An economic base and income multiplier study of Redondo Beach, California

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Content ECONOMIC BASE AND INCOME MULTIPLIER STUDY
OF REDONDO BEACH, CALIFORNIA
by
P h i l i p Howard F r ie d ly
1//
A T h e sis P re se n te d t o th e
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In P a r t i a l F u lf illm e n t o f th e
R equirem ents f o r th e Degree
MASTER OF ARTS
(Econom ics)
June 1964
UMI Number: EP44800
All rights reserved
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U N IV E R SIT Y O F S O U T H E R N C A L IF O R N IA
T H E GRADUATE SC H O O L
U N IV ER SITY PARK
L O S A N G E L E S 7, C A L IF O R N IA
R//
This thesis, written by
P h i l i p Howard E r ie d ly
under the direction of hh^....Thesis Committee,
and approved by all its members, has been pre
sented to and accepted by the Dean of The
Graduate School, in partial fulfillment of the
requirements for the degree of
Blaster o f A rts
.............................
Date JJfflB. 126k
THESIS COMMITTEE
Dean
I
TABLE OF CONTENTS
Page
LIST OF T A B L E S ..................................... i i i
C h ap ter
I . THE CONCEPT AND USE OF ECONOMIC BASE AND
MULTIPLIER ANALYSIS .......................................................... 1
The Base Concept
M u ltip lie r s
Economic Base M u lt ip lie r S tu d ie s
I I . BACKGROUND TO ANALYSIS: THE REDONDO BEACH
ECONOMY...................................................................................... 27
The G eographic A rea o f Study
The F ie ld Survey
Socioeconom ic C h a r a c t e r i s t i c s o f Redondo
Beach
I I I . AN ECONOMIC BASE INCOME MULTIPLIER M ODEL OF
REDONDO BEACH ........................................................................ 74
C o n s tru c tio n o f th e Model
A p p lic a tio n o f th e Model
IV. CRITICAL EVALUATION AND SU M M A RY OF THE
STUDY
Consumer B ehavior and Base S tu d ie s
Summary
BIBLIOGRAPHY............................................................................................... 114
________________________________i i _________________________________
!
|
LIST of tables
T able Page
1. Com parison o f M easures o f C e n tr a l Tendency
and D is p e rs io n betw een Sample and P o p u la tio n
Fam ily Incomes in Redondo Beach in 1962 . . . 41
2. Com parison of P e rc e n ta g e s o f F a m ilie s in
D if f e r e n t Income Groups betw een Sample and
P o p u la tio n in Redondo Beach in 1962 .................... 42
3. Com parison o f C o rresp o n d in g I n t e r v a l C h a ra c te r
i s t i c s o f Fam ily Income betw een Sample and
P o p u la tio n in Redondo Beach in 1962 . . . . . 43
4. P o p u la tio n Growth in Redondo Beach and S e
le c te d A d jacen t A reas in th e Los A ngeles
R egion from 1940 t o 1962 53
5. Fam ily S iz e in Redondo Beach and Los A ngeles
C o u n t y ...................................................................................... 56
6. P o p u la tio n D e n s itie s in Redondo Beach and
S e le c te d A d jacen t A reas ................................................ 56
7. O c c u p a tio n a l and B u sin ess Group D i s t r i b u t i o n o f
th e Redondo Beach Labor F orce in 1962 . . . . 59
8. A llo c a tio n o f Employment C rea ted by S a le s o f
A ll I n d u s tr ie s in Redondo Beach, 1962 . . . . 61
9. A llo c a tio n o f Employment c r e a te d by S a le s o f
A ll I n d u s tr ie s in Los A ngeles-Long B each,
C a l i f o r n i a , 1960 61
• • •
i n
T able Page
10. T axable S a le s in Redondo B each, 1957 to 1961 . 64
11. R e t a i l Trade in Redondo Beach, 1958 ......................... 66
12. B alance o f Payments Index f o r th e R e t a i l S e c to r
o f th e Redondo Beach Economy, 1958 t o 1961 . 66
13. B alance o f Payments Index f o r th e R e t a i l S e c to r
o f th e Redondo Beach Economy, 1958 t o 1961 . 67
14. Per C a p ita B alance o f Payments Index f o r th e
Redondo Beach Economy, 1958 t o 1 9 6 1 ................... 69
15. M an u factu rin g A c tiv ity in Redondo Beach, 1958 . 71
16. Redondo Beach Income F low s, 1962 . . . . . . . 84
17. Redondo Beach E x p en d itu re F low s, 1962 .................... 86
18. Chi Square T e st o f th e Independence o f Income
l e v e l s o f le n g th o f R e s i d e n c e .................................. 97
19. Income D i s t r i b u t i o n by Y ears o f R esidence in
Redondo B e a c h ..................................... 101
20. G e o g ra p h ic a l D i s t r i b u t i o n o f M en's C lo th in g
P urch ases by Income S i z e ........................................... 102
21. G e o g ra p h ic a l D i s t r i b u t i o n o f Women's C lo th in g
P u rch ases by Income S i z e ........................................... 102
22. C hi Square T e st o f Independence betw een P lace
o f M en's C lo th in g P urchase and S ize o f Income 103
23. C hi Square T e s t o f Independence betw een P lace
o f Women’s C lo th in g P urchase and S iz e of
I n c o m e ...................................................................................... 104
24. D i s t r i b u t i o n o f Auto P urchases by le n g th o f
R e s i d e n c e ................................................................................. 108
25. D i s t r i b u t i o n o f D urable P u rch ases by L ength o f
R e s i d e n c e ................................................................................. 108
iv .
' T able Page
26. D i s t r i b u t i o n o f N ondurable P u rch ases by
L ength o f R e s i d e n c e ........................................... 109
27. C hi Square T e st o f th e Independence o f P lace o f
D urable P urchase and L ength o f R esidence . . 110
_ v _
CHAPTER I
THE CONCEPT AND USE OF ECONOMIC BASE
AND MULTIPLIER ANALYSIS
The purpose o f t h i s t h e s i s i s to p ro v id e an em pir
i c a l a p p l ic a tio n o f a p a r t i c u l a r framework o f a n a ly s is
r e l a t e d to stu d y in g th e economic and s o c i a l s t r u c t u r e o f
r e l a t i v e l y sm a ll com m unities. F u r th e r , th e purpose is
exten d ed to th e c o n s tr u c tio n o f a lo c a l income m u l t i p l i e r
model f o r a sm a ll suburban community.
The scope o f th e stu d y w i l l be c o n fin e d m ainly to
e x p la in in g , a p p ly in g , and e v a lu a tin g c r i t i c a l l y th e method
o lo g ic a l approaches involved in economic base and income
m u l t i p l i e r a n a l y s i s , and th e r e s u l t s d e riv e d th e re fro m .
O ther is s u e s a r i s i n g d u rin g th e p ro c e ss o f th e a n a ly s is , o r
d e r iv in g from i t , w i l l be d is c u s s e d b r i e f l y and to th e ex
t e n t t h a t th e y e l u c id a te our knowledge o f th e shape and
i n t e r r e l a t i o n s h i p o f th e economic and s o c i a l fo rc e s a t work
in th e lo c a l community.
1 ,_________________________________
2
The Base Concept
One o f th e e a r l i e s t to o ls o f a n a ly s is a v a ila b le to
th e u rb an land econom ist o r c i t y p la n n e r was d e riv e d from
th e id e a o f th e u rb an economic b a s e . When p r o f e s s io n a l
eco n o m ists and p la n n e rs r e f e r t o th e economic b ase o f some
d e fin e d a r e a o r r e g io n , th e y u s u a lly mean th e e x p o rt a c t i v
i t i e s o f th e a r e a , w hich b rin g in n e t e a rn in g s and e n a b le
i t t o c o n tin u e as an independent economic e n t i t y . T his
d e f i n i t i o n o f th e economic base i s in c o n t r a s t t o th e vague
id e a o f th e b ase as c o n s is tin g o f a l l a c t i v i t i e s w hich are
r e l a t i v e l y im p o rta n t in term s o f s iz e w ith in a l o c a l econ
omy, r e g a r d le s s o f w h eth er t h e i r l e v e l i s d eterm in ed by
fo rc e s i n t e r n a l or e x t e r n a l to th e lo c a l economy.
The form er d e f i n i t i o n o f th e b ase i s much more
v a lu a b le a n a l y t i c a l l y f o r i t p o s it s c e r t a i n f u n c tio n a l
r e l a t i o n s h i p s t o e x i s t w ith in a g iv e n r e g io n a l economy.
C h a r a c t e r i s t i c s and assu m p tio n s. --As in d ic a te d
above, economic b ase th e o ry p ro v id e s a framework o f a n a ly
s i s , i . e . , e x p o rt a c t i v i t i e s v e rs u s lo c a l a c t i v i t i e s . How
e v e r , as b ase th e o ry and a p p lic a tio n have d eveloped sin c e
th e 1 9 2 0 's , a p a r a l l e l framework o f a n a ly s is h as c o i n c i
d e n t a l l y evolved along w ith th e f i r s t , i . e . , b a s ic v e rsu s
3“
n o n b asic o r s e r v ic e a c t i v i t i e s . The b a s ic o r e x p o rt a c t i v
i t i e s h a v e , h i s t o r i c a l l y , been c o n s id e re d as th e prime
movers in u rb an community grow th. T his h as been assumed to
be t r u e p r im a r ily b ecau se i t was reaso n ed t h a t o nly e x p o r t
in g a c t i v i t i e s b ro u g h t in new income from th e o u ts i d e ,
th e re b y in c r e a s in g th e le v e l o f community incom e, w h ile
lo c a l a c t i v i t i e s m erely se rv e d t o c i r c u l a t e th e new income
th ro u g h th e community w ith o u t changing th e a g g re g a te le v e l
o f income. Our d is c u s s io n below o f th e m u l t i p l i e r w i l l
show th e f a l l a c i o u s re a s o n in g in v o lv e d h e re .
A fundam ental assum ption o f base a n a ly s is i s t h a t
th e r e e x i s t s a r e l a t i v e l y fix e d r e l a t i o n s h i p betw een b a s ic
and n o n b asic a c t i v i t i e s f o r any c i t y o ver a g iv e n p e rio d o f
tim e . E m p iric a l a n a ly s is r e q u ir e s th e c a l c u l a t i o n o f a
b a s ic /n o n b a s ic (B/N) r a t i o . The b ase component i s computed
as a c o n s ta n t, or u n i t y , w h ile th e n o n b asic elem ent i s one
f l u c t u a t i n g around th e base t o em phasize th e l a t t e r fs d e
r i v a t i v e o r dependent n a tu r e . S ince b ase th e o ry i s con
cern ed w ith th e n a tu re o f th e economic i n t e r r e l a t i o n s
betw een b a s ic and n o n b asic a c t i v i t i e s , and w ith th e i n t e r
r e l a t i o n s h i p s o f th e s e a c t i v i t i e s s e p a r a te ly and combined
w ith t o t a l a c t i v i t y , b ase r a t i o s o f v a r io u s c i t i e s w i l l
d i f f e r , assum ing a v a r i e t y o f i n t e r n a l economic r e l a t i o n
4
s h ip s .
In term s o f dynamic a n a ly s is and f o r e c a s tin g o f
f u tu r e le v e ls o f t o t a l a c t i v i t y , t h i s assum ption o f a f ix e d
B/N r a t i o h as obvious im p o rtan ce. As P ro fe s s o r T ieb o u t
p u ts i t , th e im p o rta n t q u e s tio n i s :
How much n o n b asic employment w i l l be c r e a te d
i f b a s ic employment in c re a s e s ? The sim p le s t
assum ption i s t h a t over th e long ru n th e p ro p o r
t i o n o f b a s ic and n o n b asic jo b s w i l l rem ain about
th e same. Hence, an in c re a s e in th e number o f
b a s ic jo b s w i l l e v e n tu a lly produce a p r o p o rtio n
a te in c re a s e in n o n b asic jo b s .
T his b a s ic /n o n b a s ic dichotom y o f th e a c t i v i t i e s in a com
m unity i s v e ry cru d e and t e l l s th e r e s e a r c h e r r e l a t i v e l y
l i t t l e o f th e complex w orkings o f even a sm a ll and sim ply
s tr u c t u r e d lo c a l community.
The i d e n t i f i c a t i o n o f b a s ic o r e x p o rtin g a c t i v i t i e s
w ith th o s e w hich ca u se growth in th e le v e l o f t o t a l a c t i v
i t y in a community h as le d to a b ia s in b ase th e o ry which
can lead th e r e s e a r c h e r a s tr a y in h i s c o n c lu s io n s w h ile
le a v in g him e s s e n t i a l l y c o r r e c t in h i s o r i g i n a l assum ption.
I t i s t h i s ty p e o f em phasis t h a t h as caused s e v e r a l a u th o rs
^C harles M. T ie b o u t, The Community Economic Base
Study (CED Supplem entary Paper No. 16; New York: Committee
f o r Economic D evelopm ent, 1962), p. 13.
5'
to ta k e n o te o f th e m e re a n ti1i s t i c o v e rto n e s o f b ase a n a l
y s i s . O ften no atte m p t i s made to d i f f e r e n t i a t e betw een
th o s e l o c a l l y consumed goods and s e r v ic e s produced l o c a l l y
and th o s e f o r which payments have t o be made to th e o u ts id e
w o rld . R a tio n a lly , th e money earn ed from b a s ic a c t i v i t i e s
i s b u t a method o f paying f o r im ports and n o t an end in
i t s e l f . To e x p o r t, a tr a d in g a r e a must im p o rt.
One group o f a u th o rs n o te s th e weakness in th e
a n a ly s is o f
. . . th o se who s t r e s s th e im portance o f b a s ic
a c t i v i t y to a community . . . and . . . put m ajor
a t t e n t i o n , as d id th e m e r c a n t i l i s t s , upon b u ild in g
up th e i n d u s t r i e s which " b rin g i n M money from th e
o u ts id e . A nother s i m i l a r i t y to th e m e r c a n t i l i s t s
i s t h a t th e y a re n o t p a r t i c u l a r l y s tro n g on th e
t h e o r e t i c a l a n a ly s is o f th e r e a l f a c t o r s o f commu
n i t y grow th o r o f th e lo n g -ru n e f f e c t o f changes
in b a s ic or d e r iv a tiv e income or th e r a t i o betw een
them. ^
Some o th e r im p o rta n t c h a r a c t e r i s t i c s o f th e econom
ic base co n cep t should a ls o be n o te d , a t l e a s t in summary
form . They are th e fo llo w in g : (1 ) th e B/N r a t i o d e s c r ib e s
a c e r t a i n r e l a t i o n s h i p betw een economic a c t i v i t i e s w ith in a
s p e c i f i c a l l y d e lim ite d a r e a ; (2) th e B/N r a t i o h o ld s t r u e
2
Edgar Z. Palm er ( e d .) The Community Economic Base
and M u l t i p l i e r (U n iv e rs ity o f N ebraska B u sin ess R esearch
B u l l e t i n , No. 63; L in c o ln , N eb .: U n iv e r s ity o f N ebraska
P re s s , 1958), p. 2.
6
a t only one p o in t in tim e ; (3) th e l e v e l o f t o t a l a c t i v i t y
is dependent upon th e su c c e ss o f e x p o rtin g a c t i v i t y ; (4)
b ase a n a ly s is i s a t o o l o f s h o rt ru n a n a l y s i s ; (5) base
a n a ly s is em phasizes t h a t th e le v e l o f t o t a l a c t i v i t y in a
r e g io n is la r g e ly d eterm in ed by th e n a tu r e and e x te n t o f
i t s r e l a t i o n s h i p s w ith a l l o th e r r e g io n s ; and (6) r e g a r d
l e s s o f th e a r e a l e x te n t o f a r e g io n , th e more s e l f - s u f f i
c i e n t i t s economy, th e la r g e r i t s sh a re o f th e c o u n tr y ’s
t o t a l n e t p ro d u ct o f goods, s e r v i c e s , and c a p i t a l , th e le s s
u s e f u l i s th e b ase c o n c e p t.
An economic base s tu d y , th e n , i d e n t i f i e s th e key
economic a c t i v i t i e s o f th e community. The b ase stu d y th e n
d iv id e s th e lo c a l economy in to two s e c to r s o r so u rc e s o f
demand, as T ieb o u t p u ts i t :
(1) firm s and in d iv id u a ls s e rv in g m arkets o u t
s id e th e community; and (2) firm s and in d iv id u a ls
s e rv in g m arkets w ith in th e community. . . . Im
p l i c i t in t h i s d i v i s i o n o f m arkets i s th e cause
and e f f e c t r e l a t i o n s h i p . Export m arkets a re con
s id e re d th e prim e mover o f th e lo c a l e c o n o m y .3
P ro fe s s o r Andrews s t a t e s more b ro a d ly th e fu n d a
m en tal im portance o f b a s ic a c t i v i t y when he s a y s:
I t is an accep ted view in th e f i e l d o f u rb an
land econom ics t h a t th e economic b ase o f th e
^ T ie b o u t, op. c i t . , p. 13.
7
community d e te rm in e s th e s o c i a l p a t t e r n o f t h a t
community and t h a t th e s o c i a l p a t t e r n and base
d i r e c t l y d eterm in e th e volume and mix o f th e s e r v
ic e e le m e n t.^
M u l t i p l i e r s
I f th e e x te n t o f th e change in t o t a l a c t i v i t y ,
i . e . , employment, income, o r w h atev er v a r ia b le i s b e in g
m easured, i s to be d e riv e d from any g iv e n change in th e
b a s ic (e x p o rt) component o f t h a t a c t i v i t y , th e n th e form er
must be lik e d to th e l a t t e r v i a a m u l t i p l i e r .
R e la tio n s h ip betw een m u l t i p l i e r s and th e b a s i c /
n o n b a sic r a t i o .--O nce a b a s ic /n o n b a s ic s e r v ic e r a t i o has
been computed f o r an a r e a , a lo c a l m u l t i p l i e r can be c a lc u
l a t e d e a s i l y . P ro fe s s o r I s a r d n o te s t h a t "T his m u l t i p l i e r
i s e q u a l t o t o t a l (o r in c r e a s e in ) employment in b o th b a s ic
and s e r v ic e a c t i v i t i e s d iv id e d by t o t a l (o r in c r e a s e in )
b a s ic em ployment. The B/N r a t i o and th e m u l t i p l i e r a re
summary m easures e x p re s s in g th e c a u s a l c o n n e c tio n in quan
t i t a t i v e term s among th e b a s i c , n o n b a s ic , and t o t a l econom
ic a c t i v i t i e s o f a community. Palm er e x p l i c i t l y s t a t e s th e
^R ichard B. Andrews, "Comment r e C r itic is m s o f th e
Economic Base T h eo ry ," J o u r n a l o f th e American I n s t i t u t e o f
P la n n e rs , XXIV (S p rin g , 1958), pp. 3'7-40.
^W alter I s a r d , e t a l . , Methods o f R e g io n al A n a ly s is
(New York: W iley & Sons, I n c . , 1960), p. 190.
8
r e l a t i o n s h i p e x i s t i n g betw een th e B/N r a t i o and th e
(employment) m u l t i p l i e r t h u s l y :
The r a t i o i s th e q u o tie n t when th e d e r iv a tiv e
employment i s d iv id e d by th e b a s ic employment.
The m u l t i p l i e r i s th e q u o tie n t when th e t o t a l
employment i s d iv id e d by th e b a s ic employment.
Thus th e m u l t i p l i e r is e q u a l to th e r a t i o p lu s
one in a l l c a s e s . The r a t i o shows how much de
r i v a t i v e employment i s " su p p o rte d " by th e b a s ic
employment; th e m u l t i p l i e r shows how much t o t a l
employment i s " c r e a te d ” by th e b a s ic i n d u s t r i e s .
Types o f m u l t i p l i e r s . — I s a r d makes a d i s t i n c t i o n
betw een two ty p e s o f r e g io n a l m u l t i p l i e r s . One i s th e
i n t e r r e g i o n a l ty p e w hich m easures th e e f f e c t o f i n t e r a c t i o n
betw een r e g io n s . The o th e r i s th e economic base ty p e o f
a n a ly s is w hich
. . . s t r e s s e s th e i n t e r r e l a t i o n s o f s e c to r s
w ith in a r e g io n a l economy and th e sp re a d o f im
p u ls e s o r i g i n a t i n g in any one s e c to r to a l l o th e r
s e c t o r s . . . . Such sp re a d in g in e sse n c e has a
m u ltip ly in g r e s u l t . ?
T his p o in ts up th e f a c t t h a t th e k ind o f m u l t i p l i e r we
s h a l l be d e a lin g w ith in t h i s t h e s i s i s one w hich a tte m p ts
to m easure th e i n t e r n a l ex p an siv e e f f e c t s o f an i n i t i a l
im pulse o f a c t i v i t y o r i g i n a t i n g o u ts id e a g iv e n community.
T ieb o u t* s sta te m e n t t h a t th e r e a re l o t s o f m u lti-
^P alm er, op. c i t . . pp. 19, 20.
^ I s a r d , op. c i t . „ p. 189._____
9
p l i e r s , p u ts th e m a tte r v e ry n e a tly . For th e sake o f
c l a r i t y , we should a t l e a s t o u tli n e th e t h e o r e t i c a l b a c k
ground o f th e community o r l o c a l m u l t i p l i e r . The main need
f o r t h i s d e l i n e a t i o n o f m u l t i p l i e r th e o ry l i e s in th e f a c t
t h a t th e community m u l t i p l i e r i s , b o th c o n c e p tu a lly and
e m p ir i c a l ly , r e l a t e d c l o s e ly t o o th e r ty p e s o f commonly
used m u l t i p l i e r s , y e t in b o th se n se s i s d i s t i n c t from th e s e
o th e r m u l t i p l i e r s .
P ro fe s s o rs Kang and Palm er d i s t i n g u i s h betw een
d o m e stic , f o re ig n t r a d e , and community m u l t i p l i e r s . The
f i r s t ty p e o f m u l t i p l i e r , th e dom estic m u l t i p l i e r , has
re c e iv e d a com plete developm ent and e la b o r a tio n w ith in th e
m ainstream o f n a t i o n a l income th e o ry . I t i s most commonly
seen in th e form o f a K eynesian ( in s ta n ta n e o u s ) o r R o b e rt
so n ia n ( tim e - la g ) in v estm en t m u l t i p l i e r . Whenever a change
( in c r e a s e ) o cc u rs in th e flow o f in v estm en t e x p e n d itu re s
in an economy, th e d om estic m u l t i p l i e r e x p la in s how n a tio n a l
income w i l l in c re a s e by some m u ltip le o f th e in c re a s e in
in v e stm e n t e x p e n d itu r e s . Thte m agnitude o f th e f i n a l i n
c r e a s e in t o t a l income i s dependent upon th e s iz e o f th e
m a rg in a l p ro p e n s ity t o consume o r , c o n v e rs e ly , th e s iz e o f
th e le a k a g e , i . e . , s a v in g , w hich ta k e s p la c e as th e i t e r a
t i v e p ro c e ss o f s u c c e s s iv e rounds o f spending works i t s e l f
r o -
o u t.
M a th e m a tic a lly e x p re s se d , th e do m estic m u l t i p l i e r
i s k * d y / d i , where y i s n a t io n a l income and i i s i n v e s t
m ent. The n u m e ric a l v a lu e o f th e m u l t i p l i e r can be d e
r iv e d as fo llo w s :
k - — I : ,
1 - dc
dy
or
k - - i -
ds *
dy
The f i r s t fo rm u la tio n shows th a t th e n u m e ric a l v a lu e o f th e
m u l t i p l i e r i s e q u a l to one over one minus th e m a rg in a l
p ro p e n s ity t o consume. The second fo rm u la tio n shows th a t
th e m u l t i p l i e r i s e q u a l to th e r e c i p r o c a l o f th e m a rg in a l
p r o p e n s ity t o sa v e.
In th e w e ll-d e v e lo p e d a re a o f i n t e r n a t i o n a l tr a d e
th e o r y , th e f o r e ig n tr a d e m u l t i p l i e r was in tro d u c e d d u rin g
th e 1940‘s as a t h e o r e t i c a l e x te n s io n o f th e d om estic mul
t i p l i e r . Kang and Palm er d e fin e th e u s u a l f o r e ig n tr a d e
m u l t i p l i e r as one w hich “r e f e r s to th e income changes o f a
n a tio n t h a t e x p e rie n c e s a s u rp lu s (o r a d e f i c i t ) in i t s
b a la n c e o f paym ent, i . e . , ex cess o f e x p o rt o ver im p o rt:
th e n a t i o n 's income i s supposed to in c re a s e by th e amount
" IT
o f th e s u rp lu s tim es th e m u l t i p l i e r . ,r®
The s iz e o f th e f o r e ig n tr a d e m u l t i p l i e r i s la r g e ly
d eterm in ed by th e most im p o rta n t leakage in v o lv e d , th e m ar
g i n a l p r o p e n s ity to im p o rt, o r dm/dy. The n u m e ric a l v a lu e
o f th e f o r e ig n tr a d e m u l t i p l i e r can be d e riv e d from th e
fo llo w in g fo rm u la tio n :
k =
ds _ |_ dm
dy dy
The g r e a t e r th e m a rg in a l p r o p e n s it ie s to save and im p o rt,
th e s m a lle r i s th e s iz e o f th e m u l t i p l i e r .
