Learning to Use RIMS II Multipliers The RIMS II Data and System of - - PDF document

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Learning to Use RIMS II Multipliers

The RIMS II Data and System of Analysis

1 Dave Swenson

RIMS II

• Regional Impact Modeling System
• This has been developed as a for‐a‐fee data service by

the U.S. Bureau of Economic Analysis – BEA

• BEA is the primary agency of the federal government

that compiles economic information.

• For our purposes, they also produce what are called

the Benchmark Input‐Output accounts of the U.S. Economy.

• We depend on those data to build our input‐output

models

• And students will recognize the structure of the

national I‐O table as identical to their own work

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Total Requirements Table From the BEA

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When you buy RIMS II data from the BEA, here’s what you get ….

• A regionally or state specific set of total final

demand multipliers for

– Total industrial output – Value added – Earnings (labor income = wages and salaries, proprietors’ income, plus employer contributions to insurance, pensions, and social insurance) – Jobs

• Rather than generating our own multipliers, we

simply apply theirs

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Example of Total Multipliers from RIMS II

This, too, contains the same type of information I’ve already showed you: Looking at Forestry and Logging (113300), for example, if the Iowa economy had $1 change in that sector’s final demand ….

– $1.7651 in total output change, – $.6041 in earnings change, – $.9889 in value added change, and – Each $million change in forestry & logging final demand required 21.94 total Iowa jobs

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State of Iowa

Industry Code

Industry

Final-demand Output /1/ (dollars) Final- demand Earnings /2/ (dollars) Final-demand Value-added /4/ (dollars) Final-demand Employment /3/ (number of jobs) 1111C0 Oilseed and grain farming 2.2912 0.5115 0.8164 11.7168 111200 Vegetable and melon farming 1.658 0.4625 1.0362 12.1034 111300 Fruit and tree nut farming 1.7646 0.5603 1.1035 15.8131 111400 Greenhouse, nursery, and floriculture production 1.8601 0.6512 1.0677 14.6713 111900 Other crop farming 1.8274 0.5141 0.9785 11.2727 1121A0 Beef cattle ranching and farming, including feedlots and dual-purpose ranching and farmin 2.3601 0.4762 0.9277 10.0601 112120 Dairy cattle and milk production 2.2588 0.5108 0.9481 11.229 112A00 Animal production, except cattle and poultry and eggs 1.7215 0.392 1.0553 7.9912 112300 Poultry and egg production 2.8222 0.5981 0.9759 12.3488 113000 Forestry and logging 1.7651 0.6041 0.9889 21.9356 Total Change Per Million $ of Output Change

Table of Multipliers from 326190 Other plastics product manufacturing

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State of Iowa

Industry Code

Industry

Final-demand Output /1/ (dollars) Final- demand Earnings /2/ (dollars) Final-demand Value-added /4/ (dollars) Final-demand Employment /3/ (number of jobs) 326160 Plastics bottle manufacturing 1.9851 0.3655 0.7341 8.4095 326190 Other plastics product manufacturing 2.044 0.3986 0.7491 9.7769 Total Change Per Million $ of Output Change

State of Iowa

Industry Code

Industry

Output Earnings Jobs 326160 Plastics bottle manufacturing 1.0 0.143182 3.37 326190 Other plastics product manufacturing 1.0 0.150200 3.84 Direct Change Per $Million of Output Change

State of Iowa

Type II Earnings Multiplier Type II Jobs Multiplier Industry Code

Industry

Direct-effect Earnings /5/ (dollars) Direct-effect Employment /6/ (number of jobs) 326160 Plastics bottle manufacturing 2.5527 2.4991 326190 Other plastics product manufacturing 2.6538 2.5436

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You also get

• Aggregated industrial contributions to the total

final demand multipliers for

– Total industrial output – Value added – Earnings (labor income) – Jobs

In the next table, the values are to be read left to right, but they are the same aggregated industry multipliers that were in your Total Requirements Table for your assignment

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Using the Multipliers

Say we had a new plastics manufacturer wanting to locate in Iowa. In its application for economic development assistance it told the state that it would employ 45 workers, pay out a total of $1.96 million in labor incomes (Earnings), and have total output of $8.68 million, all producing for final demand (i.e., export sales). We could easily build a table that lets us apply our multipliers from a table of RIMS II multipliers and arrives at the expected impacts

