investment in Los Angeles-Long Beach area would have increased by $279.4 million (109.06 percent); 20 in situation (B), by $292.3 million (114.09 percent).21 Resulting total increases in employmen: are recorded at the bottom of columns 8 and 9 of table 3, respectively. They are 57,146 and 59,680.

Although a reexaminaion of the U.S. data sources and their accuracy may indicate that these last figures involve a certain amoun: of overestimate, these figures do point up the possibility of the existence of programs whose positive shortrun effects well exceed the nega tive shortrun effects of military cutbacks.

We have considered four offset programs, one at a time for each of two situations. Clearly, any realistic offset policy is likely to be a combination or mix of types of programs, rather than just one type of program. Clearly, too, political feasibility and the problem of converting labor, plant, and equipment from old to new uses are factors which will condition any offset policy. Although it is impossible to anticipate what such an offset policy might be, for pedagogical purposes we list in the final column of table 39 the employment implications of a mix of the four programs examined in this section. Each program is considered in terms of a situation (B). Each program is equally weighted dollarwise. The estimated increase in employment, direct and indirect, is 37,441. This figure represents an increase in employment approximately 6,500 greater than the decrease that would have been expected from a 10-percent cut back in military expenditures. Even if different assumptions and data sources had been utilized,22 it is clear that there are programs which can lead to direct positive effects for the Los Angeles-Long Beach area provided the political setting is favorable and the reconversion problem is attacked with vigor.23

The San Francisco-Oakland metropolitan area

The study on "Markets for California Products" conducted research for the San Francisco-Oakland metropolitan area. The definitions, conceptual framework, approach, data sources, and procedures were the same as those already outlined. Hence, for the purposes of this report, we need only set down in table form some of the effects that would have been incident to changes in the final demand sectors of the San Francisco-Oakland area.

In column 1 of table 40 there are presented estimated decreases in employment (both direct and indirect) which would have resulted in this area from a 10-percent-across-the-board cutback of military

20 This percentage figure is obtained by taking the ratio of $279.4 to $256.2 million, the estimated tots Government investment in the Los Angeles-Long Beach area in 1959. This estimated investment is derived from multiplying the dollar value of building construction for Government investment purpos in 1959 in the Los Angeles-Long Beach area ("Markets," ・・・, op. cit., p. 39) by the ratio of total direct employment accounted for by the Gr sector in the Los Angeles-Long Beach area to the direct employmeri in contract construction linked to this sector. The $279.4 million increase was estimated by multiplying the $3,230 million U.S. increase by 8.65 percent, the Los Angeles-Long Beach area's share of U.S. Govern ment investment construction expenditures for 1959.

This percentage figure is obtained by taking the ratio of $292.3 to $256.2 million, the estimated total Government investment in the Los Angeles-Long Beach area in 1959 (as derived in the previous footnote) The $292.3 million increase is equal to the amount of the cut back in military expenditures in the Los Angeles Long Beach area as calculated in footnote 13.

For example, if the positive employment effect of a Government investment program in situation (B) were overestimated by 20,000, there would have still remained a small overall positive effect for the area It is also unlikely that this conclusion would be altered were more adequate conceptual frameworks and operational models available. For example, when interregional models are developed in order to identify positive and negative Interregional feedback effects, these models are likely to indicate that the direct and indirect effects of various programs are more alike in magnitude than suggested by the model in "Markets," , op. cit., and by the models to follow.

expenditures in the United States.24 The total of such decreases would have been 8,455 as indicated at the bottom of column 1. Note that this contraction figure is much less than the corresponding figure for the Los Angeles-Long Beach area. In column 2 there are presented the increases, by industrial category, which would have resulted from a situation (A) consumption program. Such a program would have involved (1) a reduction in personal income taxes such that disposable personal income in the United States would have risen by the total dollar amount by which military expenditures had been cut and (2) equal percentage increases in disposable personal income in all areas. 25 TABLE 40-San Francisco-Oakland metropolitan area; Employment effects by industrial category of cutback in military expenditures and selected offset programs

The sum total of the resulting increases in employment would have been 5,786,26 an amount insufficient to offset the estimated decline in employment incident to the 10-percent cutback in military expenditures. However, had a more reasonable consumption program been introduced, namely, one in which disposable personal income would

"The figures of col. 1 of table 4 are obtained by multiplying the sector employment figures of the XG column of the San Francisco-Oakland table in "Markets,", op cit., pp. 54-55, by 9 percent, since for the State of California 90 percent of the Xo final demand is accounted for by deliveries of military prodnets. Note, however, that such a multiplication overstates the reduction in Government civilian employment since for San Francisco, a regional capital, much less than 90 percent of Government civilian employees would be accounted for by the Department of Defense. Hence the figure 5,265 is taken to represent crudely the decrease in both civilian and military employees of the Government sector.