The i n i t i a l i n j e c t i o n o f income in th e f o r e ig n
tr a d e m u l t i p l i e r comes from an ex cess o f th e flow o f ex p o rts
over th e flow o f im p o rts c a u sin g a p o s it iv e tr a d e b a la n c e .
There i s much s i m i l a r i t y betw een t h i s and th e community
m u l t i p l i e r . The b ase from which th e l o c a l m u l t i p l i e r
o p e ra te s
. . . is a change in th o s e economic a c t i v i t i e s
w hich e n t e r in to th e e x p o rt f u n c tio n o f th e l o c a l
economy. The f o r e ig n tr a d e m u l t i p l i e r works on
th e b ase whose meaning i s s im ila r to t h a t o f th e
l o c a l community, nam ely, th e payment p o s it io n in
th e i n t e r n a t i o n a l b a la n c e ( i . e . , th e d if f e r e n c e
betw een th e m agnitude o f e x p o rt and im p o rt).^
®Palmer, op. c i t . . p. 26.
^ I b i d . , p. 28.
12
The ty p e o f community m u l t i p l i e r in w hich we a re
i n t e r e s t e d in t h i s t h e s i s i s , w h ile c l o s e l y r e l a t e d to th e
u s u a l f o r e ig n tr a d e m u l t i p l i e r , n e v e r th e le s s d i s t i n c t from
th e l a t t e r . P ro f e s s o r P fo u ts o f f e r s a community m u l t i p l i e r
and c o n t r a s t s th e d if f e r e n c e s betw een i t and th e most com
monly used f o r e ig n tr a d e m u l t i p l i e r . P f o u ts 1 fo rm u la tio n
o f th e community m u l t i p l i e r i s :
dy - - B .......
1 - b + b f 1
w h ile h is fo rm u la tio n o f th e u s u a l f o r e ig n t r a d e m u l t i p l i e r
i s :
dy - dE
1 - b + f '
In th e s e f o rm u la tio n s , y i s income, B i s th e tr a d e b a la n c e ,
dE i s a change in th e flow o f e x p o r ts , b i s th e m a rg in a l
p ro p e n s ity to consume, and f i s th e m a rg in a l p ro p e n s ity to
im p o rt.
In n o tin g th e d if f e r e n c e betw een th e s e two ap
p ro a c h e s, P fo u ts p o in ts out t h a t
. . . [ h is ] m u l t i p l i e r c o n s id e rs th e e f f e c t
o f a quantum o f income e n te r in g th e community,
w h ile th e u s u a l f o r e ig n - t r a d e m u l t i p l i e r assumes
a more complex s i t u a t i o n in w hich a stre a m o f
income e n te r s th ro u g h e x p o rts and a stre a m o f
income le a v e s th ro u g h im p o rts. The f o r e ig n - t r a d e
13
m u l t i p l i e r th e n m easures th e e f f e c t on income o f
an autonomous s h i f t in e x p o rts or an autonomous
change in th e tr a d e b a la n c e . In s h o r t , my m u l t i
p l i e r was s t a t i c w h ile th e u s u a l f o r e ig n - t r a d e
m u l t i p l i e r has dynamic p o s s i b i l i t i e s . 1”
The n e x t s e c tio n o f t h i s c h a p te r w i l l d e a l more
c o m p le te ly w ith community m u l t i p l i e r models so no o th e r
fo rm u la tio n s o f lo c a l m u l t i p l i e r s w i l l be o f fe re d h e r e .
The purpose o f t h i s s e c tio n h as b ee n f u l f i l l e d , nam ely, to
in tro d u c e th e m u l t i p l i e r con cep t and t o d i s t i n g u i s h among
a t l e a s t a few o f th e more commonly used ty p e s o f m u l t i
p l i e r s .
Economic Base M u lt ip lie r S tu d ie s
The use o f th e economic b ase approach, w ith th e
b a s ic /n o n b a s ic con cep t as a framework o f a n a l y s i s , i s com
mon in u rb an s t u d i e s , e s p e c i a l l y s tu d i e s o f sm a ll g eo g rap h
ic a r e a s . The re a so n s f o r th e prom inence o f th e b ase stu d y
a r e , most l i k e l y , i t s s i m p lic ity in a p p l ic a tio n and th e
le s s e x te n s iv e amount o f d a ta r e q u ir e d f o r a n a ly s is in com
p a r is o n w ith o th e r r e l a t e d approaches such as in p u t- o u tp u t
a n a ly s is . These re a so n s f o r th e u se o f economic b ase
^^Ralph W . P fo u ts , "R eply t o H a rris on T e s tin g th e
Base T h e o ry ," J o u r n a l o f th e A m erican I n s t i t u t e o f P la n
n e r s , XXIV, No. 4 (W in ter, 1958), pp. 238-239.
s tu d i e s in u rb an a n a ly s is a r e , how ever, la r g e ly n e g a tiv e in
c h a r a c te r and stem from a la c k o f v a r io u s k in d s o f r e
so u rc e s a t th e d is p o s a l o f th e r e s e a r c h e r , r a t h e r th a n
r e s t i n g on th e a n a l y t i c a l m e rits o f th e b a se approach i t
s e l f .
T his s e c tio n w i l l be dev o ted to an e x p la n a tio n o f
th e a n a l y t i c a l approach to be u t i l i z e d i n th e rem ain d er o f
th e t h e s i s . The ad v an tag es o f th e economic b ase m u l t i p l i e r
w i l l be d is c u s s e d and cognizance w i l l a ls o be ta k e n o f i t s
l i m i t a t i o n s .
Pros and cons o f th e economic b ase m u l t i p l i e r
a p p ro ac h . —There a re many advantages t h a t can be n o te d in
fa v o r o f th e economic b ase m u l t i p l i e r approach and e q u a lly
as many co m p la in ts w hich can be u t t e r e d a g a in s t i t . I t
s h a l l be our purpose h e re to d e a l o n ly w ith th e pros and
cons w hich have some r e l a t i o n s h i p t o and s ig n i f ic a n c e fo r
th e fo llo w in g e m p iric a l a n a ly s is w ith which t h i s t h e s i s i s
p r im a r ily co n cern ed .
W e sh o u ld d e te rm in e f i r s t th e s u i t a b i l i t y o f th e
b a s ic /n o n b a s ic co n cep t as a framework o f a n a ly s is f o r our
p a r t i c u l a r e m p ir ic a l stu d y in term s o f i t s a n a l y t i c a l v a lu e
as a t o o l o f s e r io u s economic a n a ly s is . W e a re concerned
15
w ith th e a p p l i c a b i l i t y o f t h i s framework o f a n a ly s is t o th e
stu d y o f a r e l a t i v e l y sm a ll a r e a b o th g e o g r a p h ic a lly and
in term s o f p o p u la tio n , i . e . , a c i t y o r m u n ic ip a lity o f a
few thousand up to perhaps a 1 0 0 ,0 0 0 -re s id e n t a r e a . More
o v e r, th e a r e a under c o n s id e r a tio n w i l l be one w hich i s
e i t h e r s a t e l l i t e to o r subsumed in a la r g e r u rb a n com plex.
In o th e r w ords, th e ty p e o f community we a re co ncerned w ith
h e re i s one w ith a h ig h d eg ree o f in te rd e p e n d e n c e between
i t s e l f and o th e r r e g io n s . There i s much s i m i l a r i t y betw een
t h i s ty p e o f lo c a l a r e a and th e sm a ll n a tio n ca se in i n t e r
n a t i o n a l tr a d e a n a ly s is ; e s p e c i a l l y in t h a t n e i t h e r one o f
th e s e ty p e s o f a re a s can a f f e c t th e le v e l o f i n t e r r e g i o n a l
o r i n t e r n a t i o n a l tr a d e flow s and must t h e r e f o r e ac c e p t
t h e i r own le v e ls o f e x p o rt (and changes t h e r e i n ) as exoge
n o u sly d eterm in ed v a r i a b l e s .
One o f th e s e v e r e s t c r i t i c s o f th e economic base
approach p o in ts o u t t h a t th e a p p l i c a b i l i t y o f th e b a s i c /
n o n b a sic co n cep t d e c re a s e s w ith th e in c r e a s in g s iz e o f th e
community and in c re a s e s w ith th e in c r e a s in g s p e c i a l i z a t i o n
and d i v i s i o n o f la b o r among com m unities. T his same c r i t i c
s t a t e s t h a t
The " b a s ic -n o n b a s ic r a t i o " i s m ean in g fu l o n ly
in sm a ll and sim ply s tr u c t u r e d com m unities; th e
16
l a r g e r and more com plex, t h a t i s , th e more "m e tro
p o l i t a n ” th e community, th e l e s s a p p lic a b le i s th e
r a t i o and th e e n t i r e m ethod.
Even i f t h i s c r i t i c i s m o f b ase a n a ly s is were c o n sid e re d
e n t i r e l y v a l i d (which i t i s n o t by s e v e r a l a u t h o r s ^ ) th e n
i t would s t i l l appear to be an a p p r o p r ia te framework w ith in
w hich to stu d y th e sm a ll and s im p ly - s tr u c tu r e d lo c a l econ
omy we have cho sen f o r a n a ly s is .
I t must be n o te d f u r t h e r , how ever, t h a t th e fram e
work o f a n a ly s is u t i l i z e d in t h i s t h e s i s , though d e riv e d
from t r a d i t i o n a l b ase th e o ry , h as been a l t e r e d s i g n i f i
c a n tly and m e th o d o lo g ic a lly . T his change in method i s con
cerned la r g e ly w ith th e rep la cem en t o f employment as th e
v a r i a b l e m easured in a l o c a l economy by income and a t te n d
a n t s t r u c t u r a l e q u a tio n s . The new v a r i a b l e , income, and
th e s t r u c t u r a l e q u a tio n s ( s t i l l based on th e e x p o r t / l o c a l
dichotom y as t o so u rce o f income) p erm it a g r e a t e r d eg ree
o f a n a l y t i c a l p ro b in g in to th e i n t e r n a l o p e r a tio n s , i . e . ,
e x p e n d itu re p r o p e n s it ie s and p a t t e r n s , o f th e l o c a l econ
omy.
^ H a n s B lum enfeld, "The Economic Base o f th e
M e tro p o lis ," J o u r n a l o f th e Am erican I n s t i t u t e o f P la n n e r s .
XXI ( F a l l , 1955), p. 197.
12
See e s p e c i a l l y T ie b o u t, op. c i t . , pp. 27-43.
. 1T
I t i s obvious t h a t th e v a r ia b le chosen f o r m easure
ment to a g r e a t e x te n t c o n t r o ls th e amount o f in fo rm a tio n
t h a t a r e s e a r c h e r w i l l be a b le t o u n e a rth about th e w ork
in g s and w e lfa re o f th e l o c a l community. Many o f th e c r i t
ic ism s o f base th e o ry and a n a ly s is r e s t on th e co m p lain t
t h a t th e r e i s to o cru d e an a g g re g a tio n o f a c t i v i t i e s in to
two c a t e g o r i e s , one o f w hich i s a prime mover in c i t y growth
and th e o th e r o f w hich i s o nly n e u t r a l o r p a s s iv e , w h ile
n e i t h e r c a te g o ry e x p la in s th e m o tiv a tio n s and s a t i s f a c
ti o n s t h a t l i e behind th e a c tio n s o f lo c a l consum ers and
i n v e s to r s . Even w ith l o c a l income a n a l y s i s , t h i s c r i t i c i s m
o f o v e r - s i m p l i f i c a t i o n re m a in s. Is a rd f e e l s t h a t a t h o r
ough d is c u s s io n o f th e p h ilo s o p h ic a l and c o n c e p tu a l q u e s
t i o n s r e l a t i n g to th e n a tu re o f re g io n s must be u n d e rta k e n
in o r d e r to d ev elo p e f f e c t i v e to o l s o f r e g io n a l a n a ly s is .
In re g a rd to th e r e g io n a l r e s e a r c h e r , I s a r d s a y s :
Too many o f h i s t o o ls r e p r e s e n t t r a n s f e r s o f
c o n c e p ts and methods t r a d i t i o n a l l y used by th e
n a t i o n a l - i n t e r n a t i o n a l ty p e o f eco n o m ist. They
a re i l l - d e s ig n e d t o a t t a c k many r e g io n a l problem s,
in p a r t i c u l a r th o s e p e c u lia r t o r e g i o n s . ^
The need f o r community s tu d i e s o f sm a ll and medium
11
W a lte r I s a r d , R e g io n a l Income (N a tio n a l Bureau o f
Economic R esearch S tu d ie s in Income and W ealth , V ol. XXI;
P rin c e to n : P rin c e to n U n iv e r s ity P re s s , 1957), p. 78.
18
s iz e c i t i e s r e q u ir e s a more p rag m atic approach in a d d itio n
to th e one su g g e ste d by I s a r d . He i s v e ry g r e a t l y co n
cerned w ith th e stu d y o f la rg e a re a s and th e i n t e r r e g i o n a l
e f f e c t s o f th e a c t i v i t i e s o f one r e g io n upon a n o th e r. In a
more p r a c t i c a l v e in , lim ite d re s o u r c e s and th e v e ry scope
o f th e stu d y to be u n d e rta k e n may p re c lu d e th e r e s e a r c h e r 's
am b itio u s i n v e s t i g a t i o n o f th e r e g io n as a "dynamic s o c i a l
o rg a n ism ." Some a u th o rs sim ply ig n o re th e f a c t t h a t b ase
th e o ry i s "an ad m itte d compromise w ith th e p e r f e c t io n which
m ight be o b ta in e d from b a lan ce o f payment o r broad s c a le
in p u t - out put a n a l y s i s .
A s tro n g proponent o f ty in g l o c a l a re a a n a ly s is in
more c l o s e ly w ith t r a d i t i o n a l n a t i o n a l income a n a ly s is is
P ro fe s s o r T ie b o u t. He f e e l s t h a t i t i s j u s t as u s e f u l to
a b s t r a c t and an a ly ze s e le c te d economic v a r i a b l e s a t th e
lo c a l as a t th e n a t i o n a l le v e l. M oreover, he n o te s t h a t :
. . . an e x tre m e ly u s e f u l m easure w hich can
se rv e as a key in d ex f o r r e g io n a l a n a ly s is i s
" p e r c a p i t a income a c c ru in g to r e s i d e n t s . " I t
i s c l o s e ly analogous to p er c a p i t a p e rs o n a l i n
come in th e n a t i o n a l a c c o u n ts. ’ 5
Income i s one o f th e b e s t m easures o f w e lf a r e t h a t we have.
•^Andrews, l o c . c i t . . p. 37.
• ^ T i e b o u t , R e g io n a l Incom e, p. 86.
19
In o v e r a l l s tu d i e s o f com m unities f o r p la n n in g o r p r o je c
t i o n p u rp o se s,
F a c ts on income a re needed to m easure th e eco n
omic w e lfa re o f th e community. These f a c t s become
an index o f p o t e n t i a l buying power in th e commu
n i t y . They a ls o a c t as a d e te rm in a n t o f th e e x te n t
o f ex p an sio n o f lo c a l community t r a d e . ^
As n o ted in th e e a r l i e r s e c tio n on m u l t i p l i e r s ,
th e q u a n t i t a t i v e s ig n i f ic a n c e o f th e v a r i a b l e s changes as
a f u n c tio n o f r e g io n a l s i z e . Dom estic in v e stm e n t i s im por
t a n t a t th e n a t i o n a l l e v e l w h ile th e e x p o rt b a la n c e is
s i g n i f i c a n t a t th e lo c a l l e v e l . S ince th e i n t e r n a t i o n a l
t r a d e m u l t i p l i e r approach has been so v a lu a b le in a n a ly z in g
economic problem s in sm a ll n a t io n s , th e r e can be a s im ila r
i d e n t i f i c a t i o n o f exogenous and endogenous v a r i a b l e s w ith in
a s e t o f s t r u c t u r a l e q u a tio n s f o r many o th e r ty p e s o f lo c a l
a r e a s . T ieb o u t p u ts th e ca se f o r t h i s approach v e ry w e ll
when he sa y s:
The q u e s tio n th e n becomes what approach one
w ish es to use in r e g io n a l a n a ly s is . To so lv e one
b a s ic economic problem , i t would be d e s i r a b l e to
f in d some s e t o f v a r i a b l e s t h a t m easures th e eco n
omic w e ll-b e in g o f a r e g io n . F u r th e r , i t would be
16
H arry C. Bond, "The Economic Base Survey as
R e la te d t o th e Community's M aster P lan ” (u n p u b lish e d Mas
t e r ' s t h e s i s , The U n iv e r s ity o f S o u th ern C a l i f o r n i a , Los
A n g ele s, 1959), p. 59.
20
d e s i r a b l e i f th e s e v a r i a b l e s f i t t e d in to a conven
ie n t a n a l y t i c a l framework. R e g io n a l s o c i a l a c
c o u n ts , m o d ifie d from n a t i o n a l a c c o u n ts , r e p r e s e n t
one p o s s ib le fram ework. I f th e b e h a v io r o f th e s e
ac co u n ts can be u n d ersto o d th ro u g h th e use o f
s t r u c t u r a l e q u a tio n s , r e g io n a l a n a ly s ts w i l l have
a p o w erfu l t o o l . . . . A lthough c o n c e p tu a l p ro b
lems c o n c e rn in g th e tr u e n a tu re o f a r e g io n e x i s t ,
t h i s does n o t p re c lu d e th e n a t i o n a l - i n t e r n a t i o n a l
approach any more th a n i t does th e in p u t- o u tp u t
a p p r o a c h .^
The r e s e a r c h e r should t r y to stu d y e v e ry th in g t h a t
he can about a ;community g iv e n some l o g i c a l framework o f
a n a ly s is . In t h i s stu d y we a re r e a l l y expanding th e s t r u c
t u r e o f our a n a ly s is from a s in g le fram ew ork, i . e . , base
th e o r y , t o t h r e e , by adding m u l t i p l i e r th e o ry and income
th e o r y .
C o n s tru c tio n o f an economic b ase income m u l t i p l i e r
m odel.--A s a c o n c lu s io n to t h i s s e c t i o n , th e assum ptions
and b a s ic fo rm u la tio n s o f th e a n a l y t i c a l approach t h a t w i l l
be fo llo w ed in t h i s t h e s i s w i l l be s e t out b r i e f l y . The
fo rm u la tio n s used in th e models t h a t fo llo w are m ainly th e
work o f two u rb an e c o n o m ists, R. W. P fo u ts and C. M. T ie -
b o u t.
The r e a s o n f o r c o n s tr u c tin g a model o f a n y th in g i s
t o be a b le t o p o s i t c e r t a i n f u n c tio n a l r e l a t i o n s h i p s
^ T i e b o u t , R e g io n a l Incom e, p p . 85-86.
21
betw een key v a r i a b l e s in o rd e r t h a t we may e x p la in what has
o r i s happening o r p r e d ic t what is l i k e l y t o o cc u r in th e
f u t u r e . In an economic m odel, th e le v e ls o f some v a r ia b le s
a re c o n s id e re d as d eterm in ed by fo rc e s o u ts id e o r exogenous
o f th e i n t e r n a l system o f th e model. These a re commonly
term ed th e in d ep en d en t v a r i a b l e s o f th e m odel. The r e
m ainder o f th e v a r i a b l e s under c o n s id e r a tio n a re assumed to
have t h e i r le v e ls s e t by fo rc e s g e n e ra te d w ith in o r endog
enous t o th e system encompassed in th e m odel. These l a t
t e r v a r i a b l e s a re r e f e r r e d to as dependent ones th e le v e ls
o f w hich a re s tr o n g ly a f f e c te d by th e le v e ls o f th e in d e
pendent v a r i a b l e s . Autonomous changes can o cc u r in th e
le v e ls o f th e in d ep en d en t v a r i a b l e s r e s u l t i n g in induced
changes in th e le v e ls o f th e dependent v a r i a b l e s .
In a community income m odel,
The d i v i s i o n o f th e m arkets se rv e d by th e
l o c a l economy in to two broad g ro u p s, e x p o rt and
l o c a l , p ro v id e s an i n i t i a l breakdown. These two
broad so u rc e s o f demand can be c a l l e d th e e x p o rt
s e c to r and th e lo c a l s e c t o r . 18
In th e lo c a l economy, e x p o rt a c t i v i t y i s th e in d ep en d en t
v a r i a b l e , th e le v e l o f w hich i s s e t by m arket fo rc e s o u t
s id e th e c o n t r o l o f th e l o c a l a r e a .
l^ T ie b o u t, The Community Economic B ase S tu d y , p . 29
2 2 „
There a re a ls o a number o f c e t e r i s p a rib u s assump
t i o n s w hich need t o be made i f th e r e s e a r c h e r i s to proceed
l o g i c a l l y from an i n i t i a l change i n e x p o rt income to th e
u ltim a te change in t o t a l income. The c e t e r i s p a rib u s
assu m p tio n s are t h a t : th e r e be an autonomous in c re a s e in
e x p o r ts ; th e p ro d u c tio n f u n c tio n s o f b o th e x p o rt and l o c a l
a c t i v i t i e s rem ain unchanged; th e m a rg in a l p r o p e n s it ie s to
consume and im port rem ain unchanged; and th e r e be an e x i s t
in g means f o r e x p o rts to be in c re a s e d .
I f a l l th e s e c o n d itio n s a re m et, an in c re a s e in th e
v a lu e o f e x p o rts must th e n be due to an in c r e a s e in th e
p r ic e s o f th e e x p o rte d goods and s e r v i c e s , o r , t o an u p
ward s h i f t in th e n a t i o n a l demand sc h ed u le f o r th e e x p o rte d
goods and s e r v ic e s . In o th e r w ords, f o r t o t a l income in a
sm a ll community to in c r e a s e , th e r e must o ccu r a f o r t u i t o u s
in c re a s e in n a t i o n a l demand f o r th e goods and s e r v ic e s t h a t
th e community e x p o r ts .
I f th e model w ith which we were t o co n c ern o u r
s e lv e s in c lu d e d th e d im ension o f tim e , i . e . , were a dynamic
m odel, th e n th e above assum ptions would do some v io le n c e to
th e r e a lis m o f th e m odel. For exam ple, in c r e a s e s in income
u s u a lly le a d t o changes in p r o p e n s it ie s to consume and im
p o r t , and e x t e r n a l econom ies and diseconom ies w i l l s u r e ly
23
le a d to a l t e r a t i o n s in te c h n o lo g y . However, th e ty p e of
model w hich we s h a l l a c t u a l l y u t i l i z e i n t h i s stu d y w i l l be
o f a s t a t i c n a tu re and a b s t r a c t from th e tim e elem en t.
W e s h a l l now s e t out e x p l i c i t l y P f o u ts ' community
income m odel. One o f th e most im p o rta n t elem en ts t h i s
model m e asu res, w hich th e o ld e r economic b ase s tu d ie s
la r g e ly ig n o re d in t h e i r em phasis o f e x p o r ts , i s im p o rts.
The p ro p e n s ity t o im port r e v e a ls j u s t how much income
" le a k s ” out o f a l o c a l economy as s u c c e s s iv e rounds o f
sp en d in g ta k e p la c e . P fo u ts r e a l i z e s t h a t :
. . . i t can be argued t h a t im p o rts , s in c e
th e y r e p r e s e n t money le a v in g th e community, should
be g iv e n a p la c e in c o n s id e r in g th e income strea m
w ith in th e community. S im ila r ly th e amounts t h a t
in d iv id u a ls w ith in th e community save r e p r e s e n ts
money w ithdraw n from th e income stre a m w ith in th e
•*- 19
com munity. ^
In P f o u ts ’ model th e v a r i a b l e s and p r o p e n s it ie s to
be measured a re d e fin e d as fo llo w s : B i s th e tr a d e b a la n c e ;
E i s e x p o r ts ; M i s im p o rts ; Y i s t o t a l income; C i s co n
sum ption; b i s th e m a rg in a l p r o p e n s ity to consume; f i s th e
m a rg in a l p ro p e n s ity to im p o rt; and d r e f e r s t o a change in
•^R alph W. P fo u ts , ”An E m p iric a l T e s tin g o f th e
Economic Base T h e o ry ,” J o u rn a l o f th e American I n s t i t u t e
o f P la n n e r s . X X III, No. 2 (S p rin g , 1957), p. 68.
