An Overview of Alaska’s Economy

Ice Pattern, Sea of Okhotsk (NASA, International Space Station, 04/14/14)

Let’s take a look at Alaska’s $50+ billion economy. How it is performing and how it has changed over time.

Gross Domestic Product (GDP)

GDP is the most common macroeconomic statistic when describing an economy. It is a count of the total value added within Alaska’s borders. This includes the value of products that are made within the State (like jewelry or art), the value of services provided by Alaskans (like doctors and accountants), the value added to products that are imported into the State (like when restaurants turn groceries into meals), the mark-up on products that are shipped into the State and sold retail (like Fred Myers and Wal-Mart), and the value of raw materials that are produced from beneath the lands within the State (like oil and gold, regardless of who owns the land).

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The data in the graph above comes from the Bureau of Economic Analysis. As you can see, Alaska’s economy has been steadily growing since statehood. The fastest growth occurred in the late 1970’s as oil began to flow from the North Slope. You can also identify the recessions Alaska has endured.  Most notable are the 1980’s “post-construction crash,” the 2009 “Global Great Recession,” and the 2015 recession brought on by falling oil prices.

Industry Breakdown


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The top 5 contributors to Alaska’s GDP (representing 67% of the total economy) are currently:

  1. Natural Resources
  2. Government Spending
  3. Transportation (mostly pipelines)
  4. Real Estate
  5. Healthcare

Across the United States, the economy’s top 5 contributors (making up 52% of the economy) are:

  1. Real Estate
  2. Government Spending
  3. Manufacturing
  4. Finance
  5. Healthcare

While Alaska’s economy has some commonalities with the rest of the nation, it lacks a manufacturing system and is much weaker in the field of finance than the country as a whole. Instead, the economy greatly revolves around natural resource production.

Natural Resources

In total, natural resource production, transportation, and support services account for about 26% of the economic activity in the state ($14 billion).

The payments that this sector makes to the state also support a vast majority of the government services that are provided. This alleviates the need for personal taxation and allows more of those paychecks to flow from the households to the businesses. This is why we spend so much time discussing the natural resource industry. It is the lifeblood of Alaska’s economy.

Government Spending

The second largest component of Alaska’s economy is the government sector. About $10 billion flows into the economy from the Federal, State, and local governments. That translates to roughly 20% of all economic activity. This is a larger percentage than most states, which average around 12% of their economies.

The reasons for this larger number in Alaska are a combination of very low personal taxes (see more on this here), very low population density, and a higher than average per capita contribution of Federal dollars. About half of those federal dollars flow in as payments to military personnel.


The other half of the economy is made up of more traditional sectors. In order, the largest sectors are:

4. Real Estate ($5.3 billion)

5. Healthcare ($3.9 billion)

6. Retail ($2.4 billion)

7. Construction ($2.1 billion)

8. Professional Services ($1.8 billion)

9. Manufacturing ($1.7 billion)

10. Accommodation and Food Services ($1.6 billion)

There are several other categories that add up to another $6.6 billion. This includes things like financial services, waste management, utilities, agriculture, fishing, arts, private education, and more.


Another statistic that is commonly used to discuss an economy is its employment. Probably the most common metric is the unemployment rate. Alaska has a higher natural rate of unemployment that other states. For this reason, it is more effective to compare Alaska’s unemployment rate to its own history rather than to other states.

Unemployment Rate

The reasons for this higher natural unemployment rate are interesting and worthy of further study. But, it basically boils down to the low population numbers in many communities combined with how we define “unemployed.”

The above graphic shows Alaska’s unemployment rate over time. As you can see, the seasonal impacts are fairly significant. These seasonal swings make comparing month to month changes difficult. The other line on the graphic smooths out those seasonal swings with a 12 month moving average, so that we can see the underlying direction the unemployment rate has taken over time.

There are a couple interesting things to note here. First, notice that the average unemployment rate since 1976 has been 8%. That is significantly higher than in other US states. It also suggests that the current rate of about 7.5% is well within the normal range for Alaska.

Second, notice that the unemployment rate in the 1980’s was over 10% for most of the decade. While the 1986 recession is visible as an increase, the preceding years show high unemployment during a time of great economic expansion. Then, in the following years, you can see a significant decrease in unemployment. But that decrease is a result of a shrinking labor force rather than unemployed people finding jobs. This is one reason that the unemployment rate isn’t the best indicator of an economy’s health.

Next, notice the cyclical nature of the unemployment rate from 1996 to the present. The unemployment rate has bounced between a floor of about 6.5% and a ceiling of about 8% for the last 30 years. There have been three upswing periods; 2001-2003; 2007-2009; 2015-2017. These dates correlate with economic recessions and oil price shocks.

Jobs Count

A more effective way to think about Alaska’s economy, from the perspective of jobs, is to look at the number of people who are working rather than those that are not.

When the number of people who are working starts to decline (after adjusting for seasonal swings in jobs counts), we can be pretty sure that it indicates that the economy is shrinking. When the unemployment rate changes, we can’t be quite so sure. It could just be due to an increase/decrease in people participating in the labor market.



