Understanding Types of Income

INTRODUCTION:

In IMPLAN, there are four types of income that can be identified: Labor Income, household income, disposable income, and household spending.  This article breaks down the differences and how IMPLAN data compares to government estimates.

 

DEFINING INCOME:

First off, let’s define the fours types of income.

LABOR INCOME

Labor Income is the sum of Employee Compensation (wages and benefits) and Proprietor Income.

HOUSEHOLD INCOME

Household income represents the income from all sources received by residents, including total wages & salaries, benefits, interest, dividends, & transfer payments, less all contributions to Social Security/Medicare.  Labor Income less payroll taxes and in-commuting income is included in household income in addition to all non-employment sources of household income. This is based on the BEA definition of personal income and is not comparable to money income as defined by the Census Bureau.

DISPOSABLE HOUSEHOLD INCOME

Disposable income is household income less personal taxes. Disposable Income is money that is available to be saved or spent. 

HOUSEHOLD SPENDING

Household spending is what is actually expended by households on goods and services less personal taxes and savings.

 

WHERE TO FIND THEM IN IMPLAN:

LABOR INCOME

Labor Income can be found in IMPLAN Behind the “i” in the Study Area Data tab. Within the Industry Detail table you will find the two forms of Labor Income, Employee Compensation and Proprietor Income, by Industry. Within the Industry Summary table you will find Labor Income as a total and Labor Income per Worker by Industry. 

In the Social Accounting Matrix (SAM) you will find Employee Compensation and Proprietor Income represented as columns and rows. The columns reflect the allocation of each of these forms of income to each row, largely to Households. The rows reflect all sources of Employee Compensation and Proprietor Income. Because Labor Income is only earned from Industries, you’ll only find a value in the Industry column of these rows. 

HOUSEHOLD INCOME

Household Income can be calculated as the sum of all nine Household Income column totals from the Social Accounting Matrix. Each Household Income row here shows all the sources of Household Income, which in large part will be Labor Income.

DISPOSABLE HOUSEHOLD INCOME

Disposable Household Income can be calculated as Household Income as described above less the payments to government rows within the Household Income columns. 

HOUSEHOLD SPENDING

Household Spending can be calculated as the sum of payments to the Commodity total row and Foreign and Domestic Trade rows within each Household Income column in Aggregate SAM. These payments reflect Household Spending on goods and services sourced from within the Region (payments to Commodity row) and outside of the Region (payments to trade rows). 

 

UNDERSTANDING THEIR RELATIONSHIP:

 

Labor_Income_to_Spending.png

 

TWO EVENT TYPES:

To model spending of individuals, there are two Event Types in IMPLAN.

LABOR INCOME EVENTS

Labor Income Events are most appropriate to use when an analyst intends to model a change in labor payments isolated from an industry’s production. When creating a Labor Income Event in IMPLAN, analysts may specify whether the income is earned by employees (wage and salary), by proprietors, or some combination of the two. However, they cannot specify the specific household income categories which will receive that income.

Labor Income Event Value should include all new labor payments in the Region (local workers and in-commuters), including their 

  1. Payroll tax
  2. Personal tax
  3. Savings

HOUSEHOLD INCOME EVENTS

Household Income Events are most appropriate to use when an analyst intends to model changes in household income that are independent of both production and payroll. In Household Income Events (unlike Labor Income Events), you can specify the specific income group(s) receiving the income into one of nine categories.

Household Income Event Values should include all new household income all residents in the region, including their –

  1. Personal tax
  2. Savings

USING WAGE & SALARY INCOME DATA

When you’d like to analyze wage and salary income data, it must be first converted into a fully loaded Employee Compensation value before entering the value into your Labor Income Event. Employee Compensation in IMPLAN is the fully loaded cost of the employee to the employer, therefore a wage and salary value would be missing the employer’s cost of benefits and contribution to Social Insurance Tax.

You can use the following resource to convert your wage and salary income to an Employee Compensation value as well as to convert an Employee Compensation value in the IMPLAN data or Results to a wage and salary income value. 

USING DISPOSABLE INCOME OR HOUSEHOLD SPENDING DATA

If you’d like to analyze a change in disposable income, you can adjust a disposable income value to a household income value by dividing your disposable income value by the portion of household income (for a given income group column) allocated to non-government rows. In other words, dividing household income by the portion of household income that is disposable income for a given household income group. This will produce a value that can be entered in a Household Income Event. Similarly, dividing household spending by the portion of household income that is for household spending will produce a value that can be entered in a Household Income Event. 