24
th e le v e l o f th e v a r ia b le b e in g m easured. The s t r u c t u r e o f
th e l o c a l economy i s o u tlin e d by th e f u n c tio n a l r e l a t i o n -
s h ip s r e p r e s e n te d in th e fo llo w in g s e t o f e q u a tio n s which
c o n s t i t u t e s P f o u t s r income m odel:
B = E - M b a la n c e o f tr a d e
(1)
M = F (Y) im port fu n c t ion
(2)
M « e + f (Y) s p e c i f i c ca se (2a)
m m f
dY
m a rg in a l p r o p e n s ity to
im port
(3)
C = B (Y) consum ption f u n c tio n
(4)
C - a + b (Y) s p e c i f i c ca se (4 a)
dC ,
dY = b
M arg in al p r o p e n s ity to
consume
(5)
Assume t h a t e x p o rts exceed im ports r e s u l t i n g in a p o s it iv e
tr a d e b a la n c e , i . e . , t h a t th e r e i s an i n j e c t i o n o f new
income in to th e lo c a l economy. I f b o th f and b are p o s i-
t i v e f r a c t i o n s w ith f b e in g g r e a t e r th a n z e ro and b le s s
th a n one, i t fo llo w s t h a t th e m u l t i p l i e r i s g r e a t e r th a n
one. The amount o f income rem ain in g w ith in th e community
a f t e r , r e s p e c t i v e l y , im p o rtin g and s a v in g , i s g iv e n by
23—
1 - f and 1 - b . The m u l t i p l i c a t i o n , B(1 - f ) b , must be
re p e a te d f o r s u c c e s s iv e rounds o f spending as th e i t e r a
t i v e p ro c e s s works i t s e l f o u t.
The p ro c e ss o f responding i s g iv e n by th e fo llo w in g
g eo m etric p r o g re s s io n :
dY - B - B(1 - f ) b - B ((1 - f ) b ) 2 - B ( ( l - f ) b ) 3
- . . . - B ( ( l - f ) b ) n . (6 )
T his same p ro c e ss can be summarized in th e fo llo w in g man
n e r :
dY * » B 1 ----------- - ! --------- - kB (7 )
1 - (1 - f ) b 1 - b + b f V *
A f te r th e p ro c e ss o f s u c c e s s iv e rounds o f spending h as been
c a r r ie d o u t to th e l a s t s i g n i f i c a n t round (w hich, by th e
way, may o nly be th e f i r s t round i n a r e l a t i v e l y sm a ll and
dependent community w ith v e ry la r g e le a k a g e s) th e u ltim a te
in c re a s e i n t o t a l income (dY) w i l l be some m u ltip le (kB) o f
th e o r i g i n a l i n j e c t i o n o f income (B ).
P ro fe s s o r H a r ris d e s i r e s t o em phasize th e dependent
o r induced r o l e o f im ports in r e s t o r i n g th e tr a d e b a la n c e
a f t e r an e x c ess o f e x p o rts has o c c u rre d . In o rd e r to do
t h i s he assumes t h a t b = 1, th e re b y ig n o rin g th e elem ent o f
sa v in g in th e l o c a l economy. P fo u ts th e n warns us t h a t ;
2 - 6
By s e t t i n g b = 1, H r. H a rris can show t h a t a
change in e x p o rts e q u a ls a change in im p o rts . . . .
But in a h ig h income economy, th e assum ption t h a t
sa v in g s a re so sm a ll r e l a t i v e t o im p o rts as to be
s a f e ly n e g le c te d i s v e ry d u b io u s, e x c e p t in th e
c a se o f sm a ll com m unities [ i t a l i c s mine] .
W ith im p o rts as th e o nly leak ag e th e m u l t i p l i e r (k)
can be d e fin e d as th e r e c i p r o c a l o f th e m a rg in a l p ro p e n s ity
t o im p o rt, o r k = = 1 / f . Then, as shown above in ( 7 ) ,
dY - kB. The p ro c e ss whereby th e f o r e ig n tr a d e b a la n c e i s
r e s t o r e d i s g iv e n by:
dM - f (dY) = f - dE.
" In o th e r w ords, th e ' change in im ports e x a c tl y b a la n c e s th e
change in e x p o r ts , and th e f o r e ig n tr a d e b a la n c e rem ains
und i s t u r b e d . ^
T ieb o u t* s fo rm u la tio n o f a community income model
w i l l n o t be p re s e n te d a t t h i s p o in t s in c e h i s model i s to
be u t i l i z e d in th e a n a ly s is o f th e Redondo Beach economy
and, t h e r e f o r e , w i l l be e x te n s iv e ly t r e a t e d in a l a t e r
c h a p t e r .
^ P f o u t s , "R eply to H a r r i s ," l o c . c i t . , p. 239.
21
B r i t t o n H a r r i s , "Comments on P f o u t s 1 T e st o f th e
Base T h eo ry ," J o u rn a l o f th e American I n s t i t u t e o f P la n
n e r s . XXIV, No. 4 (W in te r, 1958), p. 233.
CHAPTER I I
BACKGROUND TO ANALYSIS:
THE REDONDO BEACH ECONOM Y
T his c h a p te r w i l l n o t c o n s i s t o f a mere d e s c r i p t i v e
commentary on th e Redondo Beach economy. R a th e r , i t w i l l
a tte m p t to e x p la in what ty p e o f lo c a l a r e a we a re d e a lin g
w ith in th e c i t y o f Redondo B each, and t o j u s t i f y th e
framework o f a n a ly s is w ith in which we s h a l l be stu d y in g
t h i s lo c a l economy. In a d d i tio n , t h i s c h a p te r w i l l co v er
th e approach used in th e f i e l d su rv ey and w i l l s t a t i s t i c a l
ly t e s t th e s ig n if ic a n c e o f th e d a t a g a th e re d in th e random
sample o f Redondo Beach f a m il ie s .
The G eographic A rea o f Study
The lo c a l a r e a under stu d y in t h i s t h e s i s i s a
m u n ic ip a lity , i . e . , a p o l i t i c a l e n t i t y , whose b o rd e rs a r e ,
from an economic v ie w p o in t, a r b i t r a r i l y drawn. The le g a l
c i t y i s c o n s id e re d by many econom ists as a r a t h e r in a c c u -
27
; 2g
r a t e a r e a to a tte m p t to f i t in to an economic a n a ly s is . In
o th e r w ords, f u n c t i o n a l l y sp eak in g th e r e may be no such
th in g as th e lo c a l economy o f Redondo Beach in a s t r i c t
se n se o f th e m eaning. T h is , how ever, does n o t mean t h a t
th e r e a re no sound re a s o n s fo r th e econom ist to stu d y sm a ll
p o l i t i c a l e n t i t i e s as in d e p e n d e n tly f u n c tio n in g a re a s in
th e economic se n s e .
The id e a l co n c ep t o f a b ase a r e a and th e c i t y o f
Redondo B each. —C o n c e p tu a lly sp e a k in g , th e p o l i t i c a l l y
d eterm in ed c i t y b o u n d a rie s o f Redondo Beach do n o t d e fin e
an id e a l b ase a r e a f o r economic a n a l y s i s . In t h i s s e c tio n
we s h a l l be concerned w ith com paring th e g eo g rap h ic a r e a we
have chosen f o r stu d y w ith th e id e a l c r i t e r i a o f r e g io n a l
a n a ly s is used in d e l i n e a t i n g a base a r e a .
B efore p ro cee d in g in to a d is c u s s io n o f th e t h e o r e t
i c a l b a se s o f s e l e c t i n g an a re a o f s tu d y , we should f i r s t
o b serv e t h a t th e m u n ic ip a lity o r p o l i t i c a l c i t y h as been
used in th e p a s t l a r g e l y out o f p r a c t i c a l n e c e s s i t y , i . e . ,
^ ’f e d e r a l l y c o l l e c t e d s t a t i s t i c s were alm o st e x c lu s iv e ly f o r
p o l i t i c a l a r e a s , a l l w ith d e f i n i t e le g a l b o u n d a r ie s .u - * -
' ^M orris B. Ullman and R o b ert C. Kove, R e g io n al
Income (S tu d ie s in Income and W ealth , XX; P rin c e to n :
P rin c e to n U n iv e r s ity P r e s s , 1955) , p. 88.______________________
29
As M. B. Ullman and R. C. Klove o f th e B ureau o f
th e Census p o in t o u t :
The d e l i n e a t i o n o f re g io n s in v o lv e s one o f two
fundam ental c r i t e r i a . One may d e fin e a r e g io n by
th e lik e n e s s o f i t s component c h a r a c t e r i s t i c s — th e
hom ogeneity p r i n c i p l e - - o r by th e p rese n ce o f a
n u c le u s and an a r e a o f in f lu e n c e —th e f u n c tio n a l
i n t e g r a t io n p rin c i p l e .2 ‘
We s h a l l f i r s t c o n s id e r Redondo Beach from th e
s ta n d p o in t o f hom ogeneity. One o f th e b e s t exam ples o f
homogeneous s t a t i s t i c a l a re a s a re th e cen su s t r a c t s or
sm a ll a re a s in to w hich la r g e r c i t i e s and m e tr o p o lita n a re a s
a re d iv id e d by th e B ureau o f th e C ensus. The c i t y o f
Redondo Beach c o n s i s t s o f s ix com plete cen su s t r a c t s . Each
o f th e s e s i x cen su s t r a c t s d is p la y s a h ig h d eg ree o f homo
g e n e ity r e l a t i v e t o a l l o f th e c h a r a c t e r i s t i c s m easured in
Redondo Beach. Even though th e s i x t r a c t s can be d iv id e d
ro u g h ly in to a n o rth s e c tio n and so u th s e c tio n o f t h r e e
t r a c t s , each on th e b a s is o f s l i g h t d if f e r e n c e s in c h a r a c
t e r i s t i c s , th e n u m e ric a l v a lu e s o f th e s e c h a r a c t e r i s t i c s
f a l l , w ith th e e x c e p tio n o f one sm a ll t r a c t in th e s o u th ,
in to a v e ry sm a ll ran g e v a ry in g l i t t l e from one t r a c t to
a n o th e r. For exam ple, n o te th e v a lu e s f o r th e fo llo w in g
2I b i d . . p. 92.
30
economic and s o c i a l d a t a ta k e n from th e 1960 Census f o r th e
s ix t r a c t s making up Redondo B each, p ro c e e d in g r e s p e c t i v e l y
from th e n o rth e rn m o st t r a c t to th e so u th ern m o st t r a c t as
f o llo w s :
Median house v a lu e s o f ow ner-occupied d w e llin g
u n i t s :
$13,300 $13,900 $12,800 $13,000 $15,300 $19,200
Median g ro ss r e n t s o f r e n te r- o c c u p ie d d w e llin g
u n i t s :
83 82 77 59 80 123
Median fa m ily incom es:
6,942 6,873 6,582 5,955 7,109 9,255
P o p u la tio n p e r h o u seh o ld :
3.67 3.75 3.65 2 .8 0 2 .4 0 3.52
There a re few la r g e r e l a t i v e d i s p a r i t i e s in c h a r a c
t e r i s t i c s betw een th e t r a c t s e x c e p t, p e rh a p s , f o r th e
southernm ost t r a c t w hich h as s i g n i f i c a n t l y h ig h e r income
v a l u e s , e t c . The most se v e re co m p lain t t h a t can be r e g i s
t e r e d h e re i s n o t t h a t Redondo Beach f a i l s t o r e p r e s e n t a
f a i r l y homogeneous economic and s o c i a l a r e a , b u t r a t h e r
t h a t i t i s an a r b i t r a r i l y d e lin e a te d su b a re a w ith in a much
l a r g e r homogeneous a r e a . There a re s e v e r a l com m unities
su rro u n d in g Redondo Beach w hich co u ld e a s i l y be grouped
3 T
w ith th e l a t t e r t o form a r a t i o n a l su b re g io n w ith in th e
Los A ngeles-Long Beach m e tro p o lita n r e g io n . The r e a l j u s
t i f i c a t i o n f o r stu d y in g such a sm a ll a r b i t r a r i l y - d e f i n e d
a r e a w i l l become more c l e a r when th e re a s o n s f o r li m i t i n g
th e g eo g rap h ic scope o f th e stu d y a re e lu c id a te d below .
Now th e Redondo Beach economy w i l l be view ed w ith
r e s p e c t t o th e p r in c ip l e o f f u n c tio n a l i n t e g r a t i o n . Ullman
and Klove say t h a t :
The f u n c tio n a l i n t e g r a t i o n p r i n c i p l e r e q u ir e s
t h a t a r e g io n com prise a l l th e a re a t h a t is o rg a n
iz e d around a c e n t r a l i z i n g node, o r n u c le u s , and
t h a t o p e ra te s as a u n i t . F u n c tio n a l a re a s in c lu d e
m e tr o p o lita n a r e a s , community and neighborhood
a r e a s , tr a d in g a r e a s , t r a f f i c flow a r e a s , and a l l
o th e r a re a s t h a t a re i n te g r a te d th ro u g h communica
t i o n o r movement o f one k in d o r a n o t h e r .3
The c i t y o f Redondo Beach could b e s t be d e fin e d in
term s o f b e in g a community a r e a ( c o n s is tin g o f a g ro uping
o f n e ig h b o rh o o d s), o r , p e rh a p s , a tr a d in g a re a . There i s
a c e n te r in g o f a c t i v i t y around th e King H arbor m arin a
f a c i l i t i e s and th e Redondo P ie r , w hich a re c e n t r a l l y lo c a
te d in Redondo Beach. However, th e community a r e a se rv e d
by th e s e f a c i l i t i e s e x te n d s f a r beyond th e c i t y l i m i t s o f
Redondo Beach.
Redondo Beach co u ld a t b e s t be view ed o nly as a
3Ibid. , p. 93
3 - 2
tr u n c a te d tr a d e a r e a . There i s one f a i r l y w e l l - i n t e g r a t e d
community shopping c e n te r lo c a te d a t th e extrem e s o u th e rn
t i p o f th e c i t y w hich se rv e s a p o r tio n o f Redondo Beach
and p o r tio n s o f s e v e r a l o th e r com m unities. The c i t y a ls o
has a s e lf - c o n t a in e d r e g io n a l shopping c e n te r j u s t in s id e
i t s e a ste rn m o s t bo u n d ary , th e tr a d in g a re a o f w hich e x ten d s
f a r out in to th e m e tro p o lita n a re a in a d d itio n to in c lu d in g
about tw o - th ir d s o f Redondo Beach. T here a re o th e r com
m unity and r e g io n a l r e t a i l and s e r v ic e f a c i l i t i e s s i t u a t e d
o u ts id e th e c i t y l i m i t s w hich, in t u r n , in c lu d e p o rtio n s
o f Redondo Beach in t h e i r tr a d e a r e a s . In o rd e r t o have an
a r e a o f stu d y c o in c id e n t w ith some g iv e n t r a d e a r e a , we
would have t o have a s i t u a t i o n p e r m ittin g th e im plem enta
t i o n o f P ro fe s s o r Kang’ s c r i t e r i a in s e l e c t i n g medium
s iz e d com m unities in th e m idw est. K ang's g e o g ra p h ic a l u n it
o f stu d y was th e c o u n ty . His c r i t e r i a w ere;
. . . t h a t th e l a r g e s t town in th e co u n ty must
be lo c a te d ap p ro x im a tely in th e g e o g ra p h ic a l c e n
t e r o f th e county . . . in o rd e r t o make i t l i k e l y
t h a t th e county i s n o t to o d i f f e r e n t from th e
t o t a l tr a d e a r e a o f th e town . . . and . . . t h a t
th e l a r g e s t town i n th e county must be lo c a te d n o t
le s s th a n 50 m ile s from a s im ila r a n d /o r l a r g e r town,
tow ns, o r c i t i e s . . . t o d im in ish th e in flu e n c e
o f r e c i p r o c a l exchange o f d e r i v a t i v e s e r v ic e s b e
tw een to w n s.^
To ach iev e th e r e s u l t t h a t Kang d e s i r e s , w ith o u t
c u t t i n g h a p h a z a rd ly a c ro s s m u n ic ip a l b o u n d a r ie s , we would
have t o have f a i r l y i s o l a t e d com m unities as he i n d i c a t e s .
T h is i s o b v io u sly im p o ssib le in th e c l o s e ly k n i t f a b r i c o f
an u rb a n a re a .
W e co u ld a ls o c o n s id e r Redondo Beach as a la b o r
m arket a r e a . Andrews d e f in e s a la b o r m arket a r e a as a
g e o g ra p h ic a l a re a su rro u n d in g a c e n t r a l c i t y , in w hich
th e r e i s a c o n c e n tr a tio n o f u rban economic a c t i v i t y o r u r
ban la b o r demand, and in w hich w orkers can change jo b s
w ith o u t changing r e s id e n c e . O b v io u sly , Redondo Beach would
form o n ly a sm a ll p o r tio n o f such an a r e a . In f a c t , i t is
a r e s i d e n t i a l community w hich f u n c tio n s m ainly as a su p
p l i e r o f la b o r s e r v ic e s r a t h e r th a n as a s i g n i f i c a n t m arket
a re a f o r them.
The v a lu e o f a m e tro p o lita n suburb s tu d y . - - I f a
sm a ll suburban m u n ic ip a lity , such as Redondo B each, i s so
i l l - s u i t e d f o r r e g io n a l economic a n a l y s i s , th e n what i s th e
4
Edgar Z. Palmer ( e d . ) , The Community Economic Base
and M u lt ip lie r (U n iv e r s ity o f N ebraska B u sin ess R esea rc h
B u l l e t i n , No. 63; L in c o ln : U n iv e r s ity o f N ebraska P re s s ,
I 1958), p. 61._______________________________________________________
34
p r i n c i p a l j u s t i f i c a t i o n f o r stu d y in g i t ? In a word: p la n
n in g . R e g a rd le s s o f i t s o th e r f a u l t s , th e c i t y i s a d e c i
sion-m aking and p o lic y -im p le m e n tin g u n i t . I f lo c a l p la n
n in g o f f i c i a l s a re t o fo rm u la te r a t i o n a l p la n s f o r th e
lo c a l a re a s u nder t h e i r j u r i s d i c t i o n , th e y must have ad e
q u a te in fo rm a tio n on th e economic fu n c tio n in g o f t h e i r
l o c a l community. Of c o u r s e , th e stu d y o f a s in g le commu
n i t y w ith in a la r g e r economic a re a i s more u s e f u l i f th e r e
i s a ls o a v a ila b le a stu d y o f th e l a r g e r a r e a because i n
t e r p r e t a t i o n o f in fo rm a tio n f o r th e s m a lle r a r e a i s more
m ean in g fu l i f th e r e i s knowledge o f th e manner in w hich i t
f i t s in to th e l a r g e r u n i t . A suburban stu d y m ight a ls o
j u s t i f y i t s e x is te n c e by m erely p o in tin g up th e h ig h d eg ree
o f dependence t h a t sm a ll com m unities have on th e ”r e s t o f
th e w o r ld ,” and, t h e r e f o r e , th e need f o r many such sm a ll
l o c a l s tu d i e s in o rd e r t h a t th e p ie c e s can be f i t t e d t o
g e th e r to y i e l d th e t o t a l p ic tu r e f o r a r e g io n .
T ieb o u t s u c c in c tly p h ra se s th e need f o r economic
base s tu d i e s a t th e lo c a l le v e l in th e fo llo w in g p a ssa g e :
The economic b ase con cep t a ls o a p p lie s to
s in g le suburban com m unities. The suburban com
m unity i s p a r t o f an u rb an com plex. T y p ic a lly ,
i t i s commuter o r ie n te d w ith o n ly a s m a tte rin g o f
l o c a l in d u s tr y o th e r th a n r e t a i l tr a d e and s e r v
i c e s . S m allness and p ro x im ity t o an u rb an a r e a
35
mean t h a t th e economic i n t e r r e l a t i o n s w ith in th e
suburb a re s m a ll. But a b a se stu d y i s c e r t a i n l y
a p p r o p r ia te f o r su b u rb s. For one t h i n g , i t i s
in e x p e n siv e t o c o n d u c t. More im p o rta n t, u n le s s
p r e v e n ta tiv e s te p s are ta k e n "u rb an b l i g h t ’1 can
become suburban b l i g h t . There i s no excuse f o r
th e la c k o f economic in fo rm a tio n w hich e x i s t s in
many suburban com m unities. The c o s t o f economic
in fo rm a tio n i s t r i v i a l when compared t o th e u l t i
mate c o s t o f n o t h av ih g i t . ^
T ieb o u t goes on to p o in t out t h a t s in c e th e suburb
i s so c l o s e ly t i e d t o th e m e tro p o lita n a r e a , a b e t t e r
u n d e rs ta n d in g o f th e suburban com m unity's f u t u r e , as n o ted
above, r e q u ir e s an u n d e rs ta n d in g o f th e g e n e ra l a r e a
economic f o r c e s . Of c o u rs e , as a b ac k lo g o f community
economic b ase s tu d i e s w ith in a g iv e n r e g io n i s b u i l t up,
th e g r e a t e r knowledge gain ed about th e economic i n t e r r e l a
t i o n s w ith in and betw een com m unities may add t o an u n d e r
s ta n d in g o f th e economic s t r u c t u r e o f th e e n t i r e r e g io n .
The F ie ld Survey
The income and e x p e n d itu re d a ta used in our stu d y
o f th e Redondo Beach economy were a l l d e riv e d from p e rs o n a l
in te rv ie w s by p r o f e s s io n a l in te rv ie w e r s co n d u c tin g a survey
^ C h arles M. T ie b o u t, The Community Economic Base
Study (CEP Supplem entary P ap er, No. 16; New Y ork: Committee
f o r Economic D evelopm ent, 1962), p. 22.
36
fl
o f f a m ilie s r e s i d i n g in th e c i t y o f Redondo Beach.
To be a b le to conduct an economic b a se stu d y and
c o n s tr u c t an income m u l t i p l i e r model f o r a community such
as Redondo B each, a f i e l d survey i s a v i r t u a l p r e r e q u i s i t e .
T here i s l i t t l e o r no d a ta r e l a t i n g t o so u rce o f income
a c c ru in g t o r e s i d e n t s n or i s th e r e d a t a a v a ila b le c o n c e rn
in g t h e i r e x p e n d itu re p a t te r n s and p r o p e n s i t i e s . T ieb o u t
t e l l s u s :
The b e s t way to g e t in fo rm a tio n on r e s i d e n t s
i s t o in te rv ie w them . One o f th e p ie c e s o f d e
s i r e d in fo rm a tio n r e l a t e s t o th e t o t a l income o f
th e fa m ily and where i t was e a rn e d g e o g r a p h ic a lly .
P ro p e rly approached v i a a p e rs o n a l in te rv ie w , most
r e s i d e n t s a re w i l l i n g to r e v e a l t h i s in fo rm a tio n .
. . . At th e same tim e t h a t income in fo rm a tio n i s
g a th e r e d , o th e r in fo rm a tio n c o n c e rn in g lo c a l co n
sum ption sp e n d in g , and a t t i t u d e s about th e com
m unity can be o b ta in e d .
I t sh o u ld be n o te d t h a t a l l o f th e d a ta d e riv e d
from th e f i e l d su rv ey p e r t a i n t o th e consum er s e c to r o f th e
economy. F or a more com plete income m u l t i p l i e r m odel, a
s i m i l a r f i e l d su rv ey co u ld have been conducted o f a l l th e
firm s in Redondo Beach. T his was n o t done, how ever, and
fi
^ P la n n in g R esearch C o rp o ra tio n , fa m ily f i e l d su rv ey
conducted by th e w r i t e r and o th e r s in Redondo Beach in
J a n u a ry , 1963.
7T ie b o u t, o p . c i t . , p . 51.
'37
our model w i l l be c o n fin e d to th e income and e x p e n d itu re
a c t i v i t i e s o f Redondo Beach consum ers. T his l i m i t a t i o n
sh o u ld n o t deny us a f r u i t f u l ex a m in a tio n o f th e Redondo
Beach economy b ecause th e a c t i v i t y o f firm s i s r e l a t i v e l y
i n s i g n i f i c a n t in t h i s p red o m in an tly r e s i d e n t i a l community.
D esign o f th e sam ple. - - I n o rd e r t o g a in more t h o r
ough coverage o f f a m ilie s over th e e n t i r e s p a t i a l e x te n t o f
Redondo Beach, a s t r a t i f i e d sample was ta k e n u s in g th e
ce n su s t r a c t s in th e c i t y as s t r a t a . The number o f i n t e r
view s ta k e n in each cen su s t r a c t was w eig h ted a c c o rd in g to
th e number o f f a m ilie s r e s id i n g in th e t r a c t . The sample
d e s ig n fo llo w ed in t h i s stu d y co rre sp o n d s t o th e one su g
g e s te d by P ro fe s s o rs Dixon and M assey. They s t a t e :
In su rv ey s a sam pling d e s ig n in v o lv in g " s t r a
t i f i c a t i o n ” o f th e p o p u la tio n i s o f te n used and
w i l l , i f used c o r r e c t l y , g iv e more p r e c is e i n f o r
m atio n about th e p o p u la tio n th a n random sam pling.
