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Cutting Edge Economic Cutting Edge Economic Techniques for Assessing Techniques for Assessing

Regional InnovationsRegional Innovations

Rose M. BakerRose M. BakerDavid L. PassmoreDavid L. Passmore

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Penn State Workforce Education & Penn State Workforce Education & Development InitiativeDevelopment Initiative

Rose BakerRose Baker

David PassmoreDavid Passmore

Program ManagerWorkforce Assessment Center & Assistant Professor of Education

Professor & DirectorPenn State Institute for Research inTraining & Development

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Symposium presentation web siteSymposium presentation web site

http://innovationeval.notlong.comhttp://innovationeval.notlong.com

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Reports are availableReports are availableThrough links onThrough links onweb site:web site:• • Two Two Economic & Economic & Workforce BriefWorkforce Brief reports.reports.

• • Electricity rate cap Electricity rate cap study.study.

• • Gas royalty impact Gas royalty impact study.study.

• • Links to reports Links to reports about records about records linkage processes.linkage processes.

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Three assessment techniquesThree assessment techniques

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< Input–Output Analysis >< Input–Output Analysis >• • Economic & Workforce Economic & Workforce

Brief Brief Series •Series •

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< complex >< complex >

< intertwined >< intertwined >

< large >< large >

< unexpected >< unexpected >

The economy is like a ball of stringThe economy is like a ball of string

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Way to organize dataWay to organize data

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producer/purchaser data…producer/purchaser data…

ind 1

ind 2

ind 3

ind 4

ind 1 ind 2 ind 3 ind 4final

demandtotal

output

prod

ucer

s

purchasers

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Producing & purchasing Producing & purchasing multiplies…multiplies…

ind 1

ind 2

ind 3

ind 4

ind 1 ind 2 ind 3 ind 4final

demandtotal

output

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MultipliersMultipliers

• Economic impact of change in final Economic impact of change in final demand.demand.

• Calculated for output, income, Calculated for output, income, employment, taxes, and other factors.employment, taxes, and other factors.

• Show total effects of change on economy.Show total effects of change on economy.• Expressed as a positive number.Expressed as a positive number.

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Multipliers display three Multipliers display three components of changecomponents of change

• Direct.Direct.

• Indirect.Indirect.

• Induced.Induced.

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Direct effectsDirect effects

• Changes in production as a result of Changes in production as a result of immediate effects of a change in final immediate effects of a change in final demand.demand.

• E.g., increase in demand for autos E.g., increase in demand for autos increases production of autos.increases production of autos.

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Indirect effectsIndirect effects

• Changes in production in industries Changes in production in industries supplying industry delivering the final supplying industry delivering the final product.product.

• E.g., increase in auto production increases E.g., increase in auto production increases production in supplying industries (like production in supplying industries (like glass, steel, plastics).glass, steel, plastics).

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Induced effectsInduced effects

• Changes in direct and indirect production Changes in direct and indirect production increase income and, therefore, increase income and, therefore, consumption (and, maybe saving).consumption (and, maybe saving).

• E.g., workers in auto industry and E.g., workers in auto industry and supplying industries spend and save their supplying industries spend and save their income, creating additional economic income, creating additional economic activity.activity.

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Two types of multipliersTwo types of multipliers

Type 1 =

Type 2 =

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Two examples of Two examples of input-output analysisinput-output analysis

Economic & Workforce Economic & Workforce BriefBrief Series Series

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< Counterfactual Analysis < Counterfactual Analysis >>

• • Electricity Rate Caps •Electricity Rate Caps •• • Gas Royalties •Gas Royalties •

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A counterfactual analysis is…A counterfactual analysis is…

• An analysis that goes counter to facts.An analysis that goes counter to facts.– What would happen if the U.S. invaded Iran?What would happen if the U.S. invaded Iran?– What would have happened if the U.S. did not go What would have happened if the U.S. did not go

to war with Iraq?to war with Iraq?– What would happen if gas prices rose to $6/gal.What would happen if gas prices rose to $6/gal.

• A “what if” analysis.A “what if” analysis.• Counterfactual reasoning reveals Counterfactual reasoning reveals

implications of counterfactual suppositions to implications of counterfactual suppositions to be examined in case what is supposed be examined in case what is supposed actually happens.actually happens.

