Does Tribal Gaming Generate Net Benefits?
Does Tribal Gaming Generate Net Benefits?
Laurel Wheeler*[1]
*University of Alberta
This non-peer reviewed entry is published as part of the Critical Gambling Studies Blog.
How to cite: Wheeler, L. (2022). Does Tribal gaming generate net benefits? Critical Gambling Studies. https://doi.org/10.29173/cgs142
Abstract: Since the late 1980s, casino-style gaming has become an
increasingly popular economic development strategy for federally-recognized
tribes throughout the United States. What is the net effect of tribal gaming?
According to economic theory, the opening of a casino could have negative
economic ramifications that offset initial improvements in employment and
wages. However, my research suggests otherwise. I find that tribal gaming is
responsible for sustained improvements in employment and wages on federal
reservations. These labor market gains appear to be concentrated on Indigenous
people living on the host reservations. I also find evidence of rising prices
on reservations that open casinos, but the average price increase is smaller
than the average wage increase, suggesting that tribal gaming generates net
benefits locally.
The
Origins of Tribal Gaming
The historical origin of
tribal gaming dates
back to pre-colonization, but the pivotal moment
for gaming as an industry came in 1987 with the U.S. Supreme Court case that
pitted the state of California against the Cabazon Band of Mission Indians in Cabazon
v. California. The state sought to shut down the Cabazon Band’s card room
facilities. Ultimately, the Supreme Court ruled that state gambling laws were
civil or regulatory, rather than criminal or prohibitory, which means that
state statutes do not apply to tribal gaming operations taking place on
homelands designated as federal Indian reservations. This ruling led to the
passage of the 1988 Indian
Gaming Regulatory Act (IGRA), which created
the National Indian Gaming Commission and established a three-class system of
regulation. After the passage of the IGRA, revenues from tribal gaming
facilities increased rapidly as casinos opened up across the United
States.
Gaming has become the
most important economic development strategy for tribal governments across the
United States (Akee et al., 2015). Annual revenues from tribal government-owned
gaming facilities now surpass revenues from all commercial gaming facilities in
the United States. In 2019, tribally-owned casinos generated almost two times
as much revenue as the 25 largest Las Vegas Strip casinos combined (National
Indian Gaming Commission, 2020; Nevada Gaming Control Board, 2020). The size of
the tribal gaming industry is all the more impressive considering that the
industry is legally confined to federal reservations, which make up a small
fraction of the geography of the United States.[2]
How does an industry this large affect the well-being of Indigenous people and
communities?
Image 1: Images of
Tribally-owned Casinos and their Surroundings
Positive
Economic Shocks and Local Well-Being
The relationship between
economic shocks and well-being is complicated and perhaps best understood
through an example. Let’s consider some of the consequences of the Bakken shale
oil boom across Western North Dakota. Fort Berthold Reservation, which is home
to the Mandan, Hidatsa, and Arikara Nations, sits entirely on the Bakken shale
formation (see Image 2). In the late 2000s, technological advancements in
hydraulic fracturing revived an oil industry that had gone bust in the 1980s.
As production surged, millions of dollars of tax revenue were generated,
supporting investments in schools, infrastructure projects, and new housing
developments. Increased demand for workers opened up thousands of new
employment opportunities. But the oil boom was accompanied by a number of
unintended negative effects, as well. For instance, the economic opportunities
on and near Fort Berthold attracted workers from all over the country.[3]
Anecdotally, the new migrants precipitated violence
and rising housing and food prices. In addition, the multibillion-dollar oil
industry created inequities, leaving some tribal businesses out
of lucrative contracts. The oil boom also brought environmental
hazards such as burst pipelines that spilled oil and fracking chemicals and leaked
millions of gallons of saltwater.
Overreliance on the oil industry for tax revenues also proved to be a point of
economic vulnerability, which was especially prominent when the coronavirus
pandemic dramatically reduced demand for fossil fuels.[4]
Given the complex nature of this economic shock, was the average local resident
of the Fort Berthold Reservation better off as a result of the oil boom? That
is an empirical question.
