Caleb Wursten

Nokomis Regional High

Trio Upward Bound Math Science

University of Maine at Orono

Mentor: Travis Blackmer

Maine’s Changing Job Market and Economic Predictors

Abstract 

This project is intended to better understand the Maine state economy through the analysis of the changing labor force in the state and to look for intriguing indicators that influence Maine’s real personal income with the greatest impact. The benefit to understanding the Maine economy is to allow the populace to make a more accurate judgement about the position of Maine’s economic well being. To accomplish the experiment Excel and Eviews were used to compute and analyze the data. The findings that this experiment identified included the fact that healthcare was growing at a consistently high rate and is a safe investment, that if lobster prices were to fall lobstermen, and consumers would benefit, and manufacturing is following a steady decline pattern. This study will aid individuals, firms and the government to better invest their time and capital.

Introduction

Maine’s economic recovery to pre-recession levels has been sluggish for a number of reasons that are unlikely to change in the near future (Baillargeon, et al., 2010). As time has progressed Maine’s economy has transitioned from one of predominantly manufacturing, with 1 in 3 Maine citizens being employed in the manufacturing sector in 1960, to today, when only 1 in 12 are employed in the manufacturing sector. This movement away from manufacturing will only continue (Colgan, 2013).

This investigation assessed the changes in the composition of Maine’s workforce over time as well as delved into indicators that are unique to Maine’s economic activity. To quantify the impact of Maine-specific variables, this project used Maine’s Real Personal Income (MRPI) as the dependent variable to be measured and economic indicators as the independent variables. Real Personal income is a measurement of all pre-tax income adjusted for inflation. It acts as a strong indicator of an economy due to the fact that it can be tracked over time and is comprised of all income earned in the Maine economy.

Maine Employment Sectors

The sector change over time study used data from 1990 through 2011 to best capture what sectors have been influencing the state’s economy and for a proper background of the labor force. Based on the historical literature on Maine’s employment, it is hypothesized that growth will be seen in the healthcare, trade, educational, administrative and waste, and the entrepreneurial sector, balancing a decay in the manufacturing sector. The healthcare sector will see growth because there is a rising demand for healthcare due to an aging population. Trade will see an increase because as the populace can afford more materials trade will increase to satisfy these needs, and the increase in affordable materials is almost always occurring under normal circumstances. The educational sector will see an increase because the state is putting more emphasis on the importance of college graduates and to transition more people through college calls for more educational costs and employment (Bureau of Labour Statistics, 2013). The administrative and waste sector will continue to see an increase in employment because it is comprised of supplementary services, which an economy increasingly calls for as it advances in complexity. Finally, the entrepreneurial sector will see an increase in employment because Maine is experiencing a net gain of graduates, who are prime innovators in an economy (Hunt, 2009). Manufacturing will see a continuous decline as it is being outsourced overseas to cheaper labour markets (Colgan, 2013).

Maine Economic Indicators

The independent variables that were utilized to advance the Maine econometric model include (1) TREND, (2) potato production, (3) lobster prices, (4) tourism employment, (5) median home value and (6) energy prices. TREND is the amount of Maine’s Real Personal Income explained by just the passing of time, or indicators not included in the study. Potato production indicates the amount potato farmers were producing quarterly, showing the health of that sector. Lobster prices indicate the price per pound lobster fishermen were getting for their catch quarterly. Tourism employment is the total number of employees in the tourism sector, in this case Maine’s tourism sector quarterly. Median home value is the value that is placed on the middle home if all home values were in a line. The median was used to accommodate for the skew associated with home values. Energy prices is the value of No. 2 heating oil, which is a common source of fuel and heavily used in the Maine economy.

Hypotheses about the relationship between the six variables used in this model and Real Personal Income originate from economic theory and intuition. It is expected that the TREND variable will have a positive relationship with MRPI as incomes have increased over time. It is expected that the Maine potato output will have a positive relationship with MRPI as it is indirectly a component of Personal Income. Maine tourism is expected to also have a positive effect on MRPI as Personal Income is derived in part by tourist expenditures and employment in that sector would indicate a strong Maine economy. It is indeterminate what type of relationship the real lobster price will have, as a higher price may be an indicator for more wealth in society. Relevant economic theory suggests that lobsters are a luxury good, meaning they have a high elasticity of demand and this suggests that more income can be derived as lobster prices fall. Real Median Home Price is expected to have a positive relationship as it indicates higher societal wealth, which is a direct determinant of the consumption schedule and has a positive relationship. Real Energy Prices are a cost to businesses and households and should show a negative relationship with Real Personal Income.

