Analysis-by-Parts (ABP) is a technique by which you can split the "stemming ripple effects" of an event into its individual impact components. Separating the pieces with Analysis-by-Parts gives the researcher more flexibility and customization capabilities in the analysis.
To perform an Analysis-by-Parts, you will want to know Direct Labor Income and the Direct Intermediate Expenditures or Output, as well as and the Sector that your industry or business is best represented by. If Direct Labor Income, Intermediate Expenditures and Output are unknown, Output can be calculated using the Output-per-worker for the Sector that best represents your business or industry (Region Details > Study Area Data > Industry Summary, Output-per-Worker column, Sector row).
When the Industry you are modeling doesn’t have an Output Equation matching IMPLAN’s definiton of the Sector’s Output Equation beyond what can be tweaked in a standard Industry Event, Analysis-by-Parts is appropriate.
Performing an Analysis-by-Parts using an Industry Spending Pattern is most commonly used when modeling a nonprofit or public organization, because these organizations do not typically allocate an equal portion of their Output to Tax on Production and Imports or Other Property Income as for-profit, private businesses. This technique is also useful for modeling a more specific type of industry than available in IMPLAN according to the default 536 Sectoring scheme, but this requires editing of the Industry Spending Pattern and the information to do so.
STEP 1 – EXPENDITURES
Intermediate Expenditures should be applied to an Industry Spending Pattern. These Industry Spending Patterns are made up of all the Commodities expected to be purchased by the Industry for annual operations.
Start by building an Industry Spending Pattern Event by adding an Industry Spending Pattern Event in the Impact Screen. Populate the Event with a Title that makes sense to you. Select the Sector that best represents your industry or business in the Specification Field.
Let’s take for example, a new public university in that will open in West Virginia. The closest Sector in IMPLAN is Sector 473 - Junior Colleges, Colleges, Universities and Professional Schools, but this sector represents private establishments.
IMPLAN says the Output Equation for this Sector in the state in 2017 is:
Output (100%) =
The Intermediate Expenditure Coefficient can be found as the Gross Absorption column total in Region Details > Social Accounts > Balance Sheets > Industry Balance Sheet > Commodity Demand, filter by Sector:
The addition coefficients for the components of Value Added can be found in the Value Added Coefficient column:
The public university we are hoping to model does not have any Proprietors and it is tax exempt. While the public university does not generate any profit, it still may have some Other Property Income for consumption of capital, this could include things like a purchase of new computers for the library. Determining how your industry or business’s Output Equation differs from IMPLAN’s definition is up to you as the analyst.
If you have your own information about spending on Intermediate Expenditures and Labor Income, this is ideal! Your Intermediate Expenditure value can be entered into the Event Value Field. For our example, let’s say this is $2.6M.
If you do not have the total spending amount on Intermediate Expenditures, you’ll need to calculate this using Output and your Industry’s Output Equation.
To generate the Output Equation for the public university in our example, we can distribute the portions of Output allocated to Proprietor Income and Tax on Production and Imports for this IMPLAN Sector to Intermediate Expenditures, Employee Compensation and Other Property Income by normalizing.
First, we’ll need to sum the portions we want to keep:
Intermediate Expenditures (48%) + Employee Compensation (44%) + Other Property Income (0.5%) = 92.5%
Next, we’ll divide each portion we are keeping by the new total to get new portions summing to 100%:
New Intermediate Expenditure portion: 48%/92.5% = 52%
New Employee Compensation portion: 44%/92.5% = 47.5%
New Other Property Income portion: 0.5%/92.5% = 0.5%
Note: All math above used rounding for simplicity.
Now, Intermediate Expenditures can be calculated as Output * Intermediate Expenditure coefficient and entered in the Event Value field. If Output is for the university is $5M, then Intermediate Expenditures for the public university equals $2.6M.
If you’d like to make any edits to this Industry Spending Pattern because some information about the universities operating expenses is known, you can do so by opening the Advanced Menu of the Event.
