A Practical Application of RIMS II Multipliers

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A Practical Application of RIMS II Multipliers

• Determining development incentives of a new
  industry
• by the Mobile Chamber
• the Mobile Ind. Develop. Board
• by Semoon Chang
• University of South Alabama
• For AUBER-Memphis on Oct. 17, 2006

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I really believe thataccuracy credibilityis
more importantthaninflated impact numbers.
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Semoons journal publications on impact
estimation

• "Economic Impact of the 1991 Greater Gulf State
  Fair," Fairs and Expositions, 34(June 1992),
  26-27. (with J. E. "Buddy" McGrew)
• "Impact of Casinos on Crime The Case of Biloxi,
  Mississippi," Journal of Criminal Justice, 24
  (1996), 431-436.
• "OMB Circular A-94 and Highway Benefit-Cost
  Ratios," Journal of
• Transportation Law, Logistics Policy,
  64(Spring 1997), 316-326.
• "Estimating Net Lottery Revenues for States,"
  Atlantic Economic Journal, 27 (June 1999),
  170-178.
• Economic Impact of a Future College Football
  Program, Journal of Sport Management, 16(July
  2002), 239-246. (with Shelia Canode)
• Economic Costs of Unmarried Teen Births in
  Alabama, TSU Business and Economic Review, 28
  (Winter 2004), 13-18.
• Proposed LNG terminal as a Coase problem, Oil,
  Gas Energy Quarterly, 52 (June 2004), 807-818.
• Impact of the College of Allied Health
  Professions on the Local Economy, The Internet
  Journal of Allied Health Sciences and Practice.
  Jan 2006. Vol. 4 No. 1 http//ijahsp.nova.edu

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Selected Issues

• Lack of data (to investment or jobs) in initial
  announcement
• Subtract out-of-town purchases (ex. 500m LNG
  terminal)
• Local substitution (ex. Wal-Mart or Pro Bass
  Shop) only exports
• Job impact of construction lasting more than a
  year - allocate
• Job impact of nonwage expenditures
• Varying tax impact by jurisdiction
• Residence of employees by jurisdiction

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Final model should be

• Simple enough to rely on
• A cookbook approach
• Let us begin with construction

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Assume as usual that initial numbers are given
for a new project

• 1 million of new construction OR
• 100 new full-time jobs
• If both are available, dollar figures are better
  because jobs exclude impact of non-wage
  expenditures.

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Construction budget (i.e., final demand) is
known, and construction period is short

• ________________________________________
• Budget Multiplier Impact
• Output 1,000,000 1.9105
• Earnings 0.5376 537,600
• Jobs 19.1487
  19(.1487)
• Wage
  28,075
• ______________________________________________
• 1,000,000 x 0.5376 537,600
• 1,000,000 x 19.1487 19 jobs
• 28,075 537,600/19.1487 (embedded)

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If construction budget (i.e., final demand) is
known, and construction period is long

• ________________________________________
• Budget Multiplier Impact
• Output 1,000,000 1.9105 1,910,500
• Earnings 0.5376 1,027,085
• Jobs 19.1487
  36(.584)
• Wage
  28,075
• ______________________________________________
• 1,000,000 x 1.9105 1,910,500
• 1,910,500 x 0.5376 1,027,085
• 1,910,500 x 19.1487 36(.584) jobs
• 1,027,085/36.584 28,075 (embedded)

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To make sure, we contacted

• one general contractor who just completed
  7,980,000 work on school renovation
• workers directly on the job - 90 to 100
• excluding architects who in turn hired surveyor,
  and engineering firms on civil, structural,
  mechanical and electrical.
• 95/7,980,000 x 1,000,000 12 jobs/million
• Adding surveyor, engineers, and those hired by
  then, 19 jobs/million appears reasonable.
• For short term, increased business may be handled
  via overload, not new hiring, that is
• One time 1m (SR) job impact 19
• Annually recurring 1m (LR) job impact 37

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If project lasts 3 years the model indicates
1,500 job impact ..

• 1,500 figure is either misleading or not clear
• Therefore
• 1,500/3 500
• And explain as
• Annual job impact is 500 for three years

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If jobs only (i.e., direct effect) are known,
and construction period is long less likely
scenario

• ________________________________________
• Jobs Multiplier Impact
• Employment 100 1.9243 19(.243)
• Wage (embedded) 28,075
• Earnings 1.7707 497,124
• ______________________________________________
• 100 x 28,075 x 1.7707 497,124
• Multiplier effect included
• Non-wage expenditures impact excluded.

