Center for Business and Economic Research - Ball State University


CBER Data Center
Projects and PublicationsEconomic IndicatorsWeekly CommentaryCommunity Asset InventoryManufacturing Scorecard

About

Commentaries are published weekly and distributed through the Indianapolis Business Journal and many other print and online publications. Disclaimer

RSS Feed

Disclaimer

The views expressed in these commentaries do not reflect those of Ball State University or the Center for Business and Economic Research.

Recent

Educational Attainment, the 21st Century Fund and the Future of SchoolingIndiana ranks 42nd in educational attainment.

Big Savings for Ending Prevailing WageMy statistical models show that repealing state prevailing wage laws save taxpayers money.

Re-Thinking Economic Development A large share of the most mobile families—perhaps half—no longer need to live near where they work.

Money Illusion and InflationPrice fluctuation could cause inflation to last longer, but it didn’t cause the inflation, it simply extends the pain.

View archives

Top Tags

jobs and employment 231
economics 178
education 149
economic development 146
state and local government 129
taxes 123
finance 109
indiana 106
migration and population change 104
budget and spending 104
Browse all tags
Reporter / Admin Login

December 22, 2013

An Economic Model for the Holidays

It is Christmas time again, and as usual I struggle to find good gifts for those I care about.  To be honest, they are not much help.  My lovely wife told me she might need a cleaning appliance of some sort, and my nine year-old confessed to wanting new underwear, socks and perhaps a few surprises. 

About the only thing I know to give this year that might be honestly appreciated is a brief column on a subject that affects almost every community.  Moreover, it is almost entirely free of the ill-informed ideology that seems to drive so much public policy these days.  It is a simple economic model of regional growth.

Like any model, the regional growth model begins with some hypotheses.  First, let us suppose that households that are better educated and more skilled have more choices about where they choose to work and live. Second, let us suppose that households are willing to make trade-offs between the quality of life in the place they live and their earnings.  So, households must be compensated extra to live in less attractive places.  Finally, let us assume that businesses seek to maximize profits, a process which includes worrying about labor costs. None should any of this seem too much a stretch of common sense.

An astute reader might see four or more equations in the preceding paragraph. Solving these equations provides us some clear outcomes.  Regions that are attractive places to live will attract households with greater location choices.  These households will inevitably be better educated and command a higher income.  However, all things being equal, workers in these places will not require quite as high a wage to live in these places as they would to live in a less desirable place.

The first result of solving this model is the not especially surprising result that nice places tend to attract more people, and these people tend to be of higher income.  This alone would commend efforts to improve communities as an important economic development tool.  Population growth is, after all, the chief worry for most places in Indiana.  However, there is more to the story than just this.

The real magic of the model is trade-off between wages and amenities, and what that does to economic growth.  In our simple model, we see that higher income households are more likely to relocate to (or stay in) nicer places. But, they are also willing to accept a lower wage to do so.  The result of is a remarkable outcome.

Places with better amenities do tend to have higher income households, and of course all the benefits that accrue to them.  But for a business looking for workers, the nice place will offer a wage advantage over less attractive locations. 

This result has great meaning, for it means improving quality of place reduces business costs on the most costly of inputs; human capital.  So, as we think about attracting business to Indiana we ought to get better at thinking through these simple models.

Link to this commentary: https://commentaries.cberdata.org/709/an-economic-model-for-the-holidays

Tags: budget and spending, community, cost of living, people, economics


About the Author

Michael Hicks cberdirector@bsu.edu

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He has authored two books and more than 60 scholarly works focusing on state and local public policy, including tax and expenditure policy and the impact of Wal-Mart on local economies.

© Center for Business and Economic Research, Ball State University

About Ball State CBER Data Center

Ball State CBER Data Center is one-stop shop for economic data including demographics, education, health, and social capital. Our easy-to-use, visual web tools offer data collection and analysis for grant writers, economic developers, policy makers, and the general public.

Ball State CBER Data Center (cberdata.org) is a product of the Center for Business and Economic Research at Ball State University. CBER's mission is to conduct relevant and timely public policy research on a wide range of economic issues affecting the state and nation. Learn more.

Terms of Service

Center for Business and Economic Research

Ball State University • Whitinger Business Building, room 149
2000 W. University Ave.
Muncie, IN 47306-0360
Phone:
765-285-5926
Email:
cber@bsu.edu
Website:
www.bsu.edu/cber
Facebook:
www.facebook.com/BallStateCBER
Twitter:
www.twitter.com/BallStateCBER
Close