F or s t r a t i f i c a t i o n th e p o p u la tio n i s su b d iv id e d
in to s e v e r a l p a r t s , o r s t r a t a , and th e number o f
o b s e rv a tio n s in th e sample i s a p p o rtio n e d among
th e s e s t r a t a . F re q u e n tly th e p r o p o rtio n o f th e
sam ple t o be ta k e n from each o f th e s t r a t a i s
f ix e d th e same as th e p r o p o rtio n o f th e p o p u la tio n
in t h a t s t r a t a . 8
W i l f r i d J . Dixon and F ran k J . M assey, J r . , I n t r o
d u c tio n t o S t a t i s t i c a l A n a ly s is (New York: M cGraw-Hill
Book C o ., I n c . , 1957), p. 35.
The in te rv ie w s were chosen random ly from a ta b l e o f random
numbers p re p a re d by th e Rand C o rp o ra tio n f o r c o rre sp o n d in g
b lo c k numbers w ith in th e census t r a c t s t r a t a . Two i n t e r
view s were ta k e n from each such random ly s e le c te d b lo c k .
In te r v ie w e rs were in s t r u c t e d to b e g in in te rv ie w in g a t th e
t h i r d house from e i t h e r c o rn e r and p ro ceed t o ev ery o th e r
house down th e b lo c k u n t i l th e two in te rv ie w s f o r th e b lo c k
had been com pleted. I f two in te rv ie w s c o u ld n o t be ob
ta in e d from a s e le c te d b lo c k , th e n th e in te rv ie w e r was to
p roceed t o th e n e a r e s t a d ja c e n t n o n s e le c te d b lo c k and f o l
low th e same p ro ced u re u n t i l th e rem a in in g in te r v ie w ( s )
was o b ta in e d .
The s ig n i f ic a n c e o f th e sam p le. —When th e survey
was conducted i n J a n u a ry , 1963, th e r e w ere about 15,666
f a m ilie s r e s i d i n g in Redondo B each. The su rv ey c o n s is te d
o f a g e o g ra p h ic a lly s t r a t i f i e d sam pling o f s l i g h t l y over 4
p er c e n t o f th e s e f a m i l i e s . A lto g e th e r , 630 s e p a ra te i n
te rv ie w s were c a r r i e d o u t. B efore we can proceed f u r t h e r
w ith our a n a ly s is and sub seq u en t c o n c lu s io n s based on th e
in fo rm a tio n g a th e re d from th e f i e l d s u rv e y , we must f i r s t
d e a l w ith th e t e c h n i c a l problem o f w h eth er o r n o t th e
c h a r a c t e r i s t i c s r e v e a le d in our sample o f Redondo Beach
39
f a m ilie s i s r e p r e s e n t a t i v e o f th e c h a r a c t e r i s t i c s o f th e
e n t i r e p o p u la tio n o f f a m il ie s .
The method s e le c te d to t e s t th e s ig n i f ic a n c e o f
th e sample r e l a t i v e t o th e p o p u la tio n i s o f a s t a t i s t i c a l
n a tu r e . The v a l i d i t y and c o rre sp o n d in g s ig n i f ic a n c e o f th e
sample depends la r g e ly upon th e number o f f a m ilie s i n t e r
view ed r e l a t i v e t o th e t o t a l number o f f a m il ie s in th e
p o p u la tio n . The o b je c tiv e h e re i s to u se a f a c t o r in w hich
some o f th e r e l a t i v e d i s t r i b u t i o n c h a r a c t e r i s t i c s can be
t e s t e d in b o th th e p o p u la tio n and th e sample as to some
s t a t e d l i m i t o f e r r o r w ith in a g iv e n l e v e l o f c o n fid e n c e .
The v a r i a b l e , incom e, was chosen as th e f a c t o r to be t e s t e d
f o r two r e a s o n s : f i r s t , th e s ig n i f ic a n c e and d i s t r i b u t i o n s
can be compared w ith a m inim al amount o f e r r o r b ecause o f
th e sp read o f th e d i s t r i b u t i o n s ; and seco n d , th e im portance
o f income on some o f th e f a c t o r s m entioned p ro v id e s a f u r
t h e r check on th e l e v e l and c h a r a c t e r i s t i c s o f th e d i s t r i
b u tio n so t h a t some s p e c u la tio n r e l a t i v e t o ad ju stm e n t
co u ld be e f f e c t e d i f deemed n e c e s s a ry .
Comparing th e p o p u la tio n and th e sample on a d i r e c t
b a s is p ro v id ed a problem . P o p u la tio n d a t a a re f o r income
l e v e ls in 1959 from th e 1960 Census o f P o p u la tio n . P op u la
t i o n sample d a ta are f o r income le v e ls i n 1962 from th e
40
1963 f i e l d su rv ey and can n o t be compared d i r e c t l y w ith th e
e a r l i e r p o p u la tio n d a ta u n le s s c e r t a i n assum ptions can be
made. U t i l i z i n g S a le s M anagem ent's Survey o f Buying Power
and knowledge o f l o c a l c o n d itio n s as i n d ic a t o r s o f change
d u rin g th e th r e e - y e a r p e rio d in v o lv e d , th e fo llo w in g a s
sum ption seems l o g i c a l : no s i g n i f i c a n t change o c c u rre d in
th e v a r ia n c e o f th e p o p u la tio n d i s t r i b u t i o n betw een th e two
d a te s m entioned above. T his seems t o be a re a s o n a b le
assu m p tio n , c o n s id e r in g th e above i n d i c a t o r s , a lth o u g h a
h ig h ly s i g n i f i c a n t argum ent on t h i s p o in t m ight be t h a t th e
in d ic a te d movement, i . e . , r i s i n g incom es, may have cau sed a
change in th e d i s t r i b u t i o n d is p e r s io n . However, th e r i s e
in incomes would n o t in c r e a s e th e s e d is p e r s io n c h a r a c t e r
i s t i c s g r e a t l y . The b e l i e f , th e n , i s t h a t a lth o u g h th e
problem m ight e x i s t to some d e g re e , i t i s so s m a ll, r e l a
t i v e l y sp e a k in g , t h a t any change a f f e c t i n g th e r e s u l t s
would be n e g l i g i b l e .
Our a n a ly s is a tte m p ts t o d eterm in e th e v a r io u s d i s
t r i b u t i o n c h a r a c t e r i s t i c s w hich a re p re s e n te d in T ab les 1,
2 , and 3. T able 1 com pares th e c o rre sp o n d in g m easures o f
c e n t r a l te n d en cy and d is p e r s io n f o r th e sample and th e
p o p u la tio n . T his com parison y i e l d s n u m e ric a l v a lu e s d i s
p la y in g a h ig h d eg ree o f c o n g r u ity . In T able 2 we can see
41
TABLE 1
COMPARISON OF MEASURES OF CENTRAL TENDENCY
AND DISPERSION BETWEEN SAMPLE AND POPULATION
FAMILY INCOMES IN REDONDO BEACH
IN 1962
Income C h a r a c t e r i s t i c
Measured
Sample P o p u la tio n
Mean
Median
S tan d ard d e v ia tio n
$7 ,318
6,872
4 ,449
$7,518
6 ,8 8 0
4,295
S o u rc e s: The d a ta f o r th e sample w hich were su b
j e c te d t o s t a t i s t i c a l a n a ly s is in th e s e t a b l e s were d e riv e d
from a P lan n in g R e sea rc h C o rp o ra tio n f i e l d survey conducted
in Ja n u a ry , 1963. The s t a t i s t i c a l m easures p e r ta in in g to
th e p o p u la tio n c h a r a c t e r i s t i c s were ta k e n from th e U. S.
Census o f P o p u la tio n , G en e ra l S o c ia l and Economic C h a ra c
t e r i s t i c s f o r C a l i f o r n i a , 1960.
'42
TABLE 2
COMPARISON OF PERCENTAGES OF FAMILIES
IN DIFFERENT INCOME GROUPS BETWEEN
SAMPLE AND POPULATION IN
REDONDO BEACH IN 1962
Fam ily Income Sample P o p u la tio n
I in D o lla rs n=*565 n=*15,666
Less th a n 3 ,0 0 0 14.3 10.6
3 ,0 0 0
-
3,999 4 .2 6 .0
4 ,0 0 0
-
4,999 8 .8 8.9
5 ,0 0 0
-
5,999 11.2 12.5
6 ,0 0 0
-
6,999 13.1 1 3 .8
7 ,0 0 0
-
7,999 14.5 13.2
8,000
-
8,999 9 .9 9 .3
9 ,0 0 0
p m
9,999 7 .8 6 .3
10,000
-
14,999 1 2 .0 16.0
15,000 o r more 4 .1 3 .5
S o u rc e s: The d a ta f o r th e sam ple w hich were sub
je c te d t o s t a t i s t i c a l a n a ly s is in th e s e t a b l e s were d e riv e d
from a P lan n in g R e sea rc h C o rp o ra tio n f i e l d su rv ey conducted
in J a n u a ry , 1963. The s t a t i s t i c a l m easures p e r ta in in g t o
th e p o p u la tio n c h a r a c t e r i s t i c s were ta k e n from th e U. S.
Census o f P o p u la tio n , G en e ra l S o c ia l and Economic C h arac
t e r i s t i c s f o r C a l i f o r n i a , 1960.
'43
TABLE 3
COMPARISON OF CORRESPONDING INTERVAL CHARACTERISTICS
OF FAMILY INCOME BETWEEN SAMPLE AND POPULATION
IN REDONDO BEACH IN 1962
S ta n d a rd D e v ia tio n Sample P o p u la tio n D iffe re n c e
-3 na na na
-2 n a na na
-1 $ 2,869 $ 3,223 $354
Mean 7 ,3 1 8 7 ,5 1 8 200
+1 11,767 11,813 46
+2 16,216 16,108 108
+3 20,665 20,403 262
S o u rc e s: The d a ta f o r th e sample which were su b
je c t e d t o s t a t i s t i c a l a n a ly s is were d e riv e d from a P lan n in g
R e sea rc h C o rp o ra tio n f i e l d su rv ey conducted in Ja n u a ry ,
1963. The s t a t i s t i c a l m easures p e r ta in in g t o th e p o p u la
t i o n c h a r a c t e r i s t i c s w ere ta k e n from th e U. S. Census o f
P o p u la tio n . G en e ra l S o c ia l and Economic C h a r a c t e r i s t i c s f o r
C a l i f o r n i a , 1960.
44
a h ig h d e g re e o f c o rre sp o n d e n c e b etw e en sam ple and p o p u la
t i o n in th e p e rc e n ta g e s o f f a m il ie s f a l l i n g i n t o th e v a r i
ous income g ro u p s . L a s t l y , th e t h i r d colum n in T ab le 3
shows t h a t th e r e i s r e l a t i v e l y l i t t l e d if f e r e n c e b etw een
th e c o rre s p o n d in g c h a r a c t e r i s t i c i n t e r v a l s o f th e sam ple
and th e p o p u la tio n . I t sh o u ld be n o te d t h a t th e d i f f e r
en ce b etw een th e number o f o b s e r v a tio n s made in th e sam ple
(6 3 0 ) and th e num ber shown f o r th e sam ple in colum n two o f
T ab le 2 (56 5 ) i s due t o th e n e c e s s a r y o m is sio n o f th e
an sw ers o f re s p o n d e n ts who r e f u s e d t o d iv u lg e an income
f i g u r e , o r c la im e d t h a t th e y d id n o t know w hat t h e i r fam
i l y ' s a n n u a l income was f o r th e y e a r 1962.
a c o n fid e n c e l e v e l , i . e . , minimum le v e l o f c e r t a i n t y , a t
w hich we s t a t e o u r c o n c lu s io n s . Once we have made th e
a r b i t r a r y c h o ic e as to th e l e v e l o f c o n fid e n c e a t w hich we
d e s i r e t o draw o u r c o n c lu s io n s , we ca n c a n c u la te th e l i m i t s
o f th e a llo w a b le e r r o r , i . e . , th e n u m e ric a l v a l u e , beyond
w hich th e p o p u la tio n c h a r a c t e r i s t i c s a re n o t l i k e l y to
d e v ia te from th e sam ple c h a r a c t e r i s t i c s . The fo rm u la we
s h a l l u se t o d e r iv e th e l i m i t s o f th e a llo w a b le e r r o r i s :
The n e x t s t e p in o u r a n a ly s is i s th e s e l e c t i o n o f
45
where h i s th e l i m i t s o f a llo w a b le e r r o r ; Z is th e a r e a
un d er a norm al cu rv e c o rre sp o n d in g to a g iv e n l e v e l o f co n
f id e n c e ; N i s th e p o p u la tio n s i z e ; n i s th e sample s i z e ;
and S i s th e s ta n d a rd d e v i a ti o n o f th e p o p u la tio n d i s t r i b u
t i o n . ^
S u b s t i t u t i n g th e a p p r o p r ia te n u m e ric a l v a lu e s in to
th e fo rm u la , we o b ta in a t a 95 p e r c e n t le v e l o f c o n fid e n c e
th e r e s u l t : h « $346. T h is i n d i c a t e s t h a t we c a n assum e in
o u r su b se q u e n t a n a ly s is t h a t no g iv e n sam ple c h a r a c t e r i s t i c
i s l i k e l y t o d e v ia te from i t s p o p u la tio n c o u n te r p a r t by
more th a n ab o u t $346.
W e have d e c id e d in t h i s a n a ly s is t h a t we d e s i r e to
be a b le t o s t a t e o u r c o n c lu s io n s a t a 95 p e r c e n t l e v e l o f
c o n f id e n c e , and t o do so r e q u i r e s an a llo w a b le e r r o r o f no
l e s s th a n $346. H ow ever, f o r p r a c t i c a l re a s o n s o u r s t a t i s
t i c a l a n a ly s is w i l l u se an a llo w a b le e r r o r o f $500. The
$500 a llo w a b le e r r o r was ch o sen on th e b a s is o f i t s b e in g
o n e - h a lf o f th e $ 1 ,0 0 0 i n t e r v a l s s e le c te d f o r in te r v ie w in g
p u rp o s e s , and i s f u r t h e r b ased on th e ro u n d in g phenom enon.
W e a re rem inded t h a t th e approach b e in g used to
^John N e te r and W illia m W asserman, Fundam ental
S t a t i s t i c s f o r B u sin ess and Economics (B o sto n : A lly n &
Bacon, I n c . , 1 9 6 1 ), p . 4 0 0 .
46
prove th e s ig n i f ic a n c e o f th e sample r e l a t i v e t o th e popu
l a t i o n i s th e approxim ate co rresp o n d en ce o f th e v a lu e s o f
th e two d i s t r i b u t i o n s . U t i l i z a t i o n o f th e b a s ic sample
c h a r a c t e r i s t i c s w i l l p erm it us t o fo llo w th e fo llo w in g p ath
o f a n a ly s is .
In th e c a se o f a sm a ll sam ple, th e p r o b a b i l i t y o f
p ic k in g an income re sp o n se c lo s e to th e c e n t r a l m easure o f
ten d en cy i s th e g r e a t e s t . T h e re fo re , in a sm a ll sample th e
sample i t s e l f i s an i n d ic a t o r o f th e g e n e r a l p o p u la tio n
c h a r a c t e r i s t i c s . The sta n d a rd d e v ia tio n o f th e sam p le(s)
th e n ta k e s th e form where th e mean i s a p o in t e s tim a te o f
th e p o p u la tio n mean and th e s ta n d a rd d e v i a ti o n i s th e i n d i
c a to r of th e r e l a t i v e p r o b a b i l i t i e s o f th e mean ly in g a t a
c e r t a i n p o in t, b ased on th e sam ple.
The sample sta n d a rd d e v i a ti o n i s a ls o an i n d ic a t o r
o f th e p o p u la tio n s ta n d a rd d e v ia tio n by th e fo llo w in g f o r
m ula:
The fo rm u la shows t h a t as n approaches N th e d if f e r e n c e
betw een s and S w i l l become n e g l i g i b l e . The q u e s tio n now
i s how la r g e must be th e sample in o r d e r t o p ro v id e a s i g
n i f i c a n t p r e s e n ta ti o n o f th e p o p u la tio n . S in ce s t a t i s t i c s
47
a re b a s e d on p r o b a b i l i t y , th e e s ta b lis h m e n t o f c e r t a i n c r i
t e r i a i s in o r d e r .
A l i m i t o f a llo w a b le e r r o r was p r e v io u s ly e s t a b
lis h e d a t a g iv e n c o n fid e n c e l e v e l . Then an a r b i t r a r y
l i m i t o f a llo w a b le e r r o r was s e t a t $500 f o r th e above
n o te d r e a s o n s . F i n a l l y , we s e le c t e d o u r c o n fid e n c e l e v e l
a t }95 p e r c e n t . On th e b a s i s o f th e s e c r i t e r i a we c a n now
c a l c u l a t e th e number o f o b s e r v a tio n s r e q u ir e d to p ro v id e us
w ith an a d e q u a te sam ple o f Redondo Beach f a m i l i e s . The u se
th e fo llo w in g fo rm u la to d e te rm in e o u r sam ple s iz e :^ ®
S u b s t i t u t i n g th e a p p r o p r ia te n u m e ric a l v a lu e s i n t o th e
fo rm u la y i e l d s a sam ple s iz e o f n - 278. T h is im p lie s t h a t
th e sam ple draw n sh o u ld be a t l e a s t t h i s la r g e o r l a r g e r .
As i s in d ic a te d by o u r fo rm u la f o r sam ple s i z e ,
once an a llo w a b le e r r o r i s s e le c t e d and a c o n fid e n c e l e v e l
s p e c i f i e d , th e sam ple s iz e i s d e te rm in e d . P re v io u s ly we
c a l c u l a t e d o u r l i m i t o f a llo w a b le e r r o r f o r a s p e c if i e d
c o n fid e n c e l e v e l . Now we s h a l l c a l c u l a t e th e l e v e l o f
1GI b i d . , p . 4 0 1 .
'48
c o n fid e n c e a t w hich we ca n make s ta te m e n ts w ith o u r a r b i
t r a r i l y s e le c te d $500 a llo w a b le e r r o r . To d e te rm in e th e
c o r r e c t c o n fid e n c e l e v e l , th e fo llo w in g fo rm u la i s u s e d :
A f te r s u b s t i t u t i o n o f th e p ro p e r n u m e ric a l v a l u e s , th e co n
fid e n c e l e v e l i s e s t a b l i s h e d a t Z = 99.6% f o r an a llo w a b le
e r r o r o f $500.
a n a ly s is t o p ro v e th e r e l i a b i l i t y o f o u r sam ple o f Redondo
Beach f a m il ie s c a n b e s t a t e d as f o llo w s : (1 ) th e sam ple
mean i s s l i g h t l y low ; h o w ev er, th e r e s u l t i n g d if f e r e n c e i s
s m a ll and no a d ju s tm e n t n ee d s to be made in th e su b se q u e n t
a n a l y s i s ; (2 ) th e d i s t r i b u t i o n a p p e a rs r e l a t i v e l y c o n c u r
r e n t b etw een th e sam ple and p o p u la tio n an d , i f incom e i s
assum ed t o be r i s i n g , th e d if f e r e n c e o f th e s ta n d a rd d e v ia
t i o n s w i l l d is p la y ev en g r e a t e r c o rre s p o n d e n c e ; (3 ) th e
sam ple i s s i g n i f i c a n t a t a 95 p e r c e n t l e v e l o f c e r t a i n t y ;
(4 ) th e a llo w a b le e r r o r c o u ld be re d u c e d t o a v a lu e in th e
ra n g e o f 300-350 w ith o u t re d u c in g th e s i g n i f i c a n c e o f th e
sam p le; (5 ) i f th e a llo w a b le e r r o r re m a in s a t 5 0 0 , a l e v e l
o f c o n fid e n c e e x c e e d in g 99 p e r c e n t c o u ld be e s t a b l i s h e d ;
and (6 ) th e sam ple d i s t r i b u t i o n i s r e p r e s e n t a t i v e o f th e
In summary, th e c o n c lu s io n s o f o u r s t a t i s t i c a l
4'9"
p o p u la tio n d i s t r i b u t i o n so t h a t no a d ju s tm e n t n e e d s to be
made in o rd e r to com pensate f o r a s m a ll sam p le.
Q u e s tio n n a ire d e s ig n . - -The q u e s tio n n a ir e i s , o f
c o u r s e , th e v e ry h e a r t o f o u r f i e l d s u rv e y . The q u e s tio n s
m ust be s tr u c t u r e d so t h a t th e re s p o n d e n ts c l e a r l y u n d e r
s ta n d them and g iv e m e a n in g fu l an sw ers t o them . F o r t h i s
r e a s o n o u r q u e s tio n s on am ounts and p la c e s o f e x p e n d itu r e s
w ere b ro k en down in to segm ents o f e x p e n d itu re su ch as d u r
a b l e s , n o n d u ra b le s , e t c . S i m i l a r l y , th e q u e s tio n s on i n
come and s a v in g s w ere s t a t e d in te rm s o f o n e -th o u s a n d -d o l
l a r i n t e r v a l s r a t h e r th a n a s k in g f o r a s p e c i f i c income o r
s av in g s f i g u r e .
The q u e s tio n s r e l a t i n g to o u r p r e s e n t s tu d y co v e re d
th e b a s ic c a te g o r ie s o f : p la c e o f em ploym ent; t o t a l amount
o f e x p e n d itu r e ; p la c e o f e x p e n d itu r e ; t o t a l amount o f i n
come a c c ru in g t o th e sp e n d in g u n i t ; and amount o f income
e a rn e d i n s i d e / o u t s i d e o f Redondo B each. A ll o f th e s e q u e s
t i o n s p e r t a i n t o th e y e a r 1962.
An a tte m p t was made t o in c o r p o r a te i n t o th e q u e s
t i o n n a i r e th e c o n c e p t o f th e sp e n d in g u n i t , d e v e lo p e d by
th e U n iv e r s ity o f M ichigan S urvey R e se a rc h C e n te r f o r u se
in t h e i r a n n u a l p u b l i c a t i o n , S u rv ey o f Consumer F in a n c e s .
50
The id e a o f th e sp e n d in g u n i t i s to d e f in e th e num ber o f
i n d iv id u a ls l i v i n g in a s e p a r a te h o u se h o ld who p o o l t h e i r
income f o r m ost o f t h e i r p u rc h a s e s . In t h i s w ay, i n d i v i d
u a ls w ith in d e p e n d e n t incom es who make t h e i r own e x p e n d i
t u r e d e c is io n s a re e x c lu d e d from th e t r u e fa m ily sp e n d in g
u n i t . In th e Redondo B each home s u rv e y q u e s tio n n a i r e , th e
s p e n d in g u n i t was b ro k e n o u t from th e u s u a l fa m ily u n i t f o r
a l l e x p e n d itu r e s e x c e p t f u r n i t u r e , a p p lia n c e s , and g r o
c e r i e s . A f te r th e su rv e y r e s u l t s w ere t a b u l a t e d , h o w ev er,
i t was d is c o v e re d t h a t th e r e was such a c lo s e c o n g r u ity
b etw een th e fa m ily and th e sp e n d in g u n i t in Redondo Beach
t h a t f o r a l l p r a c t i c a l p u rp o se s th e fa m ily c o u ld be c o n
s id e r e d as th e d e c is io n m aking u n i t w ith re g a rd t o e x p e n d i
t u r e s .
I t i s a g a in n o te d t h a t t h i s q u e s tio n n a ir e was d e
s ig n e d t o d e r iv e in f o rm a tio n o n ly from th e consum er s e c t o r
o f th e Redondo Beach economy. The income a c c ru in g t o r e s i
d e n ts from any s o u r c e , w hich we a tte m p t to m e asu re , i s
a n a la g o u s to p e r s o n a l income on th e n a t i o n a l l e v e l , b u t , in
a l o c a l economy such as t h a t o f Redondo B each, p e r s o n a l
income and e x p e n d itu r e s on co n su m p tio n a re a p r o p o r t i o n a l l y
g r e a t e r segm ent o f t o t a l econom ic a c t i v i t y th a n on th e
n a t io n a l le v e 1.
.5 :.
Socioeconom ic C h a r a c t e r i s t i c s o f
Redondo Beach
I t w i l l be th e o b je c t o f th e p r e s e n t s e c tio n t o
make a b r i e f a tte m p t a t d e f in in g th e g e n e ra l c h a r a c te r o f
th e community o f Redondo Beach. A f te r c o n s id e r in g p o p u la
t i o n grow th and c o m p o sitio n , we s h a l l d is c u s s th e Redondo
Beach economy in term s o f b o th s e c t o r s , i . e . , m arket demand
so u rc e s, and i n d u s t r i a l g ro u p in g s, i . e . , a g g re g a te s o f firm s
p ro d u cin g s im ila r p r o d u c ts .
