (KX, +X,.)
Tye = Xpe + Xe Equation [7]
where T,. is total trade between the two Alaska subregions.
The system of equations [1] through [7] can be employed to estimate trade flows
between the three regions under certain conditions where knowledge of any one of the
specific trade flows (X;,,) that appear in the equations will solve the system.
Model Closure
A more thorough picture of the economic linkages in Alaska between the core and the
periphery economies is found by treating household spending as endogenous. Issues of
closing (i.e., endogenizing) input-output models with respect to households hinge on
the linkage between payments by regional firms to households, as owners of factors of
production, and the resulting household consumption of goods and services. Model
closure is accomplished by making household consumption a function of earnings
(employee compensation plus proprietary income).
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Impact Analysis
Relationships between the core and periphery economy can be determined by tracing
the effect of a change in economic activity for an important sector in one region on
economic activity in the other region.
Appendix II
Analytical Approaches to Regional Economies
Regional economic theory suggests a definite ordering of communities within a region
by type of economic activity, ranging from villages and towns where only the lowest-
order activities exists, up to the largest primary cities that are the principal suppliers of
higher-order goods and services to the broader region.
Core-periphery analysis is a logical extension of this regional economic construct. It
portrays an urban core surrounded by a peripheral, mostly rural region which is largely
dependent on the primary city for its supply of higher-order goods and specialized
business and professional services. In turn, many places on the periphery specialize in
the production of natural resource-based commodities in which they have a
comparative advantage.
The origin of an urban core is often one of historical accident where the core gains an
early advantage in the production of manufactured commodities or as a distribution
center for domestic and international markets. Economies of scale accentuate this
ascendance, and workers attracted to the core serve as markets for local production of
other goods and services. Once such a critical mass is reached, a cumulative process of
growth may ensue in the core, often at the expense of the periphery.
Previous research (Krugman, 1991) asserts that the interaction of growing consumer
demand and increasing returns in the production of manufactured goods and in
transportation systems drives a cumulative process that may result in a core-periphery
economy.
Growth-pole analysis is another related approach. In it, dynamic economic growth in an
urban center influences economic activity in the surrounding periphery. Such a growth
pole is likely to be a primary city supplying higher-order goods and services to the
periphery. Within this framework, “nodal response” is the term for economic growth
in the core based on increasing demand by a growing periphery economy for products
supplied primarily by the urban core. Such a response implies a relatively fixed pattern
of trade between the core and periphery economies.
Through these trade relationships, growth in the core region influences activity in the
periphery in two ways: positive “spread” effects and negative “backwash” effects.
Spread effects include the diffusion of investment, innovation and growth-oriented
policies from the core to the periphery. For example, linkages develop between sectors
of the core economy and those industries (often resource-based) that function as their
input suppliers on the periphery.
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By contrast, backwash effects are unfavorable impacts of core economic growth on
periphery development. Some backwash effects are the result of the migration of labor
and financial capital from the periphery to the core, causing depopulation and financial
capital shortages on the periphery. Core service sectors such as advanced and complex
legal and health services may also draw an increased share of total regional business,
thus displacing their counterparts on the periphery.
In a similar analysis (Friedman, 1973), the periphery tends to be dominated by the core
in terms of emerging technology and culture as well as higher-order services. In such
cases of economic dependency, the form of economic control will be ownership of the
natural resource and capital base in the periphery economy.
Combining these perspectives suggests that to better understand the forces of economic
change in rural Alaska, the periphery should be viewed in relation to the urban core of
Anchorage. Both rural Alaska and Anchorage will be affected by the strength of the
economic linkages between them. The sensitivity of the core economy to the health of
the periphery is a particular focus of this study, as is the extent to which the periphery
might be expected to benefit from high rates of growth in the urban core.
Appendix III
Alaska Gross State Product
The current version of the Alaska economic impact model provides estimates of gross
state product. In 1996, Alaska’s total gross state product was estimated to be $24.18
billion. Gross state product are the broadest measure of economic activity on a state
basis (analogous to the nation’s gross domestic product) and roughly includes wages
and salaries, proprietors’ income, other property income, and indirect business taxes.
Table 27 shows Alaska’s gross state product according to the two principal regions of
analysis: the core region of Anchorage/Mat-Su; and the rest of Alaska periphery
region.
Table 27.
Alaska Gross State Product by Major Industry, 1996 (in millions $)
Alaska Anchoragel Rest of
Sector Statewide Mat-Su Alaska
Agriculture 49.0 33.2 15.8
Forestry 35.5 7.7 27.8
Fishing 303.9 8.0 296.2
Oil & gas 3,231.2 1,308.0 1,923.4
Other mining 366.2 28.4 338.0
Construction 2,285.4 812.7 1,473.1
Manufacturing, total 1,374.7 215.7 1,159.5
Seafood processing 562.3 11.2 551.5
Other manufacturing 812.4 204.5 608.0
Transport & public utilities 3,575.6 1,710.7 1,864.7
Wholesale trade 686.7 503.0 183.5
Retail trade 1,908.0 1,068.1 839.7
Finance, insurance & real estate 3,843.4 2,433.1 1,410.1
Services 2,534.1 1,464.0 1,069.6
Government, total 3,982.8 1,838.1 2,144.8
Federal, civilian 901.1 521.9 379.0
Federal, military 559.1 307.1 251.9
State & local 2,522.6 1,009.1 1,513.9
Total _ 24,176.6 __ 11,430.6 12,746.0
Gross state product generated in the rest of Alaska periphery region is slightly more
than the Anchorage/Mat-Su core region. Natural resource based industries dominate
the periphery region contributing one-fourth of the gross regional product. In contrast,
the urban Anchorage/Mat-Su core region is dominated by the trade and services
sectors; combined these sectors contribute nearly two-thirds of the gross regional
product.
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