Measuring Economic Impacts: Science, Art or Voodoo? Presentation to URBPL 5/6020 Jan Crispin-Little, Senior Economist Bureau of Economic and Business Research.

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

4/12/2005Jan Crispin-LittlePage 2

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


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


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


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!!


From RIMSII Handbook, www.bea.gov

Final Demand Multipliers for the Food Products Machinery Industry, Kansas City, MO-KS Economic Area


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



• 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



• 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


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



• 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



• 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



• 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


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


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


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


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



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



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



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


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”

Measuring Economic Impacts: Science, Art or Voodoo? Presentation to URBPL 5/6020 Jan Crispin-Little, Senior Economist Bureau of Economic and Business Research.

Documents

business slide

university slide

total effects

moks economic area slide

impact models

regional economic models

induced effects

business output