Susquehanna-Roseland FINAL REPORT

Economic Impacts on New Jersey of Upgrading PSE&Gs Susquehanna-Roseland Transmission System
Dr. Joseph J. Seneca Dr. Michael L. Lahr Dr. James W. Hughes Will Irving
May 2009
Table of Contents
EXECUTIVE SUMMARY ........................................................................................................ i INTRODUCTION ................................................................................................................... 1 Project Background...................................................................................................... 1 Analytical Approach..................................................................................................... 1 Organization of the Report .......................................................................................... 2 ECONOMIC IMPACT ANALYSIS .......................................................................................... 3 Expenditures Considered in the Analysis................................................................... 3 R/ECON Input-Output Model................................................................................. 3 Transmission Line and Towers (Monopole Structures)............................................ 4 Expenditure Assumptions ............................................................................................ 4 Economic Impacts ....................................................................................................... 6 Transmission Line and Towers (Lattice Structures)............................................... 11 Expenditure Assumptions .......................................................................................... 11 Economic Impacts ..................................................................................................... 13 East Hanover/Roseland Switching Station ............................................................... 17 Expenditure Assumptions .......................................................................................... 17 Economic Impacts ..................................................................................................... 18 Jefferson Switching Station........................................................................................ 22 Expenditure Assumptions .......................................................................................... 22 Economic Impacts ..................................................................................................... 23 Combined Economic Impacts (Monopole Towers).................................................. 27 Combined Economic Impacts (Lattice Towers)....................................................... 30 CONCLUSION .................................................................................................................... 33 APPENDIX A: ECONOMIC AND DEMOGRAPHIC PROFILES AND DYNAMICS .................... 34 APPENDIX B: INPUT-OUTPUT ANALYSIS ......................................................................... 53 APPENDIX C: ECONOMIC IMPACTS OF COMBINED LATTICE-MONOPOLE SCENARIO... 74
EXECUTIVE SUMMARY This report presents the estimated economic impacts in New Jersey of the approximately $649 - $750 million in expenditures required for construction of the New Jersey portion of the proposed upgrade to PSE&Gs Susquehanna-Roseland Transmission Network. The economic impacts estimated are only those associated with the expenditures to be made on construction of the network upgrade, and do not reflect any of the potential ongoing economic impacts of the increased transmission capacity once the upgrade is complete. The proposed upgrade would add 500 kV of additional power transmission capacity to the existing 230 kV network. This analysis examines the economic impacts of the construction of two switching stations and of the transmission line and towers required to accommodate the increased transmission capacity. Alternative scenarios are presented to reflect the two different types of tower structures that may be used. If all 249 towers were lattice structures, the estimated total expenditures for the project would be approximately $649 million, whereas if all the towers were monopole structures, the estimated expenditures would total $750 million. (Appendix C at the end of the report provides the aggregate expenditures and economic impacts for a 50%-50% split between the two types of towers.) The estimated economic impacts include both direct impacts and indirect impacts. Direct impacts are those directly associated with the project expenditures, such as the construction employment required for the project and purchases of material to be used in construction of the switching station and towers. Indirect impacts are those generated by the multiplier effects of the initial expenditures, as the salaries paid to workers and the business revenue generated by the expenditures made on materials in New Jersey are then re-spent throughout the economy, generating further economic activity and impacts in the form of employment, gross domestic product, compensation (income) and tax revenues. Based on the two expenditure scenarios associated with the different types of towers and on the associated range of project expenditures to be made in New Jersey, the following economic impacts were estimated:
Employment. It is estimated that construction of the switching stations and transmission line and towers will generate from 3,415 to 3,931 total job-years (one job-year is equal to one job lasting one year). This includes from 2,258 to 2,646 direct job-years, including construction employment, as well as design work, consulting services and other
Gross Domestic Product. It is estimated that the construction of the upgrade will generate between $396.1 and $428.1 million in gross domestic product for New Jersey.
