Iron Mining

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    IMPLAN Support
    HI Travis! Thank you for your forum post. You are correct, CEW data is the basis of our wage and salary employment estimates and we supplement this primarily with REA data to help us determine proprietor employment. Reallocation does occur with this industry based on BEA re-definitions. Sector 23 receives ~89% of the value. The remaining percentages are distributed to: ~5% Support activities for oil and gas operations (38), ~6% Construction (54), with less than 1% redistributions to Sectors 39 and 40. Reversing these re-distributions will bring the value of Employment back up to around 4,383 jobs in Sector 23, very similar to the value you are reporting. This re-defintion occurs by BEA because the operations and functions of these workers are more closely mapped to the production functions of the redistributed industries. Since the idea is to most closely map the production functions to the type of activities being performed in the economy, this distribution is applied to try to ensure that the best economic representation is achieved. Since IMPLAN is a linear Model, it will not make a difference if you insert the negative sign or not as it will produce the same results. We recommend to model the loss of the industry as a Contribution Analysis. However, we would not recommend that you start with the full value of Employment, as the purpose of a contribution analysis is to constrain linkages, and starting form a higher Employment value would cause another form of overestimation. Since Employment doesn’t drive any economic factors, you can edit this to match your known. The consideration comes in more if you want to modify the Output or Employee Compensation values, as these do drive economic impacts. Employment really doesn't have any affect in IMPLAN, unless it is your starting value, in which case Output per Worker is used to estimate the Output value. The goal of a contribution analysis is to not end up in a situation where you say that the value of production is higher, or the value of the loss of production is higher, for the key Sector than the actual current value of production. If you believe that because of the redistribution that the Output value of the mining Industry should be larger than the listed Study Area Output, then you would want to constrain on this value. We have attached the instruction for single-Industry contribution analysis. While we can't say for a certainty, since we don't know how the company operates, in most business, even when subsidiaries or dba's are owned by the same parent company, the various campuses and branches sell their production to one another, and thus these act as any other businesses in the economy. Based on this, those values should be captured in the Output of Sector 23. You can't really make an accurate adjustment to Output in that fashion. The reason for this is multi-fold. First, if you adjusted the value of Output you would be reducing the amount of Intermediate Expenditures and Value Added payments made by the iron Industry, without any compensatory price adjustments to the Intermediate Expenditures or profits of the company, changes in wages, etc that may accompany the price change. Secondly, for contribution analysis, the Output value you have to start with will be a 2014 value and the remaining industries and their relationships are all 2014 values, so there is no way to account economy-wide for the price changes and potential input changes across the Sectors that have occurred since 2014. However, deflators will allow you to at least adjust the value of the dollar economy-wide to reflect changes in economic deflation since 2014. Thanks! IMPLAN Staff
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    mrhaynes
    Hi - I'm working with Travis on the same project, and I have a follow up question to this post. You mentioned adjusting the price using the deflators. Can you elaborate more on that? If we know that the price of iron ore has declined by more than 60% since 2014, how would we reflect that using the deflator? While I understand that we can't effectively capture all of the changes in all industries, it seems inaccurate not to account for such a large decline in price. Thanks!
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    IMPLAN Support
    Hello Monica, We apologize for the confusion that came out of that response. We were not trying to say that the deflators would correct the price change concern. Based on your original post, it appeared that you were using the IMPLAN 2014 Study Area Data as the basis of a single Industry contribution analysis and were asking about decreasing the Output value to reflect a change in cost. While that is not directly possible with the IMPLAN software, we were suggesting that you could set the Event Year to 2014, reflecting the year of the data, and then use the Dollar Year for View to at least see the state wide effects adjust for deflation. If you want to make an adjustment to the Model, there exists a two-fold consideration tied to the concept that the value of Output doesn't matter to a Multiplier Model. What matters is the underlying relationships. The total value of production and Value Added factors will not affect your Multipliers because the magnitude or size of the industry is not important to the Multipliers. Instead, what is important is the relative ratios (e.g. Value Added: Intermediate Expenditures, Output per Worker, Labor Income per worker). So the size of the various industries is not what is important, but rather those ratios within the industry(s). For example, suppose the output and employment for the grain milling sector were $1 million and 100 respectively. The output per worker is then $10,000. Then, when you run a $1 million impact on the sector, you will get 100 workers. If, on the other hand, you reduced the grain milling sector’s output to $500,000 and re-balanced, the employment would be reduced to 50 and the output per worker remains the same at $10,000. So if you now run a $1 million impact on the sector, you will still get 100 workers. So to account for a drop in price you have to determine the coal Industry’s behavioral response to the change in cost. Do they just see a decrease in profits? Since profits are a leakage to the system, there would be no change in effect. Thus while you could change the ratio of OPI, this would not affect the results of the Model. Does the decrease in cost cause them to pay less? Then you would need to adjust the Labor Income/worker ratios. Are they producing similar levels of Output with less labor? You would want to alter the Output per Worker ratios. However in the context of a contribution analysis and using the Study Area Data, those values reflect the 2014 Industry and what the 2014 Industry supports in the local economy. If you are using your own data for what the total sales in Minnesota are currently, then ideally you would have total current Employment and income as well, and that would naturally adjust every relationship except the Intermediate Expenditures ratio; however, it seems unlikely that a drop in the value of coal will cause a drop in the costs of their intermediate goods, so this ratio is unlikely to be altered. In conclusion, even if the value of production goes down, if the same quantity of Intermediate Expenditures are needed and Employment and income ratios have remained basically the same, there is no need to change anything in the Model. We appreciate that you don't want to overestimate the negative impact of losing this Industry from the region and thus if there are production changes (which would need to be expressed in their 2014 equivalent prices to the Model), Employment changes or income changes in the Industry in the region, our best recommendation is to try to obtain these values and use those to edit the Industry. If not and this looks to be primarily a decrease in the profitability of the Industry, you could adjust your reported value for the Direct Value Added and Output down by the amount of the price decrease (thus indicating a decrease in profits). You would also then need to adjust the totals for these columns. We hope this answers your question and clarifies our previous response. Regards IMPLAN Staff
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