Why the West is Best

Protected public lands, quality of life help drive the West's economy

The economic role of public lands in the West has been a hot button issue for many decades, and the recent recession and ongoing recovery have accentuated the discussion concerning the “best use” of federal lands and the level of protection they should enjoy.

Increasingly, the research that Headwaters Economics and many others have conducted lead us to believe that the federal public lands and natural amenities found in western states provide the region an economic advantage—these lands attract people and business across a range of sectors critical to our economic future.

To understand why this is the case, we first review the economy of a single state, Montana, showing how the state has performed, what sectors are growing and the makeup of the state’s current economy.

We then turn to west-wide trends, analyzing recent job creation and comparing western non-metropolitan counties with various levels of federal protected lands within their borders. Finally, we discuss the broader economic role that natural amenities play in attracting people, investment, and businesses to communities across the West.

Looking at Montana, the state's economy is growing and outperforming the broader U.S. economy. From 2000 to 2010, population grew at 10 percent, employment by 12 percent, and real per capita income by 18 percent.

The fastest growth was in real personal income, which grew by 29 percent from 2000 to 2010, driven by higher quality jobs and a rapid growth of investment and retirement income. Over the same time period, Montana added new jobs and real personal income at more than twice the national rate, and real per capita income increased at more than four times than national rate.

High wage service industries led Montana's employment growth and the economy has diversified beyond a historic dependence on agriculture and extraction. For example, from 2000 to 2010, Montana's economy created 68,696 additional jobs, with 87 percent of the growth coming from service-related industries, many of them in high-wage sectors. The fastest growing sectors of Montana’s economy included health care, real estate, government, and professional and technical services (architects, engineers, software developers, etc.).

People are drawn to Montana for its remarkable quality of life and natural amenities, and the state is attracting people and investment, while creating businesses faster than the U.S.

As Montana grew in the past ten years, in-migration—people moving to the state—was the source of nearly 60 percent of this population growth. From 2000 to 2009, Montana created 4,477 net new firms, and the number of businesses per 1,000 people grew by six percent—while in the U.S. the number of businesses per 1000 people shrank by 3 percent.

Montana’s economy has diversified significantly in recent decades. In 2010, agriculture (including ranching) and extractive industries (mining, energy development, and timber) combined made up eight percent of total employment. By comparison, health care and retail trade each are 11 percent of total employment.

Finally, from 2000 to 2010, investment income—dividends, interest, and rent—increased from $6.2 billion to $7.6 billion, in real terms, a 21 percent gain. In 2010, total non-labor income—primarily age related—was 41 percent of total personal income in the state. Retirement transfer receipts (retirement and disability insurance and Medicare) alone are now 12 percent of the state's total personal income, larger than any other sector.

In part because of Montana's newly diverse economy, economists believe protected federal lands are an important driver of economic growth. Across Montana and the West, protected federal lands such as national parks, national monuments  and wilderness areas are associated with higher rates of job growth.

Headwaters Economics produced economic profiles of every non-metropolitan county in the West from 1970 to 2010, looking at how each of them created jobs during that time frame. We found that non-metropolitan western counties with more than 30 percent of their land base in federally protected status increased jobs by 345 percent during this time frame. By contrast, non-metro counties with no protected federal lands increased employment by 83 percent during the same period.

These results reinforce the idea that natural amenities are an important ingredient in helping communities and states attract businesses, workers and investment. While public lands are associated with travel and tourism activities—which are important in their own right—research increasingly shows that these activities are only one part of a larger amenity economy that is an important driver of economic growth in Montana and across the West.

Services industries that employ a wide range of people—from doctors and engineers to teachers and accountants—are driving economic growth and now make up the large majority of jobs, even in rural areas. At the same time, non-labor income, which consists largely of investment and retirement income, is the fastest growing source of new personal income in the region.

Across the West, the economy has changed significantly in recent decades. From 1990 to 2010, the population in the West grew by 36 percent. By comparison, during the same time the population of the U.S. grew by 24 percent. Much of this growth was due to in-migration, and the U.S. Census Bureau estimates that this growth will continue. Compared to 2000, by 2030 the West's population is projected to grow 46 percent, the fastest of any region in the nation, and faster than the 29 percent growth projected for the nation.