Compensation. It is estimated that the total compensation generated by both the direct and the indirect employment generated by the construction of the upgraded network will be between $307.5 million and $333.8 million.
State Tax Revenues. It is estimated that the construction phase of the project will generate between $8 and $9 million in state taxes.
Local Tax Revenues. It is estimated that the construction phase of the project will generate between $7.9 and $9.9 million in local taxes.
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INTRODUCTION This report presents the findings of an economic impact analysis of the approximately $649-$750 million in expenditures required for construction of the New Jersey portion of the proposed upgrade to PSE&Gs Susquehanna-Roseland Transmission Network.
Project Background PJM Interconnection, the regional authority overseeing electricity transmission in all or part of 13 states, including New Jersey and Pennsylvania, has determined that the existing 230 kV capacity of the transmission line running from Susquehanna, Pennsylvania to Roseland, New Jersey is not sufficient to accommodate projected demand growth in coming years. As a result, PJM has directed PSE&G of New Jersey and PPL of Pennsylvania to upgrade the network by adding a new 500 kV capacity transmission line to the existing network. The upgrade will require not only the addition of the new power line itself, but also construction of new towers to accommodate both the new 500 kV, as well as the existing 230 kV line, and the construction of two new switching stations along the transmission route, one in Jefferson, New Jersey and one near the lines terminus in Roseland, New Jersey. This economic impact analysis covers the estimated $649-$750 million of expenditures required for construction of the New Jersey portion of the new line, including the two switching stations to be built in New Jersey.
Analytical Approach The economic impacts of the construction of the new transmission line in New Jersey are estimated using the R/ECON Input-Output model developed and maintained by the Center for Urban Policy Research at Rutgers Universitys Edward J. Bloustein School of Planning and Public Policy. The model provides estimates of a broad and detailed range of economic impacts, including employment, gross domestic product, income and tax revenues. A detailed description of the model and its methodology is provided with the analysis.
The construction of each component of the new transmission infrastructure is analyzed individually. That is, the transmission line and towers are analyzed separately, as are each of the two switching stations. In addition, two separate analyses of the transmission line and tower infrastructure are provided. Because the existing towers currently carrying the 230 kV line do not meet the specifications required to handle two lines of the given capacities discussed, an additional 249 new towers are required in New Jersey. Some of these towers will be monopole structures (i.e., a single pole with branches holding the transmission lines), while others will be wider lattice-type structures. Because each of these tower types requires a different mix of material and labor inputs, two separate analyses are provided, one assuming that all towers are monopole, and the other assuming that all towers are lattice.
Organization of the Report The report begins with a brief overview of the expenditures considered in the analysis. This is followed by a description of the R/ECON Input-Output Model and its application. Next, the analyses of the separate components of the transmission network are presented. These analyses consist of the all-monopole transmission line and towers, the all-lattice transmission line and towers, the Jefferson Switching Station, and the Roseland/East Hanover Switching Station. Each analysis consists of a review of the input expenditures used in the R/ECON Input-Output Model and a detailed presentation of the estimated economic impacts of those expenditures. A final section presents the combined impacts of the total investment in New Jersey for both the allmonopole and all-lattice tower scenarios. This is followed by a brief summary and conclusions. An appendix presents a brief economic profile of the areas in New Jersey where the new transmission line would be built.
ECONOMIC IMPACT ANALYSIS
Expenditures Considered in the Analysis Because of the highly specialized nature of the power transmission materials and equipment needed for construction of the upgraded network, almost all the required material will be purchased outside of New Jersey. As such, the majority of the impacts measured in this analysis are generated via the employment of construction workers and the purchase of specialized services associated with the project. The majority of these workers and services are expected to come from New Jersey. Detailed explanations of the specific expenditures made in New Jersey are provided for each component of the analysis.
