HomeMy WebLinkAboutAPA821Technical Report
Number 42
AlaskaOCS
Socioeconomic
Studies Program
Sponsor:
Bureau of
Land fvianagement
Alaska Outer
Continental Shelf
Office
Louver Cook Inlet
Petroleum Development Scenarios
Economic and Demographic Analysis
The United States Department of the Interior was designated by the Outer
Continental Shelf (OCS) Lands Act of 1953 to carry out the majority of
the Act's provisions for administering the mineral leasing and develop-
ment of offshore areas of the United States under federal jurisdiction.
Within the Department, the Bureau of Land Management (BLM) has the
responsibility to meet requirements of the National Environmental Policy
Act of 1969 (NEPA) as well as other legislation and regulations dealing
with the effects of offshore development. In Alaska, unique cultural
differences and climatic conditions create a need for developing addi-
tional socioeconomic and environmental information to improve OCS deci-
sion making at all governmental levels. In fulfillment of its federal
responsibilities and with an awareness of these additional information
needs, the BLM has initiated several investigative programs, one of
which is the Alaska OCS Socioeconomic Studies Program (SESP).
The Alaska OCS Socioeconomic Studies Program is a multi -year research
effort which attempts to predict and evaluate the effects of Alaska OCS
Petroleum Development upon the physical, social, and economic environ-
ments within the state. The overall methodology is divided into three
broad research components. The first component identifies an alterna-
tive set of assumptions regarding the location, the nature, and the
timing of future petroleum events and related activities. In this
component, the program takes into account the particular needs of the
petroleum industry and projects the human, technological, economic, and
environmental offshore and onshore development requirements of the
regional petroleum industry.
The second component focuses on data gathering that identifies those
quantifiable and qualifiable facts by which OCS-induced changes can he
assessed. The critical community and regional components are identified
and evaluated. Current endogenous and exogenous sources of change and
functional organization among different sectors of community and region-
al life are analyzed. Susceptible community relationships, values,
activities, and processes also are included.
The third research component focuses on an evaluation of the changes
that could occur due to the potential oil and gas development. Impact
evalua Lion concentrates on an ana lysis of the impacts at t-he statewide,
regional, and local level.
In general, program products are sequentially arranged in accordance
with BLM' s proposed OCS lease sale schedule, so that information is
timely to decisionmaking. Reports are available through the National
Technical Information Service, and the BLM has a 1 imi ted number of
copies available through the Alaska OCS Office. Inquiries for informa-
tion should be directed to: Program Coordinator (COAR), Socioeconomic
Studies Program, Alaska OCS Office, P. 0. Box 1159, Anchorage, Alaska
99510.
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TECHNICAL REPORT NO. 42 CONTRACT NO. AA550-CT6-61
ALASKA OCS SOCIOECONOMIC STUDIES PROGRAM
LOWER COOK INLET PETROLEUM DEVELOPMENT SCENARIOS:
ECONOMIC AND DEMOGRAPHIC ANALYSIS
PREPARED FOR
BUREAU OF LAND MANAGEMENT
ALASKA OUTER CONTINENTAL SHELF OFFICE
DOCUMENT IS AVAILABLE TO THE PUBLIC THROUGH THE
NATIONAL TECHNICAL INFORMATION SERVICE
.5285 PORT ROYAL ROAD
SPRINGFIELD, VIRGINIA 22161
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NOTICE
This document is disseminated under the sponsorship of the
U.S. Department of the Interi~r, Bureau of Land Management,
Alaska Outer Continental Shelf Office, in the interest of
information exchange. The United States Government assumes
no 1 i abi 1 i ty for its content or use thereof.
ALASKA OCS SOCIOECONOMIC STUDIES PROGRAM
LOWER COOK INLET PETROLEUM DEVELOPMENT
SCENARIOS: ECONOMIC AND DEMOGRAPHIC ANALYSIS
Prepared by
Ted Lane and Barbara Withers
Institute of Social and Economic Research
University of Alaska
February 1980
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TABLE OF CONTENTS
LIST OF TABLES .
LIST OF FIGURES.
INTRODUCTION
Background. . . .
' .
The'Purpose of the Study .
Study Design .
THE ALASKAN ECONOMY, 1965-1976 .
Introduction . . . . .
Population and Demographic Change .
Employment. .
Unemp 1 oyment • . •
Real Income Per Capita. • .
The Growth of State Government.
' .
The Economy Si nee .1977. . . . . •
The Economies of the Gulf of Alaska Region,
THE ALASKAN ECONOMY IN THE BASE CASE
Purpose of the Base Case .
. .
1965-1976 .
Base Case Assumptions . . . . . . .
The Alaskan Economy: Moderate Base Case Growth.
The Anchorage Economy, 1978-2000 . . . .
Southcentral Growth and Development, 1977-2000.
LOWER COOK INLET OCS DEVELOPMENT SCENARIOS .
Definition and Measurement.. . . .
Alternative Lower Cook Inlet Scenarios.
THE PROBABLE IMPACT OF OCS DEVELOPMENT
IN THE LOWER COOK INLET.
Statewide Employment Impacts .
Statewide Population Impacts .
Statewide Personal Income Impacts .
State Revenue and E~penditure Impacts
v
. vii
xi
1
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2
3
15
15
17
20
35
38
40
43
46
83
83
84
97
. 108
. 111
. 115
. 115
. 116
. 129
130
. 134
. 138
141
Regional Impacts .
High Scenario Impacts .
Exploration-Only Scenario Impacts
Summary and Conclusion.
SENSITIVITY ANALYSIS
State Expenditure Rule. . . . .
Labor Force Participation and Seasonality
SUMMARY AND CONCLUSIONS.
APPENDIX A: HISTORICAL GROWTH, 1965-1976
.
APPENDIX B: METHODS, STANDARDS, AND ASSUMPTIONS TO BE USED IN
THE LOWER COOK INLET OCS STATEWIDE AND REGIONAL
ECONOMIC AND DEMOGRAPHIC IMPACT ANALYSIS
APPENDIX C: ASSESSMENT OF RECENT CHANGES IN THE
MAP ECONOMETRIC MODEL
APPENDIX D: SELECTED MODEL OUTPUT .
REFERENCES .
VI
.
145
. 152
. 156 . 158
. 161
161
163
. 169
. 171
. 177
207
. 221
. 255
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LIST OF TABLES
1. Growth of Employment, Population, Per Capita and
Personal Income, Alaska, 1965-1977 .
2. Population Growth, Alaska, 1965, 1970-1977
3. Alaska Population, Age-Sex Distribution~ 1970 and 1976
4. Alaska Economic Growth by Sector, 1965-1976
5. Alaska Fisheries Activity, 1970-1977.
6. The Effect of Structural Change, Alaska, 1965-1976
7. Distribution of Employment, Alaska, 1965, 1970,·1975,
and 1976
8. The Economit Structure of Small States
9. Economic Structure of Small States, 1977.
10. Unemployment, Alaska and United States, 1965-1976
11. Seasonality of Employment, Alaska, 1950, 1960, 1965,
1970, 1975, and 1976
12. Anchorage Consumer Price Index
13. State Real Per Capita Operating and Capital
Expenditures, 1970-1977.
14. Population Growth, Anchorage and Al~ska, 1950-1977
15. Industrial Composition, Vertical Distribution,
Anchorage, Alaska, and United States
16. Anchorage Industrial Composition, Percent of State
17. Anchorage Basic Sector Growth, 1965, 1970, 1973,
1975, and 1976 .
..
18. Growth in Personal Income, Anchorage and Alaska, 1965-1977
19. Employment Growth, Anchorage and Alaska, 1965-1977
20. Anchorage and Alaska Unemployment, 1965, 1970-1976 .
VII
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23
28
29
31
32
33
36
37
39
42
49
52
53
55
56
58
59
21. Anchorage Population Growth, 1965, 1970-1977.
22. Population Growth, Southcentral Alaska, 1965, 1970-1977 .
23. Growth of Employment, Population, and Personal Income,
Southcentral Region, 1965~1976 .
24. Employment by Industry, Southcentral Alaska .
25. Estimated Fish Harvesting Employment and Value of Catch .
26. Basic Sector Growth, Southcen~ral Alaska, 1965, 1970,
1973, 1975, and 1976
27. Employment Distribution by Industry, Southcentral
Alaska and Alaska~ 1965, 1970, and "1976.
28. Alaska and Southcentral Alaska Unemployment,
1965, 1970-1976.
29. Growth of Real Per Capita Income, Southcentral Alaska,
1965, 1970-1976.
30. Aggregate Indicators, Small Economies, 1965, 1970, and 1976
. 31. Distribution of Intrastate Flows of Freight' and
Mail from Southcentral Origins, 1973
32. Lower Cook Inlet Employment Scenarios
33. Beaufort Sea OCS Employment Scenarios
34. ~orthern Gulf OCS Employment Scenarios
35. Western Gulf OCS .Employment Scenarios
36. Aggregate Indicators of Economic Growth, Alaska, 1978-2000 •
37. The Components of Population Change, Alaska, 1978-2000 .
' 38. Changes in Employment by Sector .
39. Structure of Employment, Alaska, l978-200d
40. Construction Sector, Alaska, 1978-2000
41. State Government Expenditures, Moderate Base Case,
Alaska, 1978~2000 .
42. Aggregate Economic Indicators, Moderate Base Case,
Anchorage, 1978-2000
VIII
61
63
65
67
69
71
73
75
77
79
82
93
94
95
96
98
. 100
102
104
105
. 107
. 109
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43. Economic and Demographic Structure, Moderate Base
Case, Anchorage, 1978-2000 .
44. Aggregate Economic Indicators, Moderate Base Case,
Southcentral, 1978-2000.
45. Economic and Demographic Structure, Moderate Base
Case, Southcentral .
46. Direct Employment Requirements, Exploration-Only
Scenario, Lower Cook, Sale 60
47. Direct Employment Requirements, Medium-Find
Scenario, LQwer Cook, Sale 60
48. Direct Employment Requirements, High-Find
Scenario, Lower Cook, Sale 60
49. Lower Cook Inlet, OCS Employment Impacts,
State of Alaska, Moderate Development Scenario .
50. Distribution of OCS Employment Impacts,
State of Alaska, Moderate Development Scenario
51. Lower Cook Inlet, OCS Population Impacts,
State of Alaska, Moderate Development Scenario .
52. Lower Cook Inlet, OCS Real Income Impacts,
State of Alaska, Moderate Development Scenario
53. Lower Cook Inlet, OCS Fiscal Impacts,
State of Alaska, Moderate Development Scenario
54. Lower Cook Inlet, OCS Impacts on the Anchorage Region,
Moderate Development Scenario
55. Lower Cook Inlet, OCS Impacts on the Southcentral
Region, Moderate Development Scenario
56. Differential Growth Impacts of Lower Cook Inlet
OCS Development, State of Alaska,
High-Find Scenario .
57. Differential Growth Impacts of Lower Cook Inlet
OCS Development, State of Alaska,
Exploration-Only Scenario
58. Sensitivity of Forecasts to SEAR Adjustments,
State of Alaska.
59. Sensitivity of Forecasts to Seasonal Adjustments,
State of Alaska.
IX
110
112
113
118
121
126
131
133
136
139
142
146
149
153
157
164
167
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LIST OF FIGURES
1. Structure of the Basic MAP Model
2. MAP Regions .
3. Alaska Census Divisions
XI
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I. INTRODUCTION
Background
'Because of its high potential as a source of oil and gas, the U.S. Outer
Continental Shelf (OCS) figures significantly ·in the future energy
program of the United States, and Alaska is particularly important to
the OCS program.
Alaska historically has played a small 1·ole in the U.S. energy supply.
Through 1974, Alaska•s oil output has accounted for only one percent of
the total cumulative petroleum production in the United States (U.S.
Geological Survey, 1975}.
However, Alaska accounts for over one-fourth of the identified oil and
gas reserves in the United States. An estimated one-third of all undis-
covered recoverable domestic oil reserves are in the state, and it has
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been projected that by 1985 over 25 percent of total domestic crude oil
production could be from Alaska (Federal Energy Administration, 1976).
Over 60 percent of the estimated undiscovered OCS reserves in the United
States are in Alaska (U.S. Geological Survey, 1975). The development of
Alaska•s petroleum reserves is also important to the state economy.
Changes produced by past petroleum development in the state have been
major. The rapid changes in the Alaska economy associated with develop-
ments in Upper Cook Inlet and Prudhoe Bay created strains on the Alaskan
society and environment. At the same time, these developments generated
the most prosperous economic period in the state• s history as well as
prospects of continued prosperity through the next decade.·
The Purpose of the Study
This study is part of the Bureau of Land Management•s Alaska OCS Socia-
economic Studies Program. The objective of this program is to assess
the potential impacts of proposed leaie sales in the federal offshore
areas of Alaska. The study of the impacts of OCS development in the
Lower Cook Inlet is one of a series of studies describing lease sale
impacts. Already completed is a study of the impact uf the joint
federal-state sale in the.Beaufort Sea (ISER, 1978) and the sales in the
Northern Gulf and Western Gulf (ISER, 1979); future studies will be
conducted for lease sales in the Bering Sea-Norton Sound. The studies
program is concerned with many aspects of OCS impact on many different
levels. The major objective of this study is to examine only a portion
of OCS impact, the statewide and regional economic and demographic
impacts.
To achieve this objective, ISER will ptovide a series of economic and
population forecasts thrbugh 2000 under several alternative scenarios
for petroleum development in the Lower Cook Inlet; By contrasting these
forecasts with a base case forecast, which does not include the proposed
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development, it is possible to assess the major dimensions of the impacts
of OCS development on population, employment, income, and the state's
fiscal position.
Study Design
This study consists of three major parts: a baseline study of the
economies of the state and its Gulf of Alaska region, a base case
projection describing the future economy without Lower Cook development,
and an examination of the impact of Lower Cook development. This section
describes the relationship of each of these parts to the impact assess-
ment and the methodology chosen to make the necessary projections.
EXAMINATION OF PAST ECONOMIC GROWTH
Examining the past growth of the Alaska economy and the economy of the
Gulf of Alaska region provides an understanding of the way the economy
works. This type of examination is implicit in the development of
economic models. Making this analysis explicit will emphasize those
aspects of economic growth which are important. The two aspects of the
economy which will be emphasized in such a process are the important
causes of growth and the economic relationships which transfer growth
between sectors of the economy. An examination of the historical period
will provide an indication of the types of r~sponse we can expect to OCS
petroleum development. In addition, the historical growth and develop-
~ent of these economies provide a point of comparison for future economic
growth, both OCS and non-OCS related.
3
THE BASE CASE
Petroleum development in the Lower Cook Inlet will affect both the
structure and size of the Alaska economy. Changes in the ·economy which
result from the development of ·the OCS resources (or its impacts} can be
dest~ibed as chah~es fro~ the pattern bf economic gtowth which would
have occurred without OCS development. The non-OCS base case is developed
to provide a reference point for the analysis of the impacts of OCS
development. Comparing a projection of economic activity with OCS
development to the base case will isolate the impacts of development.
THE ROLE OF SOCIOECONOMIC PROJECTIONS
Projections serve two important purposes--they serve as a means of
determining future demands and needs for services, and they allow policy
makers to test the alternative effects of various policies. They increase
the information available to decision makers. Many present policy
choices have important future implications which must be considered.
For example, current policy decisions regarding Lower Cook OCS petroleum
development will have their major effect in the middle of the next
decade. By providing descriptions of the most probable future (or
futures} socioeconomic projections serve as a framework for making
policy choices.
METHODOLOGY
This section describes the methodology used to make the projections of
Alaskan economic growth in both the base case and OCS development cases.
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Two econometric models, statewide and regional, are used to make the
projection. This section will describe the models used and their
strengths and weaknesses.
The Statewide Econometric Model
The basic model to be utilized in the analysis of the OCS development
scenarios is the statewide econometric model of the Alaskan economy
developed in the Man-in-the-Arctic Program (MAP) presently being con-
ducted by the Institute of Social and Economic Research of the University
of Alaska. There are three components of this model: an economic model,
a fiscal model, and a demographic model. The basic structure of the
model is shown in Figure 1.
The economic model is divided into exogeno11s or basic sectors and endo-
genous or nonbasic sectors. The level of output in the exogenous sectors
is determined outside the state's economy. The primary reason for the
nonbasic sector is to serve local Alaskan markets, so the level of out-
put is determined within the Alaskan economy. The basic industries in
the model are mining, agriculture-forestry-fisheries, manufacturing,
federal government, and the exogenous component of construction. The
nonbasic industries are transportation-communication-utilities, wholesale
and retail trade, finance-insurance-real estate, services, and the
remainder of construction.
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In the model, industrial production determines the demand for labor and
employment; employment is that level needed to produce the required
output. Employment and the wage rate determine wages and salaries, the
most important component of personal income. The Alaskan labor market
is an open one with equilibrium achieved through migration of individuals.
Because of this, the most important determinant of Alaskan wage rates
is U.S. wage rates; wages are also affected by rapid growth of employ-
ment in Alaska. ·An. estimate of disposctble personal income is made by
adding an estimate of nonwage income to wages and salarie~ and adjusting
this by deducting income taxes. The level of real disposable income is
found by deflating disposable personal income by a relative price index;
the major determinants of Alaskan prices are U.S. prices, the size of
the economy, and the growth rate of the economy. Incomes determine the
demand for local production; incomes and output are simultaneously
determined.
Population is determined based upon a projection of each of its com-
ponents--births, deaths, and migration. The model uses age-sex-race-
specific survival rates and age-race-specific fertility rates to project
births and deaths for the ~ivilian population. Total civilian population
is found by adding civilian net migration to the natural increase.
Net migration is determined by the relative economic opportunities in
Alaska. In the model, these are described by employment changes and the
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Alaskan real per capita income relative to the real per capita income of
the United States. An exogenous estimate of military population is
added to determine total population.
The fiscal model, which provides important piec~s of information for the
economic model, also provides a framework for analyzing the effects of
alternate fiscal policies. The fiscal model calculates personal .tax
payments in order to derive disposable personal income. The fiscal
model, based on an assumed state spending rule, also calculates personnel
expenditures, state government employment, and the amount spent on
capital improvements which determines a portion of employment in the
construction industry. All three submodels are linked through their
requirement for information produced by the other submodels.
The Regional Econometric Model
The regional model provides an allocation of employment, income, and
population in the state to seven regions of the state. These regions
are shown in Figu~e 2. The economic component is similar in each region
to that of the state model. The major difference is that some regional
economies are influenced by economic activity in other regions; the most
notable of these is Anchorage. The demographic component of the regional
model is much simple.r than that component of the state model. Regional
population is estimated as a function of employment. Regional population
is estimated in two components--enclave and nonenclave population. A
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North Slope
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South'!'lest
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FIGURE 2. MAP REGIONS
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weighted average of the nonenclave population to nonenclave employment
ratio for the state and the lagged value in the region is multiplied by
the nonenclave employment to estimate nonenclave population in the
current year. The weights are based on the proportion of state popula-
tion in the region. Enclave empldyment is added to honenciave population
to determine total regional population. Enclave employment includes the
military and major construction projects such as the trans-Alaska
pipeline. The regional model has no fiscal component and must accept an
exogenous pattern of wage and salary payments to state and local govern-
ment workers. Usually the pattern of wage and salary payments used is
taken from a similar state model projection. Estimates of regional
employment, population, and income in the regional model are constrained
to total to equivalent variabies from the state model results.
STRENGTHS AND LIMITATIONS
The models used in this analysis have several strengths and weaknesses
which must be considered when,examining the reported results. The prin-
cipal strength of these mddels is that they capture the essence of the
Alaska growth process. Export base industries and government create
growth directly through hiring and indirectly through the demand gener-
ated by their employees for locally produced goods and services. Incomes
earned by these export base workers and the workers who supply the goods
. ' and services provide the base of the economy. Compav;-ed to two alternative
forms, the economic base and input-output models, the econometric specifi-
cation of this type is preferred, since it captures the dynamics of
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industry growth. The economic base model is useful for projecting
marginal changes but assumes that changes in the support sector are
proportional to changes in basic sector employment. This misses both
the feedback effect of the growth of the support sector incomes and the
change in the responsiveness of the support industries over time. While
input-output models more precisely define the interindustry flows of
purchases of goods and services, it represents the economy only at a
particular point in time. The econometric approach can capture some of
the changing relationships over time, and these are described by historic
changes or incorporated by the modeler.
The limits on the econometric method define the limits on the acceptance
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of the resulting projections. No model is able to capture revolutionary
changes which violate the-assumptions upon which the model is built,
un 1 ess. structura 1 change has been foreseen and incorporated by the
modeler. The limitations of the model increase the more the model is
extended into the future and the more locationally precise the model is
expected to be. In other words, more confidence should be placed in the
1985 r~sults than those for 1995, and statewide projections are more
likely to be 11 correct11 than regional results.
Anothe~ important limitation of this model is that the projections
should be considered contingent. The accuracy of the projections
depends on the continued relevance of the model•s historical structure
and the accuracy of the assumptions about the level, timing, and dis-
11
tribution·of the exogenous variables. One result of this contingency is
that the projections may not necessarily agree with the actual levels of
. the projected variables for any given year. Projections are based on
the average historical relationships between the projected vari~bles and
i~pbrtant exo~endus V~riab1~s. This ieads to two r~asohs why proj~ctidnS
in any year may differ from the actual levels of projected variables.
First, estimates of the level of important exogenous variables may
differ from the actual levels. Secondly, in any given year, the relation
between projected and exogenous variables may differ from the historical
average. Cyclical effects may cause yearly divergence from the general
trend of economic growth. The relationships described by the model,
while they may not predict actual levels in any particular year, describe
the general trend of future Alaskan economic growth.
The final limitation of the results concerns the projection of the
regional distribution of state growth. These results are merely alloca-
tions of the projected statewide totals to the regions. This should not
be assumed to be a detailed analysis of the regional economies and
should not replace such analysis.
The general approach to be pursued in the projections of the impacts of
Lower Cook OCS development will be as follows: A set of scenarios will
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be developed which contain no Lower Cook OCS development. These scenarios [
will be run using the MAP model and will serve as points of comparison
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for each alternate Lower Cook scenario. Each of the Lower Cook develop-
ment scenarios will then be run. Each of these runs will then be
.compared to the appropriate base run to examine the impact of this
hypothetical development on the major dimensions of the Alaskan economy.
The effect of alternative Lower Cook development scenarios will be
examined. Part II describes the hi~torical growth in Alaska and its
Gulf of Alaska region. Part III presents the projection of economic
activity in a base case which contains no offshore activity in the Lower
Cook.
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II. THE ALASKAN ECONOMY, 1965~1976
Introduction
The methodological framework used in this report is that of economic
base theory. This theory explains regional growth and change as the
result of growth and change in the state•s exports (or exogenous demand).
Industries whose inputs are primarily a function of export demand are
classified as basic industries. The remaining industries are classified
as nonbasic in that their outputand employment levels are functionally
related to the level of state income. Economic base models are tractable
and have relatively m6dest data requirements. Their use in impact analysis
is well-established.
The period 1965-1978 was chosen to provide a long-term look at the
changes in the economy. The period contains three significant events:
the major Upper Cook Inlet oil development, the Prudhoe Bay lease sale,
and the constructfon of the trans-:Alaska oil pipeline. The Prudhoe Bay
lease sale in.l969 marked the beginning of Alaska as a major· petroleum
economy. Comparing the economy before and after this date will illustrate
the effects of this change.
Table 1 describes the change in the level of three aggregate measures of
economic activity: population, employment, and real personal income.
These variables provide an overview of the state•s economic growth
during the period 1965 through 1978.
15
1965
1970
1971
1972
1973
1974
1975
1976
1977
TABLE 1. GROWTH OF EMPLOYMENT, POPULATION,
PER CAPITA AND PERSONAL INCOME, ALASKA
1965-1977
· PoEul ati on 1 EmElo,Yment 2 Real Personal Income 3
($ 1967 Million}
265,192 70,530 910.8
302,361 92,476 1,288.3
312,930 97,584 1 ,379. 1
324 ,281 104,243 1 ,465. 1
3"30,365 109,851 1 ,662. 3
351,159 128,178 1,819.4
404,634 161,313 2,311.7
413,289 171 ,714 2,551.2
411,211 164,100 2,442.6
Compound Annual
Growth Rate
1965-1977 3. 72 4.10 8.57
1970-:-1977 4.49 8.54 9.57
Real Per 4 Caeita Income
3,435
4,260
4,407
4,518
5,031
5,180
5,713
6 '172
5,940
4.67
4.86
1All estimates State of Alaska Department of Labor, Research and
Analysis Section, Population Estimates by Census Division, except 1970
which is April 1970 Census of Population.
2Alaska Department of Labor, Statistical Quarterly, various years.
3u.s. Department of Commerce, Bureau of Economic Analysis, Regional
Economic Information System, July 1978 printout. (Deflated using Anchor-
age Consumer Price Index.)
4Real personal income divided by population.
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Population and Demographic Change
Population grew at a compound annual growth rate ·of 3.7 percent from
1965 to 1976. From 1965 to 1970, population grew at a compound annual
rate of 2.66 percent. The compound growth rate from 1970 to 1977 was
4.49 percent, a difference of 1.83 percentage points. Three·-quarters
of the period's total population growth occurred after 1970. The most
rapid growth occurred during the Trans-Alaska Pipeline Service (TAPS)
construction when the population increased by 15.2 percent between 1974
and 1975.
The size of the population is strongly influenced by levels of economic
activity. Migration was a mqjor component of Alaskan population change,
especially after 1970. Net migration appeared to be very responsive to
employment opportunities in the state. Table 2 details the growth in
population from 1965 to 1977.
A small region experiencing rapid economic growth would be expected to
experience net migration as a response to excess demand in local labor
markets. This was the Alaskan experience. Migration accounted for
55 percent of the total change in population between 1970 and 1976,
after which out-migration occurred. In 1975, it accounted for 89 percent
of the increase in population.
Table 3 describes the age-sex distribution for the years 1970 and 1976.
This comparison reveals two observable trends. ~irst, the proportion of
males in the population declined.· Secondly, the working-age population
17
Number
of Births
1965 7,063
1970 7,560
1971 7,312
1972 6,948
1973 6,611
. 1974 7,006
1975 7,470
1976 7,912
1977 8,378
TABLE 2. POPULATION GROWTH, ALASKA
1965, 1970-1977
Estimated Population
Number Natural Net as of
of Deaths Increase M·i grati ori July 1·
1 ,400 5,663 4,538 265,192
1 ,431 6,129 1 ,672 . 302,361
1,455 5,857 4,712 312,930
1 ,467 5,481 5,870 324,281
1 ,464 5,147 937 330,365
1,468 5,538 15,256 351,159
1 ,522 5,948 47,527 404,634
1 ,617 6,295 2,360 413,289
1 ,606 6,772 -8,850 411,211
1Average annual compound growth rate between 1965 and 1970.
% Increase
over
Previous Year
3.84
2.66 1
3.50
3.60
1.88
6.29
15.23
2.14
-.50
SOURCE: Alaska Department of Labor and the Division of Economic Enterprise,
Department of Commerce and Economic Development, as reported in
The Alaskan Economy, Year-end Performance Report, 1977, except
1970 population from U.S. Department of Commerce, Bureau of the
Census, 1970 Census of Population. ·
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TABLE 3, ALASKA POPULATION
AGE-SEX DISTRIBUTION
1970, 1976
1970 1976
Males Females Total Males Females Total
Age
All ages 54.2 45.7 51.6 48.4
0-13 16.5 15.7 32.2 .14. l 13.2 27.3
14-19 5.7 5.2 10.9 6.6 6.0 12.6
20-29 12.4 8.7 21.1 . 11.2 10.4 21.6
30-39 7.7 6.5 14.2 7.8 7.8 15.6
40-54 8.1 6.6 14.7 7.7 7.2 14.9
55-64· 2.5 2.0 4.5 3.1 2.6 5.7
64 + 1.3 1.0 . 2.3 1.1 L2 2.3
SOURCES: U.S. Department of Commerce, Bureau of the Census, 1970 Census
of Population.
U.S. Department of Commerce, Bureau of the Census, .1976 Survey
of Income and Education Microdata Tape.
19
(14-64) increased relative to the total population. In spite of the
rapid post-1970 population growth, the age-sex distribution has remained
relatively stable. Evidently, by 1976, the transitory employment
components associated with the pipeline construction had essentially
vanished, and the remainder was demographically 11 normal n with respect
to their age-sex characteristics.
The dependency ratio (population/employment) fell from 3.76 in 1965 to
2.41 in 1976. As previously explained, the TAPS construction project·
and its isolated, enclave nature attracted workers but few dependents.
Employment
Total nonagricultural wage and salary employment grew by 132 percent
from 1965 to 1977 (see Table 1). Again, the pre-and post-1970 rates
show great disparity. From 1965 to 1970, employment increased at a
5.6 percent compound annual rate. After 1970, the compound annual rate
was almost 8.6 percent, or about 52 percent higher than the pre-1970
rate. As a result, more than 77 percent of the total growth in employ-
ment occurred after 1970.
The relationship between growth in employment and growth in total·
population indicates that employment growth was accompanied by rel a-
tively few dependents. In 1973, the ratio of total population-to-
employment was 3.01. Between 1973 and 1975, the marginal ratio or the
ratio between the change in population to the change in employment was
only 1 .44, considerably less than one dependent per worker. As a result,
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the overall ratio had declined to 2.51 by 1975; this ratio remained at
this level through 1977.
The different rates of growth in population and employment were related
to the peculiar nature of employment during the 19,73-1975 period. The
expansion of the mining sector and the trans-Alaska pipeline construction
were characterized by enclave-type work camps. Their relative isolation
and the harshness of camp life encouraged employment of a transitory
work force. This work force embodied "atypical 11 dependent/worker
relations. Overall, the aggregate indicators indicate a rapidly growing
economy. The major growth in the period occurred after 1970.
BASIC SECTOR GROWTH
The growth of the export base was a maJor force determining. the growth
of the Alaskan economy during this period. This section will examine
the growth of the various industries which make up the Alaskan basic
sector. By examining the growth in each industry, we can see its rela-
tive importance to Alaska•s economic growth.
In this section, we will determine the basic sector by definition.
Those industries where the level of activity is affected primarily
by external factors will be considered basic industries.· Mining,
agriculture.,..forestry-fisheries, manufacturing, federal government, and
construction are basic industries. The demand for the prpducts of both
mining and agriculture-forestry-fisheries is determined in. national and
international markets, not within the Alaskan economy. Manufacturing
21
is largely a part of these two industries since food processing and
petrochemicals are its major components. The level of federal govern-
ment activity in Alaska is determined by decisions made outside the state.
Construction has both basic and nonbasic components; however, major
changes in construction activity are determined by exogenous influences;
for example, the construction of the trans-Alaska pipeline.
Table 4 presents data on the growth rates of· employment and wages and
salaries. The growth rate of wages and salaries differed considerably
by sector over the historical period. By taking the ratio of growth
rates of wages and salaries to employment by sector, one can derive a
~easure of relative income behavior over the period 1965-1976. Over the
whole period, relative incomes increased more rapidly in the basic
sector than in the support sector. The ratio of relative increase is
3.16 (this is the ratio of growth in wages and salaries to growth in
employment in the basic sector divided by the same ratio in the support
sector). All incomes were increasing, but the distribution of income
resulting from the growth process·was favoring the basic sector.
The growth in wages and salaries can differ from employment growth for
three reasons.
First, the growth of wage rates can differ between industries. Secondly,
the hours worked in different industries can differ. Finally, the com-
position of industrial employment growth may not be proportional.
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TABLE 4. ALASKA ECONOMIC GROWTH BY SECTOR
1965-1976
1965 -1976
(2)
(1) Wages &
Compound Annual Rates of Growth
1970 ..,; 1976
(4)
(3) Wages &
1973 -1975
(6)
(5) Wages &
Employment Salaries (2/l) Employment Salaries j4/3) ~mployment Salaries (6/5)
Basic Sector1 2.9
Mining 12.5
Construction 15.2
Manufacturing 4.6
Federal Civilian. .3
Federal Military -2.7
Support Sector 10.2
Transportation-
Comm.-Utilities 7.4
Trade 9.7
Finance-Insurance-
Real Estate 11.2
Services· 12.6
Other
State Government 6.6
Local Government 10.1
Total Nonagricultural
Wages and Salaries2 6.0
16.7
23.1
29.1
11.1
7.6
5.7
18.6
16.9
16.4
18.5
2~.3
15.7
18.8
17.5
5.76
1 .82
2.38
1.86
2.92
4.7
4.9
27.9
4. 7
.8
-4.1
12.3
9.6
10.2
14.8
16.0
5.4
11 .1
7.8
23.6
16.3
50.6
13.0
8.0
4.3
24.1
22.8
19.3
24.4
30.9
15.8
21.7
23.4
5.02
1. 96
2.93
1. 95
3.0
13.8
37.8
. 82.2
1 . 1
3.5
-4.1
. 23.7
26.0
19.7
18.1 .
28.5
6.0
11.9
16.5
54.2
68.8
157.8
15.5
12.7
2.5
52.5
58.7
38.9
30.3
68.1
23.0
20.5
47.5
1Agriculture-forestry-fisheries is left out of this table. During the period, changes in the
coverage of fisheries employment distorts the real growth in this industry.
2 rncludes military wages and salaries from U.S. Department of Commerce, Bureau of Economic Analysis,
Regional Economic Information System, July 1978 printout.
SOURCES: Alaska Department of Labor, Alaska Labor Force Estimates, Estimates of Total Population,
various years.
Alaska Department of Commerce and Economic Development, The Alaska Economy: Year End
·Performance Report 1977.
3.93
2.22
3.83
1.72
2.88
Overall employment in the basic sector grew at a much slower rate than
the remainder of the economy in all but the pipeline years, 1973-1975.
Between 1965 and 1976, basic sector employment increased at an average
annual rate of only 2~9 percent per year, compared to 6 percent for the
entire economy and 10.2 percent for the support sector. After 1970,
industrial growth rates were much closer--basic sector employment grew
at a rate of 4.7 percent, compared to 7.8 percent for the entire economy.
The growth rates are much closer when wages and salaries are considered.
Between 1965 and 1976, the wages and salaries earned in the basic sector
grew only .8 of a percentage point less than the economy-wide average of
17.5 percent. After 1970, basic sector wages and salaries grew slightly
faster than the economy as a whole.
The effect of pipeline construction on the growth of the economy can be
seen in the period 1973 to 1975. Employment in the basic sector grew at
13.8 percent annually, while the economy grew at 16.5 percent. Wages
and salaries increased more rapidly, increasing at a rate of 54.2 percent
annually in the basic sector, compared to 47.5 percent for the economy
as a whole.
Within the basic sector, the federal government was declining in importance
relative to other industries. The military was declining in an absolute
and relative .sense, and federal civilian employment was virtually; stable.
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The most rapidly growing basic industry was construction. Employment'
grew at an average annual rate of more than 15 percent throughout the
period; this wa:s more than twice the growth rate of the economy. The
obvious reason for this growth was the construction of the trans-Alaska
pipeline which began in 1974. The most rapid increase came in the
period between 1973 and 1975 when construction employment increased at
a rate of 82.2 percent per year. The state estimated that in 1976 con-
struction employment connected with the Alyeska project was approxi-:
mately 15,000, or 50 percent of the total state construction employment
(Alaska Department of Labor, 1977}. Wages and salaries mirrored the
growth in employment, increasing at an average annual rate of.50.6 per-
cent after 1970.
Mining employment also increased at a rapid rate throughout the period;
its average annual rate was 12.5 percent. Unlike construction, mining
experienced cyclical growth. Mining employment increased between 1965
and 1970 to 3,000, then fell to 2,000 in 1973 before increasing to 4,000
in 1976.
The early growth in mining resulted from discovery, development, and
production of oil and gas from the Kenai Peninsula and Cook Inlet
fields. Oil was discovered in 1957 ~t the Swanson River; and production
increased from one million barre 1 s per month in 1966 to a peak in 1970
of 7.5 million barrels per month. Employment associated with these
fields grew at an annual rate of approximately 40 percent in the l~te
sixties, causing mining employment to triple between 1965 and 1969 in
25
the Cook Inlet Region (Anchorage, Kenai, Matanuska-Susitna, Seward)
(Scott, 1978). Mining employment dropped after this peak. During the
1970s, the development of the Prudhoe Bay fields resulted in the expan-
sion of the mining industry. This development led to growth in both
exploration and production employment and headquarters employment in
Anchorage. The most rapid expansion of the mining industry came between
1973 and 1975 when both employment and wages and sa~aries increased at
rates more than three times as great as the economy.
Manufacturing in Alaska has traditionally been associated with the fish-
ing industry. Over the period, food manufacturing, because of its
relation to the fishing industry, showed cyclical growth; employment
fell between 1973 and 1974 and did not rise again until 1976. The
fastest growing sector of manufacturing was nothern manufa~turing which
consists principally of petroleum refining, petrochemical, and printing
and publishing. Between 1965 and 1976, employment in nothern manufac-
turing increased at an average annual rate of 6.5 percent, which meant
that this sector was increasing its share of manufacturing employment.
