Gambling is not a long-term answer to reservation unemployment; a safer bet is investing in education

By Richard Barrett
for Headwaters News

Since the passage of the Indian Gaming Act in 1988, tribes across the country have turned to the construction and operation of casinos as engines of reservation economic development.

On reservations with high rates of poverty and unemployment, low pay, and little prospect of growth from other sources, casinos have come to be regarded as the last best hope for generating revenue for tribes and for providing desperately needed jobs for reservation residents.

Tribes in the Mountain West face particularly daunting economic conditions, but in their approach to economic development, they are not alone. Across the region and political spectrum, the belief that job creation should be a top priority of government is not confined to tribal development officials, but is, rather, an article of faith for governors, senators, legislators, county commissioners – indeed just about anybody in elected office.

And this faith in the importance and value of job creation is not confined to government. Many organizations, representing a broad array of such social interests as the arts or the environment, try to marshal public support by arguing that what they do, or propose to do, creates jobs – even if job creation is tangential, at best, to their larger purpose.

This commitment to job creation does not spring from some simple conviction that bigger is better, but rather the belief that job growth will result in qualitative improvement in the labor market. It's a matter of supply and demand: by increasing the demand for labor, we will raise earnings, lower unemployment rates, and provide new employment opportunities for workers and their families living in or close to poverty.

"As it turns out, the fact that a tribal casino is up and running in a rural county appears to have no significant impact on the local labor market."

We are all aware of the fact that earnings and income are low, and poverty rates are high, in much of the Mountain West. Surely that makes creating new jobs absolutely imperative.

Unfortunately, the economics of local labor markets are not so simple as all that. To understand how these markets operate, it is important to understand that local economies are extremely open. That means that goods, services, capital, labor, technology and the like all flow in and out of the local economy quite fluidly.

In the labor market, these inflows and outflows have an important effect: They tend to erode the beneficial impact on labor market conditions of job creation, and to buffer the detrimental impact of job loss.

The process is straightforward: Suppose the establishment of a casino raises the demand for labor in the local labor market. Initially, unemployment rates will fall and wages will rise as growing demand meets the limitations of the existing supply of labor.

But these improvements in labor market conditions provoke in-migration, or stem the tide of out-migration, and in the process, wages fall and unemployment rates rise back to their original levels or very close to their original levels.

The process also works in reverse: When employment declines, driving down wages and raising unemployment, people leave or stop coming quite so much. This restricts the local supply of labor, and wages rise and unemployment falls, approaching its original level.

None of this happens overnight, of course, and how lasting the beneficial effects of job creation are, and how rapidly are they attenuated by the movement of workers from place to place, are important questions to answer.

What does this skepticism about the impact of new jobs mean? Should tribes conclude that casino construction or, for that matter, any effort at job creation on the reservation is a dead-end strategy for dealing with the problems of unemployment and poverty?

They're not likely to do so and for good reason: It can be quite plausibly argued that this account of the labor market simply doesn't fit with the social and economic realities of the reservation. In particular, mobility into and out of the local labor is arguably a good deal lower on the reservation than elsewhere.

One reason to suspect that labor does not move off the reservation easily is the persistence of very high rates of unemployment typically reported by tribal economic agencies. Such persistence is inconsistent with mobility.

A tribal development official with whom I have had some correspondence makes this point forcefully. From his point of view, he is presiding over a disaster: people without enough income; with no viable prospects off the reservation; with close family, cultural and social ties helping to hold them in place, and in desperate need of jobs. The idea that job creation wouldn't help those people appears to him to be just simply nuts.

In an attempt to sort out these conflicting claims, I studied the way in which unemployment rates, per capita job holding, and earnings per job responded to the changes in the rate of job growth in 189 rural counties in the Mountain West between 1979 and 1999.

I chose these counties in part because it seemed to me that they are the ones in which casinos might be most likely to have a discernible impact; for those counties in which tribes did operate casinos, I tried to measure the effects by comparing the performance of labor markets in the years before and after the casino was opened.

Many of the tribally owned casinos in the Mountain West are located in the metropolitan areas of Nevada, Arizona and New Mexico. This makes sense because, after all, that's where the gamblers are. Most of the extremely successful casinos in the Midwest and East are similarly located in or near large metropolitan areas.

But it is unlikely that the impact of even a large casino is going to be noticeable in the context of a dynamic urban labor market such as that of Las Vegas or Phoenix. The relatively small number of casinos in the region's rural counties might then be thought to constitute a larger and more significant local presence, but of course given their more remote location, they tend themselves to operate on a smaller scale.

As it turns out, the fact that a tribal casino is up and running in a rural county appears to have no significant impact on the local labor market.

Obviously such casinos hire people and pay wages, but these effects are simply not big enough to avoid being swamped by normal year-to-year variation in earnings and unemployment rates.

Casinos may have no discernible impact because they are simply too small, typically, to make a difference. But would another, larger effort at employment creation have the desired effect? Unfortunately, it appears that it would not.

The evidence from the sample I have examined suggests that even a substantial acceleration of job growth will have quite small and transitory positive impacts on conditions in rural labor markets.

Consider, for example, a permanent one percentage point increase in the annual rate of employment growth. For a typical rural county in the Mountain West, this might mean job growth of 3 percent, rather than 2 percent, per year. Yet this dramatic leap in employment growth would lead to an immediate reduction in the county unemployment rate of just one tenth of a percentage point and after 4 years, even this modest reduction in unemployment would evaporate.

Similarly, real annual earnings per job (in 1983 dollars) would end up $37 higher than they would have been if job growth had not accelerated, a very small increase when compared to mean earnings per job for all the counties over the twenty year period of $13,400.

Are the favorable effects of employment creation larger or more persistent in reservation counties where labor mobility is low (for this purpose we can consider a typical reservation county to be one in which half the population is Native American)? Again, the answer appears to be no.

Labor markets respond to accelerated employment growth in much the same way in reservation and non-reservation counties alike, although in the short run, the response in reservation counties tends to be a good deal more volatile.

What lessons can a tribe, or indeed any rural community, draw from all this? Well, one lesson, which appears a little discouraging, is that there is little reason to believe that even quite successful efforts at job promotion will have large and lasting good effects on the local labor market, because of the erosive effects of labor migration. But that, of course, casts things in a negative light.

Perhaps a more positive way of looking at the situation is to recall that traditionally we regard economic success as a matter of being well educated and well trained, adaptable to changing circumstances, and mobile. Communities concerned about their economic future should concentrate their efforts on providing for the education, training and health of their citizens, with the aim of making them the beneficiaries of competition and mobility, rather than the victims.

Richard Barrett is a professor of economics at the University of Montana and co-author of "Post-Cowboy Economics: Pay and Prosperity in the New American West."

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