United States

Department of

Agriculture

Forest Service

Pacific Northwest

Research Station

General Technical

Report

PNW-GTR-611

July 2004

Economic Growth 

and Change in 

Southeast Alaska

ALASKA
The Forest Service of the U.S. Department of Agriculture is dedicated to the principle of

multiple use management of the Nation’s forest resources for sustained yields of wood,

water, forage, wildlife, and recreation. Through forestry research, cooperation with the

States and private forest owners, and management of the National Forests and National

Grasslands, it strives—as directed by Congress—to provide increasingly greater service to 

a growing Nation.

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USDA is committed to making its information materials accessible to all USDA customers

and employees.

Technical Editor

Rhonda Mazza is a science editor, Portland Forestry Sciences Laboratory,

P.O. Box 3890, Portland, OR 97208.
Economic Growth 

and Change in 

Southeast Alaska

Rhonda Mazza, Technical Editor

U.S. Department of Agriculture, Forest Service

Pacific Northwest Research Station

Portland, Oregon

General Technical Report PNW-GTR-611

July 2004
This page was intentionally left blank.
Economic Growth and Change in Southeast Alaska

Abstract

Mazza, Rhonda, tech. ed. 2004. Economic growth and change in southeast Alaska.

Gen. Tech. Rep. PNW-GTR-611. Portland, OR: U.S. Department of Agriculture,

Forest Service, Pacific Northwest Research Station. 71 p.

This report focuses on economic trends since the 1970s in rural southeast

Alaska. These trends are compared with those in the Nation and in nonmetropolitan areas of the country to determine the extent to which the economy in rural

southeast Alaska is affected by regional activity and by larger market forces. Many

of the economic changes occurring in rural southeast Alaska, such as the decline

in the manufacturing sector, are reflections of broad-scale changes in the greater

U.S. economy. Other changes, such as the increase in nonwage income as a percentage of total income, have been greater in rural southeast Alaska than at the 

larger scales of comparison.

In chapter 1, Robertson describes these changes and their underlying causes

and outlines some of their implications for the management of the Tongass National

Forest. Providing forest-based recreational opportunities and aesthetic amenities

is becoming increasingly important as tourism and residential activity compose a

larger portion of the region’s economy. In chapter 2, Crone provides a historical

context for the economic changes in rural southeast Alaska. She also establishes

the global context for these changes, concluding that forces at local, national, and

international scales have shaped economic growth patterns in rural southeast

Alaska. 

Keywords: Southeast Alaska, economy, economic trends, income, rural 

manufacturing, wood products, community resiliency.
GENERAL TECHNICAL REPORT PNW-611

Preface

These chapters were written separately at different points in the Tongass Land 

Management Plan1 process. Individually, each chapter addresses the economic

trends in southeast Alaska from 1970 through the 1990s. They have been compiled

here to provide historical context for current studies that address the ongoing

changes in the economy of southeast Alaska.

The economy of southeast Alaska illustrates the dynamic nature that characterizes economies everywhere. In the past 30 years, the region’s economy has changed

from one dependent on natural resource extraction and the associated manufacturing to one based on services and related economic sectors. During this time of

change, the manufacturing sector declined owing to regional changes in supply and

national and global changes in demand for Alaska products. Increased competition

by other producers in traditional markets for southeast Alaska resources has also 

been an influential factor. Concurrently with the decline in manufacturing, the

service and retail sectors have experienced steady growth, and the proportion of

unearned income (investment income and transfer payments from government to

individuals) in the region’s total income mix has increased rapidly. The two chapters

in this report examine these changes, the reasons for them, and how the changes

differ from economic trends elsewhere.

Many of the economic changes occurring in rural southeast Alaska are reflections of broad-scale changes in the greater U.S. economy. For instance, at both the

regional and national scales, the manufacturing sector has declined. At the same

time, the service sector has grown at both scales, although in rural southeast Alaska,

the growth has not been as great, despite the increase in tourism. The increase in

unearned income as a percentage of total income is evident at all scales, with the

greatest relative increase occurring in rural southeast Alaska.

In chapter 1, Robertson identifies these trends and the link that continues to exist

between forest policy and the economy of southeast Alaska even though logging and

wood processing are no longer predominant activities in the region. Although tourism

has contributed to economic growth in southeast Alaska, Robertson concludes that

the increase in unearned income, particularly retirement and medical benefits, likely

has been a more significant factor in the region’s current economy. Given the importance of unearned income, the region’s ability to retain existing residents and attract 

1 Shaw, Charles G., III. 1999. Use of risk assessment panels during revision of the Tongass 

Land and Resource Management Plan. Gen. Tech. Rep. PNW-GTR-460. Portland, OR: U.S.

Department of Agriculture, Forest Service, Pacific Northwest Research Station. 43 p. (Shaw, 

Charles G., III, tech. coord., Conservation and resource assessments for the Tongass Land

Management Plan revision).
Economic Growth and Change in Southeast Alaska

new ones is necessary to maintain current economic growth. Local natural amenities and recreational opportunities are key factors that make the region an attractive

home and visitor destination. The challenge will be to provide forest-based amenities that meet the needs of these different user groups; the amenities that attract

rural residents may be different than the ones that attract visitors.

In chapter 2, Crone continues the analysis of economic change in rural southeast Alaska. Her focus is the influence of trends in rural manufacturing in general

and cycles in wood products markets in particular on rural areas. She compares

changes in the rural southeast Alaska economy with those occurring in another

historically timber-abundant and manufacturing-dominated rural region in Idaho

and Montana and finds many similarities. She also establishes the global context

for these changes, concluding that forces at the local, national, and international

scales have shaped economic growth patterns in rural southeast Alaska. The

resiliency of many rural communities that have traditionally depended on naturalresource-related industries will depend on their ability to exploit comparative

advantages associated with tourism and quality-of-life amenities.
GENERAL TECHNICAL REPORT PNW-611

Contents

1 Chapter 1: An Analysis of Changing Income Sources Guy Robertson

1 Introduction

4 The Setting and Data

6 Economic Change in Southeast Alaska

20 Southeast Alaska in a Comparative Context

26 Implications for Forest Policy

28 Conclusion

30 References

33 Chapter 2: Rural Manufacturing and the U.S. Wood Products Industry:

Trends and Influences on Rural Areas Lisa K. Crone

33 Introduction

34 A Comparison of Trends—Population, Personal Income, and Earnings

43 History of Rural Manufacturing, Wood Products Industry, and Rural 

Southeast Alaska and Rural IdMt Economies

54 The Future of the Alaska Wood Products Sector

55 Southeast Alaska’s Other Natural Resource Industries

57 New Sources of Comparative Advantage

59 Indicators of Resiliency in Rural Areas

62 Conclusion

63 Metric Equivalents

63 References
Economic Growth and Change in Southeast Alaska

1

Chapter 1: An Analysis of Changing 

Income Sources

Guy Robertson1

Abstract

Robertson, Guy. 2004. Economic growth and change in southeast Alaska. In: Mazza, R., tech.

ed. Economic growth and change in southeast Alaska. Gen. Tech. Rep. PNW-GTR611. Portland, OR: U.S. Department of Agriculture, Forest Service, Pacific Northwest

Research Station: 1-32.

The rural economy of southeast Alaska has experienced profound changes in recent decades,

changes that have important implications for forest management in the region. This chapter

describes the nature of these changes and their underlying causes, and then outlines some of

their implications for the management of the Tongass National Forest. Additionally, the

report compares developments in southeast Alaska with those occurring in the Pacific

Northwest and in the Nation at large.

The most important economic developments in rural southeast Alaska are the decline

in manufacturing activity and the concomitant increase in services and related activity.

While the contraction in manufacturing has resulted in falling wages and stagnant total

income, expansion in services and related sectors has allowed for continued employment

growth in the region. Increases in tourism-related activity underlie a portion of the structural

shift to nonmanufacturing sectors, but increases in other income sources are found to be at

least equally important in maintaining regional income and thereby supporting economic

growth. Nonwage income, such as retirement and health benefits or returns on investments, composes most of these other income sources. These developments reflect trends

occurring at the national level and within the Pacific Northwest. The changes outlined in

this report indicate the increasing importance of noncommodity forest outputs (primarily

amenities and recreational opportunities) in supporting both the tourism and residential

activity on which the region’s economy increasingly relies.

Keywords: Southeast Alaska, economic trends, income, unearned income, tourism, 

forest management.

1 Guy Robertson was a research economist, U.S. Department of Agriculture, Forest Service,

Alaska Region, Juneau, AK. He is currently a policy analyst, USDA Forest Service, P.O. 

Box 96090, Washington, DC 20090-6090.

Introduction

Rapid Change: Overall Growth and Shift From Traditional

Resource-Extraction Industries

The regional economy of southeast Alaska has undergone dramatic change in 

recent decades. With an approximate doubling of population and real income since

1970, overall economic growth is the most salient aspect of this change, directly

affecting the lifestyles and environment of southeast Alaska inhabitants. Additionally,

this growth has been accompanied by structural changes in the regional economy

and its constituent localities. Perhaps most notable of these has been the rise of
GENERAL TECHNICAL REPORT PNW-611

2

service-based activities and the relative decline in traditional, resource-based activities,

particularly timber harvesting and processing. This is the combined result of sharp

reductions in wood products manufacturing in the 1990s and generally steady

growth in services and retail activity over the last three decades. 

Is Change Merely the Result of Regionally 

Specific Factors?

Both overall regional growth and the relative increase in the service sector and 

other nonmanufacturing sectors generally mirror developments occurring in the

U.S. economy. It would be a mistake, however, to immediately conclude that

the changes observed in southeast Alaska are merely a reflection of national trends.

First, much of the expansion in services and related sectors may be attributed to

rapid growth in recreation and tourism, growth that, although certainly evident

elsewhere in the United States, is particularly pronounced in Alaska. Second, the

decline in timber-related activity can be partially attributed to supply constraints

(both physical and policy induced) and, perhaps, to persistent diseconomies associated with manufacturing in the region. In either case, characteristics specific to the

region, rather than macroforces inherent in the national economy, can be construed

as the driving force for change. 

An important implication of these changes is that links between local economic

performance and the management of the Tongass National Forest have become more

subtle and increasingly complex. Whereas in the past, the supply of timber for

harvest and processing composed the major channel through which forest management could impact economic activity, the impact of management on the quality and

quantity of recreational opportunities, aesthetic experiences, and lifestyle amenities

is now paramount. This is especially so if one allows for the positive role played

by the forest in the residential decisions of unearned-income recipients. Assuming

continued growth in recreational use in particular and the regional economy in

general, balancing the demands of different recreational user groups and amenities

beneficiaries will increasingly challenge forest managers.

In addition to overall growth, a decline in the relative importance of manufacturing and an increase in that of services are the most salient developments in the

region’s rural economy. This is the combined result of sharp reductions in wood

products manufacturing in the 1990s and generally steady growth in services and

retail activity over the last three decades. Although evidence suggests that tourism

is an important factor in this expansion, increases in unearned income, especially

those associated with retirement and medical benefits, are probably more important.

In fact, increases in unearned income are responsible for slightly more than half of

total gains in personal income from 1969 to 1996, and health services has been the
Economic Growth and Change in Southeast Alaska

3

single largest private sector contributor to new employment in the region since 1981.

These developments broadly mirror changes occurring elsewhere in the U.S.

economy. At the same time, however, growth in southeast Alaska’s service sector

lagged well behind that of the Nation, and certain important subsectors, such as

business services, are still largely underrepresented (if not nonexistent) in the

region. Consequently, although the region’s development appears to generally 

follow national trends, rural southeast Alaska’s economy remains somewhat

specialized in a limited number of products and activities. More and more, however,

these goods take the form of services and forest-based amenities rather than the

resource commodities that have been dominant in the past.

Paradigm of Resource Dependency

Under this interpretation of events, the region (with the exception of Juneau, the 

capital) has remained dependent on a few key industries focused on the utilization

of its natural resources, but, increasingly, tourism has come to be the dominant

pattern of use. Although the shift to a tourism-based economy brings profound

changes in local lifestyles and land use patterns, the fundamental characteristics 

of forest dependency and lack of depth and diversification in the local economy

remain. Likewise, the sensitivity of the regional economy to decisions regarding

the management of the Tongass National Forest, which comprises nearly 80 percent

of the regional land base, will remain, in theory at least, quite pronounced. The

region and its small towns can continue to be characterized as “resource dependent”

and susceptible to the concomitant problems of instability, vulnerability to decisions

and market developments occurring far away, lack of opportunity, and a host of

others discussed in the academic literature and common press (e.g., Force et al. 1993,

Freudenburg 1992, Humphrey 1995).

Is Tourism the Driving Force or Is the Economy 

Deepening?

It is by no means clear, however, that this is an accurate description of either the 

economic changes that have occurred in southeast Alaska or the current state of its

constituent communities. Do the changes observed in the region’s economy merely

represent the rise of tourism and relative decline of timber or, on the other hand,

are they the result of a more robust form of growth depending on the development

of a diversified set of income sources? More generally, what are the underlying

causes of growth in the region? The answer to this question has important implications for our understanding of the dynamics underlying growth and change in the

region’s economy in general, and the links between forest policy decisions and

local economies in particular.
GENERAL TECHNICAL REPORT PNW-611

4

Objectives of This Report

This report has three main objectives. The first is to describe the changes in the 

regional economy of southeast Alaska in terms of primary income sources. This, in

turn, will help shed light on the underlying impetus for economic growth and change

in the region. The second objective is to provide a comparative context for analyzing these changes by using U.S. aggregate measures and measures from nonmetropolitan counties in Oregon and Washington as comparators. Here, the goal is to

identify ways in which southeast Alaska’s economic performance is similar to that

of other regions and significant ways in which it may differ. The final objective is

to describe the implications of these results for forest policy decisions, particularly

those relating to the management of the Tongass National Forest. 

The Setting and Data

The forest communities of southeast Alaska are the primary focus of this report. 

From the town of Haines in the north to Ketchikan some 300 miles to the south,

the region comprises numerous islands and miles of convoluted shoreline similar

to the Puget Sound but more rugged and sparsely inhabited. Currently, southeast

Alaska’s population stands at about 75,000 people, 29,000 of whom live in Juneau.

As well as being the state capital, Juneau constitutes the region’s principal transportation hub and trade center. Other regional centers include Ketchikan with about

14,000 people living in or around the community, and Sitka with about 7,000

people living in the general area. The remainder of the population is divided among

various small towns and settlements, some of which hold over 1,000 residents, but

many of which are considerably smaller. Many of the communities rely on air or

boat traffic as their sole transportation link to the other towns; with the exception

of Haines, none of the major towns in the region have road links to the outside

world.

Removal of Juneau From Analysis

Because of its relative size, Juneau tends to dominate aggregate statistics on regional

economic performance. Moreover, owing to the importance of state government

functions in the town’s local economy, Juneau’s economic fortunes are somewhat

independent of those of the other communities in the region, and the town cannot

be classified as an isolated forest-dependent community, the focus of this report.

Consequently, Juneau is largely omitted from the subsequent analysis, and, henceforth, the term “rural southeast Alaska” will be used to refer to the entire region

with the exception of Juneau. The remaining communities and settlements of southeast Alaska have a strong history of dependency on local natural resources, primarily
Economic Growth and Change in Southeast Alaska

fishing, timber, and mining, and many display emergent service economies presumably based on tourism and perhaps amenity-related residential development. As

such, these communities appear at an economic and social crossroads similar to that

noted in other rural communities in the Western United States (Harris et al. 1998).

Regional Economic Information System Data

This report relies extensively on data published by the Bureau of Economic 

Analysis under its Regional Economic Information System (REIS). The REIS data

provide information on annual income, employment, and other economic measures

at the county level (or boroughs—the Alaska equivalent of counties) between

1969 and 1996. Although the data set provides comprehensive coverage and considerable detail, it is not infallible. For instance, income and employment levels for

certain industries may be omitted at the county level owing to legal restrictions

designed to protect the privacy of individual firms. This problem is particularly

pronounced in sparsely populated regions where the number of local firms in many

industries will be quite small.2

General Challenge of Constructing a Coherent Picture

More generally, a fundamental challenge in using the REIS data (or any other similar

data set for that matter) is constructing a concise yet meaningful picture of regional

economic change from the numerous and sometimes contradictory data series available. This challenge extends not just to choosing relevant variables, but also to the

ways in which these variables are handled, and the time periods that are analyzed.

For example, measuring the change in a given variable between two discreet points

in time (e.g., 1986 vs. 1996) may give very different results than those obtained by

using linear regression or a logistic estimate of annual growth applied to the whole

time series. Likewise, any estimate will be sensitive to the choice of time periods and

their relation to the business cycle or other fluctuations. This report focuses on providing robust measures of growth and change while bearing in mind the potential

biases introduced by the inevitable choices necessary to conduct analysis. 

Alaska Department of Labor Employment Data

In addition to the REIS data, this report uses detailed local employment data 

provided by the Alaska Department of Labor (ADOL). These data are available, 

2 An initial estimate of the extent of disclosure holds in the REIS data for southeast Alaska 

can be derived by comparing reported aggregate income with that obtained by summing 

income from specific industries. This analysis indicates that approximately 2 percent of 

total income in rural southeast Alaska is subject to disclosure holds. Of course, at the 

community level this discrepancy may be much higher.

5
GENERAL TECHNICAL REPORT PNW-611

6

free of disclosure-related omissions, for 1981 to 1996, and they provide a uniquely

detailed picture of employment in the region’s various communities. Similar data

are available for Oregon counties, providing a basis for comparison.3

Economic Change in Southeast Alaska

This section of the report describes changes that have occurred in southeast Alaska’s

regional economy over the last few decades. Aggregate income for rural southeast

Alaska (i.e., the regional total net of Juneau) and the decomposition of this income

into its constituent components receive the bulk of attention. The ADOL employment

data are used to provide additional detail on the relative growth and current shares

of specific industry sectors, detail that is not available from the more broadly

aggregated income data supplied by the Bureau of Economic Analysis.