Background & Definitions

The data collected for the employment by the industrial sector originated from the Bureau of Labor Statistics. To analyze this data accurately it has been put into three different formats, all of which illustrate unique trends in the same data set. (Fig. 1) shows the full picture with all the data points displayed into a continuing change over time outlay. The table shows the exact number of job change from prior years in comparison to more recent years as well as the total change since 1990. (Fig. 3 & 4) show the percentage share each sector has in comparison to the others.

The data collected for the indicator study was collected from (U.S. Energy Information Administration, 2013), (Historic Maine Lobster Landings, 2013), (Non farm payroll job estimates, 2013), and (The National Bureau of Economic Research, 2013). The data was used in both an Eviews and Excel model to determine the amount of Maine’s Real Person Income explained by each indicator. The econometric model will have the following specification.

Maine Real Personal Income = c + β1X1 + ... + βnXn + E.

This is the standard form for this type of model. The dependent variable is on the left side of the equation and is set equal to the right side of the equation. The right side includes a constant term, a series of Beta’s multiplied by X’s, and an error term. The Beta’s are the predicted coefficients for the independent variables which are denoted by X. The independent variables are the Trend, Potato Output, Tourism Employment, Lobster Prices, Median Home Value, and Energy Prices.

Results

Maine Employment Analysis

Figure 1. Maine’s Employment by Sector - Graph

Figure 1. is a graph showing the gross employment levels of the various sectors of Maine’s economy.  The graph indicates several interesting features. Entrepreneurship saw a slight uptick during the recession as innovation was needed. Entrepreneurship seems to be at a somewhat constant incline but it has almost doubled since 1990, increasing by 94.7%. Accommodations & Food Services and Tourism employment follow a very close correlation because they are both tied to the number of tourists Maine receives. The trend they share is a steady increase as Maine becomes more of a tourist destination. Retail trade has seen an increase because as the population grows, there are more people consuming more goods, therefore creating a higher demand. It is apparent that numerous sectors experience a sudden drop in employment, which is further analyzed analyzed in Figure 2.

Figure 2. Maine’s Employment During Economic Downturn

Figure 2. shows the cumulative percentage change in employment by sector during the recent recession that began in January of 2008. The graph illustrates a heavy decline in the sectors: manufacturing, construction, transportation, warehousing, utilities and retail trade in 2008. This was caused by the 2008 economic downturn that impacted Maine’s economy, although to a lesser extent than the other 49 states on average. The decline was seen in these sectors, and traditionally in recessions, because durable goods and similar sectors are cyclical due to the high elasticity of demand (Bader, 2012). Finance & Insurance saw a decline at a time when it was posting strong profits because the economic downturn was caused by a fall in real estate values and banking failures, both of which are intimately tied to Finance & Insurance. Administrative & Waste, thought to decrease in recessions as it comprises of supplementary businesses, actually grew.

Table 1. Maine Employment by sector

Sector: Employment

Change 1990-2011

Change 1990-2000

Change 2000-2011

Annual Change 1990-2011

Annual Change 1990-2000

Annual Change 2000-2011

Accommodations & Food Service

17.793%

8.33%

8.73%

0.81%

0.83%

0.73%

Healthcare & Social Assistance

84.037%

48.44%

23.98%

3.82%

4.84%

2.00%

Finance & Insurance

17.130%

26.39%

-7.33%

0.78%

2.64%

-0.61%

Entrepreneurship

94.737%

60.53%

21.31%

4.31%

6.05%

1.78%

Retail Trade

5.032%

7.23%

-2.05%

0.23%

0.72%

-0.17%

Manufacturing

-46.730%

-14.77%

-37.50%

-2.12%

-1.48%

-3.13%

Tourism

21.328%

10.87%

9.44%

0.97%

1.09%

0.79%

Construction

-16.287%

-6.19%

-10.76%

-0.74%

-0.62%

-0.90%

Wholesale Trade

3.243%

4.32%

-1.04%

0.15%

0.43%

-0.09%

Trans, Warehousing, Uti.

-9.677%

2.69%

-12.04%

-0.44%

0.27%

-1.00%

Educational Services

85.586%

36.04%

36.42%

3.89%

3.60%

3.04%

Administrative and Waste

85.616%

60.27%

15.81%

3.89%

6.03%

1.32%

Table 1. contains a breakdown of total and annualized changes by employment sector from early 1990 to 2011, 1990 to 2000 and 2000 through 2011. The change seen in the manufacturing employment sector illustrates a speeding up of layoffs going from -2.12% annual decline in 1990-2000 all the way to a -3.13% annual decline in 2000-2011. Not only has it changed to a decline but it shows a steady fall in employment that cannot be attributed to just the 2008 economic downturn. Along with this is the finance & insurance activity that went from a 2.64% annual increase from 1990-2000 to a -.61%  annual decrease from 2000-2011. Another important piece of information shown by Figure 2 is the healthcare industry not speeding up from 2000-2011, but from 1990-2000 with a 2.00% annual increase.