R/ECON Input-Output Model The R/ECON Input-Output Model at the Center for Urban Policy Research at the Bloustein School of Planning and Public Policy was used to measure the economic impacts of the proposed expenditures for the Susquehanna-Roseland network upgrade. The R/ECON model consists of 515 individual sectors of the New Jersey economy and measures the effect of changes in expenditures in one industry on economic activity in all other industries. Thus, the expenditures made on labor, materials, legal and design services, and other inputs for the transmission line have both direct economic effects as those expenditures become incomes and revenues for workers and businesses, and subsequent indirect effects as those workers and businesses, in turn, spend those dollars on other things consumer goods, business investment expenditures, which, in turn, become income for other workers and businesses. This income gets further spent, and so on. In summary, the R/ECON Input-Output model estimates both the direct economic effects of the initial expenditures (in terms of jobs and income) and the indirect (or multiplier) effects (in additional jobs and income) of the subsequent economic activity that occurs following the initial expenditures. The model also estimates the gross domestic product for New Jersey and the tax revenues generated by the combined direct and indirect new economic activity caused by the initial spending.
Transmission Line and Towers (Monopole Structures) Expenditure Assumptions This estimate of the economic impacts for construction of the transmission line and towers for the Susquehanna-Roseland network assumes that all towers are monopole structures.1 In order to reflect the full scope of the expenditures included in PSE&Gs cost estimates for construction of the transmission line and towers portion of the upgraded network, it was necessary to make several assumptions and adjustments to the various expenditure items included in PSE&Gs initial cost estimates. Following is an explanation of this process. PSE&Gs estimated total cost for construction of the transmission line and monopole towers is $497.9 million. The base cost of construction estimated by PSE&G for the all-monopole transmission line and towers, including labor, materials, third party professional services and PSE&G support, was $380.4 million, with an additional 11% in estimated inflation costs (escalation) and an additional 20% in contingency. In order to incorporate all potential expenditures into the analysis, the escalation (11%) and contingency (20%) estimates were distributed proportionately between the costs of labor and material and the other costs (professional services, PSE&G support, etc.) according to their respective shares of the $380.4 million base cost. In addition, the OH&P on labor (25% of base labor and material costs) and material (10% of base labor and material costs), the Scope Modifications on labor (15% of base labor and material costs) and material (15% of base
Scenarios assuming all monopole and all lattice tower structures are presented in the body of the report. A spreadsheet indicating the aggregate impacts of using 50% of each type of tower structure is presented in Appendix C.
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labor and material costs), and the Inefficiencies on labor (18% of base labor and material costs) were also distributed proportionately across the labor and material components of the base construction cost structure. The separate expenditures on labor and materials for the laying of tower foundations were not broken out in PSE&Gs cost specifications. For purposes of the analysis, 65% of the $59.4 million in expenditures on foundations was allocated to labor, and the remaining 35% to material. These various adjustments resulted in total allocations of $247.8 million for transmission line construction labor and $171.9 million for material. All direct construction labor was assumed to come from North Jersey. All specialty materials (conductors, insulators, field wire, tower structures, etc.) are assumed to be purchased from outside of New Jersey. As such, of the material expenditures, only the concrete and other material used for construction of the tower foundations was incorporated into the impact estimate. Of the Other Costs (i.e., professional services, PSE&G support, etc.) associated with construction of the transmission line, the costs for consulting services provided by Louis Berger, the cost of soil borings, the costs of appraisals, title and mapping costs, and the costs of PSE&G legal fees were incorporated into the economic impact estimate. These expenditures totaled approximately $8 million. In addition, PSE&Gs support costs were allocated according to the shares reflected in the itemized cost breakdowns of PSE&G support in the cost estimates for the two switching stations. All of these costs were incorporated into the economic impact estimate, with the exception of
Licensing/Permits/Bonds/Builders Risk. Of this last category, approximately $3.8 million in builders risk insurance was incorporated into the expenditure estimates. As a result of these assumptions and adjustments, $337.5 million of the total $497.9 million estimate for construction of the transmission line and towers (or 67.8%) was allocated to expenditures on labor, material and services in New Jersey.
