For release: Dec. 31, 2003

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Casinos May Benefit Rural Counties: St. Louis Fed Analysis

St. Louis — Analysis by an economist at the Federal Reserve Bank of St. Louis suggests that rural counties that adopt casino gaming may experience increases in household and payroll employment, although the origin and skill level of the workforce can have a major influence on a casino's economic impact.

The economist is Thomas A. Garrett. His analysis appears in the January/February issue of Review, the St. Louis Fed's bi-monthly publication of economic and business issues.

Prior to the late 1980s, casino gaming was legal only in Nevada and Atlantic City, New Jersey. Today it's available in 29 states and gaming revenue has grown from $9 billion in 1991 to more than $40 billion in 2001. Americans now spend more money in casinos than individually on golf, on-screen movies, CDs, sound equipment and cable TV.

Local officials and casino proponents often claim that casinos create local employment simply because they add additional jobs in a local area. "The question to ask," said Garrett, "is not only whether casinos decrease unemployment, but also for whom they decrease it."

Garrett said that if a casino is planning to move to a rural area that has a relatively less-skilled workforce, the casino will probably draw skilled labor from outside the area. If this labor remains outside of the local area and workers commute to the casinos, then unemployment will not change. "On the other hand, if some of this skilled labor decides to move near the casino, then the unemployment rate will fall in the local area because the labor force has increased," he said. "Unemployment for the original population, however, has remained essentially unchanged."

He also noted that in a relatively urban area, there is probably enough variety in the workforce to ensure that skilled labor will be provided locally.

While casino employment is often used as an indicator of economic development, Garrett said that true economic development occurs only when there is an increased "value" to society. "The introduction of casinos may cause local businesses to close, which will result in layoffs," he said. "So, the net increase in employment to the local area may be less than the number of new casino jobs."

At the same time, however, he noted that casino gaming may increase total employment when casinos indirectly generate non-casino jobs in the local area as a result of increased demand for non-casino goods and services. "Casino employees who were previously unemployed, or who recently moved into the area, now generate income," said Garrett. "This income will then be spent on goods and services such as housing and entertainment."

Garrett's analysis focused on Warren County (Vicksburg) and Tunica County in Mississippi, Massac County (one casino) and St. Clair County (one casino) in Illinois,; Lee County (one casino) in Iowa, and St. Louis County (one casino) in Missouri. Of the six, St. Louis and St. Clair are classified as urban counties and the rest as rural.

Garrett's research shows:

• Warren County experienced a dramatic jump in employment in 1993 and 1994, the two years in which the casinos began operations, but since that time, employment has been relatively flat. Employment in Tunica County has grown steadily since the first casino debuted in 1992.
• Casino gaming has not hurt St. Clair County (urban) in Illinois, but it has experienced a volatility of total employment and a loss in population. Employment in rural Massac County, on the other hand, increased when the casino began operations and has increased steadily since then. As in Warren and Tunica counties, however, the bulk of employment growth has occurred outside the casino industry.
• Actual employment in rural Lee County in Iowa remained relatively constant around the time the casino began operation, but has steadily decreased since then.
• Employment in St. Louis County, Missouri, was falling at the time casinos were introduced, but then increased slightly. "It's possible that the casino created some jobs, but the direct impact of the casino on total employment is masked by highly variable total employment and the relatively small employment contribution made by a single casino," said Garrett.

"While the evidence suggests that rural counties that adopt casino gaming as a major industry are likely to see large employment gains, this does not suggest that every county can become like Tunica," said Garrett.

He added that the major questions facing communities is how much will the gaming industry grow in the future, and if the reliance by state and local governments on casino revenue will help them weather recessions. "Many states with casinos are facing budget crises similar to those states without casinos," Garrett concluded. "Regardless of what the future holds, casinos are here to stay and more communities will be faced with the question of whether to adopt casino gaming."

Review is also available on the St. Louis Fed's web site: http://www.stlouisfed.org.

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve Banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank holding companies, and provides payment services to financial institutions and the U.S. government.

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