Essay, Research Paper: Virginia Unemployment 


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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.

1. John R. Fiske, James C. Lamb, Mark F. Morss: Practical economic
forecasting for small regions. Business Economics, July 1991 2. F Gerard Adams,
Carl G. Brooking, Norman J. Glickman: On the Specification and Simulation of
Regonal Ecometric Model: A Model of Mississippi. The Review of Economics and
Statistics, Aug, 1975 3. Paul B. Siegel, Thomas G. Johnson, Jeffrey Alwang:
Regional economics and diversification. 4. Bureau of Census:
5. Bureau of Economic Analysis: 6. Bureau of labor
Statistics: 7. FedStats: 8.
University of Virginia Social Science Data Center:
9. Virginia (special advertising supplement) Forbes, Dec 7 1992 10. Kim Fulcher
Linkins: Virginia's New Dominion: Northern Virginia's Silicon Dominion is home
to high-tech firms that offer work in every facet of IT. Computerworld, August
16, 1999 11. Richard Meyer: Of swords and plowshares: how Virginia plans to
soften the blow of defense cutbacks on its economy. Financial World, June 8,

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