Direct/indirect labor and spending apportionment in industries with high subcontractor use
I got into a discussion at the office about how workers are accounted for in industries with heavy subcontractor usage. For example, for large projects in the construction industry, general contractors hire out the vast majority of the work to subcontractors that perform the actual labor under the supervision of the general contractor. The labor produced in this case would typically be defined as indirect jobs, if I'm not mistaken. However, we weren't sure if this was actually the case. If so, shouldn't we expect that the multipliers in the construction sectors would skew much lower for direct employment and astronomically higher for indirect employment relative to the average?
The same question applies to firms in other industries that use a large proportion of subcontractors, like real estate brokers at a large brokerage firm or drivers at a ride-share operation.
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Official comment
New construction and maintenance/repair are treated differently. New construction is considered a capital purchase, which is a final demand (not an intermediate demand). Therefore, new construction contractors and subcontractors do not appear in any Industry’s production function. So, in new construction the contractors and subcontractors are found in the Direct Effect as proprietors.
Maintenance and repair is not considered a final demand, therefore it can be purchased by Industries.So for maintenance/repair, contractors and subcontractors are found in the Indirect Effect.
For other Industries like ride sharing companies or real estate, it depends on how they are classified. Some people will be wage and salary employees and therefore in the Direct Effect. All contractors (outside of new construction) will show up in the Indirect and Induced Effects.
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