measuring economic impacts: science, art or voodoo? presentation to urbpl 5/6020 jan crispin-little,...
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Measuring Economic Measuring Economic Impacts:Impacts:
Science, Art or Voodoo?Science, Art or Voodoo?
Presentation to URBPL 5/6020Jan Crispin-Little, Senior EconomistBureau of Economic and Business ResearchUniversity of UtahApril 12, 2005
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What is Economic What is Economic Impact?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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EconomicEconomic Impact Impact ProcessProcess
Customers outside the region send income to the region
Local Business
Employs residents of the region
Purchases inputs from other local firms
Increases Employment
Increases Income
Increases Output
Injection of Income
Economic Impacts
Local Spending
Leakage
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What is measured…..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 Impacts Are Measured With With Input-Output ModelsInput-Output Models
• Most Commonly Used: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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From RIMSII Handbook, www.bea.gov
Final Demand Multipliers for the Food Products Machinery Industry, Kansas City, MO-KS Economic Area
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Language of Language of Economic ImpactEconomic Impact
• Direct Effects: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 Language of Economic ImpactEconomic Impact
• Secondary EffectsSecondary 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 Language of Economic ImpactEconomic 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 Nuts and Bolts of the AnalysisAnalysis
• Step 1: Identify the Study Step 1: Identify the Study ActivityActivity– Will the activity really impact the Will the activity really impact the
economy? If yes…..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 Nuts and Bolts of the AnalysisAnalysis
• Step 2: Identify a reasonable area of interest– What area will be affected
• County, Multi-county, State, Region, Country
– Make the area reasonable• County level is the smallest regional area• Small areas typically have smaller multipliers• More difficult to track revenue and spending• Greater leakage, smaller impacts
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Nuts and Bolts of the Nuts and Bolts of the AnalysisAnalysis
• Step 3: Gather DataStep 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 Nuts and Bolts of the AnalysisAnalysis
• Step 4: Model Time!!!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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ResultsResults
The results will be in the form of:
Changes in EmploymentChanges in Employment
Changes in Changes in Income/EarningsIncome/Earnings
Changes in OutputChanges in Output
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University Impact University Impact StudyStudy
• 1. Identify Study Activity1. Identify Study Activity• University Operations• Technology Transfer • State-sponsored Construction
• 2. Define Study Area2. Define Study Area• State of Utah to include U of U and USU
spending
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University Impact University Impact StudyStudy
• 3. Data Collection3. Data Collection– RevenueRevenue
• 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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University Impact StudyUniversity Impact Study
Revenue Source Combined Revenue Non-Local Revenue Patient Services $620,460,000 $250,375,147
State Appropriations 351,869,756 0 Federal C&G 321,443,696 321,443,696 Sales and Services 273,849,188 169,582,170 Tuition and Fees 155,152,409 40,294,266 Auxiliary Enterprises 96,133,680 8,255,391 Other Revenue 77,163,798 33,452,650 Agency C&G 73,776,612 73,776,612 Private Gifts 64,041,722 64,041,722 State/Local C&G 24,624,368 0 Capital Grants and Gifts 11,927,103 11,927,103 Adds to Endowments 8,159,657 8,159,657
TOTALS $2,078,601,989 $981,308,414
EXPORT RATIO: $981,308,414 ÷ $2,078,601,989 = 47.2%
Revenue Analysis
Source: University of Utah, Utah State University; calculations by Crispin, BEBR 2005
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University Impact StudyUniversity Impact Study
Total Local % Made
Spending Spending Locally
University of Utah $1,478,937,000 $1,066,723,280 72.1%
Utah State University 372,047,699 290,839 309 78.2%
Totals $1,850,984,699 $1,357,562,589 73.3%New money supported $640,769,542 of combined University purchases from local vendors.
Spending Analysis
$1,357,562,589 x 47.2% = $1,357,562,589 x 47.2% = $640,769,542$640,769,542
Source: University of Utah and Utah State University. Calculations by Crispin, BEBR
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University Impact StudyUniversity Impact Study
SectorLocal
PurchasesTrade
MarginModificatio
n
Export RatioModification
OutputMultiplier
OutputGenerated
Utilities $17,095,599 $17,095,599 $8,069,123 1.8178 $14,666,438
Electronic Man. 781,134 781,134 368,695 2.0295 748,267
Printing 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
Payroll 605,852,517 605,852,517 285,962,388 1.3800 394,628,095
Total $744,234,776
$698,275,854
$329,586,203
$484,040,457
Direct Impact $329,586,203
Indirect and Induced
$484,040,457
Total Output Impact
$813,626,660
Sample Output Calculation
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University Impact StudyUniversity Impact Study
University of Utah and Utah State University
Summary of State-Wide ImpactsOperations, Construction and Technology Commercialization
• 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
Impact Analysis Summary
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Words of AdviceWords of Advice
• Be ConservativeBe Conservative– Make your work defendable
• Be Honest– Integrity, Integrity, Integrity
• Be an EducatorBe an Educator– Economic Impact is loosely used
• Be Clear and ConciseBe Clear and Concise– An educated lay person should “get it”