Socioecoomic Impact Analysis

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Socioecoomic Impact Analysis
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Definition

• "consequences to human populations of any public
  or private actions that alter the ways in which
  people live, work, play, relate to one another,
  organize to meet their needs and generally cope
  as members of society. The term also includes
  cultural impacts involving changes to the norms,
  values, and beliefs that guide and rationalize
  their cognition of themselves and their society."
  
• GSA Interorganizational Committee on Guidelines
  and Principles for Social Impact Assessment

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Focus

• Socioeconomic impact analysis (SIA) places major
  emphasis on such economic variables as job
  creation and loss, strains on city services, and
  impacts on the local tax base. These are
  important variables, but they are not the only
  ones that should be analyzed. Economics should be
  one aspect of an SIA, not the only or even the
  dominant aspect.

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Types of Socioeconomic Impacts

• 1. Physical Environment
• 2. Social Environment
• 3. Aesthetic Environment
• 4. Economic - Environment

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Social Environment

• Community facilities and services - location and
  capacity of schools regional parks servicing
  area recreation and cultural facilities police,
  fire, health and social service facilities area
  local public transportation.
• Employment centers and commercial facilities
  servicing area
• Character of community - community life
  population size housing conditions.

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Aesthetic Environment

• On site existence of significant historic,
  archaeological sites or property.
• Scenic areas, views and natural landscape.
• Architectural character of existing buildings.

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Economic - Environment

• Employment and unemployment levels.
• Level and sources of income.
• Economic base of area.

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A plan

• Make a reasonable effort to characterize the ways
  in which people live, work, play, etc. in the
  area(s) where your action may have effects
• identifying and involve the communities,
  neighborhoods, and other human populations that
  may be affected
• Determine what norms, values, and beliefs may be
  important to them.
• Assess what your action may do to these variables
  and what reactions there might be

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Then

• Predict responses to the impacts
• Try to imagine unintended consequences
• Consider and recommend alternatives
• Develop monitoring process
• Develop possible mitigation plans

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Typical areas of background analysis

• study of data on the proposed action itself
• previous experience with similar actions
• census, tax, real estate, and other records, and
  field research including interviews, group
  meetings, and surveys of the population.
• surveys of the population

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Questions which should be answered in the impact
results

• how diverse was public involvement?
• What are the most significant social, cultural,
  and economic impacts?
• What was the basic method used?
• What simplifying assumptions were made.
• who wins, and who loses, in the case of each
  alternative.
• Are there differences by income, racial or other
  patterns?
• What data was used and where did it come from?
• What data was unavailable and how important was
  it?
• Who is responsible for the study
• What alternatives are there?

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• What are the impacts of the alternatives?
• What is the monitoring process and who is
  responsible for it?
• What are the mitigation plans to reduce negative
  impacts?

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Methods available for the economic impact portion

• Econometric Models
• Input-Output
• Economic Base

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Economic Base Model

• The economic base technique is based on the
  assumption that the local economy can be divided
  into two very general sectors a) basic (or
  non-local) sector and b) non-basic (or local)
  sector.
• Economic base theory asserts that the means of
  strengthening and growing the local economy is to
  develop and enhance the basic sector.
• The basic sector is therefore identified as the
  "engine" of the local economy and called as the
  economic base of the local economy.

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Basic and Non-basic Sectors

• Basic is production for export outside the region
• Non-Basic is production of goods and services for
  consumption inside the region
• Population Dependent or Residentiary
• Total Economy Basic Non-Basic

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Basic Sector

• Basic sector is made up of local businesses
  (firms) that are entirely dependent upon external
  factors.
• Local resource-oriented firms (like logging or
  mining) and manufacturing are usually considered
  to be basic sector firms because their fortunes
  depend largely upon non-local factors and they
  usually export their goods.

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Basic Industries (normally)

• Agriculture
• Mining
• Tourism (with many caveats)
• Federal government
• Manufacturing (partly)

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Non-basic Sector

• The non-basic sector is composed of those firms
  that depend largely upon local business
  conditions.
• For example, a local grocery store sells its
  goods to local households, businesses, and
  individuals.
• Almost all local services are identified as
  non-basic because they depend almost entirely on
  local factors.

