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King University News :: King University Study Examines the Job Creation Potential of Large Scale Retail Development in the Tri-Cities

BRISTOL, Tenn., May 13, 2014 – The King Institute for Regional Economic Studies (KIRES) has released its 11th report, “Evaluating the Job Creation Potential of Large Scale Retail Development in the Tri-Cities.” The newly released report was prepared by Dr. Sam Evans, director of KIRES and associate professor of Finance and Economics, and Dr. Alexander Brumlik, assistant professor of Economics for King University’s School of Business and Economics.

Evans points out that questions about the job creation potential of new retail development were “put on the front burner” with passage of Virginia Senate bill 673, which allows Bristol, Va., immediate access to sales tax revenues once businesses open in the commercial center known as The Falls, located in the city near Interstate 81 exit 5. The report notes that immediate access to sales tax revenues was granted since the Falls complex met Senate bill 673 requirements to be considered a “development of regional economic impact.” Among those requirements is the development is “reasonably expected to create at least 2,000 permanent jobs.”

The authors state that “the provision pertaining to job creation in Virginia Senate bill 673 raises the question: ‘How does one estimate job creation in the early stages of large scale developments, such as The Falls and The Pinnacle?’ Our study focuses on that question, particularly for The Falls complex since it was a catalyst for the legislation. We employ a methodology, direct-effect employment multipliers, which provides a starting point for estimating the total number of jobs generated by new projects, retail or otherwise, undertaken in the Tri-Cities.”

Brumlik notes that Senate bill 673 did not define the meaning of “create,” and he states “our interpretation is that it means jobs that would not exist without the new development. Our interpretation of job creation includes the number of persons directly employed by new businesses located in the complex, and it also includes the ripple or multiplier effects of the new development – jobs created indirectly by the increased demand for business services in the Tri-Cities and jobs created by new spending on consumer goods and services in the region.”

The authors write that their interpretation of job creation means that those jobs at existing stores which move into the new developments from locations within the region are not counted as new jobs. Two examples in the Tri-Cities are the Lowe’s store moving from Washington County, Va., into The Falls complex and the Belk store moving from the Bristol Mall into The Pinnacle development, the other large retail complex under development. However, if the relocated stores were to expand and add employees, the additional employees would count as new jobs.

To measure net job creation, jobs lost as a result of the new development must also be taken into account. Evans points out that “retail has been described as a zero-sum game in which gains by one retailer tend to be offset by losses among other competing retailers with no net benefit to the local economy. The tendency for competition among retailers to be a zero-sum game is weakened if the new retail complex induces residents to forego some of the shopping they previously did in stores outside the Tri-Cities, and if the new retail complex draws shoppers from outside the region.”

According to the report, the direct-effect employment multipliers for the Tri-Cities are 1.37 for the Retail Trade sector and 1.26 for the Food Services and Drinking Places sector. Brumlik notes that “the multipliers mean that for every 100 new full- and part-time jobs created in the Retail Trade sector, an additional 37 jobs are created in all other sectors of the Tri-Cities economy. Likewise, for every 100 new full- and part-time jobs created in the Food Services and Drinking Places sector, an additional 26 jobs are created in all other sectors of the region’s economy.”

Evans says “we do not know the exact mix of retail and other establishments that ultimately will be located within The Falls. However, based on our analysis we can estimate with a good deal of confidence that new businesses in the complex will need to directly employ at least 1,500 persons in full- and part-time jobs if the 2,000 permanent job threshold set forth by Virginia Senate bill 673 is to be realized.”

KIRES Paper No. 11, “Evaluating the Job Creation Potential of Large Scale Retail Development in the Tri-Cities,” is available in electronic format at http://kires.king.edu. The ten previous reports are also available in electronic format on the website.

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