                Figure 3. Maine’s Employment by sector - Pie Chart snapshot 1990

                Figure 4. Maine’s Employment by sector - Pie chart snapshot 2000

                Figure 5. Maines Employment by sector - Pie chart snapshot 2011

Looking at Figures 3, 4, and 5, it is evident that Health Care & Social Assistance sector is gradually becoming the dominant employer in the Maine economy. Starting out at roughly half the size of the manufacturing sector in 1990, it is double the size of manufacturing in 2011. In addition, the administrative and waste sector has seen an increasing percentage share, as it is a conglomeration of all supplementary businesses like waste management, staff management companies, security cameras & personnel and cleaning. With a more advanced economy comes a higher need for supplementary services.

Maine Economic Indicators

Table 2. Maine Economic Indicators

Dependent Variable:

Real Maine Personal Income

 

 

 

 

Method: Least Squares

Sample (adjusted): 1990Q1 2011Q4

Included observations: 88 after adjustments

Variable

Coefficient

Std. Error

T-Stat

P-Value

Constant

1.0639

1.622227

0.655827

0.5138

TREND

0.0331

0.00681

4.86

0

Maine Potato Output

2.97E-06

1.46E-05

0.203

0.839

Maine Tourism Employment

0.00031

3.53E-05

8.765

0

Real Lobster Prices

-0.8095

0.266

-3.047

0.0031

Real Median Home Values

1.95E-05

4.13E-06

4.713

0

Real Energy Prices

-0.271

0.175

-1.549

0.125

R-squared

0.986

Adjusted R-squared

0.985

S.E. of regression

0.308

Sum squared resid

7.704

Log likelihood

-17.699

F-statistic

964.536

Prob(F-statistic)

0

The first step in analyzing this data is to determine if there is a statistically significant relationship at all. To do this the p-Value was first evaluated, if it was above the predetermined 0.05 alpha level then it is deemed inaccurate, or there was no statistically significant relationship. Once the p-value was established as accurate the coefficient was analysed. The coefficient is the measure of which a variable affects MRPI. A p-value less than the alpha level of 0.05 means that there is a statistically significant relationship. The following variables met that criteria and the estimated coefficients can be analyzed as to their relationship with MRPI; TREND, tourism, real lobster prices and real median home values.

The TREND variable indicates that every quarter that passes the MRPI will rise 0.0331 billion dollars due to time passing alone, or variables not accounted for in this model that contribute to the long run trend of MRPI. For every one job added to the tourism sector it explains 0.00031 billion dollars of MRPI increase. This being said, if there were 1000 tourism jobs added, the model would predict a 0.31 billion dollars increase to MRPI. For every one dollar rise in lobster prices the model predicts MRPI would see a .8095 billion dollar decrease. For every $10,000 added to median home values .195 billion dollars is predicted to be added to MRPI.

Discussion

Sector Analysis

The predictions made from researching about Maine’s employment, pertaining to which economic sectors expanded and which contracted, were correct. The sector analysis has shown that Healthcare has been taking over percentage share at a steady pace. This result may be caused by the government’s increasing involvement in the healthcare industry, people needing the service at a heightened level for diseases such as obesity, diabetes, cardiovascular disease etc., or due to industry inefficiency. The fall in manufacturing has been occurring for decades and is directly caused by the strong overseas competition in the form of cheap labor and materials. With the fall in manufacturing it leaves many towns here in Maine at loss (such towns are the traditional “mill” towns). The reason behind education’s steady high growth rate is the increasing awareness that schooling is mandatory to succeed in today’s economy. It is also known that college graduates bring wealth into a state, making it important on the state as well as the individual level.

These changes in the economy are not black and white, but are relative to the people experiencing them. It is true that Maine has been losing manufacturing jobs year after year. This negatively impacts its former location, but an argument can be discussed about how it benefits society as a whole. Now that the people can buy cheaper goods they have more money to spend on goods and services that may happen to be closer to home. All the while the wealth of the people is being increased with more goods and services available to them. This is not saying Maine is losing jobs but the economy is maturing or transitioning away from traditional sectors to sectors in demand.

Maine Economic Indicators

The predictions made in this experiment were correct, save lobster prices which decrease MRPI as they increase in price, but only intriguing indicators will be discussed. The analysis has shown that the TREND, tourism employment, lobster prices, and median home values influence MRPI. The TREND variable is showing that there are unaccounted-for influencers in the model; it increases the MRPI by 0.0331 billion every quarter. The increase seen in MRPI as tourism employment improves illustrates that tourism is an intricate part of the economy and influences MRPI. The common perception is that higher lobster prices would benefit MRPI, but due to the fact that lobster is a luxury good which has a high elasticity of demand, a fall in price actually benefits lobstermen and MRPI.