P o p u la tio n grow th and c o m p o s itio n . - - In J a n u a r y ,
1963, th e Los A n g eles R e g io n a l P la n n in g Com m ission e s t i
m ated th e t o t a l p o p u la tio n o f Redondo B each as b e in g 5 0 ,4 4 7
P r io r t o th e Second W orld War, th e 1940 c e n su s en u m erated
o n ly s l i g h t l y o v e r 1 3 ,0 0 0 p eo p le r e s i d i n g in Redondo B each.
T h is s i g n i f i c a n t p o p u la tio n in c r e a s e d u rin g th e p a s t two
d e c a d e s h a s u n d o u b te d ly been l a r g e l y th e r e s u l t o f w orking
p e o p le who, a f t e r b e in g draw n to th e Los A n g eles a r e a f o r
econom ic and o th e r r e a s o n s , w ere in s e a r c h o f in e x p e n s iv e
h o u s in g , c o n v e n ie n tly lo c a te d , and p o s s e s s in g u n u s u a l o r
p le a s a n t r e c r e a t i o n a l and c l im a tic a m e n itie s .
Redondo Beach can q u ite a c c u r a te ly be d e s c rib e d as
a '’bedroom ,” o r r e s i d e n t i a l , community. T h e re fo re , th e
l e v e l , grow th r a t e , and c h a r a c te r o f i t s p o p u la tio n is
52
l a r g e l y ex o g e n o u sly d e te rm in e d , i . e . , by econom ic f o r c e s a t
w ork in th e Los A n g eles-L o n g Beach m e tr o p o lita n r e g io n
w hich a re c r e a t i n g jo b o p p o r t u n i t i e s in an a r e a in w hich
Redondo Beach i s o n ly a r e l a t i v e l y i n s i g n i f i c a n t p a r t .
Once p e o p le have a r r iv e d in th e Los A n g eles a r e a , how ev er,
th e l o c a l r e s i d e n t i a l com m unity e x e r t s in f lu e n c e on t h e i r
l o c a t i o n a l p a t t e r n to th e e x te n t t h a t i t o f f e r s them some
a t t r a c t i v e c o m b in a tio n o f th e ab o v e -m en tio n ed and o th e r
f a c t o r s .
T h at Redondo Beach p ro d u ced a p o p u la tio n grow th
r a t e n e a r l y tw ic e t h a t o f Los A n g eles C ounty d u rin g th e
p a s t two d ec ad e s ca n p ro b a b ly be ac c o u n te d f o r by th e f a c t
t h a t t h i s com m unity do es p o s s e s s an a p p e a lin g m ix tu re o f
a m e n itie s w hich o u tw eig h i t s d e t r a c t i v e e le m e n ts .
In T ab le 4 we can com pare in more d e t a i l th e popu
l a t i o n g ro w th in Redondo B each, in c o n tig u o u s co m m u n ities,
in th e S o u th Bay a r e a s u rro u n d in g Redondo B each, and in
th e more in c lu s iv e a r e a o f Los A n g eles C o u n ty . Even th o u g h
Redondo B each p o p u la tio n in c r e a s e h a s f a r o u ts t r ip p e d t h a t
o f th e c o u n ty , i t i s o n ly a r e p r e s e n t a t i v e grow th r a t e when
view ed in th e c o n te x t o f th e S o u th Bay a r e a .
Our s tu d y d o es n o t in c lu d e a p o p u la tio n p r o j e c t io n
a tte m p tin g to d e te rm in e f u tu r e p o p u la tio n l e v e l s . In f a c t ,
TABLE 4
POPULATION G R O W T H IN RED ON D O BEACH A N D SELECTED ADJACENT AREAS
IN THE LOS ANGELES REGION FRO M 1940 TO 1962
A reas 1940a 195 0a
P er Cent
In c re a s e
1940-1950
1960a
Per Cent
In c re a s e
1950-1960
19622
Avg. ann.
R ate o f
In c re a s e
1950-1962
Redondo Beach 13 25 92.7 47 86.3 50 15.3
Los A ngeles County 2,786 4,152 4 9 .0 6,039 45.5 6,395 4 .5
South Bay A reab 56 117 111.3 291 147.9 320 14.4
T o rran ce 10 22 123.5 101 354.1 113 4 2 .7
M anhatten Beach 6 17 170.9 34 9 5 .8 35 16.9
Hermosa Beach 7 12 64.3 16 36,3 17 5.7
S o u rces: C ity and County D ata Book, U. S. Government P r in tin g O ffic e , W ashington
25, D .C ., 1962; U, S. Census o f P o p u la tio n . 1950 and I960; C a lif o r n ia S t a t i s t i c a l Ab
s t r a c t , Economic Developm ent Agency, Sacram ento, 1962; and P o p u la tio n and D w elling U n its ,
Los A ngeles County R e g io n al P lan n in g Commission, P o p u la tio n R esearch S e c tio n , Q u a rte rly .
aA ll p o p u la tio n fig u re s a re to th e n e a re s t th o u san d .
The South Bay A rea c o n s is ts o f th e c i t i e s o f Redondo Beach, M anhatten Beach,
Hermosa B each, E l Segundo, T o rra n c e, H aw thorne, G ardena, and P alo s V erdes E s ta te s .
U1
u >
54
we do n o t become in v o lv e d in any ty p e o f economic f o r e
c a s tin g o f a fo rm al n a tu re in t h i s t h e s i s . The main re a s o n
f o r t h i s i s t h a t th e scope o f our e f f o r t i s lim ite d t o th e
developm ent and a p p l ic a tio n o f an economic a n a l y t i c a l t e c h
n iq u e f o r th e s o le purpose of stu d y in g th e c h a r a c t e r i s t i c s
and f u n c tio n s o f a lo c a l community. The r e s u l t s o f our
a n a ly s is may, how ever, be u s e f u l t o o l s i n making f o r e c a s t s
and p la n n in g f o r f u tu r e n ee d s.
P o p u la tio n in c re a s e can be d iv id e d in to two b a s ic
c a t e g o r i e s , n a t u r a l in c re a s e ( l i v e b i r t h s minus d e a th s
o v er a g iv e n p e r io d ) , and n e t m ig ra tio n s (in flo w minus o u t
flo w ). I s a r d p o in ts o u t t h a t in sm a ll open a r e a s , i . e . ,
a re a s w ith u n r e s t r i c t e d in /o u t m ig r a tio n s , i t i s th e m ig ra
t i o n c a te g o ry w hich ac co u n ts f o r a p re p o n d e ra te amount o f
any p o p u la tio n in c r e a s e . The m ig ra tio n s o f r e s i d e n t s in t o
and o u t o f a community such as Redondo Beach are v e ry d i f
f i c u l t t o q u a n tif y . I t i s p o s s ib le t o g e t a rough id e a o f
when in - m ig r a tio n h as o cc u rred from le n g th o f re s id e n c e
q u e s tio n s . But t h i s s t i l l does n o t y i e l d in fo rm a tio n about
o u t- m ig r a tio n and i t becomes in h e r e n tly d i f f i c u l t to f in d
out how much o f a g iv e n t o t a l in c r e a s e in p o p u la tio n o ver
a s p e c if ie d tim e p e rio d was due t o n e t in - m ig r a tio n and
what amount was due t o n a t u r a l in c r e a s e .
55 '
Once an a r e a becomes more s t a b l e in term s o f popu
la t i o n , grow th due t o n a t u r a l in c re a s e ta k e s on more s i g n i f
ic a n c e . There a re in d ic a t io n s t h a t p o p u la tio n grow th in
Redondo Beach w i l l ten d t o occur a t slow er r a t e s in th e
f u t u r e . As an i n d i c a t i o n o f f u tu r e p o p u la tio n grow th in
Redondo Beach, perhaps one o f th e more im p o rta n t s t a t i s t i c s
i s th e f e r t i l i t y r a t i o , w hich i s d e fin e d as th e number o f
c h i l d r e n under f iv e y e a rs o f age p er 1,000 women betw een
th e ages o f 15 and 4 9 . In Redondo Beach in 1960, th e f e r
t i l i t y r a t i o was 5 1 9 , o r 16.9 p er c e n t g r e a t e r th a n th e
Los A ngeles County r a t i o o f 444. In a d d i tio n , T ab le 5 p r e
s e n ts d a ta showing an above average fa m ily s iz e f o r Redondo
Beach.
There a re s tr o n g l i m i t a t i o n s on th e f u tu r e growth
p o s s i b i l i t i e s o f Redondo Beach. Given th e c u r r e n t lan d use
p a t t e r n in Redondo B each, which i s p red o m in a n tly s in g le
fa m ily r e s i d e n t i a l , a g e o g rap h ic a re a o f t h i s s iz e can
su p p o rt o nly so much p o p u la tio n . There i s v i r t u a l l y no
v a c a n t land l e f t in th e c i t y f o r c o n tin u in g r e s i d e n t i a l
d evelopm ent. T able 6 o f f e r s a com parison o f p o p u la tio n
d e n s i t i e s , i . e . , peo p le p e r sq u are m ile , f o r Redondo Beach
and s e le c te d a d ja c e n t a r e a s . The d e n s ity in Redondo Beach
i s c o n s id e ra b ly h ig h e r th a n f o r th e county as a w hole.
56
TABLE 5
FAMILY SIZE IN REDONDO BEACH A N D LOS ANGELES COUNTY
A reas 1950 1960
P er C ent I n c r e a s e
1950-1960
Redondo Beach
Los A n g eles C ounty
3 .1 4
2 .9 2
3 .2 2
2 .9 4
2 .5
0 .7
S o u rc e : U. S. C ensus o f P o p u la tio n , 1950 and I9 6 0 .
TABLE 6
POPULATION DENSITIES IN REDONDO BEACH
AND SELECTED ADJACENT AREAS
P er C ent
A reas 195 0a 196 0a In c r e a s e
M iles
a
^ IS 1950-1960
Redondo Beach 6 . 0 4 ,2 0 4 7 ,7 3 1 86.3
Los A ngeles County 4 , 0 6 0 ,0 1,023 1,487 4 5 .3
South Bay A rea n a na na na
T o rran ce 2 0 .0 1,112 5 ,0 5 0 3 5 4 .1
M anhatten Beach 3 .9 4 ,4 4 4 8.7 0 1 9 5 .8
Hermosa Beach na n a na na
S o u rc e : U. S. C ensus o f P o p u la tio n , 1950 and 1960.
aD e n sity f ig u r e s a re in th o u sa n d s o f p erso n s p er
sq u a re m ile .
n a - no d a t a c o u ld be g e n e ra te d on th e s e a r e a s .
57
The p re s s u re b e in g e x e rte d by in c r e a s in g p o p u la tio n
d e n s ity in Redondo Beach becomes more obvious when i t s r a t e
o f grow th i s compared w ith t h a t o f th e a d jo in in g c i t y o f
T o rra n c e . T o rra n c e , w ith much low er d e n s ity th a n Redondo
Beach in 1950, e x p e rie n c e d an in c re a s e in r e s i d e n t s o f
n e a r ly 125 p er c e n t betw een 1940 and 1950. D uring t h i s
same p e r io d , Redondo Beach had an in c re a s e in th e n e ig h b o r
hood o f 95 p er c e n t. However, when th e grow th r a t e s f o r
th e two c i t i e s a re compared f o r th e decade o f 1950 t o 1960
we fin d t h a t th e r e l a t i v e amount o f in c re a s e f o r th e form er
has d e c lin e d somewhat w h ile t h a t o f th e l a t t e r h as in c re a se d
phenom enally (se e T able 4 ) . S im il a r ly , th e n e ig h b o rin g
beach com m unities o f M anhatten and Hermosa Beach have
r e a l i z e d even more d ra m a tic drops in t h e i r r a t e s o f r e s i
d e n t ia r y grow th, as t h e i r d e n s i t i e s r i s e to v e ry h ig h
le v e l s and th e p h y s ic a l space a v a ila b le f o r f u tu r e growth
d w in d les t o n o th in g .
I f th e f a m ilie s in Redondo Beach were to be c l a s s i
f ie d in economic te rm s , th e y could be s a id t o f a l l predom
in a n t l y in to th e low er m iddle and m iddle c l a s s b r a c k e ts .
The m edian income i n Redondo B each i s s l i g h t l y lo w er th a n
f o r Dos A n g eles C ounty as a w h o le. T here a re ab o u t 13 p e r
c e n t more o f th e l o c a l la b o r f o r c e em ployed in m a n u fa c tu r
58
in g th a n in th e e n t i r e C o u n ty 's la b o r f o r c e , and s i m i l a r l y
th e r e a re ab o u t 8 p e r c e n t few er in th e l o c a l la b o r f o rc e
who a re em ployed in w h ite c o l l a r o c c u p a tio n s as com pared
w ith th e C ounty la b o r f o r c e .
A g la n c e a t T ab le 7 r e v e a ls th e d i s t r i b u t i o n o f th e
la b o r f o r c e b o th in term s o f o c c u p a tio n ty p e s and in d u s
t r i a l o r b u s in e s s g ro u p in g s . The in d iv i d u a ls w ith whose
em ploym ent we a r e c o n c e rn e d a r e th e p r i n c i p a l w o rk ers o r
wage e a r n e r s in ea ch fa m ily t h a t we in te rv ie w e d .
The la b o r f o r c e and g e o g ra p h ic l o c a t i o n o f em ploy
ment . - -As n o te d e a r l i e r , Redondo Beach i s p re d o m in a n tly a
r e s i d e n t i a l com m unity. I t s m ain s o u rc e o f b a s ic income
em an ates from th e e x p o rt o f la b o r s e r v ic e s by i t s r e s i
d e n ts . An e s tim a te b ased on d a t a g a th e r e d from o u r f i e l d
s u rv e y i n d i c a t e s a la b o r f o rc e a t th e end o f 1962 o f approx
im a te ly 2 0 ,3 3 0 p e r s o n s . W ith an in d ic a te d r a t e o f unem ploy
m ent o f 3 .6 p e r c e n t , we a re l e f t w ith c lo s e t o 1 9 ,6 0 0
em ployed members i n th e lo c a l la b o r f o r c e .
As would be im a g in e d , a v e ry h ig h p r o p o r tio n o f th e
l o c a l la b o r f o rc e i s em ployed o u ts id e th e c i t y b o u n d a rie s
o f Redondo B each. When income i s th e v a r i a b l e b e in g a l l o
c a te d b etw een th e e x p o rt and l o c a l s e c t o r s , we w i l l n o tic e
59
TABLE 7
OCCUPATIONAL A N D BUSINESS GROUP DISTRIBUTION
OF THE REDONDO BEACH LABOR FORCE IN 1962
P r i n c i p a l W o rk e r's P er C ent
O cc u p atio n Employed
P r i n c i p a l W o rk e r's P er C ent
B u s in e ss G roup Employed
P r o f . , te c h n i c a l 1 8 .8 C o n s tru c tio n 1 5 .4
M g r., P r o p .,
o f f i c i a l
1 4 .4 Manuf ac t u r ing 3 4 .4
C l e r i c a l 3 .7 R e t a i l , w h o le sa le 1 7 .4
S a le s 4 .1 Gov' t . , educ a t io n 2 0 .3
C raftsm an , forem an 3 6 .2
B u s ., p r o f . s e r v
ic e s
1 0 .6
L a b o re r, s e r v ic e 2 2 .8 R . E . , f i n . , i n s . 1.9
S o u rc e : P la n n in g R e se a rc h C o rp o ra tio n F ie ld S urvey.
J a n u a ry , 1963.
N o te : The p r i n c i p a l w o rk er i s th e m ain income
r e c i p i e n t in th e fa m ily in te rv ie w e d .
60
t h a t a h ig h e r p r o p o r tio n o f t o t a l income f a l l s in to th e
e x p o rt s e c to r th a n i s t r u e o f em ploym ent. One r e a s o n c o u ld
b e , o f c o u r s e , t h a t th e e x p o rt s e c t o r i s more h e a v ily
fa v o re d w ith h ig h income r e c i p i e n t s th a n i s th e l o c a l s e c
t o r . A n o th e r, and p ro b a b ly more im p o r ta n t, re a s o n f o r t h i s
d if f e r e n c e i s t h a t some i n d i v i d u a l s , who may be em ployed
l o c a l l y , have em p lo y ers whose b a s e s o f o p e r a tio n a re n o n
l o c a l .
An in fo rm a tiv e way o f r e v e a lin g th e r e l a t i o n s h i p
b etw een b u s in e s s g r o u p ’s s a le s and th e em ploym ent th e y
c r e a te in e i t h e r th e e x p o rt o r l o c a l s e c to r s i s p re s e n te d
in T ab le 8. T h is i s a h ig h ly a g g re g a te d t a b l e , show ing
th e a l l o c a t i o n o f em ploym ent in a l l b u s in e s s g ro u p s (o r
i n d u s t r i a l c a t e g o r i e s ) b etw een th e tw o e s s e n t i a l s e c t o r s .
T ab le 9 i s p re s e n te d in o r d e r t h a t we may c o n t r a s t
th e d i s t r i b u t i o n s o f em ploym ent b etw een l o c a l and n o n lo c a l
s e c to r s f o r a h ig h ly d ep e n d en t s m a ll g e o g ra p h ic a r e a such
as Redondo B each, and a c o n s id e r a b ly l a r g e r and more s e l f -
s u f f i c i e n t a r e a su ch as th e Los A n g eles-L o n g Beach S ta n d
a rd M e tro p o lita n S t a t i s t i c a l A rea (S .M .S .A .).
A co m p ariso n o f th e l a s t two colum ns in T a b le s 8
and 9 c l e a r l y r e v e a ls t h a t d i s t r i b u t i o n s o f em ploym ent in
th e two a r e a s b etw een th e exp o rt and l o c a l s e c to r s a re
61
TABLE 8
ALLOCATION OF EM PLOYM ENT CREATED BY SALES
OF ALL INDUSTRIES IN REDONDO BEACH
1962
I n d u s tr y
from
S e c to r t o
Employment P e r C ent o f
( i n th o u s a n d s ) Employment
T o ta l E x p o rt L o c a l E x p o rt L o cal
A ll i n d u s t r i e s 1 9 .6 1 6 .4 3 .4 8 2 .6 1 7 .4
S o u rc e :
J a n u a r y , 1963.
P la n n in g R e se a rc h C o rp o ra tio n F i e l d S u rv e y ,
TABLE 9
ALLOCATION OF EM PLOYM ENT CREATED BY SALES
OF ALL INDUSTRIES IN LOS ANGELES-
LON G BEACH, CALIFORNIA, I960
S e c to r to
I n d u s tr y
from
Employment P er C ent o f
( i n th o u s a n d s ) Employment
T o ta l E x p o rt L o ca l E x p o rt L o c a l
A ll i n d u s t r i e s 2 ,6 4 9 .0 7 1 5 .2 1 ,9 3 3 .8 2 7 .0 7 3 .0
S o u rc e : W. Lee H ansen, R. Thayne R obson, and
C h a rle s M. T ie b o u t, M ark ets f o r C a l i f o r n i a P ro d u c ts ( S a c ra
m en to , C a l i f . : C a l i f o r n i a Economic D evelopm ent A gency,
1 9 6 1 ).
62
alm ost c o m p le te ly r e v e r s e d . The la r g e r th e g eo g rap h ic e x
t e n t and th e g r e a t e r th e i s o l a t i o n o f a r e g io n , th e g r e a t e r
i s i t s independence o f o th e r a re a s and th e more o f i t s
la b o r re s o u rc e s i t employs s e r v ic in g i t s own l o c a l n ee d s.
The r e t a i l s e c t o r .--T h e n e x t l a r g e s t a re a o f demand
t o be s e rv e d , a f t e r th e m arket f o r la b o r r e s o u r c e s , i s th e
r e t a i l t r a d e s e c t o r . There must be ad eq u ate r e t a i l f a c i l i
t i e s in th e community to se rv e th e needs o f lo c a l consum
e r s . D epending on th e c h a r a c te r o f th e r e t a i l e s t a b l i s h
ments in a suburban community such as Redondo Beach, t h e i r
tr a d e a re a s may be c o n fin e d la r g e ly to th e l o c a l a re a in
which th e y a re lo c a te d , o r th ey may e x ten d in to a d ja c e n t
a r e a s . S i m il a r ly , r e t a i l o u t l e t s in n ea rb y com m unities may
draw consum ers from th e community u n d e r s tu d y . In o th e r
w ords, we are sa y in g t h a t f o r c e r t a i n ty p e s o f p u rch ases
l o c a l consum ers w i l l te n d to spend w ith in th e l o c a l com
m u n ity , w h ile f o r o th e rs ty p e s o f goods and s e r v ic e s th e y
te n d t o spend o u ts id e th e lo c a l community.
The main re a s o n f o r consumer e x p e n d itu re s o c c u rrin g
o u ts id e th e l o c a l community i s , o f c o u r s e , th e n o rm ally
lim ite d ran g e o f s e l e c t i o n , b o th q u a n t i t a t i v e l y and q u a l i
t a t i v e l y , o f r e t a i l goods and s e r v ic e s . A lso , such f a c t o r s
. 6 3 -
as income le v e ls and le n g th o f r e s id e n c e a f f e c t th e g eo
g ra p h ic p a t t e r n o f consumer e x p e n d itu re s w ith in and o u ts id e
o f th e lo c a l community. However, a t t h i s p o in t we a re co n
cern ed o n ly w ith w h e th e r, on b a la n c e , r e s i d e n t s and non
r e s i d e n t s spend more or le s s on r e t a i l goods and s e r v ic e s
w ith in Redondo Beach th a n r e s i d e n t s spend on th e s e same
item s o u ts id e o f Redondo Beach. W e in te n d , th e n , t o co n
s t r u c t a c ru d e , b u t n o n e th e le s s in f o r m a tiv e , b a la n c e o f
r e t a i l payments f o r Redondo Beach.
In o rd e r th a n an o v e r a l l v iew o f th e r e c e n t g ro w th
tr e n d in r e t a i l and o th e r a c t i v i t y in Redondo B each may be
h ad f i r s t , d a t a f o r ta x a b le r e t a i l , s e r v i c e , and m an u fac
t u r i n g and w h o le s a le tr a d e s a l e s a re p re s e n te d in T ab le 10.
W e ca n a l s o com pare th e r e l a t i v e m ag n itu d e s o f th e s e v a r i
ous c a t e g o r ie s o f econom ic a c t i v i t y and p l a i n l y see th e
im p o rta n c e o f r e t a i l a c t i v i t y in th e Redondo Beach econom y.
T ax a b le r e t a i l s a l e s a c c o u n t f o r ab o u t 60 p e r c e n t
o f th e t o t a l r e t a i l s a l e s in Redondo B each and in b os
A n g eles C o u n ty . The d a ta u sed in th e c o n s tr u c tio n o f o u r
b a la n c e o f paym ents in d e x (b elo w ) w ere d e riv e d from ta x a b le
r e t a i l s a l e s . T h is d o es n o t re d u c e th e v a l i d i t y o f th e
in d e x , h o w ev er, s in c e we a re i n t e r e s t e d in com paring r e l a
t i v e , n o t a b s o lu te , m a g n itu d e s.
TABLE 10
TAXABLE SALES IN RED ON D O BEACH, 1957 TO 1961
In d u s try
1957 1958 1959 1960 1961
P er Cent
In c re a s e
1957-1961
Average
Annual
P er C ent
M illio n s o f D o lla rs In c re a s e
R e ta il 4 0 .4 4 2 .9 59.7 62.2 65.6
S e rv ic e 2 .2 2 .1 2 .2 2 .2 2 .3
M fg ., w h ls. 5 .6 5 .0 5 .3 5.3 5 .5
T o ta l 4 8 .1 5 0 .0 67.3 69.7 73.6 5 3 .1 12.0
S o u rce: Trade O u tle ts and T axable R e ta il S a le s in C a lif o r n ia , S ta te Board o f
E q u a liz a tio n , S acram ento, an n u al r e p o r ts fo r 1960 and 1961, and q u a r te r ly r e p o r ts fo r
1957, 1958, and 1959.
65
T ab le 11 p r e s e n ts d a ta r e l a t i n g t o th e t o t a l l e v e l
o f r e t a i l a c t i v i t y in Redondo Beach a s en u m erated in th e
1958 U. S. C ensus o f B u s in e s s . T h ere i s no way to d e t e r
m ine a c c u r a te ly how much o f th e $ 7 .8 m i l l i o n p a y r o ll was
l o c a l incom e, s in c e th e r e was no a l l o c a t i o n o f em ployees
and p r o p r i e t o r s in t o r e s i d e n t and n o n r e s id e n t c a t e g o r i e s .
