A Practial Application of RIMS II Multipliers by niusheng11

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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
I really believe
that
accuracy & credibility
is more important
than
inflated impact numbers.
Semoon’s 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]
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
Final model should be

• Simple enough to rely on
• A cookbook approach



       Let us begin with
            construction
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.
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)
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)
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
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
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.
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)
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)
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
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
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
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 0.0077
Housing                                  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
               Tax Rates: Illustration
Property Tax
Mobile County Sales Tax Rates
                      City County City     Total
   Mobile, City         4*     1     4    9%
   Mobile, PJ        2+0.5     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
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
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
Construction(2)….
Manufacturing (2) …
Thank you
(for copy, see
semoonchang.com)

								
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