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Copyright 1998 by the Wyoming Department of Employment, Research & Planning


Explaining Employment Growth in 20 Western States: The Role Urban Areas Play

by: David Bullard


Analysts have noted that Wyoming and Montana trail many of their neighbors in employment growth (see "Population Migration Flows Among the Mountain & Plains States" by Phil Brooks and Mike Evans in the September 1998 issue of Wyoming Labor Force Trends). Some have speculated that this is related to the way the population is spread throughout these states and not concentrated in any single large urban area. For example, the Denver and Salt Lake metro areas are growing faster than many rural areas in Colorado and Utah. However, in smaller states, like Wyoming, there are no large urban areas to lead these states. In order to better understand the role that a single large metropolitan area can play in a state’s economic growth, a multiple regression model is used. This analysis looks at 20 Western states and finds that the percent of a state’s population found in its largest Metropolitan Statistical Area (MSA) is a significant predictor of 1997 nonagricultural employment growth. The analysis also finds, after taking this variable into account, that the eight Mountain states are experiencing stronger employment growth than the other 12 Western states. Wyoming and Montana rank near the bottom of the 20 states in the percent of state population found in the largest MSA; and in 1997, they experienced correspondingly low employment growth.

Table 1 shows the 20 states which make up the Mountain, Pacific and West North Central Census Divisions1 ranked by 1997 nonagricultural employment growth. Their population is given along with each state’s largest MSA and its population. Some of the MSA’s cross state boundaries. States are matched with the largest MSA that lists their state first. For example, the Portland Salem, OR-WA CMSA is used in Oregon because Oregon is listed first. Generally, this works well because the MSA is named for the largest city first and the state listed first is where that city is located. The sole exception is Kansas. The Kansas part of the Kansas City, MO-KS MSA makes up about 40 percent of the whole, and is larger than the Wichita, KS MSA. Therefore, the whole Kansas City, MO-KS MSA is used as Kansas’s largest MSA.

MSA’s are defined by the Office of Management and Budget (OMB). They represent an urban area along with economically and socially integrated neighboring communities2. Each MSA is made up of one or more counties. In Wyoming, there are two MSA’s: Casper and Cheyenne. The Casper MSA is made up of Natrona County, while the Cheyenne MSA includes all of Laramie County. Many larger MSA’s include several counties because they form a single area in which workers commute to jobs.

Since much economic growth in the late 1990’s has been concentrated in urban areas, it appears that the states with high concentrations of population in a single urban area will enjoy stronger employment growth. In order to predict employment growth, the MSA population as a percentage of state population is calculated. The Figure is an estimate of the geographic concentration of the state’s population. The Las Vegas MSA contains approximately 70 percent of Nevada’s population, while the Billings MSA represents 14 percent of Montana’s population.

To empirically test the idea that a concentration of population in a single urban area is associated with faster growth, a linear regression was run with growth in nonagricultural employment in 1997 as the dependent variable 3. The independent variable is the percent of a state’s population found in its largest MSA. The results showed the independent variable to be significant at the .01 level. This means that there is a 99 percent probability that there is a relationship between these two variables4. Table 2 summarizes the results of this regression.

The scatterplot between the two variables illustrates the relationship. Wyoming is found in the lower left area of the Figure with its neighbors, South Dakota and Montana. These states, along with Iowa and North Dakota experienced slow employment growth during 1997 and had a relatively small part of their population found in their largest MSA. Two of Wyoming’s other neighbors, Colorado and Utah, are found in the upper right corner of the Figure near Arizona and Washington. These four states experienced very strong employment growth (4% or higher) and their MSA’s make up a large part of their population (59% or higher). The state which is found farthest from the regression line, Hawaii, is highly dependent on tourism and has been in a prolonged recession since 19935. Although the Census Bureau includes Hawaii in the Pacific Division, its geographic isolation from the continental United States and its industrial makeup signal that it is a special case.

In an effort to explain more of the variation, other variables were included. Some hypothesize that the low unemployment rates found in West North Central states (and some Mountain states) may keep employment growth low because of lack of workers. The 1997 annual average unemployment rate for the states in this model is not a significant factor in explaining employment growth. In other words, supply (as measured by the unemployment rate) does not appear to be a growth limiting factor.

The Mountain Census Division was included as a dummy variable and found to be significant at the .05 level, meaning that all other factors held constant, Mountain states grew faster in 1997 than states in the other two divisions included in this model. This can be seen in the Figure, where Nevada, Arizona, Utah, Colorado, Idaho, Montana and Wyoming (seven of the eight Mountain states) are found above the regression line. Of the Mountain states, only New Mexico is below the regression line.

Why do states with a large percentage of their population in a single MSA grow faster? It seems a "critical mass" of population must be established before employment growth will "take off." Part of the reason that states with large urban areas are experiencing stronger growth may be that firms there have a ready market for their goods and services. Firms in more remote locations must pay high transportation costs to get their goods to market, and many services must be produced close to where they are consumed.

Why are the Mountain states growing faster than the Pacific or West North Central states? One possible explanation involves scenic amenities, which might attract new residents and businesses. A study done by economists at the Federal Reserve Bank of Kansas City included six of the 20 states examined here. It found that Wyoming and Colorado had more scenic amenities than their neighbors to the East. It also found that scenic counties experienced more growth than other rural counties 6. Examining the Figure seems to support the idea that having a single large MSA has a greater effect on employment growth than a state’s location in the Mountain region.

In conclusion, the concentration of a state’s population in a single MSA is significantly associated with nonagricultural employment growth in 1997. Also, Mountain states, (as opposed to Pacific or West North Central states) experienced faster growth. Large MSA’s may allow for economies of scale in the production of goods and services, along with reducing transportation costs. The Mountain states have more scenic amenities than West North Central states and this may attract new residents and growth.

 

David Bullard is an Economist, specializing in Local Area Unemployment Statistics (LAUS) with Research & Planning.

1 The Census Divisions and the states they include are:

West North Central: Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota

Mountain: Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming

Pacific: Alaska, California, Hawaii, Oregon, Washington

2 The definition of MSA is similar to a Labor Market Area (LMA) which is: "An economically integrated geographic area within which individuals can reside and find employment within a reasonable distance or can readily change employment without changing place of residence."

3 Annual averages compared to monthly estimates.

4 For a more in-depth explanation of statistical significance, see Mike Evans' article, "Where Does the Wyoming Worker Come From?," Wyoming Labor Force Trends, November 1996.

5 Nonagricultural Employment in Hawaii fell steadily from 1992 to 1996. The time series is available at the Bureau of Labor Statistics.

6 Jason Henderson and Kendall McDaniel, "Do Scenic Amenities Foster Economic Growth in Rural Areas?" Regional Economic Digest, 1998Q1, pp. 11-16.


 
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