The economy of the West also has grown faster than the nation. From 1990 to 2010, employment and real total personal income in the West grew by 32 percent and 65 percent, respectively. By comparison, employment and real total personal income in the U.S. grew by 26 percent and 53 percent, respectively.

A number of reasons have been offered for the West’s rapid growth. One is the restructuring of the global economy, wherein some professions, such software developers, financial consultants, engineers, architects and other so-called "knowledge-based" occupations have been able to "de-couple" from the city and the factory floor, thereby becoming "footloose," able to live almost anywhere. These transformations of conventional constraints on business location opened up parts of the country that were historically excluded from national and international business networks, including much of the rural West.

A broad economic shift is clearly evident in regional economic statistics. Of the approximately 9 million new jobs created in the West from 1990 to 2010, 94 percent were in service-related jobs. The fastest growing were also well-paying: health services (17% of new jobs with average annual wages of $44,000) and professional and technical services (12% of new jobs with average annual wages of $77,000).

In contrast, the perceived traditional staples of the economy of the rural West shrank slightly and play a smaller and smaller role in the overall economy. Cumulatively, in 2009, farming, ranching, forestry, lumber and wood products manufacturing, hard rock mining, and fossil fuel development combined constituted roughly five percent of all private employment in the non-metro West, and 1 percent in the West as a whole.

It is important to emphasize that the shift of the West to a primarily service-based economy is not limited to the big cities. In the non-metro counties of the West, more than 1.2 million jobs were created from 1990 to 2009, with 84 percent of them in service-related jobs. The bulk of the remainder of the job growth was in government. In many small communities in the West, government is a source of relatively high-wage jobs.

Retirees also have played a role in economic development in the West, as in-migrants that import non-labor income and spur demand for housing and services. Areas of the West with amenities desirable among retirees, such as affordable housing and fair climates, were among the fastest growing parts of the country during the 1990s and 2000s.

Other researchers point out that public lands in the West, along with wild rivers, lakes, mountains and plentiful recreational opportunities, serve as attractants to both business owners and retirees. As a recent review of the amenity migration literature from around the world observed, "the American West is perhaps the most often-cited example of a region experiencing high rates of population growth related to amenity migration."

The powerful attraction of amenities has helped to transform the economy of many parts of the rural West from dependence on resource extractive industries to growth from in-migration, tourism, and modern economy sectors such as pharmaceuticals and software development. This transformation has been aided by the advancement of telecommunications technology, efficient delivery services (e.g., FedEx, UPS), and the growth of regional transportation networks. While in the past the vast distances of the West were an impediment to business trying to get products to markets, in today's economy, these wide-open spaces are for some communities an asset that attracts people and business.

It is important to note that environmental amenities are not the only element needed for economic success and an emerging literature has established a more complex picture of the links between natural amenities and other drivers of growth.

For example, recent studies have shown that it is easier to capitalize on environmental amenities if the local economy also has access to larger markets, especially via air travel. Some research has found that 40 percent of world trade moves by air, and two-thirds of U.S. air cargo is transported via 24- to 48-hour, door-to-door express shipments.

The structural shift in the economy towards a primarily service-based economy also underscores the importance of education. If almost all new jobs are in services, the key to economic success, and what will differentiate one county from another, is the ability to capture relatively higher-wage component of services industries.

According to analysis by the Bureau of Labor Statistics, jobs that are projected to be in highest demand and are growing the fastest also require a college degree. These sectors pay well and include the fields of health care and education, and occupations in management, engineering, and business and financial services.

Together, these trends point to a promising future for the West. Our region’s natural amenities—especially when paired with other important factors such as access to markets and an educated workforce—provide us with a competitive advantage compared to many other parts of the country. How we utilize these advantages—through the combination of local leadership, investments, and policy decisions concerning land management—will play a significant role in determining the West’s economic future and prosperity.

Ray Rasker, Ph.D., is the Executive Director of Headwaters Economics, a Bozeman based research group with the mission to improve community development and land management decisions in the West.