EM 4103: Urban Planning II Lecture 8: Employment Analysis in Planning

EMPLOYMENT FORECASTING Much of urban planning activities revolves around population, employment and housing as these form the crux of most economic activities in cities. Many models have been postulated to explain urban economic growth.

EMPLOYMENT FORECASTING continued Important ones include demand-based models which emphasise the importance of the change in level and pattern of demand for goods and services produced by the city. This is seen as the major cause of changes in the level of incomes and population.

ECONOMIC BASE THEORY The most widely used model for employment forecasting is the economic base theory. It considers demand for goods and services of a city from sources outside the city boundaries. Growth depends on the city’s ability to export goods and services to pay for its imported goods The production of goods and services for export is known as a basic activity. - produced in the exogenous sector of the area’s economy

Non-Basic Activity -supporting activities to service workers in the basic industries, their families and the industries themselves -Output of goods and services for distribution and consumption solely within the given area -Form the endogenous sector of the area’s economy

The level of economic activity in a given area is measured as the sum of the levels in these two sectors. E = B + N Where E = total employment B = Basic Employment N = Non-basic employment

According to the model, the growth of an urban area depends upon the ratio of basic to non- basic activities (economic base ratio ) The higher the ratio, the greater the rate of growth. Urban growth and thus demand for new building and other urban development, are determined by the success of the export base.

 Both sectors are related to exogenous demand  The basic sector directly,  The non-basic sector indirectly by supporting the basic sector  Increase in exogenous demand – generates an expansion of supporting activities, ultimately in population  The extent of overall change is a multiple of the initial injection of basic employment  Growth there depends upon the response of the basic industries to increased demand from outside.

Economic Base Ratio Economic Base Ratio = ratio of non-basic employment to basic employment E.g. if EBR is 1:2, the injection of an additional basic job leads to the creation of two further jobs in the non-basic sector. Economic Base Multiplier = 3, i.e. when basic employment increases by 1, a total of 3 new jobs is created.

Households (Employees/ Consumers) Firms (Employers/ Producers) Expenditure On goods & Services Supply of Goods & services Income payments Inputs Of Labour Economic System

Households Income Firms Production Supply of Goods & services Expenditure On Goods & Services Addition of Trade Exports Imports Supply of goods & Services Expenditure on Goods & Services

Consumers Inside Area A Consumers Outside Area A “Non-Basic” Activity Production in Area A Basic and Non-Basic Activity “Basic Activity”

The Economic Base Study First, identify the industries or categories in the basic and non-basic sectors Existing employment in each sector can then be calculated The base ratio and base multiplier can then be computed using the equations

Given that E (t)= mB (t) Then E (t+n)= mB (t+n) WhereE= total employment B= base employment m= base multiplier t = base year t+1 = forecast year

Industrial Category Existing basic Employment in year t Historic percentage annual employment growth Growth factor For a 10 year forecast Forecast basic Employment in year t + 10 ‘a’ ‘b’ ‘c’ B (t)= 450 B (t+10)= 595 Basic Employment in a Simple Economy

As the non=basic ratio is 1:2 and the base multipier is 3, then:

Industrial Category Existing non-basic Employment in year t Forecast non-basic Employment in year t + 10 ‘d’ ‘e’ ‘f’ N (t)= 900 N (t+10)= 1190 Non-Basic Employment in a Simple Economy

Using the computed value for the base multiplier And predicted changes in basic employment, The forecast for total employment is derived as follows:

The total for non-basic employment is therefore:

The forecast total for non-basic employment can now be disaggregated as follows:

Urban growth is seen to result from rising export demand, changes in the level of which have a multiplier effect on the domestic urban economy. The success of an area is determined by the level of diversification of the export sector.

The weaknesses of this theory  It is difficult to differentiate between basic and non-basic employment in practice;  The basic/non-basic ratio is not constant in practice;  It underestimates the importance of the non- basic sector in promoting economic activity; basic activities may be dependent on non-basic activities e.g. well-developed services sectors attract basic industry;

WEAKNESSES continued –It does not consider the allocation process performed by the market system nor does it consider the public allocation system. Actual households in need may not be allocated new housing. –It does not consider differences in densities (“overcrowding”), availability of land, location and tenure status.

Translating employment to Land Requirement: Break down employment to occupational sectors Obtain floor space per worker ratio by sectors (surveys, historical) Translate floor space to land requirement using “plot ratio”

Projection of Office Space Projected Net Office Space: [Estimated no. of office workers] x Estimated average net office space per worker] x [1+10% vacancy rate] x [1+10% contingency reserve]

Concept of Plot Ratio

Buffer Stock Space Standard Plot Ratio Employed Labour Force Space Demand Land Demand Land Needs Land Savings Population-Based Approach to Forecasting Land Demand

Rochor

Tampines

Urban Growth Processes

Resources 1. Natural Productive Capacity Population Comparative Advantage New Investment Public Private Economic Growth Population Change Environmental 2. Created 3. Labour 4. Capital 2. Non-Basic Industries 1. Basic Industries 3. Retirees 2. Dependents 1.Employed/ Unemployed 1.Conservation & Development 2. Investment & Growth 3. Adaptation of skills And size 4. Accommodation by Lenders & Investors Basic Industries Non-basic Industries New Urban Structure Adjusted Population New Productive Capacity Plant & Equipment Housing Schools Public Services Transportation Mercantile Outlets Existing Growth Period Later LocationExtractive Cultural Opportunities, etc Natural IncreaseMigration Imported Capital Indigenous Thrift