RIMS II Workshop

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RIMS II Workshop
Zoë O. Ambargis and Rebecca Bess Annual AUBER
Conference Pensacola, FL October 13, 2007
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BEAs U.S. Economic Accounts and RIMS II

• National
• Gross Domestic Product (GDP)
• International
• Industry
• Input-Output Accounts
• Regional
• GDP by State and Metropolitan Area
• State and Local Area Personal Income
• RIMS II

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Goals of the Workshop

• Provide brief overview of RIMS II
• Discuss data users must have in order to
  effectively use RIMS II
• Discuss how to interpret results obtained when
  using RIMS II
• Provide examples of applications

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RIMS II Has Been Used to Analyze aVariety of
Projects

• Opening and closing military bases
• Tourist expenditures
• New energy facilities
• Construction of sports facilities
• New retail establishments
• New airports or port facilities
• Opening and closing manufacturing plants
• University expenditures

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How Have RIMS II Multipliers Been Used?
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Who Uses RIMS II Multipliers?
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Questions You May Be Asked

• How will the new project or program affect a
  local economy?
• What is the impact of increasing or decreasing
  production?
• How many new jobs will be created or lost?
• How will wage and tax revenues be affected?

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Questions Youll Need to Ask

• Which industries will be affected initially?
• What is the value of the initial increase or
  decrease in production?
• How many jobs will be initially affected?
• How much earnings will be received by the
  employees who are initially affected?
• Geographically, what area will be affected?
• How long will the initial phase last?
• Will there be more than one phase?

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RIMS II

• Demand-based, like all regional I-O models
• Used for analyzing the impacts of changes in
  demand rather than changes in supply
• Assumes Amount of inputs that an industry uses
  depends on the level of output that it produces
• An increase or decrease in output will result in
  a proportional increase or decrease in inputs
• Multipliers can be used to estimate the impacts
  of final-demand changes assuming the final-demand
  changes do not alter the structure of the economy

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Final-Demand Change

• Change in the level of output produced for final
  demand, for example
• Hotel services purchased by tourists
• Measured by hotel receipts
• Investment in new construction
• Measured by construction costs
• Investment in computers
• Measured by the cost of computers in producers
  values transportation costs wholesale and
  retail trade margins
• Exports of manufactured goods and services
• Measured by the cost of the goods in producers
  values transportation costs wholesale and
  retail trade margins
• For services, transportation costs and wholesale
  and retail trade margins do not apply

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What Youll Need to be Concerned About

• RIMS II cant be used to estimate the effects of
  changes to the structure of the economy
• Productivity changes
• Price changes
• Wage changes
• Tax changes
• Brand new industry or an industry leaving the
  region

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Understanding Your Economy
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http//www.bea.gov/regional/rims/
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Ordering RIMS II Multipliers
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Selecting Data Series and Multiplier Types
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Type I and Type II Multipliers

• Type I multipliers (exogenous)
• Measure economic impact of industries only
• Excludes impacts of household expenditures
• Total requirements direct indirect
• Type II multipliers (households endogenous)
• Measure economic impact of industries and
  household expenditures
• Total requirements direct indirect induced
• More commonly used than Type I multipliers

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Annual vs. Benchmark Series

• Annual series
• More current, less detailed
• 2005 national annual I-O data and 2005 regional
  data
• Benchmark series
• More detailed, less current
• 1997 national benchmark I-O data and 2005
  regional data

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Selecting Your Region
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Determining Your Region A Balancing Act

• General rule Use multipliers for the region
  that supplies a large proportion of the direct
  inputs
• Using multipliers for a region that is too
  broadly defined may overstate the impacts
• A larger region usually results in larger
  multipliers because of fewer leakages
• A common mistake is to use statewide multipliers
  to estimate local level impacts
• Using multipliers for a region that is too
  narrowly defined may understate the impacts

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Selecting Your Industry
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Accessing Your Multipliers

• Three ways to access your multipliers
• Viewing and printing PDF versions of the summary
  multiplier tables
• Using the Multiplier Quick View
• Using the RIMS II Viewer Software

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RIMS II Multipliers
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Important Concepts

• Final Demand
• Purchases of goods and services by final users
• Output
• Intermediate purchases plus value added
• Value added
• Sum of earnings (includes proprietors), taxes on
  production and imports less subsidies, and
  non-proprietors portion of gross operating
  surplus
• Earnings
• Sum of wages and salaries, proprietors income,
  and employer contributions for health insurance
  excluding contributions for social insurance
• Employment
• Number of jobs
• Full- and part-time (includes proprietors)