Image 2: Fort Berthold
Indian Reservation and the Bakken Shale Formation
Source: The Wall Street Journal (Feb. 28, 2013). Shale-Oil Boom Divides Reservation. [Image, screen capture.] Retrieved from: https://www.wsj.com/articles/SB10001424127887323293704578331030315441350
Of course, a
comprehensive definition of well-being would draw on Indigenous Knowledge. It
would define well-being in a holistic sense, considering all the various
pillars of economic development, including control of assets, kinship,
spirituality, and personal efficacy (Wuttunee, 2004). Well-being may also
encompass things like cultural restoration and language revitalization. And,
ideally, well-being should be differentially defined by communities depending
on their priorities. Unfortunately, researchers who study the effects of
economic shocks typically lack the tools to adequately capture all the changes
in the various elements that comprise well-being. Instead, we construct a crude
measure of well-being that compares changes in the different markets that may
be affected.
Similar to an oil boom,
the opening of a casino on a federal reservation represents a powerful economic
shock that affects not only employment and wages but also housing prices and
migration decisions. Drawing on economic theory, we would expect to see the
following series of changes in response to the casino opening.[5]
First, the most immediate change would be an increase in nominal wages, as
employers need to attract workers to staff the casino and related
establishments. Higher wages and new employment opportunities will typically
draw in workers from other places, leading to migration into the host
community. Higher wages combined with a larger population base increases the
demand for housing and other goods, putting upward pressure on prices. Economic
models predict that the increase in the cost of living will more or less cancel
out the benefit of the wage increase.[6]
Simply comparing the changes in the labor and the housing markets suggests
that, in the long run, the opening of the casino may not actually benefit the
local population.
Tribal
Casinos and Local Well-Being: The Evidence
In the end, have members
of tribal communities experienced net improvements in well-being due to
casinos? Actually, my own research suggests the answer is yes. (Albeit, my
research uses a narrow definition of well-being).
I use confidential
Census microdata and data from a casino gaming database to examine the economic
relationship between tribally-owned casinos and the labor market, the housing
market, and population growth on federal reservations in the United States.[7]
I find that, on average, the opening of an Indigenous-owned casino increases
long-run employment and wages on reservations by 2.4 percentage points and
5.6%, respectively.[8]
Figure 1 shows that the employment effect is initially large and persists over
time (left panel), whereas the wage effect is initially large and actually
continues to increase over time (right panel).
Figure 1: The Labor
Market Effects of Casino Openings
These results suggest that the
local labor market effects of tribally-owned casinos are positive, meaningful,
and long-lasting; however, these results don’t tell us much about who benefits.
Past research has shown that benefits of policies targeted at Indigenous
communities may, in some cases, unintentionally accrue to non-Indigenous people
(e.g., Pendakur & Pendakur, 2021; Aragon & Kessler, 2020). In the case
of tribally-owned casinos, for example, non-Indigenous people living on or near
the reservation may get hired to work at the casino and may experience a
portion of the labor market benefits.[10] On
the other hand, tribal casinos may have preferential hiring practices that give
Indigenous workers an advantage in the labor market.
To explore the question of who
benefits, I study the labor market outcomes separately for Indigenous people
and white people living on the reservation.[11] The
results are shown in Figure 2. As you can see, the confidence intervals are
large, which means that I cannot detect differences between the population
groups with statistical certainty; however, the figures paint a suggestive
picture. Figure 2 suggests that the positive employment and wage effects are
being driven by the Indigenous population on the reservation, not by the white
population.
Figure
2: The Labor Market Effects of Casino Openings by Race
Note:
The graphs depict the results of an event study analysis that uses data from a
sample of people living on federal reservations. The lines indicate the
estimated effects of opening a casino at the time of opening (x=0) and years
later. The solid, dark lines indicate the estimates for Indigenous people
living on the reservation, and the dashed lines indicate the estimates for
white people living on the reservation. The vertical bars show the confidence
intervals. Each unit on the x-axis represents five years.
