Recovery Plan for the Northern Spotted Owl - DRAFT

Two concepts are useful for understanding the employment effects of owlconservation measures. One is the relationship among the various factors thataffect the decisions of businesses with employment directly related to timberharvest, such as sawmills. The key factors of interest are the supply of timberand labor and the demand for timber. The second is the relationship betweendirect employment in timber cutting and milling and employment in relatedindustries and in the economy as a whole.Figure H. 15 shows the factors that affect a sawmill's management decisions.The mill manager determines the rate of lumber production, the rate of timberpurchases, and the amount of labor and other inputs it needs for that rate ofproduction. These decisions are affected by the price of lumber, the price oftimber, and the prices of labor and other inputs. The demand for workers inthe timber industry results from the decisions of many mills and other businessesinvolved in the harvesting, transportation, and processing of timber.The price of timber provides the connection between the availability of timberas represented by the timber supply curve and the rate of production andlevels of employment in timber businesses. As shown in Figure H.5, the priceof timber is represented by the intersection between the demand curve fortimber and the supply curve.The demand curve for timber shows the rate of timber consumption at eachtimber price. The demand for timber is derived from the demand for lumber. Ifthere are many firms producing lumber, none can affect lumber prices. Eachsawmill must sell its lumber at the market price. At a given lumber price, eachsawmill's profits and production rate depend on the firm's costs. The price oftimber is an important factor in the total costs of producing lumber. Whentimber prices increase, profits and the rate of production decrease.Some firms are efficient enough to be able to absorb an increase in the price oftimber and continue operating, though at lower output. Firms that weremarginally profitable before an increase in timber prices will be forced to close.Thus when the price of timber in a region is higher, the total output of lumberwill be lower.To minimize costs, a firm would normally adjust its mix of inputs whenever aninput price changed significantly. Often, increased use of some inputs canoffset the reduction in use of an input whose price has increased. In sawmilloperations, however, there is little flexibility to alter the amount of timberneeded to make a board foot of lumber, at least in the short run (the periodduring which capital equipment cannot be changed). Therefore, to simplify thediscussion, it is reasonable to assume that for each rate of lumber productionthere is a corresponding rate of timber purchases by the mill. Furthermore, foreach rate of lumber production, there is a profit maximizing employment level.Thus, direct employment in the timber and wood products industries is higherwhen timber prices are lower. If restrictions in the availability of timber forharvest shift the supply curve to the left as in Figure H.5, timber prices will behigher. As a result, lumber output and direct employment will be lower.The level of output in a region's timber industry also affects employmentoutside of that industry. Timber businesses buy goods and services from avariety of firms in other sectors of the economy, from equipment manufacturingto accounting. At lower levels of output, the timber industry uses less ofthese goods and services. Firms in other sectors must reduce their levels ofoutput to avoid producing goods that cannot be sold. Workers are laid off ornew hiring is deferred when such reductions occur. Thus changes in output inthe timber and lumber industries induce changes in employment in othersectors. In addition to the direct employment effects of a change in timberavailability, there are induced employment effects in the related industries.572