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Refer to the Iowa multipliers handout

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Table of Multipliers from 326190 Other plastics product manufacturing

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State of Iowa

Industry Code

Industry

Final-demand Output /1/ (dollars) Final- demand Earnings /2/ (dollars) Final-demand Value-added /4/ (dollars) Final-demand Employment /3/ (number of jobs) 326160 Plastics bottle manufacturing 1.9851 0.3655 0.7341 8.4095 326190 Other plastics product manufacturing 2.044 0.3986 0.7491 9.7769 Total Change Per Million $ of Output Change

State of Iowa

Industry Code

Industry

Output Earnings Jobs 326160 Plastics bottle manufacturing 1.0 0.143182 3.37 326190 Other plastics product manufacturing 1.0 0.150200 3.84 Direct Change Per $Million of Output Change

State of Iowa

Type II Earnings Multiplier Type II Jobs Multiplier Industry Code

Industry

Direct-effect Earnings /5/ (dollars) Direct-effect Employment /6/ (number of jobs) 326160 Plastics bottle manufacturing 2.5527 2.4991 326190 Other plastics product manufacturing 2.6538 2.5436

So, we could calculate the impacts as …

Direct Values X Multiplier = Impact

Output = $8.68 M X 2.044 = $17.74 M Earnings = $1.96 M X 2.6538 = $ 5.20 M Jobs = 45 X 2.5436 = 114.462 jobs

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If all they had told us was that their expected annual output was $8.68 million we could have done it this way ….

Total output of $8.68 million X Total output multiplier of 2.044 = $17.74 million Total earnings multiplier of .3986 = $3.46 million

And

Total jobs multiplier of 9.7769 (per $million of output = 8.68 X 9.7769 = 84.8 jobs The earnings and jobs values are different from the previous estimate, so the more information you get, the better your impact estimate as the industry in the first example indicated that it was somewhat different than the state average for that kind of manufacturing

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New scenario

Now suppose that a new cookie factory was going to open but the only thing that it would tell you was that it would employ 100 workers. What kinds of impacts could you calculate? We begin, again with a table of multipliers for the cookie industry

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Table of Multipliers from 311820 Cookie, cracker, and pasta manufacturing

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State of Iowa

Industry Code

Industry

Final-demand Output /1/ (dollars) Final- demand Earnings /2/ (dollars) Final-demand Value-added /4/ (dollars) Final-demand Employment /3/ (number of jobs) 311810 Bread and bakery product manufacturing 2.1092 0.474 0.8634 14.1601 3118A0 Cookie, cracker, pasta, and tortilla manufacturing 2.1699 0.4236 0.8496 10.3696 Total Change Per Million $ of Output Change

State of Iowa

Industry Code

Industry

Output Earnings Jobs 311810 Bread and bakery product manufacturing 1.0 0.195981 7.27 3118A0 Cookie, cracker, pasta, and tortilla manufacturing 1.0 0.143161 3.64 Direct Change Per $Million of Output Change

State of Iowa

Type II Earnings Multiplier Type II Jobs Multiplier Industry Code

Industry

Direct-effect Earnings /5/ (dollars) Direct-effect Employment /6/ (number of jobs) 311810 Bread and bakery product manufacturing 2.4186 1.9484 3118A0 Cookie, cracker, pasta, and tortilla manufacturing 2.9589 2.8487

Interpolating the impacts: finding the direct values

Steps:

• 1. The table tells us that there are 3.64 jobs per $1

million in direct cookie industry output. So,

100 jobs / 3.64 = $27.47 million in expected direct output.

• 2. The table tells us that we would expect, per $1

million in direct output, $.143161 million in direct labor income (earnings).

$27.47 in output X .143161 = $3.93 million in direct labor income (or earnings)

• 3. And there are 100 direct jobs, so …

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Impacts continued

Now we can do the direct values times the multipliers now just like the first example using the numbers we knew and the numbers we discovered Output = $27.47 M X 2.1699 = $59.61 M Labor Inc. = $3.93 M X 2.9589 = $11.63 M Jobs = 100 X 2.8487 = 284.9 jobs

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I could have just used the change in output times just the final demand multipliers

• Output = $27.47 M X 2.1699

= $59.61 M

• Earnings = $27.47 M X .4236

= $11.64 M

• Jobs

=$27.47 M X 10.3696 = 284.9 jobs I chose to “back‐out” the direct values first so that we could evaluate the initial worth of the jobs.