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Non-basic Industries

• Retail,
• Commercial banking,
• Local government
• Local public schools
• Services

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Base Multiplier

• An injection (export sales) increases income in
  the area by an amount greater than the sale.
• The method for estimating the impact of the basic
  sector upon the local economy is the base
  multiplier, which is the ratio of the total
  employment in year t to the basic sector
  employment in that year.
• It can also be defined as the employment
  multiplier that estimates the impact of local
  basic sector employment on overall employment
  growth.

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Use of Multiplier

• Estimates and projections of the base multiplier
  allow analysts to calculate impacts.
• For example - if the basic multiplier for an area
  is two, this means that for every new job in the
  basic sector there will be an additional job
  created in the non-basic sector.

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Economic Base Analysis Techniques

• Economic base theory assumes that all local
  economic activities can be identified as basic or
  non-basic.
• Firms that sell to both local and an export
  market must, therefore, be assigned to one of
  these sectors or some means of apportioning their
  employment to each sector must be employed.

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Economic Base Analysis Techniques

• Means of assigning firms to basic and non-basic
  sectors
• Survey
• Assumption or assignment
• Location quotient
• Minimum requirements
• Differential multipliers multiple regression
  analysis

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The Survey Method

• This is the most straightforward method, which is
  simply to ask businesses in the local area to
  specify how much of their revenues come from
  basic activities and to use their responses to
  accurately divide local business activities into
  basic and non-basic components.
• In practice, however, this is seldom done because
  it is the most expensive and time-consuming
  approach.

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The Assumption Technique

• The assumption technique is the simplest and most
  easily performed economic base analysis
  technique.
• Since the goal is to allocate all local
  employment to basic or non-basic sectors, this
  technique literally "assumes" that certain
  industries are inherently basic sector jobs and
  others are non-basic sector jobs.

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The Assumption Technique

• An industry may be assigned to basic or non-basic
  by assumption
• Mining is often assigned 100 to basic
• Local public schools are often assigned 100 to
  non-basic
• Most industries are both

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The Assumption Technique
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The Location Quotient Technique

• The location quotient technique determines the
  level of basic sector employment by comparing the
  local economy to the economy of a larger
  geographic unit like state or the entire nation,
  in the process attempting to identify
  specializations in the local economy.
• The location quotient is the most commonly
  utilized economic base analysis method.

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Location Quotient

• The location quotient is a measure of an
  industry's concentration in an area relative to a
  reference area, which is generally the rest of
  the nation. It compares an industry's share of
  local employment with its share of national
  employment.

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The Logic of Location Quotient

• If a location quotient equals to 1 then the
  industry's share of local employees is the same
  as the industry's share nationally.
• A location quotient greater than 1 means the
  industry employs a greater share of the local
  workforce than it does nationally, produces more
  goods and services than are consumed locally,
  which are exported.
• A location quotient less than 1 implies that the
  industry's share of local employment is smaller
  than its share of national employment.

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Location Quotient Example
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Change in Location Quotient

• Large location quotient that is declining,
• Large location quotient that is increasing,
• Small location quotient that is declining,
• Small location quotient that is increasing.

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The Location Quotient Technique

• Location quotients are calculated for all
  industries to determine whether or not the local
  economy has a greater share of each industry than
  expected when compared to a reference economy.
• If an industry has a greater share than expected
  of a given industry, then that "extra" industry
  employment is assumed to be basic because those
  jobs are above what a local economy should have
  to serve local needs.

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Derivation of LQ-based Formulation
Dividing by and rearranging terms
Another way to estimate basic employment in
industry i in region r is
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The Location Quotient Technique
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The Minimum Requirements

• The minimum requirements technique compares local
  conditions with those of a sample of similarly
  sized regions for each industry.
• It assumes that the minimum shares region has
  just enough employment to satisfy local demand
  for that industry's goods and services.
• It follows that all other regions will have some
  basic sector employment because their share in
  that industry is greater than that in the
  "minimum shares region".

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The Key Steps of Minimum Requirements

• Identify several similarly sized region for
  comparison
• Identify a "minimum shares region" for each
  industry to determine the necessary level of
  non-basic employment for each industry for these
  regions
• Calculate basic sector employment from this
  minimum share.

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Minimum Requirements Example
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Minimum Requirements Example
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Caution with Minimum Requirements

• Very specific selection criteria for comparison
  areas should be identified and a large enough
  sample of comparison areas should be used. If
  over a certain number of cities or regions are
  included in the selected set, all regions will be
  exporting and none may be importing.
• The level of aggregation of the data is
  important. If the data used are defined in a fine
  level of detail, this may reduce local needs to
  near zero and make almost all production for
  export.