 

CONSIDERATIONS FOR USING AN INCOME EVENT:

Labor Income Events are commonly and appropriately used for analyzing the impact of wage increases and business operations where Analysis-by-Parts is needed such that Labor Income and Industry Spending on goods and services are analyzed as two separate Events. 

Household Income Events are commonly and appropriately used for analyzing new income in a Region due to new residents that live in the Region but do not work there. 

Households and individuals may experience other economic shocks that increase or decrease the amount of income available to them. Before analyzing any impacts in IMPLAN its important to consider the underlying assumptions and then state the assumptions made in your analysis when reporting the results. 

For example, if a policy change results in savings to households due to a reduction in cost on necessary goods and services such as electricity or insurance, how might these households react? If this household is living paycheck to paycheck, they may spend this newly available income on the items they typically buy. If so, a household income event would be appropriate. If this household already has their expenses covered maybe they go out to the movies more often, maybe they buy a few things on Amazon, or maybe they save it up for a future purchase like a new car. In this case a Household Income Event would not be appropriate since this household would not be appropriate. These considerations are explored further, specifically in the context of Utility Purchases and Energy Rebates here

 

ONE MAJOR SOURCE OF CONFUSION:

So, you may look at the data Behind the i and then get ready to email your Customer Success Manager at support@implan.com to announce that what IMPLAN is reporting for Household Income is not even close to what the Census Bureau reports for Household Income. It’s OK, we know.

IMPLAN uses the BEA’s definition, which is not the same as what the Census uses. So, you won’t be able to compare these two sources. For more information on this, check out our article Why is Personal Income for My Region so High? Basically, the BEA definition includes imputed income, adjustments for misreporting and under-reporting, and employment paid benefits. 

The Output Equation – Finding Values

INTRODUCTION:

All IMPLAN Industries have a unique Output Equation for each Region and Data Year. You may want to look Behind the i to see a specific Output equation. You can also use this data to find or calculate any part of the Output Equation: Output, Intermediate Expenditures, Value Added, Labor Income, Employee Compensation, Proprietor Income, Taxes on Production and Imports less Subsidies (TOPI), and  Other Property Income (OPI).

 

USING THE OUTPUT EQUATION:

Using the data in IMPLAN to figure out the missing pieces of the Output equation can be valuable if you are trying to find out what an Industry may spend on Intermediate Expenditures or the percent that is going to TOPI, for example. First, head Behind the i to Customize Region.

 

Output_Equation_-_Customize_Region.jpg

FINDING INTERMEDIATE EXPENDITURES

Let’s take a look at Industry 2 – Grain Farming at the U.S. level in 2018.

Output_Equation_-_2_Grain_Farming.jpg

IMPLAN reports Output, Employee Compensation (EC), Proprietor Income (PI), Other Property Income (OPI), and Taxes on Production and Imports less Subsidies (TOPI) along the left side of the box. The column on the right reports these values per worker (/w).

We know the formula for Output:

Output___IE_EC_PI_TOPI_OPI.jpg

And IMPLAN has shown us all but one of these values: Intermediate Expenditures. So we can figure that out by solving for the one missing piece.

$67,702,408,597  = IE + $3,606,890,353 + $6,841,169,324 + -$1,004,059,364 + $10,883,017,114

$67,702,408,597  = IE + $20,327,017,426

IE = $47,375,391,171

 

FINDING VALUE ADDED

Value Added is simply the summation of EC + PI + TOPI + OPI.  Again using Industry 2 – Grain Farming, we can find Value Added.

VA___EC_PI_TOPI_OPI.jpg

VA = $3,606,890,353 + $6,841,169,324 + -$1,004,059,364 + $10,883,017,114

VA  = $20,327,017,426

 

FINDING LABOR INCOME

Labor Income is simply the summation of EC + PI.  Again using Industry 2 – Grain Farming, we can find this value.

 

LI___EC_PI.jpg

 

LI = $3,606,890,353 + $6,841,169,324 

LI  = $10,448,059,677

 

RELATED ARTICLES: 

The Output Equation

The Output Equation – Differences by Industry

Output, Value Added, & Double-Counting

The Output Equation – Differences by Industry

For every possible IMPLAN Region, all IMPLAN Industries have a unique Output Equation. IMPLAN collects data to determine the Output Equation for each Sector for each Region and Year available in IMPLAN in terms of dollars. The Output Equation, in dollars, is converted to percentages of Output such that the equation sums to 100%. The Output Equation in percentages determines how each Sector allocates Output when modeled via an Industry Event. How do these differences look in the Output equation?