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Comparisons

The cookie Type II multipliers are higher than the plastic multipliers. Why is that? What is going on in the Iowa accounts that would make cookies worth more to an economy than plastics? Why do we need to be careful when we are declaring our economic impacts, and most especially when we are looking at food processing industries?

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Calculating the industrial distribution

• f the final demand change
• Now you would go to the spreadsheet if you

were actually doing this, but I have a short summary of just a few of those multipliers on the last page of your multipliers table

• Attached are the transposed values (for

display purposes) of the values in the final demand tables for vegetable and melon production, sector 111200

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21 Dave Swenson

Vegetable and melon farming Output Vegetable and melon farming Earnings Vegetable and melon farming Value Added Vegetable and melon farming Jobs (Per $ Million of Final Demand Change) 1 Agriculture, forestry, fishing, and hunting 1.0757 0.3013 0.7152 7.6555 2 Mining 0.0046 0.0007 0.0028 0.0177 3 Utilities* 0.0234 0.0034 0.0131 0.0385 4 Construction 0.0139 0.0045 0.0078 0.093 5 Durable goods manufacturing 0.0307 0.0061 0.0107 0.1537 6 Nondurable goods manufacturing 0.0996 0.0152 0.0333 0.2597 7 Wholesale trade 0.0647 0.02 0.0439 0.3272 8 Retail trade 0.0466 0.0163 0.0311 0.6618 9 Transportation and warehousing* 0.0297 0.0095 0.0152 0.2246 10 Information 0.015 0.0032 0.0085 0.0645 11 Finance and insurance 0.066 0.0166 0.0363 0.3005 12 Real estate and rental and leasing 0.0465 0.0075 0.0326 0.4282 13 Professional, scientific, and technical services 0.0151 0.0069 0.0102 0.1405 14 Management of companies and enterprises 0.0071 0.0024 0.0043 0.0318 15 Administrative and waste management services 0.0131 0.0052 0.0083 0.2199 16 Educational services 0.008 0.0037 0.0049 0.1527 17 Health care and social assistance 0.0552 0.0245 0.033 0.5963 18 Arts, entertainment, and recreation 0.0036 0.0009 0.002 0.0504 19 Accommodation 0.0056 0.0015 0.0035 0.0693 20 Food services and drinking places 0.0144 0.0046 0.0076 0.2962 21 Other services* 0.0195 0.008 0.0111 0.2669 0.0006 0.0006 0.0546 Total Final Demand Multipliers 1.658 0.4626 1.036 12.1035

Let’s apply these multipliers

• Many think local foods is good way to boost a local economy.
• My very good research tells me that it each acre of Iowa fresh fruit
• r vegetable and melon production operated efficiently produces

about $3,800 in gross sales at the wholesale level. Someone farming 25 acres would be expected to have 25 X $3,800 = $95,000 in total annual sales (at the farm gate). – Can this person make a go of it as only a farmer? – Is this level of production meaningful for my regional economy?

• Let’s assume this is all net new productivity to the state and run it

through the model. We would multiply $95,000 times every value in the previous table and sum the values to get the totals.

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$95,000 in direct final demand change in fruits and vegetables would produce these total and itemized economic impacts in Iowa

