How to Calculate the Direct Effects of Employment Impact By Industry (ABP)?

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    maria_lucas

    Hi Luke,

    Excellent question. The Direct Effect in your analysis are all the economic indicator categories for the change in the automobile manufacturing Industry/business you are analyzing. What is the initial change in the automobile manufacturing industry? Are they only changing their spending or are they also changing their level of production (output), # of employees, or the amount of compensation to their workforce? 

    The sum amount of their total spending change on Intermediate Inputs should be included in the Direct Total Output. Any other direct changes should also be included in the Direct Effect. You can find read more about the manual step of adding in the Direct Effect of an Analysis-by-Parts here in step 4: https://implanhelp.zendesk.com/hc/en-us/articles/360013968053-ABP-Introduction-to-Analysis-By-Parts

    Find more info about this step here: https://implanhelp.zendesk.com/hc/en-us/articles/360050904333-Categorizing-Effects-Adding-Back-the-Direct-Including-Institutional-Spending

    If the change in automobile manufacturing industry is the only industry directly impacted by the Events in your analysis, then that is the only Industry experiencing a Direct Effect. Your ABP Results include all the Indirect and Induced Effects supported by the change in the automobile manufacturing industry. You will find the employment impacts in detail in the Employment tab of the Results which is reviewed in the video here: https://implanhelp.zendesk.com/hc/en-us/articles/360051087334-Quick-Start-Module-3-Results-Additional-Details

    As for calculating the Direct tax impact of the spending change:

    You can use the ratios found under Customize Region, Behind the i: https://implanhelp.zendesk.com/hc/en-us/articles/360052822313-Customize-Region-Menu 
    For example, if you know your industry's Intermediate Input total spending (i.e., non-payroll portion of the budget), go to Customize > Study Area Data , select your industry, and divide TOPI (Taxes on Production and Imports) by total spending on Intermediate Inputs. You can then multiply this ratio by your Intermediate Input expenditure figure to calculate the TOPI associated with those expenditures.

    Alternatively, you could estimate the Output associated with the change in the automobile manufacturing industry and run the Output as an Industry Output Event  the resulting Direct Effect in the Tax impact report will show Direct Taxes associated with the change. This assumes Direct Taxes in your analysis follows the automobile manufacturing industry average in the Region and Data Year you are using. 

    Thanks,
    Maria



     

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    Luke Daniels

    Hi Maria,

    Thank you for your response.  I now understand how to calculate the direct tax results; however, I am still confused about how to calculate the direct employment and value added results for the ABP analysis.  I read the articles that you linked, but I am having trouble understanding the exact process.

    My current understanding is to go to Regions > Study Area > Industry Summary, then take the ratio of our input ($1000000) to the total output for industry 340. Next, we would multiply the ratio by the Employment in the Industry Summary Tab? Is this correct?

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    maria_lucas

    Hi Luke,

    Your input of $1000000 is total expenditures on Intermediate Inputs, correct? Or does this value include payroll spending by the automobile manufacturing industry? 

    If your input is Intermediate Inputs, you can calculate Employment using per worker Study Area values found in the Customize Region Menu: https://implanhelp.zendesk.com/hc/en-us/articles/360052822313-Customize-Region-Menu.

    In the menu, you'll find Output, EC, PI, TOPI, and OPI total values and per worker (/w) values. You can read more about the Leontief Production Function that constructs each Industries allocation of Output here: https://implanhelp.zendesk.com/hc/en-us/articles/360035998833-Understanding-Output.

    The "missing" production component in the table is Total Intermediate Inputs which is the difference between Output and Value Added. EC, PI, TOPI, and OPI sum to equal Value Added. So,

    1. sum all the per worker values other than Output /w to produce Value Added per worker.
    2. Then, subtract Value Added /w from Output /w. This is Intermediate Inputs per worker.
    3. Divide your input (total Intermediate Input spending, does not include payroll) by this Intermediate Inputs per worker value to produce Employment.

    If you instead used total production cost including not only Intermediate Inputs, but also payroll and other costs like taxes then your input would be considered Output, which you'd specify in the Advanced Menu in the Spending Pattern Event. To calculate Employment using Output, you'd simply divide your input by the Output /w value in the Customize Region Menu.  

    For Value Added, you would then take your Employment number and multiply it by the Value Added per worker value you calculated a few steps ago. You could also use the other per worker values to calculate other Direct Effects. Direct Labor Income could be calculated as (EC /w + PI /w) x Employment. Direct Labor Income should reflect the total value analyzed in the Labor Income Event portion of the ABP, and should be considered in the calculation of Direct Value Added and Direct Output. 


    Thanks,
    Maria

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    Luke Daniels

    Thanks Maria,

    Your explanation was super helpful!  We have noticed that in some cases that the direct value added can be negative, while induced and indirect impacts are positive.  This observation is true both when we calculate the direct effects after Analysis-by-Parts and when we conduct a straight forward industry impact. Note, we are modeling $1M to 340 - Auto Manufacturing to Colorado. 

    Why would direct effects be negative while all other values are positive?

    Best,

    Luke

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    maria_lucas

    Hi Luke, 

    Looking at the production function for the Industry, Other Property Income (OPI) and Proprietor Income both are negative. Meaning, in association with Colorado's operations in the Auto Manufacturing (340) industry in the data set year, more money was invested into the industry then the amount earned in gross operating surplus.

    Because Proprietor Income is a component of Labor Income and Value Added, and OPI is a component of Value Added, I expect you're ending up with negative Value Added. The positive Direct Employee Compensation seems to be large enough that Direct Labor Income is still positive. 

    These negative values reflect the industry overall in the given data set year. If you have data suggesting or want to make the assumption that this does not hold true, you can adjust the Direct Effect values to reflect values you think are more accurate for Direct OPI and Direct Proprietor Income for your analysis. In an ABP analysis, any Proprietor Income analyzed as a Labor Income Event should be the Proprietor Income included in your Direct Effect. OPI is by default treated as a leakage in IMPLAN, so in a basic ABP analysis, nothing is typically analyzed for OPI since IMPLAN does not typically generate impacts for it.

    Thank you,
    Maria

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