Income

A logical first step in the analysis of economic growth and change in southeast

Alaska is an examination of the performance over time of total personal income in

the region. All income figures presented in this report are in 1995 real dollars and

were derived by using the Bureau of Economic Analysis consumer price index as a

deflator. Total personal income is shown in figure 1 for both Juneau and the rest of

the region. Along with the overall growth trend occurring over the entire study period,

the figure indicates both the relative size of Juneau and the fact that income performances for Juneau and the rest of the region diverge, particularly over the last 10 years

or so. Figure 1 also indicates that during the 1990s, income outside of Juneau was

stagnant and even declined some years. A satisfactory description of economic change

in rural southeast Alaska has to explain both the relatively steady expansion occurring prior to 1990 as well as the recent downturn. Hence, this analysis considers two

specific periods—the 1969-89 period characterized by relatively steady income

growth, and the 1990-96 period in which income stagnated. Initial hypotheses for

the recent income stagnation must include the sharp decline in timber harvest and 

3 The spatial reporting units differ according to data source. Bureau of Economic Analysis 

information is available at the borough (Alaska’s equivalent of county) level. These units 

have changed several times over the years for certain areas. A complete list of the areas used 

to construct the aggregate measures presented in this report is as follows: Angoon Division, 

Haines Division, Outer Ketchikan Division, Prince of Wales Division, Sitka Division, Skagway-Yakutat Division, Wrangell-Petersburg Division, Haines Borough, Juneau Borough, 

Ketchikan-Gateway Borough, Prince of Wales-Outer Ketchikan Census Area, Sitka Borough, 

Skagway-Yakutat-Angoon Census Area, Skagway-Hoonah-Angoon Census Area, WrangellPetersburg Census Area, and Yakutat Borough. The Alaska Department of Labor data are 

based on municipalities, or groups thereof, and cover essentially the same geographic area 

as the Bureau of Economic Analysis statistical data, but with greater spatial detail.
Economic Growth and Change in Southeast Alaska

7

processing in the 1990s as a result of supply constraints, but it is certainly not a

foregone conclusion that this is the underlying cause. A decomposition of income

into its constituent parts may help determine the reasons behind the income stagnation as well as identify the major contributors to growth over the long term. 

Note that the income figures discussed in the preceding paragraph are for total

income and not per capita income. Southeast Alaska, as elsewhere in the United

States, has experienced steady population growth throughout much of the 20th

century. Consequently an increase in total income does not necessarily reflect

growth in regional per capita income. Indeed, although real income in rural southeast Alaska increased from around $17,000 per capita in 1969 to $24,000 in 1996,

all of this increase occurred prior to 1986. Since that time, real per capita income

has been relatively stable. In Juneau, real per capita income peaked at $34,000 in

1978 and has since declined to $28,000, with much of this decline occurring in the

early 1980s. Although it is a crucial measure of economic welfare, per capita income

0

200

400

600

800

1,000

1,200

1969197019711972197319741975197619771978197919801981198219831984198519861987198819891990199119921993199419951996

Personal income (million 1995 $)

Not Juneau

Juneau

Figure 1—Total southeast Alaska personal income, 1969-1996. Nominal values deflated by using national consumer price index.

See footnote 3 for list of included boroughs and census areas. Source: Bureau of Economic Analysis, Regional Economic

Information System.
GENERAL TECHNICAL REPORT PNW-611

8

is not the focus of this report. Nevertheless, remember that increasing total income

figures, by themselves, do not necessarily indicate increasing personal wealth.

Perhaps the most important distinction that can be drawn between different

types of income sources is between earned and unearned income. Earned income,

whether in the form of wages or profits to the self-employed, is directly tied to

economic activity occurring within the region. Unearned income, on the other hand,

comprises dividends, other payments to capital, and a wide variety of transfer

payments to individuals from local, state, and federal governments, and it need not

be connected to local economic performance.4 Likewise, whereas earned income

will necessarily correspond with a certain number of jobs in which the income is

earned, unearned income has no direct link to employment. Consequently, the

importance of unearned income in regional economies is often overlooked in studies that tend to concentrate on key local industries, particularly those engaged in

manufacturing for export out of the region. These industries, by virtue of their

employees, their tangible production facilities and, often, their central role in the

history and identity of local communities, are often identified as the impetus driving regional economic change and development. Unearned income, in contrast,

is far less visible as a component in the local economy. Nonetheless, it constitutes

an increasingly important income source in many rural communities. And, although

the dynamics entailed in its distribution and impact in the local economy are quite

different from those of major manufacturing or resource extraction industries

(Galston and Baehler 1995), the role of unearned income as an outside source of

money is broadly analogous to the role of the major export industries commonly

emphasized in export-base analysis.

Both the growing importance of unearned income and its relative lack of correlation with earned income are displayed in figure 2, and further detailed in table 1.

The numbers displayed are aggregates for all southeast Alaska boroughs with the

exception of Juneau. As such, they mask some important differences in the performance of separate boroughs. Although an analysis of income on a borough-byborough basis is beyond the scope of this analysis, versions of figure 2 for specific

boroughs have been included in the appendix to this report. From 1969 to 1996,

real unearned income increased fourfold, and, as a result, this income category now

accounts for approximately one-third of total personal income in rural southeast 

4 Remember that the dividends, interest, and rent category does not account for increases in 

asset values. Recent developments such as the sustained bull market in stock equities are not 

reflected in the unearned income statistics. In fact, to the extent that rising share prices have

been used as a justification for reducing stock dividend payments, gains in stocks may actually result in a net reduction in this dividend portion of the unearned income category.

Often overlooked,

unearned income 

is an increasingly

important income

source in many rural

communities.
Economic Growth and Change in Southeast Alaska

9

0

200

400

600

800

1,000

1,200

19691971197319751977197919811983198519871989199119931995

Personal income (million 1995 $)

Earned

Unearned

Total

Figure 2—Southeast Alaska personal income by major source, 1969-1996. See text for explanation of income categories.

Source: Bureau of Economic Analysis, Regional Economic Information System.

Table 1—Income in rural southeast Alaska by major source 

1969 1990 1996 Annual growtha

Income source Value Share Value Share Value Share 1969-89 1990-96

Million Million Million

1995 $ Percent 1995 $ Percent 1995 $ ----------Percent-------------

Earnings, by place of work

Wage 419 83 671 59 590 55 1 -2

Proprietor’s income 47 9 153 13 132 12 6 -2

Other labor income 22 4 85 8 70 7 5 -3

Total 488 96 909 80 792 74 2 -2

Net earnings, by residenceb 428 84 814 72 712 67 2 -2

Unearned income

Returns to capitalc 45 9 161 14 165 15 7 1

Transfer payments 34 7 159 14 193 18 5 3

Total unearned income 79 16 320 28 359 33 6 2

Total personal incomed 507 100 1,134 100 1,071 100 3 -1

Note: All dollar figures were converted to 1995 dollars by using U.S. aggregate consumer price index.

a Estimated by using logistic growth function.

b Equals total earnings minus adjustments for net flow of earnings to interregional commuters and for personal contributions for 

social insurance.

c Includes dividends, interest, and rent.

d Equals net earnings by residence plus unearned income.

Source: Bureau of Economic Analysis, Regional Economic Information System.
GENERAL TECHNICAL REPORT PNW-611

10

Alaska, as compared to 16 percent in 1969. In spite of its relatively smaller share

in total income, growth in unearned income was responsible for half of the $564 

million increase in personal income occurring over the 1969-96 period. Additionally,

the increase in unearned income has been quite stable over time (r2 = 0.96 when

regressed on a simple trend variable) as compared to greater volatility in earned

income (r2 = 0.73). This is not surprising, as a large proportion of unearned income

will be determined by slow-moving demographic trends, and other portions, such

as unemployment insurance, may move in a countercyclical fashion to partially

mitigate downturns in the business cycle. Earned income, in contrast, has no such

buffer mechanisms and is more directly susceptible to demand fluctuations emanating from the national business cycle, or short-term supply effects resulting from

such factors as fluctuations in commercial fish populations or changes in forest

policy. This greater variability in earned income and its consequent impact on the

variability of total income are clearly evident in figure 2.

Before turning to a more detailed discussion of changes in earned income, the

component sources of unearned income deserve some examination. The major distinction is between transfer payments and payments to capital, which include dividends, interest, and rent. As shown in table 1, both categories have been increasing

both in absolute levels and in their share of total income, but the rate of increase

has been somewhat higher for transfer payments than for payments to capital, particularly since 1990. (The fact that annual growth for the 1969-89 period is higher

for payments to capital whereas the increase in share between 1969 and 1990 is

higher for transfer payments is the result of the difference between point measures

used to calculate shares and continuous measures used to calculate growth rates).

The REIS data provide no detail on the composition of payments to capital, but do

give considerable information on the composition of transfer payments. The relevant

aspects of this information are summarized in table 2. In terms of 1996 share of

total transfer payments, the largest categories are retirement and disability payments,

which are dominated by social security benefits; “other payments to individuals,”

which are composed mainly of disbursements from the Alaska Permanent Fund

and from the Bureau of Indian Affairs; and medical benefits, which initially were

composed mostly of Medicare benefits but are now approximately evenly divided

between Medicare and payments for Medicaid and related benefits. Of the $160

million increase in total transfer payments from 1969 to 1996, 88 percent resulted

from increases in these three largest categories. 

Additional categories are income maintenance (primarily welfare benefits) and

unemployment payments, which together account for around 12 percent of current

transfer payments. In terms of total income, these two categories accounted for an
Economic Growth and Change in Southeast Alaska

11

average of 2.5 percent of income over the 1969-96 period with a peak of 3.6 percent in 1977 and recent levels close to the 2.5 percent average.

Another important development evident in figure 2 and table 1 is the sharp

decline in earned income in southeast Alaska in the 1990s. Prior to 1990, earned

income displayed relatively stable growth, with the exception of downturns in 1975

and the first half of the 1980s. However, at 2 percent per annum, growth in this

category was still considerably smaller than the 6 percent annual rate for unearned

income. In the 1990s, growth in earned income reversed itself, posting a 2 percent

annual rate of decline that resulted in an $89 million total contraction (or 13 percent) over the 1990-96 period. 

Examining earned income by industry classification, as shown in table 3, helps

identify the source of this decline. The table displays major industry aggregates

(the most detail available given data omissions and disclosure holds at lower levels

of aggregation) sorted in order of declining share of 1996 total income. In spite of

the removal of Juneau from the analysis, government remains the single largest

source of earned income in the region. This is followed by manufacturing, services,

retail trade, construction, and several lesser categories. With the exception of

construction, retail trade, and mining, all categories exhibit significantly smaller

growth rates for the 1990-96 period than for the previous period. Three industry

groups (manufacturing, forestry and fishing, and wholesale trade) show actual

Table 2—Transfer payments to rural southeast Alaska

1969 1996

Annual

Payment type Value Share Value Share Change growth

1,000 Percent 1,000 Percent Percent

1995 $ 1995 $

Total transfer paymentsa 34,021 100 193,273 100 159,251 4

Retirement and disability insurance 

benefit payments 10,993 32 70,570 37 59,578 6

Other payments to individualsb 6,519 19 51,305 27 44,786 4

Medical payments 1,900 6 36,913 19 35,013 8

Income maintenance benefit payments 3,563 10 13,889 7 10,326 4

Unemployment insurance benefit 

payments 5,284 16 10,621 5 5,337 1

Otherc 3,214 9 9,006 5 5,792 2

Note: All dollar figures were converted to 1995 dollars by using the U.S. aggregate consumer price index.

a Totals do not match owing to rounding and omitted measurements.

b Primarily Bureau of Indian Affairs payments and disbursements form the Alaska Permanent Fund.

c Includes veterans’ benefits, government and private payments to nonprofit institutions, and private payments to individuals.

Source: Bureau of Economic Analysis, Regional Economic Information System.
GENERAL TECHNICAL REPORT PNW-611

12

declines, together losing $151 million (constant dollars). Of these declines, the

manufacturing sector experienced 76 percent of the $151 million total decrease.

Although all other major sectors posted gains in the 1990-96 time period, the size

of these increases totaled just $62 million and were thus insufficient to offset

declines in the losing sectors. At $24 million, income gains in services accounted

for 39 percent of the $62 million increase, and at $22 million, construction was

close behind. However, construction-related income shows a high degree of

volatility across the entire 1969-96 period, and when measured at this longer

time scale, income growth in the sector is relatively low. Services and, to a lesser

extent retail trade, display relatively stable and sustained rates of growth across the

entire study period.

The different growth rates for different employment sectors have resulted in 

a marked shift in the industrial structure of rural southeast Alaska’s economy. This

can be seen by examining the industry shares shown in table 3 and figure 3. In line

with the relatively slow growth in the 1969-89 period and actual declines in the

1990-96 period, manufacturing has experienced a dramatic reduction in its share 

of total earned income, falling from 34 percent of the total in 1969 to 17 percent 

in 1996. With the decline in manufacturing income, government has emerged as

the largest single source of earned income in the region, maintaining a stable 23

percent share in the earlier periods and increasing its share to 26 percent in the

Table 3—Earned income by industry in rural southeast Alaska, by sector

1969 1990 1996 Annual growth

Sector Value Share Value Share Value Share 1969-89 1990-96

1,000 Percent 1,000 Percent Percent Percent Percent Percent

1995 $ 1995 $ 1995 $

Government 111,689 23 205,689 23 207,554 26 3 0

Manufacturing 162,997 34 251,200 29 136,104 17 1 -9

Services 37,892 8 103,062 12 127,507 16 5 4

Retail trade 38,491 8 74,533 8 86,229 11 2 3

Construction 50,909 11 53,406 6 76,072 10 1 5

T.P.U.a 39,023 8 68,075 8 68,303 9 1 1

Forestry and fishing 16,256 3 82,968 9 52,610 7 8 -7

F.I.R.E.b 7,459 2 20,117 2 20,905 3 4 3

Wholesale trade 10,228 2 17,172 2 11,096 1 1 -6

Mining 1,975 0 662 0 1,468 0 -3 12

Total 476,918 100 876,884 100 787,848 100 2 -1

Note: All dollar figures were converted to 1995 dollars by using U.S. aggregate consumer price index.

a

T.P.U. = transportation and public utilities.

b F.I.R.E = finance, insurance, and real estate.

Source: Bureau of Economic Analysis, Regional Economic Information System.
Economic Growth and Change in Southeast Alaska

13

1990-96 period. Alongside the decline in manufacturing’s share, perhaps the most

important change has been the steady gains exhibited in the service sector. Here,

owing to stable growth, services doubled their share from 8 percent in 1969 to 16

percent in 1996, and are now roughly equivalent to manufacturing in terms of earned

income. Other major categories include forestry and fishing (primarily commercial

fishing as most timber operations are included under manufacturing), construction,

transportation and public utilities, and retail trade. Shares for the first two of these

categories have shown considerable fluctuation over the years. The transportation

and public utilities sector has remained relatively stable, and retail has posted

steady gains, particularly since 1990.

Taken together, the changes outlined above have resulted in a dramatic shift in

the regional economy away from manufacturing as a primary source of income and

employment toward an economy more reliant on unearned income, and characterized by a higher proportion of employment in services and retail occupations. Manufacturing currently accounts for only 13 percent of total regional income when

unearned income is included in the analysis, as opposed to 32 percent in 1969. Of course,

the current low share does not account for the total contribution of manufacturing

0

5

10

15

20

25

30

35

40

Forestry and fishing

Mining

Construction

Manufacturing

Transportation and

public utilities

Wholesale trade

Retail trade

Finance, insurance and

real estate 

Services

Government

Industry share of income (percent)

1969

1990

1996

Figure 3—Industry shares in total earned income (by place of work). Source: Bureau of Economic Analysis, Regional Economic

Information System.

Growth in unearned

income and service

and retail jobs 

characterize the

rural southeast

Alaska economy.
GENERAL TECHNICAL REPORT PNW-611

14

to regional income. As “basic” industries bringing new money to the local economy, many manufacturing industries are thought to provide support for local service and retail operations. However, the same may be said for both unearned income

and tourist income. 

Employee Compensation

An examination of employee compensation in different sectors will help shed 

further light on recent changes in total earned income in rural southeast Alaska. By

dividing total earned income in a given sector by the number of employees reported

in the REIS data, we can derive a measure for average employee compensation

that is roughly analogous to average wages paid in the sector. These estimates are

shown for major industry divisions in figure 4 (note that mining was omitted

owing to lack of data resulting from disclosure holds). One point, which is immediately obvious from an examination of the figure, is that average compensation

has been generally declining in all sectors, particularly since 1980. Average annual

compensation across all sectors peaked in 1978 at $42,000 (1995 dollars) per

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Forestry and commercial

fishing

Construction

Manufacturing

Transportation and public

utilities

Wholesale trade

Retail trade

Finance, insurance, and real

estate

Services

Government and government

enterprises

Average

Annual employee earnings (1995 $)

1970

1980

1990

1996

Figure 4—Yearly employee compensation in rural southeast Alaska by industry. Source: Bureau of Economic Analysis, Regional

Economic Information System.
Economic Growth and Change in Southeast Alaska

15

employee and has since declined at a rate of approximately 2 percent per annum.

The largest declines have been concentrated in the high wage sectors. Although

construction provides the most dramatic example of this, decreases in manufacturing

are more important owing to the greater weight of that sector in the regional economy as a whole. Another important point is that compensation differs widely from

sector to sector. Construction and manufacturing compose relatively high wage

sectors, each paying approximately $39,000 per employee per year in 1996.