Vegetable and melon farming Output Vegetable and melon farming Earnings Vegetable and melon farming Value Added Vegetable and melon farming Jobs (Per $ Million of Final Demand Change) 1 Agriculture, forestry, fishing, and hunting $ 102,192 $ 28,624 $ 67,944 0.727 2 Mining $ 437 $ 67 $ 266 0.002 3 Utilities* $ 2,223 $ 323 $ 1,245 0.004 4 Construction $ 1,321 $ 428 $ 741 0.009 5 Durable goods manufacturing $ 2,917 $ 580 $ 1,017 0.015 6 Nondurable goods manufacturing $ 9,462 $ 1,444 $ 3,164 0.025 7 Wholesale trade $ 6,147 $ 1,900 $ 4,171 0.031 8 Retail trade $ 4,427 $ 1,549 $ 2,955 0.063 9 Transportation and warehousing* $ 2,822 $ 903 $ 1,444 0.021 10 Information $ 1,425 $ 304 $ 808 0.006 11 Finance and insurance $ 6,270 $ 1,577 $ 3,449 0.029 12 Real estate and rental and leasing $ 4,418 $ 713 $ 3,097 0.041 13 Professional, scientific, and technical services $ 1,435 $ 656 $ 969 0.013 14 Management of companies and enterprises $ 675 $ 228 $ 409 0.003 15 Administrative and waste management services $ 1,245 $ 494 $ 789 0.021 16 Educational services $ 760 $ 352 $ 466 0.015 17 Health care and social assistance $ 5,244 $ 2,328 $ 3,135 0.057 18 Arts, entertainment, and recreation $ 342 $ 86 $ 190 0.005 19 Accommodation $ 532 $ 143 $ 333 0.007 20 Food services and drinking places $ 1,368 $ 437 $ 722 0.028 21 Other services* $ 1,853 $ 760 $ 1,055 0.025 $ - $ 57 $ 57 0.005 Total Economic Impacts $ 157,510 $ 43,947 $ 98,420 1.150

The impacts …

We can see that

– most of the job and labor income amounts are in the vegetable and melon sector. 25 acres of production would support 73/100ths of a job and $28,224 in labor income to the farmer and all of her help. – There are also more manufacturing, finance, and real estate costs than in the other categories. – In all, this level of productivity in Iowa would support just over 1.15 jobs and $44,947 in total labor income in the state.

It is safe to assume that our vegetable farmer is going to need another job. Oh, by the way, my very good research tells me that 25 acres produces a large fraction (from 25 to 50 percent depending on the product)

• f the seasonal fresh fruits and vegetable needs of just under 5,000

persons in Iowa

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Learning to Use RIMS II Multipliers: Part 2

The RIMS II Data and System of Analysis

25 Dave Swenson

A bill of goods approach

First, read the REGIONAL MULTIPLIERS:A User

Handbook for the Regional Input‐Output Modeling System (RIMS II) ‐‐ We have already used a multipliers approach to an economic impact. Now we are going to shift away from the multipliers to another approach.

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Using industry inputs

Sometimes we do not know much about an industry or the industry is not well described in our modeling system. To compensate, we can look at the balance sheet of an industry to identify its major inputs into production, as well as the estimated percent of those inputs that are purchased locally. We would also look at its payments to labor.

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Where would we get this kind of information????

• For new or cutting edge industrial activity, we

might have to go to universities to look at the technical feasibility analyses that, say, engineers have conducted on scaling up a new technology

– Biofuels – Solar energy – Electric car manufacturing – Bioengineering

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For a new industrial prospect,

We might just ask them point blank ….

• 1. How many of the major production inputs do

you plan on buying from the local economy?

• 2. What are those inputs and what do you

expect to spend?

• 3. How many workers will be involved with this

project?

• 4. What will you pay those workers?

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Bill of Goods Analysis

• This gives us the opportunity to conduct a “Bill of

Goods” or “Analysis of Inputs” method for estimating impacts

• It is a little more complicated but it is very useful,

especially, again, when there is limited information about an industry or the industry is a new type or of a type that does not resemble existing industries in your model

• It is somewhat more crude than traditional I‐O analysis

in that it does not depend on extremely itemized estimates of industrial inputs over the entire life of the industry

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Needs

• We need a multiplier table – you

already have the Iowa table of total multipliers – that is what we will use

• We also need to translate household

spending into total output, total earnings, and total jobs. That multiplier is contained in the last line

• f the multiplier table.

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Multiplier Table

We really only need the Total Requirements Table – the first four numerical columns of your handout to do this assessment

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Let’s pretend that …

• There’s a furniture manufacturer start up who

doesn’t quite know what her expected output would be, but thinks it would be about $1.2 million.

• And let’s assume that there were just a few

major requirements for this manufacturer and that she estimated the fraction coming from each.

