Guildlines for inclusion in direct effects

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    Doug Olson
    It is extremely hard to generalize about this topic as each case has its own nuances. In general there are two types of studies: 1) a "Contribution Analysis" - where we don't worry about substitution effects. E.g., a retail store's activity supports a certain amount of economic activity through its backward links. We don't worry about the store cannibalizing another store's activity. Similar to the resident spending on recreation - eg, a bowling alley supports a certain amount of economic activity. 2) an "Economic Base" type analysis where we only consider the new expenditures generated by the activity. E.g., a college creates many sources of new money: operational and construction activity, student spending and parent's spending at football games and graduation. It isn't always easy. For example, I consider import substitution as adding to the economic base. If I have a choice of a season ticket for the local football time and a trip to Disney World, the season pass will prevent my money from leaking out -ie, is import substitution. Sometimes it is easier to report impacts of both, separately -resident spending an non-resident. This lets the politicians argue about it. Retail Margins: if you know that production is local, you have two choices. 1) Plug the gross sale into the producing sector and ask for margins. 2) Plug the gross sale into retail sector (which imports all manufacturing) and also specify the producer value as an impact into the manufacturing sectors that contributed to the gross sale. This brings back into the analysis that producer value. As far as confusing an audience about margins, the simplest solution is don't tell them about it. Just tell the story (production of a product, xx spending by tourists) and then tell about the additional economic activity that this spending generates. It only gets confusing if you are trying to explain direct, indirect and induced. (Note, the methodology section will need to mention that you margined the retail purchases, as not doing so is the easiest way to create gross error and some people will be looking for this.)
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    Dale Shannon
    Thanks. Hmmm, so it is appropriate to report on resident spending as part of an analysis? So you could say something like the total economic activity from this event was X. While the net new (or net for the region) was X-N? Huh. Seems like cheating sort of but if you say it can work I start thinking about it. Do you have any easy examples of this or of the 2 shot approach?
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    Doug Olson
    I like the terminology "total economic activity supported by this event..", but that is semantics. Describing a "net new" is clever, but you need the caveat this this is a conservative impact as some of that disposable could be spent outside the region without this alternative. There are a number of analyses of sport teams out there. I am not familiar with them, but I suspect a couple would give you a format to follow.
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    Jenny Thorvaldson
    Click [url=http://implan.com/v4/index.php?option=com_content&view=article&id=660%3A660&catid=253%3AKB33&Itemid=1]here[/url] for instructions on conducting a contribution analysis.
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    Dale Shannon
    I'm going to need some soak time on this, but thank you!
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    Dale Shannon
    Doug- Can you explain how I can have an indirect multiplier for output of 0.308 and an induced multiplier of 1.104? The direct and Induced total 1.308. You're left with 0.204 not going into the induced. Working the numbers out suggest that if households spend 100% of the earnings from the direct and indirect impacts locally you're left with only around 15.5% of the total sales that don't go to wages! Do I have something messed up in my basic understanding of things? This is from a 2005 report I'm getting on-line. I don't have the model for the region. It is just the economicts of things that have me confused.
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    Doug Olson
    I am not sure I understand the question, but I gather that the output multiplier is: Direct = 1 Indirect = ?? Induced = .308 The induced is driven by payroll from both directly and indirectly affected industries. If the industry is a service industry with labor income making up a large majority of the spending, then the induced effect can be several time larger than the indirect effect. Conversely, if you have an industry with a very high output per worker, a large maount of the total output is used to buy intermediate goods and service leading to a relatively high indirect effect in comparison with the induced effect.
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    Dale Shannon
    Don't mean to be confusing but I'm reading a report and they show for output a direct effect of 10.9 indirect effect of 3.4 an induced effect of 12.1 This means the multipliers are: direct = 1.00 indirect = 0.308 induced = 1.104 Also for the same impact they have a labor income direct of 4.9 indirect of 1.2 induced of 5.4 The multipliers for labor are: direct 1.00 indirect = 0.277 induced = 1.196 These don't make sense to me.