We c o n s tru c te d a b a la n c e o f r e t a i l payments index
f o r Redondo Beach f o r each o f th e y e a rs from 1958 th ro u g h
1961. The index was c o n s tru c te d in th e fo llo w in g m anner:
when Redondo Beach ta x a b le r e t a i l s a le s e x p re s s e d as a p e r
c e n ta g e o f Los A ngeles County ta x a b le r e t a i l s a le s a re
e q u a l t o Redondo Beach income ex p re sse d as a p e rc e n ta g e o f
Los A ngeles County incom e, th e index w i l l re a d 100, i . e . , a
z e ro b a la n c e o f r e t a i l tr a d e i n d ic a t in g n e i t h e r a n e t e x
p o rt n o r a n e t im port o f r e t a i l goods and s e r v i c e s . I f th e
index v a lu e i s g r e a t e r th a n 100, some d eg ree o f e x p o rtin g
a c t i v i t y is in d ic a te d in th e r e t a i l s e c t o r . C o n v e rse ly , i f
th e index v a lu e i s l e s s th a n 100, some d eg ree o f im p o rtin g
a c t i v i t y i s l i k e l y t o be o c c u rrin g in th e r e t a i l s e c t o r .
In summary, th e co m p u tatio n o f th e index i s i s— .
4 income
T ab les 12 and 13 p re s e n t th e p o s i t i o n o f Redondo
Beach as r e f l e c t e d in our b a la n c e o f r e t a i l payments index
computed from two s e p a r a te s o u rc e s . A d is a g g r e g a tio n o f
66
TABLE 11
RETAIL TRADE IN REDONDO BEACH, 1958
Number T o ta l T o ta l T o ta l Number
C ity o f S a le s a P a y r o ll3 dum ber o f o f A c tiv e
E s ta b . Em ployees P r o p r ie t o r s
Redondo Beach 425 6 9 .5 7 .8 2 ,3 9 7 435
S o u rc e : U. S . C ensus o f B u s in e s s , R e t a i l T ra d e ,
C a l i f o r n i a , 1958.
M i l l i o n s o f d o l l a r s .
TABLE 12
BALANCE OF PAYMENTS INDEX FOR THE
OF THE REDONDO BEACH ECONOMY,
RETAIL
1958 TO
SECTOR
1961
R e t a i l S a le s 1958 1959 1960 1961
Food 257 214 214 229
G e n e ra l m e rch an d ise 43 71 71 186
A p p are1 86 186 186 200
F u r n i t u r e , a p p lia n c e s 114 186 186 200
A uto 171 71 71 86
Gas 143 129 129 143
B u ild in g 100 71 57 71
D rugs 200 214 214 229
E a t, d r in k 71 114 114 129
T o ta ls 143 143 129 171
S o u rc e : S u rvey o f B uying Pow er,
M agazine, 1959, 1960, 1961, and 1962.
S a le s Management
BALANCE OF PAYM ENTS
OF THE REDONDO
TABLE 13
INDEX FOR THE
BEACH ECONOMY,
RETAIL SECTOR
1958 TO 1961
67
R e t a i l S a le s 1958 1959 1960 1961
Food 200 186 229 300
G e n e ra l m e rc h a n d ise 157 157 157 143
A p p a re l 114 114 100 100
F u r n i t u r e , a p p lia n c e s 100 100 100 114
A uto 171 157 157 129
Gas 143 143 129 129
B u ild in g 57 43 43 43
D rugs 86 86 86 100
L iq u o r 86 86 86 86
E a t, d r in k 100 257 257 229
O th er 71 114 143 129
T o ta ls 114 157 143 143
S o u rc e : T rad e O u tle ts and T ax a b le R e t a i l S a le s in
C a l i f o r n i a .
th e in d e x v a lu e s f o r th e r e t a i l s e c t o r in to v a r io u s s u b
s e c to r s p e rm its a more d e t a i l e d o b s e r v a tio n o f w here th e
s o u rc e s o f th e o v e r a l l f a v o r a b le b a la n c e l i e . F i n a l l y ,
T ab le 14 p r e s e n ts th e b a la n c e o f paym ents in d e x on a more
m e a n in g fu l p e r c a p i t a b a s is and adds in d e x v a lu e s f o r a d d i
t i o n a l s e c t o r s , th u s show ing a b a la n c e o f paym ents p o s i t i o n
f o r th e e n t i r e l o c a l economy.
Even i f we assume t h a t o u r in d e x v a lu e s a re to o
c ru d e e s tim a te s to r e v e a l a c c u r a te ly th e paym ents p o s i t i o n
o f Redondo B each w ith th e r e s t o f th e w o rld , th e in d e x ca n
s t i l l be u s e f u l as an in d i c a t o r o f th e r e l a t i v e s e l f - s u f
f i c i e n c y o r d ep en d en ce o f v a r io u s s e c t o r s o f th e Redondo
B each economy and o f th e l o c a l economy as a w h o le. F o r
ex am p le, in T ab le 14 th e v e ry low in d e x v a lu e s f o r manu
f a c t u r i n g and w h o le s a le in d ic a t e t h i s t o be a r a t h e r d e
p e n d e n t a r e a o f th e l o c a l econom y, w h ile th e much h ig h e r
in d e x v a lu e s f o r th e r e t a i l s e c t o r im ply t h a t i t i s some
w hat s e l f - s u f f i c i e n t . C om bining th e s e c t o r s to d e r iv e an
in d e x number f o r th e t o t a l l o c a l economy y i e l d s a v a lu e
t h a t , w h ile i t may n o t be a c c u r a te enough t o in d i c a t e an
o v e r a l l p o s i t i v e t r a d e b a la n c e , i s a t l e a s t an i n d i c a t o r
o f th e f a c t t h a t th e Redondo Beach economy i s p ro b a b ly le s s
d ep e n d en t th a n we w ould n o rm a lly assum e i t to be f o r a
69
TABLE 14
PER CAPITA BALANCE OF PAYMENTS INDEX
FOR THE REDONDO BEACH ECONOMY,
1958 TO 1961
S e c to r 1958 1959 1960 1961
R e t a i l tr a d e 117 153 148 165
S e rv ic e s 108 96 93 100
M fg ., w h o le sa le 88 100 107 119
A ll s e c to r s 88 100 107 119
S o u rce: Trade O u tle ts and T axable R e t a i l S a le s in
C a l i f o r n i a .
N o te: In T ab les 12, 13, and 14 an in d ex v a lu e o f
100 i n d ic a t e s a z e ro b a la n c e , a v a lu e o f l e s s th a n 100
i n d i c a t e s a n e g a tiv e tr a d e b a la n c e , i . e . , im p o rts , and a
v a lu e g r e a t e r th a n 100 i n d ic a t e s a p o s it iv e t r a d e b a la n c e ,
i . e . , e x p o r ts .
70
com m unity o f t h i s s iz e and n a tu r e .
I t m ust be n o te d t h a t we c o u ld have made an
a p r i o r i a ssu m p tio n t h a t th e r e t a i l s e c t o r w ould be r e l a
t i v e l y more s e l f - s u f f i c i e n t th a n in o th e r s i m i l a r communi
t i e s , b e c a u se o f th e e x is te n c e o f a la r g e r e g i o n a l sh o p p in g
c e n te r w ith in th e c i t y l i m i t s o f Redondo B each. N e v e rth e
l e s s , ev en o u r c ru d e b a la n c e o f paym ents a n a ly s i s i s much
more in fo rm a tiv e and c e r t a i n th a n su ch a f a c i l e , and seem
in g ly w a r ra n te d , a ssu m p tio n .
The m a n u fa c tu rin g s e c t o r . —T here i s r e l a t i v e l y
l i t t l e m a n u fa ctu rin g a c t i v i t y in Redondo Beach. Our f i e l d
su rv ey g e n e ra te d no in fo rm a tio n about t h i s s e c to r and,
t h e r e f o r e , our d is c u s s io n o f r e c e n t a c t i v i t y must be in
term s o f g e n e r a l i t i e s . As i s in d ic a te d in our b a la n c e o f
paym ents in d e x , th e r e i s no n e t e x p o rt a c t i v i t y in t h i s
s e c t o r . The 1958 U. S. Census o f M anufactures r e p o r te d
v a lu e added o f le s s th a n s ix m il lio n d o l l a r s and an i n s i g
n i f i c a n t amount o f new b u s in e s s in v e s tm e n t, as can be seen
in columns 8 and 9 o f T able 15, which p r e s e n ts d a ta on
m a n u fa c tu rin g a c t i v i t y in Redondo Beach i n 1958.
A few c o n v e rs a tio n s were h e ld w ith management p e r
so n n e l o f s e le c te d firm s w ith tw en ty or more em ployees in
TABLE 15
M ANUFACTURING ACTIVITY IN REDONDO BEACH, 1958
C ity
Number of
E stablishm ents
Number
w ith 2 04-
Employ ees
T o tal
Number o f
Employees
T o ta l
P a y ro ll
Value
Added
New
B usiness
Investm ent
M illio n s of D o lla rs
Redondo Beach 38 9 619 3.2 5 .8 0.2
S o u rce: U. S. Census o f M an u factu res, C a lif o r n ia , 1958.
72
1962. Only th r e e firm s w ere found t o have s a le s o f over
one m i l l i o n d o l l a r s a y e a r . Two o f th e s e firm s w ere m u l t i
p la n t o p e r a tio n s and we w ere u n ab le t o a l l o c a t e th e s a le s
betw een th e Redondo Beach and th e o u ts id e p l a n t s . There
has been o n ly one s i g n i f i c a n t a d d itio n to th e m a n u fa c tu rin g
s e c to r s in c e 1958, a la r g e a e ro sp a c e firm opened a new
p la n t in Redondo Beach in 1961.
A ll o f th e firm s w ith tw en ty o r more em ployees
w hich were c o n ta c te d r e v e a le d t h a t th e y sp e n t v e ry sm a ll
am ounts, b o th in a b s o lu te term s and r e l a t i v e to t h e i r t o t a l
s a l e s , w ith in th e c i t y o f Redondo Beach. Of c o u rs e , v e ry
h ig h p ro p o rtio n s o f th e s a le s o f th e b a s ic m a n u fa c tu rin g
firm s were made o u ts id e o f Redondo Beach (80-100 p er c e n t ) .
However, a f t e r a l l o c a t i n g e x p o rt income d e riv e d from s a le s
by m u l t i - p l a n t firm s and a l l o t t i n g Redondo Beach i t s p ro
p o r tio n a te s h a re ; and a f t e r s i m i l a r l y d e te rm in in g th e amount
o f l o c a l income g e n e ra te d from th e s e s a le s by a s c e r ta in in g
w hat p r o p o rtio n o f th e em ployees o f th e l o c a l firm s a re
lo c a l r e s i d e n t s ; we would s t i l l be t a l k i n g about o n ly a few
m i l l i o n d o l l a r s , i . e . , a few p er c e n t o f th e t o t a l l o c a l
incom e.
W hile i t would u n d e n ia b ly be advantageous to have
more p r e c is e in fo rm a tio n on th e income g e n e ra te d by s a le s
73'
o f th e m a n u fa ctu rin g s e c t o r , we f e e l t h a t o m issio n o f th e s e
d a ta w i l l n e i t h e r s e r io u s ly b i a s , d i s t o r t , n o r i n v a lid a te
any c o n c lu s io n s o r assum ptions based on our a n a l y s i s . The
main re a s o n f o r th e s e f e e l in g s i s , as n o te d p r e v io u s ly ,
th e obvious r e l a t i v e i n s i g n if i c a n c e o f th e m a n u fa ctu rin g
s e c t o r w ith in th e Redondo Beach economy.
CHAPTER I I I
AN ECONOMIC BASE INCOME MULTIPLIER M ODEL
OF REDONDO BEACH
T his c h a p te r i s devoted t o th e a p p l ic a tio n o f th e
above e x te n s iv e ly d is c u s s e d fram ework o f a n a ly s is which we
a re u t i l i z i n g in our stu d y o f Redondo Beach. The main co n
t e n t i o n o f our t h e s i s w i l l be th o ro u g h ly e x p la in e d and i l
l u s t r a t e d as we p r e s e n t th e income m u l t i p l i e r model and see
how th e m u l t i p l i e r p ro c e ss works i t s e l f o u t, u lti m a t e ly
r e s u l t i n g in an in c re a s e in t o t a l income g r e a t e r th a n th e
o r i g i n a l in c r e a s e in exogenous income.
Of c o u rs e , by j u s t how much th e increm ent o f t o t a l
income exceeds th e i n i t i a t i n g in crem en t o f e x p o rt ( b a s ic )
income depends on th e s i z e , i . e . , n u m e ric a l v a lu e , o f th e
m u l t i p l i e r . I t i s d u rin g th e a c t u a l p ro c e ss o f d e te rm in in g
th e s iz e o f th e l o c a l m u l t i p l i e r t h a t we must i n v e s t i g a t e
th e income p r o p e n s it ie s and e x p e n d itu re p a t te r n s e x i s t i n g
in Redondo Beach. These more n arro w ly economic p r o p e n s itie s
74
75
and p a t t e r n s a r e , in t u r n , based on b ro a d e r socioeconom ic
d e te rm in a n ts such as in d iv id u a l t a s t e s , income l e v e l s ,
le n g th o f r e s id e n c e , and so on.
C o n s tr u c tio n o f th e Model
The ty p e o f economic model b e in g used in o ur stu d y
i s b ased on one used by T ieb o u t in h i s stu d y o f W innetka,
I l l i n o i s . W e must f i r s t examine th e u n d e rly in g assum ptions
o f th e model and p r e s e n t i t s p o s ite d f u n c tio n a l r e l a t i o n
s h ip s and d e f i n i t i o n s o f term s as th e y w i l l be used in our
a n a l y s i s .
A ssum ptions o f th e Redondo Beach m odel.--O u r model
i s e s s e n t i a l l y a s h o r t- r u n s t a t i c tw o -s e c to r model o f a
l o c a l economy. I t i s s h o r t- r u n in th e sense t h a t we make
no a tte m p t to f o r e c a s t th e r a t e o f grow th o f l o c a l income
over any s i g n i f i c a n t p e rio d o f tim e , say t e n y e a r s , and
th e n t r y to d e riv e a p r o p e n s ity to in v e s t in l o c a l c a p i t a l
g o o d s.
The model i s s t a t i c b ecause i t la c k s th e dim ension
o f tim e in i t s a n a l y t i c a l s t r u c t u r e . I t p r e s e n ts a c r o s s -
s e c t i o n a l view o f a c t i v i t y w hich o c c u rre d in Redondo Beach
d u rin g a g iv e n p e rio d o f tim e , i . e . , th e y e a r 1962. T h ere
f o r e , we a re d e n ied th e advantage o f stu d y in g th e a c tu a l
p ro c e ss o f economic a c t i v i t y and o b se rv in g th e r e l a t i o n
s h ip s o f th e s i g n i f i c a n t v a r i a b l e s th ro u g h tim e .
We have a b a s i c a l l y tw o - s e c to r model b ec au se we a re
c o n s id e r in g demands a r i s i n g from o n ly two s o u rc e s : e x p o rts
and lo c a l consum ption. Income a c c ru in g t o lo c a l r e s i d e n t s
i s th e n , by d e f i n i t i o n , e i t h e r d i r e c t l y or i n d i r e c t l y d e
riv e d from one o r th e o th e r o f th e s e s e c t o r s .
The rem a in in g im p o rta n t assu m p tio n s o f th e model
can be s t a t e d c l e a r l y in summary form :
1. In th e s h o r t r u n , th e le v e l o f income c r e a te d
in th e e x p o rt s e c to r depends on fo rc e s o th e r
th a n th e l e v e l o f l o c a l incom e, i . e . , i t d e
pends on e x t e r n a l m arket demands.
2. The income g e n e ra te d in th e lo c a l consum ption
s e c to r depends on th e l e v e l o f lo c a l income.
3. P o p u la tio n i n i t i a t e s and resp o n d s t o any e c o
nomic changes o c c u rrin g in th e lo c a l economy.
4 . W ith a g iv e n change in th e lo c a l com m unity’ s
incom e, any r e s u l t i n g changes in th e incomes
o f n e ig h b o rin g com m unities i s n e g l i g i b l e , g i v
in g r i s e t o a m u l t i p l i e r feed b ack e q u a l t o
z e ro . T his s i t u a t i o n i s analagous t o th e sm a ll
n a tio n c a se in i n t e r n a t i o n a l t r a d e .
5. There e x i s t s a n e g l i g i b l e i n d i r e c t e f f e c t , i . e . ,
i n t e r i n d u s t r y e f f e c t betw een m a n u fa c tu rin g and
w h o le s a lin g . When an in c re a s e o c c u rs in e x p o rt
a c t i v i t y , i t d i r e c t l y g iv e s r i s e t o an in c re a s e
in th e income o f th o se employed in th e e x p o rt
s e c t o r . T h is , in t u r n , ca u se s an in c re a s e d
demand by th e e x p o rt s e c to r f o r in p u ts from
o th e r firm s w ith in th e l o c a l economy g iv in g
r i s e ^ t o an in c re a s e in h o u seh o ld incom es.
6 . No la rg e changes a re o c c u rr in g in exogenous
v a r i a b l e s which could g iv e r i s e t o s t r u c t u r a l
s h i f t s in th e l o c a l economy.
7. Our e m p ir ic a l o b s e r v a tio n s , ta k e n a t one p o in t
in tim e , r e p r e s e n t an e q u ilib r iu m s i t u a t i o n .
8. The spending p a t te r n s o f new r e s i d e n t s a re th e
same as th o s e o f o ld e r ones ( t h i s assum ption
w i l l be m o d ified in our c o n c lu d in g c h a p te r ) .
9. The p r o p e n s it ie s m easured in our m odel, i . e . ,
p r o p e n s it ie s to im p o rt, consume l o c a l l y , co n
sume ( t o t a l ) , t a x , sa v e , and th e p ro p e n s ity of
a d o l l a r o f lo c a l s a le s t o become l o c a l income,
a r e , e m p ir ic a lly sp e a k in g , av erag e ( r a t h e r th a n
m a rg in a l) p r o p e n s i t i e s .
78
A. When a new fa m ily a r r i v e s i t i s t h e i r a v e r
age p r o p e n s ity t o consume l o c a l l y w h ich i s
im p o rta n t in th e f i r s t round o f sp e n d in g ,
and w here th e m u l t i p l i e r i s s m a ll i t i s
o n ly th e f i r s t ro u n d t h a t i s s i g n i f i c a n t
anyw ay.
B. N a tio n a l income d a t a in d i c a t e t h a t income
c r e a te d in r e t a i l and s e r v ic e a c t i v i t i e s i s
p r o p o r tio n a l t o s a l e s , and o u r s h o r t - r u n
a n a ly s is assum es p r o p o r tio n a te ch an g es in
la b o r and m a te r ia l re q u ire m e n ts .
The Redondo Beach income m u l t i p l i e r m o d el. —The
m odel we a re u s in g in o u r stu d y h as many c h a r a c t e r i s t i c s
s i m i l a r t o th o s e o f th e P fo u ts m odel p re s e n te d in C h a p te r
I . T here a r e , h o w ev er, s i g n i f i c a n t d i f f e r e n c e s in co n
s t r u c t i o n b etw een th e two m odels w hich a llo w s th e T ie b o u t
m odel t o ta k e e x p l i c i t n o tic e o f th e b e h a v io r o f and r e l a
t i o n s h i p b etw een s e v e r a l v a r i a b l e s t h a t th e P fo u ts m odel
c o n s id e r s o n ly i m p l i c i t l y . In th e T ie b o u t m odel we can see
th e p ro c e s s by w h ich l o c a l s a l e s in th e r e t a i l s e c t o r c r e
a te l o c a l incom e.
B e fo re p r e s e n tin g th e s t r u c t u r a l e q u a tio n s o f th e
79
model we s h a l l d e f in e and e x p la in some o f th e term s and
c o n c e p ts u t i l i z e d . As n o te d e a r l i e r , our u n i t o f m easure
i s income from any so u rce a c c ru in g to th e r e s i d e n t s o f
Redondo Beach. Y w i l l be used to d en o te t o t a l income a c
c ru in g t o lo c a l r e s i d e n t s . Yx w i l l r e p r e s e n t exogenous
income o r i g i n a t i n g in e x p o r ts , and Yn w i l l sta n d f o r endog
enous income o r i g i n a t i n g in r e t a i l and s e r v ic e s e c to r s a le s
t o l o c a l r e s i d e n t s . C w i l l den o te t o t a l consum ption e x
p e n d itu re s o u t o f t o t a l income, w h ile w i l l r e p r e s e n t
consum ption e x p e n d itu re s by r e s i d e n t s on lo c a l goods and
s e r v i c e s .
Our model m easures a number o f p r o p e n s it ie s of
Redondo Beach r e s i d e n t s . For m u l t i p l i e r a n a l y s i s , th e co n
c e p tu a l id e a l i s t h a t th e s e p r o p e n s it ie s be m easured a t th e
m argin. S in ce we have a s t a t i c m odel, t h i s i s an e m p iric a l
i m p o s s i b i l i t y . T h e re f o re , th e fo llo w in g p r o p e n s i t i e s ,
w hich a re n o rm ally always m a rg in a l p r o p e n s it ie s in m u l t i
p l i e r m odels, w i l l h e re be r e f e r r e d t o as average p r o p e n s i
t i e s w ith no undue lo s s in th e ac cu rac y o f our c a l c u l a t i o n s
(n o te assum ption 9-A ab o v e), g w i l l sta n d f o r th e pro p en
s i t y t o consume l o c a l l y ; h f o r th e p r o p e n s ity o f a d o l l a r
o f lo c a l s a le s t o c r e a t e lo c a l income; b (= gh) f o r th e
p r o p e n s ity o f lo c a l consum ption to c r e a t e lo c a l income; s
'801
f o r th e p r o p e n s ity t o sa v e ; t f o r th e p r o p e n s ity t o ta x ; m
f o r th e p r o p e n s ity to im p o rt; and c f o r th e t o t a l p ro p e n s i-
The fo llo w in g s t r u c t u r a l e q u a tio n s summarize th e
f u n c tio n a l and d e f i n i t i o n a l r e l a t i o n s h i p s t h a t our model
p o s tu l a te s to e x i s t in a l o c a l a re a such as Redondo Beach:
dYx , o cc u rs in e x p o rt income and we d e s i r e t o a s c e r t a i n th e
in c re a s e in t o t a l incom e, dY, th e n we must u t i l i z e a m u l t i
p l i e r fo rm u la w hich w i l l summarize th e p ro c e ss o f re s p e n d
in g w ith in th e community. Where th e le a k a g e s a re so la r g e ,
as th e y a re in a dependent lo c a l a r e a such as Redondo
B each, we do n o t have t o tr a c e out each round o f spending
and th e lo c a l income d e riv e d th e re fro m . W e s h a l l p re s e n t
our m u l t i p l i e r c a l c u l a t i o n s by two m ethods. The f i r s t
t y to consume.
Y - Yx + Yn ( 1)
Cx - gY (2)
(3)
Yx = exogenously d eterm in ed
(4)
b = gh, so Yn - bY (2 a)
I f we now w ish t o assume t h a t some g iv e n in c re a s e
81
method ta k e s e x p l i c i t n o tic e o f th e two c r i t i c a l p ro p e n s i
t i e s in v o lv e d i n th e c r e a t i o n o f l o c a l income. The second
method fo llo w s th e more t r a d i t i o n a l b ase approach and i s
n o t as in fo rm a tiv e as th e form er m ethod. Our m u l t i p l i e r
form ulae a r e :
in t o t a l income and dYx r e f e r s t o an in c re a s e in b a s i c , o r
e x p o r t, incom e. The m u l t i p l i e r i s d en o ted by k.
e x p e n d itu re p a t te r n s o f l o c a l r e s i d e n t s th ro u g h th e two
p r o p e n s it ie s m easured. L o cal consum ption i s some f u n c tio n ,
g , o f t o t a l incom e, w h ile l o c a l income i s some f u n c tio n ,
h , o f l o c a l consum ption; and when th e s e two p r o p e n s it ie s
a re com bined, th e y show
. . . th e r e l a t i o n betw een incom e, lo c a l co n
sum ption sp e n d in g , and th e l o c a l income d e riv e d
th e re fro m . . . . Income from l o c a l consum ption is
d e riv e d v i a a tw o -s te p p ro c e s s : (1 ) r e s i d e n t s
spend some o f t h e i r income on l o c a l goods and s e r v
ic e s c r e a t i n g th e s a le s d o l l a r s f o r l o c a l consump
t i o n goods and s e r v i c e s ; and (2) p a r t o f th e s e
(5)
(5a)
In th e above fo rm u la tio n s dY r e f e r s to an in c re a s e
E q u atio n (5 ) i s th e most v a lu a b le in r e v e a lin g th e
82
s a le s d o l l a r s rem ain w ith in th e lo c a l economy and
become l o c a l income. ^
A p p lic a tio n o f th e Model
In t h i s s e c tio n we s h a l l i n s e r t th e e m p ir ic a lly d e riv e d
v a lu e s f o r Redondo Beach m agnitudes and v a r i a b l e s in to our
form ulae in o rd e r t o o b ta in a m u l t i p l i e r f o r Redondo
Beach.