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First we calculate the input (indirect requirement) values

34 Dave Swenson Furniture Economic Impact for $1,200,000 in Annual Output Industry Code Inputs Percent of Inputs Input Amounts 321100 Sawmills and wood preservation 20% 240,000 420000 Wholesale trade 10% 120,000 326190 Other plastics product manufacturing 5% 60,000 484000 Truck transportation 8% 96,000 H00000 Labor (Households) 30% 360,000 Imports 27% 324,000

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Next input amounts for each sector are translated into total impacts for those sectors using multipliers from the total multipliers tables

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State of Iowa

Total Change Per Million $ of Output Change Industry Code

Industry

Final-demand Output /1/ (dollars) Final-demand Earnings /2/ (dollars) Final-demand Value-added /4/ (dollars) Final-demand Employment /3/ (number of jobs) 321100 Sawmills and wood preservation 1.6501 0.3341 0.5877 9.3747 326190 Other plastics product manufacturing 2.044 0.3986 0.7491 9.7769 420000 Wholesale trade 1.6662 0.5105 1.0639 10.845 484000 Truck transportation 1.816 0.5376 0.903 13.4048 H00000 Households 0.9681 0.2919 0.5584 9.1978

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For the total output impacts we multiply the input amount for each industry times its output multiplier

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Furniture Economic Impact for $1,200,000 in Annual Output Industry Code Inputs Percent of InputsInput Amounts Output 321100 Sawmills and wood preservation 20% 240,000 396,024 420000 Wholesale trade 10% 120,000 199,944 326190 Other plastics product manufacturing 5% 60,000 122,640 484000 Truck transportation 8% 96,000 174,336 H00000 Labor (Households) 30% 360,000 348,516 Imports 27% 324,000 NA

And so on for the labor income and the job impacts

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Furniture Economic Impact for $1,200,000 in Annual Output Industry Code Inputs Percent of Inputs Input Amounts Output Labor Income Jobs 321100 Sawmills and wood preservation 20% 240,000 396,024 80,184 2.25 420000 Wholesale trade 10% 120,000 199,944 61,260 1.30 326190 Other plastics product manufacturing 5% 60,000 122,640 23,916 0.59 484000 Truck transportation 8% 96,000 174,336 51,610 1.29 H00000 Labor (Households) 30% 360,000 348,516 105,084 3.31 Imports 27% 324,000 NA NA NA

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Now we can sum all of the indirect & induced impacts

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Furniture Economic Impact for $1,200,000 in Annual Output Industry Code Inputs Percent of Inputs Input Amounts Output Labor Income Jobs 321100 Sawmills and wood preservation 20% 240,000 396,024 80,184 2.25 420000 Wholesale trade 10% 120,000 199,944 61,260 1.30 326190 Other plastics product manufacturing 5% 60,000 122,640 23,916 0.59 484000 Truck transportation 8% 96,000 174,336 51,610 1.29 H00000 Labor (Households) 30% 360,000 348,516 105,084 3.31 Imports 27% 324,000 NA NA NA Indirect and Induced Values $ 1,241,460 $ 322,054 8.74

Last we determine the direct impacts and sum the results to get the total impacts

40 Dave Swenson Furniture Economic Impact for $1,200,000 in Annual Output Industry Code Inputs Percent of Inputs Input Amounts Output Labor Income Jobs 321100 Sawmills and wood preservation 20% 240,000 396,024 80,184 2.25 420000 Wholesale trade 10% 120,000 199,944 61,260 1.30 326190 Other plastics product manufacturing 5% 60,000 122,640 23,916 0.59 484000 Truck transportation 8% 96,000 174,336 51,610 1.29 H00000 Labor (Households) 30% 360,000 348,516 105,084 3.31 Imports 27% 324,000 NA NA NA Indirect and Induced Values $ 1,241,460 $ 322,054 8.74 + Direct Values $ 1,200,000 $ 360,000 12* = Total Impacts $ 2,441,460 $ 682,054 20.74 Total Multiplier 2.035 1.895 1.728 * I am arbitrarily setting the direct jobs in this example at 12. Alternatively, one could look at an industry like this (other wood products) in the multiplier table and find that there were nearly 13 jobs per $1 million of output, which would multiply through to 15.6 jobs.

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• Fiscal impact lectures are on a separate

powerpoint now

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