Agriculture-fisheries-forestry depend on the development of the state•s
renewable natural resources, and independent estimates of employment in
these industries suggest little growth. Forestry employs only about 22
people statewide;.most of the logging employment is accounted for in
lumb~r and w~od products manufacturing (Scott, 1979). One indicator of
agricultural activity is employment reported in a yearly agricultural
survey. This survey reports a decline in tota·t agricultural employment
from 900 in 1965 to 750 in 1975 (USDA)L
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The fishing indus try has traditionally been important to A 1 aska. Based
on estimates from Fish and Game fish ticket data, employment was estimated
to have increased from about 4,340 in 1970 to about 5,720· in 1976. This
is an annual growth rate 'of 1.3 percent (Rogers and Listo~ski, 1978).
Table 5 shows some additional indicators of the growth of the fisheries
industry. The catch and value statistics shown in this table illustrate
the cyclical nature of the fishing industry. The real value of fisheries
·catch peaked in 197~ at $117,842,000 (in 1967 dollars). After this peak,
real value fell until 1975, after which it began to grow again.
In summary, employment in the basic industries grew rapidly but not so
rapidly as the total economy. The major growth in the basic sector was
in mining and construction. The traditionally important fishing industry
did not keep up with growth in other basic sectors. Federal government
employment, while providing a stable base for the economy, actually
declined.
The ratio of total"'-to-basic employment in Alaska has steadily increased
from the early fifties (Goldsmith and Huskey, 19788). This growth in the
nonbasic or support sector of the Alaskan economy means that equivalent
increases in basic employment will lead to greater growth. Table 6
illustrates the effect of structural change on growth. The last two
columns show what growth would have been with the given basic sector
growth and the maintenance of 1965 and 1970 total-to-basic ratios. In
all cases, these ratios underestimate the. economy's real growth.
27
N
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1970
Gatch
(million lbs) 533.6
Value ($000) 97,497
Real Value
($000) 88,957
Real Value
Per Pound $ 0.17
TABLE 5. ALASKA FISHERIES ACTIVITY
1970-1977
1971 1972 1973 1974
471 .0 422.5 513.1 454.2
85,585 92,431 142,353 144,809
75,735 79,751 117,842 108,147
$ 0.16 $ 0.19 $ 0.23 $ 0.24
1975
442.4
129,402
. 84 ,965
$ 0.19
SOURCE: Alaska Department/of Commerce and Economic Development, 1977.
1976 1977
615.7 674.5
240,858 350,889
141 ,266 193,328
$ 0.23 $ 0.29
N
1.0
Total Non-
Agricultural
Year Employment
1965 70,530
1970 92,476
1971 97,584
1972 104,243
1973 1 09 ,851
1974 128,178
1975 161,313
'1976 171,714
TABLE 6. THE EFFECT OF STRUCTURAL CHANGE,
ALASKA, 1965-1976
Total
Civilian Ratio of Employment
Total Basic Total/ When Using
Employment Basic · 1965 Ratio
31,393 2.25
35,028 2.64 78,697
35,447 2.75 79,638
36,137 2.88 81 '188
35,849 3.06 80,541
45,698 2.80 102,668
58,592 2.75 131 ,637
63,732 2.69 143,185
Total Change in
Employment Total Employment/
When Using Basic Employment
1970 Ratio (from previous year)
82,879
93,582 12.19
95,404 9.65
94,643 -19.47
120,645 1 .86
154 ,686 . 2.57
168,256 2.02
Basic Employment includes: Mining, Contract Construction, Manufacturing, Agriculture-Forestry-
Fisheries, Federal Government, and Military.
SOURCE: Alaska Department of Labor, Statistical Quarterly, various quarters (primarily third), 1966-1977.
An analysis of the marginal change of total employment to basic employ-
ment reveals that it has been declining since 1970. While employment
in the support sector has continued to grow in response to employment
activity in the basic sector, this growth has been at a decreasing rate.
This decreasing growth rate began after 1972 when the marginal rate
first fell below the.seven-year average of the total-to-basic employment
ratios.
Table 7 provides a detailed description of the structure of Alaska indus~
try in 1965, 1970, and two pipeline years--1975 and 1976. The support
industries as a group expanded. Trade and transportation-communication-
utilities remained constant after 1970. The service industry grew sig-
nificantly in this period, increasing from 10.7 percent to 16.1 percent
of total employment. Business services increased from 1.97 percent to
5.04 percent and were the major component of service sector change.
Finance-insurance-real estate also increased as a proportion of total
employment.
POSSIBLE LONG-TERM TRENDS IN STRUCTURAL CHANGE
Since 1965, the support sector employment has exhibited relative growth.
There are reasons to expect this trend to continue. The process of
economic growth will expand local market opportunities for reasons
already cited (import substitution, scale economies, etc.).
Tables 8 and 9 give some insight into the likely limits to the growth
of the support sector. Table 8 compares the Alaskan distribution of
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TABLE 7. DISTRIBUTION OF EMPLOYMENT, ALASKA
1965, 1970, 1975, and 1976
Jnd_!Jst~y
Total \·:age and Salary
Employ.nent
!·lining
Contract Construction
Nanuf«cturing
Food
logging lumber and Pulp
Other Manufacturi~g
Transportation, Communication,
and Public Utilities
Trucking and Warehousing
Water Transportation
Air Transportation .
O'the1· Transpot·tation
Conmunications and
Public Utilities
1965
X of Total
Emp 1 qymen ~-
100.00
1.54
9.15
8.90
4.26
3.27
1.36
10.30
1.72
1.47
2.72 .
.76
3.63
Trade 14.11
Wholesale 2..63
Retail 11.48
General Hdse. and Apparel 2.59
Food Stores 1.65
Automotive & S~rvice Stations tiA
Eating/Drinking Establishments 2.77
Other Retail 4.36
Finance, Insurance, and ·
Real Estate
Services
Hotels, Motels, and lodges
Personal
Business
11edical
Other
Government
Federal
State
local
Agriculture, Forestry, and
Fisheries
3.08
10.65
1.46
.96
1.97
2.03
4.22
42.06
24.72
9.87
7.47
.20
1970
% of Totctl
Employment
100.00
3.24
7.45
8.48
4.'04
2.98
1.45
9.85
1.79
.90
3.32
.95
2.89
16.61
3.51
13.10
3.63.
1.85
1.81
3.0~
2.78
3.35
12.37
1.57
.92
2.16
2.35
5.37
38.45
18.50
11.21
8.73
• 21
1975
% of Total
Employment_
100.00
2.35
16.04
5.98
2.68
2.09
1.20
10.21
2.45
.86
2.96
1.13
2-.69
16.25
3.:66
12.58
2.55
1.62
1a1
3.88
2.76
3.74
15.58
1.96_
.57
4.54
2.68
5.83
29.22
11.34
9.59
8.30
.63
1976
% of Total
Empl~men_t
100.00
2.31
. 17.61
6.02"
2.98
1.89
1.14
9.18
1.89
.78
2~70
1.08
2.73
16.05
3.55
12.50
2.48
1.74
1.68
3.76
2.84
4.14
. 16.11
1.87
.54
5.04
2.92
5.75
27.89
10.45
8.22
9.21
.70
SOURCE: Statistical Quarterly, Alaska Depul·tmeut of labor, vadous issues.
31
Table~ • THE ECONOMIC STRUCTURE OF S~~L STATES
Percent in Percent in
Total 'Fim::.ncc ... Tr.,.nsportation-
· Employment Percent· in Percent in Insur.lncc-Cor.t."lunica tion,-Percct\t in
~thous::tnds] Services Tr::tdc· Rcnl Ect::tte Public Utilities Govct'n:::cnt
Abska 151.7 15.2 . 17.5 5.1 9.0 :}4,5
.wyoming 168.7 13,9 21,9 3.4 7.8 22.7
Veroont · 179.5 23.4 20~7 ·4.0 4 •. 7 18.2
North Dakota 227.8 19.3 29.0 4,5 6.1 26,8
South D?tkota 227,0 21.1 27.5 4.4 5.4
.. . 24,9
Dcl::t-..•:lrc 234.3 .16. 9 22.0 4.8 5.2 17.8
Xont::tna 263,7 18.4 25.2 4.4 7.8 27,8
Id::tho . 305.5 17.5 25.1 5.3 6,0 21.8
Nevada 323.7 40,8 19.8 4.2 6,0 16.1
New Haropshirc 348,1 18.3 21.5 4.9 3.6 16.,1
w H,_~·aii 362.2 24,0 25.4 6.9 7.8 24,2 N Rhode: Islnnd . 383,0 18,8 19.9 5.0 3.5 15.7
Maine 384.3 17.0 21.1 3.9 4.5 21.3
Nc·"' Mexico 430,9 19.5 22.9 4.4 6,0 26,9
Utah 500.2 .17 .4 24,0 4.6 6.1 23,8
Ncbr~sk::t 583.6 17.4 U1 .• S 6;6 . 7'.2 22,2
'''est Virginia 549,2 15.8 22.1 3.6 . . ' 6. G 20.9
Arkansas 714.5, 111,0 21.3 4.2 5.4 19.0
Mi.!is:!.ssippi 778.1 14.3 19.7 3.9 4.7 21,2
At'izonn 829.8 18,2 . 24.4 5,6 5.2 23.2
K::tns.:~s 878,5 17,5 23.8 4.9 6.6 20.9
Oregon 962,7 17,5 23.7 6,2 5 •. 7 20,3
OklahO!M. 1,001.6 16.6 23.4 5.0 6.0 22,4
Colorado ~,008!:1. 19.4 23.4 G.l G .• 5 22.2
W;:..shineton 1,4os;·6 18.4 2::1.7 5.6 5.7 20.7
Avcr~g.c (excluding AlaskA) 19.0 23.3 4.8 s.a. 21.5 u.s. Avarnsa 18.8 22.J, 5.1 s.s 15.9
.
SOUt'C'~: u.s. Department of Labor, Burcnu of Lnbor S~tisties, Fmp;o)~cnt nnd Earnings, June 1978,
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TABLE 9. ECONOMIC STRUCTURE OF SMALL STATES
1977
Support
Employment/
Total Regional Regionally
Employment Personal Support/ Index Deflated
Support Industry1 Income Personal of Costs Personal
(Thousands)· (Mi 11 ion $) Income (U.S .=1) Inc mile
Alaska . 71 .1 00 4,311 16.5 1.42 23.4
Wyoming 79,100 3,073 25.7 .90 . 23.1
Vermont 94,700 2,814 33.7 1.02 34.4
North Dakota 136,600 4,044 . 33.8 .92 31.1
South Dakota 132,700 4 '104 32.3 .92 29.7
Delaware 114.700 4,477 25.6 1.02 26.1
Montana 147,300 4,661 31.6 .90 28.4
Idaho 164,600 5,128 32.1 .. 90 28.9
Nevada 228,800 5.059 45.2 .99 44.7
New Hampshire 168,400 5,547 30.4 1.02 31.0
Hawaii 234,600 6,773 34.6 1.21 41.8
Rhode Island 181 ,000 6,332 28.6 1.02 29.2
Maine 178,300 6,221 28.7 1.02 29.3
New Mexico 227,400 6,970 32.6 .88 28.7
Utah 256,300 7.510 34.1 .98 33.4
Nebraska 336,500 1 0,491 32.1 .93 29.9
West Virginia 264,000 11 '129 23.7 .85 20.1
Arkansas 321,100 11,878 I 27.0 .89 24.0
Mississippi 331,800 12.019 27.0 .89 24.0
Arizona 446,600 14,943 29.9 .99 29.6
Kansas 464,700 19,802 23.5 ~93 21 :9
Oregon 511,500 16,651 30.7 .998 30.6
Oklahoma 510,400 17,839 28.6 .98 28.0
Colorada 558,900 18,752 29.8 .98 29.2
Washington 755,900 27,534 27.5 .998 27.4
1support sector includes: Services, Trade, Finance-Insurance-Real
Estate, and Transportation-Communication-Public Utilities.
SOURCES: U.S. Department of Labor~ Bureau of Labor Statistics, Employment
and Earnings, June 1978.
U.S. Department of Labor, Bureau of Labor Statistics, Monthly
Labor Review, April 1978.
33
employment to the United States and other small and western states.
Only in finance-insurance-real estate and transportation does Alaska
come close to the employment shares of other states. The shares of
trade and services are well below those of other states. The government
and transportation-communications~public utilities sectors are substan-
tially above the U.S. average, reflecting both the uniqueness and the
geographical extent of the Alaskan economy.
Table. 9 further details the differences in structure among states and
relates the differences to personal income. ~hen personal income is
. adjusted to reflect cost differences among regions, the differences
among the states converge. The ratio of support per one million dollars
in personal income is close to 30.00 for all states, independent of
. size. Alaska's ratio is less than 40 percent of the average.
There are a number of reasons for Alaska's underrepresentation of the
support sector. First, high costs increase the threshold size before
economies of scale can be realized. Second, mining and petroleum-
related construction occur in isolated, enclave environments that are
largely self-supporting. This reduces demand for support sector services.
Finally, the geographical extent of the state and its lack of economic
integration (except through the state government sector) make it more
profitable for some parts of western and southeast Alaska to exchange
directly with the Lower 48 rather than to rely on the Alaska support
sector.
34
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Unemployment
Chronic high unemployment has been endemic to the Alaskan economy.
Table 10 reveals that the rate has remained near 10 percent every year
since 1970. This was substantially above the national average. Only
in 1975 did the state rate fall below 10 percent, but the nu~ber of
unemployed remained high.
The increased demand for skilled labor was largely met by in-migration.
The increase in the labor force participation rate may also explain the
high unemployment rate, but this reason must be viewed cautiously.· The
low dependency ratio associated with th~migrants and the economic
motivation for their migration would, in itself, raise the labor force
participation rate. The increases in the labor force participation
rates appear to coincide with the peak years. of in-migration ..
Another factor associated with chronic unemployment is the seasonality of
employment. One measure of seasonality is defined by the ratio of the
fourth quarter employment to the third quarter employment. The closer
. \
this index is to one, the less seasonal is the industry. Table 11 shows
the seasonality of Alaska industries. Seasonality has decreased in
importance throughout the historical period. In 1960, the overall
seasonality index was .8313. In 1975, it was .9402; the increase in
seasonality in 1976 was due to the pipeline construction employment in
the summer of 1976.
35
1965
1970
1971
1972
1973
1974
1975
1976
Alaska
Tot a 1
TABLE 10. UNEMPLOYMENT, ALASKA
AND UNITED STATES
1965-197p
Alaska United States
Unemployment Unemployment
Unemployed Rate (%) Rate (%)
7,700 8.6 4.5
9,700 9.0 4.9
12,100 10.4 5.9
12,900. 10.5 5.6
13,900 . -10.8 4. 9 .
14,900 10.0 5.6
14,900 8.3 8.5
21 ,000 10.5 7.7
Alaska
-Labor Force
Partidpation
Rate (%)
38.16
39.94
40.97
41.27
42.78
46.00
47.40
52.65
SOURCES: Alaska Department of Labor, Labor Force Estimates, various years.
Alaska Department of Labor, Estimates of Total Resident Population.
36
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TABLE l1. SEASONALITY OF EMPLOYMENT, ALASKA
1950, 1960, 1965, 1970, 1975, and 1976
1950 1960 1965 1970
Mining .6267 .7143 .7949 .8556
Construction .7900 .5862 .6460 . 7279
Manufacturing .2440 .5137 .6531 .5457
Transportation,
Communication, and
Public Utilities .8248 .9683 • 9125 .8851
Trade .9226 .• 9718 .9905 .9733
Finance, Insurance,
arid Real Estate 1.0000 1.0000 .9706 .8942
Services .9583 .9123 .9664 .9716
Government .9632 .9815 .9617 .9810
Total .7505 .8313 .8~18 .8800
Note: Figures for 1977 are not available.
1975
.9009
.8374
.6886
.9887
1. 0048
l.OOOO
.9812
1.0049
. 9402 .
SOURCE: State of Alaska, Alaska Labor Force Estimates, various years.
37
1976
.9690
.6906
.6714
.8871
.9120
.9270
.9387
.9689
.8733
The decrease in seasonality since 1960 has been the result of a number
of factors. Even though seasonal, incomes in petroleum-related con-
struction and.construction in general were high enough so that workers
in these sectors could sustain their consumption a 11 year-round. Con-
sequently, the demand for support sector services was less variable than
it might have been. The growth of deposits from $535.5 million in 1973
to $848.8 million in 1976 represents a 17 percent increase when converted
to real terms. Savings of this magnitude probably served to stabilize
employment both by reducing demand during peaks and increasing it during
slack periods. Finally, construction technology partially adapted to
winter construction conditions.
Real Income Per Capita
. The statistics in Table 1 reveal an impressive real growth rate in per
capita income of 4.86 percent per year primarily as a result of increases
in employment. If this 11 real 11 rate were to continue, per capita real
income would double approximately every 14.6 years.
Table 12 displays the Consumer Price Index (CPI) for Anchorage ov.er. the
historical period (a statewide index is unavailable).
A comparison of the Anchorage index to the United States index gives.
relative movement in price levels. Prior to 1974, the Anchorage CPI was
increasing at a slower rate than the U.S. CPI. This indicates that the
price differential between Alaska and the United States was falling.
With the trans-Alaska pipeline construction boom, this trend was reversed.
38
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Year
1965
1970
1971
1972
1973.
1974
1975
1976
1977
TABLE 12. ANCHORAGE CONSUMER PRICE INDEX
( 1967 == 1 00)
·%Change
Over United
Anchorage Previous States
Index Years Index
94.2 94.5
109.6 3.07 1 116.3
112.9 3.01 121.3
115.9 2.66 125.3
120.8 4.23 133.1
133.9 10.84 147.7
152.3 13.74 161.2
164.1 7.74 170.5
175.0 6.64 181 .5
1Average annual rate of price increase 1965-1970
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics,
Washington, D.C.
39
% Change
Over
Previous
Years
4.23 1
4.30
3.30
6.23
10.97
9.14
5.77
6.45
Prices rose relatively faster in Alaska after 1975. Bottlenecks resulted
when the rapid increase in demand was met by a relatively fixed supply.
Persons whose income grew at rates less than the CPI experienced declining
real incomes.
The Growth of State Government
An important nonexport sector contributing to the growth of Alaska
between 1965 and 1976 was the state government. First, state government
experienced rapid growth in the early 1970s. Secondly, this growth was
largely funded by revenues exogenous to the state•s economy (i.e., the
$968 million in lease bonus monies from the Prudhoe Bay lease sale).
The growth of state government expenditures, when derived from exogenous
sources, can influence the level of economic activity through two channels.
First, increased state expenditures will lead to increased employment in
state government. Secondly, capital expenditures will increase employment
in the.construction industry. The behavior of state expenditures since
1970 provides some insight into the state government•s role in the growth
process.
Since statehood, total state expenditures increased at an average annual
rate of 21 percent (Goldsmith, 1977). There are three distinct periods
of expenditure growth: 1) prior to the 1969 Prudhoe Bay lease sale,
2) between 1970 and 1972 when the initial adjustment to these revenues
occurred, and 3) after 1972. In examining expenditures in the period
after the state received the lease bonus in 1969, Scott (1978). found:
40
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1. The constant dollar increase was 62 percent of the nominal
dollar increase.
2. The rate of increase was more rapid between 1970 and 1972
than between 1972 and 1977.
3. Operating expenditures have grown more rapidly over the
whole period, while capital expenditures:grew more rapidly
between 1970 and 1972. These suggest that each type of
expenditure may be sensitive to different factors with
operating expenditures responding to increases in demand
and capital expenditures responding more to available
revenues.
An examination of Table 13 reveals that real per capita operating and
capital expenditures increased between 1970 and 1972. Real per capita
operating expenses increased at an average rate of 19.9 percent, while
capital expenditures increased,at a rate of 32.3 perc~nt per year.
After 1972, operating expenditures increased at a r~te of 3.4 percent;
and capital expenditures actually decreased at a rate of -6 percent.
Petroleum revenues and federal government transfers have historically
provided the major portion of state revenues. In 1973, these sources
accounted for 62 percent of the state government•s income (Kresge,
1977). These clearly represent exogenous sources of income and, as
such, contribute to the growth process.
41
Fiscal
Year
1977
1976
1975
1974
1973
1972
1971
1970
TABLE 13. STATE REAL PER CAPITA OPERATING AND
CAPITAL EXPENDITURES
1970-1977
(Constant 1967 Dollars)
Operating Capita 1
Resident 1 Population
Expenditures Expenditures
Per Capita Per Capita
413,289 $1 ,224.88 $409.17
404,635 1 '156. 97 486.57
351,159 1 '199. 92 548.54
330,600 1 '168. 14 475.66
324,800 1 , 108.15 497.07
312,930 1,038.74 555.11
.302 ,.36.1 990.64 374.77
294,560 722.20 317.02
Compound Annual
Growth Rate
1970-1977 5.0%
1972-1977 5. 7%
1970-1972 3.1%
7.8%
3.4%
19.9%
3.7%
-6.0%
32.3%
Total
Expenditures
Per Capita
$1,634.05
1,634.54
1,748.46
1,643.80
1,605.22
1,593.85
1,365.41
1,039.22
6.7%
0.5%.
23.8%
1state's estimate from Research and Analysis Section, Employment
Security Division, Alaska Department of Labor, State of Alaska Current
Population Estimates by Census Divisions, July 1 (year). The population
as of the beginning of the fiscal year was used.
42
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The Economy Since 1977
A review of some events and characteristics of the Alaskan economy since
1976 provides some useful insights into the economy during the first
half of the seventies. While post-1977 data for mo~t of the baseline
socioeconomic indicators are not available at this ti~e, data for a
number of other available aggregate indicators will be discussed.
At the state level, post-1976 data indicate that aggregate levels of
economic activity have receded from the~r 1976 levels and reveal that
statewide employment grew at a compound annual average rate of 4.10 per-
cent between 1965 and 1977. For the period 1970 through 1977, the com-
pound growth rate was 8.54 percent per year. T~is higher rate wa~ a
result of the 71,624 workers added to the workforce between 1970 and
1977, an increase of over 77 percent. Most of this growth {75.7 percent)
actually occurred after 1973, reflecting the influence of the TAPS proj-
ect. By 1977, however, the average statewide employment level was 7,164
below its 1976 level, an indication that the economy was entering a post-
boom period.
Employment data recently published {Alaska Department of Commerce and
Economic Development, 1979) provide further substantiation of this in-
terpretation. The downward trend in state employment levels continues
through 1978 with employment almost 6 percent below the 1976 level. In
addition, preliminary data for 1979 suggest little fhange from 1978.
Between 1977 and 1978, the statewide unemployment rate increased from
9.2 percent to 11.1 percent, lending further credence to the interpreta-
tion of an economic slowdown.
43
It is important to look beyond the total employment figures when evalu-
ating recent economic conditions.. A closer examination of these 1978
and preliminary 1979 data reveals that employment has remained rela-
tively stable or grown slightly in most sectors. Contract construction
employment declined from a peak of 30,233 in 1976 to 12,240 in 1978, a
decrease of 17,993 (Alaska Department of Commerce and Economic Develop-
ment, 1979). The data also reveal, however, that total employment only
declined by 10,155, so other sectors of the economy actually expanded by
7,838 employees.
Statewide income statistics are consistent with the employment data.
Total nominal personal income. increased from $4.187 billion in 1976 to
$4.370 billion in 1978. Although this is a 4.37 percent increase·, it is
more than vitiated by the rate of inflation for the same period. As an
indication of the general inflation rate, the Anchorage CPI increased by
. . .
14.26 percent from 1976 to 1978. Thus, if the income growth is adjusted
. for inflation, the two-year performance represents a decline of over
9 percent in real terms.
During the 1976-1978 period, statewide per capita income increased from
$10,254 to $10,851 in nominal terms (Alaska Department of Commerce and
Economic Development, Division of Economic Enterprise, 1979). This
5.82 percent increase represents a significant decline in real terms.
The Anchorage economy serves as a locus for approximately 50 percent of
the income and employment generated within the state. Data indicate
44
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that the statewide slowdown in economic activity is being felt in
Anchorage. In 1977, the average level of employment in Anchorage was
77,858. By 1978, Anchorage employment had declined to 74,888 (Alaska
Department of Labor, 1979). Almost half of this de<:line was in the
contract construction sector where employment fell from 7,795 in 1977
to 6,431 in 1978. Preliminary data for 1979 suggest a further decline
in this sector (Alaska Department of Labor, 1979). During this same
period, the Anchorage unemployment rate increased from 6.9 percent to
8.3 percent (Alaska Department of Commerce and Economic Development,
1979).
Income statistics for Anchorage are consistent. with the view that the
area i~ experiencing a modest economic slowdown~ Aggregate real per-
sonal inco~e grew from $579.3 million in 1970 to $1,185 billion in 1977
(Table 18). The 1978 real personal income is $1.1607 billion (Alaska
Department of Commerce and Economic Development, 1979). This represents
·a decline of 2.05 percent in real terms. Nominal per capita income in
Anchorage increased from $11 ,430 in 1977 to $12.152 in 1978 (Alaska
Department of Commerce and Economic Development, 1979). When these
figures are deflated by the CPI, they become $6,528 and $6,481, respec-
tively. While this is a decline in real terms, the decrease is gener-
ally smaller than that experienced elsewhere in the state.
The various subregions within the Southcentral region have generally
experienced significantly different growth patterns from Anchorage in
the period 1975 through 1978 (Yakutat is excluded from this discussion
45
since the Census district data include Skagway). Nominal per capita
incomes increased in all of the Census districts except Valdez-Chitina·
Whittier. In this one, district nominal per capita income declined by
54.79 percent. Among the olher Census districts, Kodiak showed the
greatest per c·apita .increase--44.96 percent. However, only Kodiak and
Cordova-McCarthy measured increases in nominal per capita income in
excess of the Anchorage CPI (Kodiak, 44.96 percent; Cordova-McCarthy,
32.20 percent; Anchorage CPI, 23.05 percent) over the three-year period.
The Economies of the Gulf of Alaska Region, 1965-1976
OVERVIEW
The major impacts from OCS development in the Lower Cook Inlet are pro-
jected to occur in the Gulf of Alaska region. The Gulf of Alaska region
is the most populous region of the state. It contains almost 60 percent
of the state's population. Many of the events.which have influenced the
growth of the state occurred in the Gulf of Alaska region. The Cook
Inlet oil and gas fields are located in that region, and the terminus.of
the trans-Alask~ pipeline is also in the Gulf of Alaska region at Valdez.
This region also contains one of the major fishing ~arts in the state at
Kodiak. Anchorage, the state's major metropolitan center, is in the region.
The region and its subregional economies experienced rapid growth between
1965 and 1970. The Gulf of Alaska region grew faster than the state and
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increased its share of state employment from 53.6 percent to 56.5 percent. [
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The Gulf of Alaska region contains two major subregions, Anchorage and
Southcentral. The Anchorage region consists of the Anchorage Census
Division. Southcentral includes six Census Divisions: Kenai, Seward,
Matanuska-Susitna, Valdez-Chitina-Whittier, and Cordova-McCarthy. It
also includes the Yakutat portion of the Skagway-Yakutat Division.
.(Figure 3 shows the Alaska Census Divisions.) The character of each of
these subregions differs. Anchorage is the urban center of the state.
The Southcentral region consists of a series of small, rural economies.
This section will examine the growth of the Gulf of Alaska's two sub-
regions during the 1965-1976 period.
ANCHORAGE
Overview
The development of Alaska as a major oil province with the Cook Inlet
discovery and the subsequent Prudhoe Bay discovery played a major role
in the development of Anchorage. The construction activity associated
with the development of TAPS provided an additional stimulus to Anchor-
age that had important effects on the size and structure of the local
economy. Population, employment, and income showed rapid growth from
1965, with the pace of growth intreasing after 1973.
The data presented in Table 14 indicate that population growth in Anchor-
age was responsive to the growth in economic activity. From 1965 to
1976, population grew at a compound annual growth rate of 5.56 percent.
Between 1974 and 1976, the population of Anchorage increased by an
47
.. ... .. .. "-........... ..
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...... _ -----..... ----------------------'\
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FIGURE 3.
ALASKA CENSUS DIVISIONS
LEGEND
0 Places or 25,000 to 50,000 inh~b'lants outside SMSII's
SCAI..E
.!S(k.,.,,b£~.~~ .. ~UM$
A
ALEUTIAN IsLANDS (PAR. Tl.· . C \
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"' :. 5.7.,!/fYP 8 ••
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1950
1960
1965
1970
1971 .
1972
1973
1974
1975
1976
1977
Compound Annual
Growth Rate
1965-1977
1970-1977
1973-1976
TABLE 14. POPULATION GROWTH, ANCHORAGE
AND ALASKA, 1950-1977
Anchorage Alaska Percent of State
Population Population Population in Anchorage
30,060 128,643 .23
82,833 226,167 .37
102,337 265.192 .39
126,333 302,361 .42
135,777 312,930 .43
144,215 324,281 .44
149,440 330,365 .. 45
153 '112 351,159 .44
177,817 404,634 .44
185,179 413,289 .45
195,826 411,211 .48
5.56 3.72
6.46 4.49
7.41 7.75
SOURCE: Alaska Department of Labor.
49
estimated 32,067 persons. It is estimated that 27,681 persoris, or
86 percent of the population change, was the result of in-migration.
The dependency ratio ( tota 1 popu 1 at i on/1 abor force) fe 11 from 3. 01 to
2.53 between 1970 and 1976.
Anchorage employment increased from 30,678 in 1965 to.73,133 in 1976.
Between the years 1973 and 1975, employment grew from 50,627 to 69,645,
or an increase of 38 percent (State of Alaska, Department of Labor,
1979).
Other measures of economic activity and growth showed simi 1 ar p?.tterns
nf behavior. For example, freight tonnage passing thro~gh the port
increased from approximately 2 million tons in 1973 to almost 2.8 million
tons in 1975 (Municipality of Anchorage, 1979). The number of dwelling
units authorized by the city increased from 1,035 in' 1973 to 2,505, a
142 percent increase in two years.
Anchorage, the major metropolitan area in the state, has since 1970
contained more than 42 percent of the state's population (State of
Alaska, Department of Labor, various years). Anchorage functions as
the major administrative, distributive, and financial center for the
state's private sector. This means that economic growth in Anchorage
is affected by changes in the level of economic activity throughout the
state. Major pip~line construction (TAPS) occurred hundreds of miles
from Anchorage but profoundly.· affected the Anchorage economy.
50
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Structural Characteristics and Economic Change 1965-1976
Trade, services, finance-insurance~real estate, and transportation also
have substantial bas1c functions in the Anchorage economy since these
sectors serve the rest of the state.
State government is also a basic sector from the city's viewpoint.
Employment and expenditures by state government are determined by factors
largely exogenous to Anchorage's economy. On the other hand, the manu-
facturing sector in Anchorage, bereft of food processing, is tailored to
the local economy (supplying specialty products to the Anchorage stores)
and is, therefore, nonbasic~
Table 15 presents the structural composition of Anchorage, Alaska, and
the United States for the years 1965, 1970, 1975, and 1977.1 Anchora~e
has a structure much closer to the United States than does the state.
The trade arid services sectors in Anchorage appear to have roughly the
same relative importance as in the United States. Substantial differ-
ences still remain, however.
The diversification and growth of the Anchorage economy is further
documented in Table 16. Several sectors demonstrate significant growth
relative to the state. Manufacturing, services, and state government
each grew relatively by over 30 percent between 1970 and 1978. Only
1The state statistics are somewhat misleading in that Anchorage is
included and significantly affects the distribution of state employment.
51
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TABLE 15. INDUSTRIAL COMPOSITION
VERTICAL DISTRIBUTION (PERCENT)
ANCHORAGE, ALASKA, AND UNITED STATES
ANCHORAGE ALASKA UNITED STATES
INDUSTRY 1965 1970 1975 1977 1965 . 1970 1975 1977 1970
Nonagricultural
Wage and Salary 100.0 . 100.0 100.0 100.0 100.0. 100.0 100.0 100.1 100.0
Mining 1.2 2.3 1.9 1.8 1.5 3.2 2.4 2.8 0.9
Construction 10.2 8.4 10.1 10.0 9.2 7.4 16.1 12.4 5.0
Manufacturi n.g 2.6 2.4 2.3 2.3 8.9 8.4 6.0 6.3 27.3
Transportation . 8.5 9.3 10.5 9.8 . 10.3 9.8 10.2 9.4 6.4
Trade 17.2 20.5 . 21.4 21.3 14.1 16.5 16.2 17. 1 21.2
Wholesale 4.0 5.3 5.9 5.4 2.6 3.4 2.5 3.6 5.4
Retail 13.2 15.2 15.6 15.9 ll. 5 13. 1 12.6. 13.5 15.8
Finance-Insurance-
Real Estate 4.2 4.7 5.2 6.0 3. 1 3.3 3.7 4 .. 7 5.2
Service and Misc. 12.3 15.4 19.5 21.7 10.7 13.2 16.2 16.6 16.4
Government 43.0 37.0 29.1 27.2 42.1 38.2 29.3 30.7 17.7
Federal 30.6 22.6 14.7 . 13.2 24 .. 7 18.4 11.3 11.0 3.9
State 5.4 5.8 5.8 5.9 9. 9 . 11.1 9.6 8. 7. 13.9 local 7.6 8.6 8.6 8.1 7.5 8.7 8.3 11.0
·soURCE: Anchorage Annual Planning Information FY 1979, State of Alaska, Department of Labor,
Research and Analysis Section.
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1975
100.0
1.0
4.6
23.8
5.8
22.1
5.4
16.6
5.5
18.2
19. l
3.6
15.5
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1977
100.0
1.0
4.7
23.8
5.6
22.3
5.3
16.9
5.5
18.7
18.5
3.3
15.2
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TABLE 16. ANCHORAGE INDUSTRIAL COMPOSITION
PERCENT OF STATE
INDUSTRY 1970 1974 1975 1976
Nonagricultural
Wage and Salary .45. 1 45.8 43.2 42.7
Mining 31.9 34.5 34.2 35.2
Construction 50.9 41.7 27.2 25.1
Manufacturing 13.1 14.4 16.4 15.8
Transportation 42.9 45.0 44.5 46.9
Trade 56.0 58.3 57.0 .57 .8
Wholesale 69.4 71.5 69.1 69.5
Retai 1 52.4 55.2 53.5 5.4.5
Finance~ Insurance-
Real Estate 63.9 64.3 60.'3 60.0
Service and Misc. 52.5 52.9 52.0 53.9
Government 43.7 43.8 42:9 40.8
Federal 55.6 55.1 55.9 54.8
State 23.5 28.1 26.1 28.6
Local 44.6 51.3 44.6 35.6
1P'l" .. t"'t re 1m1nary es 1ma e
1977 1 April
1978
48.4 50.6
28.9 28.6
47.3 63.2
16.5 18.0
49.7 47.3
57.2 55.5
70.7 71.9
53.6 51.2
63.6 . 63.5
60.7 70.0
42.9 43.0
57.6 58.8
31.0 31.0
37.7 38.0
SOURCE: Anchorage Annual Planning Information FY 1979; State of Alaska,
Department of Labor, Research and Analysis Section.
53.
mining and local government declined by a significant amount relative
to the state.
Implicitly, all of the sectors where the employment shares are over
50 percent of the state can be viewed as having basic (or e~port)
components. By this criteria, construction, trade, finance-insurance-
real estate, and services were.all basic sectors in 1978, exporting
to the rest of the state. Note the dramatic decrease in the share of
construction employment beginning in 1974 and continuing through 1976.
This coincides with the peak years of TAPS construction.
Table 17 further documents the increased diversification accompanying
Anchorage's economic growth.2 . The ratio of civilian basic to civilian
total employment declined from .5683 to .4680 between 1965 and 1976,
an increase in the ratio of total employment to total basic employment
of 1.76 to 2.14.
Growth in Aggregate Economic Indicators
Table 18 reveals the growth in aggregate real income as well ~s real per
capita income. Aggregate real income increased by ave~ 200 percent in
the twelve-year period; and per capita real income increased by 60.0
percent over the same period. The compound annual growth rates for
several time periods are shown on the table. The table reveals that
the peak pipeline years account for the greatest growth rates.
2one caution is necessary in interpreting the table. The manu-
facturing and agriculture-forestry-fisheries sectors are probably locally
oriented rather than export oriented.
