Adding an Industry that Doesn’t Exist Yet

INTRODUCTION:

Sometimes the Industry that we want to examine does not exist in our study Region. The Industry might be new to the area.  It also might be a new Industry altogether. It also might be an Industry that only recently became legal. This article outlines the best way to model these new Industries in IMPLAN. 

DETAILS:

The economy is always changing and Industries come and go.  Federal data follows these changes by adjusting the North American Industry Classification System (NAICS) codes.  IMPLAN follows suit, so when the NAICS codes change, so do IMPLAN Sectors.

There are two ways to create a new Industry depending on what you want to accomplish.  Both methods are outlined in this article.  

INDUSTRY THAT EXISTS IN THE US:

If you have a Region that will be gaining an Industry that does exist somewhere in the US, you can follow the steps outlined in the article Adding an Industry by Customizing a Region.

BRAND NEW INDUSTRY:

Federal data lags in categorizing these new Industries, which can pose a problem for researchers.  When the newest widget is invented, it is usually categorized with a similar product or under one of the catch-all codes like “all other…”  One interesting case is that of the legalization of marijuana or cannabis production and sales. The 2017 NAICS do have information on where the pieces of the supply chain fall for marijuana:

• Marijuana, grown under cover - Industry 6 - Greenhouse, nursery, and floriculture production
• Marijuana, grown in an open field - Industry 10 - All other crop farming
• Marijuana merchant wholesalers - Industry 400 - Wholesale - Other nondurable goods merchant wholesalers
• Marijuana stores, medical or recreational - Industry 412 - Retail - Miscellaneous store retailers

Let’s say we want to examine the effect of a $100M in cannabis agricultural production in Ohio and we know that a full $5M of that will be spent on legal fees. We also know there will be 25 employees each making $50,000.

First we have to decide what Industry we want to use.  In this case knowing the climate in Ohio, we make the assumption that the agriculture will be most closely related to IMPLAN Industry 6 - Greenhouse, nursery, and floriculture production. 

Create an Industry Spending Pattern Event for $100M in Industry 6.  If we know more details about the spending of cannabis growers as compared to other greenhouse products, we can edit the spending pattern to further reflect this new Industry.  Remember in this example we know that $5M will be spent on legal fees specifically. To model this, we click the Advanced button to open the details of the Industry Spending Pattern and scroll down to Commodity 3455 - Legal Services.  Next, we override the value with 5%; the dark blue color shows the edited Commodity. If any further information is known including Industries that could be deleted entirely from the Spending Pattern, that can be done at this point as well. More details on this can be found in the articles Editing Industry Spending Pattern Events or Editing Institutional Spending Pattern Events.  

You’ll notice that the Sum of Percentages at the bottom is now 104.94%.  

To fix this and return to 100%, click on the Advanced button and choose Normalize.

Now, a full 5% will be spent on legal fees.  Make sure to choose Total Output (instead of Intermediate Expenditures). Remember: Output = Intermediate Expenditures + Value Added.

Next, we create a second Event for our Labor Income (25 employees x $50,000 = $1,125,000).  We can then add them to our Group and Run our economic impact.

Notice that there are no Direct Effects in our Results so we will need to add those back in manually.  We know our total Output is $100M and our Labor Income is $1,125,000 with 25 employees. Now we need to navigate back to our Regions screen and click 

Study Area Data > 
     Industry Summary

Here we can find IMPLAN’s known totals for Sector 6 - Greenhouse, nursery, and floriculture production. Calculating the ratio of the overall Value Added to the overall Output shows that VA is, on average for this Industry, 37% of the total Output.  Therefore, we multiply $100M in Output by 37% to yield a Direct Value Added for this project of $36,727,998.33. The template for these calculations is here.

RELATED TOPICS:

Adding an Industry by Customizing a Region

Editing Industry Spending Pattern Events

Editing Institutional Spending Pattern Events

New Industry Direct Effects Calculator

Written September 10, 2019

Updated January 21, 2020