Example 1 - Use of employment multipliers: the effect of a company opening or closing
Multipliers can be used to look at the impact of a specific event on the Scottish economy - for example a company opening or closing. To illustrate this, a hypothetical opening of a company in the "Computing Services" industry, employing 100 people on a full-time basis is considered.
In assessing the impact of this new company we estimate:
- effects on suppliers of the company
- effects on the economy due to an increase in the spending of the new employees
This is achieved by employing the appropriate multipliers for the type of industry concerned. For the illustrative example, the multipliers used will be for the "107 - Computing services" Input-Output group.
Effects on Suppliers (Indirect Employment Effect)
Multiplying the direct increase in jobs by the "Computing services" Type I employment multiplier gives: 100 x 1.280 = 128 direct and indirect new full-time equivalent jobs. Subtracting the initial direct job increase gives the additional indirect increase in jobs throughout the Scottish economy as 28 (full-time equivalent).
Effect of increased Household Expenditure (Induced Employment Effect)
In addition to the effect of increased employment, we would expect to see an increase in household expenditure among the people who have gained employment through both the direct and indirect employment effects. This is the induced effect and is estimated using the Type II multipliers.
Multiplying the direct increase in jobs by the "Computing services" Type II employment multiplier gives: 100 x 1.617 = 162 direct, indirect and induced jobs. As we have already calculated a direct and indirect increase in employment of 128 ( FTE), we estimate that 34 further jobs will be created as a result of this induced demand.
Example 2 - Estimating the effects of a change in final demand
The above example used an estimate of jobs created directly in one industry to estimate the numbers of jobs created indirectly and through induced demand throughout the economy. However, the direct impacts upon an industry are often presented in monetary terms i.e. increased exports or a change in Government spending. The following example uses the hypothetical scenario of an additional £5 million of exports to the Rest of the World by the "Man. of Other Inorganic Basic Chemicals" industry.
The effect on output (using Output Multipliers)
The direct impact upon "37 - Man. of Other Inorganic Basic Chemicals" will be a requirement to increase its total output by £5 million to meet this additional final demand. To estimate the indirect effect on this industry's suppliers, we multiply the direct impact (£5m) by the Type I output multiplier for this industry ( 1.620) giving a total of direct plus indirect impacts of £8.1 million. Similarly to the example above, we would expect the direct and indirect increases in output to lead to increased employment in the affected industries and subsequently to an increase in household consumption. Multiplying the direct impact (£5m) by the Type II output multiplier ( 1.807) gives £9.0 million of increased output (direct, indirect and induced effects).
The effect on employment (using Effects on Employment)
The direct change in output can be also be used to estimate the effect upon employment in Scotland . Multiplying the direct output change by the Type I employment effect for this industry gives an estimate of the direct + indirect employment changes resulting from this additional output. £5m x 8.068= Approximately 40 full-time equivalent jobs created directly and indirectly throughout the Scottish economy. The direct, indirect and induced employment change can be estimated using the Type II employment effects.
The effect on income (using Effects on Income)
If employment were to rise, we would expect to see an associated rise in household income as these new posts are filled. The income effects estimate the effect of the direct change in output upon household income in Scotland. Multiplying the direct output change by the Type I income effect for this industry gives an estimate of the direct + indirect income changes resulting this additional output: £5m x 0.300 = £1.5m of additional household income created directly and indirectly. The direct, indirect and induced income change can be estimated using the Type II employment effects.