Transcript Measuring Economic Impacts: The mechanics of ??? Analysis

Measuring Economic Impacts:
Science, Art or Voodoo?
Presentation to URBPL 5/6020
Jan Crispin-Little, Senior Economist
Bureau of Economic and Business Research
University of Utah
April 12, 2005
What is Economic Impact?
• The effects that occur when the level of
business activity within a region
changes
• Effects can be negative or positive
• Economic impact analysis measures the
degree of change
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Jan Crispin-Little
4/12/2005
Economic Impact Process
Customers
outside the
region send
income to the
region
Injection of
Income
Local
Business
Leakage
Local
Spending
Increases
Employment
Economic
Impacts
Increases
Income
Purchases inputs
from other local
firms
Increases
Output
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Employs
residents of the
region
Jan Crispin-Little
4/12/2005
What is measured…..
• Business Output: Full (gross) level of
business revenue (costs of labor, materials,
and net business profit
• Value Added: Sum of wage income and
corporate profit. Roughly equivalent to Gross
State Product
• Jobs: Full-time, part-time, self-employed
and partners
• Income/Earnings
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Impacts Are Measured With
Input-Output Models
• Most Commonly Used:
– RIMS II – developed by the
Bureau of Economic Analysis
– ImPlan – developed by the U.S.
Forest Service
– REMI – developed by Regional
Economic Models, Inc.
ALL IMPACT MODELS ARE DATA HOGS!!
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Jan Crispin-Little
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Final Demand Multipliers for the Food Products Machinery
Industry, Kansas City, MO-KS Economic Area
From RIMSII Handbook, www.bea.gov
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Language of
Economic Impact
• Direct Effects:
– Purchases of goods and services from
local suppliers
– Firm employment
– Wages, salaries and benefits paid to
employees of the business
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Language of
Economic Impact
• Secondary Effects
– Indirect Effects: changes in sales, income
and jobs in sectors within the region that supply
goods and services to the firm.
– Induced Effects: The increased sales within
the region from household spending of income
earned by employees of the firm and spending of
income earned by individuals employed in
supporting sectors
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Language of
Economic Impact
• Calculating Total Effects
$250,000 Direct Effect
+ $320,000 Secondary Effects
= $570,000 Total Effect
This would result in a multiplier of 2.28
$570,000 ÷ $250,000 = 2.28
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Nuts and Bolts of the Analysis
• Step 1: Identify the Study Activity
– Will the activity really impact the
economy? If yes…..
– Assessments may be
• Ex Ante: the likely impacts of a hypothetical
action, i.e. new soccer stadium or increased
state spending for Medicaid
• Ex Post: the impacts associated with an
ongoing activity, i.e., impact of a university
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Nuts and Bolts of the Analysis
• Step 2: Identify a reasonable area
of interest
– What area will be affected
• County, Multi-county, State, Region, Country
– Make the area reasonable
•
•
•
•
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County level is the smallest regional area
Small areas typically have smaller multipliers
More difficult to track revenue and spending
Greater leakage, smaller impacts
Jan Crispin-Little
4/12/2005
Nuts and Bolts of the Analysis
• Step 3: Gather Data
– Employment
• Full-time and part-time
– Wages, salaries and benefits
– Sources of revenue
• Local vs non-local = export ratio
– Spending patterns
• Local vs non-local
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Nuts and Bolts of the Analysis
• Step 4: Model Time!!!
– Put purchases into appropriate industrial
sectors
– Include only purchases from local vendors
– Apply trade margins
– Apply export ratio to local purchases
– Apply export ratio to employment and
wages
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Jan Crispin-Little
4/12/2005
Results
The results will be in the form of:
Changes in Employment
Changes in Income/Earnings
Changes in Output
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University Impact Study
• 1. Identify Study Activity
• University Operations
• Technology Transfer
• State-sponsored Construction
• 2. Define Study Area
• State of Utah to include U of U and USU
spending
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University Impact Study
• 3. Data Collection
– Revenue
• Annual Reports
• Interviews with department heads to identify
“new money”
– Non-resident student tuition, university press,
bookstore sales, non-resident student living, Red
Butte Gardens, Athletic Departments, Extension
Services
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Jan Crispin-Little
4/12/2005
University Impact Study
Revenue Analysis
Revenue Source
Patient Services
State Appropriations
Federal C&G
Sales and Services
Tuition and Fees
Auxiliary Enterprises
Other Revenue
Agency C&G
Private Gifts
State/Local C&G
Capital Grants and Gifts
Adds to Endowments
TOTALS
Combined Revenue
$620,460,000
351,869,756
321,443,696
273,849,188
155,152,409
96,133,680
77,163,798
73,776,612
64,041,722
24,624,368
11,927,103
8,159,657
$2,078,601,989
Non-Local Revenue
$250,375,147
0
321,443,696
169,582,170
40,294,266
8,255,391
33,452,650
73,776,612
64,041,722
0
11,927,103
8,159,657
$981,308,414
Source: University of Utah, Utah State University; calculations by Crispin, BEBR 2005
EXPORT RATIO: $981,308,414 ÷ $2,078,601,989 = 47.2%
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University Impact Study
Spending Analysis
Total
Spending
University of Utah
Utah State University
Totals
Local
% Made
Spending
Locally
$1,478,937,000
$1,066,723,280
72.1%
372,047,699
290,839 309
78.2%
$1,850,984,699
$1,357,562,589
73.3%
Source: University of Utah and Utah State University. Calculations by Crispin, BEBR
New money supported $640,769,542 of combined
University purchases from local vendors.
$1,357,562,589 x 47.2% = $640,769,542
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University Impact Study
Sample Output Calculation
Sector
Local
Purchases
Trade Margin
Modification
Export Ratio
Modification
Output
Multiplier
Output
Generated
Utilities
$17,095,599
$17,095,599
$8,069,123
1.8178
$14,666,438
781,134
781,134
368,695
2.0295
748,267
3,990,082
3,990,082
1,883,319
1.9517
3,675,673
Wholesale Trade
36,852,859
7,370,572
3,478,910
2.0012
6,961,9945
Retail Trade
25,348,669
8,872,034
4,187,600
2.1363
8,945,970
Broadcasting
9,744,449
9,744,449
4,599,380
2.0391
9,378,596
Information Svcs
1,723,061
1,723,061
813,285
2.1813
1,774,018
Professional Svcs
30,902,772
30,902,772
14,586,108
2.0874
30,447,043
Food Svcs
11,943,634
11,943,634
5,637,395
2.2731
12,814,363
605,852,517
605,852,517
285,962,388
1.3800
394,628,095
$744,234,776
$698,275,854
$329,586,203
Electronic Man.
Printing
Payroll
Total
Direct Impact
$329,586,203
Indirect and Induced
$484,040,457
Total Output Impact
$813,626,660
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Jan Crispin-Little
$484,040,457
4/12/2005
University Impact Study
Impact Analysis Summary
University of Utah and Utah State University
Summary of State-Wide Impacts
Operations, Construction and
Technology Commercialization
•
•
•
•
•
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38,867 jobs in Utah
$1.25 billion in wages
$2.2 billion in business output
$101 million in state tax revenues
$18.2 million in local tax revenues
Jan Crispin-Little
4/12/2005
Words of Advice
• Be Conservative
– Make your work defendable
• Be Honest
– Integrity, Integrity, Integrity
• Be an Educator
– Economic Impact is loosely used
• Be Clear and Concise
– An educated lay person should “get it”
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4/12/2005