Accounting for 1099 workers

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    Candi Clouse

    Hi Paul!  

    Contract workers show up as an Intermediate Expenditure (outside of construction Sectors).Those employees should not be counted in any employment you enter in the software.

         Output = Value Added + Intermediate Expenditures

         Value Added = Labor Income + TOPI + OPI

    Here is the article that describes this fully: Understanding Output.  Let us know if you have further questions.

    Candi

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    pacoom01

    Thanks Candi, 

    I understand that 1099 workers are to be treated as an intermediate expenditure. But I do not know what you mean by "outside of construction Sectors". What sector would they be assigned? Employment Services is Sector 464, but I thought that was for firms that handle temp workers, not individual contractors.

    Thinking more about your response, I am deducing that the 1099 workers for a company would need to be assigned to their relevant NAICS/Implan sectors. So, for example, some would be providing legal services, some would be providing consulting, others IT support. Their payments would show up as Proprietors Income to those intermediate sectors.

    Right?

    Paul

     

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    Candi Clouse

    Hey Paul - 

    Construction Sectors operate slightly differently.  These contractors will show up as proprietors (if they are self-employed) or as Employees (if they work for a company).  

    Spending on contractors, say legal for example, would show up in the Intermediate Expenditures for the spending pattern of the company you are modeling.  You do not need to model them separately as that employment is counted already.

    Candi

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    pacoom01

    Thanks again, Candi. I realize the model accounts for all this by default, but when we can get it we like to use internal accounting data to modify the structural stuff in the model to more accurately reflect the direct impacts and the regional economy. In this case we have complete supply chain info on a large utility, as well as all their payroll, benefits, 1099 contractors, etc. As I think about your responses, it may not be possible to improve on the proprietor income portion of sector intermediate expenditures....Paul

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    Candi Clouse

    Paul -

    If you have detailed enough information, you might consider doing Analysis-by-Parts (ABP). ABP is typically used to split the ripple effects of an Industry Impact into its individual impact components - budgetary spending pattern and payroll. Intermediate Expenditures and compensation spending are the core impact factors of an Industry Impact, initiating Indirect Effects and Induced Effects, respectively. Separating them gives you more customization capabilities in your analysis that I think you might be looking for.  

    We have articles on our support site that can walk you through doing an ABP.

    Candi

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    pacoom01

    Appreciate you thinking about this, Candi.

    We have actually been decomposing interindustry and household impacts for many years in many studies, though I had not heard of your ABP term. Nice explanation.

    However, in this study we ware not looking at multiplier effects, as the company is simply providing a service to regional customers - they are not bringing new dollars into the regional economy. We are simply helping them tell their 'economic footprint' story. Implan is very useful in modeling the supply chain, as well as tracking the household spending by employees around the state. But we will not be saying that the company 'causes' new economic activity, only that its activity is linked to these other economic activity buckets.

    Of course, if analysts blindly applied multipliers to each industry, the regional economy would need to be five times bigger than it actually is.

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    Candi Clouse

    Paul -

    You might actually be interested in running an Industry Contribution Analysis (ICA). ICA is a way to look at existing activity within an economy. Check out our article Introduction to Industry Contribution Analysis.

    Even though it's an existing Industry, there are still related multiplier effects because that Industry is located there. Think about it as what might happen if they suddenly went away. Not only would we lose the original company, but suppliers would be affected and we would also see decreased household spending.

    Candi

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    pacoom01

    I disagree that there are multiplier effects in the case. The client is a large regulated energy utility. If the company went away for some reason, another utility company would take its place the same day. The energy customers create the demand, and some company will always be there to supply the energy, using essentially the same supply chain and workforce. The utility does not create economic activity, it exists to service a customer base, much like a water company, a dentist, or even a grocery store.

    There are a few specific elements that are candidates for multiplier analysis, such as some modest net exports of electricity, and a few industrial customers that were attracted by low cost energy in the region. We are working on parsing those out, but it is hard to establish cause and effect when the wider region is full of reliable and inexpensive energy providers.