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TABLE 17. ANCHORAGE BASIC SECTOR GROWTH
[ 1965. 1970, 1973, 1975. and 1976
[ Industry 1965 1970 1973 1975 1976
c Agriculture, Forestry,
and Fisheries 33 52 ·82-110 100
[ Mining 371· 958 769 1 ,301 1,409
Contract Construction 3,127 3,514 -4,178 7,054 7,587
[ Manufacturing 791 1,018 -. 1,286 1 ,573 1,629
Transportation, Communication,
[ and Public Utilities -0 - -0 - -0 -230 697
Trade 1,195 1.642 2,239 3,611 4,195
r: Finance, Insurance, and L) Real Estate 350 573 825 1 ,010 1,229
l~ Services 500 1.208 1,323 2,612 3,510
Federal Government 9,395 9,~09 9,558 10,222 9,813 r/ State Government 1,672 2,421 },667 4,056 4,053
-· Total Civilian
B Basic Employment 17,434 20,895 23,927 31 ,779 34,222
Total Military Employment 15,190 12,884 14,049 12,642 12,179
0 Total Basic Employment 32,624 33,779 37,976 44,421 46,401
u Total Basic/
Total Employment .7113 .6155 .5872 .5398 .5440 (
'•/
L Civilian Basic/Total
Civilian Employment .5683 .4975 .4726 .4563 .4680
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TABLE 18. GROWTH IN PERSONAL INCOME
ANCHORAGE AND ALASKA, 1965-1977
(Millions of 1967 Dollars)
Percent of State
Anchorage Alaska Personal Income
Personal Income Per Capita Personal Income Per Capita in Anchorage
1965 393.8 3,849 910.8 3,435 .43
1970 579.3 4,585 1,288.3 4,260 · .. 45
1971 649.2 4,781 1,379.1 4,407 .47
1972 690.4 4,788. 1,465.1 4,518 .47
1973 731.0 4,892 . 1 ,662. 3 5,031 .44
1974 830.2 5 ,422· 1,817.4 5 '180. .46
1975 1,060.0 5,961 2,311.7 5,713 .46
1976 1 ,147 .2 6,195 2 ,551. 2 6 '172 .45
1977 1,185.0 6 '141 2,442.6 5,940 .49
Compound Annual
Growth Rate
1965-1977 9.62 3.97 8.57 4.67·
1970-1977 10.76 4.26 9.57 4.86
1973-1975 19.03 9.12 17.81 9.12
SOURCES: U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information
System, July 1979 printouts. ·
·Alaska Department of Labor, Estimates of Total Resident Population.
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Real personal income increased from $393.4 million (1967 dollars) in
1965 to over $1.1 billion in 1976 (U.S. Department of Commerce, 1978).
This represents a real rate of growth of almost 10 percent annually.
More dramatically, the annual growth rate surged to 19~Q3 percent during
the peak of TAPS activity in 1973-1975. When these figures ar~ converted
to a real per capita basis, the growth rate is4.04 percent per year from
1965 through 1976 with a high of 9.12 percent per year from 1973 to.l975
(U.S. Department of Commerce, 1978).
Table 19 indicates that employment in the Anchorage economy increased
at a compound annual growth rate of 8.22 perc~nt from 1965 to 1976, and
at a compound annual rate of 9.68 percent from 1970 to 1976~ Statewide,
employment grew even more rapidly ... As a result, the city's share of
total state employment fell from 45 percent in 1970 to 43 percent in
1976.
Anchorage's unemployment rates remained high by U.S. standards, and
absolute levels of unemployment increased in every year but 1975 (see
Table 20). The six-year period (1970-1976) witnessed a 126 percent
increase in the number of unemployed in the Anchorage labor market.
The statewide unemployment/employment relationship \<Jas behaving in a
similar manner falling below 10 percent in one year (1975) after 1970.
Both in-migration and changing labor force participatiun were important
factors influencing: Anchorage's unemployment. Between 19n and 1974, . .
Anchorage employment increased by a little more than 8,000 workers.
57
1965
1970
1971
1972
1973
1974
. 1975
1976
1977
Compound Annual
Growth'Rate
1965-1976
1970-1976
TABLE 19. EMPLOYMENT GROWTH, ANCHORAGE
AND ALASKA, 1965-1977
Anchorage
EmElo~ment
30,678
41 ,995
45,452
48,252
50,627
58,713
69,645
73 '113
77,858
8.22
9.68
A:]aska
EmElo~ment
70,530
92,476
97,584
104,243
109,851
128 '178
161,313
171,714
164,071
8.43
10.87
Percent of State
EmQlo~ment in Anchorage
.43
.45
.47
.46
.46
.46
.43
.43
.47
SOURCE: Alaska Department of Labor, Labor Force Estimates, various years.
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Anchorage
Total -Unemployment
1965 2,249
1970 3,267
1971 4,418
1972 5,140
1973 5,818
1974 5,980
1975 5,279
1976 7,372
TABLE 20. ANCHORAGE AND ALASKA UNEMPLOYMENT
1965' 1970-1976
Anchorage
Anchorage Labor Force ·Alaska
Unemployment Participation Unemployment
Rate (%) Rate (%) Rate (%)
6.2 . 41.44 8.6
6.7 43.21 9.0
8.2 44.43 10.4 .
·8.9 44.68 10.5
9.7 44.40 10.8 .
8.6 49.66 10.0
6.7 47.85 8.3
6.9 50.56 10.5
SOURCE: Alaska Department of Labor, Alaska, Labor Force Estimates.
Alaska
labor Force
· Parti ci pati on
Rate (%)
38.16
39.94
40.97
41.27
42.78
46.00
47.40
52.65
In-migration plus natural increase accounted· for, at most, 3,672 of
these workers. The remaining 55 percent, or 4,414 workers, must be the
result of increased labor force participation. Inspection of Table 20
lends support to this conclusion.
The economic 11 boom 11 associated .with the TAPS project undoubtedly encour-
aged increased labor force participation. Then, as the information
about labor market conditions filtered to the Lower 48, the in-migration
response was triggered. The resp6nse ~as dramatic. The data in Table 21
reveal an estimated net migration of 22,222 for 1975. But reported em-
ployment increased by only 10,932 (Table 19). Concurrently,' the labor
force participation rate fell to 47.85, and the un~mployment rate declined.
A possible reconciliat-Ion of these data is achieved by assuming that a
significant proportion of the in-migrants were employed elsewhere in the
state even though they resided in Anchorage. During this period (1974-
1975), statewide employment increased by 33,135, and Anchorage's share
of total state employment fell from 46 to 43 percent (Table 19).
SOUTHCENTRAL ALASKA
Historically, the Southcentral region's economy has been based on the
exploitation and development of natural resources. The fisheries of
Southcentral are among the most important in the state, accounting for
approximately half of the industry's statewide catch. The Upper Cook
Inlet region was the site of the state's first major hydrocarbon devel-
opment and remains the center of the state's petrochemical industry.
60
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Number
of Births
1965
1970 3,285
1971 3,192
1972 3,119
1973 4,247
1974 3,123
1975 2,990
1976 3,472
1977 4,108
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TABLE 21. ANCHORAGE POPULATION GROWTH
1965, 1970-.1977
Estimated Population
Number Natural Net as of
of Deaths Increase ~1iqration July 1'
102,337 .
489 2,796 126,333
473 2,719 6,725 135,777
490 2,629 5,809 144,215
424 3,823 1,402 149;440
481 2,642 1,030 153 '112
507 2,483 22,222 177,814
519 2,953 4,412 185,179
777 3,331 4,447 192,957
% increase
over
. ·_Previous Year
4.30 1
7.48
6.21
3.62
2.46
16.14
4.14
1Percent average annual increase.
SOURCE~ Alaska Department of Labor, Estimates of Total Resident Population
and Estimates of Civilian Population.
Alaska Department of Health and Social Statistics, as reported
by the Municipality of Anchorage.
61
During the time period under investigation, 1965-1976, an oil port was
built at Valdez to serve as the terminus of the trans-Alaska pipeline.
The construction of this facility and the pipeline leading to it were
important factors in the growth of the Southcentral region during the
mid-l970s.
Population
Population in the Southcentral region increased by over 28,000 between
1965 and 1976. Over half of this increase came after 1973 as a result
of the construction of the trans-Alaska pipeline. Such rapid growth in
a relatively small region indicates that migration was the major component
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of growth. Between 1973 and 1976, migration accounted for over 90 percent L.
of the increase in population. Table 22 shows the components of population
growth in Southcentral.
From 1973 through 1976, the historic relationships between population
and employment seem inoperative. In 1965, the ratio of employment to
population was 4.2, implying approximately 3.2 dependents per employee.
If one analyzes the data from 1973 to 1976, a different pattern emeiges.
During that period, ernployment increased by 10,899 workers, but the
population only expanded by 19,715 people. The marginal ratio of
population-to-employment fell to 1.81, or less than .one dependent·
per worker.
This departure from the traditional economic/demographic relationship
can be partially explained by the sectors responsible for the rapid
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TABLE 22. POPULATION GROWTH, SOUTHCENTRAL
ALASKA, 1965, 1970-1977
Estimated Population % Increase
Number Number Natural Net as of over
of Births of Deaths Increase Migration July 1 Previous
1965 30,235
1970 863 1 215 1 648 1 37,540 2 4.43
1971 505 139 366 926 38,832 3.4
1972 505 138 367 -406 38,739 -0.2
1973 718 173 545 -31 39,253 1.3
1974 768 4 231 4 537 4 1 ,667 41,457 5.6
1975 634 244 390 9,828 51,675 24.6
1976 993 227 766 6,436 58,877 13.9
1977 5
1Data is from State of Alaska, Department of Health and Social Services,
Office of Information Systems.
2Data is from April Census.
3Annual average increase from 1965 to 1970.
4oata ts from 1974 Vital Statistics Provisional Figures, State of Alaska,
Department of Health and Social Services, Health Information System Section.
5Figures for 1977 are not available.
63
Year
growth: mining and construction. Employment in these sectors is more
transient than employment in other sectors where there is greater like-
lihood of employees' taking up permanent residence •. The employment
rotation patterns and enclave nature· of mining activity encourage a
nonresident workforce, further reducing the demographic impact of mining
development on a particular area. The TAPS construction project was
imbued with all of the above characteristics; hence, it had minimal
demographic impacts. Had 'historic relationships (pre-1973) held, there
would have been 31,601 additional dependents [(10,899 x 3.9-10,899)]
rather than 8,816.
Aggregate Measures of Economic Activity in Southcentral Alaska
Table 23 reveals the importance of the TAPS-related construction activity
as an economi·c stimulus to the region. The pace of activity, as measured
by income and employment, quickened after 1973. Between 1965 and 1976,
total employment more than tripled.· Ov~r two-thirds of the measured
change in employment occurred between 1973 and 1976. The growth in
regional real income exhibited similar behavior, increasing by over
250 percent from 1965 to 1970, but 67 percent of this increase occurred
in the last three years of the period.
Sources of Growth, 1965-1976. · A major source of growth in the South-
central region during this period was the expansion of the traditional
basic industries: mining, construction, and fisheries {including fish
processing). The major mining development occurred eariy in the period
with the development of the Kenai-Upper Cook Inlet fields. Petroleum
64
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TABLE 23. GROWTH OF EMPLOYMENT, POPULATION, AND
PERSONAL INCOME, SOUTHCENTRAL REGION
1965-1976
Population Employment
1965 30,235 7.124
1970 37,809 9,582
1971 39,227 10,127
1972 39,148 10,735
1973 39,716 12 '131
1974 41 ,986 13,645
1975 51 ,923 18,300
1976 59,431 23,030
Compound Annual
Growth Rate
1965-1976 6.34 11.26
1970-1976 7.83 15~74
Total Percent
Change 96.56 223.22
Real
Personal Income
($ 1967 Million)
95.6
143.5
146.2
149.2
174.0
197.5
271.8
336.0 /'
12.11
15.23
251.50
SOURCES: All estimates State of Alaska Department of Labor, Research and
Analysis Section, Population Estimates by Census Division, except
1970 which is Census of Pbpulation.
Alaska Department of Labor, Statistical Quarterly, various years.
U.S. Department of Commerce, Bureau of Economic Analysis, July 1978.
65
activity in the Kenai fields can be described in two periods. Field
development occurred in the first period (between 1961 and 1968) which
included the development of both onshore and 'Offshore fields. During
this phase, mining employment increased by over 600 percent. Major
construction of petrochemical facilities also took place during this
period. Three petrochemical plants and seven pipelines were completed
between 1961 and 1968.
The second major phase was production. By 1970, all the major compo-
nents of the·petroleum industry were in operation (Mathematical Sciences,
Northwest, 1976). Since 1970, the industry has exhibited a cyclical
pattern of employment, first declining, then increasing after 1913.
Recent growth in the industry is related to increased exploratory and
petrochemical activity (Kenai Borough, 1977).
Regional construction employment prior to 1970 was influenced importantly
by petrochemical development in Kenai. Construction of five petrochemical
facilities and seven pipelines increased Kenai's construction employment to
a peak of 1,209 in 1968 (Mathematical Sciences, Northwest, 1976). By 1970,
construction employment had decreased until its regional total was 583.
Table 24 reveals that construction employment was increasing throughout the
period at an annual average rate of over 20 percent. The construction of
TAPS and the transshipment facility at Valdez resulted in growth of con-
struction employment at an annual average rate in excess of 131 percent
between 1973 and 1975. The activity in Valdez alone accounted for
66
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TABLE 24. EMPLOYMENT BY INDUSTRY
SOUTHCENTRAL ALASKA
Annual Average Percent Increase
Industry 1965 -1976 1970 -1976 1973 -1975
Agriculture, Forestry,
and Fisheries 38.44 37.87 5.16
Mining 8.27 1.37 18.59
Contract Construction 20.71 85.19 131.70
Manufacturing 9.53 11.90 .55
Food 6.30 8.65 .20
Transportation, Communication,
and Public Utilities 9. 51 2.09 32.62
Transportation 9.15 34.50 49.33·
Communications 22.71 19.69 2.86
Public Utilities 5.90 8.38 12.66
Trade 10.88 11.22 31.72
Wholesale 11.95 10.59 60.82
Retai 1 10.47 11.46 23.95
Finance, Insurance, and
Real Estate 1.0.57 14.68 25.86
Services 12.12 16.72 21.56
Hotel 11.61 20.09 24.77
Personal 3. 37 . 4.28 -1.01
Business 18.49 37.07 78.12
Medical 11.60 9.15 -6.89
Other 9.64 11.54 24.90
Government
Federal -3.80 -4.28 5.65
State and Local 8.49 7.50 6.33
Total 11 . 26 15.74 22.82
SOURCES: Estimated from Alaska Department of Labor, Research and Analysis
Section worksheets.
Alaska State Housing Authority, Alaska, Yakutat, Comprehensive
Development Plan, Anchorage 1971.
Alaska Consultants, Inc., Anchorage, Alaska, Yakutat, Comprehensive
Development Plan, December 1976.
67
70 percent of regional construction employment in 1975 and 78 percent
in 1976.
The other major basic industry in the Southcentral region is the fisheries·
industry. This industry is composed of fish harvesting and fish processing
employment. The employment data must be interpreted with caution. Employ-
ment recorded in nonagricultural wage and salary emplo~ment excludes self-
employed workers, traditionally a major component of fishery employment.
The nexus between employment and income is also weaker than in other i.ndus-
tries since catch and prices are subject to substantial annual variation.
The estimates of employment presented in Table 25 are based on catch and
gear statistics for three regions: Prince William Sound, Cook Inlet, and
Southwest. These regions include more than the Southcentral region but
provide a rough estimate of industry behavior in the Southcentral region.
Employment for the period averaged 2,107 workers with peak employment
I
(2,388 in 1976) only 13.3 percent above and the low employment {1,853 in
1972) 12 percent less than the average figure. The real value of the
catch appears to vary considerably from year-to-year, suggesting that
the industry was characterized by wide fluctuations in inco!lle per worker.
Since 1970, the catch has ranged from 233.8 million pounds (1972) to
363.6 million pounds (1973), and the real value from $32.47 million in
1971 to $63.5 million in 1977. Given relative prices for various species,
the value of the catch is obviously affected by its composition as well
as its volume .. Some of the annual fluctuation in value illustrated in
Table 25 is probably related to annual variations in catch composition.
68
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TABLE 25. ESTIMATED FISH HARVESTING EMPLOYMENT
AND VALUE OF CATCH
1970 1971 1972 1973 1974 1975 ·--
Employment 1 2 '1 93 2,052 1 ,853 2,235 1,998 2,031
Catch 2 269.3 256.6 . 233.8 362.6 254.5 256.8
(million lbs.)
Value 2 40,681 36,658 44, 77'3 73,496 65,912 . 60,971
(thousand $)
Real Value 37 '117 32,469 38,631 60,841 49,225 40,033
(thousand $)
1 Rogers and Li stowski, 1978.
2AlaskaDepartment of Commerce and Economic Development, 197:7.
Value is deflated by the Anchorage CPI.
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1976 1977
2,388
245.4 215.6
~3,668 115,377 .
54,937 63,568
The manufacturing sector of the Southcentral region is primarily composed
of fish processing and petrochemicals. Since 1965, manufacturing employ-
·ment has grown at an annual average rate of 9.5 percent (see Table 24).
Although the manufacturing sector has experienced some cyclical instability
associated with food processing (primarily due to vari~tioris fn the fish
harvest), the petrochemical component of the sector has given it relative
stabi 1 i ty.
The final basic sector is the federal government. Federal government
employment actually fell from 975 in 1965 to 637 in 1976. The lowest
point was in 1974 when employment was 595. Military employment in the
region also followed the same pattern. Military employment in 1976 was
1,660 less than in 1965. The primary reason for this was the closure of
the Kodiak Naval Station.
Table 26 summarizes the growth in the basic sector for the time period
1965-1976. Basic sector employment more than doubled from 1965 to 1976.
The decline in federal government (military and nonmilitary) employment
between 1965. and 1973 was offset by the growth in civilian basic sector
employment. This offset was in the mining, manufacturing, and fisheries
sectors and represents-the occurrence of a modest degree of diversifica-
tion in civilian sectoral employment over the 1965-73 time period.
The data for 1975 and 1976 show a very rapid growth in basic employment.
Basic employment increased by 7,267 workers from 1973 to 1976. The
growth in contract construction during this period is largely responsible
70:
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TABLE 26. BASIC SECTOR GROWTH, SOUTHCENTRAL ALASKA
1965, 1970, 1973, 1975, and 1976
Industry 1965 1970 1973 1975
Agriculture, Forestry,
and Fisheries 19 99 491 . 543
Mining 345 762 p40 900
Contract Construction 880 583 681 3,656
Manufacturing 1 ,188 . 1 ,647 2,627 2,656
Federal Government 975 828 602 672
Tota 1 Civilian
Basic Employment 3,407 3,919 5 ,041 8,427
Total Military Employment 2,651 2,110 J ,039 747
Total Basic Employment 6,058 6,029 6,080 9,174
Total Basic/
Total Employment .6197 .5157 .4617 .4817
Civilian Basic/Total
Civilian Employment .4782 .4090 .4155 .4605
1976
680
827
6,978
3,234
637
12,356
991 __ ,__
13,347
.5556
.5365
SOURCES: Estimated from Alaska Department of Labor, Research and Analysis
Section worksheets.
Alaska Department of Labor, Estimates of the Population.
Alaska State Housing Authority, Alaska, Yakutat, Comprehensive
Development Plan, Anchorage, 1971.
Alaska Consultants, Inc., Yakutat, Comprehensive Development Plan,
Anchorage, Alaska, 1971. · ·
71
for the expansion in the basic sector. Construction employment grew by
6,297 workers, comprising almost 87 percent of the total employment
growth in the basic sector.
Structural Change~ 1965-1976
Tables 26 and 27 illustrate the effects on the Southcentral region of
growth eminating from the construction industry. From 1965 to 1973, the
basic-to-total employment ratio fell, implying an inc.reased employment
multiplier as the economy became more diversified. It is normally
expected that, as a regional economy grows, import substitution and
.1
~cale economies work to reduce (relatively) import leakages, and the
basic-to-total employment ratio would reflect this structural change by
declining. But, beginning with 1973, the ratio begQ~ to increa~e and
increased rapidly in 1975 and 1976.
With the construction of TAPS, the support sector did not expand as rapidly
as the basic sector. The enclave nature of pipeline employment meant that
the support services were provided primarily within the enclave construction
sector. This limited the necessary expansion of the support sector to
accommodate pipeline employment and reversed the tr~nd of the decrease in
basic sector importance. This tendency was strengthened by the transient
nature of employment in the construction and mining sectors. Thus, income
earned in the Southcentral region was being spent elsewhere.
Table. 27 illustrates the structure of the Southcentral economy. The non-
TAPS trend can be seen by examining the change between 1965 and 1970.
72
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TABLE 27. EMPLOYMENT DISTRIBUTION BY INDUSTRY
SOUTHCENTRAL ALASKA {ALASKA)
1965, 1970, AND 1976
Percent of Total Employment
Industry 1965
Agriculture, Forestry,
and Fisheries .27 .20)
Mining
Contract Construction
Manufacturing
Food
Transportation,
Communication, and
Public Utilities
Transportation
Communication
Public Utilities
Trade
Wholesale
Retail
Finance, Insurance, and
4.84 l. 54)
12.35 ( 9.15)
16.68 ( 8.90)
15.24 ( 4.26)
7 . 61 ( l 0 . 30)
5.24
.36
1.85
11.41 (14.11)
1.43 ( 2.63)
9. 99 ( ll. 48)
Real Estate 2.23 ( 3.08)
Services
Hotel
Personal
Business
Medical
Other
Federal Government
State and Local
Government
10.36 (10.65)
1.94
.35
1.64
1.95
4.48
13.69 (24.72)
20.56 (17.34)
1970.
1.03 . 21)
7. 95 ( 3. 24)
6.08· ( 7.45)
1 7 . 1 9 ( 8 . 48)
13.49 ( 4:04)
7.93 ( 9.85)
5.44
.89
l. 61
13.96 (16.61)
2.01 ( 3.51)
11.95 (13.10)
2.20 ( 3.35)
1 0. 72 ( 12. 37)
l. 61
.29
1.19
2.87
4.76
8. 64 ( 18. 50)
24.29 (19.94)
1976
2.95 ( .70)
3.59 ( 2.31)
30.30 ( 17. 61)
14.04 ( 6.02)
9. 24 ( 2. 98) .
6. 39 ( 9.18)
4.24
1.07
1.08
11.00 (16.05)
l. 53 ( 3. 66)
9.47 (12.53)
2.08 ( 4.14)
11 . 28 ( 16. 11)
2.01
. 16
3.28
2.02
3.81
2.77 (10.45)
15.60 (17.43)
SOURCES: Estimated from Alaska Department of Labor, Research and Analysis
Section worksheets.
Alaska State Housing Authority, Yakutat Alaska, Comprehensive
Development Plan, Anchorage 1971.
Alaska Consultants Inc., Anchorage, Alaska, Yakutat Comprehensive
Development Plan, December 1976.
73
Between these periods, the support sectors either increased their share
of employment or remained constant; the overall change was not so great
as in the state or Anchorage. Only trade expanded its share signifi-
cantly from 11.4 percent to 14 percent.
Unemployment
Unemployment rates remained high throughout the 1965-1976 period. The data
' presented in Table 28 indicate a peak unemployment rate of over 15 percent·
in 1·972, falling .to 12.42 percent in 1S75. and rising to over 13.8 percent.
by 1976. Regional unemployment rates remained significantly higher than
the statewide average throughout the period even though, as Table 24 indi-
cated, the region experienced rapid economic growth.3
Personal Income
The income statistics in Table 23 probably overstate the income effect
of development on the Southcentral region and the subregions within it.
Because of the transient and enclave nature of the basic sectors (con-
struction, mining), much of the income earned in the region accrued and
~as spent where the workers reside. In addition, the subregions are
relatively small economies, and a substantial portion of income spent
I . .
resulted in increased imports and reduced the regional response to
increased demand.
3Employment grew at an annual average rate of 15.74 percent between
1970 and 1976.
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1965
. 1970
1971
1972
1973
1974
1975
1976
TABLE 28. ALASKA AND SOUTHCENTRAL ALASKA UNEMPLOYMENT
1965, 1970-1976
Southcentral
Southcentral Southcentral Labor Force Alaska
Total Unemployment Participation Unemployment
Unemployment Rate (%) Rate (%) Rate (%)
1 '172 10.30 41.38. 8.6
1 ,835 13.44 38.24 9.0
2,135 14.66 38.90 10.4
2,257 15.03 39.17 10.5
2,336 14.07 42.94 10.8
2,744 14.80 45.09 10.0
3,094 12.42 48.68 8.3
4,502 13.83 54.78 10.5
Alaska
Labor Force
Participation
Rate (%)
38.16
39.94
40.97
41.27
42.78
46.00
47.40
52.65
SOURCES: Alaska Department of Labor, Labor Force Estimates, various years.
Alaska Department of Labor, Estimates of the Population.
Alaska State Housing Authority, Yakutat, Alaska Comprehensive Development Plan,
Anchorage, 1971. · · ·
Alaska Consultants Inc., Anchorage, Alaska, Yakutat Comprehensive Development Plan,
· December 1976 ..
Table 29 provides statistics concerning income on a regional and statewide
basis. The statistics reflect very rapid' growth on both a nominal and
real basis. The region was clearly growing very rapidly throughout' the
1970-to-1976 time period, especially after 1973 when TAPS-related influ-
ences dominated.
The per capita figures also show rapid growth in real income. If the
1973-to-1976 growth rates were sustained, per capita real incomes would
double approximately every eight years.
Summary
The Southcentral region's growth can be divided into two distinct phases.
Prior to 1973, it was experiencing a stable growth pattern much the same
as the state's. Beginning with the pipeline construction in 1973, the
Southcentral economy experienced rapid growth. Its basic sector (mining,
pipeline construction) expanded rapidly; and regional employment, income,
and population correspondingly advanced. Structurally, the basic sector
grew relative to the support sector of the economy. Much of this struc-
tural shift may prove to be temporary as the region's economy (absent
of significant changes in the level of mining activity) reverts to its
pre-TAPS growth path.
A DISAGGREGATED VIEW OF THE SOUTHCENTRAL REGION
The Southcentral region is a composit of a number of local economies,
ranging in size from Yakutat (employment 241 in 1976) to Valdez (1976
employment of 7,818). In addition to differences in size and structure,
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TABLE 29. GRmHH OF REAL PER CAPITA INCOME
SOUTHCENTRAL ALASKA
1965, 1970-1976
State Real
Personal Real Personal Real Per Capita Per Capita
Income Income Personal Personal
Year 1Thousands $) (Thousands $) Income ($) Income ($)
1965 90,128 95.677 3,164 3,435
1970 157,316 . 146,234 3,796 4,260
'1971 165,099 143;536 3,728 4;407
1972 172,916 149,194 3,811 4,518
1973 210,235 174,036 4,382 5 ~031
1974 264,428 197,482 4,704 5 '180
1975 414,045 271,861. 5,236 5,701
1976 548,661 335,983 5,653 6,124
Compound Annua 1
Growth Rate
1965 -1976 17.85 12.10 . 5.42 5.40
1970 -1976 23.15 14.87 6.86 6~23
l973 -1975 37.68 24.52 8.86 6. 77
SOURCES: U.S. Department of Commer'ce, Bureau of Economic Analysis,
Regional Economic Information System, July 1978 printouts.
Alaska Department of Labor, Labor Force Estimates, various years.
Alaska Consultants, Inc., City of Yakutat, Comprehensive·.
Development Plan, Decembe~ 1976,
U.S. Department of Labor, Bureau of Labor Statistics.
Alaska State Housing Authority, AlaskrJ., Yakutat, Comprehensive
Development Plan, Anchorage, 1971.
77
different factors influence their growth patterns. These local economies
will first be discussed and then the question of regional integration
will be addressed. Because of data limitations, the level of analysis
will be the census division.
Table 30 provides a summary of economic and demographic information
relating to the growth in the local economies. Growth in the region
has been centered in three subregions: the Kenai Census Division,
Matanuska-Susitna Census Division, and Valdez. But the growth occurred
over different time periods. In the 1965-70 period, growth was centered
in the Kenai region and was based on mining and petrochemical develop-
ment. Employment in this region grew at an annual rate in excess of
15 percent.
After 1970, Valdez replaces Kenai as the fastest growing local economy
in the region. Between 1970 and 1976, Valdez' employment grew by over
319 percent. Much of this growth was undoubtedly post-1973 and related
to the construction of TAPS with its associated port facilities. The
regional boom associated with TAPS radiated out.and influenced the
growth of all the local etonomies, with the ~ossible exceptions of
Kodiak and Yakutat.
Growth in the Matanuska-Susitna (Mat-Su) economy was TAPS-related but
eminated from Anchorage. During the 1970-76 period, the Mat-Su economy
was responding to population growth as it became a suburban center tied
to Anchorage's economy. As a suburban center, the statistics on income
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TABLE 30. AGGREGATE INDICATORS, SMALL ECONOMIES
1965, 1970, and 1976
Cordova-McC.arthy
1965
1970
1976
1,991
1,857
2,353
Valdez-Chitina-Whittier
1965 2,396
1970 3,098
1976 13,000
Matanuska-Susitna
1965
1970
1976
Seward
1965
1970
1976
Kenai
1965
1970
1976
Kodiak
1965
1970
1976
Yakutat
1965
1970
1976
6,125
6,509
14,010
2,213
2,336
3,395
8,446
14,250
16,753
9,064
9,409
9,366
350
550
604
702
1 ,041
452
831
7,818
1 ,083
1 '145
2,269
620
692
1,136
1,753
3,576
6,465
2,3]0
2,469
4,153
193
241
Personal
Income
1Mill ion $)
7.5
9.8
17.7
6.1
9.7
·163.0
13.4
24.3
108.9
5.7
8.4
25.9
·26. 7
57.2
156.0
30:6
45.0
72.9
3.0
4.2
1civilian nonagricultural wage and salary employment.
79
Per Capita
Income
(Dollars)
3,767
5,277
7,522
2,546
3; 131
12,538
2,188
3,744
7,773
2,576
3·,596
7,629
3 '162
4,014
9,312
3,376
4,783
7,783
and employment are misleading. The majority of the employed population
works in Anchorage, and Mat-Su has primarily a trade and services base.
As a result, the dependency ratio during the 1965-76 period was high
(5.66 in 1965 and 6.17 in 1976) and labor force participation rates
appear low. In fact, the economy's -economic base was geographically
separate from the rest of the region.
The Southcentral Region as a Regional Economy
The preceding discussion, with its accompanying data, has given a rough
indication of the size and diversity of the local economies. The ques-
tion remains as to whether or not the region can be treated a~ a regional
economy for analytical and modeling purposes. One perspective by which
areas can be classified as r~gions is based on functional integration.
Areas may be functionally integrated in the sense that activities are
tied to some central node or locus. This approach has been institu-
tionalized by the Bureau of Census in their Standard Metropolitan
Statistical Areas. This classification recognizes the economic relation-
ship between the metropolitan area and the surrounding countryside. The
radius of influence is obviously affected by many factors, among which
the most important is transportation cost. Economies can be functionally
integrated even though geographically separate if they are open and
·permit the exchange of goods and productive factors. The degree of
integration reflects the importance of this exchange process.
The Southcentral region, relative to the rest of the state, has highly
developed transportation links. Most larger communities in the region
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are linked by roads and/or ferry and by a highly developed communications
system. There are numerous deepwater ports and commercial marine freight
services. The communities of Kenai, Seward, Mat-Su, as well as Anchorage,
are linked by the Seward, Sterling, and Glenn Highways. Valdez is linked
through the Richardson Highway. Ferry service connects Cordova, Valdez,
Kodiak, Seward, Whittier, Homer, and Seldovia. Van container service is
available in Cordova, Valdez, Kodiak, and Seward (ISER, 1976).
The trade flows among these areas were previously described in a census
of transportation conducted by the Institute of Social and Economic.
Research (ISER, 1976). Table 31 shows the distribution of intrastate.
freight from Southcentral points of origin. This is not a pure measure
of trade flows since it includes transshipments of goods, but it does
·provide an indication of the trade links between the economies of the
region .. Freight and mail measure the flow of goods (final goods and
material inputs) between communities. It is not a perfect measure of
integration since it does not indicate the flow of labor and capital
between communities. Of all the census divisions, Skagway...:Yakutat is
the least tied to the Southcent~al ~egion; only 30 percent of the frei~ht
leaving Skagway is shipped to other areas of Southcentral Alaska. For a
number of the divisions--Valdez, Kodiak, Kenai, and Cordova--Anchorage
is the destination for major portions of their flows; however, this
relationship does not occur in reverse: less than 30 percent of Anchor-
age goods flow to other regions of Southcentral. T~e existing trans-
portation links and the flows of freight show that the economies of
Southcentral Alaska, when Anchorage ]2 included, appear to exhibit a
degree of functional integration.
81
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DESTINATION
. ~ Anchorage
Anchorage 5.84
Cordova 63.88
Kenai 39.90
Kodiak 76.96
Matanuska-
Susitna 10.59
Seward, 12.36
Skagway-
Yakutat . 14
Valdez-Chitina-
Whittier 41.14
TABLE 31. DISTRIBUTION OF INTRASTATE FLOWS OF FREIGHT
AND ~1AIL FROM SOUTHCENTRAL ORIGINS, 1973
(Percent of flows from Southcentral origins)
Matanuska-
Cordova Kenai Kodiak Susitna Seward
.86 6.04 4.14 1 .32 1.03
13.54 .38 7.17 .48 0
.62 15.50 2.64 • 17 .15
.02 11.87 6.73 0 .01
0 32.46 0 .50 25.91
.08 5. 53 . 0 0 0
.02 '28.80 0 0 0
7. 77 15.05 5.46 .73 7.97
SOURCE: ISER., Census of Alaska Transportation, September 1976. ·
;----,
l ;
Skagway-Valdez-Chitina-
Yakutat Whittier Total
.07 2.63 21.93
.65 1.17 87.27
.15' 23.20 82.33
0 .26 95.85
0 5.71 75.17
{) 68.60 86.57
.67 0 29.63
2.93 .60 81.65
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III. THE ALASKAN ECONOMY IN THE BASE CASE
This chapter presents a growth path for the Alaskan economy that excludes
the proposed hydrocarbon development in the Lower Cook Inlet OCS.
Purpose of the Base Case
Petroleum development in the Lower Cook Inlet will affect both the size
and structure of the Alaskan economy. These impc:tcts can be described as
a deviation from a pattern of growth that would have occurred in the
absence of the Lower Cook development: the 11 basecase.11 Comparing the
divergence between the base case and the OCS impact case yields :a
measure of the impact of OCS development.
The base case scenario employed in this study is a consistent, plausible
pattern of development; however, it should not be interpreted as fore-
casts of the likely future. The actual development likely. to occur is
subject to ·a considerable amount of uncertainty influenced by techno-
logical change, market prices, size of actual hydrocarbon discoveries,
political vagaries, and many other uncertain events.
The base: case projection is generated to measure (estimate) the influence
of OCS activities on the Alaskan economy. The base case satisfies a
number of criteria including consistency, plausibility of assumptions,
continuity with th~ economy•s historical growth, and the overall structural
stability of economic relations.
83
The Western Gulf scenarios project direct employment impacts of a lesser
magnitude than the Northern Gulf scenarios. The high case scenario has
a projected peak direct employment impact of 1 .136 workers in 1989 with
a sustained level of permanent employment of 976 for the remainder of
i.
the projection period. The mean scenario generates a peak employment of
only 270 workers in 1984 and a permanent labor force of 86 workers. The
low case projects exploration only with all activity ceasing after 1983.
Ba$e Case Assumptions
Overall, the most important assumption underlying the base case is
implicit: that the relationships identified in the recent past will
continue to hold in the future. In other words, the major implicit
assumption is structural stability throughout the projection period.
Utiliz-ation of the MAP model for projecting economic growth requires the
development of a set of assumptions. In some cases, these assumptions
take the form of specified relationships among variables. In other
cases, they are a projected numerical series designed to reflect a
particular sequence or level of activities. For the base case, these
assumptions reflect levels of economic activity expected to occur
independent of the proposed OCS development.
Four categories of assumptions circumscribe the base case. The first
involves the level of employment in exogenous industries where employ-
ment levels are determined by factors outside of the Alaskan economy.
These industries include manufacturing, agriculture-forestry-fisheries,
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federal government, mining, and a segment of the construction industry.
Secondly, the state receives royalties, production taxes, property
taxes, and corporate income taxes from the petroleum industry. The
sales of this industry are almost totally exogenous; hence, the revenues
to the state can be regarded as exogenously determined, given~ tax
structure. Thirdly, state government spending plays such a major role
in the level of economic activi"ty that a rule or assumption must be
defined to project a state spending pattern. Finally, the state economy
is influenced by U.S. economic variablts such as the behavior of con-
· sumer prices, real per capita income, and the growth in wage compensa-
tion. Specific assumptions are made about each of these variables.
The uncertainties surrounding the future petroleum and world energy
markets, as well as state economic decisions which influence economic
growth, mean that any assumption about the appropriate base case scenarios
is subject to criticism. An extensive development of a base case scenario
which required considerable time and research would, because of these
uncertainties, be subject to the same type of criticism. These uncer-
tainties involve such major factors as the construction and timing of the
ALCAN gasline and future state spending policy. Therefore, an extensive
development of the base case scenario was not undertaken; instead, a
reasonable set of assumptions was developed which emphasizes consistency
and reasonableness of approach.
