Alaska%27s%20Economy - Alaskas Economy Historical Trends...

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Alaska’s Economy Historical Trends and Future Outlook B Y M O U HC IN E G UE TTAB I AN D G U NN AR KNAP P In this article we review recent trends in Alaska’s economy and the economic outlook for the near -term and longer- term future. We begin with a brief description of the structure of Alaska’s economy and key factors that drive it. Next we review historical trends in the economy. We then discuss factors likely to affect the economy in the near-term future, including the dramatic decline in oil prices and state oil revenues and the state’s response to the resulting very large deficits. Finally, we discuss the longer-term outlook for the Alaska economy, including the potential economic impacts of an LNG (liquefied natural gas) export project. Alaska’s economy is complicated. In this brief article we have to omit important details due to lack of space. In particular, we do not address regional variation in the economy, which is significant, or the significant changes occurring in many industries. Alaska’s future economic outlook is uncertain. We can’t predict with certainty the combined effects of the many factors which may affect it. Our primary goal is to describe potential implications of factors which we know will affect it. Alaska Economic Structure and Trends It is useful to gr oup Alaska industries as “basic” or “support” and further into the four major “sectors” shown in the table below which vary in what drives them, how they have changed in the past, how they are likely to change in the future, and in their relative importance for different regions of Alaska. Basic sectors and industries sell goods and services primarily to markets outside Alaska and thus bring money into the economy (the federal government is “basic” because federal spending in Alaska is paid for from outside Alaska). Support sectors and industries sell goods and services primarily to markets inside Alaska and thus recirculate money in the economy.
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There is no single measure which fully describes the structure of Alaska’s economy and the relative economic importance of different sectors and industries. Three useful measures are employment, wage and salary income, and contribution to gross domestic product. The relative significance of different sectors varies across these measures, reflecting the fact they measure different things. Employment measures how many people work in a sector, wages and salaries measure how much they earn, and GDP measures how much value they create. As shown in the graph below, in 2013 (the most recent year for which detailed GDP estimates are available) resource industries accounted for 31 percent of gross domestic product but only 11 percent of total employment. In contrast, trade, service, transportation, and infrastructure industries accounted for 51 percent of GDP but 66 percent of employment. State and local government accounted for 14 percent of employment but 18 percent of wages and salaries. The federal government accounted for 9 percent of employment but 13 percent of wages and salaries.
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