     

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    Candi Clouse

    Paul -

    You are absolutely right. If the energy company went away today, it would likely be replaced almost immediately. However, that doesn't negate the ripple effect in the economy from the existence of energy service; the current company or a new one. While many of the same suppliers and employees might switch to working for the new company, there would still be changes to the economy. Perhaps the new company uses more or fewer local suppliers, is based out of state, or uses more resources like solar or wind in lieu of imported fossil fuels.  Each of these scenarios would change the multiplier effects found in I-O analysis. See Collins, Hansen, & Hendryx, 2012 and Croucher (2012).

    The same is true for other services. The multiplier effects for a Mom & Pop locally owned grocery store are very different from a big box retailer.  Also, if there wasn’t a local dentist or grocery, people would have to travel outside of the region for these services, and this money would leave the study region.

    Attributing business openings or closings due to energy providers is a tricky one without knowing first-hand that the energy prices or quality were the reason for the change. As always, I recommend just ensuring that you state your assumptions when reporting any results. For more details overall on Input-Output assumptions and methodology, I recommend the Miller & Blair (2014).

    Candi

     

    Collins, A. R., Hansen, E., & Hendryx, M. (2012). Wind versus coal: Comparing the local economic impacts of energy resource development in Appalachia. Energy Policy, 50, 551–561. doi: 10.1016/j.enpol.2012.08.001

    Croucher, M. (2012). What is important when modeling the economic impact of energy efficiency standards? Utilities Policy, 22, 50–57. doi: 10.1016/j.jup.2011.12.002

    Miller, R. E., & Blair, P. D. (2014). Input-output analysis: foundations and extensions. New York: Cambridge University Press.

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    Ssilva

    Hello Candi 

    I am doing an ABP and I believe I can benefit from this post.

    When you say: "Spending on contractors, say legal for example, would show up in the Intermediate Expenditures for the spending pattern of the company you are modeling" , you mean it should enter in the intermediate expense in a commodity coded 3447 (Law firms, data 2017?).

    Thanks in advance for your time : )

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    Candi Clouse

    Hi there!

    If you are doing ABP using a spending pattern, the spending pattern will include all of these intermediate inputs. If you are entering each commodity separately, known as a bill of goods approach, then you will want to ensure you have all the spending categories covered.

     

    ABP with Spending Pattern:

    https://implanhelp.zendesk.com/hc/en-us/articles/360043149694-ABP-Using-an-Industry-Spending-Pattern-

    ABP with Bill of Goods:

    https://implanhelp.zendesk.com/hc/en-us/articles/360026040433-ABP-Bill-of-Goods-Using-Commodity-or-Industry-Events

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    Ssilva

    Hello

    Thank you for your prompt response and for the suggested helpful articles. I still have a question about the contractors (not in the construction sector). Note that I have data on all the expenses and on the revenues of this Rodeo event I am modeling.

    This is what I am doing. Using IMPLAN Pro, I created an Activity, type "Industry Spending Pattern". Then in this activity, I am creating new Events. In each event, I am putting the coefficient (calculated by dividing the expense by total expense, I know they do not add to 1 due to the value added part) and the local purchase percentage. One expense is the guy hired to be the announcer (the guy that keeps talking no stop in the Rodeo).  He is an independent contractor, not an employee. How should I input his expense? Sector 3491 (Rodeo manager without facilities)? 

    Thanks!!

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    Candi Clouse

    Good morning! 

    I'm glad you mentioned that you are using IMPLAN Pro, our legacy software. I have included a link below that will walk you through Analysis by Parts in Pro.

    You are correct that your announcer would be in the Commodity "Promotional services for performing arts and sports and public figures" (Commodity 3500 in the 546 Industry Scheme).

     

    ABP in Pro

    https://implanhelp.zendesk.com/hc/en-us/articles/360000453533-IMPLAN-Pro-Analysis-by-Parts-Spending-Pattern-Basic-Example

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    Ssilva

    Perfect, thanks!!!! 

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