Virginia Unemployment
The economic situation differs from country to
country, caused by difference in
population, geography, monetary system,
political situation and a lot of other
factors. But even within one country
there are always a number of regions that
differ from one another by their
economic performance. This situation is
especially true for big countries
like US. If the regions are too broadly
defined, the economic diversity would
be lost. If the regions are too narrowly
defined, they are not likely to have
any viability as economic entities, and
this circumstance will increase the
problem of developing good regional economic
data pertinent to the individual
regions. Economic indicators like income,
employment and population may
differ in the rural and urban areas of a single
region, but the growth of the
region still depends on the economic performance
of the region as a whole,
and especially the towns and cities. An input-output
model is very useful of
measuring regional economic activity. Such a model
effectively determines the
impact of one economic variable on another can be
used to analyze expected
growth. The measure of regional economic indicators and
comparing them to
national could produce a good estimate of economic performance
of a region.
The regional economic model in case of the region within US could
be compared
with the model of a small country. And national model could be seen
as an
aggregation of many interrelated regional models. This paper includes
an
estimation of the regional economic model The model is an attempt to
estimate
possible relationship within economic indicators. This paper also
presents an
analysis of regional economic indicators and national economic
indicators in
order to compare economic performance of the region and
national economy as a
whole. This model use annual national and state level
data to produce regional
estimates of income, employment, wages, population,
labor force and the
unemployment rate as a economic indicators for Virginia
state as a region.
Previous studies Regional scientists have long
attempted to develop meaningful
definitions and measures of economic
diversity and diversification, and to
establish functional relationships
between diversity, diversification, and
economic performance. The Regional
economic models where (were) created to
answer questions like "What is the
relationship between a region's changing
economic structure and performance".
Recent econometric models of regions were
stressing macroeconomic
relationship as a main idea of structuring of the model.
A Number of
models have been constructed for states and even smaller areas in
order to
find an effective forecasting tool linking the regional economic
forecasting
to the national economic forecast. Regional models were constructed
as
satellites to national models. Economic base theory views regional
economic
growth as being driven by exogenous final demands, notably exports.
Input-output
models are extensions of the economic base model, whereby
intersectional
economic relationships are explicitly considered Because of
the underlying
assumption that the regional economy is driven by exogenous
final demands. The
idea of regional economic model that is (instead of "that
is" say
"used") in this paper is based on two studies that present
economic
models of regions in US. One study, reports on a regional economic
modeling
approach used by East Kentucky Power Cooperative, Inc. (EKPC), a
rural electric
cooperative that serves 280,000 residential customers and
15,000 commercial
customers in east-central Kentucky. These models use
quarterly, county-level
data to produce regional forecasts of income,
employment, wages, population,
labor force and the unemployment rate (1).
Another study describes an economic
model for state of Mississippi (2). Both
studies indicated economic variables in
regional output, labor, and income
and wages blocks and estimated regressions on
order(must be "in order") to
fine (must be "to find")
direction of dependence among variables. Both
studies provide graphical
interpretation of their models. Data Regional
models often use data, which is
allocated to the region, state or national
level on the basis of employment,
income or some other variable actually
measured at the regional level. Such data
may serve the needs of particular
model specifications and produce forecasts of
variables. In this study,
Virginia regional model uses a variety of national and
regional data. The
variables are summarized in (Appendix A). All variables were
taken from
University of Virginia Social Science Data Center (8). Gross domestic
product
(GDP), the featured measure of U.S. output, is the market value of the
goods
and services produced by labor and property located in the United
States.
Because the labor and property are located in the United States,
the suppliers
(that is, the workers and, for property, the owners) may be
either U.S.
residents or residents of the rest of the world. So GDP was taken
as an estimate
of national Output, and it was measured in millions of
Dollars. Growth State
Product was taken as an estimate for Virginia State
Output and it is presented
in million of dollars. Data for population in
presented in number of persons
both for Virginia and US. Data for
unemployment includes all full-time and
part-time employment and is presented
in number of persons. Personal income
includes wage and salary disbursements,
other labor income, proprietors' income
with inventory valuation and capital
consumption adjustments, rental income of
persons with capital consumption
adjustment, personal dividend income, personal
interest income, and transfer
payments to persons. It is presented in millions
of dollars. All data is a
time series data for time period from 1975 to 1997
both for US (national) and
Virginia (regional). The problem with this data can
arise because all data is
inquiring with time and variables were regressed
against closely related
national. Model Structure and specification Economic
model consists of
output, labor, and income blocks. These blocks include
economic indicators
like regional output, population, employment, unemployment
rate, wage and
salary rate, and personal income. The output block Output of the
region it a
good estimate of business activity of the region. I could show how
intensive
the region is involved in creation growth domestic product. The output
could
be measured as a physical number of goods and services that are produced
in
the region. But because of difference in the commodities it is hard
to
combine them all together, so it is better to present the output as
Growth
Domestic Product, in this case Growth State product of Virginia.