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REMI Policy Insight ModelREMI Policy Insight Model

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Counterfactual analysis methodCounterfactual analysis method

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Two examples of Two examples of counterfactual analysiscounterfactual analysis

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Regulation, Deregulation, Caps…Regulation, Deregulation, Caps…

Natural monopolyNatural monopoly– GenerationGeneration– TransmissionTransmission– DistributionDistribution

Regulation Regulation DeregulationDeregulation Rate CapsRate Caps

Stranded CostsStranded Costs

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Methods…Methods…

• Baseline forecast of the Baseline forecast of the Pennsylvania economy through Pennsylvania economy through 20152015

• Rate cap elimination forecast Rate cap elimination forecast conducted by simulating 10% conducted by simulating 10% increase in electricity rates through increase in electricity rates through 20152015

• Benchmark of effects of rate Benchmark of effects of rate removal =removal =– Baseline forecast Baseline forecast minusminus– Rate elimination forecastRate elimination forecast

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Preliminary findings…Preliminary findings…

• Impact on macroeconomy Impact on macroeconomy and demography depends and demography depends on perspective on perspective

• Impact on individual Impact on individual households could be households could be substantialsubstantial

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Impact on macroeconomy and Impact on macroeconomy and demography…demography…

• Substantial, in terms of Substantial, in terms of absolute numbersabsolute numbers

• Small, as a % of total Small, as a % of total economy and economy and demographydemography

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Impact on individual households…Impact on individual households…

• Small, but real, risk of job and Small, but real, risk of job and income lossincome loss

• Risks and changes affect low Risks and changes affect low income household more than high income household more than high income householdsincome households

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Hot off the presses….Hot off the presses….• • Marcellus shale is creating Marcellus shale is creating exciting opportunities for exciting opportunities for natural gas exploration, natural gas exploration, extraction, and sales.extraction, and sales.

• • Lease rights are being Lease rights are being negotiated.negotiated.

• • Royalties will be paid.Royalties will be paid.

• “• “What if” royalty income What if” royalty income affects the Pennsylvania affects the Pennsylvania economy.economy.

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Counterfactual findings of impact of Counterfactual findings of impact of gas royalty incomegas royalty income

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< Records Linkages >< Records Linkages >• • Youth in Transition •Youth in Transition •

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How do we follow youth in transition How do we follow youth in transition from school to work?from school to work?

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Survey-based approaches with Survey-based approaches with out–of–school youthout–of–school youth

• Difficult to find.Difficult to find.

• Difficult to maintain Difficult to maintain contact.contact.

• Difficult to stimulate Difficult to stimulate response.response.

• Difficult to obtain Difficult to obtain sensitive data sensitive data elements.elements.

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One solution: One solution: Link youth and Link youth and unemployment insurance recordsunemployment insurance records

• Employers report quarterly wages by social Employers report quarterly wages by social security number to state unemployment security number to state unemployment insurance system.insurance system.

• Social security numbers of youth and a Social security numbers of youth and a vector of indicators can be merged with vector of indicators can be merged with insurance records.insurance records.

• Confidentiality is preserved by procedural Confidentiality is preserved by procedural security buffer as well as by statistical security buffer as well as by statistical means.means.

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Potential for learning Potential for learning from records linkagesfrom records linkages

• Cross–sectional and longitudinal Cross–sectional and longitudinal employment by industry.employment by industry.

• Cross–sectional and longitudinal wages by Cross–sectional and longitudinal wages by industry.industry.

• Geography and geographic and industrial Geography and geographic and industrial mobility of youth employment.mobility of youth employment.

• Youth employment turnover by industry.Youth employment turnover by industry.• Correlates of youth employment, wages, Correlates of youth employment, wages,

and mobility.and mobility.

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Some problems with Some problems with implementing records linkagesimplementing records linkages

• Errors in records of youth or employerErrors in records of youth or employer– Social Security numbersSocial Security numbers– NamesNames

• Youth not necessarily in covered Youth not necessarily in covered employment.employment.

• Censored dataCensored data– Reporting period is 3 monthsReporting period is 3 months– Many transitions can occur within reporting Many transitions can occur within reporting

periodperiod

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Penn State records Penn State records linking project linking project currently in processcurrently in process

Project funded by the Central Project funded by the Central Pennsylvania Workforce Pennsylvania Workforce Development Corporation is Development Corporation is developing a methodology to developing a methodology to link records of school dropouts link records of school dropouts and youth aging out of foster and youth aging out of foster care with UI employment and care with UI employment and wage data.wage data.

dlprmb25June08

Cutting Edge Economic Cutting Edge Economic Techniques for Assessing Techniques for Assessing

Regional InnovationsRegional Innovations

Rose M. BakerRose M. BakerDavid L. PassmoreDavid L. Passmore