FREE ESSAY ON VIRGINIA UMEMPLOYMENT ANALYSIS

VIRGINIA UMEMPLOYMENT ANALYSIS

Introduction 
The economic situation differs from country to country, caused by difference in
population, geography, monetary system, political situation and a lot of other factors.
But even within one country there are always a number of regions that differ from one
another by their economic performance. This situation is especially true for big
countries like US. If the regions are too broadly defined, the economic diversity would
be lost. If the regions are too narrowly defined, they are not likely to have any
viability as economic entities, and this circumstance will increase the problem of
developing good regional economic data pertinent to the individual regions. 
Economic indicators like income, employment and population may differ in the rural and
urban areas of a single region, but the growth of the region still depends on the
economic performance of the region as a whole, and especially the towns and cities. 
An input-output model is very useful of measuring regional economic activity. Such a
model effectively determines the impact of one economic variable on another can be used
to analyze expected growth. The measure of regional economic indicators and comparing
them to national could produce a good estimate of economic performance of a region.
The regional economic model in case of the region within US could be compared with the
model of a small country. And national model could be seen as an aggregation of many
interrelated regional models.
This paper includes an estimation of the regional economic model The model is an attempt
to estimate possible relationship within economic indicators. This paper also presents an
analysis of regional economic indicators and national economic indicators in order to
compare economic performance of the region and national economy as a whole. 
This model use annual national and state level data to produce regional estimates of
income, employment, wages, population, labor force and the unemployment rate as a
economic indicators for Virginia state as a region. 
Previous studies
Regional scientists have long attempted to develop meaningful definitions and measures of
economic diversity and diversification, and to establish functional relationships between
diversity, diversification, and economic performance. The Regional economic models where
(were) created to answer questions like What is the relationship between a region's
changing economic structure and performance". 
Recent econometric models of regions were stressing macroeconomic relationship as a main
idea of structuring of the model. A Number of models have been constructed for states and
even smaller areas in order to find an effective forecasting tool linking the regional
economic forecasting to the national economic forecast. Regional models were constructed
as satellites to national models. Economic base theory views regional economic growth as
being driven by exogenous final demands, notably exports. Input-output models are
extensions of the economic base model, whereby intersectional economic relationships are
explicitly considered Because of the underlying assumption that the regional economy is
driven by exogenous final demands.
The idea of regional economic model that is (instead of that is say used) in this paper
is based on two studies that present economic models of regions in US. One study, reports
on a regional economic modeling approach used by East Kentucky Power Cooperative, Inc.
(EKPC), a rural electric cooperative that serves 280,000 residential customers and 15,000
commercial customers in east-central Kentucky. These models use quarterly, county-level
data to produce regional forecasts of income, employment, wages, population, labor force
and the unemployment rate (1). Another study describes an economic model for state of
Mississippi (2). Both studies indicated economic variables in regional output, labor, and
income and wages blocks and estimated regressions on order(must be in order) to fine
(must be to find) direction of dependence among variables. Both studies provide graphical
interpretation of their models.
Data
Regional models often use data, which is allocated to the region, state or national level
on the basis of employment, income or some other variable actually measured at the
regional level. Such data may serve the needs of particular model specifications and
produce forecasts of variables. 
In this study, Virginia regional model uses a variety of national and regional data. The
variables are summarized in (Appendix A). All variables were taken from University of
Virginia Social Science Data Center (8). 
Gross domestic product (GDP), the featured measure of U.S. output, is the market value of
the goods and services produced by labor and property located in the United States.
Because the labor and property are located in the United States, the suppliers (that is,
the workers and, for property, the owners) may be either U.S. residents or residents of
the rest of the world. So GDP was taken as an estimate of national Output, and it was
measured in millions of Dollars. Growth State Product was taken as an estimate for
Virginia State Output and it is presented in million of dollars.
Data for population in presented in number of persons both for Virginia and US.
Data for unemployment includes all full-time and part-time employment and is presented in
number of persons.
Personal income includes wage and salary disbursements, other labor income, proprietors'
income with inventory valuation and capital consumption adjustments, rental income of
persons with capital consumption adjustment, personal dividend income, personal interest
income, and transfer payments to persons. It is presented in millions of dollars.
All data is a time series data for time period from 1975 to 1997 both for US (national)
and Virginia (regional).
The problem with this data can arise because all data is inquiring with time and
variables were regressed against closely related national. 
Model Structure and specification
Economic model consists of output, labor, and income blocks. These blocks include
economic indicators like regional output, population, employment, unemployment rate, wage
and salary rate, and personal income. 