Regional Output
depends on National Output. Both outputs experience the same
business cycle and
increase in national output would stimulate regional
economic growth, and the
output of the region would increase. Population is a
good estimate of the demand
for output. With an increase in population region
will also experience increase
in demand for goods and services. It gives an
incentive for suppliers to produce
more output. Population is also a supply
of labor force that is a potential
supply for new output. US wage and salary
rate could be treated as an expense of
production and it could have negative
influence on output, or in case if it is
higher than regional rate, then more
output would be produced elsewhere. VaGSP =
-211348.8 + 0.02 UsGDP + 0.045
VaPop - 1.5 UsW&S (-3.24) (4.96) (3.11)
(-1.6) R=0.99 F=4675.87 National
Output could be a good benchmark for Regional
Output. Comparing two
outputs the conclusion could made about regional
performance. National output
could present an estimate of the average
performance of all states in
general. The figure of GDP is much bigger than
Virginia’s GSP because it
is a sum of all states' GDPs together. With growing
GDP, the growth rate
of both variables will be a better basis for compression of
regional and
national output. The growth rater of GDP and Virginia GSP are
plotted in
Graph 1 Graph 1 GDP and Virginia GSP Growth Rate 1975-1997 Graph 1
shows that
GDP and GSP are following the same paten, they are cointegrated.
Form
1981 to 1987 the growth rate of GSP is exceeding GDP, and in 1997
they are
almost the same. This means that on average Virginia’s output is
moving with
national output, so it is developing as fast as US. GDP depends
on population
and it will increase with increase in population, so when
comparing GDP and GSP
it will be useful to take Per Capita date, so it will
be free of influence of
difference in population. Per capita GDP and GSP are
presented in Graph 2 Graph
2 Per Capita GDP and Virginia GSP 1975-1997
Per capita GDP and Per capita GSP
increase over the time. In 1983 per capita
Virginia’s GSP became higher that
per capita GDP and it still is in 1997.
Since 1983 Virginia Per Capita GSP is
4.54% on average higher than Per
Capita GDP. Labor market Block Three concepts
are presented in labor market
block: regional unemployment rate, regional
employment and population.
Population Population of the region could play an
important role in its
development. Growth of population could stimulate economic
activity, create
new businesses and increase output or the region. Migration to
a region can
be an indicator of the region being more desirable to people in
terms of
standards of living. Population of the region could change due to
demographic
factors like birth rate or death rate or economic factors like
availability
of job higher wages and higher standards of living. So population
could
depend on average regional wage, or in this case wage and salary rate
(wage
and salary per job) and unemployment rate. VaPop = 4395645.4 + 83.08
VaW&S
– 18830.1 VaUnplR (44.93) (39.73) (-1.35) R=0.99 F=5656.6 As it was
mentioned
before, population of the region depends on some demographic
factors along with
economic. So the purpose of this equation is to try to
explain reason for
population to migrate from one region to another. People
tend to move to regions
where they have better economic conditions. In this
case wage and salary rate
has a positive affect on population, and
unemployment rate - negative. People
will choose to move to a place with
higher wages (or because of higher wages),
and bigger variety of available
jobs (low unemployment). To compare population
growth of Virginia and US
Graph 3 shows Population Growth rate for US and
Virginia Graph 3 US and
Virginia Population Growth Rate 1975-1997 According to
Graph 3 Virginia
Population Growth rate mostly exceeds that of the US through
the period from
1975 to 1997. And it is significantly higher during period of
time 1984-1991
and is slightly higher in 1997 Employment Employment is an
important economic
indicator. It shows the number of people that are engaged in
production of
regional output, people that are receiving income and paying taxes
to the
government. The Employment equation is in a form of labor
demand
relationship, where labor demanded is a function of regional output.
Employment
is population of a region that encouraged in production or
creation of regional
output. This means that the number of jobs available
(employment) depends on the
region output. Growth State Product is taken as
an estimate for total output of
Virginia. So GSP determines demand for
number of jobs (employment). Employment
of the region also depends on the
wage rate of the region and how it stands
comparing with national rate. The
high wage and salary will attract people (both
from inside and outside the
region) to take a job. If we take employment as an
estimate of labor force
than it should depend on population of the region,
because labor force is a
population of a certain age. Vaempl = 1980348.6+5.59
VaGSP + 35.01
VaW&S (25.01) (1.98) (1.43) R=0.98, F=83612.36 When including
population
in this regression it showed a positive relationship but was not
significant.
