direct effects --household & labor incomes

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    IMPLAN Forum
    Hi Dale, Good to hear from you again! The Household Income Change and Labor Income Change are for the Induced impacts by definition, and will only report in the Induced impacts. The way the Household Income Change is setup is that it does spend it based on the income category. But they are different in that if you are using the Labor Income Change you need a fully loaded payroll value and if you are using the Household Income Change you need to have a value net of in-commuters and payroll taxes (this Activity Type removes savings and income taxes, locally availability is determined in the next step in the process). For the Labor Income Change the Direct shock is recorded as a Direct Factor Change. The reason it appears here rather than in the Direct Effects is that there really is no clear Output or Employment associated to a flat Labor Income Change (i.e. there could be salary increases without a change in Employment or Output and the relationships that would tie Labor Income to Output and Employment will be Industry specific and the Labor Income Change is designed to be non-Industry specific). So this is more a of storyboarding- with a $5000 increase in Labor Income this is the resultant spending in the economy. With the Household Income Change the Direct shock is captured in the Direct Institution Change field. Again since this spending is definitionally Induced the results roll into this category. Since a Household Income Change is presumed to not be directly related to a change in an Industry there is no assumed Direct Effects. Hopefully this helps and please let us know if you have any additional questions or concerns. --Implan Support Staff
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    Dale Shannon
    Thanks for the response. Let me try and see if I got something right by giving a summary of what I understand. Household income is only an induced effect. I can see that. Expenditures from households ripple out and are estimated. There would be no indirect effects. My question is about the direct effects. And understanding what you did in the Webinar when you had the labor income ABP component and you added them back along with the induced effects to create a new total impact. Were they added back into the reported total effect because the direct effect could be associated with a specific industry? In that example the labor income was associated with an agriculture industry. But as I understand it labor income goes through a discount process that cleans off the taxes and out of state resident components and then the remaining is run through the model in the same structure as household incomes. So what I am looking for is a reason as to why the initial direct effects on a household income event are also not added back in? It could be because there isn't an industry for these household income changes to directly effect. If so, I don't understand why the industry matters. The direct effect of either a household change in income or labor change in income seems conceptually the same to me. But your language in response to my earlier question suggests that the industry makes a difference. Specifically you wrote "Since a Household Income Change is presumed to not be directly related to a change in an Industry there is no assumed Direct Effects." This is the core of my interest - the fact that the total effect is less than the direct effect suggests that there is either a lot of savings and "leakage out of region" in the household income change effect or I don't understand something fairly basic yet. The story board here is that households get $100 in additional income and only $80 dollars show up in the total impact even after the model iteratively accounts for the rippling out (of 10 or more iterations) of the initial dollars it allocates to go into the induced effects. So given the discussion above here are the questions. 1. Is it correct for an impact analysis that household income effects only affect the economy when they show up as expenditures? That is you should not add the direct effects back in like was shown for the ABP for the organic dairy farm example? 2. Are the savings rates, tax rates, and "leakage" rates used in the model to discount household income visible to the analyst? 3. Are these dependent on the HH income groups? Thanks again!
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    IMPLAN Forum
    Hi Dale, [attachment=671]h5afbe19.xlsx[/attachment] The removal of savings and taxes (as HIC) and of RPC (from the HHSP). So the Induced Effects are also net imports. The Direct Effect is a little more difficult defintionally, but there is nothing wrong with including the original income expenditure as part of the conversation. The reason we added it back in the way we did in the webinar is because we were talking about an Industry, and the Labor Income Change was a subset of the Industry analysis. An Industry has a clearly defined Direct Effect that includes all the factors (Output, Value Added, Employment and Labor Income) as well as the standard Direct Output definition of Intermediate Expenditures : Value Added. A change in Household Income doesn't really meet any of these definitions until it is spent. There is no Employment associated to a change in Household Income ( and might not be for a Labor Income Change either if it was Industry independent), nor is there Labor Income of Value Added (although there could be taxes paid) nor Output by the traditional definition of Output = Intermediate Expenditures + Value Added. So you can add the value of the income back in, but it's hard to define what that income means in the standard Summary Results graph, which is why we typically recommend more of a storyboard presentation: this income results in these effects. Attached is a basic example, that shows the Household Income Groups from a U.S. County in CT. Note that the in upper income groups imports, taxes, and savings make up more that 40-50% of the initial spending. So for these income groups the Induced Effects will likely be smaller than the total starting income, whereas for lower income groups, because they borrow more than they save, and often receive more government transfer payments than they pay in as taxes, may actually in some instances have higher Induced Effects than the starting income value. We aren't trying to say that they don't impact the economy at all, just that they impact the economy at a value less than face value. Again this is because not every dollar of new income is spent (savings and taxes) or when it is spent it may be spent on items that aren't locally produced (leakage). The value of the income you put into the Model is reduced by all these factors before even the first-round of expenditures is made. Rates for payments to taxes and savings can be determined from the SAM. (article 205) Yes these are dependent on the Household Income Group.