Government, transportation and public utilities, and wholesale trade formed a middle tier, paying from $31,000 to $34,000. Services, retail, and F.I.R.E. (finances,

insurance, and real estate) composed the lowest tier, paying approximately $20,000

each. Commercial fishing and forestry (of which commercial fishing composes the

major share) also falls into the low wage category, but owing to high seasonality

and other peculiarities of the fishing sector, direct comparisons with other sectors

are problematic.

Two main factors may underlie the long-term decline of per-employee compensation in the region. The first is an actual decline of wages, and the second is

shifts in industry composition within a given sector. The second factor likely will

be most pronounced in manufacturing where a majority of activity is concentrated

in relatively high-wage timber employment and lower wage seafood processing.

Alaska Department of Labor data, which are described earlier in the text, indicate

that these two industries have consistently accounted for more than 90 percent of

total manufacturing employment, with the remainder mostly composed of printing

and boatbuilding. The ADOL also reports average annual 1995 employee earnings

of $45,000 per employee in the wood products sector as compared to $26,000 in

the seafood-processing sector. After averaging around 29 percent of total manufacturing employment between 1981 and 1990, seafood processing increased its share

to around 40 percent over the 1990-96 period, primarily as a result of declines in

wood products employment. Consequently, we can conclude that a significant proportion of the recent decrease in average employee compensation in manufacturing

was the result of declines in timber employment relative to seafood processing.

However, the 1980-90 period also demonstrates falling compensation in manufacturing in spite of relatively stable shares for the two main sectors. Here, actual

declines in wages are the most likely cause.

A similar approach may be used to examine changes in average employee

compensation across all sectors, as well as changes in total regional earned income.

Average annual compensation for all sectors has fallen steadily from $42,000 (1995

dollars) in 1978 to $27,000 in 1996. Over that same period, manufacturing employment fell from around 20 percent of total employment to 12 percent, and

Average annual

compensation has

declined since 1980.
GENERAL TECHNICAL REPORT PNW-611

16

employment in retail and services (both low-wage sectors) increased from 27 percent of total employment to 39 percent. At the same time, however, note that large

fluctuations in the share of manufacturing employment, particularly the sharp

increase in the late 1980s with the recovery of the timber sector, are not significantly reflected in changes in average annual compensation levels across all sectors. 

In general, declines in compensation levels within sectors (i.e., wages) have

been far more important than shifts in employment between sectors in depressing

average regional compensation. This can be demonstrated by fixing employment

shares at their 1978 levels and by using 1996 compensation levels for each sector

to calculate a 1996 average estimate for all sectors. This approach allows us to

estimate the impact of within-sector compensation changes while assuming fixed

employment shares in each sector. The results of this calculation show that even

without the substantial shift in employment from manufacturing to services, retail,

and other lower wage sectors, average annual compensation for all sectors would

still have fallen to around $30,000 in 1996. Since 1990, however, declines in manufacturing employment have been particularly severe and the effects of changing

industry shares on regional average compensation more pronounced. Performing

the same calculation for the 1990-96 period indicates that changes in shares between

sectors accounted for approximately 75 percent of the total decline of regional

compensation (from $31,300 [1995 dollars] in 1990 to $27,400 [1995 dollars] in

1996). This decline in regional average compensation, in turn, explains the fall in

total regional earned income over the 1990-96 period, which occurred despite a

3-percent increase in total employment.

Two main conclusions may be drawn from the information presented in this

section. The first is that changes in wages are the probable cause of long-term

declines in employee compensation in southeast Alaska. Major regional trends such

as this are most likely the result of broader developments in the regional economy

at large rather than specific policy or market developments pertaining to a single

industry or sector. Also, it should be noted that average regional wages still exceed the

national average by a significant proportion (see section below). The second conclusion is that abrupt, short-term changes in regional industry structure can impact

average employee compensation and thereby total regional income. Specifically,

recent declines in timber harvesting and manufacturing are largely responsible for

falling average earnings and total earned income in the 1990s.

Industry-Specific Employment

The level of industry detail in the REIS data is not sufficient to answer several 

important questions regarding the major sources of growth and change in the region.

Long-term decline 

in wages and

short-term change

in regional industry

led to falling income

in the 1990s.
17

Economic Growth and Change in Southeast Alaska

The growth in service-related employment and income evident in the REIS data,

for example, gives no indication of the types of businesses that are growing within

the sector, and thus gives no evidence of whether tourism or expansion in unearned

income is behind this growth. The ADOL data can provide us with some of this

information. The ADOL data consist of quarterly estimates of local employment

levels in specific industries (to the 4-digit standard industrial classification [SIC]

level) for individual municipalities in southeast Alaska, or small groupings thereof,

and they span the 1981-96 period. The identification of industries in the ADOL

data that display the largest increases and decreases in employment will allow us

to further identify the major underlying causes of growth and change in southeast

Alaska.

Table 4 displays ADOL employment data (once again net of Juneau) for industries with major increases or decreases in employment for the 1981-90 period. The

10 largest advances and declines in terms of actual employment levels are arranged

in declining order. The advancing industries identified in table 4 accounted for 70

percent of 1981-96 employment advances in the region (an increase of 4,036 jobs)

and declining industries shown in the table accounted for 93 percent of declines 

(a decrease of 1,686 jobs). 

For advancing industries, local government is identified as the single most

important contributor to employment growth in rural southeast Alaska. It is followed

by health services and a variety of other industries among which retail activities

figure prominently. Growth in local government is tied to general increases in regional

population and income rather than to any specific sector or activity. Increases in

health services, on the other hand, can be linked directly to the expansion in

medical benefits outlined in the previous section on regional income, and may be

driven, in large part, by an increase in number of retired residents. Likewise, building construction is linked to overall economic growth in the region. In miscellaneous retail, on the other hand, souvenir and gift shops accounted for over half of

total growth in the sector, and thus demonstrate an obvious link to the tourist trade.

For most of the remaining growth sectors, it is difficult to draw links to specific

activities. Thus, with the important exception of health services and miscellaneous

retail, private sector employment growth in rural southeast Alaska cannot be traced

to any single industry, but is rather the result of increased spending from both local

and outside sources across a broad range of retail and service activities.

Declining sectors display a very different picture. Employment losses in the

pulp and logging and lumber sectors together account for half of total employment

declines in the 1981-96 period. The remainder is distributed across various sectors,
18

GENERAL TECHNICAL REPORT PNW-611

Table 4—Employment levels and change in major advancing and declining industries, 1981-96Advancing sectors 1981 1996 Change %a Declining sectors 1981 1996 Change %aLocal government 2,447 3,268 821 14 Pulp and paper 966 516 -450 25Health services 398 991 593 10 Logging and lumber 1,603 1,154 -449 25Food retail 435 904 469 8 Federal government 1,270 1,072 -198 11General building contractors 195 633 438 8 Railroad transportation 172 0 -172 10Miscellaneous retail 361 709 348 6 Heavy construction 

excluding building 523 405 -118 7

Air transportation 337 637 300 5 Other services 99 2 -97 5Eating and drinking places 673 972 299 5 Water transportation 506 416 -90 5Membership organizations 264 527 263 5 Communications 158 120 -38 2Amusement and recreation Public admin. (exec., 

services 6 266 260 5 leg., and other) 65 27 -38 2

State government 835 1,080 245 4 Mining 36 0 -36 2Total advances 4,036 70 Total declines -1,686 93Regional total ADOL

employment 15,555 19,516 3,961

a Refers to percentage of total advancing or declining industries.

Source: Alaska Department of Labor.
19

Economic Growth and Change in Southeast Alaska

most notably federal government, railroad transportation (which, according to the

ADOL data, is found only in the town of Skagway), and heavy construction excluding buildings. Declines in federal employment occurred throughout much of the

1980s, but employment in this category has been relatively stable since 1988. The

other industries mentioned above demonstrate high year-to-year fluctuations in

employment levels, and the changes shown in table 4 do not reflect long-term trends

so much as they do employment peaks in 1981 and troughs in 1996. Similarly,

declines in the wood products industries are not the result of steady changes over

the entire period. Rather, they reflect sharp declines from a peak year in 1990.

Logging and lumber was, in fact, the fasting growing single industry in the 1981-90

period, but the industry has since lost over 1,400 jobs. Although employment in

pulp production was relatively stable over most of the 1981-96 period, the closure

of a mill in Sitka in 1993 resulted in a loss of around 500 jobs, and the 1997

closure of the Ketchikan mill (not yet evident in the ADOL data) has, with the

exception of modest custodial activities, resulted in the elimination of the remaining

employment in the industry. In contrast to advancing sectors where gains were

broadly distributed across a number of sectors, employment declines in rural southeast Alaska are concentrated in the wood products sectors and are the result of a

sharp reduction of activity in the 1990s.

In Review

The information presented in this section allows for a number of conclusions about 

the general evolution of rural southeast Alaska’s economy and the underlying causes

of change. Overall, the region’s economy has been growing, with much of this

growth resulting from increases in government, services, and retail activity. Although

an increase in tourism is no doubt responsible for a substantial proportion of this

growth, the steady growth in unearned income, especially retirement and medical

benefits, is likely a more important (though less noticed) factor. Also, the importance of unearned income has been enhanced in recent years owing to declines in

earned income since 1990. These declines are primarily the result of recent

declines in the forest products industries, but it should be remembered that wages

have been generally declining in the region since the 1970s, and this has been an

important factor in constraining long-term growth in total earned income. 

The overall impact of these changes is that rural southeast Alaska is increasingly less reliant on resource extraction and processing sectors and more reliant on

a broad range of nonmanufacturing activities that look to both tourism and local

residents for their support. This, in turn, can be partially interpreted as a shift from

a traditional frontier economy to a more rounded and developed regional economy.
GENERAL TECHNICAL REPORT PNW-611

20

Ongoing economic diversification and the decline of average wages to levels

closer to the national average favor this interpretation. However, to the extent that

tourism is driving growth, the region may be merely replacing more traditional

resource-dependent industries with another, albeit quite different, resource-dependent industry. The question remains, how much is the regional economy’s ongoing

evolution reliant on specific forest outputs, such as tourism amenities, and to what

extent does it depend on broader changes arising from overall economic development and changes in the U.S. economy at large? Growth in unearned income and

in residential sectors (such as health care, food retail, etc.) indicates that tourism is

by no means the sole driver of growth in the rural southeast Alaska. A comparison

of key economic measures for rural southeast Alaska with those for other regions

and the Nation will help further answer this question, as well as provide a necessary context for understanding economic growth and change in the region.

Southeast Alaska in a Comparative Context

This section provides a comparative context for understanding developments in

the economy of rural southeast Alaska. The focus is on growth in various types of

income, concentrating first on the division between earned and unearned income

and then on a more detailed examination of earned income by industry sector. Two

comparators are considered. The first is the U.S. economy as a whole. Because U.S.

aggregate measures are dominated by the large urban economies in which most

Americans live and work, nonmetropolitan Oregon and Washington counties are

included as a second comparator. These provide information more specific to rural

economies where natural resources and public lands play a more important part. 

As before, the Bureau of Economic Analysis REIS data on county income are the

major source of data for this section. Additionally, the Oregon Employment

Department provides county-level employment data similar to that of the Alaska

Department of Labor, allowing a comparison of industry-specific changes in

employment.

Income

The initial division of total personal income into earned and unearned income is 

shown in index form in figure 5. From the figure, it is clear that both income categories follow much the same trends in all three regions (United States, the nonmetropolitan Pacific Northwest [PNW], and rural southeast Alaska), although the

year-to-year variance is considerably higher in the smaller regions as compared to

the U.S. aggregate. In the earned income category, business cycle downturns are

evident for all regions in 1975 and again in the early 1980s, when the downturn in
the PNW was particularly severe. Until the 1990s, rural southeast Alaska’s earned

income generally kept pace with both national growth and growth in the PNW.

Beginning in 1991, however, earned income in the region began to diverge from that

of the other regions, posting consecutive declines in spite of continued advances at the

national level. As noted above, these declines were the result of a combination of

declining average wages and a loss of wood products manufacturing employment.

Unearned income presents a somewhat different picture. Growth rates in this

category far exceed those in earned income, and those for rural southeast Alaska

slightly exceed those for the other regions. Once again, year-to-year variance is

much higher in rural southeast Alaska than elsewhere, but on the whole, southeast

Alaska’s performance is more closely correlated with national and PNW performance. (Simple cross-correlation scores for unearned income estimated from the

series shown in figure 5 are southeast Alaska-PNW = 0.97; southeast Alaska-U.S.

= 0.99; and PNW-U.S. = 0.97. These compare with 0.73, 0.83, and 0.78 calculated

for earned income by using the same pairings). Additionally, unearned income in

all regions shows little tendency to deviate from the overall trend. Certainly, lagging performance in southeast Alaska in the 1970s represents a slight divergence,

but the region quickly regained the trend in the early 1980s, and deviations such 

as that seen in earned income in the 1990s are not apparent. The high correlation

between rural southeast Alaska’s performance and that of the other regions provides

21

Economic Growth and Change in Southeast Alaska

Net earnings, by place of residence 

0

20

40

60

80

100

120

140

160

180

19691971197319751977197919811983198519871989199119931995

PNW SEA USA

19691971197319751977197919811983198519871989199119931995

Income index

Unearned income

Figure 5—Indexes of real income by type (1982 = 100). PNW = nonmetropolitan Pacific Northwest, SEA = southeast Alaska (excluding Juneau). Source: Bureau of Economic Analysis, Regional Economic Information System.

Earned income 

in rural southeast

Alaska diverged

from the national

trend in 1991, 

declining rather 

than increasing.
evidence that growth in this increasingly important income category is tied to fundamental forces at work in the U.S. economy rather than to developments specific

to southeast Alaska’s regional economy. Dividends, interest, and rent, which

constitute close to half of total unearned income in each region, can be tied to an

increasing reliance on accumulated capital assets as an income source. In the case

of transfer payments, which constitute the other half of unearned income, retirement

and medical benefits account for the majority of current payments and historical

growth in each region. In this category, however, southeast Alaska differs somewhat from both the PNW and the United States in that “other payments to individuals” (primarily Bureau of Indian Affairs and Alaska Permanent Fund payments)

account for a significant share (27 percent) of total transfers.

The effect of different growth rates for different income categories on the

structure of income in the three regions is shown in table 5. Growth in total personal income over the 1969-96 period is roughly equivalent across the regions.

Likewise, all regions have experienced a shift from earned to unearned income

sources. In both southeast Alaska and the nonmetropolitan PNW, however, this

shift has been more pronounced than in the national economy as a whole. In 1970,

southeast Alaska was considerably more reliant on earned income than the other

regions, which fits the common conception of frontier economies as places that

attract new residents primarily by virtue of their employment opportunities (North

1955). Over the last three decades, and especially since 1980, the share of earned

income has fallen to the point where it is now only slightly above that prevailing 

at the national level. The earned income share in the PNW, in contrast, began at a

comparatively low level and continued to fall, especially during the recession of

the early 1980s. The result is that unearned income now accounts for fully 43 percent of total personal income in the rural PNW. Although it is difficult to draw

direct conclusions for southeast Alaska from this fact, it does indicate that the current share of unearned income (33 percent) in southeast Alaska need not represent

an upper bound.

Earned income across industrial sectors (table 6) also displays similar growth

rates for specific sectors across all regions but considerable variation between

regions in sector shares. Manufacturing income is relatively stagnant, particularly

in southeast Alaska and the PNW. Services, on the other hand, demonstrate strong

growth in each region with annual growth rates exceeding 4 percent in both southeast Alaska and the Nation. Other sectors display intermediate levels, with rates

predominantly in the 1.5 to 2 percent range. One result of these different rates of

increase is a marked shift from manufacturing to services in all regions, a shift that

was emphasized in the previous section of this report. In southeast Alaska, where

22

GENERAL TECHNICAL REPORT PNW-611
manufacturing initially accounted for a larger share of earned income than elsewhere, this shift has been comparatively more pronounced, and manufacturing now

accounts for a smaller proportion than in either the U.S. total or the PNW. The

majority of this change has been the result of declines in manufacturing employment and wages in the 1990s. In fact, in 1990 the region still exhibited concentrations in manufacturing that were considerably higher relative to the other regions.

Growth in trade in southeast Alaska has been relatively strong, but the sector 

is still underrepresented relative to the other regions. Owing to an initially low

relative share, services are also largely underrepresented in the region. In all three

regions, growth in income derived from government employment has kept pace

with overall growth and has thus maintained generally stable shares. However,

when viewed in comparison to the U.S. total, both rural PNW and southeast Alaska

exhibit a higher dependence on government activity. This is typical for many rural

areas. The “other” category shown in table 6 includes construction; agricultural

services, commercial fishing, and forestry; transportation and public utilities; and

mining. Concentrations in this aggregate category are much higher for southeast

Alaska owing mostly to the predominance of commercial fishing in the region.

23

Economic Growth and Change in Southeast Alaska

Table 5—Major source of income by locale

Annual

Income source 1970 1980 1990 1996 growtha

--------------------Million 1995 dollars------------------ Percent

Personal income: 

Rural southeast Alaska 553 880 1,134 1,071 2.5

United States 3,261,239 4,229,021 5,582,378 6,295,242 2.5

Nonmetro Pacific Northwest 18,362 27,371 30,639 36,158 2.1

---------Percentage of total personal income---------- Percent

Earned income (net earnings by place of residence):

Rural southeast Alaska 84 81 72 67 1.7

United States 76 70 67 65 1.9

Nonmetro Pacific Northwest 73 65 59 57 1.0

Dividends, interest, and rent: 

Rural southeast Alaska 8 9 14 15 5.9

Unites States 14 16 19 18 3.9

Nonmetro Pacific Northwest 15 18 22 21 4.0

Transfer payments: 

Rural southeast Alaska 8 9 14 18 5.2

United States 10 14 14 16 4.0

Nonmetro Pacific Northwest 12 16 20 22 4.6

a Annual percentage of growth estimated by using logistic regression on 1969-96 data.

