I'm hoping you can clear up some confusion that I'm having with reporting direct output for an economic contribution analysis of a manufacturing industry. As well as check the process I used.
I have a manufacturing industry that in a given year has: (1) production costs (IE + EC) associated with current production (let's call this 2020 production) as well as (2) sales of past production/inventory (let's call this 2020 sales). If I were to just model current production, I'd be missing proprietor income and the related induced effects. So I have developed a process that attempts to capture economic activity occurring in 2020 from production and sales. I think I'm accurately constructing the model and generating the correct indirect and induced effects from economic activity occurring within 2020, but I can't quite figure out how to report direct output for this industry.
For 2020 production, I know the total production (quantity) and the costs of inputs (IE), so I use an industry spending pattern to generate the indirect effects associated with 2020 production. From QCEW data I also know the wages in the industry in 2020. After adjusting these to include benefits, I know the total employee compensation for the industry. As the manufacturer has a significant share of their product sold on premises, I assume that there is some portion of the EC in 2020 that is supported through 2020 production and some portion generated through 2020 sales. I split EC into two components (EC associated with 2020 production and EC associated with 2020 sales), using the EC per unit produced and the units produced in 2020 and the units sold in 2020. My only rationale for splitting EC up into production and sales is that by knowing EC as well as the 2020 sales value (quantity sold in 2020*sales price) and the IE related to 2020 sales (2020 quantity*input cost per unit), I can generate an estimate of PI associated with 2020 sales.
So from a modeling perspective, I've already modeled IE related to 2020 production. I then model EC associated with 2020 production, EC associated with 2020 sales, and PI associated with 2020 sales as labor income changes. Another way that I did it (which I realize now is incorrect), is through a customized industry change whereby I used the estimated 2020 sales for the industry as industry sales and then ratcheted down EC to only account for the portion associated with sales and then used the estimated PI. I removed all indirect effects after the fact (since the product was not actually produced in 2020 and would not generate indirect effects in this year) but I initially did not make any adjustment to induced effects (which I realize now is slightly overstating induced effects because indirect effects were modeled and affected induced effects even if I removed them after the fact).
The primary question remains... what is the most accurate measure of direct output for my industry?
How I had initially been thinking about it was from a gross economic activity perspective, whereby Output = 2020 production IE + 2020 production EC + 2020 total sales (with only the labor income driving associated with sales driving induced effects, but reporting sales in full in the direct effects). But now I'm wondering if direct output should be Output = 2020 production IE + 2020 production EC + 2020 sales EC and PI? In other words, not include the IE that took place in a previous period within the direct output effect? That... or maybe something else entirely!?
I think the confusion is that I'm trying to measure output both from a sales perspective and an expenditures perspective...Any insight you can provide on this would be incredibly helpful!
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