Steven P. Lanza

English

Research Papers in Economics

4 THE CONNECTICUT ECONOMY SUMMER 2006
BY STEVEN P. LANZA
The economics of the arts had an
inauspicious beginning.  William
Baumol’s 1966 book, Performing
Arts: The Economic Dilemma, co-
authored with William Bowen,
launched the field of “cultural eco-
nomics” with an ominous message:
the performing arts are largely inca-
pable of productivity improvement.
Playing Mozart’s “String Quartet No.
14 in G major”, for example, still
requires four musicians, the same as
in 1782 when the piece was written,
so over time unit labor costs will rise,
profits will fall, and artistic output
will, necessarily, decline.
But Baumol’s so-called “cost dis-
ease” has not spelled the end of the arts
and entertainment industry.  For one,
as Baumol himself has since acknowl-
edged, rising productivity and incomes
in other sectors of the economy can
increase the demand for artistic out-
put, giving the industry a boost.
What’s more, the arts are economically
stagnant only under a very narrow def-
inition of productivity.  In fact, tech-
nological advances like sound and
video recording make entertainment
services far more readily available
today than they were generations ago.  
Recently, some economists have
turned Baumol’s dire prediction about
the future of the arts on its head.
According to Richard Florida, skilled
well-educated, high-income workers
are also tremendously mobile and they
look to locate in communities with
attractive cultural, social and environ-
mental amenities.  Art galleries, muse-
ums, theaters, parks and restaurants
might, this theory implies, act as eco-
nomic development magnets, drawing
in new talent and new businesses.
SPOTLIGHT ON THE ARTS
Connecticut’s main claim to fame
in the arts-and-entertainment world
isn’t exactly of the high-brow variety.
Since the early 1990s, the state has
been home to two world-class casinos,
Foxwoods and Mohegan Sun, that
offer (besides the requisite gambling
facilities) retail shops, restaurants,
hotels, theaters and sports venues.
Together the casinos’ 13,500 slot
machines, more than 600 gaming
tables and related ventures employ
more than 20,000 workers and gener-
ate over $2 billion in revenue annual-
ly—and the state gets a 25% cut from
slot machine proceeds.  Those num-
bers are only likely to climb higher
when Foxwoods completes its current
$700 million expansion, which will
add 40% more space to the existing
facility.
But Connecticut is hardly lacking
in more conventional attractions.
Hartford’s famed Wadsworth
Atheneum is the nation’s oldest public
art museum and one of a number of
nationally-ranked museums and art
galleries in the state.  Also in the capi-
tal city, Mark Twain’s Connecticut
home, where the iconic 19th century
writer penned the adventures of Tom
Sawyer and Huckleberry Finn and other
famous works, is but one of dozens of
homesteads and other historical sites
that together paint a vivid picture of
the state’s storied past. Mystic Seaport
offers visitors a peek back on the state’s
seafaring history, while at the nearby
Mystic Aquarium the views are from
underwater. And Bristol’s Lake
Compounce, fresh on the heels of a
$3.3 million renovation, is the nation’s
oldest amusement park, featuring
theme rides, kiddie shows and a con-
Connecticut: A State of the Arts?
THE “CREATIVE ECONOMY” TAKES CENTER STAGE
Skilled, well-educated,
high-income workers 
look to locate near 
cultural amenities.SUMMER 2006  THE CONNECTICUT ECONOMY 5
tinuous stream of food and beverage
during the summer months. 
And more may be on the way.
The latest buzz surrounds plans for a
$1.6 billion entertainment complex in
Preston on the site of the former
Norwich Hospital, only minutes from
the casinos.  The proposal, advanced
by Utopia Studios, Ltd., would include
the largest movie, television and music
studio outside California, a year-round
theme park rivaling Disneyland, a
6,000-student performing arts college,
a major hotel, a marina, and a retail
shopping complex.  Advocates of the
project foresee the addition of at least
10,000 new jobs to the economy, and
perhaps more than 20,000, counting
the employment of 5,000 temporary
construction workers during the build-
