Counterpoint: Large employers, small communities

Several large employers have announced layoffs in Southeast Missouri recently, generating uncertainty and anxiety. When a large employer is located in a relatively small community, the effects can be quite severe. I wish to consider one recent announcement: the decision by Emerson Electric in Kennett to close its manufacturing facility in that community.

As many as 300 employees stand to lose their jobs by mid-2006 when the Emerson plant closes. These employees will immediately experience reduced incomes (most will qualify for unemployment compensation for up to months). With their reduced incomes, there will be less spending in the Kennett area, which will affect other businesses whose owners and employees will now also have reduced incomes. This is part of the so-called multiplier effect. However, for a small community, the multiplier effect is rather low (less than two) because so much of the spending is for imported goods and services. For example, if income increases in a small community, people may decide to purchase additional cars, appliances, TVs, etc. none of which is typically produced in that community. This dampens the benefit to the community of the increased income and reduces the negative impact when jobs are lost.

Using a model that simulates the Dunklin County economy, we can estimate the impact of the loss of 300 jobs at Emerson Electric in Kennett. Output in the region will decline directly by $44.3 million and the multiplier effects will cause output to fall another $16 million for a total loss of output of $60.3 million. Personal income (income received by individuals) will decline by $13.8 million initially, with the multiplier effects causing personal income to fall an additional $4.7 million, for a total decline of $18.5 million. Finally, employment in the County will decline by 300 as a result of the layoffs and another 187 jobs will be lost due to the multiplier effects. If we take the total loss of jobs (487) and divide by the initial loss (300), we get a multiplier of 1.62. For output and personal income, the multiplier is about 1.33. The multiplier is higher for jobs in this case than for output and income because the jobs being lost are relatively high-paying jobs for the region.

The lost jobs for the region represent about 3.7 percent of total employment in Dunklin County and the lost income is about 3.5 percent of total personal income. That may not sound like much, but imagine if we had a community where every family experienced a 3.5 percent reduction in their incomes. They would clearly feel worse off. Of course, in this case, the burden falls heaviest on those who lose their jobs, both at Emerson Electric and at businesses that reduce their workforces due to reduced spending in the region.

This simple exercise illustrates the importance of major employers to a small region. Workers will face a difficult adjustment due to Emerson Electric's decision to shut down. Some of the workers will no doubt decide to move out of the region, others will seek jobs elsewhere in the region, older workers may choose to retire, younger workers may decide to go back to school. How quickly this adjustment takes place will affect the ultimate impact of the shutdown on Kennett and Dunklin County.

~ Bruce Domazlicky is director of the Center for Economic & Business Research at Southeast Missouri State University.