So far, we’ve seen evidence that
tribally-owned casinos have positive effects on the labor market, both in the
short and long run, and that these effects appear to be driven by Indigenous
people living on the reservation. But these results don’t tell us about well-being.
In order to say something about well-being, we need to know the net effect of
opening a casino. One specific concern is that the opening of a casino may
induce migration from surrounding areas, thereby increasing the price of
consumption goods such as housing. Based on my analysis, casino openings do
have an effect on the housing market. The opening of a casino changes the
housing composition on a reservation such that the rate of homeownership
decreases 5.3 percentage points and the rate of renting or occupying housing
without paying increases by 3.8 and 1.5 percentage points, respectively. In
addition, rental prices increase in response to casino openings. I find that
the opening of a casino is associated with a 4% increase in rental price.[12]
If casinos increase wages but also
increase the price of housing, do they actually improve the living standards of
people living on reservations? Real wages provide a measure of the net effect
of casinos on well-being. Real wages are calculated by subtracting the increase
in rental prices from the increase in nominal wages. Using this method, I find evidence
of a net positive effect associated with the casino shock. In other words, my
research indicates that tribally-owned casinos do improve well-being, as I have
narrowly defined well-being. In fact, my
calculations suggest that tribally-owned casinos are responsible for a 3.7-5.2%
increase in the welfare of people living on the reservations where the casinos
open.
Finally, although tribally-owned
casinos have large impacts on reservations, I find little evidence to suggest
that these casinos significantly affect the markets in the surrounding
counties. In my research, I test whether the opening of a casino on a
reservation has a spillover effect on the part of the county that surrounds the
reservation. By and large, the effects of the casino appear to be contained to
the markets within the borders of the reservations.[13]
The
Institutional Context Matters
How does tribal gaming result in
such uniquely concentrated benefits for Indigenous people living in host
communities? The answer to that question is beyond the scope of my research,
but there are a number of institutional features that are likely
important.
In many respects, the IGRA was
designed specifically to foster local economic development. The Cabazon
decision explicitly acknowledges that tribal gaming would be a source of
revenue for the provision of essential government services. The case law states
that “The Cabazon and Morongo Reservations contain no natural resources which
can be exploited,” recognizing that not all reservations are rich in oil like
the example of Fort Berthold. To ensure that tribal gaming would promote
sustainable, local economic development, the IGRA stipulates that Indigenous gaming
operations must be owned by tribal governments and operated within the confines
of the reservation. Also, the IGRA requires that net revenues from “any tribal
gaming” are used specifically to improve tribal welfare.[14]
Qualitatively, we know that gaming revenues tend to be invested in anti-poverty
programs and tribal services (e.g., Akee et al., 2015). One of the most common
investments has been in education. For instance, the Osage Nation started
offering college scholarships funded by gaming revenues, and the Cherokee
instituted language revitalization programs.
There are several other ways in
which tribal governments have leveraged casino shocks specifically to benefit
their communities. For example, some tribal casinos may institute preferential
hiring practices, a move that has its legal basis in the sovereignty of Native
Nations. Unemployment on federal reservations has been persistently high
relative to the United States average.[15] To
target employment benefits at tribal members, some tribal casinos such as the
Mohegan Sun have express preferences for hiring Native
American applicants. Hiring preferences could explain the differential
employment and wage effects by race that I found in my research, although I
don’t have employment data from the casinos themselves. As another example,
many gaming tribes have used casino revenues to improve access to finance
within their communities. Casino revenues improve a tribe’s credit rating,
which reduces the cost of capital. The Seneca Gaming Corporation, for instance,
has significantly reduced the current cost of capital for the Seneca Nation by refinancing its $500 million bonds, propelling the
community closer to their goals of economic self-sufficiency.
