Input-Output Analysis
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Transcript of Input-Output Analysis
Input-Output Analysis
Input-Output analysis creates a picture of a regional economy describing flows to and from
industries and institutions
Examples of Interrelationships Between Sectors:
• Sectors purchase from other sectors
• Sectors sell to other sectors
• Sectors sell outside the local economy
• Sectors buy outside the local economy
• Sectors pay their employees
• Sectors pay taxes
Households
Industry
Basic
ServicesGoods &
$
Inputs
Products
Inputs
$ $
$
$
Services
$ $
Labor
Overview of Community Economic
System
Input-Output Models
• An input/output table quantifies the transactions between sectors in an economy.
• It’s a “snap-shot” of the economy for a one-year period.
• By understanding these linkages, we are able to predict how a change in one sector will affect the other sectors.
• Multipliers can be estimated.
Example: Transactions Table
Selling S
ectors ($ m
illion)
Purchasing Sectors ($ million)
Agriculture Health Services Final TotalDemands Output
Agriculture 10 6 2 18 36
Health 4 4 3 26 37
Services 6 2 1 35 44
Final 16 25 38 0 79Payments
Total Input 36 37 44 79 196
Predictive Use of Input-Output Analysis
• Impacts are tracked throughout the economy
• Multipliers are derived from regional economic accounts
• Only local transactions are used to create the multiplier effect
Multipliers
What are Multipliers?
Multipliers measure total change
throughout the economy
from a one unit change
for a given sector.
Multipliers
• Direct effects represent direct or initial spending
• Type I - Direct and indirect effects include the direct spending plus the indirect spending or businesses buying and selling to each other
• Type II - Direct, indirect and induced effects include direct and indirect plus household spending earned from direct and indirect effects
Multipliers Continued
• Three multipliers are used to describe the economic impact:– Employment– Income (Value-Added)– Output (Receipts)
Interpretation of Multipliers
• You will often see values for multipliers in the media, the interpretation of these numbers typically causes confusion
Example 1– Type II employment multiplier (Ag) = 2.25
• When the Agricultural Sector realizes a 1 employee change, total employment in the study area changes by 2.25 jobs from direct, indirect and induced effects
Multipliers Continued
Example 2
Type II Income Multiplier (Ag) = 1.78When the Agricultural Sector realizes a $1.00 change in income, total income in the study area changes by $1.78 from direct and indirect linkages
Multiplier Cautions (Very Important)
• Multipliers are NOT interchangeable (i.e. employment and value added multipliers are very
different, thus you can’t use one for the other)• Not transferable to other study areas or across
different time periods• No differentiation between full-time and part-time
jobs• Results less certain for new types of economic
activity• They do tend to overstate the impact of change• Take caution for multipliers larger than 3
IMPLAN Software
• A talented person could probably figure out relationships for a 6 sector economy
• An economy with more than 500 sectors is another story
• IMPLAN software does the work for us and calculates multipliers
• IMPLAN is relatively expensive, hence the need for a partnership with the University
Pushing the local initiative
• “Kentucky Proud”
• “Buy Local”
• When we keep our money local, the multipliers are larger allowing more money to flow in the local economy, resulting in higher incomes for local residents
Local Examples
• The Economic Impact of Various Health Related Services on the Local Economy– Impact of Health Sector– Impact of a Rural Physician
Economic Impact of Health Care Sector
Estill County Health Care Sector Impact on County Employment
Direct Impact of Health care Employment
Indirect Impact of Health Care Employment
Induced Impact of Health Care Employment
Employment Multiplier
Total Impact Of Health Care Employment.
432 Jobs 25.5 Jobs 64 Jobs 1.21 521.4 Jobs
Source: 2000 IMPLAN Data Base
Estill County Health Care Sector Impact on County Revenue (Sales) Direct Impact of Health care Sector Output
Indirect Impact of Health Care Sector Output
Induced Impact of Health Care Sector Output
Output (Sales)
Multiplier
Total Impact Of Health Care
Sector Output (Sales) $20,172,564 $1,530,139 $2,961,219 1.22 $24,663,922
Source: 2000 IMPLAN Data Base
Interpretation
• Employment Multiplier: 1.21
For every employee hired in the health sector there are an additional 0.21individuals employed because of indirect and induced effects.
• Output Multiplier:
1.22
For every $1 of sales in the health sector there is an additional $0.22 of revenue generated due to indirect and induced effects
The Economic Impact of a Rural Physician in Kentucky
Other Interesting Potential Economic Impact Studies
• The Economic Impact of the new sports complex in Knott County
• The Economic Impact of Eco-tourism in Eastern Kentucky
• The Economic Impact of Agriculture in Kentucky
• The Economic Impact of a manufacturing firm leaving a rural town
Model Limitations
• Based on a set of assumptions that might restrict the model. Other modeling techniques can be used to provide a range of impacts, not one single number
• Economic impacts should only be part of the discussion. We should not ignore the following:– Quality of Life– Environmental Impacts– Social and Cultural History– Equity ImpactsTHIS IS WHY COMMUNITY INVOLVEMENT IS VITAL