DETAILS:
The formula for the Output equation is:

Output = Intermediate Expenditures + Employee Compensation + Proprietor Income +
Tax on Production and Imports + Other Property Income

We show this visually like this:

Output_Equation_Blue_Box.jpg

To take a look at how the Output equation is different, five different Industries at the US level for 2018 are shown.

INDUSTRY 4 – FRUIT FARMING
Output_Equation_Blue_Box_-_4_-_Fruit_farming.jpg

INDUSTRY 25 – SILVER ORE MINING
Output_Equation_Blue_Box_-_25_-_Silver_ore_mining.jpg

INDUSTRY 76 – CONFECTIONERY MANUFACTURING FROM PURCHASED CHOCOLATE
Output_Equation_Blue_Box_-_76_-_Confectionary_mfg.jpg

INDUSTRY 455 – LEGAL SERVICES
Output_Equation_Blue_Box_-_455_-_Legal_svcs.jpg

INDUSTRY 499 – INDEPENDENT ARTISTS, WRITERS, AND PERFORMERS
Output_Equation_Blue_Box_-_499_-_Independent_artists_writers_performers.jpg

Scanning these we can see differences across the Industries.

Industry

Intermediate Expenditures

Employee Compensation

Proprietor Income

TOPI

OPI

4 – Fruit farming

42%

16%

17%

0.01%

25%

25 – Silver ore mining

50%

23%

1%

5%

21%

76 – Confectionery manufacturing from purchased chocolate

77%

14%

1%

1%

7%

455 – Legal services

29%

36%

7%

5%

23%

499 – Independent artists, writers, and performers

15%

19%

52%

6%

9%

Fruit farming, mining, and manufacturing all have high percentages in Intermediate Expenditures. These Industries all need to purchase more inputs for production than other Industries like those that provide services. Of the five Industries selected, Legal services has the highest percentage of Output going toward Employee Compensation and anyone that has paid legal fees understands why this is the case. Independent artists, writers, and performers have the highest percentage going towards Proprietor Income. Of these five Industries, artists are the most likely to be self-employed.

Fruit farming also has a very tiny percentage in TOPI (likely due to subsidies). Fruit farming and Legal services both have higher relative percentages of their Output going to OPI.

So, as you can see, each Industry in IMPLAN has a unique Output equation. Each Region will also have a different Output equation for each Industry, so you can not only compare Industries in the same Region, but you can also compare how the Output equation differs for a single Industry in multiple regions.

Gross Domestic Product (GDP)

The market value of the goods and services produced by labor and property located within the borders of the United States. Since 1991, GDP is the featured measure of U.S. production. (BEA)

In IMPLAN, Value Added is a measure of the contribution to GDP made by an individual producer, Industry, or Sector.

Regional GDP

Regional GDP is the market value of the goods and services produced by labor and property located within the borders of a particular region. It was formerly referred to as Gross Regional Product.

In IMPLAN, Value Added is a measure of the contribution to GDP made by an individual producer, Industry, or Sector made within that geography.

State GDP

State GDP is the market value of the goods and services produced by labor and property located within the borders of a particular state. It was formerly referred to as Gross State Product.

In IMPLAN, Value Added is a measure of the contribution to GDP made by an individual producer, Industry, or Sector made within that state.

Dollar Year & Data Year

INTRODUCTION:

Dollar YearData YearSong of the YearYear of the RatWonder Years. There are a lot of years to keep track of. This article will help you understand at least two of them.

 

DOLLAR YEAR:

Dollar Year is the year represented by the values in your Event.  This is usually (but not always) the same as the year in which your event occurred or is expected to occur. 

 

IMPACTS SCREEN

On the Impacts screen, Dollar Year should be the year of the data you are inputting. 

RESULTS SCREEN

On the Results screen, Dollar Year shows the year of the value of the economic indicators – the year of what you want your results to show.

 

For an example of when Dollar Year on the Impacts screen will not be the year in which you event occurred, suppose you were borrowing a visitor expenditure pattern from a survey that was done in 2015.  But let’s say you want to use this data to estimate visitor spending in 2020. In this case, while the year of your event (that is, the year of the visits) is 2020, those dollars still represent 2015 dollars and must be characterized as such in order to generate correct results. By correctly telling IMPLAN that those values are 2015 values (by setting Dollar Year to 2015 on the Impacts screen), IMPLAN will know to inflate those values to the Data Year to ensure the correct values are applied to the multipliers.   

