Examining Results & Interpreting Direct, Indirect, and Induced Effects

INTRODUCTION

After analyzing an Event, there are additional considerations when examining the Results Page of an IMPLAN Project. There are nuances specific to each Event Type in IMPLAN.

This article specifically addresses the Industry Output, Industry Employment, Industry Employee Compensation, and Industry Proprietor Income Event types. However, this interpretation can be useful when considering the Effects from other Event Types.

INTERPRETING THE RESULTS

Let’s walk through an example. Andrew’s Bootleg, a craft vodka company, went legit in 2021. We modeled his \$1.5M in Output on the state of North Carolina (Dollar Year 2021 and Data Year 2019).

The Results screen will begin on the Summary tab. This shows an overview of the Economic Indicators by Impact and Tax Results as well as any Direct Leakages associated with the Project. At the bottom, there is a graph with the top 15 Industries by estimated growth percentage and a table detailing the estimated growth percentage for all Industries. These are both based on the Values that were entered on the Impacts screen - because of the \$1.5M in Industry 108 - Distilleries, it shows the estimated growth across the region.

The results are as follows:

Now let’s unpack exactly what his sales mean for the North Carolina economy.  We see a total impact of 4.97 jobs, \$363,180 in Labor Income, \$1.1M in Value Added, and \$2.2M in Output. This is the total economic impact from Andrew’s Bootleg; the sum of the Direct, Indirect, and Induced effects. Each of the next sections outlines what each part of this impact actually means.

EMPLOYMENT

Direct Employment

The 1.44 Direct Employment shows that with \$1.5M in Direct Output, it looks like Andrew can support himself as an employee of the distillery. This figure is the direct number of job years associated with the Output. But remember, jobs in IMPLAN are average annual employment. To switch between IMPLAN jobs and FTE, use the 546 FTE & Employee Compensation Conversion table. Using this converter, we see that the 1.44 IMPLAN jobs translate to 1.38 FTE jobs.

Indirect Employment

Andrew has to buy things like corn and yeast for his distilling. Because he is able to purchase some of his inputs from within the state, 2.02 jobs are supported in business-to-business transactions with the corn and yeast (and other) suppliers, as well as suppliers of those suppliers in the state. This Indirect employment represents the number of job years that are supported by business to business transactions as a result of the economic activity generated by the Event.

Induced Employment

Andrew himself, and the employees in the businesses supported by Andrew's operational purchases, spend a lot of their take-home income in North Carolina on things like paying rent, eating out, and buying engagement rings. Through this, 1.51 jobs are supported in industries like real estate, health care, and restaurants.  Induced employment represents the number of job years that could potentially be supported by household spending as a result of the economic activity generated by the Event.

LABOR INCOME

Direct Labor Income

Andrew pays himself well - as he is the only employee with a Direct Labor Income of \$155,320. Even though EC includes wages and salaries, all benefits (e.g., health, retirement), and payroll taxes, he still takes home quite a bit. To switch between IMPLAN Employee Compensation and Wage & Salary figures, we can again use the 546 FTE & Employee Compensation Conversion. Using this converter, we estimate that Andrew will take home \$125,589 in wages. Direct Labor Income is the initial income earned by the Direct employees of the Industry specified in the Event.

Indirect Labor Income

The \$135,521 in Indirect Labor Income is the EC and PI that Andrew’s Bootleg supports in the corn and yeast (and other) suppliers. Indirect Labor Income is the amount of EC and PI that is associated with business-to-business transactions as a result of the economic activity generated by the Event.

Induced Labor Income

Because Andrew and the other supported workers are spending their paychecks around the state, there is an Induced Labor Income of \$72,340, including both EC and PI. Induced Labor Income is the amount of EC and PI that is associated with household spending as a result of the economic activity generated by the Event.

Value Added is akin to Gross Domestic Product (GDP). Value Added includes the Labor Income dollars, as well as Taxes on Production and Imports (TOPI), and Other Property Income (OPI). Andrew’s Bootleg contributes \$738,481 in Direct Value Added. Remember, this includes the \$155,320 in Labor Income, plus TOPI and OPI.

Through the business-to-business transactions, the company contributes \$230,160 to Value Added or Gross Domestic Product (GDP). Again, this includes the \$135,521 in Indirect Labor Income plus TOPI and OPI. This is the specific Value Added that is generated  by business to business transactions as a result of the economic activity generated by the distillery.

Because of the spending of the employee working at Andrew’s Bootleg and the supply chain companies, \$135,379 is supported in Value Added. This includes the \$72,340 of Induced Labor Income, plus TOPI and OPI. This is the specific Value Added that is generated from household spending as a result of the operations.

OUTPUT

Direct Output

Andrew’s Bootleg has a Direct Output of \$1.5M.  We know this because that’s what we modeled. Output is equal to Value Added plus Intermediate Inputs; it is the total value of production. Remember, it includes Value Added (and Value Added includes Labor Income). Output is also the basis for all other calculations in IMPLAN. Total production value or Output, includes unsold production and excludes sold inventory. If Andrew sells all of his vodka produced this year within the year (and only sells vodka produced this year with nothing coming from inventory when the whole operation was in his garage), his \$1.5M of Direct Output will be equivalent to his 2021 revenue.

Indirect Output

Because of the business-to-business transactions resulting from local input purchases by Andrew’s Bootleg, \$466,250 in Indirect Output is supported. Indirect Output represents all of the Output generated because of the Direct business to business spending. This figure includes the \$230,160 in Indirect Value Added; and that Value Added then includes the \$135,521 in Indirect Labor Income.

Induced Output

Finally, \$235,638 of Induced Output is supported when the employees working at the distillery and their suppliers (and the suppliers of their suppliers) spend their money throughout the economy. Induced Output is the total value that all Industries take in as a result of household spending. This figure includes the \$135,379, in Induced Value Added; and that Value Added then includes the \$72,340 in Induced Labor Income.

Clicking on the Summary tab, there are two other options.

Economic Indicators will open a table that breaks out Employment, Labor Income, Value Added, and Output by Direct, Indirect, and Induced Effects for each Group, Event, and Region. This is especially helpful when examining complex projects.

Taxes is a table that shows the Direct, Indirect and Induced tax Results for each Group, Event, and Region by level of government.

BOOTLEG BREAKDOWN

And that’s it! Use this guide to help understand the individual effects of an IMPLAN analysis. I’ll drink to that!

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Updated August 30, 2023