Two other variables are significant at 85% level of significance,
are
positively related to employment. Increase of output stimulates an
increase
of demand for labor (increase in employment) and increase in wages
and salaries
stimulates more people to take a job. Graph 4 shows the growth
rates of Regional
employment and National employment Graph 4 US and Virginia
Employment Growth
Rate 1975-1997 Employment in Virginia is growing at a
higher rate than in the US
for the time period form 1982 to 1988. Over
20-year period of time regional and
national employment growth rates are
cointegrated. It is also useful to know
what is the ratio of employment to a
total population of the region. This data
is plotted in a Graph 5 Graph 5 US
and Virginia Employment – Population Ratio
1975-1997 The employment to
population ratio is higher for Virginia. It means
that higher percentage of
population is employed in Virginia than in US on
average. Unemployment rate
Unemployment rate of the region is an indicator of
the labor market
performance. An increase of unemployment rate causes a decrease
of employment
and regional output. The regional unemployment rate depends on
national
unemployment rate. The correlation coefficient between national and
regional
unemployment rate is 0.98. Regional economy experiences the same
recessions
and expansions as national does. So we should expect a positive
relationship
between national and regional unemployment rate. If we take an
employment as
an estimation of number of jobs available in the region than
employment can
determine unemployment rate of the region. With more jobs
available the rate
of unemployment should decrease. Population can also
influence unemployment
rate. If population is growing in faster rate that number
of available jobs
than unemployment rate would increase. VaUnplR = -4.161 + 0.55
UsUnplR +
0.000002 VaPop – 0.000003 VaEmpl (-1.43) (5.08) (1.91) (-1.95)
R=0.83
F=30.55 Compressing of US and VA Unemployment rate is shown in Graph
6
Graph 6 US and Virginia Unemployment rate 1975-1997 Through 20-year
period
Virginia unemployment rate lower than US unemployment rate. US and
Virginia
unemployment rates are moving together depending on economic
situation in US.
Wage rate and personal Income Block Wages & Salary
Wage and salary rates can
estimate earnings of the region. Age and experience
of regional workforce will
influence wage and salary rate. So the average
wage and salary rate can indicate
the type and labor forth of the region. The
change in regional wage will be a
subject to most of the same determinants as
change in market wages. Regional
wages and salary rates are related with
national rate. The correlation
coefficient is 0.99, so it means that wage
rate of region is very sensitive to
the wages of the country as a whole. An
increase in the national wage rate would
cause regional wage to go up because
the change in regional and national rates
are caused by the same factors like
inflation or increase in output. Regional
wage and salary rate depends on
Growth State Product. Wages and salaries are
part of the GSP as and they are
included as a cost of production, so if GSP
increases it means that there
will be more money to distribute to employees. VaW&S
= -554.48 + 0.944
UsW&S + 0.0089 VaGSP (-2.58) (30.94) (2.58) R=0.99
F=3744.6 US and
Virginia wage and Salary rates are compared in a Graph 7 Graph 7
US and
Virginia Wage and Salary Rate 1975-1997 The US Wage and Salary is higher
than
regional. Both variables increase with time but Virginia rate remains
lower
then US rate. This means that Virginia’s salaries and wages are lower
than in
US on average. Income The income of the region is a important
factor of regional
development, income is the money that can be spent on
goods and services and is
determining the demand for regional output, and
increase in personal income can
stimulate growth of regional economy.
Regional Income depends on employment of
the region and regional wage and
salary rate. Both these variable have a
positive relationship with income.
The more people are employed the more money
population receives. The higher
is wage and salary rate the population of a
region is getting more money for
their work. VaInc = -67481.93 + 0.154 VaEmpl +
5.94 VaW&S (-3.89)
(1.54) (7.02) R=0.99 F=1383.38 Growth rate of income US
and Virginia is
compared in Graph 8 Graph 8 US and Virginia Income Growth Rate
1975-1997
Income growth rate for Virginia and US are cointegrated. Until 1990
the
Virginia Income growth rate was higher than that of the US. But after 1990
it
is almost the same as the rest of country. Per Capita income is an
estimate
of income available for each person in Virginia or US on average.
Graph 9 shows
regional and national per capita income. Graph 9 US and
Virginia Per Capita
Income 1975-1997 Virginia Per Capita Income is higher
than that of the US since
1983. This shows that there is more income on
average for each person in
Virginia than in US. As it was maintained
before Virginia’s wage and salary
rate is lower than in US, but so does
unemployment rate. The lower Unemployment
rate stimulates high per capita
income, even with low wage and salary rate.
