Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 21, 1993 TAG: 9303220385
SECTION: EDITORIAL PAGE: B-2 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
JOBS AND THE RIPPLE EFFECT
THE RIPPLE effect doesn't always refer to what you get from drinking cheap wine. It's also what happens when a factory or business opens or closes. The impact isn't limited to the people who gain or lose jobs at the newly opened or closed plant. The effect flows through the local economy.And this is important, because if we focus on ripple effects, we might do a better job of economic development.
The reasons for the effect aren't complicated. People with jobs have money to spend on cars, clothes, sports events. People who lose their jobs must cut back. This in turn affects other people's jobs in the auto, clothing and sports businesses, and all the other enterprises that provide goods and services to local customers.
What's more, an operating business or factory itself buys from suppliers, hires subcontractors, contributes to charity and the arts. An idle business or factory does none of these things. Again, jobs are at stake beyond the employer's doors.
As a rule of thumb, state economic-development officials say that every "basic" job recruited to or created in Virginia adds another 1.6 related jobs. (A "basic" job is defined as one in a business where 50 percent or more of sales are out of state.) In other words, a factory or business employing 100 workers can be expected on average to generate 160 other jobs.
But that's a very rough rule of thumb, warns Brian Wishneff, economic-development chief for the city of Roanoke. The ripple effect can amount to considerably less than that, and varies widely depending on the nature of the business or industry.
This fact carries implications for any economic-development strategy the Roanoke region might pursue. And it underscores the need to avoid simplistic views of development.
Economic-development news, for example, often is reported in terms of so many jobs created or lost. But one job isn't the same as another. And to gauge the ripple effect, it's not enough to focus on wage scales alone.
Payroll is one key determining the size of the effect, to be sure: Higher-paid workers have more discretionary income to spend in the local economy, thereby creating more income and jobs for the people who provide products or services to them.
But another factor besides wages is an employer's ties to local suppliers and subcontractors. The greater the local dependence, the greater the ripple effect. This compounds the disappointment in the shutdown, for example, of Roanoke's Gardner-Denver plant.
A third factor tends to be overlooked in considering the ripple effect. To whom does the employer sell? Where is the source of its revenues, and thus of the employees' paychecks?
Because the General Electric plant in Salem sells (and services) its products worldwide, it scores high as a contributor to the local economy. When the plant and its employees spend dollars locally, they are infusing the region's economy with dollars new to the region, rather than simply recirculating dollars already here.
GE happens to be a manufacturer, but the point applies to service industries as well. Indeed, it's simply not the case that manufacturing jobs always are more desirable than service jobs. Most of the work performed at the Allstate Regional Operations Center in Roanoke County, for instance, is for customers outside Southwest Virginia, even though the product is a service (insurance) rather than a thing. A good ripple effect.
Tourism as an economic-development goal is sometimes criticized because it is generally a low-wage industry. True enough. But tourism's customers are, by definition, from outside the region, and this is a great virtue. Also, a nice ripple effect.
The customer-location issue helps clarify, too, how First Union Corp.'s acquisition of Dominion Bank holds both peril and promise for the region.
The peril arises because Dominion's anchor was Western Virginia. Its takeover by one of America's 10 largest banks could send capital flowing from customers here to operations (and shareholders) elsewhere.
The promise lies in the fact that First Union is so big, and growing. If the bank continues to locate operations here that serve the entire system, the capital flow is reversed. Money flows toward the region; the ripple effect creates jobs instead of destroying them.