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Differential Multipliers Multiple Regression
Analysis

• This approach, which is much less known and used
  in estimating basic sector employment and
  multipliers, is to fit a multiple regression
  equation to regional data.
• E c b1 X1 b2 X2 b3 X3,..... bn Xn.
• where E represents employment, c is a constant,
  and the X terms are export employment in
  industries, the multipliers are 1 bi for each
  sector.

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Economic Base Projection Techniques

• Once the local economy has been understood in
  more depth, it is necessary to look toward the
  future. Is it possible to make projections about
  the local economy?
• Constant-share projection technique in this
  technique it is assumed that the local economy
  will have a constant share of region's activity
  for individual industries into the future.
• Shift-share projection technique in this
  technique it is assumed that the share of local
  economy will change and it will be necessary to
  add a "shift" factor to the equation in an
  attempt to account for the movement of jobs into
  or out of the local economy due to factors
  affecting the local economy.

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Assumptions (Shortcomings) of Models

• The regional technology is similar to the
  reference area (nation),
• Regional labor is as productive as its national
  counterparts,
• Regional demand patterns are similar to national
  averages,
• There is no international trade or cross-hauling.

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Productivity Adjustment

• If local industry is more productive, less labor
  is required to produce each unit of output.
• If the local industry is more productive than
  that of the nation, the degree of specialization
  in the industry is understated.

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Consumption Adjustment

• If local area consumes a greater amount of the
  output of the industry per employee of the
  industry, the exports are overstated.
• Replacing total employment ratio with population
  ratio or personal income ratio may partially
  address this problem.

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National Export Adjustment

• This location quotient approach assumes a closed
  economy - no national exports of products.
• If the nation is a net exporter in industry I
• The method overstates the local areas
  consumption of the product of industry i and.
• The method understates the local areas basic
  employment in the industry.

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Cross-hauling Adjustment

• It is assumed that there is no importing of
  products from a basic industry.
• Cross-hauling (the importing of products for
  local consumption in an export industry) leads
  to
• An overstatement of the local areas consumption
  of the product of industry i and.
• An underestimate of the local areas basic
  employment in the industry.

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Input-Output Models

• To Examine
• Inter-Industry Structure

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Input - Output Analysis

• Wassily Leontief created the model.
• He first published it in 1965.
• He received a Nobel Prize in 1973 for this work.
• A review of his work is in the March 1999 Survey
  of Current Business.

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Input Output Models

• Capture inter-industry transactions
• Industries use the products of other industries
  to produce their own products.
• For example - automobile producers use steel,
  glass, rubber, and plastic products to produce
  automobiles.
• Outputs from one industry become inputs to
  another.
• When you buy a car, you affect the demand for
  glass, plastic, steel, etc.

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Basic Input-Output Logic
Automobile Factory
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From the Tire Producers Perspective
FINAL DEMAND FOR TIRES
Tire Factory
INTER- MEDIATE DEMAND FOR TIRES
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Simplified Circular Flow View of The Economy
Businesses
Businesses purchase from other businesses to
produce their own goods / services. This is
intermediate demand or xij (output of industry
i sold to industry j)
Households sell labor other inputs to business
as inputs to production
Households buy the output of business final
demand or Yi
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Demand For Industry i
xi output of industry i
xij output of industry i sold to industry j
Yi output of industry i sold to final demand
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Interindustry Demand
xj output of industry j xij output of
industry i sold to industry j aij input output
coefficient (0lt aij lt1) This is industry js
demand for industry is product. It is directly
proportionate to the output of industry j.
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Total Demand
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Three Product Case
Rearrange
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Matrix Form
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The A-Matrix
OUTPUTS
INPUTS
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Rearrange Terms
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n x 1
n x n
n x 1
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Y is final Demand X is total Demand
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Impact Analysis
Impact of a change in the final demand on
production
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Key assumptions

• Constant returns to scale
• No supply constraints
• Fixed commodity input structure
• Homogenous sector output
• Industry technology assumption

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Final Step

• Impact analysis

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IMPLAN

• Software and databases that are used to construct
  regional economic accounts of any zip code,
  state, or county in the U.S. and several U.S.
  territories.