Economic Impacts Based on the R/Econ Input-Output model, Table 1 lists the estimates of the economic impacts of the expenditures made in New Jersey for construction of the Transmission Line and Towers Table 1 Indicator Employment (job-years) GDP ($ 000) Compensation ($ 000) State Tax Revenue ($000) Local Tax Revenue ($000) Direct 1,600 256,252 206,970 Indirect 1,000 63,825 42,781 Total 2,600 320,078 249,751 6,943 5,332 Multiplier 1.62 1.25 1.21 -
As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor, material and services of approximately $337.5 million. They do not reflect the impacts of the remaining $160.4 million in transmission line-related expenditures to be made outside of New Jersey. Explanatory notes for each indicator follow Table 2.
Table 2 lists estimates of the total employment generated in New Jersey by the Transmission Line expenditures by business sector.
Table 2 Sector Natural Resources & Mining Construction Manufacturing Transportation & Public Utilities Wholesale Trade Retail Trade Financial Activities Services Government Total Indicator Explanations: Employment (job-years) 16 1,185 306 83 101 276 159 472 2 2,600
Employment Employment impacts are measured in job-years (i.e., one job lasting one year). The all-monopole transmission line and towers component of the project is estimated to generate a total of 2,600 jobs in New Jersey. Based on salary and benefit estimates for the employment required to upgrade the transmission line, approximately 1,185 direct construction jobs are estimated to be created. Note also from Table 1 that the direct employment associated with the construction of the transmission line (1,600 jobs) exceeds the total construction employment (1,185 jobs) listed in Table 2. The additional direct employment (415 jobs) associated with the project is generated in the New Jersey-based wholesale and manufacturing sectors that produce and distribute the non-specialized materials used in laying foundations, building access roads, etc., as well as the various PSE&G internal functions associated with project management and support, and outside services (e.g., legal) provided by New Jersey firms. Significant additional indirect employment (1,000 jobs, Table 1) is generated across various sectors, including services, financial activities, and retail trade.
GDP Note that the total GDP generated in the state ($320.1 million, Table 1) is close to the total expenditures estimated for New Jersey. By explicitly excluding those material expenditures that are to be made outside of New Jersey, the model minimizes the economic leakage that would normally be reflected were they to have been included. That is, were the excluded $160.4 million in expenditures to be included, the relative proportion of impacts leaked from the New Jersey economy would be higher. This leakage is reflected in the per-million dollar impacts reported below.
Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The transmission line and monopole towers component is estimated to generate $249.8 million in compensation in New Jersey.
State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales associated with the economic output generated by the project. The transmission line and monopole towers component is estimated to generate $6.9 million in state tax revenues.
Local Tax Revenues The estimates of the increase in local tax revenues are for the entire state. The increase represents a long-run estimate of property tax revenues generated by payment of residential and commercial property taxes from the personal and business incomes generated by the project and/or resulting from improvements
made to property caused by the increased economic activity generated by the project.
Local tax revenues increase because the additional economic activity from the transmission line project generates income for workers and revenues for business2. The increases in personal incomes and in business revenues are, in part, used to pay property taxes and to improve properties (both residential and commercial). Thus, households benefitting from the additional jobs and resulting incomes acquire and/or improve residential properties, and are able to pay rents and mortgages and the associated property taxes. Similarly, business income and profits also increase as a direct result of higher sales and output caused by the project. Businesses subsequently acquire and/or improve their properties.
Historical New Jersey fiscal and economic data are used to measure the relationship between business revenues and the amount of commercial property tax revenues collected, and between household incomes and the amount of residential property tax revenues collected.3 Given the increases in both household income and the business revenues caused by the expenditures made on the transmission line, the R/ECON Input-Output Model invokes the known statistical relation of local property tax revenues to both household income and business revenues in order to estimate the addition to local tax revenues attributable to the transmission line project.
