Regional Consequence of a Disaster Employment Transition During Economic Recovery

Abstract

Orientation: Large-scale events such as disasters, wars and pandemics disrupt the economy by diverging resource allocation, which could alter employment growth within the economy during recovery.

Research purpose: The literature on the disaster–economic nexus predominantly considers the aggregate performance of the economy, including the stimulus injection. This research assesses the employment transition following a disaster by removing this stimulus injection and evaluating the economy’s performance during recovery.

Motivation for the study: The underlying economy’s performance without the stimulus’ benefit remains primarily unanswered. A single disaster event is used to assess the employment transition to guide future stimulus response for disasters.

Research approach/design and method: Canterbury, New Zealand, was affected by a series of earthquakes in 2010–2011 and is used as a single case study. Applying the historical construction–economic relationship, a counterfactual level of economic activity is quantified and compared with official results. Using an input–output model to remove the economy-wide impact from the elevated activity reveals the performance of the underlying economy and employment transition during recovery.

Main findings: The results indicate a return to a demand-driven level of building activity 10 years after the disaster. Employment transition is characterised by two distinct periods. The first 5 years are stimulus-driven, while the 5 years that follow are demand-driven from the underlying economy. After the initial period of elevated building activity, construction repositioned to its long-term level near 5% of value add.

Practical/managerial implications: The level of building activity could be used to confidently assess the performance of regional economies following a destructive disaster. The study results argue for an incentive to redevelop the affected area as quickly as possible to mitigate the negative effect of the destruction and provide a stimulus for the economy.

Contribution/value-add: This study contributes to a growing stream of regional disaster economics research that assesses the economic effect using a single case study.