The inter-related economy

Date posted: June 26, 2012

One of the benefits of studying economics is learning about how the many parts are connected. Most people understand this from a supply point of view. For example, Company A purchases supplies from Company B, which in turn buys from Company C. But do we see this same kind of connectedness in the job market? N.C. State University economist Mike Walden responds.

“Well, we do …, and we see it in one way that I think most people would be familiar with and in another way that they’re less familiar with. And let’s continue with your example. Let’s say that a new technology company moves to the local area. Clearly that company is going to have jobs. It’s going to have jobs in that company. But that company is probably going to buy some supplies from already existing companies in the area. So, that means those suppliers are going to see an increase in their sales, and they may as a result have to add some employment. So you can clearly see from a supplier point of view there’s interconnectedness there.

“But here’s another way that perhaps people don’t realize there’s interconnectedness. You bring in that new tech company, which brings in some workers, and they have income. They’re going out and spending that income. They’re going to go to the grocery stores, the malls, shopping centers. They’re going to spend a lot of that income in the local economy. That is going to generate other kinds of jobs — retail jobs, personal spending jobs, et cetera.

“And actually … it’s very interesting. Research has shown that salaries for those supporting jobs — those retail jobs, those personal service jobs — tend to be higher in areas where those jobs being prompted by a new company that pays very high salaries to their workers.

“So, that’s showing you another level of interconnectedness, which … is very much a benefit of studying economics.”

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