It is important to note that this additional tax revenue occurs over a period of time. It is not an immediately generated impact. The economic sequence is as follows. The additions/improvements to residential and commercial property financed by the higher household incomes and higher business revenues are, in time, captured by higher property assessments, which, in turn, generate higher local tax
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For businesses, the revenue increase is measured in terms of value-added, and it is the change in valueadded in the business sector that is the basis for the estimated change in property tax revenues. 3 For the entire state, approximately 76% of total local property tax revenues are attributable to residential property; with approximately 21% derived primarily from commercial and industrial property.
revenues. There are time lags between the increase in incomes and revenues, the improvements to property, and the increase in assessed values. Thus, the local tax revenue impacts estimated in this analysis are the outcome of a long-run adjustment process. This process occurs over the entire state based on the geographical dispersal within New Jersey of the households and businesses that benefit from the expenditures on the transmission line.
Table 3 provides the per-million dollar spending impacts for the transmission line. Note that these impacts are calculated per million dollars of total transmission line expenditures that is, on the basis of the $497.9 million to be spent both inside and outside of New Jersey. Table 3 Indicator Employment (job-years) GDP Income State Tax Revenues Local Tax Revenues Impacts per $1 million of total project expenditures 5.2 $642,864 $501,616 $13,944 $10,709
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Transmission Line and Towers (Lattice Structures) Expenditure Assumptions This estimate of the economic impacts for construction of the transmission line and towers for the Susquehanna-Roseland network assumes that all towers are lattice structures. In order to reflect the full scope of the expenditures included in PSE&Gs cost estimates for construction of the transmission line and towers portion of the upgraded network, it was necessary to make several assumptions and adjustments to the various expenditure items included in PSE&Gs initial cost estimates. Following is an explanation of this process. PSE&Gs estimated total cost for construction of the transmission line and lattice towers is $397.1 million. The base cost of construction estimated by PSE&G for the all-lattice transmission line and towers, including labor, materials, third party professional services and PSE&G support, was $303.2 million, with an additional 11% in estimated inflation costs (escalation) and an additional 20% in contingency. In order to incorporate all potential expenditures into the analysis, the escalation (11%) and contingency (20%) estimates were distributed proportionately between the costs of labor and material and the other costs (professional services, PSE&G support, etc.) according to their respective shares of the $303.2 million base cost. In addition, the OH&P on labor (25% of base labor and material costs) and material (10% of base labor and material costs), the Scope Modifications on labor (15% of base labor and material costs) and material (15% of base labor and material costs), and the Inefficiencies on labor (18% of base labor and material costs) were also distributed proportionately across the labor and material components of the base construction cost structure.
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The separate expenditures on labor and materials for the laying of tower foundations were not disaggregated in PSE&Gs cost specifications. For purposes of the analysis, 65% of the $20.2 million in expenditures on foundations was allocated to labor, and the remaining 35% to material. These various adjustments resulted in total allocations of $239.2 million for transmission line construction labor and $74.4 million for material. All direct construction labor was assumed to come from North Jersey. All specialty materials (conductors, insulators, field wire, tower structures, etc.) are assumed to be purchased from outside of New Jersey. As such, of the material expenditures, only the concrete and other material used for construction of the tower foundations was incorporated into the impact estimate. Of the Other Costs (i.e., professional services, PSE&G support, etc.) associated with construction of the transmission line, the costs for consulting services provided by Louis Berger, the cost of soil borings, the costs of appraisals, title and mapping costs, and the costs of PSE&G legal fees were incorporated into the economic impact estimate. These expenditures totaled approximately $8.1 million. In addition, PSE&Gs support costs were allocated according to the shares reflected in the itemized cost breakdowns of PSE&G support in the cost estimates for the two switching stations. All of these costs were incorporated into the economic impact estimate, with the exception of Licensing/Permits/Bonds/Builders Risk. Of this last category, approximately $3.1 million in builders risk insurance was incorporated into the expenditure estimates.
