There are positive signs that the recession is coming to an end, with a slight growth in jobs during January and February 2019, but the recovery is fragile and will be sensitive to changes in oil prices and budget cuts, Mouhcine Guettabi, associate professor of Economics and ISER faculty told attendees at a series of Alaska Economic Summits sponsored by Northrim Bank in April.
Overall, employment increased by 400 jobs between February 2018 and February 2019. This is in comparison to losses of more than 12,500 jobs since 2016.
“The trade-offs between funding government, paying the dividends, and protecting the value of the Permanent Fund will be difficult to navigate,” Dr. Guettabi said. “All budgetary decisions should account for both the short and long term consequences on the economy and households.”
Guettabi directs ISER’s special research initiative, “Investing for Alaska’s Future,” which is intended to help Alaskans better understand the relationship between government policies and economic development and to monitor state economic and fiscal conditions. For more than a decade Northrim Bank has funded the initiative, with total funding in excess of $1 million. Northrim also provides forums for disseminating fiscal and economic research including annual Alaska Economic Summits in Juneau, Anchorage, and Fairbanks, and Alaskanomics, an online blog.
Over the past year, with funds from the initiative, Guettabi analyzed how Alaska’s recovery compares to other oil dependent states; provided a regional analysis of the effect of oil prices in Alaska; and published an Alaska economic forecast along with regional forecasts.
At the recent Alaska Economic Summits, Guettabi reviewed Alaska’s economic and fiscal outlook, providing a sector-by-sector analysis of employment since 2015. After considerable losses over the past three years, employment in Oil & Gas and Construction sectors have turned positive. The retail sector, which held up well in 2016 and 2017 but incurred larger losses in 2018 is, as of February 2019, 96.5% of its level in February 2015 and appears to have stabilized.
These factors, along with a slowing in the rate of job loss and growth in construction, bode well for the near term economic outlook, according to Guettabi.
Guettabi used an analysis that he along with co-authors Gunnar Knapp and Matthew Berman, developed in their 2016, “Short-Run Impacts of Alaska Fiscal Options,” to show the expected effects of government cuts and higher PFDs on employment – and potential disruption to recovery from the recession.
For each $100 million in government-related cuts, Guettabi would expect about 1,086 jobs to be lost. This number comes from averaging across three job loss scenarios: Government layoffs, broad-based state cuts, and pay cuts for government workers. However, where the cuts are made determines the extent of job losses. State government layoffs would result in the greatest job losses. Using the average, Guettabi would expect around 17,378 jobs to be lost in a short period of time following a $1.6 billion cut. This is 5,000 more jobs than all the jobs lost during the recession.
The 2016 study estimated that a $100 million increase in PFD would result in a short-term gain of 722 jobs. This would mean that a $1.4 billion PFD injection (a combination of a full PFD and repayment) would result in about 10,108 short-term jobs gained.
In his recent analysis of the PFD’s effect on the Alaska labor market, Guettabi found that the PFD resulted in an increase in jobs for only the three months after distribution. They also found that the increase in employment (among men) was offset by a reduction in hours worked by women in the labor market.
Guettabi also discussed the impact of budget cuts on federal money and expected loss of jobs due to cuts in matching funds.
Much of Guettabi’s analysis involved short-term impacts of fiscal options, however, he cautioned, it is important to consider long-term impacts as well.