ing phase.
And in a separate initiative, unre-
lated to the Utopia proposal, the state
is implementing a special incentive
package for the film industry. A bill
approved by the General Assembly  in
May 2006 and signed by the governor
will provide, among other things, a 30
percent tax break for movies made in
Connecticut with a $50,000 budget or
better.  New York, Massachusetts and
Rhode Island already provide tax
breaks to their local film industries, so
Connecticut’s plan should, backers
believe, level the playing field and
attract more of this growing industry
to the state.
FRAMING THE INDUSTRY
Staking the boundaries of
Connecticut’s arts and entertainment
industry, and thus gauging its econom-
ic importance, is made difficult by the
variety of definitions and classifica-
tions one might employ.  Using the
North American Industrial
Classification system (NAICS), the
U.S. Bureau of Labor Statistics (BLS)
publishes data on “Arts, Entertainment
and Recreation” (AER), which covers
performing arts and spectator sports;
museums, historical sites, zoos and
parks; and amusements, gambling and
recreation.  In 2005, Connecticut
employed about 24 thousand workers,
or 1.45% of its workforce, in this sec-
tor.  That same year 1.89 million U.S.
workers, some 1.42% of the total
labored in that industry.  The ratio of
these two percentages—1.45% divided
by 1.42%—forms a measure called a
location quotient (LQ), which here
equals 1.02.  That LQ means that the
state’s share of workers in the AER sec-
tor is about 2% higher than in the U.S.
as a whole.
But this classification excludes
from the sector most of Connecticut’s
workers employed in the gaming
industry. BLS tallies tribal Indian
employment, nearly all of it gaming-
related, in the local government sector,
because the tribes are considered gov-
ernment entities.  Adding Foxwoods’
and Mohegan Sun’s 22,000 workers to
the state’s AER sector  boosts its LQ to
1.96, putting Connecticut’s share of
workers in arts and entertainment
96% higher than the U.S. average.
Using a different approach, the
New England Foundation for the Arts
(NEFA) carves out a passel of “enter-
prises and individuals that directly and
indirectly produce cultural products”
from various NAICS industries and
reassembles them into a cluster it calls
the “creative economy.”  The NEFA
classification includes some of the arts
portion of the NAICS sector discussed
above, but adds in related sub-sectors
NEFA reassembles 
a passel of 
people and firms
producing cultural
products into 
the “creative economy.”  6 THE CONNECTICUT ECONOMY SUMMER 2006
from other industries such as architec-
ture and design, movies, TV and radio,
and fine arts schools, among others
(see the table).  
NEFA’s taxonomy involves a good
deal of slicing and dicing of the
NAICS industries but produces a
result similar to one that arises from
the BLS/NAICS approach.  In 2004,
the most recent year for which data at
this level of disaggregation are avail-
able, Connecticut had 27.3 thousand
“creative economy” jobs, while the
U.S. total summed to 2.1 million.
The resulting LQ, 1.01, is virtually the
same as the 1.03 figure that year for
the NAICS-based arts and entertain-
ment industry.
APPEARANCES ARE DECEIVING
The low LQs for both the NEFA
“creative economy” and the NAICS
“arts and entertainment” industry
belie the true importance of the arts to
the state’s economy.
For one, LQs vary widely among
subsectors within arts and entertain-
ment, suggesting that Connecticut has
some key specializations within the
industry (see the table).  The state’s rel-
atively high LQ for heritage (1.33), for
example, reflects a high concentration
of economic activity in museums, his-
torical sites, parks and zoos, an ele-
ment of both the NEFA and NAICS
approaches.  Similarly, a relatively
large number of book publishers earns
Connecticut a high LQ in the literary
arts.  Even in areas where the state
scores relatively poorly, like media
activities (LQ of 0.89), Connecticut
shows promise.  Its high LQ for cable
programming and distribution reflects
the presence of ESPN in Bristol and
World Wrestling Entertainment
(WWE) in Stamford.  And, as already
discussed, casino gaming is a much