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As a result of these assumptions and adjustments, $292.3 million of the total $397.1 million estimate for construction of the transmission line and towers (or 73.6%) was allocated to expenditures on labor, material and services in New Jersey.
Economic Impacts Based on the R/ECON Input-Output model, Table 1 lists the estimates of the economic impacts of the expenditures made in New Jersey for construction of the alllattice transmission line and towers Table 1 Indicator Employment (job-years) GDP ($ 000) Compensation ($ 000) State Tax Revenue ($000) Local Tax Revenue ($000) Direct 1,212 233,318 186,827 Indirect 872 54,787 36,650 Total 2,084 288,104 223,477 5,932 7,329 Multiplier 1.72 1.24 1.20 -
As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor, material and services of approximately $292.3 million. They do not reflect the impacts of the remaining $104.8 million in lattice-tower transmission linerelated expenditures to be made outside of New Jersey. Explanatory notes for each indicator follow Table 2.
Table 2 lists estimates of the total employment generated in New Jersey by the all-lattice structure transmission line expenditures by business sector.
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Table 2 Sector Natural Resources & Mining Construction Manufacturing Transportation & Public Utilities Wholesale Trade Retail Trade Financial Activities Services Government Total Employment (job-years) 7 996 155 72 53 249 140 412 0 2,084
Indicator Explanations:
Employment Employment impacts are measured in job-years (i.e., one job lasting one year). The all-lattice transmission line and towers component of the project is estimated to generate a total of 2,084 jobs in New Jersey. Based on salary and benefit estimates for the employment required to upgrade the transmission line, approximately 996 direct construction jobs are estimated to be created. Note also from Table 1 that the direct employment associated with the construction of the transmission line (1,212 jobs) exceeds the total construction employment (996 jobs) listed in Table 2. The additional direct employment (216 jobs) associated with the project is generated in the New Jersey-based wholesale and manufacturing sectors that produce and distribute the non-specialized materials used in laying foundations, building access roads, etc., as well as the various PSE&G internal functions associated with project management and support, and outside services (e.g., legal) provided by New Jersey firms. Significant additional indirect employment (872 jobs, Table 1) is generated across various sectors, including services, financial activities, and retail trade.
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GDP Note that the total GDP generated in the state ($288.1 million, Table 1) is close to the total expenditures estimated for New Jersey. By explicitly excluding those material expenditures that are to be made outside of New Jersey, the model minimizes the economic leakage that would normally be reflected were they to have been included. That is, were the excluded $104.8 million in expenditures to be included, the relative proportion of impacts leaked from the New Jersey economy would be higher. It is important to note that this leakage is reflected in the per-million dollar impacts reported below.
Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The transmission line and lattice towers component is estimated to generate $223.5 million in compensation in New Jersey.
State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales associated with the economic output generated by the project. The transmission line and lattice towers component is estimated to generate $5.9 million in state tax revenues.
Local Tax Revenues Local tax revenues are comprised of increased property tax revenues resulting from improvements associated with the increased business activity generated by the project. The transmission line and lattice towers component is estimated to generate $7.3 million in local tax revenues.