Source: Bureau of Economic Analysis, Regional Economic Information System.
GENERAL TECHNICAL REPORT PNW-611

24

Although exhibiting relatively strong growth, the finance, insurance, and real

estate sector accounts for only 3 percent of southeast Alaska’s regional employment, a figure in keeping with the PNW share but considerably less than the U.S.

average.

Taken together, the aggregate income and income by industry sector data presented in this section indicate that the evolution of southeast Alaska’s rural economy

is broadly shaped by the same forces that are at work in both the PNW and the

Nation at large. These include the increasing importance of unearned income and 

a shift from manufacturing to services. In terms of current industry structure,

however, the region remains quite different from both the Nation and, to a lesser

extent, the PNW. Specifically, rural southeast Alaska continues to rely more on 

Table 6—Comparison of industry income shares 

Annual

Sector 1970 1980 1990 1996 Growtha

Percentage of nonfarm earnings by sector

Manufacturing

Rural southeast Alaska 33 32 28 17 0.0

United States 27 25 20 18 0.4

Nonmetro Pacific Northwest 30 28 24 21 -0.1

Trade

Rural southeast Alaska 9 9 10 12 1.9

United States 17 17 16 16 1.6

Nonmetro Pacific Northwest 17 16 16 16 1.3

Services

Rural southeast Alaska 8 9 11 16 4.4

United States 16 19 26 28 4.6

Nonmetro Pacific Northwest 12 15 19 21 3.6

Finance, insurance, and real estate 

Rural southeast Alaska 1 3 2 3 3.2

United States 6 6 7 8 3.7

Nonmetro Pacific Northwest 3 3 3 3 1.8

Government

Rural southeast Alaska 23 24 23 26 1.9

United States 18 16 16 15 1.6

Nonmetro Pacific Northwest 22 19 22 22 1.8

Otherb

Rural southeast Alaska 23 22 23 25 1.9

United States 16 17 15 14 1.4

Nonmetro Pacific Northwest 16 18 16 15 1.0

a Annual percentage of growth estimated by using logistic regression on 1969-96 data.

b Includes agricultural services, forestry, fishing and other; mining; construction; and transportation and public utilities.

Source: Bureau of Economic Analysis, Regional Economic Information System.
government activity while trade and services sectors remain relatively undeveloped.

Interestingly, the PNW seems to occupy a middle ground between southeast Alaska

and U.S. shares in many industrial sectors. One possible conclusion here is that

much of the deviation between the regions is the result of size and local economies

of scale. As regions become more densely populated, the local economy is assumed

to be able to support a greater diversity of services, trade, and related activity

(Hoover and Giarratani 1984) and thus increase the share of these sectors in the

local economy. If this is the case, then continued population growth in southeast

Alaska would be a major contributor to further development in currently underrepresented sectors.

Employment

By examining relative rates of employment growth in specific industries, the comparison between southeast Alaska and other regions can be drawn in greater detail.

Data are available for nonmetropolitan Oregon, so it is used as the comparator for

this portion of the analysis. Based on Oregon Employment Department annual

employment data available for counties at the 4-digit SIC level, the top 10 growth

industries are displayed in table 7 along with comparative rankings and shares for

southeast Alaska. Several high-growth industries in southeast Alaska, notably

restaurants, health services, and food stores, also display high rankings in Oregon.

Note, however, that both restaurants and health services constitute a considerably

smaller share of total employment in southeast Alaska. Although not displayed in

the table, declines in nonmetropolitan Oregon employment have been concentrated

in the wood products sector as they have in southeast Alaska.

Several high-growth industries in Oregon have contributed little or nothing 

to growth in southeast Alaska. Notable among these are business services and

electronics manufacturing. Both of these sectors are tied to advances in technology.

In the case of business services, several researchers have noted the tendency of

service providers to take advantage of advances in communications technology and

locate in rural areas, where local amenities may be higher and costs lower (Beyers

and Lindahl 1996). Electronics manufacturing is likely tied to the high-tech sector

that has emerged as a leading industry in Portland and is becoming more important

in other areas of the state. Given the economies of scale and information needs in 

the high-tech sector, it is doubtful that southeast Alaska can duplicate this sort of

performance any time soon. In the area of business services, there is perhaps a

greater opportunity for the region to foster telecommuting and entrepreneurial

activity based on advanced communications, but much of this will depend on the

ability of the region to provide adequate communication and transportation links,

25

Economic Growth and Change in Southeast Alaska
and on the overall attractiveness of the region to participants in this sort of footloose commerce.

Implications for Forest Policy

One important implication of the changes outlined in this report is that the ways

in which forest policy decisions affect rural southeast Alaska’s economy have

become, at the same time, both less direct and more complex. With the relative

decline in the timber sector, the traditional link through which forest policy affects

employment and earnings in the timber sector has become much less pronounced

in the region. To a certain degree, this situation is the recent result of forest policy

decisions that have reduced available timber. At the same time, however, it must 

be recognized that the timber employment levels prevalent in the late 1980s did

not constitute a permanent or even long-standing characteristic of the regional economy, and that market forces are equally important in determining activity in the

sector. These two points are evidenced by the fact that during the timber recession

of the early 1980s, timber employment levels were close to levels recorded for 1996,

and that sharp declines in the 1990s were preceded by even sharper increases in

the late 1980s. In the absence of significant increases in national forest timber

sales (and the market to support them), the ability of forest policy to further impact

the regional economy via the timber sector will be small.

26

GENERAL TECHNICAL REPORT PNW-611

Table 7—Top 10 private sector employment growth industries in nonmetropolitan 

Oregon (1981-95) and comparison with rural southeast Alaska

Oregon Oregon SE Alaska SE Alaska SE Alaska

Sector growtha shareb rank growtha shareb

--------Percent------- -----------Percent----------

1. Eating and drinking places 3 10 6 3 5

2. Business services 10 4 32 0 1

3. Health services 3 8 1 6 5

4. Social services 9 3 14 2 2

5. Electronics manufacturing 11 2 46 --c 0

6. Food stores 4 4 2 5 5

7. Special trade contractors 7 3 19 -1 1

8. General merchandise stores 5 3 55 -1 1

9. Engineering and management 

services 3 1 12 --c 1

10. Membership organizations 8 2 7 4 3

Note: Private sector excludes government employment. Southeast Alaska rankings are adjusted 

accordingly.

a Annual percentage of growth estimated by using logistic regression. 

b Share of total employment in 1996. 

c Unable to estimate owing to zero values in earlier periods.

Source: Oregon Employment Department, Alaska Department of Labor.
The focus then turns to the relation between forest policy and the other sectors

and income sources examined in this paper. Commercial fishing, particularly salmon

fishing, is widely believed to be negatively impacted by forest disturbances entailed

in timber harvest. The dynamics and extent of this relationship, however, are still

poorly understood, and the impact of forest policy decisions on fish catches is well

beyond the scope of this report. Moreover, the major sources of income growth in

the region are outside of the traditional resource industries of timber, fishing, or

mining. Hence, the question of how forest policy will impact the region’s economy

hinges on the relation between the forest and these increasingly important sources

of income. 

Tourism is recognized as a fast-growing component in southeast Alaska’s

regional economy, and an increasingly important economic role for the forest is its

ability to attract visitors to the region. This role can be viewed two ways. First is

the ability of the forest to supply specific settings in which recreation and tourism

activity can take place. Campgrounds, cabins, and trails are in this category.

Second is the general provision of natural amenities that provide a backdrop for

tourist and recreational activity and that may be the factor that influences visitors

to travel to southeast Alaska. Although the first function can be analyzed in terms

of specific and concrete management decisions (e.g., whether to build an access

road or campground), the second function involves the consideration of such intangible factors as aesthetic appreciation and personal values. These two functions may

be in conflict that escalates with the density of use in a given area of the forest.

Management aimed at fostering tourism-related activity and benefits on the forest

will increasingly have to consider conflicts between different visitor activities as

well as conflicts with other types of forest uses, such as resource extraction.

In assessing the links between forest management and local economic activity,

analysts, decisionmakers, and the public have generally stressed the influence of

management on specific industries such as timber or tourism. The results of the

current analysis, however, identify unearned income as a major driver of local economic activity, and the links between forest management practices and unearned

income receipts deserve more attention than they commonly receive. The ability 

of a region to attract new residents and retain current residents is a key factor in

securing unearned income, especially retirement benefits. In addition to other factors,

local natural amenities and recreational opportunities may be important considerations in people’s decisions to reside in a given place. The value of forest amenities

to southeast Alaska residents has been amply recognized in the past (USDA Forest

Service 1997), but with the growing importance of unearned income, the actual

links to local economic activity in the form of employment and income also need

to be recognized.

27

Economic Growth and Change in Southeast Alaska

Despite decline 

in the timber sector, 

forest policy still

affects the regional

economy.
Here again, increasing use will entail increased conflict. Different types of

local forest users may demand very different types of management. Whereas many

residents may prefer pristine settings, others, especially older residents, may desire

increased convenience and ease of access. Moreover, it must be recognized that

local residents will likely use the forest in very different ways than would out-ofstate visitors engaged in a rare or even once-in-a-lifetime trip to the region. An

added complication is that local residents will be more spatially specific in their

use of the forest, returning to favorite places and concentrating their activity in

locally accessible areas. Consequently, management decisions that degrade local

amenities either through resource extraction or by opening an area to tourism

activity can significantly impact the welfare of local residents, even if the aggregate impact is small or even positive. When viewed from the standpoint of local

economic vitality, as managers try to balance increasing demands for forest amenities and access by different groups, a key question will be, at what point do congestion and general development impact the residential decisions of potential and

current residents?

The influence of forest policy decisions also will extend beyond the provision

of specific forest amenities associated with a given location and impact the overall

character and attractiveness of the communities themselves. For example, policies

that stress tourism development over timber development will foster increased local

concentrations of tourist-related activity, activity that may or may not be desired by

local residents or potential residents. Additionally, forest policy may affect residential

decisions of unearned income recipients through its ability to impact overall local

economic growth; vital communities with sufficient local services will be more

attractive than communities in decline. And finally, to the extent that workers also

receive unearned income, forest policy will impact unearned income receipts

through direct and indirect impacts to employment in specific industries. Owing to

these various factors, the link between forest policy and local economic activity

must be seen as taking place through various and often indirect channels. Understanding and predicting the influence of these links on local employment and

income will be far more difficult than merely predicting activity levels resulting

from a given level of timber harvest and local processing.

Conclusion

This report has described and documented major economic changes occurring in 

rural southeast Alaska. On the whole, the results contain no major surprises. As a

result of cutbacks in timber harvest and, especially, processing in the 1990s, manufacturing employment and earnings experienced sharp declines during the same

28

GENERAL TECHNICAL REPORT PNW-611
period, declines that are clearly visible in aggregate statistics on earned and total

income. Over the long term, growth in other sectors, particularly services, has 

surpassed that in manufacturing, and hence the recent decline in manufacturing’s

share of total earned income merely accelerated a long-standing trend. Growth in

these other sectors cannot be explained solely as a result of increases in tourism

and recreation, but represent a general expansion in purchases by local residents

along with those of visitors. Although growth in employment and earned income

helped fuel this expansion, strong growth in unearned income sources, principally

retirement benefits and medical payments, was equally important, accounting for

half of the total expansion in personal income in the 1969-96 period.

Many of the changes occurring in rural southeast Alaska’s economy are reflections of broad-scale changes in the U.S. economy. The declining importance of

manufacturing and increases in services are two such changes, and the increasing

importance of unearned income is another. At the same time, however, the region’s

economic development diverges from that of the Nation in several important ways.

Growth in services has not kept pace with the national average, and many sectors

are still greatly underrepresented when compared to the national economy or that

of the nonmetropolitan Pacific Northwest.

Economic changes in the region have important implications for management

of the Tongass National Forest. Assuming no major rebound in the timber sector,

tourism is and will continue to be the major industry that can be directly impacted

by forest management decisions.5 With continued growth in the tourism sector, 

the importance of actively managing to benefit from tourism and recreation will

increase. Many of the links between forest policy and unearned income receipts

are similar to those between tourism and forest policy in that the provision of natural amenities and recreational opportunities is a major factor in the decisions of many

to both visit and to live in southeast Alaska. Here again, the major contribution 

forest management can make to local economic vitality will be to provide forestbased amenities and lifestyle benefits for local residents. Note, however, that the

desires of residents and visitors are not always compatible; the factors involved in

the attractiveness of a locality as a place to live are different and more complex

than those involved in its attractiveness as a place to visit. 

5 Commercial fishing also is an important industry with possibly strong links to forest 

management, links that must be considered in management decisions. However, as outlined 

earlier in this report, these links are neither direct nor well understood. In the immediate 

future, forest policy directed to the maintenance and promotion of fish populations will 

most likely be restricted primarily to constraints on management practices and development 

in order to minimize impacts to fish populations and their habitat.

29

Economic Growth and Change in Southeast Alaska

Many, but not all

changes in rural

southeast Alaska’s

economy are 

reflective of broadscale changes in 

the U.S. economy.
30

GENERAL TECHNICAL REPORT PNW-611

In the past, a major challenge for forest managers has been balancing commodity production and other forest uses. In the future, these other uses will dominate the benefits flowing from the forest more and more, and they will constitute

the principal driver for forest-related regional economic activity. This is not to say

that timber production need be completely absent, but its relative importance will

be greatly reduced both as a result of past declines in the sector and, equally,

increases in other sectors and uses. Here, the major challenge for managers will be

to maintain the ecological integrity and natural character of the forest while

accommodating the demands of different user groups, groups who view these

qualities as an important factor in their choice to visit or live in the region.

References

Beyers, W.B.; Lindahl, D.B. 1996. Lone eagles and high fliers in rural producer 

services. Rural Development Perspectives. 11(3): 2-10.

Force, E.F.; Machlis, G.E.; Zhang, L.; Kearney, A. 1993. The relationship

between timber production, local historical events, and community social

change: a quantitative case study. Forest Science. 39(4): 722-742.

Freudenburg, W.R. 1992. Addictive economies: extractive industries and 

vulnerable localities in a changing world economy. Rural Sociology. 57(3): 

305-332.

Galston, W.A.; Baehler, K.J. 1995. Rural development in the United States: 

connecting theory, practice and possibilities. Washington, DC: Island Press. 

353 p.

Harris, C.C.; McLaughlin, W.J.; Brown, G. 1998. Rural communities in the 

interior Columbia basin: How resilient are they? Journal of Forestry. 

96(3): 11-15.

Hoover, E.M.; Giarratani, F. 1984. An introduction to regional economics.

New York: Alfred A. Knopf. 444 p.

Humphrey, C.R. 1995. Introduction: natural resource-dependent communities 

and persistent rural poverty in the U.S.—Part 4. Society and Natural Resources.

8: 93-96.

North, D.C. 1955. Location theory and regional economic growth. Journal of

Political Economy. 63(3): 243-258.

U.S. Department of Agriculture, Forest Service. 1997. Tongass Land 

Management Plan revision, final environmental impact statement, Part 2. 

R10-MB-338b. Juneau, AK: Alaska Region. [Pages unknown].
31

Economic Growth and Change in Southeast Alaska

Sources Bureau of Economic Analysis, Regional Economic Information System.

200

180

160

140

120

100

80

60

40

20

0

Wrangell-Petersburg Earned

Unearned

Total

Personal income

(million 1995 $)

19691971197319751977197919811983198519871989199119931995

140

120

100

80

60

40

20

0

Pr. of Wales-Outer Ketchikan Earned

Unearned

Total

Personal income

(million 1995 $)

19691971197319751977197919811983198519871989199119931995

Personal income

(million 1995 $)

Personal income

(million 1995 $)

90

80

70

60

 50

40

30

20

10

0

Haines Earned

Unearned

Total

19691971197319751977197919811983198519871989199119931995

450

400

350

300

250

200

150

100

50

0

Ketchikan-Gateway Earned

Unearned

Total

19691971197319751977197919811983198519871989199119931995

900

800

700

600

500

400

300

200

100

0

Juneau Earned

Unearned

Total

19691971197319751977197919811983198519871989199119931995

120

100

80

60

40

20

0

Northern Boroughs Earned

Unearned

Total

19691971197319751977197919811983198519871989199119931995

250

200

150

100

50

0

Sitka Earned

Unearned

Total

19691971197319751977197919811983198519871989199119931995

Appendix 1: Southeast Alaska Income by Borough
32

GENERAL TECHNICAL REPORT PNW-611

Appendix 2: Southeast Alaska Industry Income Shares by Borough

Haines

30

25

20

15

10

5

0

1969

1990

1996

Forestry and

fishing

Mining

Construction

Manufacturing

Transportation and

public utilities

Wholesale trade

Retail trade

Finance, insurance,

and real estate

Service

Government

Industry share of income

(percent)

Ketchikan-Gateway

30

25

20

15

10

5

0

1969

1990

1996

Forestry and

fishing

Mining

Construction

Manufacturing

Transportation and

public utilities

Wholesale trade

Retail trade

Finance, insurance,

and real estate

Service

Government

Industry share of income

(percent)

Pr. of Wales-Outer Ketchikan

Wrangell-Petersburg

30

25

20

15

10

5

0

1969

1990

1996

Forestry and

fishing

Mining

Construction

Manufacturing

Transportation and

public utilities

Wholesale trade

Retail trade

Finance, insurance,

and real estate

Service

Government

Industry share of income

(percent) 60

50

40

30

20

10

0

1969

1990

1996

Forestry and

fishing

Mining

Construction

Manufacturing

Transportation and

public utilities

Wholesale trade

Retail trade

Finance, insurance,

and real estate

Service

Government

Industry share of income

(percent)

Sitka

45

40

35

30

25

20

15

10

5

0

1969

1990

1996

Forestry and

fishing

Mining

Construction

Manufacturing

Transportation and

public utilities

Wholesale trade

Retail trade

Finance, insurance,

and real estate

Service

Government

Northern Boroughs

40

35

30

25

20

15

10

5

0

1969

1990

1996

Forestry and

fishing

Mining

Construction

Manufacturing

Transportation and

public utilities

Wholesale trade

Retail trade

Finance, insurance,

and real estate

Service

Government

Juneau

70

60

50

40

30

20

10

0

1969

1990

1996

Forestry and

fishing

Mining

Construction

Manufacturing

Transportation and

public utilities

Wholesale trade

Retail trade

Finance, insurance,

and real estate

Service

Government

Source: Bureau of Economic Analysis, Regional Economic Information System.
33

Economic Growth and Change in Southeast Alaska

Chapter 2: Rural Manufacturing and the 

U.S. Wood Products Industry: Trends and

Influences on Rural Areas

Lisa K. Crone1

Abstract

Crone, Lisa K. 2004. Rural manufacturing and the U.S. wood products industry: trends and

influences on rural areas. In: Mazza, R., tech. ed. Economic growth and change in

southeast Alaska. Gen. Tech. Rep. PNW-GTR-611. Portland, OR: U.S. Department 

of Agriculture, Forest Service, Pacific Northwest Research Station: 33-71.