85
NON-OCS ASSUMPTIONS
[
Industry Assumptions
There are two sets of industry assumptions. The fir?t relates to employ-r
ment directly ass6ciated with special projects, primarily oil and gas
development projects. Secondly, assumptions concerning the growth of
the other major exogerious industries are needed (m~nufacturing, federal
government, agriculture-forestry-fis-heries). Special projects include
petroleum projects, major construction projects, and the operations and
maintenance of these projects. Petroleum activity is assumed to continue
at Prudhoe Bay with further exploration and development of the Kuparak
and Lisburne. formations. Mining employment peaks in this region at
1 ,783 in 1980. The Upper Cook Inlet fields are the other major region
of petroleum·activity. Employment is assumed to increase from its
present level' until 1985 or 1990 as the oil fields are shut down. Gas
production continues after 1990 but wit~ a reduced work force. There is
little other new mining activity in the state with other mining main-
taining current levels throughout the projection period.
Major construction projects in the state during the projection period
include the Trans-Alaska Pipeline Service (TAPS) and the ALCAN gasline. . \ \ '
TAPS is completed in 1977, after which the line's capacit.y is assumed to
be increased by the addition of four pump stations between 1979 and 1982.
The ALCAN gasline is assumed to be built between 1981 and 1984 with peak
employment of 4,800 in 1982. The only other special construction project
in the state during the projection period is the construction of the
86
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Pacific LNG plant between 1980 and 1983; this project employment peaks
in 1982 with 1,300 employees.
TAPS is assumed to require 850 workers per year for long-term operptions~
ALCAN operations employment is assumed to be 96 commencing in 1985. The
difference in pipeline employment can be explained by the inclusion of
Valdez port employment as part of TAPS as well as the longer length of
the TAPS within the state. Finally, operations employment for the
Pacific LNG plant is 60 beginning in lS84.
The level of employment in federal government and agriculture-forestry-
fisheries and output in manufacturing is set exqgenously. Federal
government employm~nt is assumed to follow its general historical trend
and remain constant at the 1976 level throughout the forecast period.
The trend in the historical period reflected increases in civilian
employment offsetting decreasing military employment. Employment in
agriculture-forestry-fisheries is assumed to be dominated by increases
in fisheries. Given favorable conditions, employment in Alaska fisheries
has been projected to increase fourfold between 1975 and 2000. This
would result from the establishment of an American trawl fishery which
completely replaces foreign fishing off Alaska (ISER, 1979). The
opposite extreme would be an assumption of no employment growth without
bottomfi sh development. In this study, an average rate of growth of
3 percent per year is assumed. This is consistent with moderate replace-
ment of the foreign fishery by· Alaskans (Scott, 1979).
87
Output in manufacturing is assumed to increase at an average annual rate
of 4 percent, which is consistent ~ith both the historical trend and the
assumed growth in the fisheries industry.
National Variables
As part of the U.S. economy, Alaska is influenced by the level of economic
I
activity in the United States. Specific variables exert a significant
effect on the Alaskan economy and assumptions about these variables must
be included in the base case. These assumptions are based upon the long-
term projections of the consumer price index by Data Resources, Inc.
Assumed U.S. rates were those from DRI's TRENDCONG0678 forecast (DRI,
1978). This assumption assumes the continuation of long-term trends in
important exogenous variables. The average annual rate over the period
of the forecast was used as our assumption. The U.S. consumer price
index was assumed to grow at 5.5 percent per year. The U.S. real per
capita disposable income, adjusted to reflect consistent tax assump-
tions, was assumed to grow at 2.2 percent per year. Finally; DRI does
not provide a projection of U.S. weekly compensation. U.S. weekly com-
pensation was assumed to increase at a rate of 6.8 percent per year, this
chosen to be consistent with both the assumed growth in prices and real
disposable income.
Petroleum Revenues
The petroleum revenues received by the state consist of royalties,
production taxes, property taxes, and the corporate income tax. The.
major source of these revenues in the projection period is the Prudhoe
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field. The revenues are determined by the assumed rate of production of
oil and gas and its wellhead value. Prudhoe oil production is assumed
to peak in 1985 at 641.5 million barrels, while gas production is
assumed to maintain its peak production of 912 billion cubic feet per
year once t~is is reached in 1987. The wellhead value of Prudhoe oil is
determined by the following assumptions: constant real West Coast market
price of $12 per barrel, constant real vessel and processing costs of
$1.75 per barrel, and a TAPS tariff of $5.25 in 1978. The nominal TAPS
tariff is assumed to remain constant un~il 1990 when increasing operating
costs are assumed to dominate decreasing capital costs; after 1990, the
real tariff is assumed to remain constant. The wellhead value of gas
was assumed to equal $1 .00 per MCF in 1978; this assumes the producers
pay a $.45 per MCF processing cost. (These base case assumptions were
selected prior to the passage of the 1978 Energy Bill which sets a
ceiling of $1.68 per MCF on Prudhoe gas.) These wellhead values are
only part of an array of many possible wellhead values. The range of
wellhead values is a function of the uncertainty about the future levels
of those factors influencing these values. Revenues are determined by
existing state laws describing royali.tes, production taxes, property
taxes, and corporate income taxes.
THE STATE EXPENDITURE RULE
The important role of state and local governments in the Alaskan economy
requires that the treatment of governmental expenditures be a major
component of the base case scenarios as well as the subsequent impact
analysis. Over the projection period, the state government is assumed
89
to receive revenues from oil p~oduction far exce~ding current levels of :
expenditures. The future 1 eve 1 and composition of state government
expenditures not only determine direct employment in the government
sector but will influence all industries endogenously tied to the state
economy.
Two important factors influence the framework in which state expenditure
policy will be expressed. First, revenues to the state have increased
substantially since the completion of the trans-Alaskan oil pipeline and
will continue to do so into the future. These revenues will closely
follow the pattern of production from Prudhoe Bay. and possibly from other
North S~ope discoveries. Secondly, the establishment of the Permanent
I
Fund places new constraints on the use of certain petroleum revenues.
The Permanent Fund was adopted in 1976 as a constitutional amendment.
It established that a minimum of 25 percent of all mineral lease rentals,
royalties, royalty sale proceeds, federal mineral revenue sharing pay-
ments, and bonuses received by the state would be placed in the fund.
This forced savings is only a portion of the revenues available to the
state. ·Revenues accumulating in the General Fund will be greater than
in the Permanent Fund for most of the period.
These changes in the structure of state spending limit the usefulness o~
past spending policies in determining the spending rules to be used.
The rate of state expenditures, because it is a matter of policy choice
to be made within a framework different from past experience, cannot be
modeled simply from past experience. However, past experience can
90
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provide a guide for. developing the hypothetical spending rule used in
the simulation. Scott, in his paper, 11 Behavioral Aspects of the State
of Alaska's Operating Budget FY 1970-FY 1977,11 found two major factors
responsible for the growth of state expenditures. First, real per
. capita state expenditures increased in response to real per capita
income growth--a demand effect. Secondly, expenditures increased in
relation to the available funds for state expenditures--a supply effect.
The pattern between capital and operating expenditures differed.
Capital expenditures increased strongly in response to available fund
growth, but the higher levels were not maintained. The high~r levels of
operating expenditures were maintained. Adjustments to available funds
seemed to provide a new base for the growth of these expenditures.
Based on this analysis, the following pattern of state expenditures is
assumed. Expenditures are assumed to increase in response to increases
in personal income. The income elasticity of both capital and operating
expenditures is less than one; The major difference is that the real
level of stat~ operating expenditures is assumed to be maintained, while
the level of capital expenditures could fall.
The response to fund availability is composed of two parts. Expendi-
tures respond to changes in the general fund balance. The response is
weighted depending on the existing surplus; the weight equals the pre-
vious year's fund balance divided by general fund expenditures. In
other words, the response to a change in the general fund is weighted by
91
the number of years of existing expenditures which could be financed by
the general fund. The response of capital expenditures is greater than
the operating expenditure response.
ALTERNATIVE OCS SCENARIOS
Four scenarios describing OCS activities prior to the Lower Cook Inlet
lease sale are included in the base case. The four scenarios present
potential low, moderate, and high development in the lease sale areas.
These OCS scenarios are described in Tables 32, 33, 34, a.nd 35. These
tables present different levels of potential development in the Beaufort
Sea, Gulf of Alaska, and the Lower Cook Inlet (1977 sale). These scenarios
differ in timing and magnitude. The Lower Cook scenarios range from an
exploration-only case to a high case with peak employment of almost 2,500.
The timing differs significantly between the moderate and high scenarios
with the moderate scenario reaching peak employment three years prior to
the high scenario. The high Lower Cook scenario also contains the deveiop-
ment of an LNG plant with 60 employees during its operation.
All thre~ Beaufort scenarios contain productionof oil and gas. In all
ca~es, peak employment occurs in 1989; it ranges from 740 in the low
scenario to 1 ,344 in the high scenario. Since the Beaufort sale is a
joint state-federal lease sale, it also provides increased revenues to
the state. These include bonus, royalty, severance tax, property tax,
and corporate income tax revenues.
92
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TABLE 32. LOWER COOK INLET EMPLOYMENT SCENARIOS
[
Low 1 Moderate 2 H" hl 19
[ Mining Mining Construction Mining Construction Manufacturing
[ 1978 84 70 0 84 0 0
1979 126 321 88 126 0 0
1980 252 664 162 252 0 0
[ 1981 210 804 108 486 213 0
1982 126 572 38 776 213 0
1983 84 523 0 1 ,285 543 0
[ 1984 42 622 0 1 ,590 858 0
1985 42 604 0 1,548 317 0
c 1986 0 545 0 1 ,347 0 60
1987 0 411 0 1,139 0 60
1988 0 417 0 1,139 0 60
r 1989 0 417 0 1 .139 0 60
L 1990 0 417 0 1,139 0 60
........ 1991 0 417 0 l, 139 0 60
L 1992 0 417 0 1 '139 0 60
1993 0 417 0 1 '139 0 60
1994" 0 417 0 1 , 139 0 60
Q 1995 0 417 0 1 .139 0 60
1996 0 417 0 1 '139 0 60
f3 1997 0 417 0 1 '139 0 60
1998 0-417 0 1 .139 0 60
1999 0 417 0 1 '139 0 60
c 2000 0 417 0 1 '139 0 60
c
c 18ased on scenarios in Lower Cook Inlet, Final Environmental Impact c Statement, 1976.
2Based on Lower Cook Inlet scenario in Beaufort Sea Petroleum Develop-
[ ment Scenarios. Economic and Demographic Impacts, Technical Report No. 18,
Alaska OCS Socioeconomic· Studies Program, 1978. Distribution between off-
shore/onshore and industry was based on the distribution in the Lower
r: Cook EIS.
L
c 93
TABLE 33. BEAUFORT SEA OCS EMPLOYMENT SCENARIOS
Low Moderate
Mining Construction Mining Construction Mining
1981 67 49 67 49 67
1982 198 198 198 198 198
1983 198 247 198 247 198
1984 232 247 232 247 232
1985 67 99 67 99 67
1986 70 281 112 304 70
1987 123 331 276 333 148
1988 228 395 479 466 321
1989 345 395 616 466 583
1990 387 132· 595 155 710
1991 434 132 524 155 758
1992 388 66 503 77 748
1993 355 132 432 155 681
1994 333 132 535 155 647
1995 334 59 438 77 616
1996 333 18 440 22 572
1997 332 0 417 0 551
1998 330 0 393 0 547
1999 327 0 393 0 548
2000 325 0 394 0 542
SOURCE: BLM-Alaska OCS Office.
94 .
High
Construction
49
198
247
247
99
403
642
810
761
254
254
127
254
254
127
36
0
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1981 .
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
l"l
loi. ,_ J
'TABLE 34. NORTHERN GULF OCS EMPLOYMENT SCENARIOS
(SEAR ADJUSTED)
Low Scenario Moderate Scenario
Construction Mining.Transportation Construction Mining Transportation
38 9 45 17
75 17 90 35
83 26 90 35
38 75 17 38 83 26
6 38 9 12 38 9
80 59 46 86 90 0
218 119 46 218 168 86
181 225 46 181 320 86
215 55 305 100
196 59 315 107
196 59 264 107
215 59 277 42
217 59 279 42
217 59 281 42
217 59 2B2 42
217 59 282 42
217 59 282 42
217 59 282 42
217 59 282 42
217 59 282 42
SOURCE: BLM-A1aska OCS Office, 1979.
r-l
High Scenario
Construction Mining Transportation
53 26
98 41
105 48
38 53 26
12 46 17
92 38 9
225 108 127
181 192 127
390 146
397 156
397 156
334 117
317 98
396 98
354 98
354 98
354 98
354 98
354 98
354 98
1.0
0"1
low Scenario
TABLE 35. WESTERN GULF OCS EMPLOYMENT SCENARIOS
(SEAR.ADJUSTED)
Moderate Scenario High Scenario
Mining Transportation Construction Mining Transportation Construction Mining Manufacturing Transportation
1981 120 62 92. 41
1982 '120 62 93 '41
1983. 41 21 42 21
1984 0 0 260 10 0
1985 0 0 49 50 33
1986 0 0 32 118 29
1987 0 0 81 10
1988 0 0 80 22
1989 0 0 41 22
1990 0 0 39 22
1991 0 0 64 22
1992 0 0 64 22
1993 0 0 64 22
1994 0 0 64 22
1995 0 0 64 22
1996 0 0 64 22
1997 0 0 64 22
1998 0 0 64 22
1999 0 0 52 22
'2000 0 0 0 0
SOURCE: .Western Gulf .of Alaska Statewide ·and Regional Population
and Economic Systems Impact Analysis.
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364
587
647
315
530
205
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91
171
161
345
395
313
314 .
634
797
880
812
729
658
685
710
735
735
735
735·
735
38
82
82
260
373
50 276
50 226
50 200
50 191
50 185
50 184
50 191
50 191
50 191
50 191
50 191
50 191
50 191
. 50 191
50 191
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The Northern Gulf scenarios· generate direct resident employment ranging
from 276 for long-run operations in the low scenario to 452 in the high.
Given that this is a federal sale and the area is relatively remote, the
economic effects of this sale on the base case are less than in the
Beaufort and Lower Cook. The Western Gulf scenarios also provide economic
effects which are less than either the Beaufort or the Lower Cook sale.
The Alaskan Economy:
Moderate Base Case Growth
The base case describes the pattern of Alaskan economic growth projected
to occur in the absence of hydrocarbon development in the Lower Cook
Inlet.
Table 36 presents statewide projectio·ns for three measures of aggregate
economic activity: employment, real personal income, and population.
Projected growth appears modest by recent his tori ca 1 standards. Employ-
mentis projected to grow at an annual rate of 2.1 percent over the
22-year period. Employment actually declines from 197,185 in 1978 to
193,510 in 1979, the nadir of the post-pipeline dip. After 1979, employ-
ment increases to 227,878 by 1983. This is a growth rate of approximately
4.2 percent. After 1983, employment growth slows to approximately
1.9 percent annually.
These growth rates are modest when compared to the years, 1965-1976.
Over this period, employment grew at an annual average rate of approxi-
mately 8.4 percent. Even in the early years of the period, 1965-1970,
employment increased at a 5.57 percent annual rate.
97
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TABLE 36. AGGREGATE INDICATORS OF ECONOMIC GROWTH [ ALASKA, 1978-2000
[
Real
Personal Income [ ($ 1977 Million) Employment Population
1978 3,592 197,185 404,436 f 1979 3,412 193,510 403,256
1980 3,926 . 196,419 407,511
1981 4,301 204,746 419,562 l
. 1982 5,000 218,508 440,274
1983 5,285 227,878 . 457,932 [ 1984 5,016 227,330 462,438
1985 4,983 227,557 465,280
1986 5 '151 229,760 469,501 I'
1987 5,379 234,561 477 '136 L--'
1988 5,647 241 ,309 487,542 c 1989 5,891 248,002 498,194
1990 6,091 253,644 507,570 L
1991 6,267 257,783 514,843 [ 1992 6,465 261 ,698 521 ,645
1993 6,695 i6G,319 529,306
1994 6,941 . 271 ,437 537,641 [ 1995 7,197 276,995 546,636
1996 7,502 283,627 557,134 ~---1997 7,794 290,334 567,907
1998 8,110 297,495 579,924 -.
1999 8,453 305,107 591,673
2000 8,810 313,030 604,521 [
[ .
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Projected population growth follows a pattern similar to employment,
growing at an average annual rate of 1.84 percent. Population declines
slightly between 1978 and 1979, falling from 404,436 to 403,256. It
then rapidly recovers to 457,932 by 1983. This represents a gain of
almost 13.6 percent. These rates of increase represent a substantial
departure from the historical period (1965-1976) when population grew
at an annual rate of 4.12 percent.
As Table 36 indicates, the growth in aggregate real income will be
4.16 percent annually. Again, some cyclical behavior is projected.
Rea 1 income dec 1 i nes at a 5 percent rate from 1978 t.o 1979. Between
1980 and 1983, it grows at a 10.42 annual rate. After 1983, it grows
at an average annual rate of about 3 percent. These rates compare to
real income growth of 9.8 percent between 1965 and 1976 and over 15 per-
cent per year during the pipeline years of 1973 to 1976.
Using the data in Table 36 as a basis& real per capita income (expressed
in 1977 dollars) increases from $8,882 in 1978 to $14,574 by 2000. This
64 percent increase represents a growth rate of only 2.3 percent per
year over the projection period. During the historical period, real per
capita income grew at an average rate of 5.4 percent. At this rate,
real per capita incomes would double approximately every 13.2 years.
Population Growth
Table 37 reveals the components of population change over the projection
period. As in the historical period, the major component of short-run
99
i
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
.1988
1989
1990
1991
1992
. 1993
1994
1995
1996
1997
1998
1999
2000
TABLE 37. THE COMPONENTS OF POPULATION CHANGE
ALASKA, 1978-2000
Net Migration Natural Increase
-5,000 7,394
-13,289 7,088
-2,203 6,431
5,783 6,258
14,314 6,400
10,797 6,877
-2,669 7,186
-4,118 6,948
-2,482 6,688
1 .1 08 6,514
3,900 6,498
4,048 6,601
2,663 6,711
498 6,769
48 6,748
931 6,719
1 ,592 6,734
2,207 6,779
3,637 6,852
3,785 6,982
4,396 7,115
4,974 7,269
5,400 7,442
SOURCE: MAP Model.
100
Net Change .
2,394
-6,210
4,228'
12,041
20,714
17,674
4,517
2,830
4,206
7,622
10,398
10,649
9,374
7,267
6,796
7,650
8,326
8,986
10,489
10,767
11 ,511
12,243
12,842
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change is net migration. The migratory response to changing economic
opportunities in the state is readily apparent. The post-TAPS e~ployment
contraction results in a net out-migration of 15,492 persons between
1978 and 1980, The ALCAN project reverses the trend and from 1981 to
1983, net migration is 30,894 persons. The post-ALCAN employment
reductions lead to a net out-migration of 9,269 persons after 1983.
The increase in in-migration from 1987 through 1989 is related to OCS
activities in the Western and North~rn Gulf of Alaska.
Employment Growth and Structural Change
Table 38 displays the annual changes in the level of employment. These
changes are distributed among three sectors: basic, support, and state
and local government. Fluctuations in employment levels in the basic
sector in the period before 1985 are largely explained by changes in
pipeline activity, the impacts induced by termination of TAPS, and
construction of ALCAN. After 1985, much of the growth in the basic
sector is related to ~rowth in manufacturing (seafood processing) an~
the fisheries (bottomfish).
Th~ support sector responds to changes in the level of basic sector
employment as well. as the real income growth. Income effects appear to
dominate the later projection years. Between the years 1980 and 1982,
1 the ratio is 1 .5. Between 1986 and 1987, 1,437 employees are added to
1This low ratio can be partially explained by the ALCAN construction's
inflating basic sector employment, but the empbyment is largely of an
enclave nature. This enclave basic employment reduces the income and
expenditure effects that would induce greater support sector employment.
101
TABLE 38. CHANGES IN EMPLOYMENT BY SECTOR
State and Local
Support Sector Basic Sector Government
1978 -7,801 -5,999 6,533
. 1979 -4,450 756 -49
1980 949 3,175 - 1 ,215
1981 4,844 3,651 -168
1982 8,022 6,053 -313
1983 6,400 589 2,372
1984 659 -3,903 2,629
1985 -223 349 101
1986 994 1,794 -585
1987 3,127 1,437 236
1988 4,109 1,968 672
1989 4,312 1,431 950
1990 3,870 929 843
1991 3,441 301 397
1992 3,073 882 -40
1993 3,552 1,113 -46
1994 . 3,813 1,228 24
1995 . ~r~
4,139 1,357 62
1996 4,645 1,932 58
1997 4,861 1,583 263
1998 5,153 1,789 218
1999 5,402 2,007 204
2000 5,721 1,942 260
SOURCE: MAP Model.
102
Total
-7,266
-3,743
2,909
8,327
13,762
9,361
-615
227
2,203
4,800
6,749
6,693
5,642
-4,139
3,879
4,619
5,065
5,558
6,635
6,707
7,160
7,613
7,923
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the basic sector, while the support sector added 3,127 workers. This
means that 2.18 support workers found employment for every additional
worker in the basic sector. Even if state and local government is
added, the ratio of support to basic sector between the two years is
1.87. The same calculation (excluding state and local government) for
the change in employment between 1992 and 1993 yields a ratio of 3.19.
The projection also has the basic sector's share of total employment
gradually declining after 1984. This relative decline can be seen in
Table 39. The basic sector's share of total employment declines from
its 1982 peak to 38.1 percent in 2000. This is a 21 percent decline in
the relative share of total employment allocated to the basic sector
(46.2/38.1 = 1.21). Over the period, the basic sector grows at less
than half the rate of the support sector.
One industry's growth merits special consideration. The construction
industry has a major exogenous component associated with special con-
struction projects such as pipelines, shore facilities, and liquifaction
plants. Table 40 presents the derivation of that component. In so doing,
it displays the impacts of special construction projects. Most of con-
struction's cyclical behavior projected between 1980 and 2000 is .related
to special projects. Local construction shows very little change from
one year to the next. Special project construction employment declines
after TAPS is completed. Between 1980 and 1982, it adds 5,834 workers
(almost a 30 percent increase in total employment). After 1983, special
project construction declines throughout the projection period.
103
TABLE 39. STRUCTURE OF EMPLOYMENT
ALASKA, 1978-2000
Percent
Support Sector of Total Ba$ i c ·.sector 1
Employment Employment Employment
1978 71 .168 36.1 86,775
1980 67,735 34.5 90,206
1985 87 ,437 38.4 92,454
1990 103,849 '40. 9 105,013
1995 121,921 . 44.0 109,894
2000 147,203 47.2 119,147
Average Annual Percent Change .
3.37 1.45
1 Includes federal government.
SOURCE: MAP Model.
104
Percent
of Total
Employment
44.0
46.2
42.8
41.4
39.7
38.1
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E TABLE 40. CONSTRUCTION SECTOR
" ALASKA, 1978-2000
I
._ _ _j
" Total Construction Local Construction Exogenous Construction
I . l __ j
1978 11 ,565 11 ,438 127
r· 1979 11,685 11 ,380 305
I 1980 13,862 13 '157 705 ~-'
l·~ 1981 16,450 13,807 2,643
1982 21 ,809 15,270 6,539
-~ 1983 21 ,831 16,374 . 5,457
[ 1984 17,293 16,356 937
1985 17 ,236 16,949 287
1986 18,309 . 17,760 549 c' 1987 18,907 18,229 678
_j 1988 19,661 18,887 774
1989 19,981 19,427 554
" 1990 20,035 19,833 202
1991 20,075 19,827 248
r 1992 20 '181 20,055 126
I-1993 20,642 20,437 205
. 1994 21 ,093 20,887 206
1995 21\,483 21,354 129
~
1: 1996 22,397 22,124 273 ..__,;
1997 22,965 22,912 53
c 1998 23,803 23,748 105
' 1999 24,712 24,656 56 ~
2000 25,662 25,604 58
r]
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f.
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SOURCE: MAP Model.
105
State Expenditures
The moderate base case as outlined in Table 41 essentially extrapolates
the post-1972 behavior of state expenditures. Growth in real expendi-
tures proceeds at a 6.6 percent rate until 1986 and then declines to
2.2 percent until the end of the projection period.2 Real per capita
expenditures grow at less than 2 percent per year.
The importance of the ~rudhoe Bay revenues is underscored by the MAP
projections of the total fund balance (Permanent plus General Fund).
In constant dollars, the Fund grows from $744.04 million in 1977 to
$4,965.38 million in 1988, the last peak year of Prudhoe Bay production.
This represents a real rate of growth of almost 21 percent annually.
Thereafter, the Fund grows to $5,547.2 million by 1991 and then declines
to $2,811.46 millinn by the year 2000. The post-1991 period represents
an annual decline rate of about -j.3 percent.
Total revenue growth does not keep pace with the projected real growth
in state expenditures (Table 41). This Fund projection should be inter-
preted with caution. It is the result of many assumptions concerning
state spending behavior, oil prices, and rules constraining use of and
addftions to the Permanent Fund. At this time, long-run rules con-
straining the Permanent Fund must be regarded as extremely conjectural;
2This results from the decline in production at Prudhoe Bay. Oil
revenues are so important to the state•s fiscal position that the decline
in Prudhoe production is only partially offset by general economic growth.
106
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~ TABLE 41. STATE GOVERNMENT EXPENDITURESr
[ MODERATE BASE CASE, ALASKA
1978-2000
[ Total State Real Per Capita
Expenditures Expenditures Expenditures
[ ( $ Mill ion) ($ 1977 Million) ($ 1977)
1978 1,270.12 1 '147 1 , 121
[ 1979 l ,371 .84 1 ,221 1,146
1980 1,626.58 1,393 1.274
1981 1,756.73 1,429 1 ,272
[ 1982 1,986.13 1,534 1,305
1983 2,304.70 1 ,691 1,394
1984 2,543.04 1, 772 1,453
I' 1985 2,759.60 1,826 1,487
L-' 1986 3,036.35 1 ,907 1,540
r 1987 3,301.34 1,970 1,568
I 1988 3,613.38 2,047 1,600 I .
l_, 1989 3,936.02 2 '118 1,627
[ 1990 4',262 .87 2,178 1,650
1991 4,524.18 2,195 1,645
1992 4,803.10 2,214 1 ,641 c 1993 5 '119. 25 2,240 1 ,q41
1994 5 ,465. 71 2,272 1,642
1995 5,826.12 2,300 1,640
E 1996 6,271.57 2,351 1 ,650
l_j 1997 6,768.68 2,410 1,665
c 1998 7,301. 40 2,468 1 ,677
1999 . 7 ,870. 26 2,527 1,687
2000 8,493.80 2,590 1,698
r'
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Average Annual Percent Change 3.7
-,
='
SOURCE: MAP Model.
107
hence, Fund behavior projected by the MAP model is only one among many
possible outcomes within a given base case scenario.
The Anchorage Economy, 1978-2000
Table 42 summarizes the growth in population and employment over the
projection period. Employment grows at an annual rate of 2.5 percent,
while population increases at an annual rate of 2.0 percent. Compar-
able rates over the historical period were 8.22 percent and 5.56 percent,
respectively.
These growth rates are still in excess of those projected for the state
(1.73, 1.87) and represent a gradual shifting of state economic·activity
to the Anchorage area. This trend was apparent in the historical data
and continues throughout the projection period. Table 43 reveals the
result of this process. Anchorage's shar2 of state employment increases
from 45 percent in 1978 to 49 percent by 2000.
Table 43 also reveals that the support sector grows in relative impor~
tance over the projection period. This sector experiences a 22.7 percent
relative increase from 1978 to 2000.
In part, this results from the fact that the support sector in Anchorage
serves more than the Anchorage economy. Services, transportation,
finance-insurance-real estate, and communications all have substantial
basic components growing out of Anchorage's role as the major trade and
108
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TABLE 42. AGGREGATE ECONOMIC INDICATORS
[ MODERATE BASE CASE, ANCHORAGE
1978-2000
[
Population Emplo,Yment
[ 1978 191 ,871 88,515
1979 186,555 86,656
1980 186,047 88,067
[ 1981 . 190,653 91,905
1982 201 ,016 98,236
[ 1983 210,524 103,861
1984 211 ,796 104,643
.> 1985 212,656 104,914
~~ 1986 215,219 106,358
LJ 1987 219,367 108,992
1988 224,793 112,502 r, 1989 230,401 116,086
' 1990 235,413 119,213 L
[ 1991 240,336 121,892
1992 244,878 124,405
1993 249,792 127,239
c 1994 255,067 130,232
1995 260,682 133,631
1996 267,068 137,483 . c 1997 273,659 141 ,416
1998 280,757 145,627
1999 288,230 150,067 c 2000 293,554 153,368
~~
u
--,
~
SOURCE: MAP Model.
109
..... .....
0
Support Sector
EmQlo_yment
1978 50,627
' 1980 49,766
1985 64,348
1990 76,509
1995 89,150
2000 107,636
SOURCE: MAP Model.
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TABLE 43. ECONOMIC AND DEMOGRAPHIC STRUCTURE
MODERATE BAS.E CASE, ANCHORAGE
1978-2000
Percent Basic Sector Percent
of Total Employment of Total
Emeloyment (incl. Fed. Govt.) Emelo,tment
57.2 37,888 42.8
56.5 38,301 43.4
61.3 40,566 38.7
64.2 42,704 35.8 '
66.7 44,481 33.3
70.2 45,732 29.8
:-J
Anchorage
Employment,
Employment/ Population/ State
Poeulation Emelo,tment Emeloyment
.461 2.17 .449
.473 2.11 .448
.494 2.02 .461
.506 1.98 .470
. 513 1.95 .482
.522 1.92 .490
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distribution center for the state. T~us, state growth translates to
increased demands on Anchorage's 11 Support sector.11
.
The data in Table 43 reveal that family size declines and labor force
participation rates increase over the projection period. This is the
result of employment growth rates exceeding population growth rates.
These changes subsume a host of economic and demographic factors operating
not only on the Anchorage economy but on the United States as a whole
since the mid-1960s.
~outhcentral Growth and Development, 1978-2000
During the historical period, the Southcentral region experienced rapid
growth rates in employment and population. The future baseline projects
a more modest expansion of economic activity.
The figures in Table 44 indicate that employment is projected to grow at
2.1 percent annually over the entire 22-year period. Population is pro-
jected to increase at a 1.5 percent annual rate. The growth path is
smooth, like that of employment.
The difference in growth rates between population and employment again
implies that labor force participation rates and family size are gradually
changing over the projection period. Table 45 confirms this inference.
111
[
TABLE 44 .. AGGREGATE ECONOMIC INDICATORS [
·"
MODERATE BASE CASE, SOUTHCENTRAL
1978-2000 [
Population Employment [
/ 1978 53,739 23,764
1979 54,701 23,761 l 1980 56,801 24,942
1981 59,116 26,547 l' 1982 60,037 27,473
1983 60,200 27,358
1984 62,339 28,456 r, 1985 62,398 28,438
1986 62,616 . 28,706 [" 1987 63,326 29,320
1988 64,471 30 '130
1989 65,616 30,880
1990 66,762 31 '711 r Lc
1991 66,117 31,605
1992 66,301 31 ,880 t. 1993 66,924 32,388
1994 67,710 32,985
1995 68,525 33,606 L 1996 69,561 34,365
1997 70,559 35,088
L 1998 71,642 35,858
1999 72,835 36,683
2000 74,596 37,822
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SOURCE: MAP Model. t'
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Support Sector
Employment
1978 12,106
1980 12,078
1985 14,489
1990 16 ,401
1995 17,800
2000 20,736
SOURCE: MAP Model.
TABLE 45. ECONOMIC AND DEMOGRAPHIC STRUCTURE
MODERATE BASE CASE
SOUTH CENTRAL
Percent Basic Sector Percent
of Total Employment of Total
Employment (incl. Fed. Govt.) Employment
50.9 11 ,658 49.1
48.4 12,864 51.6
50.9 13,949 49.1
51.7 15,310 48.3
53.0 15,806 47.0
54.8 17,086 45.2
j ' J l ! J
S. Central
Employment/
Employment/ Population/ State
Population· . Emp 1 oyment Employment
.442 2.26 . 121
.439 2.28 . 127
.456 2.19 .125
.475 2.11 .125
.490 2.04 .121
.507 1. 97 . 121
The fluctuation in Southcentral 's regional share of state employment
reflects the vicissitudes of state economic growth rather than regional
fluctuations. Structurally, the region experiences less change than
Anchorage with the support sector increasing its relative share of
employment by about 7.7 percent over the whole period.
114
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IV. LOWER COOK INLET OCS DEVELOPMENT SCENARIOS
Definition and Measurement
This study is part of the Socioeconomic Studies Program of the Bureau of
Land Management (BLM) Alaska Outer Continental Shelf (OCS). Dames and
Moore (March 1979} provided a description of three petroleum development
scenarios providing a reasonable range of technological, economic, and
geographic options, such that both minimum and maximum development impacts
can be diScerned. These petroleum dev~lopment scenarios are for the pro-
posed Lower Cook Inlet and Shelikof Strait OCS Lea~e Sale No. 60, c~rrently
scheduled for Fall 1981. This would be the second-generation lease sale
for the area, following the earlier Lower Cook Inlet Lease Sale No. CI
which was held in October 1977.
The Dames and Moore study details three development scenarios: (1) a high-
find scenario, (2) a medium-find scenario, and (3) an exploration-only or
low scenario. These scenarios will affect the Alaska economy differently
as a result of different direct employment levels associated with each
scenario as well as by the generation of additional revenues (and the
incurr.Yng of additional costs) by the state. The purpose of this report ·
is to describe those differential impacts through use of the econometric
model developed by ISER as part of the Man in the Arctic Program (MAP).1
1For a description of the MAP econometric model, see Appendix B.
115
The effect of direct OCS employment on the Alaska economy will depend
upon the extent to which incomes earned in OCS employment are spent within
the state of Alaska. Two factors· lim1t this impact. First, the openness
of Alaska's economy leads to relatively low multiplier effects and weak
intraindustry linkages. Secondly, the .international character.of many
offshore petroleum firms means that they have regular, experienced crews
which are dispatched to jobs around the world (Dames and Moore, 1978).
The international character of the crews may mean that when they are
not working, they will reside outside of Alaska. Consequently, their
employment will have less than a 11 normal 11 impact on Alaska's economy
through indirect, consumer-linked effects. The direct employment
impacts provided by Dames and Moore (Dames and Moore, 1979) were there-
fore adjusted to reflect the employment of Alaska residents, where an
Alaska resident is defined as any employee of a petroleum firm who
resides in Alaska and interacts with the economy for the duration of the
. 2 Lower Cook Inlet Exploration and Development Program.
Alternative Lower Cook Inlet Scenarios
EXPLORATION-ONLY SCENARIO
The exploration-only scenario assumes that no ·commercial oil and/or gas
resources are discovered in the Lower Cook Inlet and Shelikof Strait OCS
areas. It assumes an initial high level of exploratory activity, but only·
2The method used for making these adjustments is contained in the
11 Western Gulf of JUaska State\'lide and Regional Population and Economic
Systems Impact Analysis, .. (ISER, May 1979), pp. 172-175, inclusive.
116
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small noncommercial hydrocarbon deposits are found. Exploration termi-
nates in the third year after the lease sale with a total of nineteen
wells drilled--eleven in the Shelikof Strait and ~ight in Lower Cook
Inlet.
This scenario assumes that exploration commences in the first year after
the lease sale, peaks in the second year, and terminates in the third year
as a result of discouraging exploratory findings.
The principal exploration support base for Lower Cook Inlet is assumed
to be Nikiski. Homer will serve as a terminal for air transportation of
personnel, light supplies, and water. The Shelikof Strait exploration is
also assumed to be supported by Nikiski facilities, although Seward and
Kodiak become more viable alternatives as the distance from Nikiski
increases.
Table 46 reports the direct employment requirements for the exploration-
only scenario. It reports the total direct employment estimates by Dames
and Moore (Dames and Moore, March 1979) as well as the adjusted employment
estimates used in this analysis.3 This scenario peaks in 1983 with total
direct employment reaching 726. Given the international nature of the
work force and the large number of exploratory workers who are expected
to be nonresidents of Alaska, this implies the equivalent of 236 persons
employed year-round and residing in Alaska.· As shown in Table 46, almost
3The adjustments in the table are for the share of employment going
to Alaska residents.