This will open the following module where you can add Commodities (teal pointer below), delete Commodities (purple pointer below), edit the portion of Intermediate Expenditures going to a given Commodity (gold pointer below), edit the Local Purchase Percentage LPP (blue pointer below), and re-sum the Intermediate Expenditure coefficients to 100% by normalizing or convert back to the original settings by resetting (red pointer below).
Editing an Industry Spending Pattern can become cumbersome if you have a full detailed list of expenditures. To model these Intermediates Expenditures as individual Commodity or Industry purchases, follow the instructions for Analysis-by-Parts & Bill of Goods: Using Commodity or Industry Events with Labor Income Event(s).
STEP 2 – LABOR INCOME
In our example, the university will only have wage and salary workers so the total payroll value at the university should be run through a Labor Income Event with the Specification of Employee Compensation.
Remember, these should be fully loaded payroll values which include wage and salary, all benefits (e.g., health, retirement) and payroll taxes (both sides of social security, unemployment taxes, etc.).
If you need to convert your wage and salary data to fully loaded payroll, please use the 536 FTE & EMPLOYEE COMPENSATION CONVERSION TABLE.
Let’s say in our example, payroll is unknown. We can calculate Employee Compensation by multiplying the university’s Output by the university’s Employee Compensation coefficient, $5M * .475 = $2.375M.
Our completed Events for this example will look like the following:
STEP 3 – RUN THE IMPACT
Now either use the button at the top to select all or highlight each Event and drag them into your Group. Next, hit run.
STEP 4 – INTERPRET THE RESULTS
When your analysis is complete, the results will show you the economic impact of all of the Events you entered which will include the Industry Spending Pattern Event and the Labor Income Event.
In our public university example, the schools annual operations has an economic Indirect and Induced impact of approximately 35 jobs, $1.3M in Labor Income, $2.765 million in Value Added, and $5.1 million in Output.
- Indirect Effects are from the Industry Spending Pattern Events only and represent activity in the local industries affected by Direct business’s supply chain.
- The Labor Income events only create Induced Effects.
If you want to look at the results by Event, remember to use the FILTERS button and select which of the Events you would like displayed.
STEP 5 – MODIFYING RESULTS
Because the spending by the Direct business was modeled instead of the Direct business itself, there is no Direct Effect in your Results:
Define your Direct Effect:
- Direct Labor Income = total Labor Income. You should use the values run through the Labor Income Event(s) from Step 2.
- Direct Value Added = Direct Labor Income + Tax on Production and Imports + Other Property Income
- This can also be derived from the Output equation in the model:
- If you have Output, you can use the equation Value Added = Output - Intermediate Expenditures (the value run through the Industry Spending Pattern from Step 1)
- If you only have Intermediate Expenditures and Direct Labor Income, you’ll need to find out how these values relate to Value Added in the Output equation for the Sector that best represents the Direct Industry, in Region Details > Social Accounts > Balance Sheets > Industry Balance Sheets
- Using the Value Added Tab, Value Added can be calculated as (Labor Income/Labor Income Coefficient) * Value Added Coefficient. The Labor Income Coefficient being a sum of EC and PI Coefficients.
- Value Added could also be calculated using the Commodity Demand tab, Gross Absorption column total and Value Added Coefficient as (sum of expenditures)/Gross Absorption Coefficient * Value Added Coefficient
- Note that if these two approaches produce different results it is because your sum of expenditures and Labor Income values don’t follow the same ratio to one another as the Output Equation suggests and some assumptions about how your Output Equation differs will need to be addressed.
- Direct Output = Intermediate Expenditures + Direct Value Added
- Direct Employment = known Direct Employment. If Employment is unknown, you can calculate it on your own by dividing Direct Output by Output-per-worker for the Sector that best represents the Direct Industry. Output-per-worker can be found by Sector in Region Details > Study Area Data > Industry Summary, Output-per-Worker column, Sector row. For this example, this assumes Output-per-worker is similar between private and public universities in the Region. For West Virginia 2017, Output-per-Worker for Sector 473 is $70,571.68. Therefore, we can estimate Employment as $5M/$70,571.68 = 70.8.
Written July 3, 2019