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Table 3 provides the per-million dollar spending impacts for the transmission line. Note that these impacts are calculated per million dollars of total transmission line expenditures that is, on the basis of the $373.2 million to be spent both inside and outside of New Jersey. Table 3 Indicator Employment (job-years) GDP Income State Tax Revenues Local Tax Revenues Impacts per $1 million of total project expenditures 5.2 $725,533 $562,797 $14,940 $18,457
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East Hanover/Roseland Switching Station Expenditure Assumptions In order to reflect the full range of expenditures incorporated into PSE&Gs cost estimates for construction of the East Hanover/Roseland switching station portion of the upgraded Susquehanna-Roseland network, the following assumptions and adjustments were made to the various construction expenditures. The total cost of construction for the East Hanover/Roseland switching station was estimated at $166.6 million, including $125.6 million in base costs and $41 million in contingency. The contingency and escalation (32.6%) estimates were distributed proportionately between the contractors labor and material costs, the professional services costs, and the PSE&G support costs according to their respective shares of the $125.6 million base cost. Expenditures on transformers, circuit breakers, disconnect switches, and other electronic equipment were assumed to be made outside of New Jersey. All direct construction labor was assumed to come from North Jersey. As a result of these assumptions and adjustments, $57.1 million of the total $166.6 million estimate for construction (or 34.3%) of the East Hanover/Roseland Switching Station, was allocated to expenditures on labor, material and services in New Jersey.
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Economic Impacts Table 1 shows the economic impacts of the East Hanover/Roseland switching station expenditures described above. Table 1 Indicator Employment (job-years) GDP ($ 000) Compensation ($ 000) State Tax Revenue ($000) Local Tax Revenue ($000) Direct 462 42,267 33,822 Indirect 130 8,847 5,954 Total 592 51,115 39,776 968 1,200 Multiplier 1.28 1.21 1.18 -
As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor and material of approximately $57.1 million. They do not reflect the impacts of the remaining $109.5million in expenditures to be made outside of New Jersey. Explanatory notes regarding each indicator follow Table 2.
Table 2 shows the total employment generated in New Jersey by the East Hanover/ Roseland switching station expenditures by business sector.
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Table 2 Sector Natural Resources & Mining Construction Manufacturing Transportation & Public Utilities Wholesale Trade Retail Trade Financial Activities Services Government Total Employment Employment impacts are measured in job-years (i.e., one job lasting one year). The East Hanover/Roseland switching station portion of the project is estimated to generate a total of 592 jobs in New Jersey. Based on salary and benefit estimates for the employment required to construct the stations, approximately 411 direct construction jobs are estimated to be created. Note also from Table 1 that the direct employment associated with the construction of the switching station (462 jobs) exceeds the total construction employment (411 jobs) listed in Table 2. The additional direct employment (51 jobs) associated with the project is generated in the New Jersey-based wholesale and manufacturing sectors that produce and distribute the non-specialized materials used in laying foundations, building access roads, etc., as well as the various PSE&G internal functions associated with project management and support, and outside services (e.g., legal) provided by New Jersey firms. Significant additional indirect employment (130 jobs, Table 1) is generated across various sectors, including services, financial activities, and retail trade. Employment (job-years) 1 411 27 12 9 29 23 79 0 592
GDP As with the expenditures on construction of the transmission line, the GDP generated in the state ($51.1 million) is close to the total expenditures estimated for New Jersey due to the exclusion from the model of those material
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expenditures that are to be made outside of New Jersey. The per-million-dollar impacts reported below reflect the impact on New Jersey per million dollars of total expenditures, including those expenditures made outside of the state.
Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The construction of the East Hanover/Roseland switching station is estimated to generate $39.8 million in compensation in New Jersey.
State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales associated with the economic output generated by the project. The construction of the East Hanover/ Roseland switching station is estimated to generate $.968 million in state tax revenues.
Local Tax Revenues Local tax revenues are comprised of increased property tax revenues resulting from improvements associated with the increased business activity generated by the project. The construction of the East Hanover/Roseland switching station is estimated to generate $1.120 million in local tax revenues.
Table 3 provides the per-million-dollar spending impacts for the East Hanover/Roseland switching station. Note that these impacts are calculated per million dollars of total expenditures that is, on the basis of the $166.6 million to be spent both inside and outside of New Jersey.