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Approaches to Using RIMS II Multipliers

• Use data on final-demand changes
• Final-demand changes multiplied by final-demand
  multipliers
• Use data on initial changes in labor earnings and
  employment
• Initial changes multiplied by direct-effect
  multipliers
• Use data on changes in the bill-of-goods
• Regional purchases multiplied by final-demand
  multipliers

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Application Example Increase in Cookie Sales

• Question What is the total impact on a region
  of a 10 million increase in cookie sales?
• Example will use
• Multipliers for I-O industry code 311821 for the
  Columbus GA-AL MSA
• 10 million increase in cookie sales in
  producers values
• 1.4 million increase in earnings earned by
  cookie manufacturing employees residing in the
  Columbus GA-AL MSA
• 32 new cookie manufacturing jobs held by
  employees residing in the Columbus GA-AL MSA
• Example assumes
• Cookies are manufactured in the region and sold
  outside the region.

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Impact of an Increase in Cookie Sales
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(No Transcript)
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Cookies Industry Breakdown of Total Output
Impact
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(No Transcript)
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Cookies Calculating Total Output Impact
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Cookies Industry Breakdown of Total Earnings
Impact
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Cookies Calculating Total Earnings Impact
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Cookies Industry Dissaggregation of Total
Employment Impact
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Cookies Calculating Total Employment Impact
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Cookies Industry Breakdown of Value-Added
Impact
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Cookies Calculating Total Value-added Impact
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Impact of an Increase in Earnings and Employment
in the Cookie Industry
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Cookies Calculating Direct-effect Earnings
Impact
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Cookies Calculating Direct-effect Employment
Impact
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Comparison of Impacts Endogenous vs. Exogenous
Multipliers
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Key Points!

• Choose appropriately sized region
• Use the most detailed industry multipliers
• Impacts estimated using final-demand multipliers
  will be similar to those made using direct-effect
  multipliers as long as the underlying RIMS II
  assumptions are consistent with the users data

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More Key Points!

• Do NOT add
• Final-demand change to the output impact
• Output impacts to earnings impacts
• Final-demand employment multiplier
• Measured on the basis of a 1 million
  final-demand change
• Total number of full-time and part-time jobs
• Use the number of jobs held by employees residing
  in the region with direct-effect employment
  multipliers
• Use earnings received by employees residing in
  the region with direct-effect earnings multipliers

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Hands-on Exercise 1

• In this exercise you will
• Use two approaches to estimate impacts of an
  investment in new construction
• Approach 1 A final-demand change is multiplied
  by final-demand multipliers to estimate the
  impacts
• Approach 2 Initial changes in earnings and
  employment are multiplied by direct-effect
  multipliers to estimate the impacts
• Compare the impacts obtained from using both
  approaches

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Hands-on Exercise 1 Assumptions

• Assumptions and information for this exercise
• Final-demand for new construction (I-O industry
  code 230000) is 100 million
• Initial change in earnings of employees residing
  in the region is 34 million
• Initial change in regional employment is 975 jobs
• NOTE Worksheets contain the appropriate
  multipliers for this exercise.

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Household Multipliers

• Households do not produce goods and services
• In a household endogenous model, household
  purchases are NOT final demand
• Total output multiplier table
• Household row entries are the sum of household
  earnings in all industries plus private household
  earnings
• Total earnings multiplier table
• Household row entries are private household
  earnings
• Total value-added table
• Household row entries are private household
  earnings because for private households, value
  added equals earnings

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Application Example Increase in Household
Expenditures

• Question What is the total impact on a region
  of a 1 million increase in payments to civilian
  contractors at a military base?
• Example will use
• Multipliers for I-O industry code H00000 for the
  Columbus GA-AL MSA
• Final-demand change of 1 million

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Impact of an Increase in Household Expenditures
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Household Multipliers
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Household Expenditures Calculating Total Output
Impact
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Producers Values vs. Purchasers Values

• Final-demand changes must be in producers' values
  instead of purchasers values
• Purchased services Purchasers' value is likely
  to equal the producers' value
• Purchased goods Purchasers' value is not likely
  to equal the producers' value
• National distribution costs data can be used to
  convert purchases in purchasers values to
  producers values

Producers Value Purchasers Value
Transportation Costs Wholesale and
Retail Margins
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Application Example Converting Purchasers
Values to Producers Values

• Question What is the total impact on a region
  of a 16 million increase in soft drink sales to
  consumers outside the region?
• Example will use
• Multipliers for the Columbus GA-AL MSA
• 16 million increase in soft drink sales in
  purchasers values
• Table D Commodity Composition of PCE - RIMS II
  Detailed Industries from the Distribution Costs
  Tables
• Example assumes
• The soft drink manufacturer and the firms
  providing truck transportation and wholesale
  trade services are located in the region.