Extensions

If time and resources were not a factor a few methods would have been altered in this study. These include more accurate lobster prices at quarterly intervals instead of an averaged yearly price. The analysis may also have benefitted from a seasonally adjusted analysis that looks at the employment fluctuation caused by seasons alone. In addition the experiment would have been improved by a sector analysis that dates prior to the 1990’s.

Appendix

Summary Statistics of Variables

 

Maine Real Personal Income

Real Median Home Value

Real Lobster Prices

 Mean

19.55569

88138.19

1.835445

 Median

20.13148

81350.14

1.821727

 Maximum

22.91235

130502.8

2.427897

 Minimum

15.85095

70344.28

1.355227

 Std. Dev.

2.532819

18289.58

0.236092

 Skewness

-0.218644

1.055507

0.081789

 Observations

88

88

88

Real Energy Prices

Maine Tourism Employment

Maine Potato Output

 Mean

0.662152

54727.27

17801.57

 Median

0.480249

56350

17813

 Maximum

1.790455

60800

24300

 Minimum

0.273284

46200

2200

 Std. Dev.

0.362195

4937.139

2818.34

 Skewness

1.167727

-0.392236

-1.341286

 Observations

88

88

88

References

Bader, H. (October 1, 2012). Omens of another recession? durable goods orders drop sharply. Retrieved from http://www.openmarket.org/2012/10/01/omens-of-another-recession-durable-goods-orders-drop-sharply/

Bureau of Economic Analysis. (2013, June 28). Us bea regional data. Retrieved from http://www.bea.gov/regional/index.htm

Bureau of labor statistics. (2013, June 1). Retrieved from http://www.bls.gov/data/

Colgan, C. (2013). Maine economic outlook. Retrieved from http://www.newenglandcouncil.com/assets/ME-NEEP-May-2013.pdf

Economic research service. (2013, June 1). Retrieved from http://www.ers.usda.gov/data-products/vegetables-and-pulses-data/yearbook-tables.aspx

Glassman, J. (2010, September 15). The state of maine's economy. Retrieved from https://www.chase.com/ccpmweb/commercial/document/Maine.pdf

Goodall, S. (2010, February 15). Maine economic growth council presents measures of growth in focus 2010. Retrieved from http://www.mdf.org/press-releases/Maine-Economic-Growth-Council-presents-Measures-of-Growth-in-Focus-2010/217/

Government spending details. (2013, July 29). Retrieved from http://www.usgovernmentspending.com/year_spending_1993MEmn_14ms2n_70F0

Hunt, G. (2009, February 02). Maines brain gain with professor gary hunt., Retrieved from http://umaine.edu/vme/video/hunt.htm

Non farm payroll job estimates. (2013, June 1). Retrieved from http://www.maine.gov/labor/cwri/ces.html

The National Bureau of Economic Research. (2010, September 20). Retrieved from Real estate charts. (2013, June 1). Retrieved from http://www.jparsons.net/housingbubble/

U.S. energy information administration. (2013, June 1). Retrieved from http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMA_EPD2F_PTG_NUS_DPG&f=M

(2013, 19 2). Historic Maine Lobster Landings. Retrieved from http://www.maine.gov/dmr/commercialfishing/documents/lobster.table_000.pdf

Acknowledgements

I would like to thank my mentor, Travis Blackmer for the much appreciated hours he put in first for giving me a lesson on the art of economics and then showing me the ropes with Microsoft Excel, which any self-respecting economist has the ability to use. On top of this he facilitated the process of finding data by answering the many questions I had, be it for citing the data, the legitimacy of the data or even if the data was of philosophical importance. In addition to Travis, I would like to thank Kelly Ilseman for helping me choose a project I could invest myself in without the gnawing pangs of hindsight many of my peers are facing. I would like to thank Jeremy Swift and James Brophy for the meticulously thought out feedback they gave me. And finally Crystal Cloutier for checking in on us, showing us someone was there if we needed anything to help along the process, which was reassuring.

Autobiography

My name is Caleb Wursten. I grew up on the island of Nantucket, the one the drink was named after and home to the famous Figawi sail boat race! On Nantucket I attended 8 years of school, went clamming with my dad, and had the occasional fresh lobster. From there I moved to Greybull, Wyoming (my parents said it was a vacation), where I took a single year of school and learned how to lasso the elusive plastic bison. Finally I ended up in Maine, a great contrast to the deserts of Wyoming. In Maine I learned an arsenal of skills such as teamwork, sociability, and even a love for academics, primarily in the liberal arts and economics. With this in mind I recommend everyone to move to a new, unique place at least once before graduating high school. My interests include current events, conversing with informed people and enjoying the sports of foosball and ping pong. I plan to attend a four year university in the field of economics or political sciences, hopefully in the state of Maine, as I have developed a passion for our Vacationland.