How to use Analysis-By-Parts and a Standard Industry Spending Pattern to calculate the economic impact of a sector that does not exist in your study region
The below error message will appear if you attempt to select a sector that does not exist in the IMPLAN data for your study region. This is often the case when looking at the impact of an industry new to the region. Analysis-by-Parts (ABP) can be used to capture the impact of this industry.
In a standard Industry Change activity, IMPLAN utilizes the industry information for your selected industry to generate a comparable set of inputs related to your initial input. For example, if you input an Industry Sales value, IMPLAN uses the selected sector’s regional data to determine Employment, Employee Compensation (EC), and Proprietor Income (PI). This is highly useful in situations in which you may only have one Event input. However, there is no industry information for IMPLAN to pull from when your selected industry does not exist in the region. If you have firm level data (Output, Employee Compensation, Proprietor Income, and Employment), you can conduct an Analysis By Parts study using your firm data. If you do not have enough firm level data to conduct a standard Analysis-by Parts study, the steps below will guide you through the process of estimating the values for your industry and utilizing them in an Analysis-by-Parts study.
Below is a link to an Excel template file specifically built for this process. The instructions below refer to this excel sheet, and it is recommended that you utilize the excel for this process. A streamlined set of instructions are also provided in the template.
Step 1: Determine and Build a Proxy Industry Region
If you do not have firm level data, then the first step in conducting an ABP for a sector that is absent from your study region is to determine a suitable Proxy Industry Region from which to pull the required industry information. A few options exist for generating this proxy:
- Build a comparable study region in which the target industry does exist. For example, if your study region is a county and you know the same sector does exist in a neighboring county, you can build a model of the neighboring county.
- For county or smaller study regions, users often utilize an aggregate state model.
- Finally, a U.S. model can also be used.
For our example, we want to see the impact of a new automobile manufacturer moving into Stanly County, NC. Sector 343 Automobile Manufacturing does not currently exist in Stanly County, but the sector does exist at the NC State level. In order to capture the required industry information, we will build a NC State model.
We will list our determined proxy region in cell C11 in the Proxy Region Box of the ABP template.
Step 2: Record Output-Per-Worker
Now that we have decided on a Proxy Industry Region, we need to record both our target industry's Industry Code and the Output-Per-Worker value in the correct cells in the ABP template, Analysis tab.
Enter the Industry Code in the template cell C12.
To find the industry's Output-Per-Worker:
- In the proxy region model (NC State in this example), navigate to Model Overview
- Select Study Area Data
- Select the Industry Summary Tab
- Enter your industry code in the industry code box
- Record the industry's Output-Per-Worker value in cell C28
Step 3: Record Industry Balance
Next, we need to record the target industry's balance coefficients for the model year. Specifically, we need to know the total amount of Output that goes to Intermediate Expenditures (IE) and the amount that goes to Value Added (VA). We all need to know how the VA portion is distributed across Employee Compensation (EC), Proprietor Income (PI), Other Property Income (OPI), and Taxes On Production and Imports (TOPI). We will continue to use our Proxy Industry Region for this step.
Output (Industry Sales) = Intermediate Expenditures (IE) + Value Added (VA)
To determine the portion of Output that will go to Intermediate Expenditures:
- Navigate back to Model Overview
- Select Social Accounts, Balance Sheets, and Industry Balance Sheet
- Select the Target Sector from the drop down (sector 343 for this example)
- Select the Commodity Demand tab
- Locate the Total Gross Absorption percentage and enter the amount as a decimal in cell C15.
- Example: 65% Total Gross Absorption would be 0.65
To determine the portion of Output that will go to Intermediate Expenditures:
- Selec the Value Added tab
- Record the Total Value Added percentage as a coefficient and enter the amount as a decimal in cell C16.
- Example: 35% Total Value Added would be 0.35
- Record the remaining Value Added percentages as decimals in the appropriately labeled cells from C19-C22.
- Example: 25% Employee Compensation would be 0.25%; 2% Proprietor Income would be 0.02
Step 4: Complete Model Region Box
Now we can return to our actual model region (Stanly County, NC in this example), and input the appropriate model region in our template in the Model Region Box in cell C33. Model year is the data year used to create the model; it’s the data year you select when building your model. If you don’t remember the model year, you can locate it on the Model Overview Page. Enter model year in C34.
