INTRODUCTION
Households are one of several Institutions in IMPLAN and represent residents of the Region. Households are divided into one of nine groups based on their annual Household Income received from all sources, ranging from less than $15k to greater than $200K. Households in a Region earn income and purchase goods and services for final consumption. They are also known as final demanders. Households also purchase goods and services and make payments to federal and state and local governments (in the form of taxes, fees, fines, etc.), other households (in the form of interest payments), and to capital in the form of savings or the paying down of debt, as applicable.
Household economic activities are reflected in the IMPLAN SAM for a Region. Read more about Households in the Social Accounting Matrix (SAM) and Estimating Household Income.
HOUSEHOLD INCOME
Household Income represents the income received by residents from all sources: for their participation in production (Labor Income), from government and businesses (in the form of transfer payments1), from returns on investment (e.g., interest payments, dividends), and from the sale of scrap. Income is distributed amongst the household income groups differently depending on the source and type of income, as noted below.
INCOME FROM INDUSTRY
Households receive Labor Income from Industries for their participation in production. Wage and Salary employees receive Employee Compensation and Proprietors receive Proprietor Income.
Employee Compensation is a place-of-employment-based value because an Industry pays wages and salaries to employees and social insurance tax (payroll tax) where the employees work, regardless of where those employees live. However, household demand is place-of-residence-based (that is, at the employee’s place of residence). IMPLAN distributes the post-payroll tax Employee Compensation to Regions based on estimated inter-regional flows of workers. The Employee Compensation earned by residents (resident workers and out-commuters) is distributed to the nine Household Income groups based on the national average income earned by group (Wages & Salary and Other Labor Income) and the number of households per group in the Region.
This is in contrast to Proprietor Income, which is entirely place-of-residence-based, such that there are no commuter flows involved and all payroll taxes accrue at the place of residence. However, similar to Employee Compensation, post-payroll tax Proprietor Income is distributed to the nine Household Income groups based on the national average income earned by group (adjusted Proprietor Income) and the number of households per group in the Region.
Households also receive income from Industry in the form of dividends and net business current transfer payments, the latter of which are payments by businesses to persons for which no current services are performed.
INCOME FROM GOVERNMENT
Households can also receive income from the government as a result of inter-institutional transfers such as social security benefits, veterans’ benefits, and SNAP payments, among others. Households can also receive interest income from the Government when Households lend money to the Government by purchasing bonds and securities.
INCOME FROM CAPITAL
Finally, Households can receive income by borrowing from past income (e.g. drawing down savings accounts) or borrowing from hoped-for future income (e.g., building up debt). In the SAM, this is represented as a net dis-savings (borrowing) from the Capital column. In contrast, Household payments to the Capital row represent net savings by Households (which can represent paying into a savings account and/or paying down debt).
HOUSEHOLD EXPENDITURES
Total Household outflows is equal to total Household inflows by income group, as all income earned by households must be accounted for in the Social Accounting Matrix (SAM). Outflows include expenditures for the consumption of goods and services as well as payments to Federal and State and Local Governments in the form of taxes, fees, fines, etc. to other Households in the form of interest payments, and to Capital in the form of savings and/or the paying down of debt, as applicable.
After-tax household income is known as Disposable Income. After any payments to Capital (in the form of savings and/or paying down debt), the amount spent by households on goods and services (Commodities) is known as Household Spending. Each income group spends their money differently, which is reflected in the distribution of income to each Commodity demanded. If the Commodity is not available locally, it must be imported to the Region. As services are not considered “shippable” Commodities, the “import” of the service represents the money spent by local residents for services provided outside of the Region.
HOUSEHOLD SPENDING IN ECONOMIC IMPACT ANALYSIS
INDUSTRY-BASED ANALYSIS
Any Industry-based analysis will generate some level of change in local Household Income through Labor Income payments, in both the directly-impacted Industry and indirectly-impacted supply chain industries (Intermediate Inputs). The spending of the after-tax, after-savings, and after-in-commuter Labor Income in the Region will generate Induced Effects in the analysis.
HOUSEHOLD INCOME EVENTS AND INSTITUTIONAL SPENDING PATTERNS
In addition to Industry-related analyses, there are two Event Types in IMPLAN that can be used to analyze changes in Household Income separate from an Industry: Household Income and Institutional Spending Patterns with the desired Household group(s) specified as the Specification.
Household Income Events are most appropriate to use when an analyst intends to model changes in household income that are independent of both production and payroll. One example would be stimulus payments such as those received by many Households as part of COVID-19 relief programs. In Household Income Events (unlike Labor Income Events), users can specify any or all of the nine specific household income group(s) receiving the income. Household Income Event Values should include all new household income of all residents in the Region. IMPLAN will remove any personal income taxes and savings (if applicable for the group), then distribute the remaining value to the list of Commodities purchased by the Household Income group and payments to other households for interest on borrowing.
When an analyst intends to model a change in Household Spending not associated with an accompanying change in Industry Output, Institutional Spending Pattern Events, with the Household Income groups(s) of interest chosen as the Specification, are the most appropriate Event type. The Institutional Spending Pattern Event allows users to specify a spending pattern for one of the nine Household Income groups. In this Event type, the entire spending pattern Event Value will be applied to the list of Commodities purchased based on the specific proportions for that income group (i.e., no allocations to savings will be assumed; this is in contrast to the Household Income Event type, where some of the Household Income will be allocated to savings, as appropriate.) This type of analysis will display results for the Industries in the Region directly supported through household purchases.
SOURCES OF LEAKAGE
There are three sources of leakage in an analysis related to Households: taxes, savings, and imports.
All Income received by households is subject to personal income taxes paid to federal and/or state & local governments, depending on the Region. This transfer of funds to the Government is reflected in the IMPLAN SAM. In all Event Types and all sources of tax revenue, tax revenue is treated as a leakage and does not continue to circulate in the regional economy because it is not known in advance how, where, or when the government will use this fiscal revenue.
Any disposable Household Income not spent purchasing goods and services or on interest is considered net savings. As this money does not continue to circulate in the regional economy, it is considered a leakage from the analysis and will not generate multiplier effects.
Lastly, if a household demands a good or service for final consumption that cannot be met through the local supply, the Commodity must be imported. Imported goods and services are a leakage to the local Region and will not generate multiplier effects.
RELATED ARTICLES
Estimating Household Income and Expenditures
Estimating Commuter Employee Compensation
Income Data Sources: Personal Income vs. Money Income
1Net payments by businesses to persons for which no current services are performed.
Updated October 9, 2024