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Soft Drink Locating Appropriate Distribution
Costs Table in Viewer
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Distribution Cost Categories and Associated I-O
Industry Codes
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Soft Drink Converting to Producers Values
Percent of Purchaser Value
16 million x Percent of Purchaser Value
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Soft Drink Impacts of Final-Demand Changes
Final-demand Change (millions of dollars)
Final-demand Output Multipliers from Table 1.5
Output Impacts (millions of dollars)
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Impact of an Increase in Soft Drink Sales
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Key Points!

• Calculation of impact requires that you know the
  location of firms
• producing the commodity
• providing transportation and wholesale and retail
  trade services
• Distributions costs may vary depending on type of
  final use (PCE, PES, Govt., etc.)
• Make sure to use the appropriate Distribution
  Cost table when calculating producer,
  transportation, and margin shares

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Hands-on Exercise 2

• In this exercise you will
• Use national distribution costs data to convert a
  final-demand change for farm equipment from
  purchasers values to producers values
• Use a final-demand change in producers values to
  estimate the impact for farm equipment

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Hands-on Exercise 2 Assumptions

• Assumptions and information for this exercise
• Final-demand change for farm equipment (I-O
  industry code 334220) is 10 million in
  purchasers values
• Firm producing the farm equipment is located in
  the region
• Firms providing truck transportation and
  wholesale trade services for are located in the
  region
• National distribution costs data for Private
  Investment in Equipment (PES) purchases of farm
  equipment
• NOTE Worksheets contain the appropriate
  multipliers for this exercise.

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Tourism Impact Studies

• No single tourism industry in RIMS II
• Impacts can be estimated using final-demand
  changes for the constituent industries (hotels,
  retail, etc.)
• Do not use a simple average of tourist-related
  industry multipliers to calculate impact
• Surveys designed to conform to RIMS II industries
  will allow for easier impact analysis
• Convert purchases in purchasers values to
  producers values
• Express impacts in terms of annual impacts

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Hands-on Exercise 3

• In this exercise you will
• Estimate the impacts of tourism on a region using
  multipliers for constituent industries (hotels,
  retail, etc.)
• Use national distribution costs data to estimate
  trade margins for purchased goods
• Use BEAs Local Area Personal Income and
  Employment data (tables CA25N and CA05N) to
  determine if estimated impacts are reasonable

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Hands-on Exercise 3 Assumptions

• Assumptions and information for this exercise
• Tourists purchases equal 10 million in
  purchasers values
• Purchased goods not produced in the region (only
  the retailer is located in the region)
• National distribution costs data for Personal
  Consumption Expenditure (PCE) purchases of
• Gasoline (I-O industry code 324110)
• Food (Industry code 19)
• Apparel (Industry code 20)
• NOTE Worksheets contain the appropriate
  multipliers for this exercise.

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The Bill-of-goods Approach

• Impact estimates can be improved with
  bill-of-goods information
• Requires estimates of locally purchased inputs
  (information provided by the user)
• Need to account for wholesale and retail margins
• Calculates the economic impact of each locally
  purchased input
• Initial change must be added to the impacts

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Intermediate and Fixed Capital Investment
Purchases

• Impacts of intermediate and fixed capital
  investment purchases should be evaluated
  separately
• Intermediate Purchases
• Purchases of goods and services used to produce
  other goods and services
• Sum of intermediate purchases are sometimes used
  as a proxy for a final-demand change
• Investment Purchases
• Purchases of structures, equipment, and software

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Application Example Using a Bill-of-goods
Approach

• Question What is the total impact of operating
  a sports facility on a region?
• Example will use
• The sports facility's purchases of locally
  produced goods and services

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Purchases Associated with the Operation of a
Sports Facility
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Using Bill-of-goods Approach to Calculate the
Total Output Impact
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Implied Final-Demand Output Multiplier Using the
Bill-of-goods Approach
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Hands-on Exercise 4

• In this exercise you will
• Estimate the impact of a university using two
  approaches
• Approach 1 Final-demand change (sum of
  intermediate purchases)
• Approach 2 Bill-of-goods (regional
  non-investment purchases)
• Compare the impacts based on these approaches
• Estimate the impacts of universitys fixed
  capital investments