Next, we need to enter the Event Year in cell C35. The Event Year needs to match the value of your input. If your number represents current year dollars or employment, then enter the current year as the Event Year. If your value represents a future or past year’s dollars or employment, then enter the year of the dollar or employment.
Finally, we need to enter our Output Value (Industry Sales). If you don't know Output, you can use the Output calculator box to determine your Output (described in the slider below).
Output Calculation Box
Often analysts are only provided employment or Employee compensation values. Based on the information pulled from the Proxy region, we can use either of these values to determine Output for our industry. First, take note of the below:
- If you know both Employment and Employee Compensation, we recommend using the employee compensation calculation method. Then you can replace the employment number that is generated in the Model Region Box with your known employment value.
- Employee Compensation is total Wage & Salary, plus benefits, plus both employee and employer paid payroll taxes.
- Employment is a headcount of employees, not FTEs.
- *****We have an excel sheet you can use to convert FTE to Employment and Wage & Salary to EC.
To calculate your Output value, enter your known value in the appropriate cell. Use the resulting Output value as your Output value in cell C37.
In our example, we know that the automobile manufacturer expects annual gross revenues (Industry Sales) of $50MM. We will enter this information in the Output Value cell, C37. This dollar value represents the first year of operations and is in 2017 dollars (Event Year 2017). Finally, this model was built using 2015 data.
When we enter our Industry Sales value, the template calculates the remaining factors for us.
Step 5a: Activity - Import Industry Spending Pattern
Now we can return to our study region model and create the required activities to measure our impact by using the values in the Activities Box. We will start with importing an Industry Spending Pattern to capture the Indirect Impact generated from our new Automobile Manufacturing plant and the effects of the employee spending generated from the indirectly impacted industries paying their employees.
- Open Regional Model (Stanly County, NC in our example)
- Import the Spending Pattern for the target sector (sector 343 in our example)
- Navigate to Activities
- Select Import Industry Spending Pattern
- Select target industry
We will need to normalize the purchasing coefficients in the spending pattern so that the sum of events is equal to 1.
- Select Change All
- Select Normalize Events
- Select Apply
Why do we normalize?
The Sum of Event Values for an Industry Spending Pattern reflects the Total Gross Absorption of that Sector. In other uses of the ABP method, the activity level for a spending pattern (discussed in the next step) is typically set to match Output, and the sum of event values represents how much of that Output value is spent on the commodities listed in the spending pattern. For example, the Sum of Event Values for the imported spending pattern may be .75. An Activity Level to 1,000,000 would result in $750,000 worth of spending on the commodities listed in the spending pattern.
The sum of event values for an Imported Spending Pattern will match the Total Gross Absorption for the same sector if that sector exists in the region. However, Imported Spending Patterns for sectors that do not exist in the region are based on National Gross Absorption rates. You can see this by looking at the sum of event values for the spending pattern. The imported spending pattern for Sector 343 in our example has a Sum of Event Values of .79 (or a Total Gross Absorption of 79%). However, we know that our Proxy Industry Sector has a Total Gross Absorption of ~71%. To correct this issue, we will normalize the spending pattern (allowing the coefficients to remain in constant relative values to each other while forcing the total coefficient value to be summed to 1.000). We will then use our predetermined IE value as our Activity Level. By normalizing the Spending Pattern and using our IE amount instead of our Output amount as the Spending Pattern Activity Level, we are ensuring that the correct amount of our manufacturer’s overall output is spent on Intermediate Expenditures.
Finally, we need to set the activity level to match our Indirect Expenditures. Note that the IE value that we are using (provided in the Activities Box) is not the same value listed in the Model Region Box. This is because we are relying on the industry balance coefficients from the proxy region to represent our industry. The proxy region balance values are based on the model year; therefore, our spending pattern (which has been normalized to represent only our Intermediate Expenditures portion) needs to be in the same year as the model. Because the Event Year for the spending pattern is set to the Model Year, our Activity Level needs to be in Model Year dollars. The template has applied the Output deflator for us and the resulting value represents the target industry’s IE portion in model year dollars.
For our example, $38,512,612.57
- Select the edit icon next to Activity Name
- Change activity level to the value located in cell J36 of the ABP template
- Select Update
Step 5b: Activity - Labor Income Change
Now we need to capture the Induced Impact stemming from the automobile plant employees spending their compensation. To do this, we will utilize a Labor Income Change Activity.
