Overview of the IMPLAN Model

1. Overview of the IMPLAN Model

2. Agenda • IMPLAN Review • IMPLAN Case Study • Understanding Regional Differences in IMPLAN

3. What is Economic Modeling and IMPLAN • Analysis of the impact of an activity, from an industry to event, on the overall economic structure, measured in total employment, output and value added. • IMPLAN is an Input-Output/Social Accounting Matrix tool • IMPLAN is a production model; that is, it evaluates how businesses respond – i.e., what the “impacts” are - to demand for their products and services • A Social Accounting Matrix (SAM) represents flows of all economic transactions that take place within an economy • Enables determination of specific multipliers for the project • Multipliers measure how much a type of output changes in response to a change in input • i.e. – for each new employee directly involved, a project with a 1.5 employment multiplier will add an additional 0.5 employees through downstream impacts • Creates picture of local economy • Producers who make things and consumers who buy them • Complete accounting picture of money flows • Models can be at National level, state, county, zip code or a combination of regional models • Create predictive model based on that picture • Captures backward linkages • Leakages limit size of multipliers • IMPLAN widely used in economic impact analysis • USDA uses IMPLAN to monitor job creation from ARRA

4. What Data Does IMPLAN Contain • IMPLAN covers 440 industries, containing data on: • Total Industry Output (gross sales) • Employment (average annual full- & part-time jobs) • Value Added • Employee Compensation (wages, salaries, other labor income, employer & employee contributions to social insurance) • Proprietors Income (sole proprietorships, self employed) • Other Property Income (dividends, interest, rent) • Indirect Business Taxes (sales, gasoline, excise taxes, custom duties, fees collected by businesses) • For Institutions: • Household Consumption (PCE for 440 commodities) • Government Consumption (Federal Military & Non-Military, State & Local Government, Education & Non-Education for 440 commodities) • Capital Investment & Inventory Additions (for 440 commodities) • Institutional Sales (HH used goods, Government sales, sales of inventory) • For Trade: • Foreign Imports & Exports (for 440 commodities) • Domestic Imports & Exports (gross trade flows county-to-county for 440 commodities) • Regional Purchase Coefficients (rate of local purchase of 440 commodities)

5. Industries vs. Commodities in IMPLAN • IMPLAN model inputs need to be classified as either an Industry or a Commodity • All final demands in the original data are on a commodity basis. The distinction between industries and commodities is as follows from the 1972 I-O Definitions and Conventions Manual: • An input-output industry is a grouping of establishments, as classified by SIC; • An input-output commodity consists of the characteristic products of the corresponding I-O industry wherever made. • In application, inputs should be classified as commodities if the transaction is retail based • Commodity transactions apply a margin to the transaction to reduce the gross purchase to the retail trade margin amount only • If it is known that other components of supply chain (product, transport, wholesale) occur in the study area, the value of those components should be split off from the transaction into their own event

6. Economic Impact Definitions • Economic Impacts • Direct Effect • Direct effect refers to the response of the economy to the change in the final demand of a given industry, refers to those directly involved in the activity. • Indirect Effect • Indirect effect refers to the response of the economy to the change in the final demand of the industries that are dependent on the direct spending industries for their input, also known as the supplier effect. • Induced Effect • Induced effect refers to the response of the economy to changes in household expenditure as a result of income generated by the direct and indirect effects, also known as the income effect. • Value Added • Value added is payment to labor and capital used in the production of an industry. It is defined as the sum of labor income, indirect business taxes and business income.

