Reducing Proprietor's Income to Reflect Leakage
Good morning! I'm analyzing construction of a pipeline and oil refinery in rural, sparsely-populated eastern Utah (Grand and Emery Counties). My results indicate that ~2/3 of labor income is not employee compensation, which I think means it's proprietor's income. My judgment is that most of the construction firms that would build these facilities are based outside the 2-county region, so most of the proprietor's income would leak out of the region.
What's the best way to modify proprietor's income when analyzing an activity to reflect expected leakage?
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Hi Nicolas, Are most of your workers from outside the county as well? Often with these projects the construction company and it's employees are not residents of the Study Area where the work is being done, and they may bring in materials that have little to know local production which sounds like it may be the case in your situation based on your description. If this is the case, there are a couple of considerations to keep in mind that will help you navigate this situation. 1. If the workers are not residents of either of these counties, you may actually want to zero out the Employee Compensation and Proprietor Income portions of the Direct Effect. This is because even though those workers are earning income in the region, they aren't spending it locally. They are spending their income where they live on their homes, utilities etc, like a local household would. 2. If they are non-local workers and the regions can support them with hotels, restaurants, etc. Then typically you would want to only Model the portion of their income they spend local on these things, as the remainder of their income can be considered as leaking to their home counties. 3. If they are non-local workers and the regions are too rural to support them, and thus the construction company is bringing support facilities, equipment and or staff on-site, these are also likely not be sourced from the local economy and would be leakages. If they are local workers and you feel that the issues is just the split of Employee Compensation from Proprietor Income, then you can see how your Labor Income is split between Employee Compensation and Proprietor Income. You can find this in the Results Screen > View By: Value Added > Employee Compensation or Proprietor Income. IMPLAN automatically takes into account leakages. However if you feel that the software is not taking enough Prorprietor Income out of the Model, you can adjust the regional commuting rate: http://implan.com/index.php?option=com_content&view=article&id=254, or for the industries in questions you can also view their split of Proprietor Income : Employee Compensation in the Explore> Social Accounts> Balance Sheet (Tab), and select View By: Industry Balance Sheet and the Value Added tab. Construction does tend to be a heavier proprietor industry as many general contractors are actually proprietors. Ideally, since it's unlikely to get total compensation and Proprietor Income values from the construction company, if you can get a sense of the split of the income between these two categories that would allow you to make adjustments. Please let us know if you have any other questions, if the issue with Proprietor Income is an Industry or Industries other than construction, or if you have questions about the income comments above. -
Thanks for your ideas. However, I don't think they answer my question. First, in response to your question, my baseline assumption is that construction workers will be recruited from the local workforce. However, I would like to reduce proprietors' income to reflect leakage. I know how to view the split between employee compensation and proprietors' income for selected industries. But I do not know, and would like to know, the best way to adjust this split in analyzing an activity. The article you referred me to discusses adjusting employee compensation through the commuting coefficient; not proprietors' income. How do I adjust proprietors' income for a selected industry? -
Hello, If you want to reduce the (Induced) impact of proprietor income, [u]after[/u] entering your event values, then reduce the Proprietor Income amount by the amount you think it should be reduced. Note that this will not affect the Intermediate Expenditures, Employee Compensation, Taxes on Production and Imports, or Other Property Income. Since construction, by definition, is in the study area (Model region), and Proprietor Income, by definition, is earned where the Direct effect takes place, you might want to add the amount of Proprietor Income you removed back to your direct effects. Please let us know if you have additional questions. IMPLAN Group Staff
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