The total dollar amount of the estimated 10-percent cutback in U.S. military expenditures, and thus the rise of disposable personal income in the United States, is $3.23 billion. This amounts to an increase in U.S. personal disposable income of 0.97 percent. The method of calculating these figures is described in bootnote 11.

Disposable personal income in the San Francisco-Oakland area rises 0.97 percent. Thus the total increase in employment is obtained by multiplying the combined sector employment figures of the Cand Gc columns of the San Francisco-Oakland table in "Markets," op. cit., pp. 54-55 by 0.0097, and then summing. As in the case of the Los Angeles-Long Beach area computation, we combine the employment accounted for by the C and the Gc sectors in order to trace more accurately the effects of a rise in disposable income.

have risen dollarwise in the San Francisco-Oakland area by the sa: amount by which military expenditures had been cut, the figures · column 3 would have been relevant. In this situation (B) consun.;tion program, the increases in employment would have totaled 7,991,27 an amount somewhat less than the decline from a 10-perce: cutback.

As in the case of Los Angeles-Long Beach area, programs in investment housing, in business investment, and in Government investmet would each have yielded a more positive effect than the correspond.:: consumption programs. Hence, at the minimum, it can be state that there could have been an offset policy consisting of one or a combination of programs which would have led to no decrease in to% employment in the San Francisco-Oakland area. Further, agar assuming political feasibility and successful reconversion procedures there could have been at least some programs which on net wou. have increased total employment in this area.

State of California

We now turn to the State of California. Once again the same research study, industrial categories, definitions, and procedures are used as in the case of the Los Angeles-Long Beach area. However because the geographic unit is larger, different significance must be attached to the several sectors, especially the export sectors. Moreover, the validity of the sector classification and the reliability of the data are no longer the same. And the conceptual framework becomes less able to pinpoint potential "sore spots."

Limitations of space do not permit the discussion of such technical questions as these. We turn directly to table 41 for estimated effects of changes in key final demand sectors.

In column 1 of table 41 are listed by industrial category the reductions in employment, direct and indirect, which would have ensued in the State of California from a 10-percent across-the-board cutback in U.S. military expenditures. 28 The total would have beer 76,194. In column 2 are listed what would have been the effects of a situation (A) consumption program; 29 in column 3, the effects of a

27 If the policy postulated in this situation (B) consumption program had been put into effect, dispos, be personal income would have risen in the San Francisco-Oakland area by $92.7 million. This figure is tained as follows: (a) The cutback in prime military contracts is estimated at $33.8 million (see “Awards op. cit., p. 9); (b) the cutback in direct payments of the Department of Defense to civilian employees in the San Francisco-Oakland area is estimated to be $29.45 million. This figure is 10 percent of $294.5 ... The latter figure represents the estimate of total direct payments of the Department of Defense in the Ng Francisco-Oakland area. It is 37.33 percent of the $789 million of direct payments by the Department Defense to civilian employees in California (see "Statistical Abstract," 1962, p. 252). The 37.33-peront fa ure is derived by taking the ratio of 58.5, the San Francisco-Oakland direct employment (in thousands s the Government sector linked to the Government export (XG) final demand, to 156.7, the corresponiard rect employment figure (in thousands) for the entire State of California (see "Markets," ・・・ op. xi. pp. 55 and 59); (c) the cutback of 10 percent in direct payments to military personnel is estimated to të $29.45, an amount equal to the 10-percent cut in direct payments to civilian personnel (see “Statistical A?stract," 1962, p. 252).

Summing the amounts of the three cutbacks in expenditures yields the total reduction of $92,7 mäme By assumption this amount is equaled by the increase in San Francisco-Oakland area disposable persili income, an increase of 1.34 percent. Multiplying the combined sector employment figures of the Cir Gc columns of the San Francisco-Oakland table (in "Markets" * ⚫ op. cit., pp. 54-55) by 0.0134 and thes summing yields 7,991, the total of increases in employment.

28 The figures of col. 1 of table 5 are obtained by multiplying the sector employment figures of the XG MET of the State of California table in "Markets⚫ op. cit., pp. 58-59, by 9 percent, inasmuch as 90 percent a the XG final demand is accounted for by deliveries of military products.

29 In the situation (A) consumption program, disposable personal income in the State of California wonhave risen by 0.97 percent, the same as the U.S. increase (see footnotes 11 and 24). Thus the increases o employment listed in col. 2 of table 41 are obtained by multiplying the combined sector employment frim of the C and Ge columns of the State of California table in "Markets・・ " op. cit., pp. 58-59, by 6. Xu”

11

situation (B) consumption program. 30 As is the case for the Los Angeles-Long Beach area and the San Francisco-Oakland area, an offset policy consisting solely of a situation (B) consumption program would not have fully counterbalanced the adverse effects of a 10percent cutback in military expenditures.