Demographic and economic trends from 1970 to 2000 are compared for rural southeast

Alaska, a composite of rural counties in Idaho and Montana, the borough of Juneau, Alaska,

and the United States. National and global trends that influenced manufacturing in the rural

United States in general, and the wood products industry in particular, also affected economic performance in the two rural areas over the past 30 years. Unique characteristics of

the Alaska forest products sector, which allowed it to survive the major market downturn of

the early 1980s, are discussed as are factors leading to its subsequent decline in the 1990s.

New sources of comparative advantage in the region are identified, and indicators of socioeconomic conditions at the community scale are analyzed within the broader context of

community resiliency in rural areas.

Keywords: Southeast Alaska, rural, economic trends, manufacturing, comparative

advantage, community resiliency.

Introduction

Historically, economic activity in rural southeast Alaska has been heavily reliant on

the extraction and primary processing of natural resources. As such, it is dependent

on conditions in the national and global economies. Globalization and changes in 

the markets for key Alaska products have increased this dependency. The resulting

changes in the regional economy have not been expressed uniformly among the communities of southeast Alaska. This chapter evaluates the economic changes taking

place in rural southeast Alaska, reviews the sources of these changes, and determines

if and why they differ from the changes occurring at larger scales. Because many of

the concerns expressed about the economic effects of forest policy and management

focus on rural areas, I also compare trends in rural southeast Alaska with those in

another rural and resource-abundant region.

I begin with a comparison of trends at the national, state, and regional level with

southeast Alaska further divided into two subregions: (1) the borough of Juneau and

(2) rural southeast Alaska, defined as everywhere other than Juneau. This is done 

1 Lisa K. Crone was a research economist, Pacific Northwest Research Station, Forestry

Sciences Laboratory, Juneau, AK. She is currently a planner/economist with Recreation 

Solutions, P.O. Box 1165, Troy, MT 59935.
34

GENERAL TECHNICAL REPORT PNW-611

not only because of Juneau’s relative size (42 percent of the population in southeast Alaska in 2000), but also because of the importance of state government

operations in its economy. Because of its size, Juneau tends to dominate aggregate

statistics for southeast Alaska, and its economic activity is often more reflective 

of trends within the state than of economic activity in the less populated areas of

southeast Alaska.

The other rural area chosen for comparison includes four counties in Idaho

(Adams, Boundary, Clearwater, and Idaho) and two counties in Montana (Mineral

and Sanders). This group of counties will be referred to as rural IdMt. They were

selected according to the following criteria: (1) the county population was less than

16,000 in 2000, (2) the county was not adjacent to a metro area (as defined by the

Economic Research Service in Cook and Mizer 1994), (3) at least 8 percent of

county employment was in the wood products sector in 1995, (4) the county was

not farming dependent (as defined by the Economic Research Service in Cook and

Mizer 1994), and (5) National Forest System lands make up at least 50 percent of

the county’s land area. These criteria were used because they are representative of

conditions in rural southeast Alaska.2

A Comparison of Trends—Population, 

Personal Income, and Earnings

Comparisons at the scales mentioned above are carried out for population, income, 

and earnings for the years 1969-2000 by using Bureau of Economic Analysis (BEA)

Regional Economic Information System (REIS) data (U.S. Bureau of Economic

Analysis 2002). The population estimates are based on data from the Bureau of the

Census. Changes in population and demographics can be useful in describing past

and potential economic growth. Figure 6 displays trends in population growth for

the five areas from 1969 through 2000, indexed to 1969. The use of an index allows

for comparisons of changes between areas on a relative scale rather than in absolute

magnitudes.

Population

The U.S. population has grown at a fairly steady average annual growth rate of

about 1.1 percent from 1969 to 2000. Over the same period, the Alaska population

grew at an average annual growth rate of 2.5 percent. Population change is made

up of two components: natural increase (births minus deaths), and net migration,

which is inmigration (people moving into the region) minus outmigration (people 

2 None of the counties in Oregon or Washington met all of these criteria.
35

Economic Growth and Change in Southeast Alaska

moving out of the region). In general, the higher the level of gross migration (the

sum of inmigration and outmigration), the more unstable the population. Although

natural increase has been fairly stable in Alaska, the state has, on average, the third

highest gross migration rate in the country. Changes in net migration in Alaska

have been influenced more by changes in inmigration than changes in outmigration. The state experienced increased growth rates followed by decreased growth

rates associated with the construction of the trans-Alaska pipeline from 1973 to

1975 and the construction and infrastructure development from 1980 to 1985 arising from a combination of state spending based on oil revenues, major federal

expenditures, and private development (Alaska Department of Labor, Research

and Analysis 2000). The strength of the Alaska economy relative to the continental

United States, especially the Pacific and Mountain regions, is a major influence on

migration to and from Alaska. In contrast to the early to mid 1980s, the 1990s were

characterized by net outmigration caused by a smaller military presence in the

state, a strong national economy, and a slowing of the Alaska economy because of

0.5

1

1.5

2

2.5

1969 1974 1979 1984 1989 1994 1999

Year

Population growth (percent, 1969=1)

US

AK

Juneau

Rural SEA

Rural IdMt

Figure 6—Population trends for the United States, Alaska, Juneau, rural southeast Alaska, and rural IdMt, 1969-2000,

indexed to 1969 (U.S. Bureau of Economic Analysis 2002).

Strength of Alaska’s

economy relative 

to that of the Nation

influences migration 

to and from the state.
36

GENERAL TECHNICAL REPORT PNW-611

decreased oil, mineral, fish, and timber production. As the population of the state

has increased over time, however, the number of migrants has grown smaller relative to the base population. This has decreased the influence of net migration

and increased the influence of natural increase on population change leading to

more stable (although slower) population growth in the state.

Juneau experienced basically the same growth patterns as the state from 1969

to 2000, with the exception of higher rates of increase and decrease associated

with the increases in state spending from 1980 to 1985. Rural southeast Alaska

also has followed the same increasing and decreasing trends, but since 1996 has

experienced annual decreases in population. Rural IdMt had generally positive

growth rates until the mid-1980s, after which the area had negative annual rates of

growth for the next 5 years. The population began to increase in 1990 with annual

growth rates around 2 percent; this continued through the mid-1990s. Since 1996,

annual growth rates in this area have been less than 1 percent.

Personal Income

Total personal income is an estimate of the total income received in an area by 

all individuals who live in the area. As defined by the BEA, it includes wage and

salary income; other labor income; proprietor income; personal dividend, interest,

and rental income; and transfer payments. Transfer payments include such things

as retirement and disability insurance benefits, medical payments (mainly Medicare

and Medicaid), unemployment insurance benefits, veterans’ payments, and federal

grants and loans to students. In Alaska, a large component of transfer payments is

the yearly payment all residents receive from the Alaska Permanent Fund. Figure 

7 displays trends in total personal income (converted to 1995 dollars by using the

Bureau of Labor Statistics consumer price index as a deflator) for the five areas

from 1969 through 2000. Again, 1969 is used as an index year to allow relative

comparisons across the regions.

Compared to population changes, total personal income changes in the United

States have varied more and generally reflect the expansions and contractions of

the U.S. business cycle, as determined by National Bureau of Economic Research

economists (National Bureau of Economic Research, Inc. 2003). The average annual

rate of change from 1969 to 2000 was 2.5 percent; the minimum annual rate of

change, -1.7 percent, occurred in 1980, and the maximum of 6.3 percent occurred

in 1984. Total personal incomes in Alaska and Juneau also were more variable but

generally followed the same trends as population in these areas. Both areas experienced their largest annual rates of increase in total personal income in 1975 (25.3

percent for Alaska and 17.1 percent for Juneau) during the trans-Alaska pipeline 
37

Economic Growth and Change in Southeast Alaska

construction period. Alaska experienced its largest average annual decrease (-6.4

percent) in personal income in 1988, whereas the largest decrease (-5 percent) for

Juneau took place in 1979. The average annual rates of change in total personal 

income over the entire period for Alaska and Juneau were 3.1 and 3 percent,

respectively.

Much of the variation in personal income in rural southeast Alaska can be

explained by changes in the wood products and fishing sectors. For example, the

decreases in 1975, 1981, and 1984 all occurred in years of decreased timber harvest.

The decrease in 1987 coincided with a 29-percent decrease in gross salmon fishing

revenues in southeast Alaska. Timber harvests in southeast Alaska have generally

decreased since 1992, and gross fishing revenues have generally decreased since

1994. A similar relationship between earnings in the wood products sector and total

personal income existed in rural IdMt from 1978 to 1990. During this period there

was a significant and positive relationship between wood products earnings and

total personal income, with 93 percent of the variation in total personal income

explained by variation in earnings in the wood products sector. After 1990, this

0.5

1

1.5

2

2.5

3

1969 1974 1979 1984 1989 1994 1999

Year

Total personal income growth (percent, 1969=1)

US

AK

Juneau

Rural SEA

Rural IdMt

Figure 7—Total personal income trends (1995 dollars) for the United States, Alaska, Juneau, rural southeast Alaska,

and rural IdMt, 1969-2000, indexed to 1969 (U.S. Bureau of Economic Analysis 2002).
38

GENERAL TECHNICAL REPORT PNW-611

relationship no longer existed; wood products earnings have followed a decreasing

trend whereas personal income has followed an increasing trend. An examination

of changes in the components of personal income provides insight into the cause of

this reversal.

In chapter 1 of this report, Robertson defines and discusses the important distinction between earned income (earnings) and unearned income (dividends, interest,

rent, and transfer payments). He notes that unearned income, although less visible,

has become an increasingly important source of income in many rural areas. (See

Niemi and Whitelaw 1997, Power 1996, Rasker 1995, and Southwick Associates

2000 for studies that have documented this trend.)

Table 8 displays changes in the components of personal income over time for the

five areas and clearly reveals the increasing share of unearned income at all scales.

The most dramatic increases have occurred in the two rural areas where unearned

income increased as a percentage of total income by 24 percent between 1970 and

2000. The aging of the population has been cited as a major factor in this change.

Table 8—Comparison of total personal income components (U.S., 

Alaska, Juneau, rural southeast Alaska, rural IdMta)

Share change 

1970 1980 1990 2000 1970-2000

Percentage of total personal income Percent

Earnings:

U.S. 77 71 68 69 -8

Alaska 88 85 74 67 -21

Juneau 85 84 72 67 -18

Rural SE Alaska 86 82 71 62 -24

Rural IdMt 79 70 59 54 -25

Dividends, interest, 

and rent:

U.S. 14 16 20 18 4

Alaska 7 10 15 17 10

Juneau 10 11 19 20 10

Rural SE Alaska 6 11 18 20 14

Rural IdMt 11 16 21 22 11

Transfer payments:

U.S. 9 12 12 13 4

Alaska 4 6 11 16 12

Juneau 4 4 9 13 9

Rural SE Alaska 7 7 11 18 11

Rural IdMt 10 13 19 23 13

a IdMt = Idaho and Montana.

Source: U.S. Bureau of Economic Analysis 2002.
39

Economic Growth and Change in Southeast Alaska

Changes in economic structure have also been linked to this phenomenon. I now turn

to a closer examination of these structural changes.

Earnings

The BEA provides estimates of total earnings (by place of work) as well as earnings

by industry for the Nation, individual states, and individual counties, boroughs, and

census areas. Unfortunately, in the smaller counties and boroughs, much of the

information for specific industries is unavailable because of disclosure rules

designed to protect the privacy of individual firms. For this reason, I aggregate

industries into the following five categories: manufacturing, services, retail trade,

government, and “other.” Table 9 provides a comparison of the share of total earnings accruing to each of these aggregates over time for the five areas.

A common trend in all areas is the increase in the share of earnings in the service

sector. This sector includes a variety of businesses including hotels and other lodging

places; establishments providing personal, business, repair, and amusement services;

health, legal, engineering, and other professional services; educational institutions;

membership organizations; and other miscellaneous services (U.S. Department of 

Labor, Occupational Health and Safety Administration 2003). Increased demand for

health, recreational, and other services has come from increases in population and

incomes. Within the service sector, health care and social services have experienced

rapid growth owing largely to increased demand as the population ages. In Alaska,

the demand for in-state specialized health care has also contributed to expansion of

health care services and facilities (Baker 2001). Another major factor in service-sector

growth has been technology. Information and communication technology, such as the

Internet, now allow many services to be provided without personal contact to a wider

market and with lower production and distribution costs.

Travel and tourism is a service business with particular importance in Alaska

and in the specific areas studied—Juneau, rural southeast Alaska and rural IdMt—

where natural amenities are high. Naisbitt (1994) has suggested that “three service

paradigms” will drive the service-led economies in the future—telecommunications, information technology, and travel and tourism. Bosselman et al. (1999: 1)

list the chief reasons for the dramatic growth in tourism as:

. . . increased wealth (especially the emergence of larger middle classes);

changed demographics (an increase in the number of retired persons 

with additional time to travel, especially in the developed countries);

greater mobility (increased car ownership); transportation improvements

(especially the increased size and number of larger airplanes, combined

with the reduced cost of travel); technological changes (improved communications); and maturation of the tourism industry.
40

GENERAL TECHNICAL REPORT PNW-611

Another common trend in all areas, except Juneau,3 is the decrease in the share

of earnings in the manufacturing sector. This trend has been linked to the industrial

restructuring from a goods-producing to a service-based economy in what has been

called the “new economy.” In this context, service-producing industries are defined 

3 Juneau’s manufacturing sector over the entire period has always been very small, and 

increased from 1 to 2 percent between 1990 and 2000 owing to the startup of a single firm, 

the Alaska Brewing Company.

Table 9—Comparison of industry income shares (U.S., Alaska, Juneau,

rural southeast Alaska, rural IdMta)

1970 1980 1990 2000 1970-2000

Percentage of nonfarm earnings by place of work Percent

Manufacturing:

U.S. 27 25 19 16 -11

Alaska 6 7 6 4 -2

Juneau 1 1 1 2 1

Rural SE Alaska 33 31 27 13 -20

Rural IdMt 31 39 30 19 -12

Services:

U.S. 16 19 26 29 13

Alaska 10 14 18 22 12

Juneau 9 13 12 17 8

Rural SE Alaska 8 9 12 20 12

Rural IdMt 9 11 11 18 9

Retail trade:

U.S. 11 10 9 9 -2

Alaska 8 8 8 9 1

Juneau 6 7 8 9 3

Rural SE Alaska 7 7 8 10 3

Rural IdMt 10 9 10 9 -1

Government:

U.S. 19 18 18 16 -3

Alaska 44 35 36 32 -12

Juneau 63 57 60 49 -14

Rural SE Alaska 24 27 25 31 7

Rural IdMt 21 25 31 32 11

Other:b

U.S. 27 29 28 31 4

Alaska 32 37 33 33 1

Juneau 21 23 18 24 3

Rural SE Alaska 27 26 28 26 -1

Rural IdMt 29 17 18 22 -7

a IdMt = Idaho and Montana.

b Includes agricultural services, forestry, fishing, and other; mining and construction;

transportation, public utilities, and communications; wholesale trade; and financial 

services, insurance, and real estate.

Source: U.S. Bureau of Economic Analysis 2002.
41

Economic Growth and Change in Southeast Alaska

more widely to include all economic activities not directly associated with the manufacture of goods, construction, agriculture, forestry, fishing, energy, and nonenergy

mining. According to Summers (2000), a fundamental aspect of this new economy

is “the move from an economy based on the production of physical goods to an

economy based on the production and application of knowledge.” The leading

sector in this new economy is information technology. This sector and efficiencies

resulting from its use in other industries, along with the globalization of business,

have been credited for the U.S. economic expansion during the 1990s. 

Because many of the most valuable products in the new economy, such as

computer software and technologies, require few raw material inputs, the industrial

economy is becoming decoupled from the primary products (raw materials) 

economy (Drucker 1986). Another trend is the decoupling of industrial economy

employment from production as increased technology and computerized production

have decreased the demand for labor in the manufacturing sector. 

