Back to basics: ISER study analyzes drivers of Alaska economy

By: Staff   Dec 19, 2008

‘30,000-foot’ view shows feds, oil industry fuel 2/3rds of all economic activity ANCHORAGE, AK – A new study of the Alaska economy by the UAA Institute of Social and Economic Research is unlike any previous study because it analyzes the underlying drivers of the economy to find out what makes it tick. According to an ISER summary (PDF) of the study, “Instead of looking just at jobs in a specific activity – seafood processing, for instance – we allocate all the jobs throughout the economy to the basic sectors that support them. The method gives a clearer picture of the structure of the economy, but it may produce different numbers than other methods.” Said Scott Goldsmith, an ISER economist who led the study and authored the 140-page report, “Structural Analysis of the Alaska Economy: What are the Drivers? (PDF)”: “To my knowledge, it’s the first study that’s looked from 30,000 feet at the whole economy and asked the questions, What are all the drivers of the economy, and how important is each one, and by implication, what might we expect in the future from each of these drivers – which ones are likely to stagnate, which ones are likely to grow, which ones can we foster growth in by some set of policies? Consequently, where are our opportunities? Where are our constraints?” Taking the broadest analytical view is to return to a fundamental economic question: What brings money into the state, and what economic (multiplier) effects does that money have? The study finds that 14 sectors and industries – private and public, large and small – drive Alaska’s economy. Often the number of Alaskans they employ directly is small compared with the number of jobs they support indirectly. Remove any one, and the economy would contract by a certain percentage. What makes the economy tick – what fuels 2/3rds of all economic activity in the state – are the United States government’s spending in Alaska through both defense and non-defense agencies (fueling 35 percent of the state’s economy), and the petroleum industry (31 percent), according to the study. If there were no oil industry in Alaska, there would be nearly 108,000 fewer jobs in the state, and Alaskans as a whole would be earning almost $7 billion less, according to the study. For the federal government, the numbers are larger still: Without Uncle Sam, nearly $10 billion in personal income and 131,000 jobs would disappear. (These are 2005 figures. Averaged over the years 2004-2006, the petroleum sector was responsible for 110,000 jobs, the feds 125,000.) Each of the two major sectors currently are contributing less to the Alaska economy than previously because of lower oil prices and shrinking federal spending in Alaska. But the state can still weather the current U.S. recession, providing the recession doesn’t last for too long, Goldsmith said. What cushions Alaska is “a lot of money in the bank,” he said. The study is part of a new ISER initiative, “Investing for Alaska’s Future,” funded by a grant from Northrim Bank and in partnership with the UA Foundation. It is the first of several reports on the Alaska economy to help Alaskans understand it and plan for the future. A podcast of Scott Goldsmith discussing the state economy is available on the UAA Web site. To schedule an interview with Prof. Goldsmith, please contact Peter Porco at (907) 786.4840. Click here to listen to a podcast interview with Prof. Goldsmith.