Recorded in columns 4, 5, 6, and 7 are what would have been the effects of other offset policies, each consisting of a single program. In order, these programs are

31

32

33

a situation (A) investment housing program (col. 4); a situation (B) investment housing program (col. 5); a situation (A) business investment program (col. 6); a situation (B) business investment program (col. 7). 34 In none of these cases are the adverse effects of a 10-percent cutback fully offset, as they were in the case of the situation (B) business investment program for the Los Angeles-Long Beach area. other hand, both the situation (A) and the situation (B) Government investment programs for the State of California (whose effects are identified in cols. 8 and 9) would have each more than counterbalanced the adverse effects of a 10-percent cutback. The situation 30 If the policy postulated in this situation (B) consumption program had been put into effect, dispnes ble personal income would have risen in the State of California by $645.3 million. This figure is obtained as follows: (a) the cut back in prime military contracts is estimated at $487.5 million (see "Awards," op. cit.. p. 9); (b) the cut back in direct payments of the Department of Defense to civilian employees in the State of California is estimated to be $78.9 million. This figure is 10 percent of the total of $789 million; (c) the cutback of 10 percent in direct payments to military personnel is estimated to be $78.9 million, an amount eq to the 10-percent cut in direct payments to civilian personnel (see "Statistical Abstract," 1962, p. 252 Summing the amounts of the three cutbacks in expenditures yields the total cutback of $645.3 million. By assumption the figure is equaled by the increase in the State's disposable personal income-an increase of 1.89 percent. Multiplying the combined sector employment figures of the C and Gc columns of the State of California table in "Markets" op. cit., pp. 58-59, by 0.0189 yields the employment increases listed in col. 3, table 41.

According to "Markets, op, cit., p. 39, building construction expenditure for consumer investment in the State of California was $2,527.3 million in 1959. This was 20.24 percent of the corresponding U.S. expenditures. (See footnote 15.) This percentage applied to $3,230 million (the total dollar amount of the estimated 10-percent cut back in U.S. military expenditures) yields $653.8 million as the increase in Investment housing in the State of California. Multiplying $2,527.3 million by the ratio of direct employ. ment in the IH sector to the direct employment in contract construction linked to this sector yields $3,775 million as the estimated California expenditure in the In sector in 1959. The increase of $6.53.8 milion thus amounts to 17.63 percent of the total 1959 IH expenditures. This percentage multiplied against the employment figures of In column, State of California table, “Markets, ・ ・ "," op. cit., pp. 58-59, yields the amounts in col. 4 of table 41.

32 The figures of col. 5, table 5, are obtained by multiplying the sector employment figures of the Is column of the State of California table in "Markets, * *." op. cit., pp. 58-59, by a percentage factor of 17.40. Thi percentage was obtained by taking the ratio of the $645.3 million increase to $3,707.5 million, the estimated consumer housing investment in California in 1959. This estimated investment is derived from multiplying the dollar value of building construction for consumer investment purposes in 1959 in California (“Markets, ..." op. cit., p. 39) by the ratio of total direct employment in contract construction linked to this sector The $645.3 million increase is equal to the amount of the cutback in military expenditures in the State of California calculated as explained in footnote 30.

According to "Markets," op. cit., p. 39, building construction expenditures for business investment purposes were $1,253.9 million in 1959. This was 16.64 percent of the corresponding U.S. expenditure. This percentage applied to $3,230 million (the total dollar amount of the estimated 10-percent cut back in U.S. military expenditures) yields $537.5 million as the increase in business investment in the State of California. Multiplying $1,253.9 million by the ratio of direct employment in the Is sector to the dire employment in contract construction linked to this sector yields $2,143.8 million as the estimated California expenditure in the IB sector in 1959. The increase of $537.5 million thus amounts to 22.27 percent of the total 1959 In expenditures. This percentage multiplied against the employment figures of the Is column, State of California table, "Markets,, op. cit., pp. 58-59 yields the amounts in col. 6 of table 5.

34 The figures of col. 7 table 5, are obtained by multiplying the sector employment figures of the Is columa of the State of California table in "Markets, ⚫," op. cit., pp. 58-59, by a percentage factor of 26.73. Thi percentage was obtained by taking the ratio of the $645.3 million increase to $2,413.8 million, the estimated business investment in California in 1959 (as derived in the previous footnote). The $645.3 million increase is equal to the amount of the cutback in military expenditures in the State of California calculated as explained in footnote 30.