117
1982
1983
__. 1984 __.
(X)
1985
CONSTRUCTION
Total
Direct · Adjusted
Employment Employment*
0 0
0 0
0 0
0 0
TABLE 46. DIRECT EMPLOYMENT REQUIREMENTS
EXPLORATION-ONLY SCENARIO
LOWER COOK, SALE 60
MINING TRANSPORTATION
Total Total
Direct Adjusted Direct Adjusted
Employment Employment* Employment Employment*
376 95 147 62
503 127 196 82
105 27 41 17
0 0 0 0
HEADQUARTERS
Total
Direct
Employment
19
27
5
0
* Adjusted to reflect the share of direct employment going to Alaska residents (SEAR) .
. ---,
)
TOTAL EMPLOYMENT
Total
Direct Adjusted
Employment Employment*
542 176
726 236
151 49
0 0
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70 percent of the total employment generated at the peak occurs among
exploration workers, who are classified as part of the mining industry.
Adju~ted for Alaska residents, however, these ~orkers constitute approxi-
mately 54 percent of the adjusted total employment during the peak year.
Transportation workers are assumed to ~epresent about 17 pefcent of the
peak direct employment; but when adjusted for local residents, they make
up an estimated 35 percent of the total peak work force. Finally, both
the total direct employment and the adjusted employment estimates for
headquarters workers (who are assun1ed to locate in Anchorage) are assumed
to equal approximately 11 percent of peak employment.
MEDIUM-FIND SCENARIO ..
The medium-find scenario assumes a modest commercial discovery of 198 r~MBL
of oil in the Lowet Cook area and 500 MMBL of oil in the Shelikof Strait
area. It is assumed that a single oil field comprises the total resources
of each area, with the Shelikof Strait field located in the Northern part
of the state and connected through a short pipeline to a new terminal
constructed on the west coast of Afognak Island. The Lower Cook Inlet
field is assumed to be northwest.of English Bay and connected through a
short spur to a trunk pipeline that carries the oil from a field located
tn OCS Lease Sale No. CI. This pipeline makes a land fall on the Kenai
Peninsula near Anchor Point and continues north to Nikiski where the crude
is either shipped to the Lower 48 via tanker or used in Nikiski refineries.
Under this scenario, exploration commences in the first year after the lease
sale, peaks in the third with a total of thirteen wells, and terminates
119
in the fourth year with a total of forty wells drilled. Field development
commences in the fourth year, and the production platforms for both fields
are installed in the sixth year. Oil production from both fields begins
in the eighth year after the lease sale and continues through the year
2000.
The medium-find scenario assumes that a crude terminal designed to process
the estimated peak production of nearly 200,000 bpd completes crude stabi~
lization, covers lpg, treats tanker ballast water, and provides storage
for approximately two million barrels of crude on the west coast of
Afognak Island. Due to distance from Upper Cook Inlet support facilities,
a temporary construction base and permanent operation base are assumed to
be constructed adjacent to the terminal site on Afognak Island. The
Lower Cook Inlet field has its support provided through shore-side
facilities at Nikiski and a forward support base in Homer which is used
for ferrying workers and light supplies. Exploration activities in both
Shelikof and the Lower Cook Inlet are supported by a main base at Nikiski
and a forward base at Homer. Additional support may be provided by Kodiak.
Table 47 presents the direct employment requirements and adjusted (for the
share of employment going to Alaska residents) employment requirements
for the medium-find scenario. Exploration begins in 1982, peaks in 1984,
and is completed by 1985. While the exploratory activities reach a peak
of 509 workers in 1984, the international character of this work force
causes it to be the equivalent of only 149 workers who are year-round
Alaska residents. Between 1985 and 1~88, construction of facilities,
120
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1982
1983
198L
1985
--' 1986 N
--' 1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
CONSTRUCTION
Total
Direct Adjusted
Employment Employment*
·0 0
0 0
0 0
198 104
62 33
572 92
565 166
0 0
0 0
0 0
0 0
0 0 u 0
0 0
0 0
0 0
0 0
0 0
0 0
TABLE 47. DIRECT EMPLOYMENT REQUIREMENTS
MEDIUM-FIND SCENARIO
LOWER COOK, SALE 60
MINING TRANSPORTATION
Total Total
Direct Adjusted Direct Adjusted
Employment Emplo,Yment* Employment Emplo,Yment*
r
380 96 147 62
457 119 196 82
509 129 196 82
254 67 98 43
0 0 0 0
61 61 150 128
451 177 87 74
616 390 21 19
749 435 56 55
749 449 56 55
336 298 56 55
277 .· 277 56 55
353 353 56 55
353 353 56 55
353 353 56 55
353 353 56 55
353 353 56 55.
353 353 56 55
3-53 353 56 55
HEADQUARTERS
Total
Direct
Employment
24
32
55
16
16
34
51
65
67
55
53
53
53
53
53
53
53
53
53
* Adjusted to reflect the share of direct employment going to Alaska resident~ (SEAR).
TOTAL EMPLOYMENT
Total
Direct Adjusted
Employment.Emplo,Y!nent*
551 182
685 233
140 246
566 230
78 49
817 315
1 '154 468
702 474
872 557
860 559
445 406
386 385
462 461
462 461
462 461
462 461
462 461
462 461
462 461
including the terminal, are completed. The peak construction work force
occurs in 1987 with 572 persons employed. Due to the changing composition
of the construction work force, however, employment adjusted for year-
round Alaska worker equivalents peaks in 1988 with adjusted construction
employment reaching a level of 166 persons. Peak employment in the pro-
duction of Lower Cook Inlet crude oil reaches 749 workers for both 1990
and 1991. When adjusted for Alaska residency, the economic impact of these
workers is only about 60 percent of the numerical total, or 449 workers.
Transportation employment is assumed to peak with 196 workers (82 workers
when adjusted for Alaska residency), to fall to zero in 1986, and then
to rise to 150 workers (128 adjusted for Alaska residency) during the
construction period. After 1990, transportation employment is assumed
constant at 56 workers, with virtually all of these persons .being full-
time Alaska residents. It is interesting to note how the changing com-
position of transportation emp.loyment between the exploration and con-
struction phases alters the ratio of total direct employment and employ-
ment adjusted for Alaska residency. During the exploration phase, the
number of Alaska resident equivalent workers equals only 42 percent of
the total direct employment. During the construction phase, it equals
85 percent, while it equals approximately 98 percent during the produc-
'
tion phase of the field. The level of year-round resident worker equiva-
lents will be much more stable than the pattern of total direct employment
shown in the scenario, as well as the indirect, consumer-linked impacts
of OCS exploration, development, and production which are dependent on
the number of year-round-resident worker equivalents.
122
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. Headquarters employment is again assumed to take place in Anchorage and
reaches a peak of 67 workers in 1990. As before, it is assumed that
headquarters employment is entirely composed of full-time equivalent
Alaska workers.
Overall, in the medium-find scenario, total direct employment rises to a
level of 740 workers during the exploration phase (1984) and reaches a
total peak of 1,154 workers during peak construction in 1980. The number
of year-round resident worker equivalents, however, is much lower with an
exploration peak of 246 workers in 1984 and a peak employment impact of
559 workers in 1991. From 1993 onward, it is assumed that over 99 percent
of the total direct employment resulting from the Lower Cook Inlet and
Shelikof Strait OCS Lease Sale No. 60 will be Alaska residents.
HIGH-FIND SCENARIO
The high-find scenario assumes significant commercial discoveries of
400 MMBBL of oil and 363 BCF of gas in the Lower Cook Inlet area, and
1,000 MMBL of oil and 1,000 BCF of gas are found in the Shelikof Strait.
The major portion of the oil and gas resources under this scenario are
assumed to be discovered in the Shelikof Strait area west of Afognak
Island, while the Lower Cook Inlet discoveries are made immediately to
the north of Lease Sale CI. This scenario assumes that the fields in
the Lower Cook Inlet do not share infrastructure (in particular pipe-
line) with sale CI fields but rather support their own pipeline. The
scenario consequently assumes that a partial processing facility may
123
. have to be constructed on shore. The development of Shelikof gas can
I
only be justified, however, if it can share infrastructure (in particular
pipeline) with other fields. Consequently, in this scenario, the gas
from the Shelikof field is assumed to be piped to Lower Cook Inlet where
it feeds into a trunk pipeline to the Lower Cook Inlet gas field.
This scenario assumes that exploration commences the first year after the
lease sale, peaks in the second and fourth years (with 14 wells drilled
each year), and terminates in the seventh year with a total of 57 wells
drilled. Four commercial oil discoveries and two gas discoveries are
made in the four-year period. Development of the field is assumed to
commence in the fourth year following the decision to develop the first
discovery. The first two production platforms· are assumed to be installed
in the sixth year and the last two, in the eighth year. Oil production
for the Lower C~ok Inlet commences in the eighth year after the lease
sale, at the same time as oil prod~ction begins from the Shelikof Strait
field. Gas production from both the Lower Cook Inlet and the Shelikof
Strait fields starts in the fourth year.
The high-find scenario assumes that a major facilitY, is constructed as
a crude oil terminal on the west coast of Afognak Island. The terminal
is designed to process an estimated production of nearly 400,000 bpd and
to provide storage for crude. It is further assumed that there will be
two loading jetties for tankers at the terminal. It is also assumed
that there will be a forward service base supporting construction and
operation of the Shelikof field, constructed adjacent to the Afognak
. 124
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terminal, and that exploration in the Shelikof Strait is supported
principally out of Nikiski with aerial support and light supply shipment
provided by Homer. Field and terminal construction support bases are
assumed to be located at Nikiski. The two Lower Cook Inlet oil fields
assumed discovered north of OCS Lease Sale No. CI will share a pipeline
to the Drift River terminal, although a partial processing/treatment
facility may be required near the pipeline land fall at Harriet Point.
The small Lower Cook Inlet gas field is connected onshore through a
spur that links up with the onshore trunk line transporting gas from
other Lower Cook Inlet and Shelikof fields to Nikiski.
The direct employment requirements and t~e adjusted employment equivalents
for the high~find scenario are presented in Table 48.
Construction employment begins in.l986 under this scenario, reaching a peak
of 1,465 workers in 1989. This only represents an employment of 351 resi-
dent equivalent workers (or 24 percent) due to a specialized and transient
nature of the construction workers.
Mining employment has two phases, as before. The first phase involves
oil exploration and reaches a peak of 677 workers in 1984. These workers,
however, have the impact on the Alaskan economy of only 166 full-time
equivalent workers--again, reflecting the specialization and transiency
of the exploratory work force. With the beginning of production, employ-
ment begins to climb from its 1987 low of 61 workers to reach a peak 1eve1
of 1,828 employees in 1991. It then declines somewhat and stabilizes in
125
1982
1983
1984
1985
--' 1986 N.
0'1 1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
CONSTRUCTION ·
Total
Direct Adjusted
Employment Employment*
0 0
0 0
0 0
0 0
260 136
533 72
1 '156 309
1 ,465 351
461 57
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
TABLE 48. DIRECT EMPLOYMENT REQUIREMENTS
HIGH-FIND SCENARIO
LOWER COOK, SALE 60
MINING TRANSPORTATION
Total Total
Direct Adjusted Direct Adjusted
Employment ~mployment* Employment Employment*
378 96 147· 62
632 160 . 245 103 .
677 169 245 103
632 166 245 108
500 132 196 87
61 61 150 128
501 226 214 182
994 898 281 251
1 ,691 1,224 201 196
1,828 1,239 147 144
1,455 1 ,l03 168 165
1 ,072 963 .. 168 165
941 923 168 165
936 936 168 165
974 974 168 165
974 974 168 165
913 913 154 151
860 860 140 137
825 825 138 135
HEADQUARTERS TOTAL EMPLOYMENT
Total Total
Direct Direct Adjusted
Emp 1 oyment Employment Employment*
21 546 179 .
37 914 300
32 954 304
. 37 914 311
24 980 379
24 768 285
37 1 ,908 754
77 2,817 1 ,577
134 2,487 1 ,611
153 2,128 1,536
141 1 ,774 1 ,419
135 1,381 1,269
133 1,244 1,223
133 1 ,237 1,234
133 1,275 1 ,252
133 1,275 1,272
133 1 ,200 1 '197
133 1 ,133 1 '130
133 1 ,096 1 ,093
* Adjusted to reflect the share of direct employment going to Alaska residents (SEAR).
.,.-..::.'-.) ll.
. .--~------,___, -~:
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the range of 825 to 975 workers through the year 2000. At the peak of
production employment, the number of Alaska resident-worker equivalents
equals about two-thirds of the total direct employment. By 1995, however,
it is assumed that all of the direct employees ~re Alaska residents.
Transportation employment rises rapidly to hit an exploration peak of
245 workers in 1985; it then declines for several years before reaching
it~ highest level of 281 workers in 1989. During the exploration phase,
the number of resident-worker equivalents equals approximately· 43 percent
of the total direct employment. After 1990, however, it is assumed that
virtually all ·(98 percent) of the total direct workers are Alaska resi-
dents. As was· true under the other scenarios, it is assumed that head-
quarters employment is located in Anchorage and that all of these workers
are year-round Alaska residents. Headquarters employment rises slowly
through 1988, when it shows a sharp three-year increase to reach a peak
of 153 workers. It declines slowly thereafter and stabilizes at 133
workers in 1995 to the year 2000.
Overall, total direct employment under the high-find scenario rises to
a peak of 2,817 workers in 1989--the peak year for construction activity.
Thereafter, it declines sharply over a four-y~ar period to reach a;, level
of 1,244 in 1994, after which it remains fairly stable (with a slight
downward trend) in the range of 1,100 to 1,250 workers. In terms of
resident-worker equivalents, the peak year is 1990 when 1~611 resident-
worker equivalents are employed. At the peak, consequently, the impact
worker population (defined as the number of resident-worker equivalents)
127
equals about 65 percent of the total direct employment; and over the
entire period, it averaged just over 70 percent. From 1993 to the year
2000, however, the long-term stability of employment under the high-find
scenario causes resident worker equivalents to equal better than 98 per-
cent of the total direct employment.
128
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V. THE PROBABLE IMPACT OF OCS DEVELOPMENT
IN THE LOWER COOK INLET
This section describes the probable economic impact of OCS developments
in the Lower Cook Inlet. Chapter III, above, described the expected
growth of employment, population, and other economic variables in the
state of Alaska, the Anchorage region, and the Southcentral region
under the assumption that no OCS developments occur in the Lower Cook
Inlet (Sale No. 60). This chapter projects the growth of the same
economic variables under the assumption that there is OCS development.
Each of the three development scenarios discussed in Chapter IV (the
exploration-only, medium-find, and high-find scenarios) are analyzed.
All three scenarios assume that expioration occurs between 1982 and 1984.
Under the medium-find scenario, construction is assumed to occur during
the years 1985 through 1988, inclusive. Under the high-find scenario,
construction occurs during the years 1986 through 1990, inclusive.
Primary emphasis in this chapter is placed upon the medium-find scenario
since it represents the most probable case. However, the exploration-
only scenario and the high-find scenario are also discussed, although
in lesser detail, at the end of the thapter.
The growth scenarios analyzed in this chapter are similar to those con-
tained in the Western Gulf of Alaska report (ISER, 1979). Production
employment associated with the lease area is relatively small, averaging
about 400 workers. In fact, total basic employment--including mining,
129
manufacturing, and transportation--peaks at less than 800 workers and
averages onlY slightly over 500 workers per ye,ar during the twenty-year
period, 1980 through 2000, inclusive. By way of comparison, total
employment in Alaska is expected to increase by almost 120,000 workers
over the same period of time.
Statewide Employment Impacts
Both the long-term and short-term employment impacts of the Lower Cook
Inlet OCS development are insignificant for the state of Alaska. Table 49
reports the employment levels which are expected in Alaska under the assump-
tion that the moderate-development scenario occurs. The second column of
Table 49 shows the difference between the employment levels expected under
this development scenario and those that would have occurred without it.
The final column of the table presents the percent difference.
Throughout the forecast period, total employment (direct, indirect, and
secondary) resulting from OCS development in Lower Cook Inlet never
·exceeds 2,500 persons. It hits a peak of 2.2 thousand in 1991, declines
for three years, and then starts 4o grow slowly, reaching a year 2000
peak of 2.4 thousand. This is a statewide employment impact of less
than one percent in any year during the forecast-period.
Without OCS development in the Lower Cook Inlet, the averag~ annual
compound rate of growth in Alaska over the twenty-year period is
2.358 percent per year. With OCS development, the
1
growth rate is
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2.397 percent per year. The difference between OCS and non-OCS growth
rates in total employment for the state of Alaska, consequently, is
.039 percent per year over the twenty-year period.
The interaction of OCS-generated employment impacts with the rest of
the state's economy is shown in table 50. The table presents the level
of total state employment, assuming the moderate Lower Cook Inlet devel-
opment scenario and the changes in the level of employment from the base-
line for the support sector, for the government sector, and for the basic
sector. The support sector includes the transportation, communications,
public utilities, wholesale and retail trade, finance~ and service
industries. Government employment includes state-~ local, and federal
government. The basic sector includes mining, manufacturing, agricul-
ture, forestry, fisheries, and construction industries.
As can be seen from the table, basic employment averages around one-third
of the total change in statewide employment. Government employmen·t ac-
·Counts for another 15 percent, while support employment regularly accounts
for over half of the total change. The largest employment impacts of
the Lower Cook Inlet OCS development on Alaska statewide employment,
therefore, occur either (a) because of the need to provide services in
support of the OCS-worker population or (b) because of income effects
operating through the wages and salaries received by basic workers. It
should be remembered, however, that the analysis takes place in terms of
full-time equivalent workers--not in terms of actual workers employed.
As discussed above (Chapter IV), this analysis takes as given the
132
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TABLE 50. DISTRIBUTION OF OCS EMPLOYMENT IMPACTS
[ STATE OF ALASKA
MODERATE DEVELOPMENT SCENARIO
.r-,
[ Support Employment Government Employment Basic Employment
r Level Change Level Change Level Change
--'
1980 67,735 0 80,899 47,785 0
[ .1981 72,579 0 80,731 51,436 0
1982 80,735 134 80,441 24 57,648 159
c 1983 87,287 286 82,866 76 58,306 219
1984 88,025 365 85,595 110 54,431 247
1985 87,837 400 85,672 86 54,806 273
G 1986 88,784 353 85,082 80 56,438 110
~ 1987 92,059 501 85,329 90 58,056 292.
1988 96,395 728 86,043 134 60,301 569
r 1989 100,895 916 87,121 261 61 ,850 688
L 1990 104.,878 1,029 88,046 343 62,859 767
' 1991 108,375 . 1 ,084 88,459 359' 63 '172 779 [ 1992 111,412 1 ,049 88,408 347 63,867 592
1993 114,863 947 88,330 314 64,942 554
B
1994 118,743 961 88,355 315 66,265 649
1995 122,965 1 ,045 88,437 335 67,637 664
~ 1996 127,667 1 '1 01 88,500 344 69,579 674
D 1997 132,576 1,148 88,770 351 71 '174 686
1998 137,780 1,200 88,996 359 72,974 697
1999 143,233 1 ,251 89,206 365 74,993 709
c 2000 149,005 1,302 89,472 317 76,946 720
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international character of the exploration and construction work forces
usually employed by oil and gas development companies. In interpreting
the results, it should still be kept in. mind that decisions to hire a
greater number of Alaskan workers (as opposed to the international,
·traveling workers who are usually employed) could affect the forecast
results .1
The growth caused by Lower Cook Inlet OCS development does not significantly
change the structure of employment in the Alaskan economy. As is true in
the base case, the support sector increases in importance throughout the
projection period~. The response of the support sector and government
regularly accounts for more than half of the total employment gains in
the economy. The smallness of the Lower Cook Inlet impacts, furthermore,
precludes any major structural alteration in the manner in which the
support sector responds to basic changes in employment and income.
Statewide Population Imp&cts
Population changes in Alaska primarily result from changes in employment
L
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opportunities. Increased employment customarily leads to an in-migration u·
of workers. Some of these workers travel as individuals, and others bring
their families. In either case, statewide population changes in a manner
proportionate to the change in employment.
1This point is discussed in greater detail below in Chapter VI,
Sensitivity Analysis.
134
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Table 51 presents the population changes expected in the state of Alaska
as a result of employment changes (both direct and indirect) generated
by the Lower Cook Inlet•s OCS development. As with employment, the net
impact of OCS developments in the Lower Cook Inlet on Alaska•s popula-
tion-is very small. By the year 2000, Alaska •s population is expected
to be greater than it would have been otherwise by approximately
5.1 thousand persons. This represents a net increase in the state•s
population of approximately 0.8 percent, vis-&-vis the baseline pro-
jection. Most of this population growth results from the increase in
secondary employment.
Over the twenty-year forecast period, total net in-migration to the state
of Alaska induced by Lower Cook Inlet•s OCS developments equals approxi-·
mately 3.8 thousand persons (an-average annual net in-migration of less
than 190 persons per year). Most migrants to the state of Alaska are
younger and of child-bearing age. Once they migrate to the state, these
persons are assumed to form families and have children at the same rate
as other persons in their own age/sex grouping. Consequently, some of
the in-migrants attracted to Alaska during the early 1980s will begin
having children by the late 1980s and early 1990s. This produces an
increase in the state•s natural population increase and causes population
to grow both by the number of in-migrants and by the increased number of
children born to in-migrants after they have become Alaska residents.
In the case of the Lower Cook Inlet OCS developments, the approximately
3.8 thousand additional persons in-migrating to the state over the
135
TABLE 51. LOWER COOK INLET, OCS POPULATION IMPACTS
STATE OF ALASKA
MODERATE DEVELOPMENT SCENARIO
Population Population Percent
Levels Changes Change
1980 . 407.511 0 0
1981 419.562 0 0
1982 440.684 0.41 0.09303
1983 458.741 0.81 0.17657
1984 463.506 1.068 0.23041
1985 466.467 . 1 .187 0.25446
1986 470.497 0.996 0.21169
1987 478.644 1~508 0.31505
1988 489.921 2.38 0.48579
1989 501.349 3.156 . 0.6295
1990 511.283 3.713 0. 72621
1991 518~841 3.998 0.77056
1992 525.492 3.847 0.73207
1993 533.032 3. 727 0.6992
1994 541.62 3.979 0.73464
1995 550.871 4.234 0.7686
1996 . 561.531 4.397 0.78303
'1997 572.504 4.597 0.80296
1998 584.204 4. 781 0.81837
1999 596.637 4.964 0.83199
2000 609.668 5.148 0.84439
136
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forecast period are ~xpected to form families and cause an additional
1.4 thousand person~ to be added to the state's total population through
natural increase. Consequently, the total increase in population result-
ing from the Lower Cook Inlet's OCS development equals about 5.1 thousand
'
persons by the year 2000--of which, just under three-quarters of the
total will be added through migration and one-quarter through additions
to the state's natural population increase.
During the' early 1980s, when construction activity is high, the Lower
Cook Inlet's OCS impacts do make· a slight di fference1 by reversing the
migration pattern for two years from a net out-migration to a net in-
migration. Ov~r the entire foreca~t period, no~etheless, the impacts on
population are insignificant, causing Alaska's total populatibn growth to
change from an average annual compound rate of 1.~9 percent to 2.03 percent,
which is a change of 0.04 percent per year, compounded.
The major trends in the structure of Alaska's population observed in the
base case also dominate the impact case. The ratio of total population-
to-work force continues to fall as a result of increases in the labor
force participation of the working-age population, particularly among
younger females. Reinforcing this trend is the increase in the proportion
of working-age persons in the population--a result of the aging of the
11 baby boom 11 observed to impact the schools in the 1960s and the labor
market in the 1970s and thereafter.·
137
Statewide Personal Income Impacts
As with the other ~conomic indicators discussed, real incc~1e in the state
·of Alaska is only slightly affected by OCS developments in the Lower Cook
Inlet. Real personal disposable income in the state grows to $2.8 billion
by the year 2000, an increase of only $25 million (or 0.9 perc.ent) greater
than the base (non-OCS) case. This represents a change in the state's
average annual compound rate of growth of real personal disposable income
from 4.21 percent per year to 4.25 percent per year.2
Another measure of real income impacts of Lower Cook Inlet oc·s developments
is the state's change in real per capita personal income. The difference
between this measure of income impacts and the real personal disposable
income measure is twofold: (a) disposable income and personal income. differ
by the amount of taxes--federal, state, and local--paid; and (b) the per
capita measure divides the state's total personal income by its total
population. Many economists consider the per capita measure a better
indicator of economic welfare since it describes both the growth of income
in the state and the amount of income available to each state resident.
(See Table 52.)
Because the growth of real income induced by OCS impacts in the Lower Cook
Inlet is matched by the growth of population, Alaska's statewide real per
2The MAP model used to generate these projections also assumes a
long-term, twenty-year inflation rate of approximately 5.5 percent per
year. Consequently, the average annual growth of Alaska's real personal
disposable income in nominal dollar terms is expected to be approximately
9.25 percent per year with OCS impacts and 9.21 percent per year without
OCS impacts. '
138
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capita personal income is hardly affected over th~ forecast period. In
the year 2000, the difference is slightly over $4 of real personal income
per pers6n in the population, which causes rea] per capita income to rise
from $5,777 to $5,781. This represents a difference of less than one-
tenth of one percent.·
The greatest impact on state levels of real per capita personal income
occurs during the late 1980s when OCS impacts account for a difference
of slightly more than $20 of real personal income per capita in the
state. This causes it to increase from $4,415 to $4,435, an increase
of 0.5 percent. From the peak impact year of 1988, both the change in
real per capita personal income and the percentage of change fall steadily
through the remainder of the forecast period. Over the twenty-year fore-
cast period, the average annual compound rate of change in real per capita
personal income goes from 2.406 percent per year without OCS impacts to
2.410 percent per year with Lower Cook Inlet OCS impacts, a difference
of .004 percent per year.
It should be remembered that after 1984 total OCS employment levels remain
.constant. Consequently, all increases in real per ~apita personal income
result from assumed increases in productivity and real wages among workers
. in the state economy.
140
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State Revenue and Expenditure Impacts
OCS development in the Lower Cook Inlet will affect Alaska's fiscal posi-
tion in two ways: changes in stat~ governmerit expenditures and changes in
state government revenues. In turn, the interaction between state revenues
and expenditures will affect the state's current account su~plus and,
thereby, its fund balances.
Alaska will not receive substantial direct revenues from OCS activity in
the Lower Cook Inlet. However, the increase in state levels of employment
and income will generate additional state revenues. At the same time, the
increase in the state's population levels will require additional services
and result in additional state expenditures.
Table 53 presents the change in state government expenditures, the change
in state government revenues, and the difference between t~em (the net
cost to the State of Alaska of Lower Cook Inlet's OCS development).
In Table 53, the first column shows the change in state expenditures result-
ing from the increased demand for services produced by OCS developments in
the Lower Cook Inlet. The second column shows the changes in state reve-
nues, also resulting from Lower Cook Inlet OCS developments. The third
column represents the difference between them--the net fiscal impact on
the State of Alaska.
141
['
TABLE 53. LOWER COOK INLET, OCS FISCAL IMPACTS r STATE OF ALASKA ~-.
MODERATE DEVELOPMENT SCENARIO
(millions of nominal dollars) [
r
L Change Real Net
in State Change in Net Fiscal Impact -
{'. Expenditures State Revenues Fi sea 1 Impact 11979 = 100.0) L
1980 $ 0 $ 0 $ 0
[ 1981 0 0 0
1982 2.504 0.276 -. 2.228 -$1.913
1983 4. 541 1.272 -3.269 -2.688 [ 1984 5.891 1.957 -3.934 _; 3.086
1985 6.828 2.393 -4.435 -3.301
1986 6.387 2.674 -3.713 -2.625 [
1987 10.671 2.392 -8.279 -5.570
1988 17.363 4.:271 -13.092 -8.396 r 1989 23.763 16.949 -5.814 -4.169
1990 29.023 18.734 -10.289 . -6.000 'L
1991 32.383 19.805 -12.578 -6.995 [ 1992 32.719 20.340 -12.379 -6.554 .
. 199•3 34.016 19.227 -14.789 -7.454
1994 38.828 . 18:809 . -20.019 -9.607 b 1995 43.328 20.027 -23.301 -10.651
1996 47.473 20.793 -26.680 -11.618 b 1997 52.668 21 .277 -31.391 -13.028
1998 58.113 21.926 -36.187 -14.308
1999 63.906 22.406 -41.500· -15.634
2000 70.281 22.828 -47.451 -17.034 c
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Table 53 shows that the Lower Cook Inlet's OCS de~elopment produces a
negative fiscal impact on the state of Alaska beginning in 1982 at ·a level
of $2.2 million and increasing steadily to the year 2000, whele the net
fiscal impact is a negative $47.5 million. When measured against Alaska's
projected total expenditures, these are small amounts. Even at the year
2000 level of a negative $70~3 million, this only represents an increase
in total state government expenditures of about eight-tenths of one percent.
An alternative way to view the Lower Cook Inlet's OCS fiscal impacts is to.
estimate the costs of those impacts in terms of their drain on the state's
ability to expend funds for goods or services. This is done in the fourth
column of Table 53. The column presents the annual difference between
state revenues and state expenditures resulting from OCS impacts in terms
of constant value 1979 purchasing power dollars~ The sum of this column
equals approximately $150.6 million; and this amount represents the net
fiscal cost to the state of Alaska of the Lower Cook Inlet's OCS impacts
during the period 1980 through the year 2000, inclusive. It is an amount.
equal to approximately 11.0 percent of the state's 1979 total expenditures.
The adjustment fo.r inflation overstates the costs to the state. Even in
constant purchasing-power dollars, $17 million in the year 2000 is differ-
ent from $17 million today. With no changes in purchasing power through
time, there is still a preference for current value over future value.
Discounting the real net fiscal impacts shown in the fourth column of
Table 53 by an additional 4 percent per year, compounded to reflect the
real time preference of the state, produces an estimated real. current
143
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cost of OCS impacts to the fiscal status of the state of Alaska. This
amount equals approximately $88.6 million, or about 6.5 percent of the
state's 1979 budget.
These costs to the state result from structure of state revenues and
expenditures produced by the OCS development in the Lower Cook Inlet.
The OCS development in the Lower Cook Inlet produces no substantial direct
revenues for the state. The major sources of state revenues are those gener-
ated through state income taxes, business taxes, or the growth of the state
fund revenues. Expenditures, on the other hand, increase with population
growth. As·suming that the level of services currently provided by state
government to Alaska residents is maintained at base case levels, the cost
of providing services to the additional population is greater than the
additional revenues collected as a result of their incomes and purchases
within the state.
Two additional assumptions underlie this forecast. First, by holding the
level of real per capita expenditures constant (under the assumption of
constant levels of service), the forecast is probably overstating expen-
ditures since it takes no account of economies of scale. That is, the
costs of administering and operating a 100-person police force are not
twice as high as those for a 50-person police force. On the other hand,
the forecasted change in state revenues and expenditures is based on
the estimated number of full-time equivalent workers. The income impact
of a full-time equivalent worker is the same as that for four workers
being employed three months each. However, the social dislocation produced
144
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on communities by haying four new residents per year is substantially
greater than that of having one resident per year. To the degree that
such social dislocations require additional expenditures for education,
public safety, and other state-supported services, the forecast has a
tendency to underestimate the increase in state expenditures and the
real net fiscal impact.
Regional Impacts
THE ANCHORAGE REG ION
Table 54 shows the impact on the Anchorage region of OCS developments in
the Lower Cook Inlet. The table shows changes in population, employment,
and real disposable personal income that will be produced. Population
1s expected to reach approximately 295,800 persons by the year 2000, an
increase of approximately 2,300 persons over the projected baseline.
This represents a population growth resulting from OCS impacts of less . .
than one percent. Over the forecast period, 1980 through 2000, inclusive,
OCS impacts contribute approximately 2 percent to the Anchorage region's
total population growth.
The fourth column in Table 54 presents the OCS impacts expected to occur
in the Anchorage region as a percentage of the total OCS impacts in the
State of Alaska. It shows that the Anchorage region will ·account for
39 percent of the total population growth induced by Lower Cook Inlet OCS
impacts in 1985. This percentage grows to approximately 44 percent by
the year 2000.
145
Population
1980
1985
1990
1995
2000
Employment
1980
1985
1990
1995
2000
TABLE 54. LOWER COOK INLET, OCS IMPACTS
ON THE ANCHORAGE REGION
MODERATE DEVELOPMENT SCENARIO
Level Change Percent Change
186,047 0 0.0
213,119 463 0.2
236,831 1 ,418 0.6
262,482 1 ,800 0.7
295 ,8_47 2,292 Q.8
88,067 0 0.0
105.193 278 0.3
120,070 857 0.7
134,496 865 0.6
154,425 1 ,057 0.7
Real Disposable 1 Personal Income
1980 $ 555.9 $ 0 0.0
1985 721 .1 2.4 0.3
1990 888.3 6.4 0.7
1995 1,069.0 6.9 0.6
2000 1,325.0 . 9.2 0.7
1Millions of Constant Value Dollars
146
Percent of Total
State Change
0.0
39.0
38.0
42.5
44.5
0.0
36.6
40.1
42.3
44.2
0.0
31.2
33.2
34.3
36.1
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The reason for the growth of statewide impacts occurring in the Anchor-
age region is explained by the nature of those impacts~ First, all of
the headquarters employment related to the Lower Co.ak Inlet OCS develop-
ments is assumed to occur in the Anchorage region, and the population
impacts produced by those employment changes are assumed to reside there.
Second, most of the total population impacts occurring in the state of
Alaska are induced through secondary and indirect employment impacts.
Given the current structure of Alaska's economy (as embodied in the MAP
econometric model), this directs a substantial share of all economic
impacts in the state into the Anchorage region; Finally, the state
expenditures required by increasing population also are heavily directed
toward the Anchorage region. In consequence, the OCS impacts on the
Anchorage region rise to slightly under half of the total statewide
impacts by the year 2000 but still constitute only about 2 percent qf
the region's total growth. As such, these impacts should cause no
significant population pressures, or problems, on the region.
The same general pattern observed for population also holds true for employ-
ment and real disposable personal income as shown in Table 54. Again, the
Anchorage region accounts for approximately 44 percent of the total state-
wide employment impacts; but these impacts account for slightly more than
1.5 percent of the total employment growth expected to occur in the region
over the forecast period. In the case of real disposable personal income,
the Anchorage region will capture approximately one-third of the addi-
tional income generated .in the state (in real terms). This represents
approximately 1.2 percent of the total change in real disposable personal
income which the region is expected to experience.
147
Overall, the Anchorage region is expected to capture substantial amounts
of population, employment, and real disposable personal income produced
in Alaska as a result of the Lower Cook Inlet's OCS developments. Despite
a substantial .location of these impacts in the region, however, the large
size of the Anchorage region will allqw it to accommodate to these
impacts with little difficulty~ In fact, these impacts only represent
between 1 percent and 2 percent of the total change expected to occur
in the region under the baseline forecast.
THE SOUTHCENTRAL REGION
Table 55 presents the expected impact of Lower Cook Inlet's OCS develop-
ments on the Southcentral region of Alaska. The top third of the table
is expected po'pulation impacts; the middle third, expected employment
impacts; and the bottom third, the Lower Cook Inlet OCS impacts on the
Southcentral regionis real disposable personal income.
By 1985, the region will experience an OCS-induced growth of population
of approximately 600 persons; and throughout the 1990s, it wi)l experience
OCS population impacts of approximately 1,600 to 1,700 persons. This
represents an increase of about 1 percent in the region's population
in 1985 and between 2.2 percent and 2.6 percent through the 1990s .
. Induced population growth in excess of 2 percent in any given year are
not excessive but do represent an important component of regional growth.
In the case of the Southcent~al region, the OCS-induced impacts over
the forecast period, 1980 to 2000, inclusive, represent slightly under
9 percent of the total net increase in population expected to occur.
148
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Population
1980
1985
1990
1995
2000
Employment
1980
. 1985
1990
1995
2000
TABLE 55. LOWER COOK INLET, OCS IMPACTS
ON THE SOUTHCENTRAL REGION
MODERATE DEVELOPMENT SCENARIO
Level ---Change Percent Change
56,801. 0 0.0
62,999 602 1.0
. 68,552 . 1 ,790 2.6
70,135 1 ,610 2.3
76,311 1 '715 2.2
24,942 0 o.o
28,794 356 1.2
32,609 897 2.8
34,393 787 2.3
38,663 842 2.2
Real Disposable 1 Personal Income
1980 $147.4 $ 0 0.0
1985 187.9 3.748 2.0
1990 238.8 9.816 4.1
1995 273.7 9.593 3.5
2000 337.8 11.372 3.4
1Millions of Constant Value Dollars
149
Percent of Total
State Change
0.0
50.7
48.2
38.0 .
33.3
0.0
46.9
41.9
38.5
35.2
0.0
48.4
50.9
47.8
44.6
While these impacts are moderate when measured against re~ional totals,
they represent a significant share of total OCS tmpacts occurring in
the state of Alaska. During the early periods, when exploration and
construction activities are substantial, the Southcentral region will
probably experience about half of the total population growth seen in
the state. After 1990, when an increasing part of the population impacts
are produced by secondary and indirect OCS impacts, the Southcentral
region's share of statewide impacts falls off to about one-third.