Globalization of the markets for coal, timber, and agricultural products has

decreased prices and reduced employment in local economies reliant on extractive industries (McLaughlin 2002). In order to compete in global markets or take

advantage of rapid technological change, firms have to move quickly (Shepard

1997). Certain rural areas, such as the U.S. South, experienced economic growth

as a result of these trends as manufacturing plants shifted production to rural areas

in search of cheaper labor and land. Other manufacturers have responded to globalization by seeking even cheaper labor and land and fewer environmental restrictions overseas (Gilbertsen 2002, McLaughlin 2002). On the subject of capital

investment in the global economy, Weber (1997: 77-78) writes:

Developing countries already contain 80 percent of the world’s 

population, and almost all net growth in the global labor force over 

the next 30 years will take place in the South (developing countries).

Capital and labor seek each other out, which implies either migration 

of workers from South to North or capital flows from North to South. 

. . . The stark truth is that most political forces North and South prefer 

capital flows to immigration, so this solution is likely to grow, . . .

Table 9 also reveals that while the share of earnings in the government sector

has decreased for the United States, Alaska, and Juneau, the share has increased in

the two rural areas. This may be due to several factors including contraction of the

military in the Nation and Alaska, the higher costs of providing government services

in the sparsely populated rural areas, a higher proportion of employees in government agencies serving Alaska Natives owing to the higher proportion of Alaska

Natives in rural southeast Alaska, the higher proportion of personal income coming

The government

sector grew in two

rural areas while

declining at other

scales.
42

GENERAL TECHNICAL REPORT PNW-611

from transfer payments in the rural areas, and a higher proportion of public land

management employees owing to the higher proportion of public land in the rural

areas.

Examining changes in nonfarm earnings in response to national business

cycles provides further insight into the functioning of economies. Table 10 provides

a comparison of the average annual rates of growth in nonfarm earnings during

national expansions and recessions for the five areas, as well as average annual

rates of growth in individual sectors for rural southeast Alaska.

Table 10 reveals that, in general, the Alaska and Juneau economies have not

followed the business cycles of the United States, and during most cycles appear to

operate in a countercyclical manner. The reasons for this were discussed above in

the population and personal income sections. On the other hand, until recently, the

rural areas did appear to be heavily influenced by national business cycles. Rural

IdMt was most impacted during the 1980-82 recession. Rural southeast Alaska

experienced its largest positive annual growth rates during the 1972-73 expansion,

followed by its largest negative annual growth rates during the recession of 1974-

75. After enjoying a 2 percent average annual growth rate during the expansion of

1983-89, rural southeast Alaska suffered negative average annual growth rates

during the recession of 1990-91.

Much of the susceptibility of the rural economies to national business cycles

can be traced to their manufacturing sectors. Weber (1997) has argued that service

Table 10—Business cycle response: average annual growth rates in nonfarm earnings during 

expansions and recessions

Expansions Recessions

Areas 1972-73 1976-79 1983-89 1992-2000 1970-71 1974-75 1980-82 1990-91

Percent Percent

U.S. 4.3 3.4 3.7 3.2 2.5 -2.1 -1.0 -1.3

Alaska 3.9 -9.8 -1.1 -.2 5.7 36.0 7.0 1.1

Juneau -.3 1.6 -2.5 0 11.7 20.3 5.3 3.3

Rural SE Alaska 10.0 2.5 2.0 -2.5 5.0 -11.2 -2.9 -3.8

Rural IdMta .6 1.7 1.1 1.0 4.7 -2.4 -14.5 -1.6

Rural SE Alaska: 

Manufacturing 12.0 1.9 5.6 -9.7 -3.8 -16.3 -12.9 -11

Retail trade 10.9 1.0 -.4 -.5 10.1 -19.6 6.3 1.0

Services 5.9 7.8 3.9 3.0 11.2 -7.3 7.8 2.6

Government 2.7 3.0 -.9 -1.2 12.2 7.2 3.7 1.7

Other 13.4 1.4 1.5 1.0 5.2 -22.3 -6.5 -6.5

a IdMt = Idaho and Montana.

Source: U.S. Bureau of Economic Analysis 2002.

Rural economies 

followed the 

national business

cycle; Alaska and

Juneau economies

ran countercyclical

to it.
43

Economic Growth and Change in Southeast Alaska

employment is less cyclical than employment in manufacturing. This is because it

is difficult to build up or run down stocks of intangible goods or alter the rate at

which services can be provided. Additionally, government services tend to be

countercyclical and in greatest demand during recessions. Weber reports that during the 1990-91 recession, American, Japanese, and German manufacturing output

dropped 3.4 percent, 13.5 percent, and 11 percent respectively, while their output

of services dropped 0 percent, 2 percent and 0.2 percent, respectively. Table 10

shows that government sector earnings in rural southeast Alaska increased during

every national recession, even in 1974-75 when all other sectoral groups experienced negative growth rates. Except for the 1974-75 downturn, service sector 

earnings in rural southeast Alaska grew over all periods. The manufacturing sector

in rural southeast Alaska experienced negative average annual growth rates during

all of the U.S. recessions, with the largest negative growth rate in the 1974-75

recession.

History of Rural Manufacturing, Wood Products

Industry, and Rural Southeast Alaska and Rural 

IdMt Economies

The apparent influence of the manufacturing sector on changes in nonfarm earnings

in rural southeast Alaska warrants a closer look at the history of this sector. To

better understand oscillations in this sector, it is important to place this examination

within the context of rural manufacturing in general and wood products manufacturing in particular.

1940-1970

During World War II, many factories were moved to or newly built in rural areas

away from the eastern and western coasts of the United States, both to avoid

potential attack and to support the war effort (Roth 2000). In 1942, the Roosevelt

administration established the Alaska Spruce Log Program, operated by the USDA

Forest Service and financed by the Commodity Credit Corporation, to supply

Boeing Aircraft Co. in Seattle with spruce wood from Alaska forests for airplane

manufacture (Rakestraw 1981).

After World War II, the dispersal of manufacturing to rural areas increased as

improvements in agricultural productivity during the 1950s and 1960s created a

large pool of surplus labor in rural areas. This source of low-cost labor along with

cheap land, relatively relaxed regulations, weak or nonexistent unions, lower taxes,

and often government incentives and subsidies enticed many manufacturers to move

to rural America (Galston and Baehler 1995, Roth 2000). Although the federal
44

GENERAL TECHNICAL REPORT PNW-611

government promoted the idea of rural industrialization in the 1950s, it wasn’t until

the Kennedy and Johnson administrations that it invested billions of dollars in loans

and grants to stimulate industrial development in poor rural areas (Roth 2000). 

In rural southeast Alaska, the national boom in housing construction and a

newsprint shortage following World War II provided the impetus for the development of a pulp and wood products industry. The development of this industry was

touted as a means to promote economic growth, provide year-round employment,

and stabilize and increase populations in the region. Because only 50 percent of the

region’s overmature forest would meet sawmill standards, most believed a viable

wood products sector hinged on the development of a regional pulp industry. Champions of this development strategy for rural southeast Alaska included the Alaska

Regional Forester B. Frank Heintzelman, statehood proponents, both the U.S. State

Department and the Department of Defense, and President Truman (Haycox 1990,

1997; Smith 1975). In order to attract the necessary large-scale investment to this

remote and high-cost region, the Tongass Timber Act of 1947 authorized the construction of pulp mills in the forest and the use of 50-year timber sale contracts to

supply their multiproduct wood processing operations. 

In 1951, Ketchikan Pulp Company (KPC) was awarded a 50-year contract for

cutting rights to approximately 8.25 billion board feet (BBF) of timber. The company

built a pulp mill in Ketchikan and also operated sawmills in Ketchikan and on

Annette Island. In 1957, a Japanese-owned company, Alaska Lumber and Pulp

Company (APC), signed a 50-year contract for cutting rights to 5.25 BBF of timber.

Originally, the Japanese investors wanted to use their own Japanese workers to

harvest the timber and ship logs directly to mills in Japan. The U.S. immigration

policy and a Forest Service policy requiring that primary manufacturing occur in

Alaska4 caused them to change these plans, and instead, build a pulp mill in Sitka

and take over the operation of a sawmill in Wrangell (Tussing et al. 1968). Prices

for the first 10 years of the KPC contract were $0.85 per cord of pulp, $3 per thousand board feet (MBF) for spruce (Picea spp.), $1.50 per MBF for cedar (Chamaecyparis

nootkatensis or Thuja plicata), and $2 per MBF for hemlock (Tsuga spp.) and other

log species. Stumpage prices were similar in the APC contract (Garrett and Dykstra

1988). The two pulp mills were designed to produce bleached-sulfite dissolving 

4 In 1926, Congress prohibited the export of round logs from the Tongass National Forest. 

U.S. Congress, Act of April 12, 1926, Exportation of Timber, P.L. 69-100. Ch. 117; 44 Stat. 

242, as amended; 16 U.S. C. 616, 617. Harvests from Alaska Native lands are not subject to 

this log export ban.

The national 

housing boom and 

a paper shortage

after World War II

provided the 

impetus for Alaska’s

timber industry.
45

Economic Growth and Change in Southeast Alaska

pulp, which is used to produce synthetic cellulose fibers (rayon and acetate), cellophane films, and polymers, such as cellulose acetate, rather than pulp for newsprint

as originally envisioned by Heitzelman, Senator Homer Capehart, and other early

Alaska pulp development proponents.5

Thus, although the surplus of cheap labor was not part of the draw for the pulp

companies, they were granted subsidies in the form of a guaranteed 50-year supply

of cheap timber. In addition, the companies were granted exemptions from state and

local taxes under the Alaska Industrial Incentive Act of 1957 (Tussing et al. 1968).

Rogers (1960) described the construction of these new plants, arising mainly from

the primary manufacturing requirement, as a gross misallocation of capital and

labor resources from a national economic standpoint. Yet, as a policy-induced rural

development strategy, their construction made sense. Some consequences of this

particular strategy will be discussed shortly.

The 1970s

Manufacturing employment in the rural United States, rural southeast Alaska, and

rural IdMt peaked in 1974 and then fell during the oil-shock-induced recession of 

1974-75.6 Employment also dropped in the U.S. lumber and wood products and

pulp and allied paper sectors during this period as U.S. housing starts declined

about 50 percent between 1973 and 1975 (Flora et al. 1991). Japan was hit hard by

the oil shock as a 400-percent increase in oil prices led to decreased production for

the first time since World War II. Japanese housing starts decreased by 19 percent

between the first quarter of 1974 and the first quarter of 1975 as a result of the

higher cost of living, a decrease in home loans, and rapidly increasing land prices

after 1973 (Flora et al. 1991). Because Japan was the primary export market for

Alaska forest products, employment in logging, lumber, and pulp also fell in 1974, 

as displayed in figure 8. Lumber and wood products earnings in rural IdMt fell 10

percent between 1973 and 1975.

In the U.S. expansion from the end of 1975 to 1979, manufacturing employment

in the rural United States increased 18 percent to a new peak. By 1979, 44 percent 

5 Capehart was the chairman of a subcommittee investigating the newsprint shortage in 

1947 (Smith 1975).

6 All manufacturing employment data in this section, unless otherwise noted, are from U.S. 

Bureau of Economic Analysis (2002). All U.S. employment in the lumber and wood products 

and pulp and allied paper industries data, unless otherwise noted, are from U.S. Department of 

Labor, Bureau of Labor Statistics (2003). All Alaska logging, sawmill, and pulp employment 

data, unless otherwise noted, are from Alaska Department of Labor, Research and Analysis 

(2002), and all lumber and wood products earnings data for rural IdMt are from U.S. Bureau 

of Economic Analysis (2002).
46

GENERAL TECHNICAL REPORT PNW-611

of all rural residents lived in counties dominated by manufacturing (Carlin 1987).

In rural southeast Alaska, manufacturing employment increased 25 percent

between 1975 and 1980, whereas in rural IdMt, manufacturing employment

increased 14 percent between 1975 and 1978 before declining. Between 1975 and 

1979, industrial production in the United States and Japan increased by 36 percent

and 45 percent respectively, and housing starts in the United States increased by

73 percent. Japanese wood housing starts had peaked in 1973, which was the first

year that the number of houses surpassed the number of households and signaled

the end of the postwar rebuilding. Since that time, the number of Japanese wood

housing starts has been following a generally declining trend. 

The U.S. lumber and wood products employment increased 25 percent between

1975 and 1979, while paper and allied products employment increased 10 percent.

The growth in the Japanese economy and an increase in the value of the yen fueled

an increase in the demand for North American wood products exports. Lumber

employment in Alaska increased 43 percent between 1975 and 1980 to reach its

alltime high. Pulp employment in Alaska increased 4 percent between 1975 and

1977 to reach its alltime high but then decreased 17 percent between 1977 and

0

500

1,000

1,500

2,000

2,500

1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

Year

Employment, average annual

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Total forest sector employment, average annual

Pulp

Logging

Lumber

Total

Figure 8—Employment in Alaska’s timber harvesting and wood products industries, 1964-1996 (Alaska Department

of Labor, Research and Analysis 2002).
47

Economic Growth and Change in Southeast Alaska

1980. Logging employment in Alaska fluctuated up and down by as much as 23

percent over the period, and in 1980 was 3 percent lower than in 1975. Lumber

and wood products earnings in rural IdMt increased 41 percent between 1975

and 1978, reaching their alltime high.

The 1980s

The recession years of 1980-82 had a severe impact on rural manufacturing.

Describing this period Galston and Baehler (1995: 126-127) write,

The back-to-back recession years of the early 1980s, combined with large 

trade deficits, debilitated U.S. manufacturers everywhere, but especially

those in rural areas. Overall unemployment rates rose two percentage

points more in rural areas than in urban areas between 1979 and 1982. 

During the same period, while the national employment rate remained 

level, employment in rural manufacturing dependent counties fell 5.6 

percent. Every state in the Union except Nevada and Rhode Island lost 

rural manufacturing jobs in those recession years.

Manufacturing employment in the rural United States decreased 12 percent

between 1979 and 1982, and did not recover to its 1979 level until 1989. In an

attempt to control inflation in the early 1980s, U.S. policymakers increased both

interest rates and the value of the dollar (Galston and Baehler 1995). High interest

rates in the United States radiated to other industrial countries, such as Japan (Flora

et al. 1991). The combination of higher interest rates and increased value of the

dollar relative to other currencies decreased the demand for U.S. exports and affected

rural areas more because they had disproportionately more employment in the

goods-producing industries and were more export dependent than urban areas

(Hamrick 1997). Although rural manufacturing employment was less than 30 percent of total manufacturing employment, nearly half of the losses in manufacturing

employment between 1979 and 1987 had come from rural areas, with remote and

sparsely populated rural counties hit hardest (Roth 2000).

Manufacturing employment decreased by 33 percent in rural southeast Alaska

between 1980 and 1984, and it wasn’t until 1988 that it rose above its 1980 level.

In rural IdMt, manufacturing employment decreased 27 percent from its high in

1978 to a low in 1982. In 1990, it was still only 84 percent of its 1978 level. The

U.S. forest products sector suffered as high interest rates reduced U.S. housing

starts in 1982 to their lowest level since 1946 (Galston and Baehler 1995). The

high value of the dollar decreased lumber exports. Lumber and wood products

employment in the United States decreased 22 percent between 1979 and 1982

High trade deficits

negatively affected

rural manufacturing

employment.
48

GENERAL TECHNICAL REPORT PNW-611

reaching its lowest level in the past 50 years, but recovered to its 1979 level by

1989. Employment in the U.S. paper and allied products industry decreased 6 percent between 1979 and 1983 but increased to 98 percent of its 1979 level by 1988.

Employment in Alaska’s lumber industry decreased 73 percent between 1980

and 1986, and in 1991 was still only 73 percent of its 1980 high. One southeast

Alaska mill was shut down from 1984 to 1988, and two others were closed from

1985 to 1987. This decrease in production was due to both decreased Japanese

demand for lumber imports and the increased competition Alaska encountered in

this export market. Haynes and Brooks (1990: 6) wrote,

In the mid-1970s lumber producers in the Pacific Northwest began to

look beyond the United States for markets; this was a response to longterm trends in U.S. markets and an effort to find outlets for products 

during U.S. recessions. At the same time and for similar reasons, 

producers in British Columbia also increased shipments to overseas 

markets. ... Alaska’s share of North American softwood lumber exports 

to Japan fell from 42 percent in 1972 to 6 percent in 1985.

Alaska pulp employment decreased 42 percent between 1980 and 1984 and 

by 1989 was still only 78 percent of its 1977 high. Logging employment in Alaska

decreased 27 percent between 1980 and 1984, but by 1990 had increased to 151

percent of its previous high in 1974. This was primarily due to private harvests on

Alaska Native lands. As part of the Alaska Native Claims Settlement Act (ANCSA)

of 1971, Alaska Native corporations were allowed to select lands from the national

forests, and by 1980 about 900,000 acres had been reassigned (Flora et al. 1991).

Native corporations were not subject to the ban on log exports and decided early

on to cut their high-quality, easily marketed timber as quickly as possible (Erickson

2000). Their primary output was softwood log exports to the Pacific Rim, which

increased sharply in 1979, and except for 1984 continued to increase every year 

of the 1980s despite declining export prices from 1979 until 1985 (Garrett and

Dykstra 1988). Private harvests in Alaska climbed from 125 million board feet

(MMBF) in 1979 to a peak of 672 MMBF in 1990 (Brooks and Haynes 1994).

In rural IdMt, earnings in the wood products sector decreased 56 percent

between 1978 and 1982 and then increased 70 percent by 1989, but only reached

74 percent of its 1978 high.

