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Lamar County — Paris Economic Development Plan <br />place on their alternative uses of the time while unemployed, in childcare, work around the house, <br />continued job search, or leisure. In a high unemployment area, many individuals who are desperate for a <br />job, in that their wages would vastly exceed the value of their time while unemployed, may be unable to <br />find a job. <br />Guiding Principle 2: Increasing the Total Number of Jobs in a Local Labor Market <br />Requires Strengthening the Local Export Base or Substituting for Imports. <br />Increasing the total jobs in a metropolitan area is achieved by either (1) increasing the number or <br />sales of firms that sell to business or residents outside of the metropolitan area ( "expanding the export <br />base "), or (2) inducing local businesses or residents to substitute purchases of local goods or services for <br />goods or services produced elsewhere (" import substitution "). Not every increase in jobs in a local firm <br />will expand total jobs in a metropolitan area. If a firm sells locally, and its expansion does not lead to <br />import substitution or lower costs for export-base firms, its expansion will lead to the contraction of other <br />local firms. <br />Expanding jobs in an area's export base firms will have "multiplier effects" on employment in <br />other local firms. Some of the increased sales of export based firms are spent on local workers' salaries <br />and local supplies. Local suppliers and workers in turn spend some of their additional funds on local <br />goods and services, creating still more jobs. These multiplier effects of respending are not infinite because <br />some of the additional money "leaks out" of the local economy, and is instead spent on goods and <br />services produced elsewhere, or goes into savings or taxes. <br />How multipliers vary for expansions in different firms can be calculated with an econometric <br />model of the metropolitan area economy and information on the firm's characteristics. The local <br />multiplier effects of an increase in jobs in an export base firm will be greater the higher the firm's wages <br />or the stronger the firm's ties to local suppliers. Higher wages mean a greater boost to local retail demand. <br />Local policymakers should question their consultants when they cite export base multipliers of <br />greater than two, that is when they claim that one more job in an export base firm results in more than one <br />additional job in other local firms. Only unusual circumstances will produce multipliers greater than three. <br />Multipliers as low as 1.2 for low wage export-base firms with weak local supplier links would not be <br />unusual. <br />Export base firms include many industries and business types. Export based firms include most <br />manufacturing firms, with the exception of locally oriented industries such as printing. Export based firms <br />include service industries such as some computer software companies, research and development <br />laboratories, law firms with a national clientele, banks with a national or regional market, etc. Export <br />based firms include corporate headquarters for firms with a market outside the metropolitan area. Export <br />based firms also include tourist industries; new money is brought into the local economy by outsiders <br />visiting and buying. Within most industries, larger companies are more likely than small companies to be <br />export base firms, but there are many exceptions to this tendency. <br />More total local jobs can also be created if local businesses and consumers substitute purchases <br />from local firms for purchases from outside firms ( "import substitution "). If local businesses or <br />consumers use more local suppliers, each dollar brought in from outside circulates more intensively <br />within the local economy, creating additional local jobs. For import substitution to be sustainable, the use <br />of local suppliers must be based on cost or quality advantages. If the use of local suppliers is based on <br />civic boosterism, it is likely to quickly fade after the "buy local" campaign is over. If the use of local <br />suppliers is based upon laws or regulations to encourage the use of local suppliers, such policies may <br />make local firms less competitive in the export market because of their use of uncompetitive suppliers. <br />Paris Economic Development Corporation Page 44 <br />