Multiplier effect due to wage increases

Hello Maria, Probably the most straight forward way to model this would be do a cumulative wage increase ($2.50) in the third year (with the Event Year set to appropriate dollar year for the third raise). This will allow you to show the affects of the cumulative increase in wages that the individuals will see by the third year. Alternatively you can do a year by year analysis, but there are a few more caveats to this. 1. You would only want to count the additional increase in income for that year as 'new' spending. So the spending resulting from the $1.00 wage increase in year 1 would be sustained in year 2. Whereas the $0.75 would be the new spending for year two, etc. 2. If you look at the increases per year, and want to show the summative 'new' spending you will need to sum the three result sets in the same Dollar Year for View. 3. You can set up the three Scenarios by adding the various components together to show total spending each year ($1.00 yr 1, $1.75 yr2 and $2.50 year 3) but you will not want to consider the results as new spending in each year, again because some of this was sustained from a previous year's spending. Thanks!

Hello, Thank you for your swift reply. In setting up my scenario, where do I go to show that the increase is for the second or third year? Also, when you mention that I should only use the new dollar of increase each year instead of compounding, how does Implan account for the multiplier effect from previous year's spending or how does the year 1 increase is being sustained in year 2 and so on without adding the amount from previous increase? thanks, Maria

Hi Maria, If you want to report spending impacts by year, then you will need to set up separate spending activities for each year so that run each as a separate scenarios. The multipliers show the impact of whatever is applied to them. If they represent one year's spending the results are the economy required to support that one years' spending. If that spending is repeated year after year the result occur year after year, otherwise it is just a temporary effect. If year two is a repeat of year one spending plus new spending, you will need to combine the values to present the total of the new spending. Thanks!

Hello, I think it is easier to do your first suggestion. "Probably the most straight forward way to model this would be do a cumulative wage increase ($2.50) in the third year (with the Event Year set to appropriate dollar year for the third raise). This will allow you to show the affects of the cumulative increase in wages that the individuals will see by the third year." I am not sure how to set-up the event like that, when you say "Event Year set to appropriate dollar year for the third raise". To calculate economic activity resulting from wage increase: I normally build a new model, activity pattern (institution spending pattern), then scenario level is the disposable income. Now, how do I show that first year, it will $1.00, then $.75, then $.75 instead of the full amount? Also for the scenario level, do I combine the amounts? Your help will be greatly appreciated. Maria

Hi Maria, Great questions. If you are going to use the cumulative method you won't worry about which spending occurs in each year, you will just take the cumulative income of the three years of raises and use that value. This basically assumes/creates a result set that shows the increased spending associated to the total raise that is being given, and then the resultant recurring spending in the economy associated to that raise. Setting Event Year for a spending pattern Activity is done through the Events Options> Change All> Event Year and select the year of the Event's dollar amount. In this case since you are only dealing with the final year in the series you will choose the year of final part of the raise. If you think this isn't the method you want to use, please let us know and we can certainly assist you in moving forward with another modeling methodology.

Hello, Thank you for your immediate response. I understand that I can use the cumulative income, but unsure about the method. For instance, $1.00 for the first year, then $.75 second year, then $.75 third year. Do you just do: 1) $2.50 times hours worked; or 2) $1 times hours worked + $1 + $.75 times hours worked + $1 + $.75 + $.75 times hours worked = the sum will be the cumulative income. Please let me know the proper method. thanks, Maria

Hi Maria, Again, this is up to you, if you choose the first method we described in an earlier post you take the total $2.50/hr increase * hours worked (for our example we'll say 100) and enter the resultant $250.00 as the income in year 3 dollars. You will get one result set that will represent the total cumulative spending that will be reoccurring within the economy as a result of the three years of wage increases. In the second situation you would run say 2014 raise impacts as $100 ($1.00*100 hours worked), create a second Event for $75.00 for Event Year 2015 and a third Event for $75.00 with Event Year 2016). You can run this in the same Scenario if you want just cumulative results or in separate Scenarios if you want to describe the results by year. In the third situation you can run them as you have described below [i]$1 times hours worked + $1 + $.75 times hours worked + $1 + $.75 + $.75 times hours worked = the sum will be the cumulative income[/i] but you would not necessarily want to sum these results (although if you do, you will want the to be in the same Dollar Year for View) because the answers could be easily misinterpreted. In this, third, situation the results would show the cumulative increase in spending for each year, and the summative the total increase spending across three years, but you run into potential concerns about double-counting in regards to the fact that the initial dollar raise is counted each year in a three year result summation. This also would not be the ongoing impact of the raise as the raise is not adding (1.00+ 1.75+ 2.50= $4.25 per hour) to the economy but a total of $2.50. Hopefully this helps. --Implan Support Staff

Thank you for your reply. I tried both options: the total increase of $2.50 and second scenario (creating an event for each increase not the third scenario). However, when I added the total of the second scenario, the economic activity is a little bit off compared to the first scenario. The second scenario added together resulted in a higher economic activity. I was thinking that the scenario 1 results should equal scenario 2. Please let me know. Thanks, Maria

Hi Maria, They won't be equivalent which is why it's an either/or situation with the methodologies. The reason for this is deflation, each dollar year has a different value of spending thus if you parse the spending across the three years and sum them in a single Dollar Year for View (which in order to make them comparative would need to be the last year of the wage increase), you will likely get a slightly higher result than if you roll the entire increase into a single year. You might find our article on Deflators helpful in working to understand deflation. Hopefully this helps --Implan Support Staff