A sim·ilar pattern emerges with respect to employment. Net employment
impacts rise from a 1985 level of approximately 360 workers to a year
2000 level of approximately 840 workers. This represents an incr~ase
in the region's total employment ranging between 2.2 and 2.8 percent
through the 1990s. It also represents between 35 and 42 percent of the
total employment impacts produced in the state of Alaska by Lower Cook
Inlet OCS development. With respect to its significance for the region,
the employment impacts generated by OCS represent slightly over 6 percent
of the region's total employment growth during the forecast period.
The real disposable personal income impacts evidence a similar pattern.
The reg·ion's real disposable personal income level is increased by
approximately $3.7 million in 1985. This represents a 2 percent increase
over the baseline regional income level, although it represents the occur-
ring of approximately 48 percent of the total increase in real disposable
personal income within Alaska as a result of Lower Cook Inlet OCS devel-
opment. By _the year 2000, OCS-induced impacts generate approximateiy
150
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11.4 million additional dollars of real disposable personal income in
the Southcentral region. This is an increase of approximately three-and-
one-half percent over the income level that would have occurred if no
OCS impacts had occurred. It also represents approximately 45 percent
of all real disposable personal income impacts occurring statewide in
Alaska. These income impacts represent approximately 6 percent of the
total real disposable personal income growth expected to occur in the
Southcentral region over the forecast period.
The overall picture that emerges for the Southcentral region is one of
moderate impacts. Population, employment, and real disposable personal
income wi 11 a 11 be higher than they waul d have been by 2-to-3 percent;
and OCS impacts will account for between 6 and 9 percent of the total
growth expected in the region.
The region, however, is not homogeneous. Unlike the Anchorage region,
it does not represent an integrated trading area or a single labor market.
The impacts will not be evenly distributed throughout the region but will
occur in the specific labor markets, housing markets, and trading areas
associated with the communities at Nikiski, Homer, and Kodiak. These
are all small communities. Taken together, they probably represent less
than a quarter of the regional totals--implying that the magnitude of
the impacts would be four times as great.
The MAP econometric model is not designed to analyze small area impacts.
A comparison of the Anchorage and Southcentral impacts, however, shows
151
how the magnitude of impacts increas~ as their location shifts from more
or less densely populated areas. For Anchorage, the impacts are not
significant. In the Southcentral region, similar magnitudes produce
moderate impacts. Given the nonhomogeneity of the region, there is a
reasonable expectation that the specific small communities affected
by OCS would experience significant impacts.
High Scenario Impacts
The high-find scenario, discussed above in Section IV, assumes significant
commercial discoveries of oil and gas are found in both the Lowe~ Cook
Inlet and Shelikof Strait areas. As a result~ this scenario generates
peak direct employment at just under three times the level projected
under the most probable (moderate-find) scenario. This section describes
the differential impacts produced in the State of Alaska by the mo.st
probable level of development and the high-find level of development.
Table 56 presents the projected differential growth impacts of the high-
find scenario in comparison to the most probable (moderate-find) impacts.
These comparisons are made f~r population, employment, real per capita ·
1 . d t f. 1 . t 3 c 1 f th t bl persona 1ncome, an state ne 1sca 1mpac s. o umn one o e a e
presents the moderate-find impacts, while the high-find scenario impacts
are presented in column two. The difference between the high-and moderate-
find scenario impacts is presented in column three (in absolute terms)
and column four (in percentage terms).
3state net fiscal impacts are the difference between state revenues
and state expenditures.
152
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State population impacts are approximately 25 percent higher under the
high-find scenario than they are under the more probable moderate-find
scenario in 1985. During the 1990s, the high-find scenario increases
population by about two-and-one-half times the level that would occur
under the more probable moderate-find scenario assumptions.
The high-find scenario's Lower Cook Inlet OCS impacts increase the state's
population by approximately 2 percent over the level it would otherwise
have been after 1990. In large part, these population gains are pro-
duced by the employment-induced in-migration associated with both the .
higher level of direct employment and the larger magnitude of the support
sector's response.
The same general picture emerges with respect to employment. Particularly
during the late 1980s and early 1990s, employment impacts in the state of
Alaska under the high-find assumptions are almost two-and-three-quarters
times higher than they are under the more probable moderate-find assump-.
tions. By the year 2000, the difference has fallen to approximately two-
and-one-half times. Employment under the high-fino sr.Pnnrio assumptions
averages approximately two percentage points higher than it would have
been under the baseline assumptions of no OCS development from the late
1980s onward.
Real per capita personal income shows large increases as a result of the
much higher level of direct employment assumed under the high-find scenario. ·
In 1990 and 1995, the additional real ~er capita personal income generated
154
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by the high-find scenario's assumptions are four times and three times
as great, respectively, as they are under the more probable moderate-
find assumptions. However, the real per capita personal income impacts
of Lower Cook Inlet's OCS development are very small under all conditions.
Even during the peak year of activity under the high-find scenario, the
OCS impacts on real per capita personal income are only slightly above
one percent of what they would have been under the baseline (non-OCS}
assumptions.
The impact on the state's net fiscal condition (the difference between
revenues and expenditures} is related to the populatio~ and real per
capita income growth. It increases by approximately one-quarter in
1985 and fluctuates around two-and-one-half times the more probable
moderate-find scenario's impacts during the late 1980s and 1990s. The
figures reported in Table 56 are in nominal dollar values. The differ-
ence between the year 2000 net fiscal impacts is an increase in the size
of the revenue-expenditure shortfall from $17 million to $25 million in
1979 purchasing power.
Overall, therefore, the assumptions underlying the high-find scenario
increase the level of Lower Cook Inlet OCS developments on the Alaskan
economy; increases in employment and population after 1990 go from less
than one percent to approximately two percent when compared with the
baseline (no OCS) forecasts. Particularly during the late 1980s and
early 1990s, it appears that the hig,h-find scenario produces low-to-
moderate population and employment impacts compared to the more probable
moderate-find scenario which produces no significant impacts.
155
The impact~ on real per ~apita personal income and state net fiscal status
are reasonably large but still. represent impacts of 1 percent or less, com-
pared with baseline, non-OCS assumptions.
Exploration-Only Scenario Impacts
The explo~ation-only scenario assumes that no commercial oil or gas resources
are discovered in the Lower Cook Inlet and Shelikof Strait OCS areas. It
assumes that exploration begins in the first year after the lease sale,
peaks in the second year,· and terminates in the third year as a result of
discourag_ing exploratory findings. Consequent1y, all .of the direct employ-
ment impacts occur over a three-year period and are associated with explora-
tion activity. Since the three years of exploration activity are 1982
through 1984, inclusive, there are no 1980 impacts. Furthermore; the
impacts evidenced after .1985 are residuals~ That is, they reflect the
impacts on the state's economy from persons who migrated to Alaska as a
result of exploration activity and remained in the state as permanent
residents. These impacts are given in Table 57. ·
By the middle of the 1980s, approximately three-quarters of the popula-
tion and employment impacts have been eliminated from the Alaskan economy.
From the late 1980s through the end of the forecast period, the impacts
of Lower Cook Inlet OCS development under the exploration-only scenario
.are not significantly different from zero.
The real per capita personal income impacts of the exploration-only scenario
disappear even more rapidly. By 1985, they have been reduced to zero and
156
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TABLE 57. DIFFERENTIAL GROWTH IMPACTS OF LOWER
COOK INLET OCS DEVELOPMENT
STATE OF ALASKA
EXPLORATION-ONLY SCENARIO
Populatio~
1980
1985
1990
1995
2000
Employment
1980
1985
1990
1995
2000
Real Per Capita
Personal Income
1980
1985
1990
1995
2000
Moderate-Find
Impacts
0
1 ~ 187
3,713
4,234
5,148
0
759
2 ~ 139
2,044
2,394
$ 0
9.99
13.61
6.22
4.36
State Net Fiscal 1
(Revenues-Expenditures)
1980
1985
'1990
1995
2000
$ 0
-4.435
-10.289 .
-23.301
-47.453
1Millions of Nominal Dollars
Exploration-
Only
Impacts Difference
0
315
140
118
146
0.
154
24
17
28
$ 0
- . 15
-.65
-.63
-.62
$' 0
-2.161
-4.387
-6.512
-10.570
157
0
-872
-3,573
-4,116
-5,002
0
605
-2,115
-2,027
-2,366
$ 0
-10.14
-14.26
-6.85
-4.98
$ 0
2.274
5.902
16.789
36.883
Difference
as Percent of
Moderate
Impacts
0
-73.5
-96.2
-97.2
-97.2
0
-79.7
-98.9
-99.2
-98.5
0
-101 . 5
.... 104.8
-110.1
-114.1
0
-51 .3
-57.4
-72.1
-77.7
are not significantly different thereafter. The state net fiscal impacts
persist over a longer period of time because the persons who migrated to
Alaska and remained there continue to require services from the state.
They represent a very small impact, however; and three-quarters of them
have been eliminated by the year 2000.
Overall~ therefore, the exploration-only scenario produces statewide
population, employment, and real per capita personal income impacts that
are not significantly different from zero except for the three years in
which direct activity occurs. Even during these years, this scenario
produces changes ih the state's major economic indicators of less than
one percent.
Summary and Conclusion
If OCS development occurs in the Lower Cook Inlet, its probable statewide
impact will be negligible in terms of employment, pop
1
ulation, and personal
income. The changes that do occur are minor and generally represent less
than a one percent alteration in the state's .non-OCS development projections.
There is a small impact on state revenue and expenditure patterns and a net
cost to the state (in terms of a shortfall .between revenues and expendi-
tures produced by OCS impacts) of about six-and-one-half percent of the
state's 1979 budget, calculated in real terms and discounted for the·
community's time preference.
If the high-find scenario should occur, however, the state would· probably
experience moderate impacts in employment, population, and personal income.
158
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These impacts would be in the range of a two-to-five percent increase in
the level of activity projected to occur without OCS developments.
The exploration-only scenario, on the other hand, has very small impacts
(less than 1 percent per year), and these last for a very short period of
time. Effectively, the exploration-only stenario produces no significant
alteration in the state's overall growth path.
With respect to regional impacts, the Anchorage region experiences small
changes in employment, population, and personal income, even though one-
third to one-half of the total OCS impacts in the state are expected to
occur there. Since the region represents an integrated economy, these
impacts should not provide any strong pressures on the economy • s ability
to generate jobs, housing, and required services.
In the Southcentral region, moderate impacts are expected in the growth
of population, employment, and personal income. However, this region is
not homogeneous and does not have an integrated economy. The impacts will
occur in specific communities, most of them quite small in size. Although
the MAP econometric model does not have the capability of forecasting small
area impacts, it appears probable that the small communities of Nikiski,
Homer, and Kodiak would experience large economic impacts under the most
probable OCS impact scenario. · Under the high-find scenario, the impacts
would probably be substantial. While the substantial impacts (particu-
larly under the high-find scenario) are analytically discernible, they
cannot be quantified and no estimates of their magnitude are currently
available.
159
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VI. SENSITIVITY ANALYSIS
This section examines the sensitivity of the forecasts with respect to
certain key assumptions contained in the analysis. These assumptions
fall into two categories: first, those which relate to the structure of
the model; and second, those which relate to the input data used with
the model. Essentially, the first set of assumptions relates to the
state expenditure rule contained in the MAP econometric model. The
second set of assumptions relates to the participation and seasonality
of the OCS labor force. Each is discussed in turn.
State Expenditure Rule
The MAP econometric model contains an expenditure rule which specifies
the essential features of state fiscal policy. The rule generally assumes
that state real per capita expenditures grow at a rate proportional to
the growth of real per capita income and available general fund balances.
This general rule was developed from an analysis of historical state
expenditure patterns (Scott, 1978). Alternative formulations of the
basic expenditure rule have been tested, as has the implicit assumption
that the state of Alaska will respond to OCS development impacts in the
same manner that it has responded to population and employment growth in
the past (Western Gulf of Alaska Statewide and Regional Population and
Economic Systems Impact Analysis, Huskey and Nebesky, May l, 1979).
The specific assumptions used in the expenditure rule for this report
are contained in Appendix B, 11 Base Case Assumptions.11
161
Of analytical importance for this report is the assumption that state
\ capital expenditures as well as revenue expenditures will increase pro-
portionately to the growth of the state•s economy. This assumption
applies equally to short-term and long-term changes. Consequently,
state capital investme~ts are assumed to be as great for population
changes expected to last only one year as they are. for long-term popula-
tion growth. This is probably an unrealistic assumption. Short-term
impacts such as those produced by OCS construction and exploration
activity are usually provided exclusively through operating budgets.
Additional policemen, firemen, school teachers, and agency employees
will be added to deal with short-term impacts. Seldom, however, are
new courthouses, schools, and other capital facilities built unless
there is a probability of their longer-term utilization.
In addition to the sensitivity of the forecast results to varying expendi-
ture rules such as those discussed in the Western Gulf study, there would
appear to be a tendency on the part of the MAP econometric model to sys-
tematically overestimate government expenditure responses-to short-term
impacts. Since the capital budget accounts for approximately twenty-five-
to-thirty percent of the state•s total annual expenditures during the
forecast period, the expenditure forecasts could be overestimated by as
much as fifteen-to-twenty percent during the peak years of construction
and exploration activity.
162
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Labor Force Participation and Seasonality
The analysis used in this report contains a procedure to reflect its
resident/nonresident composition. A full description of this procedure
is provided in the Western Gulf of Alaska report (Huskey and Nebesky,
1979). This procedure is known essentially as S~AR (Share of OCS
Employment to Alaska Residents), and it has the following essential
characteristics. For onshore OCS activity, the impact of approximately
five exploration workers is assumed equal to that of one full-time Alaska
resident. During the development phase, it takes two workers to have the
. same impact as a full-time Alaska resident; while during the production
phase, all workers are assumed to be the same as full-time:Alaska resi-
dents. The same relationships hold for offshore OCS activity, except
that the impact of workers during the development stage is reduced from
two-to-one to five-to-one.
During the peak employment years of OCS exploration and development, the
SEAR adjustments significantly reduce the estimated direct employmrnt
impacts used as inputs to the MAP econometric model. Table 58 .reports
the results of using actual workers instead of SEAR workers for the
impact analysis. The first column of Table 58 presents the Alaska non-.
OCS (baseline) forecast. The second column presents the most probable
impacts used in the body of the report and contains SEAR-adjusted qirect
employment. The third column contains the most probable impacts when
unadjusted employment is used. Columns 4 and 5 show the percent change
from the baseline forecast produced by Lower Cook Inlet OCS impacts using
SEAR-adjusted employment (column 4) and unadjusted employment (column 5).
163
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TABLE 58. SENSITIVITY OF FORECASTS TO SEAR ADJUSTMENTS
STATE OF ALASKA
Most Probable-
Non-OCS Impacts
Forecast (With SEAR)
Population 1
1980 407.51 0.00
1985 465.28 1.19
1990 507.57 3.71
1995 546.64 4.23
2000 604.52 5.15
Employment 1
1980 196.42 0.00
1985 2·27 .56 0.76
1990 253.64 2.14
1995 276.99 2.04
2000 313.03 2.39
State Expenditures 2
1980 $1 ,626.58 $ 0.00
1985 2,766.43 6.83
1990 4,291.89 29.02
1995 5,869.45 43.33
2000 8,564.09 70.28
1Thousands of persons (workers)
2Millions of nominal dollars
Most Probable Percent Change Percent Change
Impacts_ With SEAR Without SEAR
(Without SEAR) [(2~1} 100] [{371) lOOJ
0.00 0.00 0.00
3.36 0.26 0. 72
7.75 0.73 1.53
6.02 0. 77 1.10
6.49 0.85 1.07
0.00 0.00 0.00
2.09 0.33 0.92
4.09 0.94 1.80
2.34 0.74 0.84
2.60 0,76 0.83
$ 0.00 0.00 0.00
19.60 0.25 0.71
62.97 0.68 1.47
70.26 0.74 1.20
101 . 57 0.82 1.19
Without SEAR
as Percent of
With SEAR
[(372} 100]
0.00
282.35
208.89
142.32
126.02
0.00
275.00
191 . 12
114.71
108.79
0.00
286.97
216.99
162.15
144.52
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The final column of the table shows how much larger DCS impacts are when
the non-SEAR-adjusted employment estimate is used.
The biggest difference between the SEAR and non-SEAR-adjusted impact
estimates occurs during the peak years of exploration and development.
Statewide population impacts in 1990 are approximately twice as large
when total direct employment is used for the model as they are when SEAR-
adjusted employment is used. The significance of the impacts as measured
against the non-OCS forecast is also ~oubled, rising from 0.73 percent to
1 .53 percent. Employment impacts are approximately twice as high in 1990
when the non-SEAR-adjusted employment est1mates are_ used.
Overall, the use of SEAR adjustments reduces the magnitude of estimated
Lower Cook Inlet OCS impacts by about one-"half during the peak explora-
tion and development years. Because the SEAR adjustments become less
important through time and are identical with the direct employment esti-
mates for the production years, the effect of using SEAR adjustments
becomes less important as the forecast period gets longer. By the year
2000, they produce relatively small differences.
Statewide, even the unadjusted SEAR estimates are still small. They range
in the order of 1.5-to-2.0 percent of the baseline conditions, compared
with the SEAR-adjusted impacts which fall in the range of 0.7 to 0.9 percent
during the peak explnration and development years. These are still small-
to-moderate impacts on the statewide aggregate indicators~ Assuming the
Southcentral region maintains its same percentage of the state•s total
165
OCS impacts implies increases in population and employment in excess of
5 percent and an increase in real disposable personal income of approxi-
mately 8 percent during the peak years of explo~ation and development.
~ile the tMP econometric model does not provide estimates for small
area impacts, this could imply increases in employment and population
in the affe.cted communities of Nikiski, Homer, and Kodiak in the order
of 20 percent during the peak yea~s.
The second labor market adjustment tested for sensitivity was the use of
annual average data for estimating impacts. The procedure for making this
test was to apply the seasonal peak direct employment estimated by Dames &
Moore (March 1979, page 119) and to use it in the MAP econometric model as
if the seasonal peak were the annual average. The peak employment estimated
impacts were then subtracted from the annual average estimated impacts
as a measure of seasonality.1
The results of the seasonal adjus~ment process are reported in Table 59.
Using 1990 as a reference year, it appears that peak seasonal impacts on
employment and population could be in the range of two-and-one-half-to-
three times those estimated from annual averages. Because the seasonal
variations only occur during the exploration and development phases, the
difference between the seasonally adjusted estimates and the annual
1This procedure probably overestimates seasonal impacts since the
model incorporates secondary and indirect responses which would not occur
for seasonal peaks. This is particularly true for capital budget expendi-
tures and other related fiscal measures. For this reason, only seasonal
adjustments to population and employment were made.
166
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Population 1
1980
1985
1990
1995
2000
Employment 1
1980
1985
1990
1995
2000
TABLE 59. SENSITIVITY OF FORECASTS TO SEASONAL ADJUSTMENTS
STATE OF ALASKA
Percent Change
Most Probable Most Probable With Annual
Non-OCS Impacts Impacts Average
Forecast (Annual Average) (Seasonal Peak) [{2-:1} 100]
407.51 0.00 0.00 0.00
465.28 1.19 4.16 0.26
507.57 3.71 11.85 0.73
546.64 4.23 7.90 0.77
604.52 5.15 7.90 0.85
196.42 0.00 0.00 0.00
227.56 0.76 2.63 0.33
253.64 2.14 5.85 0.94
276.99 2.04 2.62 0. 74
313.03 2.39 2.80 0.76
1Thousands of persons (workers)
Peak as
Percent
of Average
[(3-:-2} 100]
0.00
349.58
319.41
186.76
153.39 '
0.00
346.05 '
273.36
128.43
117.15
averages becomes increasingly less important toward the end of the fore-
cast period.
Since the state•s total economy exhibits a large amount of seasonality,
the seasonal peak impacts still remain a very small part of the state•s
total levels of employment and population in 1990. Assuming the South-
central region contfnues to attract its share of total OCS impacts result-
ing from Lower Cook Inlet development, the analysis implies that the
region•s total population could increase by as many as 5,000 additional
persons during the peak years of production and exploration. If all of
these persons were to be located in the small communities primarily
affected by Lower Cook Inlet OCS developments, the impacts would appear
to be substantial.
168
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VII. SUMMARY AND CONCLUSIONS
The probable impact of Outer Continental Shelf developments in the Lower
Cook Inlet vary significantly with the area and period of time analyzed.
The larger the area and the longer the period of time, the less signifi-
cant are the impacts. The smaller the area and the shorter the period
of time, the more significant the impacts become.
For the state of Alaska as a whole, an of the impacts are very small in
size--generally accounting for less than a change of one percent in the
non-OCS baseline forecast. Even when using non-SEAR-adjusted total direct
employment estimates and allowing for seasonal variations in employment,
the impacts remain quite small. By extending·the time period for esti-
mating impacts .and discounting future values to arrive at current value
estimates, it appears that the net fiscal impact on the state of Alaska
will be moderate, equaling between 6 and 7 percent of the state•s 1979
budget. Some of this impact, however, appears to be produced by a
tendency of the MAP econometric model. to overestimate state expenditures
in response to short-term changes in population and employment.
The smallest level of analysis for which the MAP econometric model pro-
duces estimates is the Southcentral region. Using non-SEAR-adjusted total
direct employment estimates and estimating impacts at the seasonal peaks
during the exploration and construction phases of development, OCS devel-
opments in the Lower Cook Inlet could produce impacts as great as 10,000
additional persons and 4,500 workers. This would mean increases in
169
population and employment in the range of 15 percent for the region. For
the individual communities of Nikiski ,,Homer, and Kodiak where most of
:the direct OCS impacts will occur, the seasonal peaks occurring during
the construction and exploration phases of the development would probably
be large and significant.
170
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APPENDIX A
Historical Growth, 1965-1976
171
TABLE A.l. GROWTH IN EMPLOYMENT, ALASKA, 1965-1976
Average ~to nth 1 l! Em21 O.Y]!Cnt
Industry 1965 1970 1971 1972 _J.2ZL _]_974 1975 1976
~lining 1,100 3,000 2,400 2,100 2,000 3,000 3,800 ~.ooo
Contract Construction 6,~00 6,900 7 ,400. 7,900 7,800 14,100 25,900 30,200
~:anufacturi ng 6,300 7,800 7,800 8,100 9,400 9,600 9,600 10,300
Food Processing 3,000 3,700 3,600 3,800 4,600 4,300 4,300 5,100
Logging•Lu:nber
and ?ulp 2,300 2,800 2,800 2,600 3,200 3,600 3,400 3,200
Other 1·1anufactur1 ng 1,000 1,300 1,400 1,500 1,500 1,700 1,300 2,000
--' Tr~sportation, COI:'.IllUnication ""'-1
N ~d Public Utilities 7,200 9,100 9,800 10,000 10,400 12,400 16,500 15,800
Trucking and Watehousing 1,200 1,700 1,500 1,600 1,5::'0 2,200 4,000 3,200
Water Transportation 1·,000 £00 800 800 900 1,000 1,400 1,300
Air Transportation 1,900 3,000 2,800 3,000 3,300 4,000 4,800 4,700
Other Transportation 500 900 1 ,000 1,000 1,100 1,300 1,800 1,900
Co~m~nications and
Public Utilities 2,600 2,700 3,700 3,600 3,600 3;900 4,500 4,700
Trade 10,000 15,400 16,200 17' 100 18,300 21,1 co 26,200 27,600
Wholesa]c 1,900 . 3,200 3,200 3.,300 3,400 4,000 5,500 6,100
Retail 8,100 12,200 12,900 13,800 14',900 17,100 20,300 21,500
Finance, Insurance and
Real Estate 2,200 3,100 3,200 3,700 4,300 4,900 6·,ooo 7' 100
Services 7,500 11,400 12,600 14,000 15,200 18,300 25' 100 27,700
Hotels, Motels, etc. 1,000 1,400 l,GOO 1,800 1,900 2,500 3,200 3,200
Personal 700 800 900 900 900 BOO 900 900
Business 1,400 2,000 2,100 2,100 2,100 . 3,000 7,300 8,700
Nedica1 1,40'1 2,200 2,600 3,000 3,300 3,800 4,300 5,000
o·~her 3,000 5,000 5,400 6,200 7,000 8,200 9,~00 9,900
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TASLE A.l. (continued)
Average Monthll Em21oxment
Industrv 1965 1970 1971 1972 1973 1974
Government 29,000 35,600 38,000 40,500 . 41;600 .43,800
Federal 17,400 17.100 17,300 17 ,·200 17,100 18,000
State 7,000 10,300 11,700 13,300 13,800 14,200
Local 5,300 8,100 9,000 10,000 10,700 11 ,600
Agriculture, For·estry
ana F1sheries 100 800 900 900 1,000 ___1,000
Total Civilian Non-Agricultural
1\age and Sali!.Y'Y Employment 70,500 93,100 98,300 104,200 110,000 128,200
Total CiviJian Basic 31,300 35,600 35,800 36,200 37,300 45,700
Military 33,000 31,400 30,1 oo_ 26,500 . 27,500 _1.7 ,500
Totai Basic 64,300 67,000 65,900 62,7CO 64,800 73,200
Total Support Sector 26,900 39,000 41,800 44,8CO 48,200 56,700
··Total Employment 114,000 129,900 133,900 136,580 143,200 161,500
llasic Employr:1ent Includes: Mining; Construction; Hanufacturing; Federal Govern:r.ent; Agriculture, Forestry and
Fisheries, and Nilitary.
Support Sec: tor Includes: Transportation, Communi cation and Pub 1 i c Uti 1 'lti es; Trade; Finance, Insurance and Rea 1 .
Estate; and the Services.
SOURCE: ·Alaska Department of Labor, ~.laska labor Force Estimates, various years.
Alaska Department of Labor, Estimates of Total RP.sident Pcou11\tion and Esti~ates of Total Civilian Populntiort".
1975 1976
47,200 47,200
18,300 17,900
15,500 14,100
13,400 15, 2CO
1,000 1,200
161 '300 171 '1 cc
58,600 63,600
25,3CO 24,500
83,9CO 38,100
73,800 78,200
190,200 203,200
.....
-.....! .p.
Industry 1965
Total 30,678
Agriculture, Forestry
and Fisherfes 33
Nining ~71
Contract Construction 3,127
Nanufacturi ng 791
Transportation, Co!T'.munication
and Public Utilities 2,618
Transportation 1,694
Air 773
Other 921
Communication 674
Public Utilities 250
Trade 5,280
~lho 1 esa 1 e 1,226
Retai 1 4,053
Finance, Insurance Jnd
Real Estate 1,295
Services 3,767
Hotels 460
Personal 402
Business -789
l·!edi ca 1 681
Other 1,444
Federal Govern~ent 9,395
State Government 1,672
Local Government 2,329 .
TABLE A.2. ANCHORAGE CIVILIAN EMPLOYMENT GROWTH,
ALASKA, 1965-1976
1970 1971 1972 1973
41,995 45,452 48,252 50,627
52 63 76 82 .
958 916 806 769
3,514 3,924 4,272 4,178.
1 ,018 1,,117 1 ,215 1,286
3,907 4,591 4,522 4,625
2,800 2,805 2,821 3,129
1,482 1,455 1,629 1,835
1 ,318 1; 350 1,192 1 ,294
764 1,411 1,289 1,046
343 374 . 411 451
8,617 9,3J4 9,948 10.663
2,220 2,292 2,423 2,475
6,397 7,042 7,525 8,188
1,~mo 2,087 2,415 . 2,803
6;403 7,027 7,725 8,319
755 709 732 811
535 556 556 567-
1 '188 1,194 1,120 1,190
. 1 '20·0 1,480 l, 759 1 '993
2, 725 3,088 3,459 . 3,758
9,509 9,530 9,435 9,550
2,421 3,020 3,500 3,667
3,615 3,845 4,349 4,677
SOURCE: Department of Labor, Statistical· Quarterl.x,, various issues.
r-r---'1 t; ,.... ; Ll·
1974 1975 1976
-
58,713 69,645 73' 113
100 110 100
. 1 ,035 1,301 1,409
5,882 7,054 7,587
1,379 1 ,571 1 ,629
5,383 7,343 7,409
3,938 5,419 5,172
2,123 2,610 2 '668.
1 ,814 2,809 2,504
1,163 1,426 1 ,670
483 ~99 558
. 12,298 14,928 15,958
2,860 4,077 4,240
9,438 10,852 11,718
3' 151 3,615 4,257
10,119 13,455 15,450
1 '114 1,345 1,444
572 624 607
1,680 ·3,795 4,914
2,283 2,~86 . 2, 557
4,471 5,410 5,823
9,925 10' 22? 9,313
3;985 4,056 ,4,053
5,257 . 5,979 5,413
-
...
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Industry
Agriculture, Forestries and
Fisheries
Mining
Contract Construction
!J,anufacturing
Food
Trans;:ortation, Corrmunication
and Public Utilities
Transportation
Cor!'.munications
Public Utilities
Trade
\~ho1esale
Retail
Finance, Insurance and Real
Estate
Services
r:ctel
?ersonal
'3usiness
l·ied i ca 1
Other
Go v c t• r.~,;e n t
Federa 1
Stute and Local
To!al
TABLE A.3. EMPLOYMENT BY INDUSTRY, SOUTHCENTRAL ALASKA
1965' 1970-1976
1965 1970 1971 1972 1973
19 99 85 356 491
345 762 633 611 640
880 583 895 768 681
1,188 1,647 1,627 1,818 2,627
1,086 1,293 1,229 1,456 1,995
542 760 796 793 896
373 521 502 442 497
26 85 132 175 209
132 154 163 176 189
813 1,338 . 1, 319 1,383 1,460
102 193 .275 162 133
711 1,145 1,134 1, 221 i,327
159 211 204 220 233
738 1,027 1 ,099 1 '228 1 ,440
138 154 230 297 300
25 213 29 39 50
117 l]t, 94 87 139
1.39 27S 286 315 451
319 456 460 490 500
975 828 742 626 602
1,465 2,327 2, 725 2,932 3,056
7,124 9,582 10,127 10,735 12,131
SOURCE: Estimated from Alaska Department of Labor, Research and Analysis Section Worksheets.
Alaska .Stat~ Housing Authority, Alaska, Vak'..!tat, Comprehensive Development Plan, Anchorage 1971.
Alaska ConsultMts, Inc., Anchorage, Alaska, Yakutat, Cc:.1::-re~ensive Development Plan, December 1976.
1974 1975 1976
492 543 680
53': . 900 827 .
1,239 3,656 6,973 .
2,522 2,655 3,234
2,013 2,003 2,127
, ,329. 1,575. 1,472
708 1,106 977
218 239 247
03 231 243
1 '611 2,337 2,533
202 344 353
1,459 1,983 2, 13~
308 377 480
1,709 2 '128 2,597
427 467 462
40 49 35
178 441 755
400 391 465.
664 780 878
595 572 637
3,180 3,455 3,592
13,645 18,300 23,030
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APPENDIX B
Methods, Standards, and Assumptions to be Used in the
Lower Cook Inlet OCS Statewide and Regional
Economic and Demographic Impact Analysis
This paper describes the methodology and assumptions to be used in analyz-
ing the social and economic impacts of oil and gas developments in the
Lower Cook Inlet. The major steps of this impact analysis are: (1) a
historical baseline study of the economies of the state of Alaska and
the Cook Inlet region, (2) development of base case (i.e., without Lower
Cook Inlet oil and gas development) assumptions, (3) generation of base
case projections, (4) generation of Lower Cook Inlet projections, and
(5) a comparison of the impact projections with the baseline projections
to analyze net impacts. This appendix will discuss the assumptions used
in this analysis.
Base·case Assum2tions
A set of assumptions about the level of exogenous variables determines
a development scenari~; this section describes the assumptions in the
non-OCS base case scenario. There are four major types of assumptions
required for a scenario. First, there are assumptions about the growth
of exogenously determined employment in both the petroleum and nonpetroleum
sectors. Secondly, assumptions about exogenously determined petroleum
revenues received by the state are needed. Thirdly, there are assumptions
about national variables (see Chapter III, page 88). Finally, an assump-
tion about the way the state spends its money is needed. Once these
assumptions are set, the set of projections is determined by the model.
177
EMPLOYMENT ASSUMPTIONS
Emplo~nent assumptions. include those associated with special projects
and those associated with industry growth in manufacturing, agriculture-
forestry-fisheries, and federal government.
Special Projects
Special projects include three basic types--petroleum projects, major
construction projects, a·nd operations of the major projects .. Tables B.l
and B.2 show the project employment a~sumptions, The methods used to
determine th~se levels are described below.
• Prudhoe Bay, Lisburne, and Kuparak mining employment was
estimated from two sources of information. Employment
scenarios were based bn the scenarios described in the
Alaska Department of Natural Resources, Alternatives for
the Future: Petroleum Develo ment Stud , North Slo e of
Alaska 1977 . The employment sc1edules were adjusted
based on the estimated reserves, productivity, and the
production schedules in Beaufort Sea Region Petroleum
Development Scenarios (Technical Report No. 6, Alaska
OCS Socioeconomic Studies Program, 1978).
• Northern Gulf OCS employment is an estimate of 1977
exploration employment. This was based on information
in Monitoring Petroleum Activities in the Gulf of Alaska·
{Technical Report No. 17, Alaska OCS Socioeconomic Studies
Program, 1978). Total employment associated with explora-
tion was divided by the total wells drilled to obtain a
man-years-per-well figure of approximately 90. Approximately
9.6 wells were drilled in 1977. Total exploration employment
was adjusted by the percentage of Alaskan resident employment
assumed in the report. There is no activity assumed after
1977.
• Upper Cook employment was an estimate of current employment
made by the author. Employment was assumed to increase
slightly between 1985 and 1990 as the oil fields are shut
down. Gas production is assumed to continue after 1990.
178
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TABLE B.l. MINING EMPLOYMENT
[ Prudhoe,1
N. Gulf 2 lisburne
Upper 3 Other4 [ and and Lower
Year Kuparak Cook OCS Cook Mining
[ 1977 1 ,586 271 575 2,082
1978 1 ,624 0 575 2,082
1979 1 ,585 0 575 2,082
[ 1980 1 ,783 0 575 2,082
1981 1,402 0 575 2,082
1982 1 '149 0 575 2,082
[ 1983 897 0 575 2,082
1984 904 0 575 2~082
1985 . 987 0 575 2,082
c 1986 963 0 610 2,082
1987 985 0 645 2,082
1988 985 0 680 2,082
r· 1989 1 ,009 0 715 2,082
L 1990 1 ,009 0 750 2,082
1991 1 ,020 0 300 2,082
[ 1992 1,020 0 300 2,082
1993 940 0 300 2,082
1994 886 0 300 2,082
L 1995 886 0 300 2,082
1996 886 0 300 2,082
1997 886 0 300 2,082
6 1998 886 0 300 2,082
1999 886 0 300 2,082
2000 886 0 300 2,082
c 1Based on employment scenarios from Alternatives for the
~j Future: Petroleum Develo ment Stud , North Slo e of Alaska
Department of Natural Resources, 1977 . Scenarios for 1 and
5 billion barrel reserves were adjusted to reflect reserves
[ and production schedules of these fields.
2Exploration a~tivity drilled 9.6 wells; assumed employment
b
per well equaled 90 man-years from OCS Technical Report No. 17
(Dames and Moore, 1978).
3 . Estimate by the author based on current employment. c 4Net employment in mining. L
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Year TAPS
1977 1 5,300 .
1978 0
1979 90 2
1980 90
1981 90
1982 90
1983 0
1984 0
1985 0
TABLE B.2. CONSTRUCTION EMPLOYMENT
ECONX 1
ALCAN 3 Total
0 5,300
0 0
0 90
0 90
1 ,425 1.515
4,763 4,853
4,663 4,663
265 265
0 0
ECONX 2
P .f. 4 ac1 1c
LNG
0
0
0
146
844
1 .323
420
0
0
1Based on estimate of TAPS construction employment by the Alaska
State Labor Department.
2Assumed construction of four pump stations to increase capacity
by 1982. Pump Station construction employment estimate from The
Beaufort OCS Petroleum Development Scenarios, Dames and Moore:-1978.
3Northwest Energy Company manpower estimate, July 17, 1978.
4 . Based on letter to the Department of Natural Resources from S.
California Gas, March 17, 1978, estimating peak construction employment
of 1,500. Four-year construction period from E.I.S. for Pacific Aiaska
LNG Project, November 1974.
180
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t Other mining was assumed to maintain its 1976 level, except
in Anchorage and Fairbanks which were adjusted to an esti-
mate of the 1977 mining employment.
Table B.2 shows special project construction employment.
t ECONXl are highly paid construction workers associated with
major projects, long hours, and extreme working conditions.
Two projects are assumed in this category, the trans-Alaska
pipeline and the ALCAN gasline. TAPS is completed in 1977.