The Irland Group (1991) attributes the rebound of the Alaska forest products

sector in the late 1980s to four factors: the declining dollar-yen exchange rate; the

strong world pulp market; a stabilization of the dissolving pulp market; and the
49

Economic Growth and Change in Southeast Alaska

strong peak in log exports, which boosted logging jobs. The Irland Group saw the

shift in lumber milling from cants to surfaced lumber as a positive move. However,

even with these favorable trends and a high lumber demand, the Alaska industry

operated below capacity. The authors argue that if the increased production and

employment of the late 1980s were caused by an improvement in southeast Alaska’s

competitive position, at least one of the following should have occurred: recruitment of new entrants into sawmilling, a shift from logs in the product mix, strong

capacity expansion in pulp, or forward integration toward value-added products in

either pulp or lumber. None of these occurred.

In the Pacific Northwest and other wood-producing regions, it was a different

story. During the recession of the early 1980s, many lumber and wood products

plants laid off workers or closed outright. Companies went bankrupt, merged, or

were bought out. In 1968, Oregon had 300 sawmills, but by 1988 there were only

165 mills. The number of sawmills in Washington fell from 182 in 1978 to 118 in

1988, while the number of wood processing operations (including veneer and plywood, pulp, shake and shingle plants, and others) fell from 764 in 1978 to 351 in

1988. The recession sped up trends already at work in the industry, with companies

that survived the recession investing in cost-cutting and efficiency measures for

their plants. The result was a more efficient industry that employed fewer, more

productive workers (Conway and Wells 1994, Greber 1993).

Between 1979 and 1989, lumber and wood products employment decreased 19

percent in Oregon and Washington even though timber harvests increased 4 percent.

Conway and Wells (1994) attributed the job losses to four factors: closure of older

inefficient mills, improved skills of workers, layoffs, and increased capital investment in manufacturing technology. They believed these job cuts were necessary for

the industry to survive and cited Greber (1993) who wrote, “What would have been

the fate of the timber industries in the region had productivity changes not occurred?

Simply put, job displacement in the Pacific Northwest would likely have been

accelerated had producers not improved efficiency.” Similarly, in Idaho, timber

harvests were 6 percent higher in 1989 than in 1979, but lumber and wood products

employment was 22 percent lower and earnings were 32 percent less in real terms

(Niemi and Whitelaw 1995). In Montana, wood products output was higher in 1986

than in 1979, but 2,400 fewer people were employed (Corporation for Enterprise

Development 1989). Savage (1990) estimated that when a lumber mill retools,

employment decreases 20 to 25 percent on average. However, in one Montana mill,

output per worker increased by 98 percent between 1978 and 1988 owing largely

to mechanization (Heffner et al. 1989). The General Accounting Office (1990)

Economic recession

accelerated trends

already present in

the timber industry.
50

GENERAL TECHNICAL REPORT PNW-611

estimated that even if timber harvests across the Nation increased by 55 percent

between 1990 and 2040, timber industry employment would still decrease by 

27 percent owing to mill mechanization.

The 1990s

Manufacturing employment in the rural United States increased modestly by 3 

percent between 1990 and 2000. This increase occurred primarily in the interior

regions of the country (Great Lakes, Plains, and Rocky Mountain BEA regions),

with rural manufacturing jobs actually declining in the Nation’s coastal regions

(New England, Mideast, Southeast, and Farwest BEA regions) in the 1990s

(Wilkerson 2001). In rural IdMt, manufacturing employment decreased 13 percent

over the same period, while in rural southeast Alaska, employment in this sector

decreased dramatically by 43 percent. The root causes of this drastic decline in

rural southeast Alaska are outlined next.

In southeast Alaska, the integrated pulp mill operators were able historically

to offset losses during low points in the pulp market with the higher revenues they

received when markets improved (USDA Forest Service 1994). In the 1990s, however, this ability disappeared for several reasons. First, the Tongass Timber Reform

Act (TTRA) of 1990, passed in response to concerns about the environment and

below-cost timber sales, revised the long-term contracts to make timber sales

authorized under these contracts more consistent with independent timber sales in

terms of planning, management requirements, and environmental assessment 

procedures.7 The Alaska National Interest Lands Conservation Act (ANILCA)

of 1981 had set aside 5.4 million acres of the Tongass for wilderness. To offset

the potential decrease in timber harvest associated with the wilderness designation

and the selection of land by Native corporations and the state, the act included a

section that set the target timber supply from the Tongass National Forest at 4.5

BBF per decade, and included an annual appropriation of at least $40 million to

fund the road preparations, cultural treatments, and logging systems to maintain

this offer level (Morse 2000). The TTRA removed the 4.5 BBF per decade requirement, decreased the annual appropriation to $4 million, and directed the Forest

Service to set the harvest level each year to meet “market demand” and sell timber

at a profitable price. Because the most accessible timber had been harvested, the 

7 The revisions also included stipulations to eliminate the practice of overharvesting 

old growth, to re-offer timber rejected by the pulp companies as independent sales and 

subtract this volume from the long-term contract volume, to adjust the price of timber 

offered under the long-term contracts to levels comparable to independent sale prices, 

to count utility logs against the contract volume, to assure purchaser road credits are 

treated the same as in independent sales, and to assure the timber offered meets the 

same economic criteria used for independent sales
51

Economic Growth and Change in Southeast Alaska

pulp companies’ costs were already increasing, and the cumulative effect of the

TTRA provisions was to push them higher.

A second factor affecting the profit margin of the pulp companies was the

declining demand for their primary product, dissolving pulp.8 World production of

dissolving pulp reached an alltime high in 1974 (5.42 million metric tons); declined

to a trough in 1982 (75 percent of its 1974 high), increased to a new lower peak in

1998 (88 percent of its 1974 high); and has since decreased every year except 1995

(United Nations FAO 2003). In 2001, world dissolving pulp production was only 53

percent of its 1974 high, and since 1994, production has been lower than its 1961

level of 3.62 million metric tons (United Nations FAO 2003). United States production of dissolving pulp has followed the same general trends, and since 1997

has been below its 1961 level of 1.08 million metric tons, and by 2001 was only

48 percent of its 1974 high of 1.56 million metric tons (United Nations FAO 2003).

The decline in the production of dissolving pulp is due to a decrease in the

demand for products that use this type of pulp. Competition from petroleum-based

synthetic fiber and films has depressed dissolving pulp demand: demand for rayon

staple, in particular, has been displaced by polyester, and cellophane has been displaced by plastic films. There has been a move away from commodity viscose pulp

production for rayon staple toward more specialized high-performance end uses.

The sulfite process and batch digesters used by Alaska mills are less suitable than

the sulfate process and continuous (flow-through) digesters used by most modern

mills. Conversion of the Alaska pulp mills from batch sulfite processes to sulfate

would have been very expensive. Pulp company costs were already increasing

because of increased environmental monitoring and regulation owing to concerns

over dioxin released during the chlorinated pulp bleaching processes.9

Dissolving pulp prices fluctuated widely in the 1990s (+/-$200 or more per

metric ton). Sulfite viscose staple grade, which the Alaska mills produced, had a

U.S. delivered price of $800 to $900 per metric ton in 1988 and 1989, but that

price slid to cyclical lows of $635 in the third quarter of 1993 and $620 in the

first quarter of 1994 (Miller-Freeman Publications, Inc. 2001). The APC mill

inSitka shut down on September 30, 1993, unable to withstand this high-cost, low

8 Much of the information in this section is drawn from a personal e-mail communication from Peter Ince, 2003. pince@fs.fed.us (22 January).

9 In March 1995, KPC entered into agreements with the federal government to resolve 

the issues related to water and air compliance problems experienced at KPC’s pulp mill 

during the late 1980s and early 1990s. In addition to civil and criminal penalties that have 

been paid, KPC also agreed to undertake further expenditures, which are primarily capital 

in nature, including certain remedial and pollution-control measures, with an estimated 

cost of approximately $20 million (Louisiana-Pacific Corporation 1998).
52

GENERAL TECHNICAL REPORT PNW-611

price squeeze. There was a dramatic upswing in world pulp markets in 1995, and

the price of dissolving pulp spiked to over $1,000 per metric ton in the third quarter of 1995. This was followed by a collapse in late 1995 and early 1996 as prices

for all grades of market pulp began to decrease rapidly. During the first quarter of

1996, the parent company of KPC, Louisiana-Pacific, suffered a record operating 

loss of $30.5 million for their pulp operations and attributed more than half of

their loss to the KPC mill (USDA Forest Service 1997, Whitelaw et al. 1998). By

early 1997, the price of dissolving pulp was down to $750 per metric ton, and

the KPC mill closed on March 24, 1997 (Miller-Freeman Publications, Inc. 2001).

Another older dissolving pulp mill, the Rayonier, Inc. mill in Port Angeles,

Washington, also closed in March 1997 as did a similar mill in Sweden the following year. Since the mid-1990s, more than 90 U.S. pulp, paper, and paperboard mills

have shut down, and about 1 in every 12 industry-wide jobs has disappeared. On

January 24, 2003, International Paper announced that it would shut down its 52-

year-old dissolving pulp mill in Natchez, Mississippi, by mid-2003, resulting in

728 job losses. This was after 2 years of trying to sell the mill, tighten up operations, and find potential markets (PaperAge 2003).

When the pulp mills closed, the marginal position of the Alaska wood products

manufacturers in the cyclical and global wood products industry became more

evident and acute. As high-cost producers, Alaska manufacturers feel the effects of

market downturns first. With the pulp mills no longer ready markets for their mill

residues and chips, Alaska firms must now compete with more efficient and lower

cost suppliers from other regions in the global marketplace. The Forest Service’s

requirement that primary manufacturing of timber harvested from Alaska national

forests occur in Alaska, and long-term contracts with pulp companies undoubtedly led to increased population and contributed to the development of a more 

diversified economy in the region.10 However, this particular development strategy

may have retarded the development of a competitive lumber and value-added industry. Describing the Alaska industry in 1991, the Irland Group (1991) referred to

cants as nothing more than “vandalized logs” and wrote, “An industry oriented to

regulatory-induced cant production is not an industry that has any potential for

restructuring to meet value-added wood products needs.” On the other hand, because

10 The increased diversity of the economy is borne out by the fact that of the 70 percent 

of the workers laid off from APC who were still in the state 3 years later, 78 percent were 

reemployed or self-employed with 80 percent of these jobs in southeast Alaska (Tromble 

1998). Similarly, 60 percent of the workers laid off by KPC were still in the state 3 years 

later, and at least 75 percent of the workers reemployed within the state were working in 

the Ketchikan-Prince of Wales area (Landry 2001).
53

Economic Growth and Change in Southeast Alaska

of Alaska’s numerous cost disadvantages, it is doubtful that a large and viable

value-added industry would have developed under any scenario. In response to

the argument that Alaska has a market advantage because of the high value of its

old-growth timber, the Irland Group (1992: 35-36) wrote,

If this were true it would be likely that large export oriented sawmills

would have developed here at the same time as [sic] did elsewhere on 

the Pacific Coast. Also, some production of plywood or veneer would be

expected. Yet these industries did not develop in SEA. This was because,

as was generally recognized at the time, Alaska’s old growth timber was

not suited to lumber production, but was better suited to pulp manufacturing. ... Both the inventory and harvest of TNF timber are dominated

by lower grades of logs.

Today, many of the obstacles the industry faced in the 1950s remain, and

others have emerged (Morse 2000). The Southeast Regional Timber Industry Task

Force (1997: 31) reported,

Computer assisted cutting, trimming, sorting, grading and shipping has

increased both resource recovery and production speed and shipment in

regions which already enjoyed cost advantages over Alaska. Advanced

mills are not single-product operations but integrated manufacturing

plants generating their own energy from wood chips and turning out 

an array of structurally superior engineered building products. While the

cost and quality of the timber supply continues to be an issue for the

industry, perhaps even more critical is the strategic development of technology to more productively extract full value from a costly resource.

These economic disadvantages imply that only a limited amount of 

secondary processing will occur in the state. When more is required, 

costs rise at a faster rate than in competitor regions. How far they can 

rise before existing operations become submarginal is a key question.

The Chilkoot Lumber Company sawmill in Haines closed in 1991 prior to the

pulp mill closures. Following the closure of the APC pulp mill, APC also closed its

sawmill in Wrangell in 1994. This mill was subsequently purchased by Silver Bay

Logging in 1998 and has been operating at a lower capacity, but this company

recently filed for Chapter 11 bankruptcy protection (Markel 2003). Following the

closure of the KPC pulp mill, KPC continued its other operations until Gateway

Forest Products took over in 1999 and constructed a veneer mill at the former pulp

mill site. Gateway Forest Products filed for Chapter 11 bankruptcy in February 2001,
54

GENERAL TECHNICAL REPORT PNW-611

and the mill equipment was scheduled to be auctioned off in July of 2002. At the

last minute, however, the mill was purchased by the Borough of Ketchikan after a

group from Oregon expressed interest in operating the veneer mill. As of this writing, the Oregon group had not yet purchased the mill. The sawmill KPC leased on

Annette Island has not operated since 2000. Three mills continue to operate in southeast Alaska—Viking Lumber in Klawok, Pacific Log and Lumber in Ketchikan,

and Icy-Strait Lumber Co.-Whitestone Logging in Hoonah. 

Estimated total timber harvest in southeast Alaska peaked in 1989 at 991.5

MMBF. Tongass National Forest harvests peaked in 1973 at almost 600 MMBF,

whereas estimated harvests from southeast Alaska Native corporation lands peaked

in 1989 at 531.9 MMBF. Between 1989 and 2000, Native corporation harvests in

southeast Alaska fell 70 percent to 160.6 MMBF because most village corporation

timber had been harvested.11 Similarly, harvests from the Tongass fell 69 percent

between 1990 (the most recent peak) and 2000 (the last year of KPC’s long-term

contract harvest) (Southeast Regional Timber Industry Task Force 1997; USDA

Forest Service 2002a, 2002b). These declines resulted in a 54-percent reduction in

logging employment in southeast Alaska, from a peak of 2,141 jobs in 1990 to 994

in 2000 (USDA Forest Service 2002b).

The Future of the Alaska Wood Products Sector

Morse (2000) wrote, “. . . movement away from an industry structure planned in the

1950’s to an industry structure linked to the competitive market will be a lengthy

and difficult process.” The wood products firms that remain in southeast Alaska

have survived by finding niche markets for at least some of their products. For

example, tight-grained old-growth hemlock wood is sold to producers of window

and door casings and other special application wood products. Efforts are underway

to improve the competitiveness of Alaska wood products and expand into other

niche markets. For example, the Alaska Manufacturers’ Association and the Alaska

Science and Technology Foundation (ASTF) initiated a lumber-grading project in

1998. Prior to this, no graded lumber was produced in Alaska, but by 2002 around

90 percent of all lumber produced was graded (Alaska Manufacturers’Association

2002). Lumber grading has resulted in increased markets and higher prices. Forest

Service districts are using graded yellow-cedar (Chamaecyparis nootkatensis (D.

Don) Spach) on trail projects, and some boroughs are using graded and dried white 

11 Koncor, once the second largest timber producer among Alaska Native corporations, 

ceased logging operations in 2001 (Gilbertsen 2002). The company’s president cited 

permanent changes in the market for Alaska logs (primarily in the Japanese market) and 

both the current poor market as well as equally poor long-term projections as major factors 

in the company’s decision to leave the industry (Wheeler 2001).
55

Economic Growth and Change in Southeast Alaska

spruce (Picea glauca (Moench) Voss) from interior Alaska for construction projects.

The ASTF set up an in-grade testing lab at the former KPC mill site (Ketchikan

Daily News 2002) to quantify the superior mechanical properties of four Alaska

species (western hemlock (Tsuga heterophylla (Raf.) Sarg.), yellow-cedar, Sitka

spruce (Picea sitchensis (Bong.) Carr.), and white spruce), so that they can be separated from their less valuable counterparts in the continental United States with

which they are currently lumped. 

The U.S. Forest Service Alaska Wood Utilization Research and Development

Center was established in 1999. Some of the projects undertaken by this group

include determining the economic impact of establishing new species groups for

Alaska-grown timber based on the results of the in-grade tests; conducting lumber

recovery studies for Alaska mills; improving kiln-drying technologies; identifying

markets for red alder (Alnus rubra Bong.) and birch (Betula L. spp.) value-added

products, such as kitchen cabinets; examining the feasibility of using standing dead

Alaska yellow-cedar for playground equipment and small-diameter poles as substitutes for 4 by 4s in residential fence construction; investigating the use of wood

waste for compost and energy production; determining consumers’ willingness to

pay a price premium for “Made in Alaska” wood products; and determining the

types and effects of credit rationing in the Alaska wood products industry.

Although these efforts will help ensure the continued existence of a wood

products industry in rural southeast Alaska, most observers, for reasons already

noted, believe it is unlikely that production and employment will return to their

previous levels.12 The question then becomes, What other economic opportunities

exist in the region, and what development strategies are most likely to succeed

based on rural southeast Alaska’s particular comparative advantages? 

Southeast Alaska’s Other Natural Resource 

Industries

The current conditions in southeast Alaska’s other major natural resource industries,

salmon fishing and mining, are in many ways similar to conditions in the wood 

products industry. Traditionally, the Alaska salmon industry has sold a large amount

of its product in the export market to Japan, Canada, and the United Kingdom. The

main species sold to these markets is sockeye salmon (Oncorhynchus nerka), and

in the past it produced the most revenue. Between 1992 and 2000, as the Japanese 

12 See for example, Gilbertsen (2002) who wrote, “While some local opportunities may 

remain, it is doubtful that the wood products industry will either improve in the short term,

or ever regain the prominent position it once occupied in Alaska’s manufacturing sector.”
56

GENERAL TECHNICAL REPORT PNW-611

economy collapsed and farmed salmon entered the market, Alaska sockeye exports

to Japan fell 50 percent from 100 000 metric tons to 50 000 metric tons

(McDowell et al. 2001).