Economic d a t a f o r Redondo B each.--O u r f i e l d su rv e y ,
conducted in Ja n u a ry , 1963, in d ic a te d a mean fa m ily income
in Redondo Beach in 1962 o f $ 7 ,3 1 6 . W ith about 15,666 fam
i l i e s r e s i d i n g in Redondo Beach a t th e end o f 1962, t h i s
would y i e l d a t o t a l income a c c ru in g t o r e s i d e n t f a m ilie s
o f ap p ro x im a tely $121 m il lio n .
N ea rly 81 .per c e n t o f t h i s t o t a l income i s b a s ic
income a r i s i n g from th e e x p o rt o f la b o r s e r v ic e s by lo c a l
r e s i d e n t s . The re m a in in g 19 per c e n t i s n o n b a sic income
ea rn e d by l o c a l r e s i d e n t s employed la r g e ly in th e lo c a l
r e t a i l s e c to r .
For co n v e n ie n t r e f e r e n c e , th e fo llo w in g i s a l i s t
^C harles M. T ie b o u t, The Community Economic Base
Study (CED Supplem entary P ap er, No. 16; New Y ork: Committee
fo r Economic D evelopm ent, 1 9 6 2 ), pp. 5 8 -5 9 .
83
in d ic a t in g th e e m p iric a l v a lu e s f o r Redondo Beach o f th e
m agnitudes and p r o p e n s it ie s m easured in our model.
Y 1 3 $121 m il lio n
Yx = $98 m il lio n
Yn - $23 m illio n
g = .36 ($44 m illio n )
h - .52
b = .19 ($23 m illio n )
s = » .04 ($5 m illio n )
m - .5 0 ($60 m illio n )
t « .1 0 ($12 m illio n )
c “ .86 ($104 m illio n )
A ll o f th e s e p r o p e n s it ie s and th e m agnitudes d e
r iv e d th e re fro m , w ith th e e x c e p tio n o f th e average pro p en
s i t y to ta x ( t ) w hich was e s tim a te d on th e b a s is o f average
income and ta x s t r u c t u r e , were c a l c u l a t e d d i r e c t l y from
d a t a g a th e re d in our f i e l d su rv ey .
Redondo Beach income and e x p e n d itu re flo w s .--T h e
most im p o rta n t f a c t o r s in our model d e te rm in in g th e s iz e o f
th e m u l t i p l i e r a re th e g eo g rap h ic a re a s from w hich lo c a l
r e s i d e n t s d e r iv e t h e i r income and in w hich th e y spend t h e i r
income. T able 16 p r e s e n ts th e d a ta i n d ic a t in g th e geograph-
I
i
i
84
TABLE 16
REDONDO BEACH INCOME FLOWS, 1962
Income A ccru in g M illio n s o f
t o R e s id e n ts D o lla rs
Earned In s id e by Sources
R e t a i l s e c to r 20
M an u factu rin g and w h o le s a le s e c to r 2
S e rv ic e s e c to r 1
T o ta l o r i g i n a t i n g in s id e 23
T o ta l E arned
Earned o u ts id e 98
Earned in s id e 23
T o ta l 121
S o u rc e s: P lan n in g R e sea rc h C o rp o ra tio n F ie ld S u r
v e y , Ja n u a ry , 1963; and ’'Your Income T a x ,” Changing T im es,
F e b ru a ry , 1960, p. 9.
85
ic and f u n c tio n a l so u rc e s o f income a c c ru in g t o lo c a l r e s i
d e n ts . T able 17 o f f e r s a s im ila r p r e s e n ta ti o n fo r e x p e n d i
t u r e s and w ith d ra w a ls from th e income stre a m .
At t h i s p o in t in our a n a l y s i s , we p re s e n t sim ply
th e p la c e where income was earned and s p e n t. In our co n
c lu d in g c h a p te r we s h a l l d e lv e i n to th e b e h a v io r o f th e
l o c a l consum ers in o rd e r t o d e te rm in e b e t t e r some o f th e
f a c t o r s ly in g b eh in d th e p r o p e n s it ie s t h a t we have m easured
in our model.
The m u l t i p l i e r f o r Redondo B each.--W e can deduce
f a i r l y a c c u r a te ly b efo reh an d t h a t th e n u m e ric a l v a lu e o f
th e m u l t i p l i e r f o r a sm a ll open a r e a such as Redondo Beach
i s going t o be r e l a t i v e l y s m a ll. T his i s due p r im a r ily , o f
c o u rs e , t o th e f a c t t h a t a la r g e amount o f any s p e c if ic
in c re a s e in e x p o rt income " le a k s " o u t o f th e community in
th e f i r s t round o r two o f sp e n d in g , v i a im p o rts .
N e v e r th e le s s , th e c a l c u l a t i o n o f an income m u l t i
p l i e r i s w o rth w h ile t o th e e x te n t t h a t i t c a l l s a t t e n t i o n
to th e f a c t t h a t th e s o - c a lle d n o n b a s ic , d e r i v a t i v e , or
l o c a l s a le s a ls o c r e a te a m easu rab le amount o f income w hich
adds t o any in c re a s e in e x p o rt income.
By s u b s t i t u t i n g th e a p p r o p r ia te e m p iric a l v a lu e s
86
I
I
TABLE 17
REDONDO BEACH EXPENDITURE FLOWS, 1962
E x p e n d itu re s by R e s id e n ts
M illio n s o f
D o lla rs
E x p e n d itu re s o u ts id e 60
Expend i t u r e s in s id e 44
T o ta l e x p e n d itu re s 104
Taxes 12
Savings 5
T o ta l income 121
S o u rc e s : P la n n in g R e se a rc h C o rp o ra tio n F ie ld S u r
v e y , J a n u a ry , 1963; and f,Your Income T a x ,” C hanging T im es,
F e b ru a ry , 1960, p . 9.
87
in to our m u l t i p l i e r form ulae we can d e r iv e th e m u l t i p l i e r
f o r Redondo Beach, k^., as fo llo w s :
oy d Y x = r r r = k« x (5)
1 - (gh) i - b
1 1 1
1 - ( .3 6 x .52) 1 - .19 .81
= = 1.23
o r ,
dY = dYx — “ kdYx ( 5 a )
1 - 1IL
Y
= i — 1 -------- - 1 --- - __L _ - 1 . 2 3
1 - 23 1 - .19 .81
121
The m u l t i p l i e r v a lu e f o r Redondo Beach i s kj. * 1.23
In term s o f th e c a l c u l a t i o n s t h a t we made in e q u a tio n (5)
t h i s m u l t i p l i e r v a lu e means t h a t f o r e v e ry d o l l a r o f new
e x p o rt income i n je c t e d i n t o th e c i t y th e r e w i l l be an
in c re a s e in t o t a l income o f about $ 1 .2 3 . The more t r a d i
t i o n a l l y o r ie n te d b a se a n a l y s t , on th e o th e r h an d , co u ld
make th e s ta te m e n t, b ased on th e c a l c u l a t i o n s in e q u a tio n
( 5 a ) , t h a t w ith a b a s ic /n o n b a s ic r a t i o o f s l i g h t l y more
th a n f iv e to one, ap p ro x im a te ly $.23 of n o n b a sic income is
c r e a te d f o r e v e ry d o l l a r o f b a s ic income t h a t i s c r e a te d by
exogenous f o r c e s .
G e n e ra lly s p e a k in g , th e r e are two ways in w hich
88
income a c c ru in g t o lo c a l r e s i d e n t s can in c r e a s e . F i r s t ,
th e r e co u ld o ccu r a p er c a p i t a income shock, i . e . , th e
incomes o f a l l r e s i d e n t f a m ilie s co u ld in c re a s e by some
amount a t th e m argin. S eco n d ly , th e r e co u ld be a p o p u la-
tio n -in c o m e shock, w h e re in a new fa m ily sp ending u n i t w ith
a g iv e n an n u al income moves in to th e community. Our model
d e a ls w ith t h i s l a t t e r ty p e o f income change.
Suppose, f o r exam ple, t h a t a new fa m ily e a rn in g th e
mean Redondo Beach fa m ily income o f $ 7 ,3 1 8 , moves in to th e
c i t y . Assuming t h a t t h i s new fa m ily h a s th e same spending
p a t te r n s and h a b i t s o f th e e s t a b l i s h e d r e s i d e n t s o f th e
community, th e t o t a l income im pact on Redondo Beach w i l l
e v e n tu a lly be $ 9 ,0 0 1 . The in c re a s e in b a s ic income earn ed
o u ts id e th e c i t y by th e new fa m ily c r e a t e s an a d d i tio n a l
$1,683 in lo c a l income f o r o th e r r e s i d e n t s .
CHAPTER IV
CRITICAL EVALUATION AND SU M M A RY
OF THE STUDY
The purpose o f t h i s c h a p te r is t o comment c r i t i c a l
ly on th e p re c e d in g a n a ly s is conducted in th e main body of
th e stu d y . Here we s h a l l r a i s e and d is c u s s some o f th e
u n d e rly in g is s u e s w hich we d id n o t pause t o a n a ly ze b e fo r e .
We s h a l l atte m p t t o go behind th e fa c a d e o f th e e x p e n d itu re
p r o p e n s it ie s and p a t te r n s in o rd e r b e t t e r to u n d e rsta n d th e
consumer b e h a v io r t h a t d e te rm in e s them. D uring t h i s p ro c
e s s we s h a l l a ls o p r e s e n t some im p o rta n t d e v ia tio n s from
th e average consumer b e h a v io r p a t te r n s in Redondo Beach
which co u ld a l t e r our p re v io u s c o n c lu s io n s as t o th e s iz e o
th e income m u l t i p l i e r .
F i n a l l y , we s h a l l p r e s e n t a b r i e f summary o f th e
c o n c lu s io n s o f our stu d y .
89
90
Consumer B ehavior and Base S tu d ie s
Does th e framework o f economic b ase a n a ly s is p ro
v id e us w ith an i n v e s t i g a t i v e approach which e x p la in s accu
r a t e l y th e manner in w hich consum ers a re beh av in g and e c o
nomic a c t i v i t y i s d e v e lo p in g in a lo c a l community such as
Redondo Beach? Our a n a ly s is h as in v e s tig a te d e x p l i c i t l y
th e m ajor elem en ts in th e c r e a t i o n of lo c a l income allo w in g
us now t o examine th e m a tte r in g r e a t e r d e t a i l .
Some o f th e is s u e s d is c u s s e d in t h i s s e c tio n would
r e q u ir e dynamic a n a ly s is in o rd e r t o r e s o lv e them. In
f a c t , as one a u th o r n o te s ,
The b ase must be s tu d ie d o ver tim e , i . e . ,
u rban dynam ics are r e q u ir e d , i f we a re t o g a in
an u n d e rs ta n d in g in d e p th o f s t r u c t u r a l i n t e r r e -
l a t i o n s h i p s o f co m m u n ities. * -
N o n e th e le s s , we s h a l l a t l e a s t d is c u s s th e s e problem s in a
h y p o t h e t i c a l way and o f f e r some s t a t i s t i c a l a n a ly s is l a t e r
on f o r th e problem s f o r w hich our s t a t i c o b s e rv a tio n s can
p ro v id e d a ta .
The s t a b i l i t y o f g and h . - - I f econom ic b a s e a n a ly
s i s i s t o p ro v id e us w ith a u s e f u l fram ew ork o f a n a ly s is
R ich ard B. Andrews, “Comment r e C r itic is m s o f th e •
Economic Base T h e o ry ,” J o u r n a l o f th e American I n s t i t u t e o f
P la n n e r s . XXIV, No. 1 (S p rin g , 1958), p. 39.
f o r m aking r e l e v e n t e s tim a te s o f f u t u r e le v e ls o f lo c a l
a c t i v i t y , th e n th e r e m ust e x i s t a f a i r l y h ig h c o r r e l a t i o n
b etw een th e l e v e l o f t o t a l income and th e p r o p o r tio n a te
s h a re o f t o t a l incom e d e r iv e d from th e l o c a l co n su m p tio n
s e c t o r . To p ro v e t h a t th e r e i s some s t a b l e r e l a t i o n b e -
tw een th e s e two v a r i a b l e s w ould r e q u ir e l o c a l consu m p tio n
income and t o t a l income d a t a f o r a g iv e n com m unity c o lle c te d
o v e r tim e . T h is ty p e o f e m p ir ic a l e v id e n c e d o es n o t ap p earl
t o be a v a ila b le c u r r e n t l y .
One a u th o r n o te s t h a t i n d i r e c t ev id en ce p ro v id ed by
m a rk e tin g s tu d i e s in d ic a t e s t h a t th e p ro p e n s ity t o spend
l o c a l l y o f r e s i d e n t s te n d s t o be r a t h e r s t a b l e . T his e l e
ment o f lo c a l consum ption income, g , i s la r g e ly concerned
w ith th e g e o g ra p h ic a l shopping h a b i t s o f th e l o c a l r e s i
d e n ts . The le s s i s o l a t e d th e community, th e more s u b je c t
i t i s l i k e l y to be t o s t r u c t u r a l changes in i t s economy,
such as th e opening o f a la rg e new shopping c e n te r j u s t
o u ts id e i t s b o rd e rs o r somewhere in s i d e . The r e g io n a l
shopping c e n te r w hich opened in Redondo Beach in 1957 un
d o u b te d ly a f f e c te d th e p ro p e n s ity to consume l o c a l l y o f th e
r e s i d e n t s t o some d e g re e . However, th e s e k in d s o f s h i f t s
in th e economic v a r i a b l e s have a ’’once o n ly ” q u a l i t y about
them , and, a f t e r ta k in g account o f them , we can p ro b ab ly
92
I
s t i l l assume s t a b i l i t y in g w ith o u t d o ing v io le n c e t o our J
c o n c lu s io n s .
The second elem ent in th e c r e a t i o n o f income from
th e lo c a l consum ption s e c t o r , h , in v o lv e s th e f u n c tio n a l
r e l a t i o n s h i p betw een changes in th e l e v e l o f b a s ic a c t i v i t y
and accommodating changes in th e l e v e l o f lo c a l r e t a i l and
1
s e r v ic e a c t i v i t y . Even though we have n o t in v e s tig a te d a l l
forms o f lo c a l a c t i v i t y in our s tu d y , and have em phasized
th e im portance o f r e t a i l and s e r v ic e a c t i v i t y , i t must be
n o te d t h a t th e above r e l a t i o n s h i p i s f a i r l y complex and
d i f f e r s f o r v a r io u s k in d s o f l o c a l a c t i v i t y . Palmer co v e rs
t h i s s u b je c t r a t h e r w e ll in h i s fo llo w in g g e n e ra l sta te m e n t:
The assum ption t h a t th e d e r i v a t i v e i n d u s t r i e s
a u to m a tic a lly a d ju s t t o th e b a s ic i n d u s t r i e s i s
th e background o f th e whole th e o r y , b u t t h i s a s
sum ption needs i n v e s t i g a t i o n . In th e f i r s t p la c e ,
th e r e i s more th a n one k ind o f d e r i v a t i v e in d u s tr y .
One im p o rta n t k in d , o f te n o v e rlo o k e d , i s p o l i t i c a l
in n a t u r e ; a n o th e r i s s e m i p o l i t i c a l or a t l e a s t
se m ip u b lic in n a t u r e , nam ely, th e u t i l i t i e s ; th e n
th e r e i s th e r e t a i l f i e l d , and th e s m a lle r - s c a le
f i e l d s o f p r o f e s s i o n a l , p e r s o n a l, and r e p a i r s e r v
i c e s . Each o f th e s e f i e l d s , o r p a r t s o f e a c h ,
may prove t o have d i f f e r e n t c h a r a c t e r i s t i c r e a c
t i o n s t o a change in b a s ic employment. M oreover,
b a s ic i n d u s t r i e s th em selv es may d i f f e r in t h e i r
e f f e c t on th e community. In p a r t i c u l a r , a b a s ic
in d u s try t h a t h as su p p ly i n d u s t r i e s in th e com
m unity, o r t h a t u se s lo c a l raw p ro d u c ts , such as
farm p ro d u ce, may produce a q u ic k e r r e a c t i o n th a n
93
one w hich i s more s e lf - c o n t a in e d .
O v e r a ll, T ieb o u t f e e l s t h a t we can assume b o th th e e x i s t
ence o f some ” a p p r o p r ia te ” number o f firm s t i e d e i t h e r
d i r e c t l y or i n d i r e c t l y to th e lo c a l consum ption s e c t o r ; and
t h a t th e number a n d /o r s iz e o f th e s e firm s w i l l f,grow as
th e community grow s, s h r in k as th e community s h r in k s , and
O
rem ain s t a b l e i f th e community n e i t h e r grows n o r d e c lin e s .”
R e f e r r in g b ack t o th e s t r u c t u r a l e q u a tio n s o f our
income m u l t i p l i e r m odel, i t th e n would seem r e a s o n a b le t o
assume t h a t we have an e m p ir ic a lly v a l i d r e l a t i o n s h i p as
e x p re s se d in th e f u n c tio n a l e q u a tio n , Yn » bY, where
b « gh, even though we do n o t have any d i r e c t d a t a , c o l
le c te d th ro u g h tim e , t o su p p o rt th e assum ption.
The s t a b i l i t y o f th e g/m r a t i o : income le v e ls and
y e a rs o f r e s id e n c e .--T h e r e s i d e n t s of Redondo Beach spend
about 86 p er c e n t o f t h e i r income on consumer goods and
s e r v i c e s . T his i s t h e i r t o t a l averag e p r o p e n s ity t o
^Edgar Z. Palm er ( e d . ) , The Community Economic Base
and M u lt ip lie r (U n iv e rs ity o f N ebraska B u sin ess R esearch
B u l l e t i n , No. 63; L in c o ln , N e b .: U n iv e r s ity o f N ebraska
P re s s , 1958), p. 38.
o
C h a rle s M. T ie b o u t, The Community Economic Base
Study (CED Supplem entary Paper No. 16; New York: Committee
f o r Economic D evelopm ent, 1962), p. 13.
_ 9 4 ,
I
consume o u t o f t o t a l incom e. T h ere a re two com ponents o f J
t h i s t o t a l p r o p e n s ity t o consum e, h o w ev er, and t h e i r r e l a
t i v e s h a re s o f th e t o t a l s i g n i f i c a n t l y a f f e c t th e s iz e o f
th e l o c a l income m u l t i p l i e r .
As s u g g e s te d ab o v e , i t i s v e ry l i k e l y t h a t th e p ro
p e n s ity t o consume l o c a l l y , g , i s f a i r l y s t a b l e o v er tim e .
As a g e n e r a l s ta te m e n t t h i s i s p ro b a b ly v a l i d , b u t i t m ust _
b e m o d ifie d somewhat in th e c a s e o f a com m unity w ith th e
l o c a t i o n a l and s iz e c h a r a c t e r i s t i c s o f Redondo B each. The
l a r g e r and more i s o l a t e d i s a com m unity, th e more l i k e l y i t
i s t h a t l o c a l r e t a i l and s e r v ic e a c t i v i t i e s w i l l in c r e a s e
p r o p o r ti o n a te ly in re s p o n s e t o in c re a s e d m ark et demand
d e riv e d from r i s i n g p e r c a p i t a incom es o r in c re a s e d p o p u la
t i o n o r some c o m b in a tio n o f th e s e l a s t two f a c t o r s . On th e
o th e r h a n d , in a com m unity a d ja c e n t to a much l a r g e r u rb a n
com p lex , as i s Redondo B each, th e lik e lih o o d i s much g r e a t
e r t h a t r e l a t i v e l y s o p h i s t i c a t e d u rb a n consum ers w i l l a v a i l
th e m s e lv e s o f th e la r g e v a r i e t y and h ig h q u a l i t y o f goods
and s e r v ic e s a v a i l a b l e i n th e m e tr o p o lita n sh o p p in g a re a s
t o a g r e a t e r d e g re e as t h e i r incom es r i s e . u
The s i g n i f i c a n c e o f t h i s d is c u s s io n f o r Redondo
Beach l i e s in th e f a c t t h a t th e d a ta from o u r f i e l d su rv e y
i n d i c a t e t h a t th e r e c o u ld be a s e c u la r d e c lin e in th e v a lu e
95
o f th e l o c a l income m u l t i p l i e r . T h is w ould r e s u l t from a
change in th e d i s t r i b u t i o n o f th e sp e n d in g o f h ig h e r i n
comes b etw een l o c a l firm s and im p o rts .
B e fo re p ro c e e d in g t o th e p r e s e n t a t i o n o f o u r e m p ir
i c a l e v id e n c e , we sh o u ld be rem in d ed o f th e two ways in
w hich t o t a l incom e c a n in c r e a s e . T h ere c o u ld be a p o p u la
t i o n - income sh o ck w h e re in new r e s i d e n t s w ould a r r i v e w ith
h ig h e r , lo w e r, o r a v e ra g e incom es and s i m il a r o r d i f f e r e n t
e x p e n d itu re p a t t e r n s . On th e o th e r h a n d , th e r e c o u ld be a
p e r c a p i t a income sh o ck w h e re in e x i s t i n g r e s i d e n t s w ould
r e c e iv e h ig h e r incom es th a n b e fo re and w ould p ro b a b ly a l t e r
t h e i r e x p e n d itu re p a t t e r n s and p r o p e n s it i e s .
In th e c a s e o f Redondo B each o u r h y p o th e s is i s t h a t
th e f u tu r e s i z e o f th e income m u l t i p l i e r may be re d u c e d
s l i g h t l y b e c a u se o f th e te n d e n c y o f new er r e s i d e n t s t o have
h ig h e r th a n a v e ra g e incom es an d , t h e r e f o r e , t o have h ig h e r
p r o p e n s i t i e s t o im p o rt.
In o u r a n a ly s is we s h a l l em ploy a s t a t i s t i c c a l l e d
c h i s q u a re in o rd e r t o t e s t th e h y p o th e s is t h a t any o f th e
below p a ire d c h a r a c t e r i s t i c s (incom e and le n g th o f r e s i
d e n c e , and p la c e o f p u rc h a s e and fa m ily incom e) a re in d e
p e n d e n t, i . e . , th e d i s t r i b u t i o n o f one c h a r a c t e r i s t i c
sh o u ld be th e same r e g a r d le s s o f th e o th e r c h a r a c t e r i s t i c .
: F o r ex am p le, i f fa m ily income and le n g th o f r e s id e n c e a re i
i
I
in d e p e n d e n t, th e n th e p r o p o r tio n o f f a m il ie s e a rn in g J
$ 5 ,0 0 0 h a v in g moved i n t o Redondo B each d u rin g th e p a s t two j
y e a rs sh o u ld be th e same as th e p r o p o r tio n o f f a m il ie s
e a rn in g $ 7 ,0 0 0 t h a t h av e moved in to Redondo B each d u rin g
th e p a s t tw o y e a r s , e t c . D ixon and M assey s a y :
T hese t h e o r e t i c a l p r o p o rtio n s a re i n th e popu
l a t i o n , n o t in th e sam p le. Our p ro c e d u re w i l l be
t o exam ine th e p r o p o r tio n s in th e sam ple and to
d e te rm in e w h e th e r o r n o t th e y a re s i g n i f i c a n t l y
d i f f e r e n t . ^
In o rd e r to a r r i v e a t a n u m e ric a l v a lu e we com pute
th e s t a t i s t i c from th e fo llo w in g fo rm u la and s e t up a co n
tin g e n c y t a b l e w ith a two-way c l a s s i f i c a t i o n .
X2 = \ ( f j - F j)
Z_ F±
Where f t i s th e a c tu a l o r o b se rv e d fre q u e n c y ta k e n from o u r
sa m p le, F^ i s t h e o r e t i c a l o r e x p e c te d (a c c o rd in g t o th e
r u l e s o f p r o b a b i l i t y ) o b s e r v a tio n , and d e n o te s th e c h i
s q u a re s t a t i s t i c .
F i r s t we s h a l l t e s t th e in d ep en d en ce o f th e l e v e l
o f fa m ily income o f le n g th o f r e s id e n c e in Redondo B each.
T ab le 18 i s a c o n tin g e n c y t a b l e in w hich th e sam ple p ro p o r-
^ W ilfre d J . D ixon and F ra n k J . M assey, J r . , I n t r o
d u c tio n to S t a t i s t i c a l A n a ly s is (New Y ork: M cG raw -H ill Book
C o ., I n c . , 1 9 5 7 ), p. 224.