The 1977 employment is based on an actual estimat,, made by
the Alaska Labor Department. After 1977 the line's capacity
is assumed to be increased by the addition of four pump sta-
tions. Pump station construction employment estimates made
in Technical Report No. 6 (Alaska OCS, 1978) were used to
estimate employment. With completion of the TAPS construc-
tion in 1977, the line's capacity is assumed to be 1.2 million
barrels per day. The capacity must be expanded to deliver the
assumed base case North Slope production, which is 1.73 million
barrels per day by 1983. Four additional pump stations were
assumed to be needed to deliver this production. This was
based on the ratio of capacity to pump stations (.15 million
barrels per pump station) with eight pump stations. With
this ratio, twelve pump stations would be needed to deliver
1.73 million barrels per day. These additions would also
allow the line some additional capacity. The ALCAN gasline
is assumed to be built between 1981 and 1984. The estimates
are based on the most recent construction manpower estimates
made by Northwest Energy Company in a letter to the state
(July 1,.1978).
• ECONX2 employment is associated with special construction
projects which are assumed to have regular employment sched-
ules and be able to draw on local labor markets. One project
of this type is· assumed to be built, the Pacific LNG project.
Pacific LNG is scheduled to begin construction in 1980 and
operations in 1984 (Anchorage Daily News, September 23, 1978).
The construction schedule is based on an estimated peak con-
struction employment of 1,500 (letter from S. California Gas
to Alaska Department of Natural Resources, May 17, 1978) and
the four-year construction period from the 1974 E.I.S. for
the Pacific LNG project.
181
Operations employment for these projects is transportation employment
for the pipelines and manufacturing for the petrochemical projects.
Alyeska estimated an operations employment of 300 for startup in 1977
and 850 per year for the long-term operations (Alaska Construction and
Oil, October 1976). ALCAN operations employment is assumed to be 96
beginning in 1985. This estimate was, based on ALCAN's 1976 ·application
to the Federal Power Commission. The difference in operations employment
is accounted for because Trans-Alaska Pipeline Service (TAPS} has more
pipeline in Alaska, the Valdez port employment is part of the TAPS
employment, and TAPS has substantial Alaska headquarters employment.
Operations employment for the Pacific LNG plant i's 60 beginning in 1984.
Employment for these special. projects is allocated to MAP Regions as
fallows:
1. Prudhoe, Lisburne, Kuparak employment to Region 1
2. Upper Cook N. Gulf OCS, Pacific LNG employment in Region 4
3. Other mining at its appropriate regional level
4. ALCAN and TAPS construction based on miles of pipe in region
plus 300 TAPS headquarters in Anchorage in 1977
5. ALCAN operations is alloc_ated by the miles of pipeline in
each region
6. TAPS operations employment will be allocated as follows:
300 in Anchorage, 200 in Valdez, and the remainder based
on the regional distribution of the pipeline.
182
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Industry Growth
The level of employment in federal government and agriculture-forestry-
fisheries is set exogenously. Federal government employment is assumed
to follow its general historical trend and remain constant at the 1976
level throughout the forecast period. The trend in the historical
period reflects increases in civilian employment offsetting decreasing
military employment. The regional allocation will also remain constant.
Employment in agriculture-forestry-fisheries will be .assumed to increase
at a rate of 3 percent per year. This reflects an assumption of little
growth in agriculture and a modest increase in fisheries. The South-
central Water Study-estimated approximately a 5 percent annual increase
with maximum fisheries development. Employment will be assumed to in-
crease at this rate in each region.
Output in manufacturing must be determined exogenously. It is assumed to
increase at an average annual rate of 4 percent which is consistent with
both the historical trend and the as.sumed growth in the fisheries industry.
Regional growth will be determined by the mix of industries with food
manufacturing growing at the same rate as fisheries, 3 percent; lumber
growing at 4 percent; paper growing at 2.5 percent; and other manufactur-
ing bringing the growth rate into line with the overall 4 percent per year.
PETROLEUM REVENUE ASSUMPTIONS
Petroleum revenues to the state consist of royalties, production taxes,
property taxes, and the corporate income tax. This section will examine
the revenue assumptions chosen for the base case. Where it was possible
183
and did not conflict with other assumptions made in this study, we used
revenue estimates made by the state; in other cases, revenues were esti-
mated based on assumptions about the wellhead value and production.
COOK INLET REVENUES
Table 8.3 details the royalty and severance revenues from oil and gas
production in Upper Cook Inlet. The overall assumption is that oil
production would be over in 1995, while gas production will continue
throughout the projection period. The specific assumptions are:
1 Oil royalties and production tax are from a Legislative Affairs
Agency memo of July 14, 1977. Revenues were estimated through
1985; after that a 15 percent decline was assumed in the value
of oil. produced. The average production of the well was assumed
to decline below the taxable rate in 1989, and production was
assumed to stop in 1995.
1 Gas royalties and production tax are based on estimates of
production through 1985 made by the Revenue Department in
Bevenue Journal, Vol. 1, No. 2, October 1976. Decline after
1985 was assumed by the author to be at a rate of 10 percent
per year. The 1977 ratio of royalties and production taxes
to production was assumed to hold throughout the projection
period.
184
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TABLE B.3. COOK INLET REVENUES 1
Oil Oil Gas Gas
Royalties Production Tax Royalties Production Tax
Fiscal Year (Millions) (Millions) (Millions) . (Millions)
1978 33.1 16.3 4.4 2.3
1979 31.3 14.4 5.4 2.8
1980 29.5 12.7 6.9 3.6
1981 27.9 10.9 8.3 4.4
1982 26.4. 9. 1 9.0 4.6
-1983 24.6 7.3 9.1 4.7
1984 22.9 5.5 9.3 4.8
1985 21.2 3.7 9.4 4.9
1986 20.1 3.0 9.4 4.9
1987 19.1 2.0 9.4 4.9
1988 18.2 1.0 9.4 4.9
1989 17.3 0 8.5 4.4
1990 16.4 0 . 7. 7 3.9
1991 0 0 6.9 3.5
1992 0 0 6.2 3.2
1993 0 0 5.6 2.9
1994 0 0 5.0 2.6
1995 0 0 4.5 2.3
1996 0 0 4.1 2.1
1997 0 0 3.7 1.9
1998 0 0 .3.3 1.7
1999 0 0 3.0 1.5
2000 0 0 2.6 1.4
1same as The Permanent Fund and the Alaskan Economy (Goldsmith, 1977)
study except oil royalties which are the same until 1985, then decline at
15 percent to be elimin~ted in 1996.
185
PRUDHOE BAY REVENUES
Prudhoe Bay will produce the major petroleum revenues for the state in
the projection period. To arrive at·revenue estimates, estimates of
production and the wellhead value are needed. These estimates are shown
in Table B.4 and Table B.S.
• Production of oil was assumed to equal estimates made in
Technical Report No, 6 (Alaska OCS Socioeconomic Studies
Program, 1978) .
• The wellhead value per barrel of oil was calculated based
on discussion with BLM-OCS. These assumptions reflect
those made with respect to N. Gulf oil. ·
1. West Coast market price is $12/bbl. This reflects
a $1 .50 discount from a $13.50/bbl Gulf Coast price.
The discount is for transport costs. The real market .
price stays constant ..
2. Vessel costs equal $1.00/bbl fromValdez to the West
Coast and $.75/bbl processing costs. These costs remain
constant in real terms.
3. The.TAPS tariff is $5.25 in 1978. The nominal tariff
remains constant until 1990 when it is assumed the increased
operating costs dominate the decreasing capital costs.
After 1990, the tariff remains constant in real terms.
This assumption reflects only one of a number which could
be made concerning oil wellhead values.
• Production of gas at Prudhoe is assumed to increase follow-
ing the Department of Revenue assumed production until 1987
when the peak production assumed by Dames and Moore (Beaufort
OCS Petroleum Scenarios, 1978) is reached. This production
level is assumed to remain throughout the period.
• The wellhead value of gas was calculated assuming the com-
promise energy bill is adopted so that Prudhoe gas could
sell at a wellhead value of $1.45 per MCF. This assumes
the ability to roll this gas with other gas. It is assumed
that producers pay $.45 processing costs for a net of $1.00
wellhead. A constant real price of gas is assumed.l
----------
1Base case was selected prior to final adoption of Federal Energy
Act of 1978 which set a ceiling for Alaskan gas wellhead price.
186
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-------------------------------------
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PRUDHOE BAY OIL 1 TABLE B.4.
[
[ Total
Wellhead Wellhead Production
Production Price Value Royalties Tax
Fiscal Year (Million Bbls) ($/Bbl) (Million$) (Million$) (Mill ion$)
[ 1978 237.3 5.00 1186.5 148.3 124.6
1979 474.5 5.56 2638.2 329.8 277.0
[ 1980 584.0 6.16 3597.4 449.7 377.7 .
1981 595.7 6.79 4044.8 505.6 424.7
[ 1982 607.5 7.45 4525.9 565.7 475.2
1983 619.6 8.15 5049.7 631.2. 530.2
1984 631.5 8.88 5607.7 701.0 588.8
c 1985 641.5 9.66 6196~9 774.6 650.7
1986 613.2 lOA8 6426.3 803.3 674.8
1987 545.7 11.35 6193.7 774.2 650.3
r~ 1988 511.9 12.25 6270.8 783.9 658.4
L 1989 475.4 13.22 6284.8 785.6 659.9
1990 409.7 14.24 5834.1 729.3 561.5
[ 1991 367.7 15.02 5522.9 690.4 531.6
1992 347.7 15.85 5511.0 688.9 530.4
c 1993 329.4 16.72 5507.6 688.5 530.1
1994 299.3 17.64 5279.7 660.0 508.2
1995 268.3. 18.61 4993.1 624.1 480.6
Q 1996 246.4 19.63 4836.8 604.6 465.5
1997 228.1 20.71 4724.0 590.5 454.7
1998 211.7 21 .85 4625.6 578.2 445.2 c 1999 197.5 23.05 4552.4 569.1 438.2
2000 183.8 24.32 4470.0 558.8 430.2
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TABLE B.S. PRUDHOE BAY GAS l [
[
Wellhead Well head . Production
Production Price Value Royalties Tax
[_ Fiscal '(ear (Billion C. Ft) · ( $/MCF) · (Million$) (Mi·ll ion$) (Million$)
1978 3.9 1.00 3.9 .5 .4 . f 1979 5.1 1.06 5.4 .7 .6
1980 5.9 1.11 6.5 .8 .7
1981 28 1.17 32.8 4.1 ·3.4 r 1982 43 1.24 53.3 6.7 5.6
1983 50 1.31 65.5 8.2 6.9 l 1984 780 1.38 1076.4 134.6 113.0
1985 830 1.45 1203.5 150.4 126.4
1986 870 1.53 1331.1 166.4 139.8 [ 1987 912 1.62 1477.4 184.7 155.1
1988 912 l. 71 1559.5 194.9 163.7
1989 912 1.80 1641.6 205.2 172.4 r: 1990 912 1.90 1732.8 216.6 181.9 L.
1991 912 2. 01 1833. 1 229.1 192.5 L 1992 912 2.12 1933.4 241.7 203.0
1993 912 2.23 2033.8 254.2 213.5
1994 912 2.36 2152.3 269.0 226.0
1995 912 2.48 2261.8 282.7 237.5 [
1996 912 2.62 2389.4 298.7 250.9
1997 912 2.77 2526.2 315.8 265.3 [ 1998 912 2.92 2663.0 332.9 279.6 .
1999 912 3.08 2809.0 351.1 294.9
2000 912 3.25 2964.0 370.5 311.2 [
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Revenues from these are determined based upon state laws. Royalties
are 12~5 percent of the wellhead value of oil and gas. The production
tax in eachcase is a fraction of the nonroyalty value. This fraction
depends upon the productivity of the average well in the field. The
production tax on oil was assumed to equal 12 percent through 1989 when
production declines and the rate falls to 11 percent. The production
tax on gas is assumed to equal 12 percent throughout the projection
period.
MISCELLANEOUS REVENUES
There are three important miscellaneous_petroleum revenues: the property
tax, the reserves taxes, and the corporate income tax. Table B~6 shows
the assumed value of these taxes.
• The property tax taxes a 11 petro 1 eum-·re 1 a ted property except
oi 1 refining and gas processing. property and 1 eases at a rate
of twenty mills. We used the property tax revenue series
estimated by the Department of Revenue in A~ aska Oil and Gas
Structure. This assumed construction of the TAPS and ALCAN
lines.
• The reserves tax involves the repayment by the state of taxes
paid by petroleum producers in 1976 and 1977. Credits of up
to 50 percent of the production taxes are given until the
$499 million collected is repaid. This tax affects only
producers at Prudhoe.
• The Alaskan corporate income tax was changed in the last
legislative session so that no state projection of this
189
TABLE B.6. OTHER REVENUES
Property Tax 1 Reserves Tax 2 ANCSA 3 Corporate 4 Income Tax
Fiscal Year (Million$} {Million$} (Million$) (Million$}
1978 173.0 (83.3) (23.8) 33.5
1979 185.0 (166.4) (52.9) 127.8
1980 193.2 (204.8) (72.1} 167.3
1981 226.7 (44.8) (81.6) 188.5
1982 251.8 0 (91.6) 212.8
1983 257.0 0 (102.3) 265.1
1984 261.4 0 (68.8) 348.9
1985 295.9 0 0 384.8
1986 281 .1 0 0 405.1
1987 267.0 0 0 407.2
1988 253.7 0 0 421.6
1989 241.0 0 0 428.7
1990 229.0 0 0 421.4
1991 217.5 0 0 409.7
1992 206.6 0 0 416.5
1993 196.3 0 0 425.7
1994 186.5 0 0 418.8
1995 177.2 0 0 410.1
1996 168.3 0 0 410.7
1997 159.9 0 0 409.9
1998 151.9 0 0 411.0
1999 144.3 0 0 416.6
2000 137.1 0 ' 0 418.5
1Based on estimates in Alaska Oil and Gas Tax Structure, Department
of Revenue.
250 percent of Prudhoe production taxes.
32.0 percent of wellhead value at Prudhoe until $500 million is paid
to the fund.
4Actual fiscal year 78 value; afterwards estimated as explained in
the text.
190
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revenue stream is available. The corporate income tax on
petroleum is 9.4 percent of taxable petroleum income. Taxable
income is gross income minus capital and operating costs and
Alaskan taxes. The figure is not net of federal taxes. The
tax was based on estimates of net income determined by the
following procedure.
1~ ALCAN and TAPS income was based on an assumption
that these lines would be guaranteed a 20 percent after-
tax return on their. equity by the rate structure. It
was assumed that 15 percent of the capital cost of both
projects was equity. The TAPS project was assumed to
cost $10.5 billion and the Alaskan portion of the ALCAN
line was assumed to cost $4.3 billion. The equity
portion was depreciated in a straightline r~turn on the
remaining equity adjusted for an assumed 48 percent
Federal tax rate. ,
2. Corporate taxable income for Prudhoe Bay gas and oil
production was derived by estimating the components of
revenues and costs. Revenues are derived above. The.
cost assumptions were derived from Technical Report
No. 6 (Alaska OCS Socioeconomic Studies Program, 1978).
The assumptions are shown below:
Total Costs
Debt Proportion
Interest on Debt
Project Life
Total Throughput
..
Prudhoe Oil
$9.45 billion
25 %
9.0%
25 years
10.5 billion bbls
Prudhoe Gas
$2.6 bi 11 ion
25 %
9.0%
26 years
26 bi 11 ion MCF
Capital costs per barrel were found with this information.
Per barrel costs were used to account for the flow of in-
vestment over the life of the field. Capital costs equalled
debt service plus depteciation costs. Operating costs were
added for total costs. These costs wer~:
Capital Costs
Operating Costs
Prudhoe Oil
191
$1. 24/bbl
$1 .00/bbl
Prudhoe Gas
$.14/MCF
$.08/MCF
In addition, $.12 per barrel and $.02 per MCF wer~ allowed
for overhead as per the legislation. Taxable income was
found by subtracting these costs and allowable Alaska
taxes from revenues.
3. The ratio of oil and gas taxable income to severance
taxes at Prudhoe Bay was applied to Cook Inlet to estimate
taxable income from this production.
4. Estimated corporate income tax was found by applying
the .094 rate to this income:
5. A final portion of the tax includes a redistribution
of multistate corporate profits. This portion allocates
worldwide corporate profits based on three factors: non-
production property in Alaska as a percent of worldwide
property, nonproduction payroll in Alaska as a percent
of worldwide payroll~ and Alaskan sales as a percent of
worldwide sales. The average of these was taken as the
·propdrtion of worldwide profits which were taxed at
9.4 percent. Conversation with Alaska Department of
Revenue led us to the conclusion that this component
would be extremely small~ so it was ignored in this
study.
BEAUFORT OCS REVENUES
Tables 8.7 through 8.9 show the revenues associated with each of three
Beaufort scenarios. Revenues are based on production estimates provided
by the Alaska OCS Office of 8LM. Wellhead values are determined by the
wellheacl.value at Prudhoe minus trQ.nsport costs from the Beaufort. These
real 1978 transport costs were $.60 per barrel for oil and $.15 per MCF
for gas. Other assumptions included:
1. Half of the production and offshore capital facilities
would be located in state waters.
2. A conventional scheme ot bOnus bidding was used with
$100 million being bid.
3. Discoveries on state-owned properties will be subject to
state royalties and production taxes at current rates.
4. Oil and gas production from the Beaufort is transported via
TAPS and ALCAN rather than new pipelines or alternate modes.
192
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1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Bonus 1
50
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
TABLE B.7. BEAUFORT MINIMUM SCENARIO
DIRECT REVENUE EFFECTS
(Millions of Nominal Dollars)
Production 3 Property4
Royalties 2 Tax Tax
0 0 0
0 0 0
0 0 • 31
0 0 .44
0 0 .70
0 0 . 71
0 0 .48
0 0 2. 01
0 0 4.75
0 0 8.92
9.10 7.60 13.29
24.10 20.30 15.05
33.00 27.70 16.77
42.80 35.90 17.58
45.10 37.90 19.04
44.00 40.00 20.43
50.20 42.20 20.92
50.60 42.50 20.37
50.70 42.60 19.70
49.40 41.50 18.89
46.30 38.90 17.94
42.80 35.90 16.82
1BLM-Alaska OCS Office.
. 5 Corporate
Income Tax
0
0
0
0
0
0
0
0
0
0
.42
3.77
5.66
7.84
9.27
9.10
9.06
9.21
8. 72
8.18
7.14
5.81
2Royalties estimated at 12.5 percent of total wellhead value;
3Production tax equals 12 percent of the nonroyalty portion of
total wellhead value.
4Tax at 20 mills of petroleum property value.
5corporate income tax at 9.4 percent of taxable petroleum income.
193
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
TABLE B.8. BEAUFORT MODERATE SCENARIO
DIRECT REVENUE EFFECTS
(MilJions of Nominal Dollars)
Production 3 Property4 Corporate 5 . 1
Bonus Royalties 2 . Tax Tax Income Tax
50 0 0 0
0 0 0 0
0 0 0 . 31
0 0 0 .44
0 0 0 .70
0 0 0 .71
0 0 0 .82
0 0 0 3.03
0 0 0 6. 21
0 0 0 11.01
0 12.50 10.50 16.22
0 33.10 30.10 18.49
0 51.00 42.90 20.69
0 54.70 46.00 22.06
0 57.80 48.50 24.18
0 61.00 51.20 26.37
0 63.20 53.00 27.60
0 65.40 55.00 28.03
0 67.70 56.80 28.00
0 65.90 55.40 27.81
0 62.20 52.30 27.50
0 58.10 48.80 27.08
1BLM-Alaska OCS Office.
2Royalties estimated at 12.5 percent of total wellhead value.
3rroduction tax equals 12 percent of .the nonroyalty portion of
0
0
0
0
0
0
0
0
0
0
.43
7.12
10.41
11.13
11.96
12.74
11.29
12.41
12.77
11.79
9.87
7.63
total wellhead value.
4Tax at 20 mills of petroleum property value.
5corporate income tax at 9.4 percent of taxable petroleum income.
194
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TABLE B.9. BEAUFORT HIGH SCENARIO.
DIRECT REVENUE EFFECTS
(Millions of Nominal Dollars)
Production 3 . 4 Corporate 5
Bonus 1 2 · Property
Royalties Tax Tax Income Tax
1979 50 0 0 0 0
1980 . 0 0 0 0 0
.1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
0 0 0 . 31
0 0 0 .44
0 0 0 .70
0 0 0 .71
0 0 0 .82
0 0 0 3.78
0 0 0 9.-21
0 0 0 16.71
0 37.50 31.40 24.88
0 67.10 56.40 28.60
0 85.10 71.40 32.35
0 90.70 76.20 34.72
0 95.60 80.30 38.43
0 100.80 84.70 42.18
0 106.40 89.30 44.34
0 112.20 94.30 45.13
0 115.90 97.30 45.23
0 112.70 94.60 45.21
0 1 01 . 50 85.20 45.04
0 91.70 77.00 ·. 44.73
1BLM-Alaska OCS Office.
2Royalties estimated at 12.5 percent of total wellhead value.
3Production tax equals 12 percent of the nonroyalty portion of
total wellhead value.
4Tax at 20 mills of petroleum property value.
0
0
0
0
0
0
0
0
4.51
15.54
19.48
20.43
21.95
23.09
21.97
23.18
23.90
20.42
17.62
13.19
5corporate income tax at 9.4 percent of taxable petroleum income.
195
State Expendtture Assumptions
The fourth set of assumptions underlying the base case concerns state
government spending. Unlike the previous assumptions that dealt with
the magnitude and change of certain exogenous variable~, this one posits
the behavioral relationships Within a sector. In other words, state
expenditures are not exogenously given but are determined within the
model. The rule determining spending behavior is given exogenously.
Under normal circumstances, behavioral relationships used in an econometric
model of the type being used for these -projections are derived from his-
torical relationships. Parameters are usually estimated using various
regression techniques, and these estimating equations serve to describe
a sector's behavior. This traditional modeling approach has proved non-
operational with respect to the state government's spending behavior.
The reasons for this are historical and institutional. As a result of
oil and gas lease sales and the construction of the trans-Alaska pipe-
line, state government has received large increments of revenue. In
the case of the lease sales, the revenues were large lump sum payments
of a magnitude the state is unlikely to receive again. Hence, the state's
spending behavior occasioned by these payments is unlikely to be repeated.
In the pipeline case, the construction costs of more than ten billion
dollars created an unprecedented four-year boom. It also induced a rapid
growth of population. This population pressure created extremely high
demands for state services and caused a rapid growth in state expenditures.
The probability of a construction project of the magnitude of the pipeline's
196
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occurring in the future is extremely remote. Consequently, a similar
surge in service demands causing another rapid growth in state expendi-
tures is unlikely to occur.
Future state revenues are likely to be dominated by revenues from Prudhoe
Bay oi 1 and gas production. These revenues are of such a magnitude that
even large fluctuations in other state economic activities will have
only modest impacts on total state revenues.
The Permanent Fund was established in 1976 as the result of a constitu-
tional amendment. The law requires that at least 25 percent of all
mineral (including oil and gas) lease rentals, royalties, bonuses, and
federal mineral revenue sharing payments received by the state be deposited
into this fund. The balance of these revenues, along with other state
revenues, accrue to the General Fund from which state operating expendi-
ture monies are taken .. At this time, the rules for spending Permanent
Fund revenues have not been developed.
The 25 percent revenue allocations to the Permanent Fund along with the
state spending rules seriously limit the usefulness of past behavioral
relationships. Future spending behavior for the state will obviously
be a matter of policy choice, and past experience can provide only rough
guidelines for analyzing or predicting these policies~
In his paper 11 Behavioral.Aspects of the State of Alaska's Operating Budget
FY 1970-1977," Michael Scott found two major elements. responsible for the
197
growth in state operating expenditures. First, real per capita state
expenditures were positively related to changes in real per capita income.
Secondly, expenditures were positively related to available revenues. The
former can be treated as a demand effect; the latter, a supply effect.
Capital expenditures, on the other hand, exhibited a more complex· behavior.
They showed a strong positive relationship to fund growth, but new expen-
diture levels were not maintained in subsequent periods.
As a result of Scott's research, the MAP model's demand component for
both the operating and capital spending· equations relates changes in the
level of current state expenditures to lagged changes in real income,
population, and the price level~ Population and the price level have
unitary weights, while the real per capita income component has a weight
·of .5. Because of this weighting procedure, the state expenditure equa-
tion can be interpreted as stating that real per capita state expenditures
grow at half the rate of real per capita income.
The supply component of the operating expenditure equation measures the
responsiveness of state expenditures to changes in the General Fund
balance. The supply influence is characterized by an extremely low
elasticity of .02 multiplied by a weighted rate o~ change in the General
Fund balance. A similar specification was developed for state capital
expenditures. except that the supply response was more heavily weighted.
The capital expenditure equation in concert with the operating expendi-
ture specification constitutes the expenditure rule used in analyzing the
state government response to economic change over time.
198
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Impact Ana 1 ys i~
The general methodology for conducting the impact analysis of OCS acti-
vities in the Lower Cook Inlet is a comparison of the projected key growth
indicators (population, income, employment, and state fiscal position)
with and without the assumption of OCS development. This comparison 6f
projection against projection provides the means for assessing the OCS
impacts.
Base case projections (i.e., those which assume no Lower Cook Inlet OCS
development) are obtained by implementing the ISER econometric models
using a set of specified base case assumptions. These assumpticns
reflect the levels and durations of economic activities expected to
occur in the state and region without the proposed OCS-related develop-
ment. In the case of the OCS projections, however, the assumptio~s i"nclude
the projected direct employment and production expected to be associated
with the particular development scenario. By comparing the projected
base case values with the projected OCS development scenario values, we
will derive a description of the OCS impacts.
Two adjustments will be made for the OCS projections. The first change
concerns the state expenditure rule. The expenditure rule described
earlier will not be used for the impact analysis. The rule will be
11 neutralized 11 in order to more clearly isolate impacts that can be
directly associated with OCS activity. To achieve this neutralization,
the real per capita levels of state expenditure projected in the non-
OCS base case will be used in the impact projections. This essentially
199
removes the interactive effect between levels of service provided by the
state government as measured by real per capita expenditures and OCS
activity. State expenditures in the impact case will differ from the
base case as a result of changes in population and the price level.
This change allows a pure assessment of the effect of OCS development
on the state's fiscal position.
The second adjustment to the ocs~related input assumptions concerns the
direct employment associated with OCS development. These employment
projections will be modified to reflect ~he residencies of the OCS work
force. Without this modification, all of the impacts would _occur in
the state and the region. Since many employees will be imparted, it is
necessary to modify the employment numbers tc;> reflect the portion of the
employment impacts actually expected to affect the state and region.
This modification is described in mor~ detail in the following paragraphs.
The major determinant of the magnitude and duration of employment and
income impacts associated with any particular OCS scenario is th~ assumed
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size of discovered recoverable hydrocarbon reserves. Reserve size deter-[
mines the number of drilling rigs used during field development and the
eventual number of production platforms and wells. In addition, large
fields.are likely to require multiple onshore bases and pipeline terminals.
In other words, the direct employment (both offshore and onshore) required
for development and production is a direct function of reserve size.
200
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The geological, technical, and employment data used to generate impacts
for this study will be taken directly from Dames and Moore. Even though
these data set limits on the magnitude and duration of the direct emplby-
ment and income impacts associated with the development scenario, there
are a number of factors that influence the transmission of these direct
activities to the Alaskan economy.
The direct employment itself is of two types, field and headquarters. The
field employment encompasses the activities, onshore and offshore, occur-
ring at the location of the development. Headquarters employment includes
engineering support and general administration. Headquarters employment
will be based on Dames and Moore scenarios as in the Northern Gulf Study.
There are three major factors affecting the relationship between direct
employment impacts and indirect and induced employment impacts. These
are (1} the location of the primary development activities, (2} the wage
and salary levels of workers engaged in direct activities, and (3} the
place of residency of the direct work force.
Developments that occur in remote, relatively inaccessible regions are
likely to be highly self-sufficient. Workers in these enclaves have
little interaction with the state economy except during their off-work
rotation periods. As a result, they may spend little of their income
within the state. In many cases, the enclave may be so isolated 'that
supplies are received directly from the LovJer 48, -f11v-thPv-v-Pn11ri nn thA I \.AI VII.._ I I ..__\.A_ III::J VII'-
possibility of generating indirect and induced activity within the state.
201
In summary, other things being equal. the closer an activity is to a well-
developed, low-cost transportation network (i.e., the less remote it is),
the g-reater is the likelihood that its direct employment will cause
indirect and induced employment impacts.
The wage and salary levels of the primary work force are positively related
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to the indirect impacts associated with the developmen{. This effect is \ ·
1-..
partially mitigated because the higher paying jobs are highly specialized
and often performed by crews that can be characterized as 11 nomadic 11 in that
they travel worldwide, performing a given task. This nomadic character
(particularly during expl~ration and development) clearly reduces their
spending within the state.
Consequently, the distinction between where income is earned and where it
is spent is an important one. The residency of the direct work force will
have a profound effect on the magnitude and duration of the secondary.
impacts generated by a specific development scenario. Therefore, a major
step in estimating the impact of OCS development is the estimation of the
share of direct employment that will go to Alaskan residents (SEAR).
Table B.lO summarizes SEAR estimates by task. Further discussion is given
in Appendix C of the Northern Gulf of Alaska Impact Analysis (ISER, 1979).
These estimates were used to adjust the basic employment estimates developed
by Dames and Moore (1979). For purposes of this study, a resident is any
·worker who resides in the state durina off-dutv rotation. This SEAR-. -. -. • -. ---.-· --.--J - . . ---· -.., - -\ -
adjusted direct field employment is used in the development scenario as
an input into the MAP model for impact estimating purposes.
202
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~ r----, ~l----_, ,, ' J '
______________ IA~L_E_ ~ .1 0 • ___ ESTIMATED _S~A-~~-O_~ __ ALA~l<A ___ " __________ _
RESIDENT EMPLOYMENT BY OCS TASK
Task Phase Time Period
1979-1984 1985-1989 1990-2000
Onshore ----
l. Service Base all phases 1.00 1.00 1.00
2. Helicopter Service exploration & development .50 .53 .58
production 1.00 1.00 1.00
3. Service Base Construction development .50 .53 .58
4. Pipe Coating development .20 .21 .23
N 5. Onshore Pipeline Construction development .20 . 21 .23 0 w 6. Oil Terminal Construction development .50 .53 .58
7. LNG Plant Construction development .50 .53 .58
8. Oil Terminal Operations production 1.00 1.00 1.00
9. LNG Plant Operations production 1.00 1.00 1.00
Offshore ---
l. Surveys exploration .20 .21 .23
2. Rigs exploration .20 .21 .23
3. Plat forms development . 1 0 . 30. .33
production 1.00 l.OO 1.00
4. Platform Installation development . 1 0 . 105 .116
5. Offshore Pipeline Construction development . 10 . 105 . 116
6. Tugboats exploration .40 .42 .46
development .80 .88 .97
production .80 .88 .97
The SEAR coefficients were developed by considering both task requirements
and labor market factors within the state. Ideally, these coefficients
would be empirically determined, but resources and time constraints pre-
vented this. As a result, expert opinion and information from.other
studies were used to arrive at the values used here. It was assumed
that longer off-duty rotation periods reduced the likelihood of a worker•s
becoming an Alaskan resident since, in these cases, travel time outside
of the state decreases relative to the total time off. Specialized jobs
(of both long and short duration) were assumed to be filled primarily by
imported labor.
Table B.lO further indicates that these coefficients change over time and
that the economy internalizes additional direct .labor force impacts. This
internalization results from two separate but interdependent influences.
First, the long-run pyramiding of separate OCS sales and developments
transforms many of the transitory tasks into long-run employment oppor-
tunities and encourages the growth in the state•s inventory of labor skills.
Secondly, a certain percentage of the OCS workers who initially migrate
to Alaska on a temporary basis are attracted to the state•s amenities and
become residents. Both of these factors imply that the SEAR coefficients
increase over time as well as have higher initial values for later OCS
developments than for earlier ones. This effect is captured by an assump-
tfon that calls for a one percent annual average growth rate in SEAR
coefficients having an initial value of less than one.
204
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This dynamic or evolutionary aspect of the SEAR means that the relation-
ship between direct employment and indirect/induced employment changes
over time as the wage and salary 11 leakage 11 declines. Because of this
decline in the wage and salary 11 leakage,11 the employment (and income)
multipliers associated with the direct OCS employment increase over the
projection period.
One other aspect related to the application of SEAR coefficients influences
the magnitude and duration of the indirect and induced impacts. SEAR-
adjusted direct employment reaches peaks and troughs at different times
than unadjusted direct employment and is of a lesser amplitude. This
imparts a greater .degree of s tabi 1 ity to the growth process than would
otherwise be the case.
205
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APPENDIX C
Assessment of Recent Changes in the
MAP Econometric Model -----·---'----
This appendix will discuss the reasons for major differences between the
projections for Lower Cook base case and the Western Gulf scenario projec-
tions (Huskey and Nebesky, 1979). The same set of events are assumed to
occur in these scenarios. Table C.l illustrates the extent of the projec-
tion differences. By 2000, population is 25 percent lower in the lower
Cook moderate case, employment is 15 percent lower, and personal income is
29 percent lower. These differences are a result of two factors. First,
the scenarios are slightly different in each case. Secondly, major struc-
tural adjustments were made to the MAP model after the Western Gulf pro-
jections were completed. The changes to the MAP model are responsible for
the majority of the difference in the projections.
1980
1990
2000
TABLE C.l. ALTERNATE SCENARIOS
(lower Cook Mean Base Case as a Percent
Of the Western Gulf Mean Senario)
Population
.93
.83
.75
Employment
1.01
. 91
.85
207
Personal Income
.85
.75
. 71
1 i .
i
Alternate Exogenous Assumptions
The Western Gulf scenarios (W.G.) and the Lower Cook base cases (L.C.)
differ only in their assumptions about the level of Northern Gulf OCS
activity. The L.C. projections assume a much lower level of OCS activity
in the Northern Gulf. In the L.C., Northern Gulf employment assumptions
are from the E.I.S., while the assumptions in the W.G. were·those used in
the studies program (Dames and Moore, 1978). The peak Northern Gulf mean
scenario employment assumed in L.C. is 450, which is 22 percent of the
peak Northern Gulf employment (2,061) assumed in the W.G. The long-run
operations employment in the L.C. is 27 percent of the long-rt.in employment
in the W.G.
These scenario differences account for only a small portion of the differ-
ences in the Western Gulf and Lower Cook projections. An estimate of the
effect of the scenario change can be made by finding the ratio of total
population and employment change to the change in the direct OCS employment
and multiplying that times the difference in direct OCS employment in each
scenario. Using the year 2000, the difference in the scenarios accounts
for approximately 3,600 of the employment difference and 9,500 ·of the popu-
lation difference. The scenario change explains approximately 5.0 percent
of the populatiof! difference and 6.3 percent of the employment difference.
The proportion may be slightly larger because of the dynamic properties of
the model, such as the effect of population growth on state expenditures.
208
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Model Chan~
Modeling is a process which does not produce a single static model.
Models are subject to evaluation and revision as new information and
data become available. The ultimate aim in modeling is to reach a stage
at which the introduction of new information will result in only marginal
changes. This section will discuss the reasons for and content of major
structural adjustments which have been introduced since January 1, 1979.
The adjustments were made to the industry-specific wage rate and output
equations and the statewide relative price index.
Changes in the model were the direct result of the OCS work of the Institute
of Social and Economic Research (ISER). The primary objective of these
changes centered on the mode 1 • s abi 1 ity to reflect the impact of small
exogenous changes. The MAP model was originally dtlsigned to deal with
alternate scenarios which had large differences in the exogenous assump-
tions (Kresge, et al, 1978). A model designed to examine large alternative
scenarios must emphasize the structural changes which result from growth.
Such a model is not the best type to use in analyzing the impact of small
changes such as the introduction of an OCS scenario. One of the major
reasons for changing the model was to better estimate the effects of
these small exogenous changes.
A second reason for making the model changes was that the growth of the
economy projected by the model was perceived as too large. This involved
both the model •s projected response to exogenous change and the long-run
209
. growth projected by the model. Major criticism of MAP.model projections
has involved the large response to exogenous change. Criticism of the'
Alpetco study (Goldsmith and Huskey, 1978) centered on the large multipliers.
Work on the Beaufort E.I.S. convinced us that the relation between total
employment change and exogenous change was too large. ocs analysis provided
the opportunity to examine the model projections with little exogenous
sector growth. In such a scenario, the model produced growth which, we
felt, was too large.
Finally, model changes were made to attempt to better project recent economic
activity. The recent economic activity connected with the construction of
the Trans-Alaska Pipeline System (TAPS) and the downturn after.its comple-
tion represents a pattern which will be repeated, although not at this
magnitude, throughout Alaska's economic future. The major problem with
modeling this period is that the buildup and downturn are not symmetrical.
The downturn does not occur as rapidly as the falloff in direct activity.
