HOSPITALITY, RETAIL ARE LEAST PRODUCTIVE
Brice Wallace
Cities and counties fighting each other to land retail establishments might want to reconsider, based on an analysis by the Economic Development Corporation of Utah of industries and their relative economic punch.
EDCUtah’s research team looked into job classification codes and determined that the category of food services and drinking places represents the least productive in Utah when it comes to industries that contribute the most to economic growth and prosperity, and most retail industries came in third place. On the flip side, the most productive is petroleum and coal products manufacturing.
In a “Research Minute” on the organization’s website, EDCUtah listed other productive industries, in order, as real estate; financial services; software publishing; and computer infrastructure, processing and web hosting. Among the least productive are No. 2 amusement, gambling and recreation; No. 4 social assistance/residential and nursing care; and No. 5 museums, historical sites and similar institutions.
“It makes sense that some industries are not highly productive,” it said. “Social assistance and residential and nursing care services do not exist to produce a product output, but to provide necessary community care. The same can be said for other institutions, like museums and historical sites, which exist to serve the public and offer cultural enrichment.”
EDCUtah said the most productive industries tended to be industries that fit into one of two categories: those that produce complex products with large supply chains and extensive infrastructure needs; and those that produce high-dollar outputs, like software and information technology. The analysis considered numbers related to productivity, employment, labor density, GDP per employee, gross surplus, and the cost of labor.
“Some of the most productive industries in Utah have high employment, and some don’t,” it said. “Utah has a competitive labor density for some of these industries, but not for others. The cost of labor for the most productive industries tended to be higher than those of less productive industries, since those industries generally required higher-skilled labor.”
In the analysis, EDCUtah determined productivity as the total industry output (gross domestic product, plus the value of products and services used as inputs to produce other products and services), divided by industry employment. The measure was used to estimate the dollar amount per employee per year for an industry. The higher the dollar amount, the more productive a hypothetical employee would be in that industry.
“Any increase in productivity leads to economic growth as measured by GDP, and improved economic growth diversifies industry and raises wages, thus improving the standard of living,” it said. “Higher productivity also often means greater impact to communities in tax revenue, higher-quality jobs and a greater multiplier effect for economic growth.”
“In the analysis, the most productive industries tended to be the industries with the highest GDP per employee and the highest gross surplus. This makes sense because GDP is used in the calculation for those metrics,” EDCUtah said.
Transforming crude petroleum and coal into usable products has only about 1,800 employees statewide but produces $1.7 million in GDP per employee. What’s more, the industry has grown nearly 109 percent over the past five years. In contrast, the industry consisting of food services and drinking places has 119,000 employees but only $37,000 in GDP per employee.
“It’s clear that some industries are far more productive than others,” EDCUtah said. “These two industries produce roughly similar GDP, despite one having less than 2 percent of the employment compared to the other.”
The analysis could provide insights to cities, counties and the state about planning for the future and targeting expansion and development opportunities, it said. Many municipal leaders prioritize attracting retailers as part of their economic development efforts, and, while they can provide a significant source of local sales tax revenue and add to an area’s livability and workforce diversification, retail industries usually are low in productivity, GDP per employee and gross surplus.
“Productivity data can provide community leaders with an alternative lens for assessing developable areas and evaluating their economic development plans,” it said. “Some communities might choose to increase their investment in real estate and infrastructure to attract non-retail commercial businesses. Other communities may not be interested in new industry development. Prosperity and ‘good growth’ look different for every community. That’s why EDCUtah collaborates with community leaders to understand their unique needs and help them achieve their economic development goals.”