Over the past four years, considerable attention has been focused on the problems of high unemployment in the State of Oregon. The percentage of jobless continued to be higher than that of the nation. The depressed housing market, caused by high interest rates, coupled with an increase in the import of Canadian timber managed to reduce the demand for Oregon lumber and wood products drastically. This has resulted in an abnormally high unemployment rate in many of Oregon's counties which are dependent on the wood industry; for example, the 1980 jobless rate in Harney County reached a record high of 29 percent. On the other side of the spectrum, less dependent counties such as Gilliam and Morrow continued to grow during the same period, with unemployment rates of merely 4.9 and 5.8 percent respectively. These rates are approximately half the state average. Community leaders, including the Governor, seem convinced that the only solution is economic diversification. It is an argument that makes a great deal of sense at first glance. The notion here is that if you diversify you will become less vulnerable to outside forces and hence will have a more stable economy. But what is diversification? How can we tell that one region is more diversified than another? Furthermore, having a diversified economy, does this ensure a lower rate of unemployment? The thrust of this dissertation deals with providing answers to these questions. Three schools of thought--ogive-norm, portfolio variance and entropy--were examined in an effort to determine a more proper measure of economic diversification. Various statistical procedures of hypothesis testing were employed together with stepwise regression and analysis of variance. The research findings indicate that there is a definite relationship between economic diversification and regional unemployment. However, only 28 percent of the change in the rate of unemployment is explainable by changes in the levels of diversification. (The necessary data were provided by the State of Oregon - Employment Division).

The purpose of this study is to investigate some widely-held assumptions regarding the value of diversification as an economic strategy. It has ofien been suggested that economic diversity enhances economic performance, either by promoting higher levels of economic well-being or by improving the ability of regions to cushion the adverse effects of economic cycles. This is the conventional wisdom, but it has not been adequately tested, although some attempts have been made to relate measures of diversity to other economic indicators (e.g., Rodgers, MacLaughlin, Conkling). The current study explores this particular issue, and the results obtained should be of interest to economists, regional scientists, and development planners and policymakers. Shannon's entropy function, applied to the distribution of employment in different economic sectors, was used as an index of diversity. This measure allows not only comparison of changes in diversity over time, but also, through its decomposition properties, a means of analyzing the nature of such changes. Economic performance was assessed in terms of unemployment and per capita income, considered in four ways: the level of the variable, its rate of change over time, the degree of instability of the level, and the degree of instability of its rate of change. Eight hypotheses were formulated and tested with data from the counties of Oregon for the ten-year period from 1972 to 1981. To provide a comparative perspective for the Oregon investigation, a U.S. study was also conducted for the same period. Calculations of both studies revealed diversity to be negatively but very weakly correlated with unemployment; the Oregon finding, however, did not quite satisfy the 5% significance standard used throughout this research. While a weak positive association was found between diversity and per capita income of Oregon counties, a larger negative association was observed between the two variables in the U.S. study. These results can be explained either as an effect of differing levels of geographic aggregation or in terms of differences among the particular specializations of low diversity counties and states. For Oregon, relations between the variables for nonrecession years were stronger than for recession years. The study further showed that diversified counties of Oregon were more stable in unemployment and per capita income and showed lower rates of growth of unemployment and higher rates of growth of per capita income than the more specialized counties. None of these associations, however, was particularly strong. For the U.S. study, no evidence was found for any relation between diversity and either growth rates or stability. In general, correlations between diversity and income-based measures were larger than between diversity and unemployment-based measures; also, percentage changes associated with differences in diversity were considerably greater for the income-based measures. Although expected patterns of relationship were thus found to hold, if weakly, for the counties of Oregon, comparison with the national study suggests that results may not be generalizable to other, especially larger, geographic units. Whether diversification is useful for regional development depends at least partially on the specific character of the industries in the region's economy.