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Now impact of annual operation used
manufacturing mulitpliers

• Multiplier effect in full bloom
• Three scenarios
• Annual sales (1m) only
• Jobs (100) only
• Jobs total wages
• (100 500,000)

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If annual (net export) sales (i.e., final demand)
are known

• ________________________________________
• Annual Sales Multiplier Impact
• Output 1,000,000 1.6963 1,696,300
• Earnings 0.3254
  551,976
• Jobs 10.8068
  18(.332)
• Wage
  30,110
• ______________________________________________
• 1,000,000 x 1.6963 1,696,300
• 1,696,300 x 0.3254 551,976
• 1,696,300 x 10.8068 18(.332) jobs
• 1,696,300/18.332 30,110 (embedded)

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If jobs only (i.e., direct effect)are known

• ________________________________________
• Jobs Multiplier Impact
• Output 100 2.5090 250(.90)
• Wage (embedded) 30,110
• Earnings 2.0285 6,107,814
• ______________________________________________
• 100 x 2.5090 250(.90)
• 100 x 30,110 x 2.0285 6,107,814

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If jobs total wages (i.e., direct effect) are
known

• ________________________________________
• Jobs Multiplier Impact
• Output 100 2.5090 250(.90)
  
• Wage 5,000,000 50,000
  
• Earnings 2.0285 10,142,500
• ______________________________________________
• 100 x 2.5090 250(.90)
• 500,000/100 50,000
• 100 x 50,000 x 2.0285 10,142,500

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Calculating impact on retail industry by sector

• Begin with annual consumer expenditures survey
• Updated in the Statistical Abstract of the United
  States
• And derive the following table
• For the South region
• Add more columns for auto tax, gas tax etc as
  needed

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Expenditure Items Amount Percent Sales
tax Food 5,153 Food at home
2,983 0.0774 0.0774 Food away from home
2,170 0.0563 0.0563 Alcoholic
Beverages 298 0.0077
0.0077Housing 11,375
Shelter 6,101 0.1584 Utilities, fuels,
and public services 2,843 0.0738
Household operations 619 Apparel and
services 1,602 0.0416 0.0416 Vehicle
purchases (net outlay) 3,813 0.0990
Health care 2,194
0.0570 Entertainment 1,652 0.0429
0.0429 Personal care products and services
467 0.0121 0.0121 Reading 101
0.0026 0.0026 Education 483
0.0125 Tobacco products and smoking supplies
316 0.0082 0.0082 Miscellaneous 605
0.0157 Cash contributions 1,206
0.0313 Personal insurance and pensions 3,385
0.0879 Personal taxes 2,232 0.0579

________ _______ _________
TOTAL 38,517 1.0000 0.3051

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Tax Rates Illustration Property Tax Mobile
County Sales Tax Rates City County
City Total Mobile, City 4 1 4 9
Mobile, PJ 20.5 1 4 7.5 County,
all 1 4 5 County, uninc
0.5 Gasoline Tax Rates (Cents per Gallon)
Local State Total Mobile, City
4 16 20 Mobile County 2 16
18 Auto Purchase Tax Rates
City County State
Total Mobile, City 2 0.5 2
4.5 Mobile County 0.5
2 2.5 Notes Add 1 on restaurant
meals Outside Mobile Prichard County 2
cents only to unincorporated areas
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Calculating tax revenues

• Sales tax
• exp. On taxable items x tax rate
• Auto tax
• exp. On automobiles x tax rate
• Gasoline tax
• exp. On gasoline/price per gallon x tax rate
• Property tax
• expenditures on shelter
• Convert to value of property by mortgage rate
  (www.banksite/calc/flap)
• times assessed value
• times milleage rate by jurisdiction

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Putting all together for each
table Final Demand jobs earnings Direct
Effect jobs earnings Tax impact by tax
jurisdiction Impact on retail industry by sector

• Construction
• Manufactuing
• Services
• Trade
• Transportation

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Construction(2).
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Manufacturing (2)
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Thank you(for copy, see semoonchang.com)