IMPLAN data sets provide a wealth of data about the regional economy, including Industry data (e.g., Industry output, labor income, input purchases, taxes paid), commodity data (e.g., foreign and domestic imports and exports by commodity, commodity sales by government and Industry), household spending data, area demographics, and more. Understanding the interactions between the various actors in an economy (industries, households, governments) and between economies (trade) allows for the modeling of wider economic impacts across industries and geographies. This section describes some of the core economic indicators that can be found in IMPLAN.
There are four key economic indicators that IMPLAN reports economic effects for U.S. models. Each indicator is based on the Leontief Production Function for a given Industry in the selected region in a given year which demonstrates the interconnectedness of the economy.
All analysis in IMPLAN is based on Output, which is the value of production by Industry in a calendar year plus net inventory change. It is more commonly known as revenue or sales. Note that for wholesale and retail sectors, Output is equal to gross wholesale margin or gross retail margin, respectively, not gross sales. The value of production for wholesale and retail sectors is the value of the services they provide; it does not include the value of the items sold within their establishment.
Since Output is the total production value of an Industry, it includes all components of production value or Output for a given Industry: Output = Employee Compensation + Proprietor Income + Tax on Production and Imports + Other Property Income + Intermediate Inputs.
Value Added (VA) represents the difference between Output and the cost of Intermediate Inputs. Value Added is a measure of the contribution to Gross Domestic Product (GDP) made by an Industry. Value Added is a large portion of Output, as it encompasses Labor Income (LI), Proprietor Income (PI), Employee Compensation (EC), Other Property Income (OPI), and Taxes on Production and Imports (TOPI).
Labor Income (LI) is the sum of Employee Compensation (EC) and Proprietor Income (PI). It represents the combined cost of total payroll paid to employees (e.g., wages and salaries, benefits, payroll taxes) and payments received by self-employed individuals and/or unincorporated businesses in a given year.
Employment data in IMPLAN follows the same definition as Bureau of Economic Analysis Regional Economic Accounts (BEA REA) and Bureau of Labor Statistics Census of Employment and Wages (BLS CEW) data, which is full-time/part-time annual average. Thus, 1 job lasting 12 months = 2 jobs lasting 6 months each = 3 jobs lasting 4 months each. A job can be either full-time or part-time. Similarly, a job that lasts one quarter of the year would be 0.25 jobs. Note that a person can hold more than one job, so the job count is not necessarily the same as the count of employed persons. Jobs in IMPLAN are not the same as a full-time equivalent number.
Note the components of Output are slightly different for the International and Canadian models.
COMPARING OUTPUT & VALUE ADDED
Gross Output and Gross Domestic Product (GDP) are both highly useful economic statistics that are published as part of the BEA's Industry accounts.
Output is the value of an Industry's production. It can be measured in two ways: from the sales (income) perspective or the expenditures (spending) perspective.
- From the sales (income) perspective, Output is the sum of sales to final users in the economy (GDP) + sales to other industries (Intermediate Inputs) + inventory change.
- From the expenditures perspective, Output is the sum of an Industry's Value Added + Intermediate Inputs.
Value Added is defined as the total market value of all final goods and services produced within a region in a given period of time (usually a quarter or year). It is the sum of the intermediate stages of production. It is the sum of all added value at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time. In other words, it is the wealth created by Industry activity.
Value Added in a Social Accounting Matrix (SAM) model such as IMPLAN, is equal to Gross Domestic Product (GDP). In a balanced SAM model, total Value Added = total Final Demand.
OUTPUT VS. VALUE ADDED
Output is simply a measure of the total value of all goods produced. Value Added is a subset of Output and is a useful measure of wealth created by an economy. An Industry buys goods and services from other industries and remanufactures those goods and services to create a product of greater value (Output) than the sum of the goods that goes into its product (Intermediate Inputs). That increase in value is the value that the producer adds to the inputs as a result of the production process. This added value is then used to pay labor and taxes with hopefully some remainder for profit.
DOES OUTPUT DOUBLE-COUNT?
Analysts sometimes focus on Output because it is bigger than Value Added. However, because the Output of an Industry requires Output from other industries, it double-counts if one attempts to use it as a measure of aggregate production.
For example, suppose an entrepreneur named Doug sets up a shop called “Doug’s Computer Service” to install an operating system onto customers’ computers, as well as give some instruction on how to use it. For this service he charges $100. If he services 100 customers:
Revenue (Output) = $10,000
Shop costs (electricity, rent, etc.) = $2,000
Value Added = $8,000 (from this he pays property taxes, production taxes, and has a net profit)
Based on the needs of his customers, Doug decides that he will order the computer for them and turn over a complete product. The computer costs him $950 and he will tack on $50 for the additional hassle of buying the computer. Thus, for each unit the customer now pays $1,100 ($1,000 for the computer plus $100 for the service). This time, if he services 100 customers:
Revenue (Output) = $110,000
Computer costs = $95,000
Other shop costs = $2,000
Value Added = $13,000
Doug’s Output has gone up 1,000% but Value Added only grew by 63% (his costs increased by 4,750%). His firm’s huge increase in Output would be very misleading as an indicator of how the local economy is doing. If the computer is manufactured locally, then the manufacturer’s Output will show up as an Indirect Effect, which will double count its contribution to the economy if it is also included in Doug’s firm’s overall Direct Output Effect. Thus, while Output is an essential statistical tool needed to study and understand the interrelationships of the industries that underlie the overall economy, because of its duplicative nature it may not be a good stand-alone indicator of the overall health or contribution of an Industry.
For more, visit the BEA here: https://www.bea.gov/help/faq/1197.
Written August 30, 2023