To a certain extent, the IGRA
upholds the autonomy of tribal nations to enter into the gaming industry and
decide how to invest their revenues for the benefit of their community members.
But there are limits to this autonomy – limits that are particularly evident
when tribal governments want to open casinos rather than smaller gaming
facilities. Casino-style gaming falls under Class III of the IGRA’s three-class
system of regulations. Because Class III gaming is perceived to be the biggest
competitive threat to commercial casinos, the IGRA requires that compacts are
negotiated between tribes and the state where the facility will be located.
Although in principle both parties enter into negotiations as distinct
sovereigns, in practice states assume a gatekeeping role. Before a tribe can
open a casino, the state must agree to the terms. In recent years, there have
been several high-profile disputes over the terms of tribal-state compacts
(see, for example, the Seneca Nation v. New York or the disputes in Oklahoma), suggesting that the
terms of tribal-state compacts can be contentious. Compacts may put limits on
the size of tribal casinos or may include provisions to offset anticipated
negative effects of gaming, such as investments in gambling addiction programs.
The balance of bargaining power varies across states, so we would expect to see
benefits of tribal gaming vary as well.
The
Promise and Limits of Casinos
For many tribal governments,
casinos represent economic opportunities capable of benefitting the local
population. And, according to my research, it appears they are effective in
doing so. Casinos are not, however, a universal economic panacea. Contrary to
common misconception, tribally-owned casinos are not “get-rich-quick”
strategies (see, for example, “The Myth of Indian Casino Riches” by Dwanna L.
Robertson). In fact, we have seen some of the vulnerabilities of the leisure
and hospitality sector during the covid-19 pandemic (see my blog post from 2021). In addition, not all
tribal communities have gaming operations. Approximately 30% of federally
recognized tribes have been unable to enter into the industry (see Maine’s federally recognized tribes) or have opted for
alternative economic development strategies. Sometimes, gaming does not make
sense based on lack of proximity to a major population base. With all the
appropriate caveats, my research provides some small insights into the huge
potential of Indigenous-led economic shocks in Indigenous communities.
Tribal gaming is a tribal
government innovation. Support of, and resources for, Indigenous-led economic
development strategies like casinos would be considered part of economic
reconciliation. Indigenous economic reconciliation has various definitions, but
included in all definitions is the theme of well-being - through wealth
creation and sustainability. According to my research, tribally-owned casinos
on average do promote Indigenous well-being both in the short and long
run.
Laurel Wheeler is an Assistant Professor in
the Department of Economics at the University of Alberta. As a labor and
development economist, her research addresses issues of poverty and inequality
in low-income countries and in North America. Her current research agenda
focuses largely on the economic activities of Indigenous populations in Canada
and the United States.
References
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K.A., & Taylor, J.B. (2015). The Indian Gaming Regulatory Act and its
effects on American Indian economic development. Journal of Economic Perspectives, 29(3), 185-208. https://doi.org//10.1257/jep.29.3.185
Aragón, F. M., &
Kessler, A. S. (2020). Property rights on First Nations reserve land. Canadian
Journal of Economics, 53(2), 460-495. https://doi.org/10.1111/caje.12434
Austin, B. A., Glaeser,
E. L., & Summers, L. H. (2018). Jobs
for the Heartland: Place-based policies in 21st century America (No.
w24548). National Bureau of Economic Research. https://doi.org/10.3386/w24548
Belanger, Y. D.
Williams, R.J., & Arthur, J.N. (2011) Casinos and economic well-being:
Evaluating the Alberta First Nations’ experience. The Journal of Gambling Business and Economics, 5, 23-46. https://doi.org/10.5750/jgbe.v5i1.563
Belanger, Y. D. (2014).
Are Canadian First Nations casinos providing maximum benefits? Appraising First
Nations Casinos in Ontario, Saskatchewan, and Alberta, 2006-2010. UNLV Gaming
Research & Review Journal, 18(2), 65-84.
