Categorizing Effects for Institutional Spending Pattern Events

INTRODUCTION

Institutional Spending Pattern Events are appropriate to use when modeling a general change in an Institution's spending. These are relatively simple to set up in IMPLAN. However, running an Institutional Spending Pattern Event for one of the government specifications produces what we call ‘mixed results’, where the reported Direct Effects describe both what we would generally consider Direct Effects (income, Employment and Value Added) and the first-round Indirect Effects that arise from the government spending its budget. As a result, this requires users to manually recategorize the Direct and Indirect Results of their analysis. 

This article provides step-by-step instructions for appropriately categorizing Effects when utilizing one of those Institutional Spending Patterns. This article includes an example in addition to a downloadable Template for future use.

OVERVIEW

The Institutional Spending Pattern Event Type represents a general spending distribution for measuring broad Institutional activity in a region. These include general spending for:

  • Federal Government 
    • NonDefense
    • Defense
    • Investment
  • State/Local Government 
    • Other
    • Education
    • Hospital & Health Services
    • Investment
  • Capital
  • Inventory Additions/Deletions

* Note that the Specifications for Capital and Inventory Additions/Deletions relate to all Industries, not only government and should rarely be used. This article is not in reference to those specifications. 

The general government spending patterns are unique in that they describe both Intermediate Inputs and Value Added within the same Spending Pattern. This results in these Spending Patterns producing 'mixed results'; where the reported Direct Effects describe both what we would generally consider Direct Effects (income, Employment and Value Added) and the first-round Indirect Effects that arise from the government spending its budget. 

SPENDING PATTERN EXAMPLE

Let’s say we want to use the Institutional Spending Pattern to model a public university in North Carolina using 2021 Data Year and 2023 Dollar Year. This would fall under State/Local Government Education specification.

Clicking on the Advanced Fields icon shows all of the Commodities in the spending pattern and the Local Purchase Percentage (LPP) of each Commodity, which is set to SAM by default. Note also that the Sum of Percentages for all Commodities is 100%. Scroll to the bottom of the Events list. Note, the two Industries designated with an * labeled 'Employment and payroll'. These are Special Industries in IMPLAN with no associated spending pattern which are used to calculate the Employment value and Value Added associated with government activity, sometimes referred to as personnel or staffing costs in a budget.

Any Event Value will be distributed to the list of Commodities in the spending pattern based on their percentage. These Commodities will then be analyzed as separate Commodity Events in IMPLAN by the model, producing Direct, Indirect, and Induced Results. 

HOW TO CATEGORIZE EFFECTS

Unlike Industries, Institutions are Final Demanders. Their purchases are not used as inputs to create another product. When using an Institutional Spending Pattern, each Commodity is treated like a Commodity Output Event and will create a Direct Effect. 

At this point in the analysis, we have two options for proceeding. Both options require the Template. Users can either follow Option 1 to recalculate the Effects OR users can follow Option 2 to remove the payroll Commodities from the spending pattern and analyze them as separate Events. 

OPTION 1 - RECALCULATE EFFECTS

Using the example above, we used the full value of our university annual operations as the Event Value field, then clicked Run. No further edits are made as all of the spending of the Institution is captured in the spending pattern. These are the Results in 2023 Dollar Year.

It is important to remember that the reported Direct Effects are a mixture of the Effects of the university itself and the first-round of expenditures in the Region. This also explains why the reported Indirect Effects appear to be so low, and why the Employment, Labor Income, and Output reported for the Direct Effects do not match the numbers we put in on the impacts screen.

The first step is to copy our original Results into the Excel Template for Option 1. Next, we can copy over the Direct Effects for Industries 542 and 539. This gives us our true Direct Employment, Labor Income, and Value Added. The Direct Effect of Employment and payroll Industries, in our example these are effects to Industries 542 and 539. These are found in the Detailed Output, Employment, Value Added Results Dashboards, under the Industries by Impact table. Sort by Industry to find the Employment and Payroll only Industries. 

Output

Employment

Value Added 

Labor Income

The formulas within the template will automatically update the results by subtracting these Direct Effects from the original Direct Effects, under the Updated Direct table. Lastly, the difference will be added to the original Indirect Effect from the updated results.

Note that when we do this, Value Added = Output. This occurs because these special 'payroll only' Industries do not include any Intermediate Inputs. We can now report the Final Results or overwrite the Direct Effect Output to be equal to our total operating budget of $150,000,000. 

After all that work, note that the total from our original impact matches the totals from our Final Results (except some rounding error in the Total Employment Results). The difference lies in what is included in the Direct and Indirect Effects.

 

OPTION 2 - SEPARATE PAYROLL EVENTS

The second option involves zeroing out the two payroll Industries from the spending pattern before running the analysis. Click the Advanced Fields icon on the Impacts screen, check the box next to both Commodity 3539 and 3542 (Employment and payroll) within the Spending Pattern, then click the three vertical dots to delete.  

After the payroll Industries have been removed the spending pattern Sum of Event Values is only 17.54%, click Save. This indicates that by default the expenditures for State & Local Government Education make up only 17.54% of their total spend. In this scenario, we do not want to Normalize the spending pattern as we are not going to adjust the original Event Value of $150,000,000. 

Now that the goods and services have been accounted for, we need to see the impacts of their payroll effects. We can do this by creating Events for the payroll using Industry Output for Industry 539 and 542, multiplying the percentage of each Commodity by $150,000,000 to get the total Event Value. If we know the employment, we can add it to this Event under the Advanced Fields.

We use the Industry Output Event type (instead of a Labor Income Event) because it captures or estimates the additional Value Added element of the capital consumption. A Labor Income Change could be used with the payroll value, but users would need to solve for Value Added separately.

 

From this option we now get two sets of results. Use the Event Name filter to separate the Institutional Spending Pattern Event to get our first set of results, enter these into the corresponding table in the Template. These describe the effects of our budgetary expenditures on the local economy. The formulas within the Creating New Indirect table will recategorize the Direct Effects from this Event as Indirect.

The second set of results is the impact of the Industry Output Payroll and Employment Events. Use the Event Name Filter to separate out the Payroll Events. Enter these results into the corresponding table in the Template. These show the impact of staff spending their income in the local economy. 

If all of the Direct Effects are known for the Institution, we recommend using Option 2. By removing the payroll Industries from the Spending Pattern users have complete control over the ratios and how values are applied.

Note that the two Scenarios will not produce the same results. 

ADDITIONAL CONSIDERATIONS

To include only state or local employees, users can utilize either method. To use Option 1 which leaves the payroll Industries in the Spending Pattern, sum the two coefficients for payroll Industries together and use the new coefficient with the relevant Industry. Alternatively, use Option 2 as described; removing the payroll Industries from the spending pattern and then creating a new Event with the Industry that is appropriate for the known Employee Compensation. 

Value Added is greater than Employee Compensation, which might not make sense for a public institution. While the majority of Value Added is Employee Compensation, there is a small additional value that these Industries account for that describes the Institution's capital consumption allowance. 

TEMPLATE

Institutional Spending Pattern Direct Effect Calculation

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Updated March 19, 2024