The measurement of economic diversification with reference to regional unemployment

Abstract

Over the past four years, considerable attention has been focused on the problems of high unemployment in the State of Oregon. The percentage of jobless continued to be higher than that of the nation. The depressed housing market, caused by high interest rates, coupled with an increase in the import of Canadian timber managed to reduce the demand for Oregon lumber and wood products drastically. This has resulted in an abnormally high unemployment rate in many of Oregon's counties which are dependent on the wood industry; for example, the 1980 jobless rate in Harney County reached a record high of 29 percent. On the other side of the spectrum, less dependent counties such as Gilliam and Morrow continued to grow during the same period, with unemployment rates of merely 4.9 and 5.8 percent respectively. These rates are approximately half the state average. Community leaders, including the Governor, seem convinced that the only solution is economic diversification. It is an argument that makes a great deal of sense at first glance. The notion here is that if you diversify you will become less vulnerable to outside forces and hence will have a more stable economy. But what is diversification? How can we tell that one region is more diversified than another? Furthermore, having a diversified economy, does this ensure a lower rate of unemployment? The thrust of this dissertation deals with providing answers to these questions. Three schools of thought--ogive-norm, portfolio variance and entropy--were examined in an effort to determine a more proper measure of economic diversification. Various statistical procedures of hypothesis testing were employed together with stepwise regression and analysis of variance. The research findings indicate that there is a definite relationship between economic diversification and regional unemployment. However, only 28 percent of the change in the rate of unemployment is explainable by changes in the levels of diversification. (The necessary data were provided by the State of Oregon - Employment Division).