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Hands-on Exercise 4 Assumptions

• Assumptions and information for this exercise
• Final-demand change for University services (I-O
  industry code 611A00) is 13.5 million in
  purchasers values
• Sum of intermediate purchases is 13.5 million in
  purchasers values
• 100 of households employed by the university
  reside in the region
• Purchased intermediate goods not produced in the
  region (only the wholesaler is located in the
  region)
• Sum of investment purchases is 11.5 million in
  purchasers values
• Purchased investment goods not produced in the
  region (only the wholesaler is located in the
  region)
• NOTE Worksheets contain the appropriate
  multipliers for this exercise.

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Multiplier Relationships

• Final-demand earnings multiplier divided by
  direct-effect earnings multiplier will yield an
  estimate of the initial change in earnings per 1
  final demand
• Final-demand employment multiplier divided by
  direct-effect employment multiplier will yield an
  estimate of the initial change in employment per
  1 million final demand

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Application Example Estimating Final-Demand
Using Initial Changes and RIMS II

• Question How do I estimate a change in
  final-demand output when I have only an estimate
  of the initial change in earnings or employment?
• Example will show
• How to use the initial change in earnings or
  employment and the RIMS II multipliers to
  calculate a change in final-demand output

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A Deeper Look at the Multipliers

• Remember the cookies
• Change in output of cookies 10 million
• Change in number of jobs in cookie manufacturing
  32
• Change in earnings in cookie manufacturing
  1.4 million

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Earnings-per-Output Cookies Example
Question Why are the earnings impacts
different? Users data may differ from what RIMS
II assumes for the earnings-per-output ratio.
Users earnings-per-output
RIMS earnings-per-output
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Employment-per-Output Cookies Example
Question Why are the employment impacts
different? Users data may differ from what RIMS
II assumes for the employment-per-output ratio.
Users employment-per-output
RIMS employment-per-output
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Deriving Final Demand from Multipliers and
Initial Earnings
Final demand
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Deriving Final Demand from Multipliers and
Initial Employment
Final demand
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Key Points!

• RIMS II direct earnings-per-employment
  assumptions can be calculated using the RIMS II
  multipliers
• Output derived using earnings may differ from
  output derived using employment
• Due to the difference between RIMS II
  earnings-per-employment assumptions and actual
  user data
• Important to use data on the initial changes
  (earnings or employment) that is most trustworthy

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Multipliers and Price Indexes

• The model year is 1997 or 2005, depending on the
  multiplier series
• RIMS II assumes relative prices do not change
• If relative prices have changed substantially
  since the model year, the final-demand change
  should be deflated
• National price indexes can be used to deflate
  final-demand change and inflate impacts

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Application Example Inflating or Deflating the
Final-Demand Change

• Question How do I deflate the final-demand
  change before multiplying it by the final-demand
  multipliers?
• Answer
• Use price indexes to deflate the final-demand
  change and inflate impacts

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Price Indexes Deflating Final-demand Change

• Deflate final-demand change before using the
  multipliers
• National Income and Product Account (NIPA) Price
  Indexes
• Choice of index will depend on type of final user
  

Where FD? Final-demand change B RIMS II
Year C User Data Year
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Price Indexes Inflating Impacts

• Inflate impacts
• Chain-Type Price Indexes for Gross Output by
  Industry
• Chain-Type Price Indexes for Value Added by
  Industry

Where B RIMS II Year C User Data Year
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Common Mistakes When Using RIMS II

• Study area defined incorrectly
• Averaging multipliers
• Not converting purchasers values to producers
  values
• Treating changes in intermediate use as
  final-demand changes
• Not considering the net impact
• Using multipliers for Other government
  enterprises (I-O industry code S00A00) to
  estimate impacts of government
• Comparing output impacts to Gross Regional
  Product (GRP)

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Where to Get More information

• RIMS II
• http//www.bea.gov/regional/rims/
• Regional economic accounts data (GDP by State,
  State and Local Area Personal Income)
• http//www.bea.gov/regional/index.htm
• National industry economic accounts data
  (Input-Output, Travel and Tourism)
• http//www.bea.gov/industry/index.htm
• Price Indexes
• http//www.bea.gov/bea/dn/nipaweb/SelectTable.asp?
  SelectedY

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Thank You!

• Zoë Ambargis
• Rebecca Bess
• Phone [phone]
• Fax [phone]
• E-mail RIMSREAD_at_bea.gov