Business Impacts of the Northridge Earthquake

Abstract

The Northridge earthquake of 17 January 1994, killed 57 people and injured an estimated 10,000 persons. The earthquake is the most costly disaster in U.S. history, in terms of dollar loss; costs continue to rise as more damage is uncovered, repairs are made, and disaster‐related claims are paid out. Recently‐issued government estimates place the losses due to direct earthquake damage at approximately $25 billion (Governor's Office of Emergency Services and Federal Emergency Management Agency, 1996), and researchers who are tracking Northridge‐related losses believe ‘it is quite possible that total losses, excluding indirect effects, could reach as much as $40 billion’ (Eguchi, et al, 1996) The number of households and businesses that were affected by the earthquake far exceeded the size of the victim population in other recent major disasters in the U.S., including Hurricane Hugo in 1989 and Hurricane Andrew in 1992, and the assistance effort that was launched was the largest ever undertaken for a U.S. disaster. By the end of 1995, 681,710 applications for state and federal assistance had been received, which was more than double the amount filed for any other single disaster event (Governer's Office of Emergency Services and Federal Emergency Management Agency, 1996). Applications for the housing assistance programs operated by the Federal Emergency Management Agency totalled well over half a million, and nearly 200,000 households applied to the U.S. Small Business Administration (SBA) for loans to rebuild or repair their homes. Additionally, approximately 39,000 businesses applied to the Small Business Administration for disaster loans (EQE International, 1995). This paper focuses on the immediate and longer‐term impacts the earthquake had on businesses in the Greater Los Angeles region. The data reported here are based on a survey that the Disaster Research Center, at the University of Delaware, conducted with a representative, randomly‐selected sample of businesses in the cities of Los Angeles and Santa Monica, two jurisdictions that were particularly hard‐hit by the earthquake. The material presented here is primarily descriptive. The goal of this paper is not to develop or test complex analytic models, although the paper does refer to other more quantitative analyses that have been performed on these data. Rather, the objective is to outline for readers empirical findings on the various ways that the earthquake affected the operations and viability of businesses on the impact area. Few studies exist that document the range of impacts that disasters can have on businesses and business sectors, and even fewer are based on detailed data from large representative samples. The paper addresses the following research questions: (1) What direct impacts and losses did businesses experience in the earthquake? (2) In what ways did the earthquake affect the operations of the businesses studied? If they experienced business interruption, why were they forced to close? What other kinds of problems did business have to cope with following the earthquake? (3) What earthquake preparedness measures had businesses undertaken prior to the disaster, and what have they done subsequently to prepare? and (4) To what extent have business operations returned to pre‐earthquake levels, and which businesses appear to be experiencing the most difficulty with recovery?