In the chart above, the blue area shows the total population in Alaska. Notice the fast growth in population during the 1980’s. The population actually grew faster than the labor market, which in turn grew faster than the jobs count. This explains the high unemployment rate during that time – more people were enticed to move to Alaska in search of work than there were jobs available. After the construction period ended, you can see the only time in recent history in which the population declined by appreciable numbers.

Also notice that Alaska’s population, labor force, and employment numbers stopped growing in 2012 before trending downward since 2015. There may be more to the story here than the sudden drop in oil prices.

The red area in the graph above shows Alaska’s total labor force. As you can see, roughly half of Alaska’s population earns a wage or is looking for work. The other half is a combination of children, retirees, stay-at-home parents, college students, prison inmates, and the self-employed.

At last count, 330,835 people were working for wages in Alaska. We expect that number to rise to somewhere around 350,000 at the peak of summer before tapering off to something like what we see now in the Fall. Another 95,000 or so people reported themselves as being business owners.

As for the people who want work but can’t find it, those people are represented by the red area between the red and yellow lines. The count sits somewhere around 27,000 people across the state today.

Jobs by Industry

A few things probably stand out in the pie chart above. First, the government sector is the largest source of employment in Alaska. This shouldn’t be too surprising seeing how the sector makes up about a fifth of the total economic activity. But, it should be noted that those 100,000 jobs are not State jobs. Local government jobs stand at just under 40,000. There are also around 25,000 military personal and another 15,000 federal employees. The other 20,000 are state employees.

Second, notice that the Natural Resource sector only makes up about 4% of total employment, while it makes up about 20% of GDP. This indicates that the value that is being generated is flowing to a much smaller number of people than in other industries. Part of this speaks to the high wages earned by people in that field.

Third, note how large the healthcare sector is in terms of employment. It is the second largest sector behind government at over 50,000 jobs. This is also the fastest growing sector in the state.

The next largest job contribution industries are the retail and service industries. These are people working in stores, hotels, restaurants, and bars. Combined, these sectors represent over 80,000 employees, although they are typically lower paying jobs.

Other notable sectors include transportation services (23,900), professional services (23,800), construction (23,500), and real estate (17,100).

Net Migration

Another way to identify if an economy is growing is to look at how many people are moving into or out of the economy. The Department of Labor publishes this statistic annually. Here is a graph of their data:


One way to think about these data is whether job opportunities are more lucrative in Alaska versus the Lower 48. As you can see, Alaska has been losing that fight for the last 5 years. This probably speaks more to the strength of the economy in the Lower 48 than it does a weakness in Alaska’s economy.

Personal Income

An economy functions as individuals trade their labor for goods and services. So, another way to consider the strength of an economy is to look at how much money households are receiving. That sets the stage for how much money they can spend.

The average Alaskan household today has about $160,000 a year to spend, save, or pay taxes with. That basically boils down to a two income family earning an average wage and benefits package of $80,000 each before taxes. Naturally, some people are single and others have 6 children. Likewise, some people earn minimum wage and others clear $1 million in investment earnings. So the average value doesn’t necessarily reflect any specific family.

But, you can see the upward trend through the 1990’s as household incomes grew and families were becoming better off. That trend basically stopped in about 2008.


One of the best measures of economic health is the Personal Consumption Expenditure (PCE). This number shows you how well each family in the economy is doing. It does not tell you how much money is flowing into the economy (as it includes all expenditures regardless of location). But, if this number is stable, then the people in the economy are maintaining a consistent standard of living.

The reason this is important is that it smooths out changes in income or temporary unemployment. When this number dips, it is a sign of trouble as people’s purchasing patterns are adjusting to lower levels. This would indicate a more permanent change in the economic health rather than a cyclical one.

A similar pattern emerges here as with income. Households were able to increase their spending through the 90’s, and growth appears to have leveled off after 2008. But then we see an unexpected upward trend during the recent recession. This indicates that even though people were leaving jobs, they were not decreasing their spending rates.

This is good news as it means that we should not see secondary effects from those job losses. It likely indicates that the job losers were able to replace their income in order to maintain spending. The most obvious way for this to occur would be to draw off retirement savings.


Alaska’s economy experienced a growth phase as the oil boom transformed the economy. Since about 2008, the economy appears to have stabilized. Although some statistics indicate that Alaska did experience a recession from 2015-2017, it does not appear to have been a very severe one. This may indicate that the current economy is more resilient than in the past.

The statistics indicate that Alaska is not in a freefall. In fact, preliminary statistics indicate the economy may be in recovery as we speak. But, there is not evidence to suggest that the recovery will lead to significant growth. It is more likely that Alaska has reached a plateau, to which the recovery will pull toward.

While this is better than a declining economy, it should be concerning that the economy does not appear to be poised for growth. The outmigration of people should be reason for concern. This indicates that the State is not attracting a future workforce; another sign that the economy is not prepared to grow.