- Select New Activity
- Select Activity Type Labor Income Change
- Leave Activity Level at 1
Labor Income Change activities only have two possible event options: 5001 Employee Compensation (EC) and 6001 Proprietor Income (PI). We will create an event for both and utilize the values we determined in Step 2.
- Select New Event
- Select Employee Compensation from the sector select
- Set Event Year to the year of the input, found in cell J46 of the ABP template
- Input the Employee Compensation amount located in cell I46 of the ABP template
- Select Insert
- Select New Event
- Select Proprietor Income from the sector select
- Set Event Year to the year of the input, found in cell J47 of the ABP template
- Input the Proprietor Income amount located in cell I47 of the ABP template
- Select Insert
Step 6: Create and Analyze an ABP Scenario
Now that our activities are set, we need to create a Scenario and tell IMPLAN to analyze our inputs. For an ABP analysis, we suggest that you include both your Imported Spending Pattern and your Labor Income Change Activities in a single Scenario so that IMPLAN sums the results of these two components for you.
- Select Scenarios
- Select Add Scenario
- Leave Scenario Level at 1
- Include both the Spending Pattern and Labor Income Activities
- Update and Analysze
Step 7: Export Results
Once the system finishes analyzing the Scenario, we can see the regional Indirect and Induced Impacts of the industry. Do note that Direct Impacts are not provided. This is because the ABP process only captures Indirect and Induced Impacts. Impact totals can be calculated by exporting results from the system and adding Direct Impact values to the results.
- Select View Results
- Set Monetary Year to the Event Year, cell C35 in the ABP Template
- Select the Export to Excel icon under the Summary Results table
- Copy the Indirect and Induced Effects rows (only the values, you don't need to copy the row titles) and paste them into the empty space in ABP template summary results table in the Analysis tab
The template will generate the Direct Effets and recalculate your totals.
Step 8: Generating Tax Results Part 1
While the ABP process does provide Indirect and Induced results, Direct tax results are not generated. To determine the total tax impact, the Indirect and Induced taxes will need to be exported to the template. The template will use the ABP results to determine a portion of the Direct taxes and then a separate impact run will determine the remaining Direct tax result.
For the first part, we need to export the results of the ABP analysis.
First, we need to record the total OPI amount. In the ABP scenario results:
- Select Detailed Results, then the Value Added tab, then the Other Property Type Income tab, and finally, record teh Total row Total Column Value.
- Enter this value in cell I4 of the ABP Tax Results tab of the ABP Template.
Next, we need to export our combined Indirect and Induced tax.
- In the Scenario Results section of IMPLAN Online, select Tax Results.
- Select the Total Tab
- For each table, use the export to Excel function to export your results and copy the results to the appropriate tax table in the ABP template in the AB Tax Results tab.
Step 9: Generating Tax Results Part 2
When done exporting your ABP results, you’ll notice that the template has calculated your Direct TOPI and Corporations columns in the Direct Tax Results tab of the ABP template. The remaining columns (Employee Compensation, Proprietor Income, and Households) can be generated using a proxy Industry Change Activity.
- Return to Activities and create a new Industry Change activity.
- Label the activity EC PI and Household.
- *It's important that you remain in the same model as your ABP analysis (Stanly County, NC in our example).
- Select industry 517 from the sector select
- Set Event Year to same Event Year as your Labor Income Change, found in cell J46 of the Analysis tab in the ABP template
- Set Employee Compensation to the same Employee Compensation as your Labor Income Change, found in cell I46 of the Analysis tab in the ABP template
- Set Prorprietor Income to the same Proprietor Income as your Labor Income Change, found in cell I47 of the Analysis tab in the ABP template
- The system will prompt a message informing you that you are customizing the event. Select OK.
- Select Scenarios
- Create a new Scenario called EC PI and Household, select only the EC PI and Household Activity, and run the analysis.
- On the Results screen, select your EC PI and Household Scenario and change Monetary Year to match the Monetary Year used in your ABP analysis, found in cell C35 of the Analysis tab in the ABP template.
- Select Tax Results
- Select the Direct tab
- Export the tax tables
- *It is important that you only export the Direct taxes
- Paste the EC, PI, and Household Columns from the exported tax tables in the appropriate columns of the Direct Tax tab in the ABP template