If you are setting up your event with an employment value instead of a dollar value (only recommended if you do not have a dollar value with which to start the set-up of your Event), Dollar Year should be set to the year in which that employment took place or is expected to take place.

Defining Dollar Year in the Impacts screen correctly is essential to getting accurate Results. On the other hand, how Dollar Year is defined in the Results screen is totally up to you and how you want to report your Results. If we want to report the effect of our 2020 visitors is 2020 dollars, we simply need to ensure the Dollar Year in the Results screen is filtered to 2020. Dollar Year in the Results screen will default to the current year. Remember, dollars can only be summed or compared when in like Dollar Years.

 

DATA YEAR:

Data Year is the year of the dataset that you are utilizing. Currently, IMPLAN has datasets for 2001-2018. We recommend using the Data Year that matches your data, the year your Events took place. If you are modeling something that occurred in the current year or is expected to happen in the future, we recommend using the most current dataset, 2018.

time_series.png

The Regions screen will show you data from 2001-2018 in the 546 Industry Scheme. To access datasets in the 536 Industry Scheme, start your analysis from the Projects screen and click New Project in the upper right.

 

Dollar_Year_Data_Year_-_New_Project.jpg

 

FOR 2012 – 2014 DATA YEARS IN THE 536 INDUSTRY SCHEME

Give your project a name and then under Industry Set choose US – 536 Sectors and Household Set choose Set 2 – 2014 Datasets or earlier.  Once you’ve created the Project you will have access to the datasets from 2012-2014 (in the 536 Industry Scheme) in the drop-down menu at the top of the Regions screen (where you will be automatically redirected).

2012_to_2014.png

 2012_to_2014_dropdown.png

 

FOR 2015 – 2017 DATA YEARS IN THE 536 INDUSTRY SCHEME

Give your project a name and then under Industry Set choose US – 536 Sectors and Household Set choose Set 1 – 2015 Datasets or later. Once you’ve created the Project you will have access to the datasets from 2015-2017 (in the 536 Industry Scheme) in the drop-down menu at the top of the Regions screen (where you will be automatically redirected).

2015_to_2017.png

 2015_to_2017_dropdown.png

FOR 2018 DATA YEAR IN THE 546 INDUSTRY SCHEME

Give your project a name and then under Industry Set choose US – 546 Sectors and Household Set choose Set 1 – 2015 Datasets or later.  This will give you access to the 2018 dataset, which is only available in the 546 Industry Scheme.

2018.png

What are Direct, Indirect, and Induced Impacts?

INTRODUCTION:

So you ran your Industry Event impact and you get to the Results screen. Great!  But have you ever wondered exactly what each of those boxes in your summary results mean? This is the article for you!  

There are nuances with each type of Event you run. This article specifically addresses the  Industry Output, Industry Employment, Industry Employee Compensation, and Industry Proprietor Income Event types.

 

INTERPRETING THE RESULTS:

Let’s walk through an example.  Andrew’s Bootleg, a craft vodka company, went legit in 2019. We modeled his $1.5M in Output on the state of North Carolina. Our results are as follows:

What_are_Direct_Indirect_and_Induced.jpg

 

Now let’s unpack exactly what his sales mean for the North Carolina economy.  We see a total impact of 4.3 jobs, $471,347 in Labor Income, $1.4M in Value Added, and $2.0M in Output. This is the total economic impact from Andrew’s Bootleg; the sum of the Direct, Indirect, and Induced effects. Each of the next sections outlines what each part of this impact actually means.

 

EMPLOYMENT:

What_are_Direct_Indirect_and_Induced_-_Emp.jpg

DIRECT EMPLOYMENT

The 0.95 Direct Employment show that with $1.5M in Direct Output, it looks like Andrew can almost support himself full-time. This figure is the direct number of job years associated with the Output. But remember, jobs in IMPLAN are average annual employment. To switch between IMPLAN jobs and FTE, use the 536 FTE & Employee Compensation Conversion Table (2017). Using this converter, we see that the 0.95 IMPLAN jobs translate to .91 FTE jobs.

INDIRECT EMPLOYMENT

Andrew has to buy things like corn and yeast for his distilling. Because he is able to purchase some of his inputs from within the state, 1.19 jobs are supported in business-to-business transactions with the corn and yeast (and other) suppliers, as well as suppliers of those suppliers in the state.  This Indirect employment represents the number of job years that are supported by business to business transactions as a result of the economic activity generated by the Event.

