Multiplier Analysis Arthur C. Nelson, Ph.D., FAICP Presidential Professor of City & Metropolitan Planning Director, Metropolitan Research Center University.

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Presentation transcript:

Multiplier Analysis Arthur C. Nelson, Ph.D., FAICP Presidential Professor of City & Metropolitan Planning Director, Metropolitan Research Center University of Utah February 2010

Population-Employment-Firms- Income Ratios Provides simple way to find economic development opportunities as “gap” analysis. Assists in long-range planning. Measures the number of people (customers) who support a trade or service activity in terms of employees or firms. Quotient is the number of customers per trade or service sector employee, firm, or income. No critical value; must be used in relation to other communities of similar size and demands. Uses the entire population in its estimate; could yield biased results if the population is either young or old.

Formula PE/F/I-Ratio =Community Pop; Firms; Income Employees, Firms, Income in Target Sector

Example for Employees Tooele County Pop 2007* =55,536 Grocery Store Emp. 2007**= 396 P-E Ratio = 140 Box Elder County Pop 2007*=47,491 Grocery Store Emp. 2007**= 395 P-E Ratio = 120 Interpretations? * 2010 Economic Report to the Governor, Utah Office of Planning and Budget **NAICS 4451, County Business Patterns, bin/cbpnaic/cbpdetl.pl

Example for Firms Tooele County Pop 2007* =55,536 Grocery Store Firms 2007**= 10 P-F Ratio = 5,554 Box Elder County Pop 2007*=47,491 Grocery Store Firms 2007**= 6 P-F Ratio = 7,915 Interpretations? *2010 Economic Report to the Governor, Utah Office of Planning and Budget **NAICS 4451, County Business Patterns, bin/cbpnaic/cbpdetl.pl

Example for Income - Firms Tooele County Income 2007= $585.3M Grocery Stores 2007*= 10 P-IRatio = $58.5M Box Elder County Income 2007= $877.2M Grocery Stores 2007*= 6 P-I Ratio = $146.2M Interpretations? *NAICS 4451, County Business Patterns, bin/cbpnaic/cbpdetl.pl.

Example for Income – Jobs Tooele County Income 2007= $585.3M Grocery Employee 2007*= 396 P-IRatio = $1.5M Box Elder County Income 2007= $877.2M Grocery Employees 2007*= 395 P-I Ratio = $2.2M Interpretations? *NAICS 4451, County Business Patterns, bin/cbpnaic/cbpdetl.pl.

Tooele County Opportunity? Box Elder Ratio T-Compare T-Actual Gap P-E = P-F = 7, P-I f = $146.2M P-I e = $2.2M

Assignment Find Utah county with similar per capita income and population size to Tooele County (use 2010 Governor’s Economic Development Report for income). Using the County Business Patterns, conduct ratio analyses for five sectors. Interpret whether there are economic development opportunities for Tooele County.

Location Quotient Indicates if a community produces more than is needed for its own use and is selling the excess to “nonlocal” markets  Exports. Also indicates which businesses are not meeting local demand and is a source of dollar leakage from the community.

Location Quotient Formula LQ = % Local Employment in Sector X % National Employment in Sector X LQ = 1.00 means local economy producing goods or services just equal to local demand LQ < 1.00 means local economy producing goods or services less than local demand  “leakage” LQ > 1.00 means local economy producing goods or services more than local demand  “export”

Location Quotient – Box Elder County Fabricated Metals Manuf Box Elder County Fab. Metals Manuf.*  Box Elder County Total Employment  18, U.S. Fabricated Metals Manufacturing*  1,565, U.S. Total Employment  120,604,265 *NAICS 332, County Business Patterns, bin/cbpnaic/cbpdetl.pl.

Location Quotient – Box Elder County Fabricated Metals Manuf. LQ = (750/18,255) / (1,565,866/120,604,265) LQ = ( / ) = 3.16 The location quotient of 3.16 tells us that the fabricated metal sector of the Box Elder County economy “exports” products.

LQ Analysis Location Quotient  3.16 LQ 1.00: National x 18,255 local jobs =237 local jobs Actual jobs =750 Local jobs =237 Export jobs =513

Sources Hustedde, Ronald J., Ron Shaffer, and Glen Pulver. Community Economic Analysis: A How To Manual. North Central Regional Center for Rural Development. Ames, IA. November Kathy Tweeten, North Dakota State University; Alan Barefield, Southern Rural Development Center; Randy Reynolds Piedmont Community College “Community Economic Analysis” nd.