bigger business than the official num-
bers suggest.
A second qualification is that a
new job in arts or entertainment has
beneficial ripple effects.  When the
casinos  hire more workers, for exam-
ple, they also boost orders from sup-
Source: The Connecticut Economy based on 2004 data from the U.S. Bureau of Labor Statistics (Jobs and Location Quotients) and from the 
2002 IMPLAN input-output model of the Connecticut economy (Jobs Multipliers).
TWO TAKES ON CONNECTICUT’S ARTS AND
ENTERTAINMENT INDUSTRYSUMMER 2006  THE CONNECTICUT ECONOMY 7
pliers, spurring new hires in those
industries too.  The new recruits
demand local goods and services—
homes, education for children and
more—so additional workers are need-
ed there as well.  
This chain-reaction is called the
“multiplier effect.”  The table shows
multipliers for the various arts-and-
entertainment sub-sectors.  The multi-
plier for gaming, for instance, is 1.6.
That means 100 new hires at the casi-
nos will ultimately generate a total of
160 new jobs (100 x 1.6), once the
indirect and induced effects described
above play out.
Connecticut’s arts-and-entertain-
ment jobs are generally concentrated
in sectors with relatively large ripple
effects.  But one industry where
Connecticut is under-represented is
media activities—suggesting that the
state’s flirtation with filmmaking may
reflect as much common sense as blind
passion.  The State’s new incentive
package may indeed fan the fires of
romance, but Utopia’s pursuit of
Preston began several years ago, long
before talk of tax breaks entered the
conversation. So it’s likely the attrac-
tion is already mutual.
DRIVING, OR CHAUFFEURED?
Is the state’s AER industry driving
growth in the rest of the economy, or is
it just along for the ride?  After all, jobs
at fast food chains and discount
department stores have ripple effects,
too, but few would suggest that such
market activity is an economic driving
force.  Instead, it’s likely that growth
elsewhere in the economy creates the
need for more retailers.
One way to determine whether
AER is an economic follower or a
leader is to test  whether changes in its
job count trigger changes in total non-
farm jobs, or if the causality works in
the opposite direction.
Economists use a statistical tech-
nique, the “Granger causality test”,   to
measure this.  The idea is simple:  Use
past changes in nonfarm jobs to
explain the current change.  Then add
past changes in AER jobs to the equa-
tion.  If doing so produces a statistical-
ly significant improvement in the fore-
cast, the changes in AER are said to
“Granger-cause” changes in total jobs.
For Connecticut, a monthly time
series of jobs in AER is available back
to 1990.  But the results are disap-
pointing.  The Granger test suggests
that arts-and-entertainment jobs do
not cause changes in total jobs.  If any-
thing, the causality appears to run the
other way—total jobs cause more AER
jobs—at lags of 2 to 3, and 6 to 10
months.  
But wait:  A test of the entire
leisure and hospitality “supersector,”
which encompassing accommodation
and food services as well as arts-and-
entertainment, did show a strong
causal link from the supersector to the
economy as a whole, and not the other
way around.  At lags of 9 months and
beyond, changes in leisure and hospi-
tality jobs cause changes in total jobs,
and at a high level of statistical signifi-
cance.  
Why might that be?  Growth in
the AER sector, particularly at the casi-
nos and other hot tourist attractions,
will naturally give a boost to the lodg-
ing and restaurant businesses.  Since
Connecticut’s gaming industry is
largely excluded from the official
industry count, accommodation and
food services could be acting as a proxy
for the growth at the casinos.
So the evidence suggests that the
arts and related activities will play a
starring role in Connecticut’s future
job growth.  
One industry where
Connecticut 
is underrepresented 
is media activities.  
So the State’s flirtation
with filmmaking may
well make 
economic sense.  

Connecticut: A State of the Arts?

http://cteconomy.uconn.edu/articles/SL_Su2006.pdf

Connecticut: A State of the Arts?

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