In the U.S. market, Alaska salmon producers are facing intense price competition

from farmed salmon, especially Chilean farmed salmon. The volume of Chilean

imports into the United States has increased nearly every year since 1994 and has

grown from less than 10 000 kg in 1990 to almost 90 000 kg in 2001. Also of importance is the change in composition of Chilean salmon imports from dressed form to

fillets. In 1991, these imports were almost 100 percent dressed, but by 2001, more

than 90 percent of the imports were fillets. While the volume of fillets increased, the

price per pound of Chilean salmon imports has dropped from around $3.80 in March

of 1999 to around $1.80 in December of 2001 (McDowell et al. 2001). As more

Alaska salmon producers shift from canned or dressed salmon to value-added and

consumer-ready fillet products, they are having a difficult time competing with the

farmed salmon.

In 1995, estimated employment in the salmon fishing industry in southeast

Alaska was 1,821, and estimated employment in the seafood processing industry

was 1,648. In 2000, the estimates were 1,635 for salmon fishing and 1,450 for

seafood processing. Estimated earnings for fishing crewmembers in 1995 totaled

about $39 million, and in 2000 about $24.3 million.13

The total value of the mineral industry in Alaska in 2001 was around $1 billion,

which includes the expenditures for exploration and development projects and

revenue from mineral production. This was a 20-percent decrease from 2000

(Swainbank et al. 2002). This decrease was caused by historically low metal prices

and rising costs, especially fuel. The only major mine producing in southeast

Alaska during the past 5 years is the Greens Creek Mine on Admiralty Island,

which reopened in 1996. In 2001, 600 000 metric tons of ore was milled containing

58 000 metric tons of zinc, 20 000 metric tons of lead, 339 million grams of silver,

27.2 million grams of gold, and 1270 metric tons of copper. This was up from 447 000

metric tons of ore milled in 1997. Profitability suffered from severe decreases in

the prices of silver and zinc. Between 1996 and 2001, the prices of gold, silver,

copper, zinc, and lead decreased by 30 percent, 16 percent, 30 percent, 18 percent

and 41 percent, respectively. The Greens Creek Mine employs about 275 

13 The estimates for employment and earnings for salmon fishing were calculated by using 

average crew size (McDowell Group 1989), number of permits fished, and ex-vessel values 

(price of fish at the dock) (Alaska Commercial Fisheries Entry Commission 2002). Employment in the seafood processing industry is from Alaska Department of Labor, Research and 

Analysis (2002).

Salmon fishing and

mining industries

are both declining.
57

Economic Growth and Change in Southeast Alaska

workers. Recent mining employment in southeast Alaska peaked in 1990 at 346

jobs. In 1995, there were 189 jobs, and in 1999 there were 318 jobs (Alaska

Department of Labor, Research and Analysis 2002).

In response to low gold prices, Coeur Alaska has been conducting a comprehensive optimization study to increase the economic return on its proposed Kensington gold mine project about 40 miles northwest of Juneau. Some of the redesign

proposals require new permits that may lengthen the time before construction and

operations can occur (Swainbank et al. 2002).

New Sources of Comparative Advantage

Rural southeast Alaska is not unique with respect to changes in its resource extractive industries. Johnson (2000) writes that rural areas still tied to traditional rural

industries face big challenges as commodity producers face stiff competition and

thin profit margins in the global economy, leaving many rural communities unsure

of their best strategies. Niemi and Whitelaw (1997) warn, “Communities that have

depended heavily on resource-related industries generally should expect economic

stagnation or contraction in the future if they continue to look mainly to these industries for maintenance of economic vitality.” Rural southeast Alaska, like many other

rural areas, did not share in the “new economy” earnings growth of the late 1990s.

One reason for this is that rural areas had less employment in and less growth of

the producer services sector. This sector, which includes communication, finance

and insurance, legal, accounting, temporary employment, computer-related, security,

advertising, consulting, and similar business services whose customers are usually

other businesses, contributed most to increased urban earnings. Urban areas also

tend to specialize in high-tech manufacturing industries, which have provided most

of the growth in manufacturing earnings, whereas rural areas tend to specialize in

slower growing value-added and routine technology manufacturing (Gale and

McGranahan 2001).

In many rural areas, the traditional sources of rural comparative advantage—

abundant and cheap land (natural resources) and labor—have been replaced by a

new comparative advantage—quality of life. Galston and Baehler (1995) wrote, 

Perhaps the most striking fact about the U.S. rural economy in the 1980s

was the shift in the development momentum from traditional economic

base sectors (natural resources and manufacturing) to the new economic

base sectors (tourism, retirement, and government). . . . While the more

traditional counties were struggling to keep up with these forces of

decline, some of their neighboring counties were enjoying large influxes 

of retirees as a result of general trends toward earlier retirement, greater
58

GENERAL TECHNICAL REPORT PNW-611

mobility of the elderly, and generous public and private retirement benefits.

At the same time, other rural areas with similar amenities were benefiting

from rising American incomes and shifts in consumer preferences for

travel and tourism. 

It is undeniable that rural southeast Alaska is endowed with many amenities

sought by tourists and that it has reaped economic benefits from this comparative

advantage. In summer 2001, an estimated 975,000 visitors traveled to southeast

Alaska to experience the area’s glaciers, fiords, wildlife, wilderness, and “authentic

communities” (Northern Economics 2002a, 2002b; Schroeder et al., n.d.). Most of

these visitors, an estimated 690,650, arrived on cruise ships. The dramatic growth

in cruise ship passengers to Alaska is documented in Schroeder et al. (n.d.) who

note that in the early 1980s, between 83,000 and 87,000 cruise visitors arrived in

Juneau, but by 2000 there were seven times as many cruise visitors. The cruise

industry’s key demographic target, baby boomers earning $55,000 or more, will

double by 2010, and Alaska cruise prices continue to decrease, making cruises

increasingly affordable (Cordova et al. 2002). Schroeder et al. (n.d.) estimated the

number of independent (noncruise passenger) visitors to southeast Alaska to be

somewhere between 100,000 and 200,000 in 2000. Tourist-related employment in

the southeast Alaska region was estimated to be 2,065 jobs in 1989 and 3,035 in

1998 (McDowell Group 1991, 1999). Using the same methodology as McDowell

Group (1991, 1999), I estimate rural southeast Alaska had about 1,752 tourismrelated jobs in 1999.

In addition to attracting tourists, rural southeast Alaska enjoys a comparative

advantage in attracting migrants seeking improvements in quality of life. Residents

enjoy the same amenities that attract tourists (discussed above), and the region also

features outstanding outdoor recreation opportunities and what Isserman (2000)

refers to as AMENities–freedom from congestion, crime, commuting, pollution,

and other conflicts of urban life. Much has been written in recent years regarding

the ability of these types of amenities to stimulate rural population growth and economic development by attracting both individuals and firms.14 Nelson (1999) documented that investment income and self-employment income were concentrating

and growing fastest in rural Western counties with high levels of natural amenities 

as a result of the influx of young professional inmigrants. Nelson (1999: 34) wrote,

14 For examples and additional references, see Crone and Haynes (1999), Johnson and 

Rasker (1993), McGranahan (2000), Pezzini and Wojan (2001), Rudzitis (1999), Southwick

Associates (2000), and Vias (1999).

Rural southeast

Alaska has a 

comparative 

advantage with 

its high quality 

of life.
59

Economic Growth and Change in Southeast Alaska

The promise of better schools, less congestion, less crime, and scenic

beauty attract relatively well-off individuals and families that are in a 

position to act on their preferences. When these people move to an area,

they bring with them both financial and human capital that can stimulate

local economic development.

The advent of the Internet, telecommuting, and the electronic office has meant

entrepreneurs using these tools have more options in where they physically locate

their business. In a survey of 102 rural firms that produce services sold primarily

to business and government and receive at least 40 percent of their revenues from

outside their local market area, Beyers and Lindahl (1996) found that 67 percent

located in rural areas for quality-of-life reasons. The ability of rural southeast

Alaska to attract retirees (who bring with them investment and transfer payment

sources of income and increase the demand for local goods and services) may be

limited by the region’s comparative disadvantages in accessibility, specialized

healthcare, and climate.

Debate continues over the potential of tourism to stimulate economic growth

in rural and less diverse regions with some arguing that jobs associated with tourism

provide lower average incomes and offer fewer benefits. Smith (1989) wrote in

support of this view, whereas Christensen and Nickerson (1995) offered a contrary

view. The benefits and risks of adopting tourism as a rural development strategy

are detailed in general in Galston and Baehler (1995) and Bosselman et al. (1999),

whereas Pattulo (1996), Wood (2000), Hall (2001) and Johnson (2002) detail

positive and negative aspects of cruise tourism in particular, and Behnke (1999),

Cerveny (n.d.), and Schroeder et al. (n.d.) examine issues associated with tourism

in southeast Alaska specifically. 

Indicators of Resiliency in Rural Areas

Drabenstott and Smith (1996) examined economic trends in rural counties in the 

“rural heartland”15 between 1980 and 1993. They found three types of counties

fared the best: (1) counties that had a combination of characteristics that attracted

businesses, such as low labor and other business costs, better transportation, a

higher level of agglomeration, more doctors, more colleges, and a better educated

workforce; (2) counties with scenic and recreational amenities, which led to retirement- and recreation-based growth; and (3) counties that had become centers of 

15 Includes Colorado, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New

Mexico, North Dakota, Oklahoma, South Dakota, and Wyoming.
60

GENERAL TECHNICAL REPORT PNW-611

retail trade consolidation. Counties that fared the worst had less-extensive transportation networks, a lower degree of agglomeration, fewer doctors, fewer colleges, 

a less educated workforce, a higher degree of dependence on natural resources, and

fewer scenic and recreation amenities. They forecast a continuation of two trends

for the rural heartland (Drabenstott and Smith 1996: 10):

Rural counties that have overcome their remoteness and improved their 

access to markets or emerged as rural trade centers, or that have scenic

amenities, all appear to have a bright future. On the other hand, counties

that are remote or depend on natural resource industries will probably

grow somewhat slower. 

This dichotomy in rural growth appears equally applicable to rural southeast

Alaska. Based on 2000 U.S. census data (USDC Bureau of the Census 2002), the

larger communities of Ketchikan, Sitka, and Petersburg had a significantly higher

mean value for median household income and significantly lower mean unemployment rates and mean percentage of families in poverty, than the 27 communities

with populations less than 2,500. By using the amount of per capita funds each

community received between 1996 and 2002 from the Southeast Alaska Economic

Disaster Fund16 as a proxy for forest products dependence, I classified the communities as timber dependent if they received more than $1,000 per capita from this

fund. Based on this classification system and the 2000 census data, the 14 timberdependent communities as a group were significantly larger, had significantly lower

education levels, had a significantly lower mean age, had a significantly higher

mean proportion of Alaska Natives, had a significantly lower mean percentage of

people not in the labor force, and had a significantly lower percentage of people

who had lived in the same residence in 1995. However, there was no significant

difference in mean median household income, mean per capita income, mean

unemployment rate, or mean percentage of families in poverty between this group

of communities and the other 13 small rural southeast Alaska communities as a

group. 

Based on this analysis, it is difficult to say that the small communities that had

a higher dependence on timber harvests in the region are worse off than the other

small communities. The future growth of each community will depend on its 

16 This fund, established by Congress in 1996, directed the Secretary of Agriculture to 

“allocate funds to local communities suffering economic hardship because of mill closures 

and economic dislocation in the timber industry to employ unemployed timber workers and 

for related community redevelopment projects.” (Public Law 104-134 section 101, Title II 

(a-c4), Public Law 106-113, Title II and Public Law 106-391, Title II).
61

Economic Growth and Change in Southeast Alaska

individual resiliency. Resiliency, in this sense, is defined as adaptability to change.

Social or economic systems with high resiliency will be those capable of absorbing

external shocks, such as a recession, and rebounding as demonstrated by system

indicators, such as total employment and per capita income. Resiliency is influenced

by more than just the economic structure of a community. It also depends on community leadership, activities like planning for the future, the presence and management of amenities that might attract and keep people in the area, and physical

infrastructure (roads, sewers, water) (Crone and Haynes 2001).

Harris et al. (2000) calculated community resiliency ratings for 198 randomly

selected small (populations less than 10,000) rural communities in the interior and

upper Columbia River basin. They found that a town’s population size, autonomy,

economic diversity, quality of life, and experience with change were positively

related to the town’s resiliency. From a survey of 17 communities in south-central

and southeast Alaska, Brown (1999) computed quality-of-life and communityresiliency ratings for each community. The southeast Alaska communities included

were Juneau, Ketchikan, Petersburg, Sitka, and Skagway.17 Overall community

resiliency score rankings from highest to lowest were 2, 3, 5, 6, and 13, for Sitka,

Juneau, Petersburg, Skagway, and Ketchikan. Relative quality-of-life rankings (based

on the answer to a single survey question) were 2, 5, 6, 11, and 16 for Petersburg,

Juneau, Sitka, Skagway, and Ketchikan.18 Although smaller communities in southcentral Alaska were included in the survey, none was surveyed in southeast Alaska.

For south-central community residents, factors associated with public lands or their

management were among the most important considerations in choosing the community in which they lived. The most important quality-of-life factors across all

south-central Alaska communities were clean air and water, beauty of the surrounding area, and open/undeveloped areas (Crone et al. 2002). These factors are

probably important in the rural southeast communities as well. Whether the smaller,

more isolated, and less economically diverse communities in southeast Alaska will

be able to leverage their many natural amenities to overcome these development

obstacles is likely to differ with each community’s unique characteristics.

17 For more detail on the survey, the communities included, and the results for the southcentral Alaska communities see Crone et al. (2002).

18 The lower quality-of-life and community-resiliency scores for Ketchikan compared to 

Sitka may help to explain why more workers left Ketchikan than Sitka following their 

respective pulp mill closures. Additionally, in response to the question, “Given your overall 

satisfaction with the quality of life in your community, what would you do if you had the 

ability to live anywhere with the same standard of living?” 82 percent of the respondents in 

Sitka said they would remain in their community, whereas only 50 percent of the respondents 

from Ketchikan said they would stay in their community (Brown 1999).
62

GENERAL TECHNICAL REPORT PNW-611

Conclusion

The closure of southeast Alaska’s pulp mills in the 1990s and overall loss of jobs 

and decline in earnings from the logging and wood products industries signaled

that manufacturing no longer dominated the region’s economy. The reduced timber

harvest on the Tongass National Forest is only one of several factors that have contributed to the decline in the forest products industry. Other contributing factors

include (1) declining market demand for the pulp mills’ products, (2) the adoption

of efficiency-enhancing and cost-cutting mechanization as well as aggressive marketing strategies in competing regions, (3) increased costs associated with operating older, polluting mills, (4) decreased timber harvests from Alaska Native lands,

and (5) the larger forces of global competition, which have affected Alaska’s wood

products industry as well as the state’s fishing and mineral industries.

Some of the changes to the economy in rural southeast Alaska are particular 

to the region, whereas others follow trends apparent in the state and the Nation.

Although the decline in the manufacturing sector was most pronounced in rural

southeast Alaska, this sector also declined in the state and Nation. An urban-rural

division was evident in some of the changes in the distribution of earnings. Rural

southeast Alaska and rural IdMt differed from Juneau, Alaska, and the Nation in

that the share of earnings from the government sector increased and the share of

earnings in the “other” sector decreased in the rural areas.19 Additionally, the rural

areas experienced a larger increase in unearned income as a percentage of total

income compared to the other areas.

The Alaska and Juneau economies have generally not followed U.S. business

cycles. On the other hand, owing to the size of their manufacturing sectors, rural

southeast Alaska and rural IdMT have historically followed national business

cycles. With the declines in their manufacturing sectors, however, this trend is

unlikely to continue. The manufacturing sector in rural IdMt never really recovered

from the severe contraction caused by the downturn in the wood products market

during the early 1980s. However, in spite of decreases in manufacturing employment

and wood products earnings in the 1990s, population and total personal income in

this area increased throughout the decade. Although the manufacturing sector in rural

southeast Alaska was able to recover from the 1980s downturn, it subsequently collapsed in the 1990s, and despite the expansion of the national economy from 1992 to

2000, the area suffered negative average annual growth rates in earnings, total personal income, and population.

19 “Other” includes agriculture services, forestry, and fishing; mining and construction; 

transportation, public utilities, and communication; wholesale trade; and financial services, 

insurance, and real estate. 
63

Economic Growth and Change in Southeast Alaska

A trend common to all five areas is a growing service sector. In southeast 

Alaska, part of this growth is a result of the growth in tourism to the region. Rural

communities can become more resilient by increasing their accessibility and 

economic diversity and by planning for the future by developing physical infrastructure to accommodate growth. In addition to tourism, southeast Alaska has a

comparative advantage in attracting migrants seeking quality-of-life improvements.

Both tourism and inmigration may continue to contribute to growth in the service

sector in southeast Alaska, but it is not likely that this growth will be experienced

uniformly across the region.

Metric Equivalents 

When you know: Multiply by: To get:

Thousand board feet, log scale (mbf) 5.7 Cubic meters 

Board feet, lumber scale .00452 Cubic meters 

Cord (80 cubic feet) .44 Cubic meters

Tons 907 Kilograms

Tons .91 Metric tons

Ounces (troy) 31.1035 Grams

Miles 1.609 Kilometers

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Alaska Department of Labor, Research and Analysis. 2002. Employment and 

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