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Sunday, July 21, 2002 - Page updated at 12:00 AM

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Times Watch: In search of the multiplier

The unemployment rate is widely reported each month, a key statistic for measuring the state of the economy nationally, statewide and locally. For most of us, though, the report reduces one of the most important parts of anyone's personal economy to an abstract concept, a number, a percent.

The ranks of the jobless are made up of people and they come from many industries these days. Hotel workers without jobs because half the rooms stand empty each night. Airline and airport workers cut by the slump in travel. High-tech or telecom workers caught in the tech wreck. Accountants caught in the web of a corporate scandal far away.

These are white-collar professions and blue-collar trades, six-figure salaries and minimum-wage jobs. Whether at the bottom of the economic ladder or up a few rungs, workers have learned how precarious their situations can be. They have learned the old truth that a good quality of life begins with a job.

In the Puget Sound area, layoffs have become the economic story: Two-thirds of the jobs lost in the state in the past 12 months are here. From the dramatic announcement by Boeing in the dark days after the Sept. 11 attacks to the recent cuts at telecom and high-tech companies such as Bsquare, people are losing their jobs.

A look at this month's TimeWatch charts tells part of the story. While the overall unemployment rate for Washington dropped in June, the Seattle-Bellevue-Everett rate remained stuck at 6.5 percent, the same as May and virtually unchanged since February. The number of people drawing unemployment compensation in the area continues at more than 40,000 individuals, up 37 percent from a year ago.

Ripple effect

Now economists are beginning to pay close attention to what is called the ripple effect or the multiplier. Broadly defined, the multiplier means good jobs create more good jobs when the economy is expanding. But it also works in reverse: When jobs disappear, other jobs are cut, deepening the effects of a downturn.

A worker without a job starts cutting expenses. Eating out drops. No more need to go to the dry cleaners. No commute, so less gas. That plan to remodel the house? Forget it — and with it goes money paid to lumber yards, carpenters and appliance stores.

Multiply that by the thousands of layoffs in the Puget Sound area and you get a sense of what economists are talking about. I was on a call-in radio show recently talking about the economy. It was interesting the ways people described the impact of the economy on them.

A bartender said business was the same, even better. People drink, the bartender said, from good times to bad. Another with experience in the international field, however, was thinking about leaving the country because she could not find work.

A tech worker remembered good times only a few months earlier when pay was high and the perks were good. Now they're gone, but the worker said she had a different, more realistic view of what was important now.

In some ways the ripple effect is not hard to find. The travel industry and hotels felt the impact of the Sept. 11 attacks. Travelers stayed home and occupancy rates at hotels plummeted. Even today, 10 months after the attack, Seattle and Bellevue hotels are only 50 to 60 percent full every night.

But the ripple effect can also be hard to pin down. Officials in cities most affected by Boeing's cutbacks — Renton, Auburn and Kent — say they have yet to see any widespread ripples from the aerospace downturn.

Alan Pietsch, head of economic development for Renton, said the city has seen only small changes so far with little impact on employment taxes. New businesses are opening in the city — a reflection of efforts to diversify the local economy away from dependence on Boeing.

Demand for social services

Mike Martin, Kent's chief administrative officer, said Boeing layoffs have been felt by the city. There has been an increase in demand for social services and budget projections are coming in closer to forecast — unlike past years when the city would beat forecasts by double digits.

One change helping ease the multiplier comes from action by the small machine shops in the areas around the Boeing plant. The shops have moved over the past half dozen years to become less dependent on Boeing. Shops that once relied on Boeing for 60 to 70 percent of business now have cut that to 30 percent or less, according to Pete Lewis, mayor of Auburn.

"In the past year we've seen more help-wanted signs than layoffs," Lewis said. Lewis points to an interesting statistic that reflects the diversification of the region. Auburn now has as many jobs as residents: About 46,000 live in the area, about 46,000 work there.

While the ripple effect may be hard to pinpoint, economists say it is real and can be expected to impact the economy eventually.

Studies put the ripple effect in the computer industry at 2.1 jobs gained or lost for each job created or cut in the industry. In the aerospace industry, the rate is 2.2 ripple jobs.

With current cutbacks and those "negative multipliers," the total ripple effect could be 77,500 jobs, at a bare minimum.

"When the economy resumes growth, and the job supply starts overall expansion again, possibly midsummer or early fall, the ripple job losses from both these industries will dampen our recovery," said Roberta Pauer, an economist with the state Employment Security Department.

Pauer said the ripple job losses come mostly within the first two years, with a trailing effect the third year. She said it is not too soon to be feeling those ripple effects, since the employment decline in computer services began in January 2001 and the large layoffs at Boeing began in late December.

Last week, the reported drop in the statewide unemployment rate raised hopes that the worst may be over, at least on a statewide basis. TimesWatch figures provide some support for that idea: The Washington index of leading indicators, for example, rose slightly in May after several months of declines.

Housing continues to be strong. A report last week from the Federal Reserve Bank of San Francisco said home prices and sales are rising throughout the 12th District, which includes Washington and most of the Western states. District home prices are up 5.7 percent in the first quarter while home sales increased 11 percent.

Stephen H. Dunphy's phone: 206-464-2365. Fax: 206-382-8879. E-mail: sdunphy@seattletimes.com. More columns at www.seattletimes.com/columnists.

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