7. IMPLAN’s I/O Tables Overview The initial data set is "use" of commodity by industry (the Expenditures), and the "make" of commodities by industry (the Receipts). Based on national I/O model, converted to regional area based on regional industry makeup and adjusting purchasing and output ratios The SAM tracks the dollar flows through the economy as sets of income and payments. Each row and column balance exactly so all flows are counted. Columns 4, 5, 6 represent payments by institutions to commodities or other institutions(rows 4 – 6 represent income by institution): There are final demands by institutionsInter-institutional transfersForeign and domestic imports to final demand Each Institutional Outlay column represents total expenditures by institution Column 7 represents payments by foreign and domestic exports (the rows represent imports): There are commodity exportsInstitutional exportsTrans-shipments are goods shipped into US and back out without further processing The total represents total foreign and domestic trade Column 2 represents all the payments by Commodities: They are made in industriesThey are sold to institutions The Commodity Outlay equals total commodity output Column 3 represents factor income distributions: There are value added distributions to institutionsForeign and Domestic trade factor imports The Factor Outlay equals total factor payments Column 1 represents all the payments by Industry: They buy commoditiesAdd value from factories Buy imports Pay for employment The Industry Outlay equals total industry output

8. IMPLAN’s I/O Tables Overview Social accounts track all monetary flows between industries and institutions. Represents all things that are made, what was purchased to make it, and who it was sold to Covers all end users as well, and where their expenditures go The backward and forward linkages enable the direct, indirect and induced effects to be determined for a given input By tying in all the expenditures and receipts for any one industry, the complete economic picture is created and can be modeled

9. IMPLAN Sectors Can Be Mapped Back to NAICS Codes At Varying Levels of Detail Snapshot of IMPLAN Sector Map • The NAICS standard was adopted in 1997 to replace SIC codes • Go from primary 2 digit categories down to 6 digit level of detail • IMPLAN sectors based on the BEA Input-Output Study • IMPLAN maps very closely to 6 digit NAICS for manufacturing • More aggregate for service sectors • Construction one of few main sectors not directly corresponding to NAICS • Each IMPLAN sector has varying factors for how inputs flow through the local economy • Choosing the correct sector therefore increases the accuracy of the model IMPLAN Sector 244 maps only to 3 6 digit NAICS codes, from 334414-6 IMPLAN Sector 259 maps only to 5 digit NAICS code 33511

10. Agenda • EIA and IMPLAN Review • IMPLAN Case Study • Understanding Regional Differences in IMPLAN • Sunfab Economic Impact Review • Challenges and Opportunities Going Forward

11. Case Study – Impact Results(Economic Output) The same $1M input produces over $80k in Indirect Professional Services value in FL, compared to $55k in NC Example: $1M of spending in IMPLAN Sector 35 – Construction of new nonresidential manufacturing structures Florida North Carolina • The same investment produces 7% greater output in FL than NC • Major industries (ranked by total output) remain largely consistent, as expected • Regional differences do alter the rankings and weightings, creating the variation between output totals

12. Case Study – Impact Results(Employment) The same $1M input produces .27 employees in Admin Services in FL, compared to .18 in NC Example: $1M of spending in IMPLAN Sector 35 – Construction of new nonresidential manufacturing structures Florida North Carolina • The total employment effect is higher in NC than FL • Direct employment higher in NC than FL due to lower avg. industry wages • As with output, downstream impacts higher in FL than NC

13. Agenda • EIA and IMPLAN Review • IMPLAN Case Study • Understanding Regional Differences in IMPLAN • Sunfab Economic Impact Review • Challenges and Opportunities Going Forward

14. Case Study – Regional Comparisons(Understanding What Drives Regional Differences) Florida North Carolina • Core Implan industry data highlights regional differences within the same sector • FL construction industry significantly larger than in NC • While output per employee is slightly higher, avg wage much higher • Value Add % is sum of Value Add components/Output

15. Case Study – Regional Comparisons • Regional industry variations generate differing levels of value add • Variations in absorption coefficients determine where indirect impacts result • Absorption Coefficient is the fraction of each industry's outlay spent on each type of commodity in the study area • For every $1 in output in NC for sector 35, $0.027 of Petroleum Refineries in NC is used as indirect output • That industry then has its own value added % and industry relationships which determine the final indirect output from the original spending

16. Case Study – Regional Comparisons North Carolina • Commodity data highlights how regional demographic groups allocate their consumptions • Regional variations drive the induced effects

17. Thank You John Barrett Senior Consultant IHS Global Insight john.s.barrett@ihsglobalinsight.com 781-301-9274 Shane Norton Senior Consultant IHS Global Insight shane.norton@ihsglobalinsight.com 781-301-9071