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    IMPLAN Forum
    Hi Dale, [attachment=672]h5afbe19_2016-02-23.xlsx[/attachment] The removal of savings and taxes (as HIC) and of RPC (from the HHSP). So the Induced Effects are also net imports. The Direct Effect is a little more difficult defintionally, but there is nothing wrong with including the original income expenditure as part of the conversation. The reason we added it back in the way we did in the webinar is because we were talking about an Industry, and the Labor Income Change was a subset of the Industry analysis. An Industry has a clearly defined Direct Effect that includes all the factors (Output, Value Added, Employment and Labor Income) as well as the standard Direct Output definition of Intermediate Expenditures : Value Added. A change in Household Income doesn't really meet any of these definitions until it is spent. There is no Employment associated to a change in Household Income ( and might not be for a Labor Income Change either if it was Industry independent), nor is there Labor Income of Value Added (although there could be taxes paid) nor Output by the traditional definition of Output = Intermediate Expenditures + Value Added. So you can add the value of the income back in, but it's hard to define what that income means in the standard Summary Results graph, which is why we typically recommend more of a storyboard presentation: this income results in these effects. Attached is a basic example, that shows the Household Income Groups from a U.S. County in CT. Note that the in upper income groups imports, taxes, and savings make up more that 40-50% of the initial spending. So for these income groups the Induced Effects will likely be smaller than the total starting income, whereas for lower income groups, because they borrow more than they save, and often receive more government transfer payments than they pay in as taxes, may actually in some instances have higher Induced Effects than the starting income value. We aren't trying to say that they don't impact the economy at all, just that they impact the economy at a value less than face value. Again this is because not every dollar of new income is spent (savings and taxes) or when it is spent it may be spent on items that aren't locally produced (leakage). The value of the income you put into the Model is reduced by all these factors before even the first-round of expenditures is made. Rates for payments to taxes and savings can be determined from the SAM: http://implan.com/index.php?option=com_content&view=article&layout=edit&id=205 Yes these are dependent on the Household Income Group.
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    David Buland
    This is a similar topic. We are trying to measure the impacts of government conservation program payments to farmers. When paying for conservation practices, most of the payments are direct impacts (minus imports) of industries and commodities. Some are for labor import, like wages for farm labor. We add those as a direct factor change as sector 5001 Employee Compensation. Should these wages be added as DIRECT effects in the labor Income and Value Added columns, as shown in the ABP webinar. We also use sector 6001 Proprietors Income for government payments that seem to go straight to farmer profits, like CSP payments on already existing practices. Should these Proprietors profits be added as direct effects in the labor Income and Value Added columns. These show up in the scenario results as 'Direct Factor Changes'.
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    IMPLAN Forum
    Hey David, We apologize for creating confusion on this, in a sense, yes the Direct Labor Income is a Direct Effect and could be described that way. There a couple of problems with doing that however, if you don't have an Industry to relate it to. Direct Effects by definition are derived from Industry or Institutional spending, not from income spending in the Model. When looking at a Labor Income Change in absence of the rest of the Industry descriptors, it is hard to define a Direct Effect because there is no associated Employment, Output or really Value Added factor, since Value Added is made up not just of compensation payment but also of Other Property Type Income and Taxes on Production & Imports (Value Added = Employment Compensation+Proprietor Income+Other Property Type Income+Taxes on Production). Thus the Labor Income is a complete definition of Value Added, unless for your case you want to define Value Added = Labor Income. In the case of the ABP webinar, we were able to solve for all of these because the factors were known (Employment, Labor Income, and Output) and because of the ratio of IE : VA we could use the spending pattern information to solve for the Value Added components. Thus since it is harder to define the 'Direct Effects' in a Labor Income Change or a Household Income Change, we typically recommend storyboarding these as this much income to this Household Income Group or this much Labor Income stimulates the Induced Effect results. In your case too, since you have a mix, if you are summing them together, you certainly can add these as Labor Income and Value Added (again assuming the definition Labor Income = Value Added- or assuming you have other outside information) to your other Direct Effects to create totals. Please let us know if this does not answer your question, or if you have any additional questions. Thanks!
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