The output block 
Output of the region it a good estimate of business activity of the region. I could show
how intensive the region is involved in creation growth domestic product. The output
could be measured as a physical number of goods and services that are produced in the
region. But because of difference in the commodities it is hard to combine them all
together, so it is better to present the output as Growth Domestic Product, in this case
Growth State product of Virginia. 
Regional Output depends on National Output. Both outputs experience the same business
cycle and increase in national output would stimulate regional economic growth, and the
output of the region would increase. 
Population is a good estimate of the demand for output. With an increase in population
region will also experience increase in demand for goods and services. It gives an
incentive for suppliers to produce more output. Population is also a supply of labor
force that is a potential supply for new output. 
US wage and salary rate could be treated as an expense of production and it could have
negative influence on output, or in case if it is higher than regional rate, then more
output would be produced elsewhere.
VaGSP = -211348.8 + 0.02 UsGDP + 0.045 VaPop - 1.5 UsW&S
(-3.24) (4.96) (3.11) (-1.6)
R=0.99 F=4675.87
National Output could be a good benchmark for Regional Output. Comparing two outputs the
conclusion could made about regional performance. National output could present an
estimate of the average performance of all states in general. 
The figure of GDP is much bigger than Virginia's GSP because it is a sum of all states'
GDPs together. With growing GDP, the growth rate of both variables will be a better basis
for compression of regional and national output.
The growth rater of GDP and Virginia GSP are plotted in Graph 1
Graph 1
GDP and Virginia GSP Growth Rate 1975-1997
Graph 1 shows that GDP and GSP are following the same paten, they are cointegrated. Form
1981 to 1987 the growth rate of GSP is exceeding GDP, and in 1997 they are almost the
same. This means that on average Virginia's output is moving with national output, so it
is developing as fast as US.
GDP depends on population and it will increase with increase in population, so when
comparing GDP and GSP it will be useful to take Per Capita date, so it will be free of
influence of difference in population. Per capita GDP and GSP are presented in Graph 2
Graph 2
Per Capita GDP and Virginia GSP 1975-1997
Per capita GDP and Per capita GSP increase over the time. In 1983 per capita Virginia's
GSP became higher that per capita GDP and it still is in 1997. Since 1983 Virginia Per
Capita GSP is 4.54% on average higher than Per Capita GDP.
Labor market Block
Three concepts are presented in labor market block: regional unemployment rate, regional
employment and population. 
Population
Population of the region could play an important role in its development. Growth of
population could stimulate economic activity, create new businesses and increase output
or the region. Migration to a region can be an indicator of the region being more
desirable to people in terms of standards of living.
Population of the region could change due to demographic factors like birth rate or death
rate or economic factors like availability of job higher wages and higher standards of
living. So population could depend on average regional wage, or in this case wage and
salary rate (wage and salary per job) and unemployment rate. 
VaPop = 4395645.4 + 83.08 VaW&S - 18830.1 VaUnplR
(44.93) (39.73) (-1.35)
R=0.99 F=5656.6
As it was mentioned before, population of the region depends on some demographic factors
along with economic. So the purpose of this equation is to try to explain reason for
population to migrate from one region to another. People tend to move to regions where
they have better economic conditions. In this case wage and salary rate has a positive
affect on population, and unemployment rate - negative. People will choose to move to a
place with higher wages (or because of higher wages), and bigger variety of available
jobs (low unemployment). 
To compare population growth of Virginia and US Graph 3 shows Population Growth rate for
US and Virginia 
Graph 3
US and Virginia Population Growth Rate 1975-1997
According to Graph 3 Virginia Population Growth rate mostly exceeds that of the US
through the period from 1975 to 1997. And it is significantly higher during period of
time 1984-1991 and is slightly higher in 1997
Employment
Employment is an important economic indicator. It shows the number of people that are
engaged in production of regional output, people that are receiving income and paying
taxes to the government.
The Employment equation is in a form of labor demand relationship, where labor demanded
is a function of regional output. Employment is population of a region that encouraged in
production or creation of regional output. This means that the number of jobs available
(employment) depends on the region output. Growth State Product is taken as an estimate
for total output of Virginia. So GSP determines demand for number of jobs (employment). 
Employment of the region also depends on the wage rate of the region and how it stands
comparing with national rate. The high wage and salary will attract people (both from
inside and outside the region) to take a job.
If we take employment as an estimate of labor force than it should depend on population
of the region, because labor force is a population of a certain age. 