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    Doug Olson
    Ok, the induced 1.104 does not include the direct effect, it just means that the total induced effect was greater than the original direct effect. Looking at the US model there are a few sectors where the induced employment/labor income effect is greater than the direct effect. It occurs where labor is a huge component of the industry spending (uniformly a service sector).
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    Dale Shannon
    Thanks. For an 8 county model? Yes on the services but even so- How does the induced effect for output account for 84% of total from the direct and indirect? Not hardly any goods going into production. As I understand it this means that at least 84% of total sales go to wages and 100% of those wages would get spent in the local area. Also, you have a total direct and indirect labor income that isn't anywhere near to the induced effect from output? Where else to the dollars come from in the induced effect other than household income which must be sort of close to labor income...? Am I not including something that I should in what there is to spend for the induced effect?
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    Doug Olson
    The induced effect includes all effects beyond industries buying from industries. If the user included government (or any of the other institutions) as part of the SAM multiplier that would bump up the induced effect. See if they mention what was included in the methodology section.
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    Dale Shannon
    So the induced can be higher than labor income and higher than sum of income to households and payments for inputs and other VA stuff because some in induced comes from institutions? I am sure the direct is after the retail margins have been applied. These are expenditures by nonlocals at a sporting event. Retail, food, gas, transit.... I can't think of what institutions in this analysis that you would have that would push those sorts of numbers but it is good to know of the instituion component. I think something is missing, although it could just be some of my brain cells.
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    Doug Olson
    All the sectors you mention have high IBT (tax the tourist taxes). So maybe government was internalized. Sector 326 Retail Gas Employment for 7-county Twin Cities Default multipliers (households)..direct - 18.3; Indirect - 1.3; Induced - 4.3 Internalize State and local gov...direct - 18.3; Indirect - 1.3; Induced - 8.5 Internalize everything............direct - 18.3; Indirect - 1.3; Induced - 13.4 As you can see induced changes quite a bit (retail gas was randomly picked). In the final case only imports are a leakage. If you want a description of the different SAM multipliers and my opinions of when you would use which see: http://implan.com/V4/index.php?option=com_docman&task=doc_download&gid=137&Itemid=7 I am a bit in a vacuum here. The best people to ask these questions are the ones who did the report.
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    Dale Shannon
    Internalize everything is a full SAM build? Does the induced effect interatively solve down to 0 dollars being spent locally? I had believed it was only the first round. Sorry bout the vacuum. During this time I have also been talking with them. And have gotten some very good responses. I've learned a lot. The institutional dimension coming in on the induced effect is very valuable to me. Also probably learned that the model resolves on the induced effect to 0 dollars left to spend locally.
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    Dale Shannon
    Thanks for the link! Excellent.
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    Doug Olson
    Yes. The Type I multipliers are applied to calculate the indirect effects. The induced effects are iteratively calculated until the last of the money leaks out. This allows the user to edit employee comp and proprietor income in the impact events (on the fly).
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    Thomas Smith
    i think i have a similar question....our 5 year construction project was funded by a local foundation. This foundation has stock market investments worth in the $100's of millions. We intend to argue that the 100% of the expenditures should be counted as direct impacts from money being brought into the local economy from elsewhere since the foundation essentiallly brings "profits" from the stock market into our local economy. Under this explanation, outside money is stimulating the local economy. Thus for this assumption we'd call our analysis an economic base analysis. However, an alternative view might be that the local foundation primarily funds local projects and that if ours had not been funded another local project would have received the funding. Thus, for this assumption, we'd classify our analysis as an economic contribution analysis. Any thoughts? I have not come across relevant prior studies... thanks for any insights. russ
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    Doug Olson
    Without knowing what was constructed, I would say that the construction activity is economic base - ie,there was final demand using investment income (whether it was your local project or someone else's local project). The fact that the foundation makes a point of investing locally as a matter of principle doesn't change that in my mind. (However, that is my opinion and I am not aware of literature that will help out on this point). The operational impacts are another matter. That will depend on what was constructed. To qualify as part of the economic base it would need to either draw in money from outside (traditional) or prevent money that normally leaks out from doing so (import substitution). Showing import substitution may require a little more effort - eg, if I didn't buy season tickets for local Vikings football would I go to Disney World instead?
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