Base Closure Impacts and the General Effects of Military Installations on Local Private Employment

This empirical study explores the general effects of military installations on local employment, and the special case of closure under the Base Realignment and Closure (BRAC) proceedings of 1988, 1991, 1993, and 1995. Employment impacts are modeled in a partial adjustment construct, and both random and fixed effects specifications of the disturbance term are evaluated. The analysis also includes both levels and changes forms of the model. The latter approach facilitates decomposition of defense personnel changes into its positive, negative, and BRAC related components. These components are examined for asymmetrical effects attributable to the public goods and community infrastructure vacuum that is created when military installations draw down. The specific effects of economic assistance, and facilities conversion and reutilization in BRAC communities are also considered, as are the elasticities of defense employment multipliers with respect to regional industry specialization and military vs. civilian workforce composition. Two-stage least squares instrumental variable techniques are employed to alleviated concerns over the relationship between the lagged dependent variable and the disturbances.

A novel panel data set incorporating 21 years of military and private industry observations for 963 military installations and 3,092 counties allows comprehensive modeling and examination of defense related employment trends across all 50 states. The collection of sub-county defense personnel figures addresses a shortcoming of the other county-level impact studies, which reconcile community employment changes against the base closure personnel losses, without consideration of personnel dynamics at other military installations within the same county.

This study finds evidence of an asymmetrical relationship between military personnel level changes, and local community employment. While this supports the proposition of favorable effects through reutilization of public and community infrastructure, facilities, and housing when bases draw down, economic assistance and the practice of outsourcing defense support functions are also identified as contributors to this condition. Results of the study also suggest the degree to which regional industry specialization and workforce composition influence the effect of local defense employment on community employment is minimal. The exception is the reutilization effects of BRAC related personnel losses, which appear to be less favorable in counties with a strong military presence.