Local Sources of

Employment

Circular Flow of Local Economy

The Local Economy

Local economy is divided into
households and businesses
Households => production resources
Busineses => basic or non-basic goods/
services
Basic goods/services: those exported to
outside area
Non-basic goods/services: those sold to
and consumed by the local community

The Local Economy (cont.)

Basic

employment industries: export

industries that make money flowing
into the local economy
E.g. agriculture and/or manufacturing
Non-basic employment industries:
those consuming goods/services
from the basic

Analysis of Local Economy

Two main indicators:

Employment Multiplier Analysis (EMA)
Location Quotient Analysis (LQA)
EMA is used to analyse how population multiplies
as employment grows
LQA is used to measure the relative degree of
economic status of a defined geographic area
* an exporter, importer, or some balance
between the two
* employer of basic employment, employer of nonbasic employment, or some balance between
the
two

Employment Multiplier Analysis

T = B + NB
k = T/B
m = NB/B
NB = T - B
where T = total employment, B = number
of
workers in basic employment, NB =
number of workers in non-basic
employment, k =
employment multiplier, m = employment
multiplier.

Employment Multiplier Analysis

(cont.)

E.g.
T = 45,000
B = 15,000
k = 45,000/15,000 = 3
m = (45,000 15,000)/15,000 =
1.67

What these figures indicate?

Employment Multiplier Analysis

(cont.)
The

use of employment multiplier:

* predicts change in total employment and
population
* predicts global demand for property
Basic calculation:
k = cT/cB
cT = k x cB
where k, T, and = as defined earlier, c
means change

Employment Multiplier Analysis

(cont.)
, = 0.863, cB = 5,200.
The expected change in total
employment (cT) can be calculated as
follows:
Assuming

= cT/cB
cT = x cB
cT = 0.863 x 5,200
= 4,488

Employment Multiplier Analysis

(cont.)
Assume population in the work force is 38%
The multiple of people per worker
(population multiplier,), can also be
calculated as:
= 1.00/.38
= 2.6316
Expected increase in population resulting
from the change in basic employment:
x cT
= 2.6316 x 4,488 = 11,811

Employment Multiplier Analysis

(cont.)
From

additional 11,811people, we
can estimate the global demand

Location Quotient
LQi

= (LEi / LEt ) x (NEt / NEi)

where
LQi = location quotient for industry i;
LEi = local employment in industry i;
LEt = total local employment in all industries;
NEt = total national employment;
NEi = national employment in industry i.

Location Quotient (cont.)

A

location quotient > 1.0: local industry

is producing export goods.
A location quotient < 1.0: local
economy probably imports goods that
are produced outside the area and that
non-basic employment accounts for
more local jobs than basic employment.
A location quotient = 1.0: the
community produces an amount equal
to what is locally consumed.

Location Quotient (cont.)

E.g.

LEi in manufacturing = 10,000

LEt in manufacturing = 350,000
NEt in manufacturing = 2,550,000
NEi in manufacturing = 1,052,600
LQ = (10,000/350,000) x
(2,550,000/1,052,600)
= 0.0286 x 2.4226
= 0.07