TABLE 18
CHI SQUARE TEST OF THE INDEPENDENCE OF INCOM E LEVELS OF LENGTH OF RESIDENCE
Income L ev els Length o f R esidence___________________________
Thousands o f $ L ess Than 6 Months 2 to 5 5 to 10 Over 10
6 Months -2 Y ears Y ears Y ears Y ears
f F f F f F f F f F
L ess th a n 3 6 7 5 14 6 13 11 18 53 29
3 to 3 ,9 3 2 4 4 1 4 6 5 10 9
4 to 4 .9 4 4 10 9 6 8 16 11 14 18
5 to 5 .9 5 5 11 11 10 10 15 14 22 23
6 to 6 .9 7 6 18 13 11 12 14 17 24 27
7 to 7 .9 6 7 11 14 14 13 27 18 24 30
8 to 8.9 5 5 8 10 14 9 11 13 18 20
9 to 9 .9 7 4 8 8 8 7 8 10 13 16
10 to 14.9 4 6 19 12 16 11 12 15 17 25
15 and over 1 2 3 4 3 4 6 5 10 8
Chi sq u are = 6 6.70 C - . 325 d f - 36
S o u rces: P lan n in g R esearch C o rp o ra tio n F ie ld S urvey, Ja n u a ry , 1963; Dixon and
M assey, In tro d u c tio n to S t a t i s t i c a l A n a ly s is .
N ote: The ex p e cted fre q u e n c ie s w ere c a lc u la te d by ta k in g column and row t o t a l s and
th e n a grand t o t a l o f th e s e , and perfo rm in g th e fo llo w in g o p e ra tio n , s u c c e s s iv e ly , fo r
each column and row in th e t a b l e : t o t a l column 1 /g ran d t o t a l x t o t a l row 1; t o t a l ^
T able 18--C ontinued
column l/g ra n d t o t a l x t o t a l row 2 ; e t c . d f * t o t a l number o f rows minus one x t o t a l
number o f column c a te g o r ie s minus one ( 9x 4 = 3 6 ).
vO
00
. — 4
! t i o n s a re com pared t o th e t h e o r e t i c a l p r o p o r tio n s . I f th e
sam ple p r o p o r tio n s e x a c tly m atched th o s e we w ould e x p e c t
a c c o rd in g t o th e r u l e s o f p r o b a b i l i t y , th e n o u r c h i s q u a re
2
v a lu e would b e X ® 0 , and th e tw o v a r i a b l e s b e in g t e s t e d ,
income and le n g th o f r e s id e n c e , c o u ld be c o n s id e re d as
e n t i r e l y in d e p e n d e n t o f one a n o th e r . The g r e a t e r , th e n , the
v a lu e o f th e c h i sq u a re s t a t i s t i c , th e more pronounced i s
th e in d ic a te d dependence o f th e one v a r i a b l e upon th e
o th e r .
Our r e s u l t o f * * 6 6 .7 0 i s , a t 36 d f (d e g re e s o f
fre e d o m ), an i n d ic a t i o n o f a d e f i n i t e r e l a t i o n s h i p b etw een
2
th e v a r i a b l e s , s in c e we w ould have r e q u ir e d o n ly X = 6 0 .0 0
t o r e j e c t th e h y p o th e s is o f in d e p en d en ce a t th e 9 9 .5 p e r
c e n t l e v e l o f c o n fid e n c e .
S e e in g t h a t c h i s q u a re i s o n ly a r e l a t i v e m easure
we a ls o c a l c u l a t e th e c o e f f i c i e n t o f c o n tin g e n c y in o rd e r
to g a in a l i t t l e c l e a r e r id e a o f th e d e g re e o f dependence
in v o lv e d . The fo rm u la we u se i s :
« - /hS
N i s th e num ber o f o b s e rv a tio n s in o u r sa m p le, and C d e
n o te s th e c o e f f i c i e n t o f c o n tin g e n c y . The v a lu e o f C **.325
t h a t we d e riv e d from o u r d a t a in T ab le 18 i n d i c a t e s t h a t
100
th e l e v e l o f fa m ily incom e in Redondo Beach i s n e a r l y 33
p e r c e n t d ep e n d en t on th e le n g th o f r e s id e n c e t h e r e .
The in d ic a te d movement in th e l e v e l o f fa m ily i n
com es, i . e . , upw ard, i s p re s e n te d in T ab le 19, in w hich we
can se e a s h i f t in th e d i s t r i b u t i o n o f more r e c e n t r e s i
d e n ts to w ard th e h ig h e r income l e v e l s .
Now t h a t we h av e a d e f i n i t e i n d i c a t i o n t h a t th e
income le v e ls o f th e r e l a t i v e l y new er f a m il ie s in Redondo
B each te n d t o be somewhat h ig h e r th a n th o s e o f th e o ld e r
f a m i l i e s , we c a n o f f e r some e m p ir ic a l e v id e n c e show ing t h a t
f a m ilie s w ith r e l a t i v e l y h ig h e r incom es te n d t o spend le s s
w ith in Redondo Beach th a n do f a m il ie s w ith r e l a t i v e l y low er
incom es.
T a b le s 20 acid 21 show th e d i s t r i b u t i o n o f p u rc h a s e s
in s i d e and o u ts id e o f Redondo Beach by incom e l e v e l s f o r ,
r e s p e c t i v e l y , men’ s c l o th in g and w om en's c l o t h i n g . The
d i s t r i b u t i o n s c l e a r l y in d ic a t e t h a t as income r i s e s , a
s m a lle r p e rc e n ta g e o f th e p u rc h a s e s a re made w ith in th e
l o c a l com m unity i t s e l f w h ile , c o n v e rs e ly , a p r o g r e s s iv e ly
g r e a t e r p e rc e n ta g e o f th e p u rc h a s e s a re made o u ts i d e .
T a b le s 22 and 23 a re c o n tin g e n c y t a b l e s s e t up to
p ro v id e us w ith a c h i s q u a re t e s t o f in d ep en d en ce b etw een
p la c e o f c l o th in g p u rc h a s e and s i z e o f incom e. In T ab le 22
INCOME
TABLE 19
DISTRIBUTION BY YEARS OF
IN REDONDO BEACH
101
RESIDENCE
Incom e L e v e l
P e rc e n ta g e
R e s id e n t
P e rc e n t age
R e s id e n t
T housands o f U nder 10 Over 10
D o lla r s Y ears Y ears
L e ss th a n 7 47 60
7 t o 9 .9 35 24
10 and o v e r 18 16
S o u rc e : P la n n in g R e se a rc h C o rp o ra tio n F ie ld S u rv e y ,
J a n u a ry , 1963.
102
TABLE 20
GEOGRAPHICAL DISTRIBUTION OF MEN'S CLOTHING PURCHASES
BY INCOME SIZE
I
Incom e S iz e
T housands
o f D o lla r s
P la c e o f P u rch ase
P e rc e n ta g e
O u tsid e
P e rc e n ta g e
In s id e
L e ss th a n 7 35 65
7 to 9 .9 45 55
10 and o v er 53 47
TABLE 21
GEOGRAPHICAL DISTRIBUTION OF WOMEN'S CLOTHING PURCHASES
BY INCOME SIZE
Incom e S iz e
P la c e o f P u rch ase
T housands
o f D o lla r s
P e rc e n ta g e
O u tsid e
P e rc e n ta g e
In s id e
L e ss th a n 7 32 68
7 t o 9 .9 39 61
10 and o v e r 49 51
S o u rce f o r b o th t a b l e s : P la n n in g R e se a rc h C o rp o ra -
t i o n F ie ld S u rv e y , J a n u a ry , 1963.
1
I
i
103
I
TABLE 22
CHI SQUARE TEST OF INDEPENDENCE BETW EEN PLACE
OF MEN'S CLOTHING PURCHASE
AND SIZE OF INCOME
P e rc e n ta g e
P u rch ased in
Redondo Beach
S iz e o f Income (T housands o f $)
U nder 5 5 - 6 .9 7 - 9 .9 10+
f F f F f F f F
None 18 30 30 26 38 36 24 18
25 8 14 6 12 25 17 12 8
50 10 27 24 24 40 33 25 16
75 7 12 10 10 18 14 8 7
100 55 54 60 48 63 66 22 32
No p u rc h a se 56 18 7 16 4 22 0 11
C hi s q u a re « * 1 5 6 .5 0 C * » .464 15 d f
S o u rc e s : P la n n in g R e se a rc h C o rp o ra tio n F ie ld S u r
v e y , J a n u a ry , 1963; D ixon and M assey, I n tr o d u c tio n t o
S t a t i s t i c a l A n a ly s is .
T04
[
TABLE 23
CHI SQUARE TEST OF INDEPENDENCE BETW EEN PLACE
OF WOMEN'S CLOTHING PURCHASE
AND SIZE OF INCOME
P e rc e n ta g e
P u rc h a se d in
Redondo B each
S iz e o f Income (T housands
o f $)
U nder 5 5 - 6 .9 7 - 9 .9 10+
f F f F f F f F
None 23 26 24 23 30 31 18 15
25 8 13 6 12 20 16 14 8
50 20 30 25 27 42 36 23 18
75 9 12 13 11 16 15 7 7
100 81 65 64 58 72 80 24 39
No p u rc h a s e 11 7 4 6 6 8 4 4
C h i s q u a re = 3 8 .9 0 C = .254 15 d f
S o u rc e s : P la n n in g R e se a rc h C o rp o ra tio n F ie ld S ur
v e y , J a n u a ry , 1963; D ixon and M assey, I n tr o d u c tio n t o
S t a t i s t i c a l & i a l v s i s .
105
th e r e s u l t i s a v e ry h ig h v a lu e o f X^ 1 5 6 .5 0 , i n d i c a t i n g
some s tr o n g d e g re e o f dependence o f p la c e o f p u rc h a se on
s iz e o f incom e. In a d d i ti o n , o u r c o e f f i c i e n t o f c o n t i n
gency v a lu e o f C * .4 6 4 , im p lie s t h a t th e p la c e w here m en 's
c l o th in g i s p u rc h a se d i s ab o u t 46 p e r c e n t d ep e n d en t on th e
l e v e l o f fa m ily incom e. W ith 15 d f we w ould h av e o n ly
r e q u ir e d a v a lu e o f X^ = 3 2 .8 0 in o rd e r t o r e j e c t th e
h y p o th e s is o f in d ep en d en ce a t a 9 9 .5 p e r c e n t l e v e l o f c e r
t a i n t y .
The v a lu e s o f X^ = 3 8 .9 0 and G = .2 5 4 in T ab le 23
in d ic a t e a w eaker r e l a t i o n s h i p b etw een th e s e two v a r i a b l e s ,
b u t , n o n e th e le s s , p e rm it us t o r e j e c t th e h y p o th e s is o f
in d ep en d en ce a t th e above h ig h l e v e l o f c o n fid e n c e .
Our p re c e d in g s t a t i s t i c a l a n a ly s is s u p p o rts o u r
c o n t e n t io n th a t :
1. The r e l a t i v e l y new er r e s i d e n t s o f Redondo
B each, i . e . , th o s e h a v in g moved in d u rin g th e
p a s t te n y e a r s , have r e l a t i v e l y h ig h e r incom es
th a n th e o ld e r r e s i d e n t s .
2. As we go from th e low er t o th e h ig h e r income
g ro u p s , th e r e s i d e n t s a l l o c a t e s m a lle r and
s m a lle r p r o p o r tio n s o f t h e i r t o t a l co n su m p tio n
e x p e n d itu r e s t o th e p u rc h a se o f l o c a l g o o d s,
106,
I
I
and im p o rt m ore. j
i
I
3 . G iven c o n d itio n 2 and assum ing t h a t th e tr e n d
in c o n d itio n 1 c o n tin u e s on i n t o th e f u t u r e ,
th e r e w ould be a s tr o n g i n d i c a t i o n t h a t we
c o u ld e x p e c t a t l e a s t a s l i g h t s e c u la r d e c lin e
in th e v a lu e o f th e l o c a l income m u l t i p l i e r ,
i . e . , a f a l l , o v er tim e , o f th e g/m r a t i o .
T hese c o n c lu s io n s assum e t h a t a l l o th e r r e l e v a n t th in g s
rem a in e q u a l.
S iz e o f l o c a l e x p e n d itu r e s : p r o p e n s i t i e s on th e
a v e ra g e v e r s u s p r o p e n s i t i e s a t th e m a rg in .- - T h e r e i s good
re a s o n to b e lie v e t h a t th e m u l t i p l i e r v a lu e we c a lc u l a te d
f o r Redondo Beach on th e b a s is o f a v e ra g e p r o p e n s it ie s i s
a s l i g h t o v e r e s tim a te when com pared w ith th e v a lu e we w ould
h av e d e riv e d had o u r c a l c u l a t i o n s b e e n b a s e d on m a rg in a l
p r o p e n s i t i e s .
S in c e o u rs i s n o t a dynam ic a n a ly s is we a re u n a b le
t o m easure th e e f f e c t s o f ch an g es in th e le v e ls o f fa m ily
income on l o c a l p r o p e n s i t ie s t o consum e. H ow ever, we can
exam ine th e g e o g r a p h ic a l sp e n d in g p a t t e r n s o f more r e c e n t
r e s i d e n t s com pared w ith e s t a b l i s h e d r e s i d e n t s . Our d a ta
in d i c a t e t h a t new r e s i d e n t s sh o u ld n o t be e x p e c te d t o d i s
; 1 0 7 1
p la y th e same e x p e n d itu re p a t t e r n s as o l d e r , more e s t a b
l i s h e d , r e s i d e n t s . The more r e c e n t a r r i v a l s in th e comma- ;
I
i
n i t y te n d t o spend a s m a lle r p r o p o r tio n o f t h e i r income
t
( r e g a r d le s s o f i t s s i z e ) on l o c a l goods and s e r v i c e s . In
o th e r w o rd s, th e new er r e s i d e n t s have a s m a lle r g/m r a t i o
th a n t h a t f o r a l l r e s i d e n t s , on th e a v e ra g e . The in c re m e n t
o f e x p o rt income a t th e m a rg in , th e n , g e n e ra te s a r e l a t i v e
ly s m a lle r amount o f l o c a l income th a n d o es e x i s t i n g e x p o rt
incom e.
The co m p ariso n s o f f e r e d i n T a b le s 24, 2 5 , and 26
r e v e a l th e d if f e r e n c e s b etw een th e d i s t r i b u t i o n o f ex p en d
i t u r e s f o r l o c a l v e r s u s n o n lo c a l p u rc h a s e s o f , r e s p e c t i v e
l y , a u to s , d u r a b le s , and n o n d u ra b le s , by new er r e s i d e n t s as
com pared w ith more e s t a b l i s h e d r e s i d e n t s , and a l l r e s i
d e n t s , on th e a v e ra g e . In a l l in s t a n c e s , th e r e i s a s tr o n g
i n d i c a t i o n t h a t th e n ew est a r r i v a l s in th e com m unity te n d
t o spend th e l e a s t w ith in th e com m unity. Only in th e c a s e
o f d u ra b le p u rc h a s e s i s t h i s te n d e n c y n o t as pro n o u n ced f o r
th e n ew est r e s i d e n t s , b u t ev en h e r e th e i n d i c a t i o n s t i l l
i s t h a t th e l e s s - e s t a b l i s h e d r e s i d e n t s spend l e s s l o c a l l y .
T ab le 27 i s a c o n tin g e n c y t a b l e c o n s tr u c te d so
t h a t we c a n t e s t , s t a t i s t i c a l l y , w h e th e r o r n o t p la c e o f
p u rc h a s e d is p la y s any d e g re e o f dependence on le n g th o f
108
TABLE 24
DISTRIBUTION OF AUTO PURCHASES BY LENGTH O F RESIDENCE
P la c e
Of
P u rch ase
P e rc e n ta g e by L en g th o f R e sid e n c e
U nder 6
M onths
1 - 2
Y ears
2+
Y ears
A verage
f o r a l l
R e s id e n ts
Redondo B each 10 22 28 26
O th er 90 78 72 74
TABLE 25
DISTRIBUTION OF DURABLE PURCHASES BY LENGTH OF RESIDENCE
P la c e
o f
F u rc h a se
P e rc e n ta g e by L e n g th o f R e sid e n ce
Under 6
Months
1 - 2
Y ears
2+
Y ears
A verage
f o r a l l
R e s id e n ts
Redondo B each 40 36 45 39
O th er 60 64 55 61
N o te : D u ra b le p u rc h a s e s c o n s i s t o f h o u se h o ld f u r
n is h in g s and a p p lia n c e s .
1W
TABLE 26
DISTRIBUTION OF NONDURABLE PURCHASES
BY LENGTH OF RESIDENCE
P la c e
o f
P u rc h a se
P e rc e n ta g e by L en g th o f R e sid e n c e
U nder 6
M onths
1 - 2
Y ears
24-
Y ear s
A verage
f o r a l l
R e s id e n ts
Redondo Beach
O th er
31
69
53
47
67
33
61
39
N o te : N o n d u rab les c o n s i s t o f m en 's and w om en's
c l o th in g p u rc h a s e s .
S o u rc e : P la n n in g R e s e a rc h C o rp o ra tio n F ie ld S u rv e y ,
J a n u a ry , 1963.
TABLE 27
CHI SQUARE TEST OF THE INDEPENDENCE OF PLACE OF DURABLE PURCHASE
A N D LENGTH OF RESIDENCE
P lace o f Length o f R esidence
D urable
P urchase
Under 6
Months
1-2 Y rs. 2-5 Y rs. 5-10 Y rs. 10+ Y rs.
f F f F f F f F f F
Redondo Beach 11 10 27 22 17 20 24 30 51 50
O ther 18 16 49 35 37 31 47 47 55 77
Redondo & O ther 5 2 3
4n
3 4 2 6 11 9
No pu rch ase 16 22 28 46 39 41 71 62 119 102
X2 * 36. 98 C - .228 d f * 12
S o u rc e: P lan n in g R esearch C o rp o ra tio n F ie ld Survey, J a n u a ry , 1963.
110
r e s id e n c e in th e com m unity. W e h av e s e le c te d th e p la c e o f
p u rc h a s e o f d u ra b le ite m s f o r o u r t e s t s in c e , in th e above
t a b l e , th e in d ic a te d amount o f dep en d en ce i s r e l a t i v e l y
l e s s th a n f o r th e o th e r e x p e n d itu r e c a t e g o r i e s . Our c h i
j
s q u a re v a lu e o f X * 3 6 .9 8 a t 12 d f p e rm its us t o s t a t e
t h a t some d e g re e o f d ependence i s e x h ib ite d a t th e 9 9 .5
p e r c e n t l e v e l o f c o n fid e n c e . O nly a v a lu e o f “ 2 8 .3 0
w ould h av e b ee n r e q u ir e d in o rd e r t o make t h a t s ta te m e n t.
The c o e f f i c i e n t o f c o n tin g e n c y v a lu e o f C = .2 2 8 i n d i c a t e s
t h a t th e p la c e o f d u ra b le p u rc h a s e i s ab o u t 23 p e r c e n t
d e p e n d en t on le n g th o f r e s id e n c e .
Summary
W e have co m p leted o u r b a s ic o b j e c t i v e , n am ely , to
i s o l a t e and d e s c r ib e th e b a s ic and l o c a l s e c to r s o f th e
Redondo Beach economy and th e n c o n s tr u c t a l o c a l income
m u l t i p l i e r m odel f o r th e com m unity. The v a lu e o f o u r a n a
l y t i c a l ap p ro ac h i s , as we have s e e n , lim ite d in many r e
s p e c ts b u t, n o n e th e le s s , p ro v id e s us w ith an in f o rm a tiv e
f u n c t i o n a l breakdow n o f th e l o c a l economy w hich i s f a r
s u p e r io r t o g r a p p lin g w ith v ag u e g e n e r a l i t i e s ab o u t th e
t o t a l i t y .
Our c o n c lu s io n s h a v e , by and l a r g e , b ee n d e r iv e d
112 ]
I
from s t a t i c i n v e s t i g a t i o n p ro v id in g us w ith a v e ra g e , |
i
r a t h e r th a n m a rg in a l, v a l u e s . The s t a t i c form o f th e b ase
h y p o th e s is sa y s t h a t l o c a l em ploym ent, incom e, and p o p u la -
t i o n c a n be e x p la in e d and p r e d ic te d by r e f e r e n c e t o b a s ic
a c t i v i t y . A ls o , ch a n g es in th e fo rm er v a r i a b l e s a re a t
t r i b u t a b l e t o ch an g es in b a s ic a c t i v i t y .
C o n c lu sio n s draw n from an i n v e s t i g a t i o n co n d u c te d
th ro u g h tim e w ould b e more v a lu a b le t o th e e x te n t t h a t th e y
r e v e a le d th e p ro c e s s o f econom ic change and th e re b y gave
g r e a t e r i n s i g h t as t o th e sh a p es o f th e f u n c ti o n a l r e l a
t i o n s h i p s assum ed t o e x i s t in th e l o c a l com m unity on th e
b a s i s o f s t a t i c a n a l y s i s . The dynam ic form o f th e b ase
h y p o th e s is sa y s t h a t th e r a t e o f change in l o c a l em ploy
m en t, incom e, and p o p u la tio n i s f u n c t io n a l l y d ep e n d e n t on
th e l e v e l o f b a s ic a c t i v i t y . From th e s ta n d p o in t o f com
p a r a t iv e s t a t i c s th e b a se th e o ry a s s e r t s t h a t an in c r e a s e
in e x p o r ts le a d s t o a r i s e in b a s ic em ploym ent w h ic h , in
t u r n , c a u s e s an in c r e a s e in l o c a l income t h a t g iv e s r i s e to
an in c r e a s e in l o c a l em ploym ent.
When dynam ic a n a ly s is i s c o n s id e re d s e v e r a l o f th e
c e t e r i s p a r ib u s a ssu m p tio n s become u n te n a b le . Exam ples o f
t h i s a re g iv e n in o u r l a s t c h a p te r (ab o v e) w here we n o te
t h a t p r o p e n s i t i e s t o spend l o c a l l y and t o im p o rt change
----------------------------------------------------------------------------------------------------------------------------------
o v e r tim e as income le v e ls change and le n g th o f r e s id e n c e ^
v a r i e s . j
I t a p p e a rs t h a t , in o u r s tu d y , o u r q u asid y n am ic j
a n a ly s is p ro v id e s us w ith a v a lu a b le fram ew ork w hich r e
v e a ls th e im p o rta n t c a u se and e f f e c t r e l a t i o n s h i p s in a
s m a ll s im p ly - s tr u c tu r e d com m unity su ch as Redondo B each.
One a u th o r n o te s t h a t :
Economic s p e c i a l i z a t i o n when a s s o c ia te d w ith
h ig h l e v e l s o f l i v i n g te n d s t o in c r e a s e th e im p o r
ta n c e o f e x p o rt i n d u s t r i e s in a r e g io n , p a r t i c u
l a r l y i f i t s n a t u r a l r e s o u r c e b a s e i s n arro w . In
such a s i t u a t i o n th e b a s ic - n o n b a s ic c o n c e p t a ls o
in c r e a s e s in v a lu e as an a n a l y t i c a l t o o l . 5
The c o n c lu s io n s we h av e re a c h e d as t o th e r e l a t i v e
s i z e s o f th e p r o p e n s it ie s to consume l o c a l l y and t o im p o rt,
and th e s iz e o f th e l o c a l income m u l t i p l i e r , on th e b a s is
o f o u r stu d y seem t o be v a l i d . G iven th e d i f f e r e n t i a l
r a t e s o f l o c a l p u rc h a se o f new and o ld r e s i d e n t s , we have
made th e a v e ra g e p r o p e n s ity t o spend l o c a l l y a f u n c tio n o f
th e le n g th o f r e s id e n c e , w hich i s n o t n e c e s s a r i l y s t a b l e
o v e r tim e . W ith tim e s e r i e s d a t a on r e s i d e n t i a l m o b ility
th e s e f u n c t i o n a l r e l a t i o n s h i p s c o u ld be a n t i c i p a t e d .
5Morgan D. Thomas, ' ’The 'Econom ic B a se 1 and a
R e g io n 's Econom y,” J o u r n a l o f th e A m erican I n s t i t u t e o f
P la n n e r s . X X III, No. 2 (Summer, 1 9 5 7 ), p. 90.

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Asset Metadata

Creator Friedly, Philip Howard (author)

Core Title An economic base and income multiplier study of Redondo Beach, California

Contributor Digitized by ProQuest (provenance)

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,OAI-PMH Harvest

Language English

Advisor Grey, Arthur L., Jr. (committee chair), Elliott, John E. (committee member), Pollard, Spencer D. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-451894

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Rights Friedly, Philip Howard

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