Graphic description of
Virginia regional model is presented in Appendix B
Analysis Virginia is a
region of fast growing economic activities and
development. Virginia offers a
number of advantages for business. The state is
centrally located on the
Eastern Seaboard Effective economic development depends
on elements with
which Virginia is richly endowed. Location is one of them. Over
50% of
the total U.S. population is within 500 miles of Richmond,
Virginia's
capital. As a measure of its economic stability, Virginia balanced
its latest
budget without raising taxes, one of only two states to do so
according to
Financial World magazine, and was recognized by that
publication as the nation's
best managed state. Development of the region
runs on infrastructure, and in
this category, Virginia boasts nearly 1,100
miles of highways, 3,300 miles of
rail Roads, and Dulles International
Airport. The daily confluence of goods and
services across this network
paints a portrait of economic development at its
most sophisticated level.
Nowhere is this more apparent than at Hampton Roads,
the country's largest
natural deep-water port that in 1991 accounted for 73
million tons of foreign
trade -- a figure that is still growing. The education
institutions are very
developed in Virginia. Virginia has 84 institutions of
higher learning.
Twenty-three of these are community colleges on 34 sites
offering training in
the business discipline as well as advanced vocational
training. In 1991,
more than 2,600 students in Virginia's colleges and
universities earned
degrees in the field of engineering -- creating a talent
pool essential to
nation's high-tech future. The overall performance of
Virginia’ economic
indicators is shown in Table 1 Table 1 Economic Indicator
General state
Period when higher than US indicator Output Growth rate Average
1980-1988
Per Capita Output Average 1984-1997 Population Growth Higher than
average
1983-1997 Employment growth rate Average 1982-1988 Unemployment rate Low
--
Wage and salary rate Low -- Income Growth rate Average 1980-1989 Per
Capita
Income Average 1982-1997 As can seen for Table 1 period form
1980-1990 can be
characterized as a period of fast economic growth. In this
period economic
indicators of Virginia were higher that in the US. After 1990
there is some
decrease in economic development of the region. This decrease
in economic
activates could be explained by some specialization of state of
Virginia. One
out of five jobs in Virginia is a civilian government position.
Though federal
civilian employment has been in a steady decreasing since
1992, rising state and
local government employment has offset these losses.
In 1997 and 1998, civilian
government employment in Virginia will actually
experience a net growth of about
1 percent, the report predicted
Virginia's economy depends heavily on its
defense industries. Though period
1980-1990 the defense industry was in
prosperity, a lot of money was invested
during presidency of R. Raygan and
period of Cold War. Since 1990 Virginia
had experienced few rounds of defense
cuts that influenced the economic
situation of the region. But there are some
efficient state conversion
program is helping to prepare for coming defense
spending cutbacks. With its
concentration on electronics and shipbuilding,
Virginia has been spared
the first round of defense. The Virginia plans to
soften the blow of defense.
The good example of this is Northern Virginia aria.
It is the most
developed part of Virginia. Companies in telecommunications;
Internet
applications; systems development, integration and implementation; and
the
chemical and biomedical industries have all either relocated or
created
offices in Northern Virginia. The area is also home to nonprofit
agencies and,
of course, government agencies. Conclusion Economic situation
of the region can
differ from national depending on performance of regional
economic indicators.
The economic factors that can economic performance
of the region that were
presented in this paper are Regional Output,
Population, Employment,
Unemployment rate, Wage and Salary rate, and
Personal Income. These economic
factors are the main variables of regional
economic model that presented in this
paper. Appendix B is the graphic
interpretation of the mode. It gives the idea
of relationships that exists in
among variables. One of the most impotent
economic indicators of the model is
output of the region. It determines the
demand for labor in the region and it
is the main source of income for
population. So the high regional output
generally implies the high economic
performance of the region. In order to
make conclusions about the level of
performance of the region it is useful to
compare it with national economic
performance. In this paper Virginia state
economic indicator were compared to
US. The Virginia performance could be
caricaturized as an average relative to
US. Virginia’s advantage is that
Unemployment in this state is lower than in
US. Wage and Salary rates is
slightly lower than in US, but Per capita Income
still increases average Per
capita Income of US. For some period of time
(1980-1990) Virginia Economy was
booming: all economic indicators showed better
performance of the region.
This could be explained by increase in government
expenditures on defense
industry (the significant of economy of Virginia) in
1980’s. The decrease
in economic activity of Virginia began with defense
spending cutbacks in
90’s. But this situation is changing now because of new
arias with developing
high technology industries and business sectors like
Northern
Virginia.
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