Belanger, Y. (2021, Apr.
27). Settler colonialism and Self-determination. [Conference session.] Alberta
Gambling Research Institute Conference, online.
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(2006). The impact of local labor market conditions on the demand for
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& Marchand, J. (2013). New casinos
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Special thanks to Elijah Moreno, Center for Indian Country Development, for insightful comments on an early draft.
[2] In the United States, approximately 7 in 10 federally recognized tribes in the lower 48 now have casino-style gaming on their lands.
[3] In
2021, McKenzie County, which includes part of Fort Berthold, was the fastest
growing county in the United States.
[4] For
many resource-reliant nations, up to 90% of their tax base is provided by oil
production. The production crash in 2014 was another event that underscored the
risks associated with such a high degree of reliance on one industry.
[5] This
series of effects is particularly likely to be true in places where casinos
provide a large share of the employment and tax revenue. In urban places, the
general equilibrium effects of casinos may be more limited. When the gaming
industry represents a small share of total employment in an area, wage changes
tend to be concentrated within the gaming industry itself, thus muting the
effect of the casino on the local markets in the area (Humphreys &
Marchand, 2013).
[6]
Standard spatial equilibrium models would predict that the benefits of the
economic shock would accrue to the owners of housing. This is in a world where
workers are perfectly mobile and housing supply is inelastic (Kline & Moretti,
2014). In many ways, the assumptions of standard models may be unrealistic.
[7] Casino
gaming data are pieced together from other researchers who used public sources,
namely CasinoCity.com.
[8] I
define the “long run” as the average across all post-adoption time periods. The
5.6% increase in wage income is defined relative to the average wages of
employed people living on reservations that never opened a casino during my
sample timeframe. Those who are not in the labor force are considered
unemployed. Wage income is in 2000 dollars and is winsorized at the 95th
percentile.
where 
is a time-since-implementation dummy that
equals 1 if reservation r is k years relative to the casino opening and is
equal to 0 otherwise. Years since implementation are grouped in five-year bins.
The omitted category is the adoption or “event” year.[10] Due to
historical legislation, a fraction of land on federal reservations in the
United States is associated with fee simple ownership, meaning broadly that
ownership rights can be transferred to anyone, irrespective of tribal
membership. From my data, I observe that approximately 50% of the people living
on reservations in my sample are white. The white people living on reservations
get paid higher wages on average ($16,000 versus $9,000) and are more likely to
be employed (55% versus 39% employed) than the Indigenous people on
reservations.
[11]
According to my data, almost everyone who lives on reservations identifies as
either Indigenous or white. Other race groups are not well represented and
therefore not included in this subgroup analysis.
[12] This is
a 4% increase in rental price relative to the mean rental price for renters
living on reservations that did not open casinos. In a separate analysis, I
perform a decomposition and find that the increase in rental price is being
driven by an increase in the rate of renting (the extensive margin) rather than
by an increase in the price paid conditional on renting (the intensive margin).
[13] These
effects are estimated for a full sample of counties bordering federal
reservations in the United States, including urban and rural counties. When I
restrict analysis to counties that are rural in nature, I find that the casino
opening on the reservation does have labor and housing market effects on the
surrounding county.
[14] The
Court has consistently demonstrated a preference for economic activities that
would take place on the reservation and reflect a long-term commitment to
economic development. In Washington v.
Confederated Tribes of the Colville Indian Reservation, Judge McKay wrote
that “tribes do have an interest in raising revenues for essential governmental
programs, [and] that interest is strongest when the revenues are derived from
value generated on the reservation by activities involving the tribes and when
the taxpayer is the recipient of tribal services.”
[15]
According to data from the US Census Bureau, in 1980, less than 40% of
working-age adults living on federal reservations in the United States held
full-time employment. By 2014, that percentage had risen to approximately 50%.
At least some portion of that increase can be attributed to casinos.
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