INDUCED EMPLOYMENT

Andrew himself, and the employees in the businesses supported by Andrew’s operational purchases, spend a lot of their take-home income in North Carolina on things like paying rent and buying groceries. Through this, 2.16 jobs are supported in industries like real estate, health care and restaurants.  Induced employment represents the number of job years that could potentially be supported by household spending as a result of the economic activity generated by the Event.

 

LABOR INCOME:

What_are_Direct_Indirect_and_Induced_-_LI.jpg

DIRECT LABOR INCOME

Andrew pays himself well. The $292,512 in Direct Labor Income is the sum of the Employee Compensation (EC) and Proprietor Income (PI) paid to that one (0.95) employee. Even though EC includes wages and salaries, all benefits (e.g., health, retirement), and payroll taxes, he still takes home quite a bit. To switch between IMPLAN Employee Compensation and Wage & Salary figures, we can again use the 536 FTE & Employee Compensation Conversion Table (2017). Using this converter, we estimate that Andrew will take home $236,276 in wages. Direct Labor Income is the initial income earned by the Direct employees of the Industry specified in the Event.

INDIRECT LABOR INCOME

The $83,289 in Indirect Labor Income is the EC and PI that Andrew’s Bootleg supports in the corn and yeast (and other) suppliers. Indirect Labor Income is the amount of EC and PI that is associated with business-to-business transactions as a result of the economic activity generated by the Event.

INDUCED LABOR INCOME

Because Andrew and the other supported workers are spending their paychecks around the state, there is an Induced Labor Income of $95,546, including both EC and PI. Induced Labor Income is the amount of EC and PI that is associated with household spending as a result of the economic activity generated by the Event.

 

VALUE ADDED:

What_are_Direct_Indirect_and_Induced_-_VA.jpg

DIRECT VALUE ADDED

Value Added is akin to Gross Domestic Product (GDP) or at the North Carolina level, Gross State Product (GSP). Value Added includes the Labor Income dollars, as well as Taxes on Production and Imports (TOPI) and Other Property Income (OPI). Andrew’s Bootleg contributes $1.0M in Direct Value Added.  Remember, this includes the $292,512 in Labor Income, plus TOPI plus OPI.

INDIRECT VALUE ADDED

Through the business-to-business transactions, the company contributes $131,417 to Value Added or GSP. Again, this includes the $83,289 in Indirect Labor Income plus TOPI plus OPI. This is the specific Value Added that is generated  by business to business transactions as a result of the economic activity generated by the Event.

INDUCED VALUE ADDED

Because of the spending of the employee working at Andrew’s Bootleg and the supply chain companies, $175,477 of Value Added is supported.  This includes the $95,546 of Induced Labor Income, plus TOPI plus OPI. This is the specific Value Added that is generated from household spending as a result of the economic activity generated by the Event.

 

OUTPUT:

What_are_Direct_Indirect_and_Induced_-_Output.jpg

DIRECT OUTPUT

Andrew’s Bootleg has a Direct Output of $1.5M.  We know this because that’s what we modeled. Output is equal to Value Added plus Intermediate Expenditures; it is the total value of production. Remember, it includes Value Added (and Value Added includes Labor Income). Output is also the basis for all other calculations in IMPLAN. Total production value or Output, includes unsold production and excludes sold inventory. If Andrew sells all of his vodka produced this year within the year and only sells vodka produced this year, his $1.5M of Direct Output will be equivalent to his 2019 revenue.  

INDIRECT OUTPUT

Because of the business-to-business transactions resulting from local input purchases by Andrew’s Bootleg, $244,801 in Output is supported. Indirect Output represents all of the Output generated because of the Direct business to business spending. This figure includes the $131,417 in Indirect Value Added; and that Value Added then includes the $83,289 in Indirect Labor Income. 

INDUCED OUTPUT

Finally, $304,130 of Induced Output is supported when the employees working at the distillery and their suppliers (and the suppliers of their suppliers) spend their money throughout the economy. Induced Output is the total value that all industries take in as a result of household spending. This figure includes the $175,477 in Induced Value Added; and that Value Added then includes the $95,546 in Induced Labor Income.

 

BOOTLEG BREAKDOWN:

And that’s it! You can use this guide to help you understand the individual effects of your IMPLAN analysis.  I’ll drink to that!

Dollar Year

Dollar Year is the year represented by the values in your Event.  This is usually (but not always) the same as the year in which your event occurred or is expected to occur. 

On the Impacts screen, Dollar Year should be the year of the data you are inputting. 

On the Results screen, Dollar Year should be the year of which you want to report your results.

This should not be confused with the Data Year which is the year of the dataset that you are utilizing. 

 

Data Year