Vaempl = 1980348.6+5.59 VaGSP + 35.01 VaW&S
(25.01) (1.98) (1.43)
R=0.98, F=83612.36
When including population in this regression it showed a positive relationship but was
not significant. Two other variables are significant at 85% level of significance, are
positively related to employment. Increase of output stimulates an increase of demand for
labor (increase in employment) and increase in wages and salaries stimulates more people
to take a job. 
Graph 4 shows the growth rates of Regional employment and National employment 
Graph 4
US and Virginia Employment Growth Rate 1975-1997
Employment in Virginia is growing at a higher rate than in the US for the time period
form 1982 to 1988. Over 20-year period of time regional and national employment growth
rates are cointegrated.
It is also useful to know what is the ratio of employment to a total population of the
region. This data is plotted in a Graph 5
Graph 5
US and Virginia Employment - Population Ratio 1975-1997
The employment to population ratio is higher for Virginia. It means that higher
percentage of population is employed in Virginia than in US on average.
Unemployment rate 
Unemployment rate of the region is an indicator of the labor market performance. An
increase of unemployment rate causes a decrease of employment and regional output. 
The regional unemployment rate depends on national unemployment rate. The correlation
coefficient between national and regional unemployment rate is 0.98. Regional economy
experiences the same recessions and expansions as national does. So we should expect a
positive relationship between national and regional unemployment rate. 
If we take an employment as an estimation of number of jobs available in the region than
employment can determine unemployment rate of the region. With more jobs available the
rate of unemployment should decrease.
Population can also influence unemployment rate. If population is growing in faster rate
that number of available jobs than unemployment rate would increase.
VaUnplR = -4.161 + 0.55 UsUnplR + 0.000002 VaPop - 0.000003 VaEmpl 
(-1.43) (5.08) (1.91) (-1.95)
R=0.83 F=30.55
Compressing of US and VA Unemployment rate is shown in Graph 6
Graph 6
US and Virginia Unemployment rate 1975-1997
Through 20-year period Virginia unemployment rate lower than US unemployment rate. 
US and Virginia unemployment rates are moving together depending on economic situation in
US.
Wage rate and personal Income Block
Wages & Salary 
Wage and salary rates can estimate earnings of the region. Age and experience of regional
workforce will influence wage and salary rate. So the average wage and salary rate can
indicate the type and labor forth of the region.
The change in regional wage will be a subject to most of the same determinants as change
in market wages. Regional wages and salary rates are related with national rate. The
correlation coefficient is 0.99, so it means that wage rate of region is very sensitive
to the wages of the country as a whole. An increase in the national wage rate would cause
regional wage to go up because the change in regional and national rates are caused by
the same factors like inflation or increase in output. 
Regional wage and salary rate depends on Growth State Product. Wages and salaries are
part of the GSP as and they are included as a cost of production, so if GSP increases it
means that there will be more money to distribute to employees. 
VaW&S = -554.48 + 0.944 UsW&S + 0.0089 VaGSP
(-2.58) (30.94) (2.58)
R=0.99 F=3744.6
US and Virginia wage and Salary rates are compared in a Graph 7
Graph 7
US and Virginia Wage and Salary Rate 1975-1997
The US Wage and Salary is higher than regional. Both variables increase with time but
Virginia rate remains lower then US rate. This means that Virginia's salaries and wages
are lower than in US on average.
Income 
The income of the region is a important factor of regional development, income is the
money that can be spent on goods and services and is determining the demand for regional
output, and increase in personal income can stimulate growth of regional economy.
Regional Income depends on employment of the region and regional wage and salary rate.
Both these variable have a positive relationship with income. The more people are
employed the more money population receives. The higher is wage and salary rate the
population of a region is getting more money for their work. 
VaInc = -67481.93 + 0.154 VaEmpl + 5.94 VaW&S
(-3.89) (1.54) (7.02)
R=0.99 F=1383.38
Growth rate of income US and Virginia is compared in Graph 8
Graph 8 
US and Virginia Income Growth Rate 1975-1997
Income growth rate for Virginia and US are cointegrated. Until 1990 the Virginia Income
growth rate was higher than that of the US. But after 1990 it is almost the same as the
rest of country.
Per Capita income is an estimate of income available for each person in Virginia or US on
average. Graph 9 shows regional and national per capita income. 
Graph 9
US and Virginia Per Capita Income 1975-1997
Virginia Per Capita Income is higher than that of the US since 1983. This shows that
there is more income on average for each person in Virginia than in US. 
