by Dr. Patrick Jones
Over the past two decades, the economy in Chelan and Douglas Counties has become a bit more diversified. That is the main takeaway from viewing Trends indicator Concentration of Employment in the Top Five, 2-digit NAICS sectors.
This indicator adds up the annual average number of workers in these five sectors and expresses their total as a percentage of the entire workforce. Over the past two decades, this ratio has moved from approximately 72% to 69%. This modest shift stands in contrast to Yakima County, where its economy’s concentration has increased among the top five employing sectors, moving from 69% to 72%. In contrast, the concentration ratio in Benton County (Tri Cities) has fallen dramatically: from 63% to 55%.
Why should we care about these ratios? For the essentially the same reason that investors are urged not to bulk up with one asset class: diversification. A commitment to balance usually brings the best risk-adjusted returns to an investment portfolio.
For a local economy, a dependence on one or two sectors may be positive when they are enjoying good times. But when those times stop rolling, their outsized impact can devastate, at least for a while, the local economy. Think of the impact of Boeing’s struggles in the late 1960s on the Seattle economy. Or when a gold mine shuts down in Ferry County.
It is, of course, more difficult for a small economy to diversify than a large one. There simply aren’t as many opportunities for a smaller economy to put its eggs in many different baskets. Consequently, it is notable that the economy of these two counties has diversified, if only slightly. Its nearly 58,000 workers compose a labor force that is only 59% the size of Benton County’s.
What has changed in the composition of economic sectors in Chelan and Douglas Counties? Viewing Trends indicator 2.3.3 gives us some answers. First, agriculture has become much less important as a share of the workforce, falling from 24% in 2004 to 18% in 2023. (Last year’s results will be published shortly.) Government, too, has shrunk on a relative basis, declining from about 18% to 16% over the same interval. Government includes federal, state and local agencies and jurisdictions, with local being the largest due to the public-school workforce.
On the other hand, the healthcare sector now claims a bigger slice of the local workforce, at 13% versus 11% in 2004. The hospitality sector (food, drinking & lodging establishments) has also flexed its size, albeit modestly, from 8.5% to 10% over the same interval.
The relative growth of these latter sectors, however, has been insufficient to counteract the large decline in agriculture and the modest decline in government. Consequently, the local economy is less dependent on its top 5 employing sectors.
In a perfectly balanced economy, each sector would take up 5% of the local workforce, since all industries are arranged into 20 sectors. But of course, that won’t happen and it is not even desirable. Ideally, a local economy, just like an investment portfolio, will balance the desire to grow those high-paying sectors against the need to diversify.
In the context of Chelan and Douglas Counties, what might those high-paying sectors be? From the most recent data, the two sectors with the highest annual earnings or wage are: Finance and Insurance, Professional, Scientific & Technical Services and Construction. The latter two sectors need no introduction. The first can be regarded as what we formerly labeled the “white collar” workforce: lawyers, accountants, engineers, and increasingly, consultants.
And how have these high-paying sectors grown over the past two decades? For two of them, quite nicely. The head count in construction, already the largest of the three, gained over 2,000 jobs. Professional, scientific & professional services, the smallest of the three, gain nearly 450 jobs. Only finance & insurance showed little movement.
What will these measures look like in five years? My hunch is that the local economy will continue to diversify, with the trends in place continuing. That’s not a bad prospect.