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In an effort to create economic opportunity and wealth generation, TREO employs a series of strategies focused on the creation of primary, or base, jobs. Primary jobs are defined as jobs which produce goods and services in excess of what can be consumed by the local market. Those goods not consumed by the local market are exported to other markets in exchange for money, or export income. For example, a Tucson company or industry produces more aerospace parts than can be consumed, or bought, by its customers in Tucson. The parts are then “exported” to another market, such as Los Angeles, and money is returned to Tucson for the products. This is what creates the flow of new wealth into the community.
While important in an overall economy, the retail sector does not typically create new wealth in our community. This is because retail outlets located within an area are typically exchanging money that has already been "created" by primary employers in that area. It is not "new money."
Click here for a visual diagram on the effect of primary jobs.
What are the indirect impacts of new job creation?
As a result of creating new jobs, the demand for goods and services generated by the primary employer is increased and “indirect” or “spin-off” jobs are created. These jobs do not create wealth. They are the product of “wealth” created by primary employment. Generally, they are jobs such as retail services, suppliers, lawyers, doctors, non-profit employment, etc. These occupations provide services to primary jobs. They may also include jobs that meet the required “input” needs of primary jobs.
What is a multiplier?
Spin-off or indirect jobs are typically associated with the term “multiplier.” The term “multiplier” comes from a series of economic calculations that estimates the number of jobs required to meet the needs of one primary job. The larger the multiplier, the greater the economic impact of the primary job. Two things determine the size of the multiplier: average wage paid to the primary employee and the amount and cost of “inputs” required for the primary employee to accomplish his or her work.
A "typical" multiplier in Tucson is in the 1.3 to 3.8 range. Translated, this means that the primary job needs between 0.3 and 2.3 indirect or spin-off jobs to accomplish his work and to meet his living needs. Retail employment, because of its low wages and limited “primary income generating capacity” will have multipliers in the .3 to .6 range. Therefore, retail is not generally considered a good investment of the time of an economic development professional. Retail is seldom considered a primary employer, in terms of wealth creation, because of the old adage, “retail follows rooftops.” In other words, retail must follow customers and those customers are created through primary employment’s wealth generating ability.
A mature regional economy that offers a wide array of goods and services for purchase by the primary job will also have a larger multiplier than a smaller market. In other words, a diverse economy “holds on” to the primary worker’s income longer. In an immature market the dollar exits more quickly, thereby reducing the multiplier lacking many of the goods and services demanded by the primary job.
Special thanks to Tom Clark of the Metro Denver Development Corp. for writing this
piece originally, and allowing TREO's adaptation and use. |