As it was maintained before Virginia's wage and salary rate is lower than in US, but so
does unemployment rate. The lower Unemployment rate stimulates high per capita income,
even with low wage and salary rate. 
Graphic description of Virginia regional model is presented in Appendix B 
Analysis 
Virginia is a region of fast growing economic activities and development. Virginia offers
a number of advantages for business. The state is centrally located on the Eastern
Seaboard 
Effective economic development depends on elements with which Virginia is richly endowed.
Location is one of them. Over 50% of the total U.S. population is within 500 miles of
Richmond, Virginia's capital. 
As a measure of its economic stability, Virginia balanced its latest budget without
raising taxes, one of only two states to do so according to Financial World magazine, and
was recognized by that publication as the nation's best managed state. 
Development of the region runs on infrastructure, and in this category, Virginia boasts
nearly 1,100 miles of highways, 3,300 miles of rail Roads, and Dulles International
Airport. The daily confluence of goods and services across this network paints a portrait
of economic development at its most sophisticated level. 
Nowhere is this more apparent than at Hampton Roads, the country's largest natural
deep-water port that in 1991 accounted for 73 million tons of foreign trade -- a figure
that is still growing. 
The education institutions are very developed in Virginia. Virginia has 84 institutions
of higher learning. Twenty-three of these are community colleges on 34 sites offering
training in the business discipline as well as advanced vocational training. In 1991,
more than 2,600 students in Virginia's colleges and universities earned degrees in the
field of engineering -- creating a talent pool essential to nation's high-tech future. 
The overall performance of Virginia' economic indicators is shown in Table 1 
Table 1
Economic Indicator General state Period when higher than US indicator
Output Growth rate Average 1980-1988
Per Capita Output Average 1984-1997
Population Growth Higher than average 1983-1997
Employment growth rate Average 1982-1988
Unemployment rate Low --
Wage and salary rate Low --
Income Growth rate Average 1980-1989
Per Capita Income Average 1982-1997
As can seen for Table 1 period form 1980-1990 can be characterized as a period of fast
economic growth. In this period economic indicators of Virginia were higher that in the
US. After 1990 there is some decrease in economic development of the region.
This decrease in economic activates could be explained by some specialization of state of
Virginia. 
One out of five jobs in Virginia is a civilian government position. Though federal
civilian employment has been in a steady decreasing since 1992, rising state and local
government employment has offset these losses. In 1997 and 1998, civilian government
employment in Virginia will actually experience a net growth of about 1 percent, the
report predicted
Virginia's economy depends heavily on its defense industries. Though period 1980-1990 the
defense industry was in prosperity, a lot of money was invested during presidency of R.
Raygan and period of Cold War. Since 1990 Virginia had experienced few rounds of defense
cuts that influenced the economic situation of the region.
But there are some efficient state conversion program is helping to prepare for coming
defense spending cutbacks. With its concentration on electronics and shipbuilding,
Virginia has been spared the first round of defense.
The Virginia plans to soften the blow of defense. The good example of this is Northern
Virginia aria. It is the most developed part of Virginia. Companies in
telecommunications; Internet applications; systems development, integration and
implementation; and the chemical and biomedical industries have all either relocated or
created offices in Northern Virginia. The area is also home to nonprofit agencies and, of
course, government agencies. 
Conclusion 
Economic situation of the region can differ from national depending on performance of
regional economic indicators. The economic factors that can economic performance of the
region that were presented in this paper are Regional Output, Population, Employment,
Unemployment rate, Wage and Salary rate, and Personal Income. These economic factors are
the main variables of regional economic model that presented in this paper. Appendix B is
the graphic interpretation of the mode. It gives the idea of relationships that exists in
among variables. One of the most impotent economic indicators of the model is output of
the region. It determines the demand for labor in the region and it is the main source of
income for population. So the high regional output generally implies the high economic
performance of the region.
In order to make conclusions about the level of performance of the region it is useful to
compare it with national economic performance. In this paper Virginia state economic
indicator were compared to US. The Virginia performance could be caricaturized as an
average relative to US. Virginia's advantage is that Unemployment in this state is lower
than in US. Wage and Salary rates is slightly lower than in US, but Per capita Income
still increases average Per capita Income of US. For some period of time (1980-1990)
Virginia Economy was booming: all economic indicators showed better performance of the
region. This could be explained by increase in government expenditures on defense
industry (the significant of economy of Virginia) in 1980's. The decrease in economic
activity of Virginia began with defense spending cutbacks in 90's. But this situation is
changing now because of new arias with developing high technology industries and business
sectors like Northern Virginia.
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