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King University News :: New King University Study Suggests Manufacturing Offers Best Hope to Rebuild Southwest Virginia Economic Base; Economic Impact of Tourism also Analyzed

BRISTOL, Tenn., February 9, 2015 – The King Institute for Regional Economic Studies (KIRES) has released a new study. KIRES Report No. 12, “Replacing Coal Mining Jobs: Marginal Economic Impacts of Selected Industries in Southwest Virginia,” 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, and by Kayla Ketron, a senior Accounting student at King University.

The authors note that coal mining has for generations been a key component of the economic base in Southwest Virginia. “There were around 12,000 coal mining jobs in the region just 25 years ago,” said Evans. “However, there has been a persistent decline in coal production and jobs over the past quarter century. The down trend was somewhat arrested during the 2010 through mid – 2012 period, but recent data show renewed losses in coal mining jobs over the past two years. The latest available jobs data as reported by the Virginia Employment Commission show that coal mining jobs during the second quarter of 2014 fell to around 3,500, a loss of 1,400 jobs since 2012.”

Projections for future coal production in the region are not encouraging. The US Department of Energy forecasts production declines in the Central Appalachian region (Southwest Virginia, Eastern Kentucky and Southern West Virginia) for the foreseeable future.

The report defines Southwest Virginia as the traditional coalfield counties of Buchanan, Dickenson, Lee, Russell, Tazewell, Scott, and Wise, plus the city of Norton, and Bristol, Va., and the bordering counties of Washington and Smyth. Although coal production is concentrated in the region’s northern counties, the economic impacts of job losses in the industry are enormous and ripple throughout the region. As an example, the loss of 1,400 coal mining jobs noted above would cause a total loss of 3,240 jobs in the region; total earnings paid to households employed in all industries in the region would decline around $215 million.

The report’s authors employ a methodology which allows them to rank industries according to their marginal economic impact. The marginal economic impact for a given industry, coal mining for example, is measured as the “change in total earnings of households employed in all industries for each job created in coal mining.” The marginal economic impact is not the same as an industry’s total contribution to the local economy. Some service industries provide thousands of jobs in the local economy, but have small marginal economic impacts, whereas coal mining and some manufacturing industries with far fewer employees have large marginal impacts.

According to the study, industry marginal economic impacts are helpful in answering questions, such as: (a) How many jobs in industry X are required to have the same marginal economic impact as one job in industry Y?; (b) What is the economic impact of a new retail development?; (c) What is the economic impact of the gain or loss of 100 jobs in a particular industry?; and (d) Which industries have the potential to expand the economic base of a region? Question (d) is a particular concern for residents of Southwest Virginia as they have witnessed a significant erosion of the region’s economic base during the past quarter century.

Estimated marginal economic impacts for 60 industries in the region are presented in the report. These estimates are based on regional economic impact multipliers for Southwest Virginia, which were developed by the Bureau of Economic Analysis (BEA) in the US Department of Commerce. The industries are ranked according to their marginal economic impact and also by how many jobs are required in each industry to offset the impact of losing one coal mining job.

The report’s authors found that the marginal economic impact for coal mining is $154,397. “This means that for every coal mining job that is lost, total earnings of households employed in all industries in Southwest Virginia fall by $154,397,” said Ketron. “Each coal mining job supports an additional 1.3136 jobs in all other sectors of the region’s economy. The loss of $154,397 in earnings is attributed to all 2.3136 jobs, not just the coal mining job.”

The ranking of industries by their marginal economic impact reveals that manufacturing industries, characterized by relatively high average earnings and extensive supplier linkages, and the higher-paying service industries dominate the top of the rankings. The lowest ranked industries in terms of their marginal economic impacts are service providers whose primary locally purchased input is hired labor, with average earnings at the low end of the scale. As an example, the study shows that the creation of 1.51 jobs in “machinery manufacturing” will offset the economic impact of losing one coal mining job; however, the creation of 5.71 jobs in “food services and drinking places” are required to offset the loss of a coal mining job.

According to the authors, tourism is often promoted as a means of diversifying and rebuilding the economic base of communities or regions experiencing losses in a key industry, such as mining. Southwest Virginia is in this category and for good reason, namely, its natural beauty and cultural heritage. The study reports marginal economic impacts for (1) retail trade, (2) accommodations, (3) food services and drinking places, (4) amusements, gambling and recreation, and (5) performing arts, spectator sports, museums, zoos and parks.

Evans, Brumlik, and Ketron estimate that tourists’ spending at retail stores has a multiplier of 0.142, meaning new retail sales of $1 million raise household earnings by $142,000. This amount is less than the marginal economic impact of a single coal mining job. The multipliers for the other four tourist industries are larger, ranging from about 0.34 for “accommodations” to 0.46 for the “performing arts” grouping. The multiplier for the “performing arts” grouping implies that the economic impact from tourists’ spending at these attractions is more than three times the impact of the same dollars spent at retail establishments.

The authors suggest that a reasonable rule-of-thumb to assess the economic impact of tourism spending would be to use the average of the earnings multipliers for the five industries noted above. The average multiplier is 0.3846, indicating that total earnings of households increase about $385,000 for each $1 million increase in tourist spending in the region.

The KIRES Report No. 12, “Replacing Coal Mining Jobs: Marginal Economic Impacts of Selected Industries in Southwest Virginia,” and all other KIRES reports may be accessed electronically at http://kires.king.edu.

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