Specifically, there are factors which sustain economic activity during a
bust or period of decline. These include:
(1) personal income reserves which accumulate during a boom
and contribute to higher post-boom spending;
(2) the capttal stock effect which resists short-run change
and, instead, adds stability to cyclical variation in the
economy;
(3) the attempts of business organizations to continue opera~
tions under economic circumstances which encourage exit
from the industry; and
210
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(4) the elimination of bottlenecks for factor supplies so that
planned expansion can occur.
Because this effect will be important for any impact with direct effects
that peak, the model should be able to replicate this.
The model changes occurred in two stages. Changes to reduce the impacts
were made for completion of the Northern and Western Gulf studies. These
changes were cosmetic, attempting to deal with specific problems in time
to produce these reports. The second stage involved following these changes
with major model revisions. The next section describes these changes.
Changes in the Wage Rate Equations
In the earlier (pre-1979) version of the MAP model, WR equations in those
sectors where labor market conditions are considered to be sensitive to
the level of petroleum development (i.e., services, transportatiori-
communications-public utilities, construction, and mining) were appended
with a 11 boom term ...
These wage rate equations have the general form:
b
(WEUS) · RPic · (EMP9 + ECONX)d CPI
11 boom term 11
where WR; = wage rate in industry i
WEUS/CPI average Weekly U.S. compensation
211
(l)
RPI = Alaska Relative Price Index
EMP9+ECONX = exogenous mining and construction employment,
respectively
The boom term was designed to transmit the effects of tightness (i.e., bind-,
ing supply constraints) in the labor markets to other sectors of the economy.
(The coefficient d is positive.)
Relatively high employment, normally maintained 'in the mining sector, exerted
continual upward pressure on wage rates. As a result, personal income and
employment grew continually, amplifying economic growth and impacting net
migration and population. In cases where the mining sector did not grow,
however, the boom effect remained constant, rather than gradually dissipating.
To correct this problem, EMP9 was restricted to 1976 levels throughout the
projection. This permitted ECONX to tran-:;mit the "boom" effect.
Changes in the RPI Equation
Specification adjustments in the pre-1979 RPI equation involved the coordina-
tion of boom and scale effects of growth. Given .the general representation,.
~~~ = RPI (constant; EM99l, EM99l (%t~) )
where CPI = U.S. consumer price index
EM99l = total nonenclave employment,
(2)
r L
L
L ~ .
l~ I .
L
c
L
r;·
'I . t_ ~
[
L
r L
[
f •
the dependent variable in the expression is equal to the ratio of RPI and l.
CPl. The annual percentage change in employment, EM991(%t~), is the boom r;
L
212
l
[
r
L__j
f" L
[
[
--.
[
f'
L
component in (2). We assume that rapid employment growth would reflect
tight local supply markets, putting upward pressure on prices. The scale
term (EM991) is a four-year moving average of employment. Under cohditions
of stable economic growth, the percent difference between USCPI and RPI is
assumed to decrease over time. The boom effect, therefore, in~reases the
RPI-USCPI ratio in the short run (i.e., two-to-three years). while the
effect of scale economies associated with growth tends to reduce this
ratio over time.
Simulation experiments suggested that under conditions of small exogenous
employment increases, the scale effect would dominate the effects of labor
market tightness so that prices would fall below reasonable levels. In the
context of relatively large employment increases, the boom effect would sub-
sume the effects of scale economies and result in excessive price increases.
A wide range of RPI specification alternatives were examined using regression
analysis and additional simulation experiments. The specification selected
for the Northern and Western Gulf lease sale impact analysis postulates a
simple linear relationship between the rate of change in RPI and the rate
of change in CPI and in employment. That is,
RPI(%6) =a+ b · CPI{%A) + c · EM991(%A) (3)
Scale effects are captured in the historical relation between the growth in
CPI and in RPI. EM991(%6) transmits the effects of boom and scale on RPI.
To see this~ note that EM991(%A) = EM99l(i) -EM99l(i-l)/EM99l(i-l) (where
213
i =a given period). The denominator controls for scale, while the numera-
tor controls for boom. As the economy grows, EM99l(i-l) in the denominator
increases, so that the effect on RPI of a given change in employment (as
a component of EM991) is reduced over time. Thus, the boom effect becomes
. less important as the economy grows.
Moderating the boom term in the RPI equation and restricting EMP9 in the
WR equations reduced the impacts generated by the MAP model. These changes
cover the scope 9f model editing that occurred between the Beaufort and the
Northern and Western Gulf impact analyses. Further refinements have been
introduced as a result of experimentation associated with documentation of
the MAP model.
Changes in the Wage Rate Equations: Round 2
Nominal sector-specific wage rates have been replaced by real wage rates in
the dependent variable. This is equivalent to imposing a unitar-y elasticity
on the RPI coefficient in the original version of the WR equations. In the
previous WR specification, the RPI coefficients fell within a range of 1 to
1.5. Thus, RPI•s effect on WRs has been neutralized (and reduced). Removal
of the RPI term from the right-hand side may also reduce the presence of sig-
nificant correlation between the explanatory variables (i.e., multicollinearity)
and, therefore, increase the precision of coefficient estimates.
EMP9, which was previously (and somewhat arbitrarily) held constant, has been
removed from the boom term. Additionally, the .boom component no longer de-
pends solely on the level of construction employment (EGONX) and is, instead,
214
L'
L
t
[
c
r-
L
[
[
E
[
r L
[
[
[
C'
f'
L
[
c
F
L
I ,
l
a function of the size of ECONX relative to the remainder of Alaskan employ-
ment (EM991). Thus, the effect of an exogenous employment injection via
ECONX is transmitted relative to the size of the nonenclave economy. The
boom component is also a distributed lag having a two-period length. Sector-
specific WRs are now capable of diminishing growth in periods of relative
economic decline.
f.hanges in the RPI Equation: Round 2
The new version of the RPI equation is a composite of separable boom (or
cyclical) and scale components.
RPI = f{SCALE) + f(CYCLE). (4)
Explicit separation of these relationships in the construction of the equation
follows from the assumption of structural change in the economy. The-RPI
format is as follows: First, isolate information which does not account for
scale effects in a vector of residuals (RESID), obtained by regressing the
ratio of RPI to CPI on an indicator of economic scale. (See equation (5).)
RPI _ CPT-f(SCALE) + RESID (5)
The scale term is assumed to be a simple two-period moving average of non-
enclave employment (EM991). The time series for this regression ends in
1974, when pipeline construction begins.
215
r
r.· Next, regress the residual vector1 RESID on an indicator that is capable of .-
transmitting the effects of rapid growth in the Alaskan economy. (See equa-r
tion (6).)
RESID = f(CYCLE) (6)
We have selected the annual rate of EM991 growth, squared, as the boom indi-
cator (CYCLE). The. effect is symmetrical: a decli;ne in EM991 growth will
produce a decline in· RESID, the boom comp6nent of RPI, and vice versa~
Finally, we merge the results of this "2-stage" proceclure into a single
expression for RPL (See equation (4).)
Over the projection period, the new RPI equation appears to perform with less
volatility than its predecessor. The scale effect will generally dominate
the boom effect, with the exception of a lar_ge or an abrupt fluctuation in
employment.
1By definition, residuals equal the difference between actual and fitted
values. Even though the "scale" regression (equation (4)) was performed on
data limited to 1973, fitted values were calculated to 1977 using actual data
for right-hand-side variables in (4). Thus, the residual vector (i~e., depen-
dent variable in the "boom" regression, equation (5)) includes 11 projected 11
residuals, which contain information .regarding the pipeline boom:
216
f~l
r "····
[
L
[
[''
L
E
[
[
[
c
E
c
r
[
[
[
G
p
L
[
B
D
c
lJ
[
f'
l
I' u
Changes in the Output Demand Equations
The original specification for industry output is
XX. = a + b · DPI3R + c · DPIXR
1
where XX. = output in industry i
1
(7)
DPI3R = real disposable personal nonpipeline income (nonenclave)
DPIXR = real disposable personal pipeline income (enclave)
ln the boom term of the original WR equations (see expression (1)), exogen-
ous mining employment (EMP9) is a surrogate for post-boom income and capital
stock effects. (Note that real disposable personal income, which determines
output, is a function of wages and salaries which, ·iri turn, depend on wage
rates. Thus, wage rates affect output.)
Recall that EMP9 has been removed from the revised WR equations. Therefore,
boom-bust cycles are amplified in the WR equations and, consequently, in
disposable personal income. As a proxy for post-boom income and capital
effects, nonenclave real disposable personal income, lagged one period
(DPI3R(-l)), has been appended to output equations in all sectors. This
tends to extend and smooth the post-boom decline.
Relative Effect of Model Changes
The majority of the difference between the Western Gulf scenarios and the
Lower Cook base cases is the result of the wage rate changes. The effect
of the changes in the wage rate equations was to reduce wage rates. This
217
reduced wages and salaries and incom~s. The reduced incomes had two effects.
First, it reduced the demand for goods and services from a given level of
employment. This reduced the relative growth of the support sect~r and the
employment response to any exogenous change. The second effect was to reduce
net migration, sfnce it reduced Alaska incomes relative to the United State~.
The reduced employment growth also reduced net migration. The change in the
output and RPI equations primarily affected the pattern of growth.
Summary of Model Changes
Changes in the character of impacts associated with the original and new
version of the MAP model are examined in connection with the Beaufort
moderate scenario.
The ratio of new version to original version Beaufort moderate impacts are
listed for selected aggregate indicators in Table C.2.
TABLE C.2. IMPACT COMPARISON, THE RATIO OF NEW
TO OLD VERSION IMPACTS IN THE BEAUFORT MODERATE SCENARIO
Po~ulation Em~lo,Yment Personal Income
1980 1.06 1.06 1. 31
1990 .87 .90 .60
2000 .42 .39 .43
218
[
r
r
r
L
[
r
['
L
r~
L
r-
• L
[
[
E
[
[
[
r
r,
I
L
[
fj
D
c
r .
L
r~
L
[
The impact ratios in Table C.2. show that the new model version impacts
taper off over the projection period relative to t~ose of the original
model. New version impacts experience increasing moderation as the pro-
jection range advances.
With the exception of minor oscillations, personal income impacts in the
new version stabilize at approximately $275 million between 1994 and 2000,
when direct exogenous employment injections level off. On the other hand,
impacts in the original version continue to grow and reach a level of about
$663 mi 11 ion in 2000. Over this forecast interval~ the average annual rates
of personal income impact growth for the new and original models are 0.6 and
7.3 percent, respectively.
These impact level and growth rate differentials follow from the removal of
the cumulative effect on aggregate demand in the WR equations. That is,
moderation of aver~ge WR growth (particularly during periods of constant
direct employment growth) reduces the level of WRs in any given period and,
therefore, the start value for simulation in the next period. WRs are an
important determinant of income and population growth in the MAP model.
In the new version, average WR growth is comparable to the national average
of about 2 percent per year.
The decline in aggregate demand as a result of WR moderation is felt most
in the endogenous support sector of the economy. Support sector employment
is reduced by about 92 percent between original and new model versions. The
Anchorage region is most sensitive to the redistribution away from support
sector activity.
219
220
[
r
r ~·
r
l.
L
L
L
[
r:
L
[~:
u
[
[
u
[
·[
f" L
[
[
[
[
[
r
L
[
[j
~
c
o·
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E
f'
L
APPENDIX D
Selected Model Outpu~
Variable Definitions
POP
MIGNET
NINCTOT
EM99
EMSPP
EMG9P
EMNSP
EMA9
EMGF
EMP9
EMT9
EMS9
EMPU
EMM9
EMF!
EMD9
EMCN
EMCNl
EMGA
EMOT
PI
PIRPC
RPI
E99S
EXOPS
EX CAP
E99SRPC
REVGF
RP9S
RT98
RENS
Population (10 3 persons)
Net migration (103 persons)
Natural increase (103 persons)
Total employment (103 persons)
Proportion of employment in the support sector
Proportion of employment in the government sector
Proportion of employment in the basic sector
Employment in agriculture-forestry-fisheries (103 persons)
Employment in federal government (103 persons)·
Employment in mining (103 persons) ·
Employment in transportation (103 persons)
Employment in services (103 \persons)
Employnient in utilities (103' persons)
Employment in manufacturing (103 persons)
Employment in finance-insurance-real estate (103 persons)
Employment in trade (103 persons)
Employment in construction (lo3 persons)
Employment in local construction (103 persons)
Employment in state and local government (103 persons)
Other employment (103 persons)
Personal income (millions of nominal dollars)
Real per capita personal income
Relative price index ($1957 US = 100)
Total state expenditures (millions of nom~nal dollars)
Total state operating expenditures (millions of nominal dollars)
Total state capital expenditures (millions of nominal dollars)'
Real per capita state expenditures
Total general fund revenue {millions of nominal dollars)
Total petroleum revenues (millions of nominal dollars)
Total nonpetroleum tax revenues (millions of nominal dollars)
Total endogenous revenues (millions of nominal dollars)
221
Variable Definitions (continued)
GFBAL
PFBAL
RINS
FUND
FUND77
SIMP
EXBITES
VIABL2
RENSRAT
General fund balance (millions of nominal dollars)
Permanent fund balance (millions of nominal dollars)
Fund' balance interest (millions of nominal dollars)
Total fund balance (millions of nominal dollars)
Real fund balance (millions of real 1977 dollars)
General fund revenue minus general fund expenditure
(millions of nominal dollars) ·
State total expenditure as a percentage of personal income
Nonpetroleum revenues as a percentage of general fund
expenditures
Endogenous revenues as a percentage of personal income
222
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f
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~~
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[
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.--,
L
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c
[
c
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c
c
L
r
L
r·
L
--~---------·---------------------~---------------------·---------~~-----~·---------· -
MODERATE BASE CASE
223
SIMULATION OU1PUT DY [SET
Nli~LK2
POP lllGH ET NINCTOT Ell99 ElSSP.Ell EHG9 ,£.:1 EHNS.EH ElU9
1978 4.~ 4. 436 -5. 7. 39 II 197.185 O.J&l 0.4 t7 0.22:2 1.2
1979 41)) .2'56 -13.2S:9 7 .OUIJ 19 3. 51 0.345 o. tJ 24 1),231 1.2
1~ til) ij-)7,51 1 -2 .21 )] 6,431 1 96.41 9 ·). 34 5 li .I~ 12 r: • .£43 1. 2
19H I 419 oJ62 5. 7tl 3 G. :£56 204.7116 J.J5tJ O.J94 0.251 1.3
14lJ.! 44C.274 1 ~ .31 4 6.4 218,508 0.36!1 . o. 368 0.263 1. 3
l<;u J 4 57.9 32 11). 7<;7 6. €77 .227.878 ·). 302 ') .3 (i3 0.255 1 .4
1:184 462.438 -2 •. t 69 7. 186 2 27. 33 o. 386 o. 376 0.2JO 1 ~4
1':113 5 465.28 -4 .11 8 6.94 a 227.557 0.384 O.J76 0.24 1. 4
19.Ut 4(.9.5111 -2.40 2 6.688 229.76 I}. 31:15 0.37 0.245 1.5
1'J H7 477.136 1 .11)~ 6. 5 11J 231J.561 0.39 0.363 0.246 1. 5
1988 4€7.542 3.9 6,458 241.31)9 ') .396 (l,J56 C. 24U 1. 6
1.9(}9 498.194 4 .o 48 6. 60 1 248.C02 0.403 0.35 0.~47 1.6
1'19(1 507. 57 2 .f.63 6. 711 253.644 0.409 0.346 0.245 '. 1 199 1 514. tl43 v. 498 6. 769 257.783 U.41b 1) .3 42 0.2 42 1.7
1992 521.645 0.044 6. 7 41i 261.698 0.422 0.336 0.242 1.8
199 3 529.306 0.931 6.719 266.319 0.428 0.33 (I, 242 1. 8
199 4 5 37. 6 4 1 1. 59 2 6.734 271. 43? 0.1134" 0.324 0.242 1.8
1 IJ<j 5 546.636 2.207 6,779 276.91}5 0.44 o. J 18 0.242 1. 9
199 6 557.134 3.637 6. 852 283.627 v.44b •1.311 ').243 2.
N 1997 567.907 3. 785 6.902 290.334 1),1153 0.305 0.243 2.1
N 1 '79 rJ 579,42.4 4.3 96 7.115 297.495 0.459 o. 298 0.243 2. 1 ~ 1999 591.673 4. 974 i.269 JC5.1,'}7 ;; • 4 65 0.2'Jl 0.243 2.2
20tl0 604 .521 5.4 7,442 3 13.0 3 o. 47 2 0.285 0.2 44 2.2
Ei'IGF Ei'iP9 EMT9 El'i 59 EMPU EMOT £!1119 E!1FI
1 '17 ~~ 42.921 4 .3 51 11.132 23.8.12 1. 30 4 15.0 rJ8 11. 7 3 6.374
197 9 42.921 II. 563 1~1. 372 22.C9 1.2.13 14 .u 65 12.297 5. 8 36
1 •Jn '' 112 .<Ji1 5.104 10. 245 22,337 1. 19 0 14.970 12.822 S.UH3
1<J ~ 1 42. 921 5.067 1 o. 734 24 .198 1.246 15.297 13, 3<!2 6.362
19U 2 42•921 4.759 11.424 27. 392 1.319 15.ul 13 .u 11 7. 165
19ti3 112. 921 4.4 07 12.217 29.699 1.415 16 .1 5 14.299 7.9 24
19 u lj 4 2. 9 2 1 q~ 5:16 ·. 12. 51 29.6 72 1 .4&2 16 .1 3 14.854 0.088
1'1'1 5 42.921 4 .403 12. (,09 ~9. 52 1. 46 1 16.136 15 .• 356 O.OSY
19 fj (j 42. 92 1 4 .4 J 12.569 2 9. 845 1.457 16 • .£ 17 15.872 .ij.1J5
1 'JH7 42.921 4.57 12. u 7 4 31.007 1. 405 16 .3 uo 16.4 8.4 49
1 'Pill 42 .• 421 II ,'J 02 13.240 32,613 1. 526 16.6 24 16.945 a. a 83
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199 1 42.n1 4.75 14.401 37.239 1.&57 '17. 188 1a. c, u 10. 163
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1'l'J3 42,921 4 .54 1 tJ. <) 1 3~. 90 5 1. 722 17,474 ·1•1, 'I 32 10.892
1<J 'J 4 42.921 4. 4 lJ 1 15.239 111'.455 1. 759 17 .(,42 2).5'J 11. J 16
1995 42.9 21 4.497 1 J. 59 1 4 J. 11 7 1, .79U 17 .!124 21 • 2 69 11. 77J
1 'J 'J 6 ll2.1l21 4 .4'J'i 1 ~. 972 45,006 1 .84 11::1.0 J7 21.971 12.284
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1 94!J 42 .n 1 4,452 1b .I! 11 49, 07A 1. 9 34 llj, 4 77 :.!3.4115 13,4 06
1Y91 42.!.121 4.44 1'1.2tl4 51 • 29 1 1.9U2 lB. 71 J 2~J.219 14.ll11
2~· (; ·~ 112, '12 1 4,3tl9 11. 1)8~ 5.1. 66 4 2. 033 1 u. 'J56 25. 019 14 ,()(, 1 .--i> ~~· ~ ____.., . ...----, ~ ·r :---; ·~ _,.-.---.~ '• J
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19 & ': 24.89 2 13. ()tJ2 13.157 37.978 11583 .u 3590.b4 313.2bil 1080.&
1 'J '! 1 26.719 1 (j .45 13.!! 07 37 .1'!1 52M~. 43 31!29. 77 J2q. 1 19 1175.07
19B 2 29. 7 II 7 21. U(:9 15.27 3 7. 119? M72,98· 4252.16 J!<5.761J 13 1 J. 18
1<;il) .11 ,96H :< 1. !J 31 16. 374 39.869 72 05. 2 113 so.~ 361.016 152q,,39
1 'IIlii 32 , 11 II 17 .2~3 1 & • 3 56 112.565 7201.311 11113. 7 378. 55 1&80.LI6
19tl ') 31. 'JU 3 17. 2 36 16.91J9· 112.6(;!! 75]1.93 11'157 .211 B8.992 17o2.v7
l'lU6 32.6 2b 18.30<} 17. 76 112,01!1 I) 1'111. 2 !l157.&1 1119.'187 11Hl7. 71
19/J 7 :!3.876 18.91)7 18.229 112.311 9016.119 112U1.HI 441.337 2r:l 61. 1 2
19UtJ 35.1128 19. H1 16.887 42.989 9967.37 1111111.55 II 63 .11 2265.73
1 'Ill') J&.nl 19 .n 1 19.4 27 IIJ. 9 )q 10911&.6 4525.G7 ll(l5.51 2496.39
1':191) 38.375 ~0.035 19.833 411 ~ 762 1191'.i1.9 11612.9 S\.d.C96 27 35. 3&
19<J1 39.5511 2t1 .075 19.072 liS. 179 12913.5 116 '111. 7 53'+.273 2968.45
1'19 2 40. 73 II 21).1 01 20.055 115.139 1 II\) 2t; • 1 11792.'1 8 561.172 .!199. 6 2
199 J !12.•1511 2·1. (,II 2 :t:. II 37 115.095 152%. 11902.52 5tH .4 511 3Q 117.JS
1 ':1 'J ~ 43.119 21 • O'lJ 21) .867 4 s. 119 16700. 1 5010.32 61fl.966 3717.83
19 9 '.i 115.0211 :<1.1183 ~ 1 .3 SIJ 115.161 18233.2 5132.011 6 1+9. 8 II llf.C6. 112
1 ·~96 116,711 22.397 2 2. 1 2 q II s. 2 3 5 20013.3 52b5.U9 682.157 IJ319.
1'1'17 4U ,JII 3 22.9b5 .22.912 115.1198 21895.5 5365.92 ?15.845 11672. 6 9
199H 5r • ~~~ 3 23. U·l) 23.748 115.716 23989 •. 3 5510.9 751.277 5047.06
1 9'19 52 .3 9 1 24.712 21J. 656 115.9 2 26328.9 56113.911 71li3.111J5 51157.76
2l)0!) '511,1167 25.662 25.6011 116. 18 28896.8 5776.95 8 27. II 51 59(}9.03
EX CAP E99S E'J9SiiPC REVGF RP9S RT98 RENS GFBAL
1978 zHr·. 12 7•,. 1 2 1121.!l5 1(; 92. Ill !l71.4 261.121 3311.16!l 651'.
1979 290. 137 1. 8 !j 1145.56 11131.12 0 60.7 206.211 281.1155 8113.1 06
1 'it3 0 1175.789 1626.58 1 2 711 • 1 5 1576.65 99& .J 18\1.325 26!1.669 ~ 110·. 267
198 1 5~ 3. 672 1756. 73 1:<72. 2 1895.12 1278.112 1 S6 ,071 2811.238· 12 26 • 7 1
N 1 'if! 2 5111 .•lOS 19fl6 .13 130ll.68 2190.59 1475.75 21111,J50 311~.101 1613.33
N 19 t3) li7&.082 2JCII.7 1394.08 24811.41 16112,71 311).)21 425.695 21'\21.59 Ul
1 9!311 7113 .U7J 25113,()4 11152.7 ]I) 60. 7 2121.72 3119.91111 480.033 2760.79
1 'lfl5 U62.3Y'I 27 59 .6 141]6,51 31147.26 21122.26 356.959 1196.936 3720.27
19u b 99r,, sa 3(;36. 35 1539.65 3578.115 243•,). 97 383.16 532.7t111 11609.6
1 <J U7 10')5 .92 3301 • 3 II 1567,75 37 67. 27 24fl0.15 ·112ll.6011 51!1J.II15 5117.2.63
1<JI:lll 113~.02 3613.3!3 1 &00.36 3963~07 2520.75 479.216 1>60.672. &270.111
19U9 1194.e5 J936.C2 16 n. 21 11183.116 2575.2 5115,')'JU 747.601 7005.29
1 'I~~ 0 1£50.7 11262 ,P.7 16119.71 11243,04 21171.56 6 13, I} J , H36,65'1 7522.0 II
1':19 1 12~5.511 115211.18 1E4ll,76 43 II 4. 86 2418 .as 686.431 933.351 7089. £5
1992 1261.&7 4803. 1 1€110.78 11513. 1l 2 4 43. 2 9 759.909 1030.51 015.9.79
199) 13 05 .69 511<1.25 1640.78 !l69G. 36 21172.119 8116.548 11ii-I,Q7 8327.78
199 4 1356.59 :11£:5. i 1 16112.43 118211.63 211110.811 9112.1157 1271.15 0319.53
19<J5 11100.07 5826.12 1611\). 11 49 39. 6 2 2387. 32 1055. 3'J 1417.12 u 1 04.. 9 5
199 6 1504. 6271 .57 1650.18 5101~05 237.9.6':1 1179. 1 5 157H.88 7678.63
19 ';17 1619.112 6768.68 1664.97 5287.43 231:!1. 1 9 1328.29 1771.21 702.1.3
1 ')'HI 171111.72 7 301 ,II 1677.3 51167.21 2 379. 1 111A5.11 1976.33 6096.83
19 'J 9 1871J, 1U 7E70.26 1 €87.1)tl So7J.34 2385.Hl 1673.51 2217.97 49C: 2. !l
2 0\1!) 20211 .7 1149 3. 6 169U. 04 5!380.119 23 !JG. 62 1879.)1 211S3.BII 3394.95
P <ullr. IllN S FU!IC F m; C78 E99I..Pl ll9'JL E99 L SIMP
_.
1 <]7Jf ';II,Q75 117.07 705.1175 705.1157 0. 158 60 1.':)7 6 2!:!. 333 36.!:!1111
1G79 158.775 49. 6 56 1n.: 1. eo 94Q.7115 t .. 152 59U.J58 b2t> .727 296.1106
1 'JH() 21JO .5 7ll ,'! 2& 1220.77 1091.211 l). 1119 6511. 'l 116 6HS. 017 211L(Jfi6
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1991 39.557 ;O,Il78 19,875 45.1UL 129ZJ.5 11694,07 534,62 2971,12
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l'J~J 112.(.57 2(•.tll5 ,lJ.44 45.H1 15Jn7.6 49-~2. 589.tl3U 3450.35
19'14 43."9J 21.0'15 .20.0'l'J 115.125 1li713,tl 501.7.'11 61).37 3721.1
19'15 45.027 21 ,titl(> 21.357 115.186 1tJ2qb,9 5132.<!1 65:! • .266 4'109,tl9
H96 46.74<1 22.4 22.127 45.211 20020.8 S.2&5.41 6Ul.b011 4322.8.
1'J'l1 "''·5"7 :a.'l&a :<:z.<J15 115.50·5 21913,3 53o5.<1tl 716,314 4676.92
1991! 50.40U 2J.U('G .23.751 45,724 2tl(r,;7.6 5510.17 751.769 S\151.59
1'.)99 52.397 24.716 24.66 . 45.921 26349,6 5643.32 71!!1.96 5t162.6~
2000 ~4.473 2S.b66 25.608 <iu,187 28919.0 577&.311 027.991 5914.37
1978
1 Y7 'I
1 <; IJ 0
19 II 1
1'J>l2
198 J
190"
1 11 1l5
1') IJ 6
1 'l tl7
1 OIJI!
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1 9'.12
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1'1'.16
1 4'17
l<l'J •I
19'19
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1 '11.12
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s~J.672
5R2,b13
678.211
71Li.•J&tl
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<) 91. 57&
lll5ii .92
11)5.12'
1195 .9ll
1251.!!6
1..!46.66
1262 ,'Jij
1306.83
1357,79
11101.2f!
15.·5. 32
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1746.29
lUB. 86
L·12u .53
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568.1125
737.1'i9
9 'ill. 149
119 j ,IJ 'j
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1626.50
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23C9.23
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2762 .G 5
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33011.47
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12 74 .15 157&.85
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1394 .OS 2485.66
1<i52. 71 3062.35
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1567. 75 3767. 3<!
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1640.78 t1695 .3.2
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21i;:l<),50 1H5.4t3
275U,b5 2136.22
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6Cli3 .25 4027.07
71~:).b'l 11~14,2'1
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860. 1 .206.21.2 21!1,115b 0113 .1 OS
991) .J 189.326 268. 6 7 940.267
127U.42 1 ')6. )7 284.237 1226.71
1475.75 24ti.b67 3t111.21 1611,&3
1642,71 310.858 "2&. 7 4 1 2U17,<i5
2121.72 351.271 481.7<i5 2755.25
2422.26 357.fl81 t191!,0U5 3713.16
24)<;,97 3 U3 .76 533.441 460.J.J9
2481),15 1125.111 5f!"l, 01111 51160.9'1
2520.75 4 79. 1 21 (i () 1. 30 2 6255.!!7
2575.2 54&.566 74Jl,515 69117.52
2ti 71.56 613.615 837. 41 7501).64
2Li1!l,S5 607.1 934.183 71J63.92
£443.29 760.6" 10J1.<i2 8130.16
2472,t19 8 Li7. 3 5t1 11115,:>7 8293,t13
21140.811 9t13 .353 1271.26 8279.9 3
2387. 32 ltl 56." l<il8.38 80 59. 6 7
2379.69 11 81) • .26 15b:'l .24 7626.99
23fl1.19 1329.57 1172.71! 6962.55
2 379. 1 111136.58 1978.1Li 60 JO. 36
2385,18 1675 .1 5 2219,97 4827.82
2JfliJ, &2 1RH1.10 241!<..13 3310.&7
E99L ,pI 1!99L E99L SI" P
\l .15U GQ1.57 628; 333 J!J.8411
U.152 59tl.35f:l 62o .727 296.406
(). 111'1 654.'146 61!5.017 211.!.8(!6
.• 142 7 20. 1 69 752.)Li4 4 22. 9 19
(1, 12 ') oco.nu B3<i. 7b5 53b.fJ7
I). 131 913.':>77 9t19,392 51ti,OY1
· .. '145 1 .':•j7 .I 5 1Crl5.71 9 Sti, 751
(J. 1 <i6 10f>2.2 11i)2,Ljtj 11 ?b .Ill
•:. 142 111Y • q a 11b.l. 1ti 11 37. ()"
U, 1 3 'I 12 \)b ,Lib. 1251 ,I.J7 1107.45
o. 1 Jh 1.J 12, 'I 4 H6'.!.97 1 04b. ti'l
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\), 1J5 ,~~~i.77 1(, t)'J. 63 1 !>'I.~ Ill
'i
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1992
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1'195
1 ('(j lj
1'197
1 'I'H
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1 ~tlb
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1'1!:18
1"1119
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1 r,<J2
199 J
19911
1 <J'j 5
1996
19'J7
1'1911
1999
J:OIJQ
.,s.:.,. fp t?t
26CJ4.J7 700.197
:09112.·25 7~ . .!-552
J1CJJ.77 709. 7U
3442.52 1:2o.a13
J686.r 2 IJJ1.7tlll
. 3<J2•J.l2 1'40 .t.21'
417J.bll 8:.!8.5!11
114 11!. 72 {!(1),402
IIH5.07 7!:03 .529
CJ912.57 61'> 7. H27
I99S.PI l!E!IS. Pl
0.319 o.o ;)4
'). 332 •). OG '3
:· .• 355 (. (" ~<J
a .332 1),054
0.307 1}.053
n. 319 ,, .o 59
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•.l, Jt>b 1. !~ 66
(/ .37 0 .o 65
0.366 0.065
' • 3& J 1, r 66
(l .36 o .or,n
0,3 58 0.07
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0.342 0.073
C.JJS 0.075
0.321 0.076
0,32 0.070
'·. J 1] 11,•)79
0. 309 . 0 .\) 81
0.3011 0 .Oil2
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105SII.J 5530.33
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0. IJS 1()83.76 17110.tlll 607.b25
ll(/72.11 5521.62 0.133 1811.19 1871.6CJ 5111.117
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11722.5 5299.911
117115.1 5058.13
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0.406
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243
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SI~ULlTIOll OUTPUT CY tSET
l'J711
1':179
1 9:!1)
1 'l I! 1
1'1 ti 2
1 'IHJ
1Yd 4
1'J!J 5
1 '11! 6
HB7
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19" .: .
1<l'}1
1992
1993
1 'l'lll
1'195
1 9%
1997
1990
1 '1'1.'1
2000
1978
1979
19tJO
19111
1 <JIJ2
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1 'IU4
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1 9iJ9
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1'J7tl
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404,1136
110 3. 256
II •J7 .51 1
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101 ,336
479.175
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5)2,1166
540.078
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557.11115
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580.197
592.0113
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617,1151
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112.921
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112.921
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~I\0 NET
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5,7fl3
1 "· 717
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11,11136
12.335
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1'1>12 2'1.78'1 2).!'36 ·15,2'17 17.52 6<H!&.lb 11255.ull 3115.111>11 13111,111
l'JII] :!2,0&<,~ 21,t1Btl 1&.1131 39.9511 721J,73 11365,.!1 31,1,112 1527~\10
1'1011 32.2111J 17.362 1b,ll25 112.7 72311.5'1 11121..: 376.537 Hdl5.1S
1'1115 3.:,1Jl 17.3111 17,027 •12.815 75(;11 ,15 '-'-'~4,J:j 3\IU,91'J 1767,46
1'11lb J2,113J 11:1,537 17.1152 112.;ltl8 U256.b2 ~172.14 11.19.f!b7 16911.55
19ti7 311,1 19.~75 18.325 11:.!.469 S07&.C9 ~2'1J.Jb 11111.171 l069.1q
1'lfll! 35.1131 20.151 19.068 ~3.161 1C10t>. 1111116.14 1162.960 2280.9
1909 37.0~·3 :<~"-.7311 H.029 llli.3JII 112113.8 11587.7 lltl5.2t17 2529.118
1'191) 39,11311 20.&25 20,366 45,593 1:.e.261l,8 li667,IJ1 508.317 271!2,311
19'.11 IIC,€:116 20,633 20,113 116.1"13 1n69.2 li7J7.25 533.~95 J'J22.79
~~~2 111,7911 :<:,,721 20.595 116.126 1113~t;.5 llll2b.11 559.923 3250.71
1'1'13 43.061 21,155 lO.'l5 llt>,OJ'l 15!>~&.9 ~·127.116 Slltl.21lt1 3510,511
19'1~ 1111,117 21.598 21.392 116.•~29 17!!1\1.1 %J9.l2 617.911l 3706.62
1'./YS 116.014 21.9'18 ~1.069 Q&.084 1U~116.2 5151.39 6118.1!61 11082.38
l'l~b 117.769 22.937 22.~611 q6.153 201172.2 5283.31 681.192 411~3.52
1997 119.623 23.516 2J,qo2 116.4~2 2211~8.8 54~2.711 7111.872 11767.35
19\111 . 51.506 .211.385 211,33 116.£.74 211537.2 55.ZJ.'i1 750.2!)2 5150.2
19'1'! 53,1191;1 25.2CSO 1:5.2112. -116.667 2691\).2 Sf>5J.<I) 7tH.IItlJ 55613.93
D'i•:· 55,576 ~.6.253 26.195 117._113 2':1517.8 571l3.7 621>.561 6026.99
197!1
1<J79
1!10:'
1 'Ill 1
190 2
19U3
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1'.105
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1'.1:19
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EXCAP
200.
290.
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503,u72
502.626
676.1176
7115,<JII9
065.0311
9'l~ ,1711
1060,03
11111.62
1210 ,6!1
1272,18
12&0.311
12 e5 .1 o
1329.62
1301 .6'1
11126.62
15 JJ .113
1(i'j2 .22
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1371.84
1626.58
1756.73
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23 10. 13
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REFERENCES
Alaska Consultants, Inc. 1976. Yakutat Comprehensive Development Plan.
Alaska Department of Commerce and Economic Development. 1978. The Alaska
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A1aska Department of Health and Socia1 Services. Health lnformation Systems
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Alaska Department of Labor. Vari-ous Ye.ars. Labor Force Estimates.
Alaska Department of Labor. Various Years. Population Estimates by Census.
Division.
. Alaska Departmeht nf Labor. Various Years . Statistical Quarterly.
~
Alaska State Housing Authority. 1971. Yakutat Comprehensive Development
Plan. ·
Goldsmith, S., and L. Huskey. 1978. Structural Change in the Alaskan
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at the 29th Alaska Science Conference. Institute of Social and Eco-
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Institute of Social and Economic Research. 1976. Census of Transportation.
Prepared for the U.S. Department of Transportation.
Kresge, D. 1977.
Mathematical Sciences, Northwest. 1976. A So~ial and Economic Impact
Study of Offshore Petroleum and Natural Gas Development in Alaska.
A Report for the Bureau of Land Management.
Rogers, G., and G. Listowski. 1978.
Scott, M. 1978. Behavioral Aspects of the State of Alaska•s Operating
Budget FY 1970 -FY 1977. Institute of Social and Economic Research.
A Report for the Alaska Legislative Affairs Agency.
Scott, M. 1979. Southcentral Alaska•s Economy and Population, 1965-2025:
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