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Table 3 Indicator Employment (job-years) GDP Compensation State Tax Revenues Local Tax Revenues Impacts per $1 million of total expenditures 3.6 306,785 238,730 5,811 7,202
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Jefferson Switching Station Expenditure Assumptions In order to reflect the full range of expenditures incorporated into PSE&Gs cost estimates for construction of the Jefferson switching station portion of the upgraded Susquehanna-Roseland network, it was necessary to make several assumptions and adjustments to the various expenditure items listed for construction of the station. Following is an explanation of this process. The total cost of construction for the East Hanover/Roseland switching station was estimated at $77 million, including $57.8 million in base costs, $6.1 million in escalation costs and $13.1 million in contingency. The escalation (10.5%) and contingency (22.7%) estimates were distributed proportionately between the contractors labor and material costs. The Professional Services costs and the PSE&G Support costs were distributed according to their respective shares of the $57.8 million base cost. The Scope Assessment and Fees on the labor portion of the contractors costs (34% of base costs) were combined with the labor costs. Expenditures on circuit breakers, disconnect switches, and third party professional services were assumed to be made outside of New Jersey. Of the approximately $6.5 million in bulk material expenditures, 60% was assumed to be electrical material, and 40% civil material, with 90% of the electrical bulk being purchased outside New Jersey. The majority of civil bulk material associated with site work, access roads, foundations, etc., was assumed to be purchased in New Jersey.
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All direct construction labor was assumed to come from North Jersey. As a result of these assumptions and adjustments, $62.1 million of the total $77 million estimate for construction (or 80.5%) of the Jefferson Switching Station was allocated to expenditures on labor, services and material in New Jersey.
Economic Impacts Table 1 shows the economic impacts of the Jefferson Switching Station expenditures described above. Table 1 Indicator Employment (job-years) GDP ($ 000) Compensation ($ 000) State Tax Revenue ($000) Local Tax Revenue ($000) Direct 584 47,145 37,654 Indirect 154 9,784 6,574 Total 739 56,929 44,228 1,080 1,333 Multiplier 1.26 1.21 1.18 -
As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor and material of approximately $62.1 million. They do not reflect the impacts of the remaining $14.9 million in expenditures to be made outside of New Jersey. Explanatory notes regarding each indicator follow Table 2.
Table 2 shows the total employment generated in New Jersey by the Jefferson Switching Station expenditures by business sector.
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Table 2 Sector Natural Resources & Mining Construction Manufacturing Transportation & Public Utilities Wholesale Trade Retail Trade Financial Activities Services Government Total Employment Employment impacts are measured in job-years (i.e., one job lasting one year). The Jefferson Switching Station of the project is estimated to generate a total of 739 jobs in New Jersey. Based on salary and benefit estimates for the employment required to construct the stations, approximately 538 direct construction jobs are estimated to be created. Note also from Table 1 that the direct employment associated with the construction of the Switching Stations (584 jobs) exceeds the total construction employment (538 jobs) listed in Table 2. The additional direct employment (46 jobs) associated with the project is generated in the New Jersey-based wholesale and manufacturing sectors that produce and distribute the non-specialized materials used in laying foundations, building access roads, etc., as well as the various PSE&G internal functions associated with project management and support, and outside services (e.g., legal) provided by New Jersey firms. Significant additional indirect employment (154 jobs, Table 1) is generated across various sectors, including services, financial activities, and retail trade. Employment (job-years) 1 538 26 12 10 47 24 80 0 739
GDP As with the expenditures on construction of the transmission line, the GDP generated in the state ($56.9 million) is close to the total expenditures estimated for New Jersey due to the exclusion from the model of those material
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expenditures that are to be made outside of New Jersey. The per-million-dollar impacts reported below reflect the impact on New Jersey per million dollars of total expenditures, including those expenditures made outside of the state.
Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The construction of the Jefferson Switching Station is estimated to generate $44.2 million in compensation in New Jersey.
State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales associated with the economic output generated by the project. The construction of the Jefferson Switching Station is estimated to generate $1.1 million in state tax revenues.
Local Tax Revenues Local tax revenues are comprised of increased property tax revenues resulting from improvements associated with the increased business activity generated by the project. The construction of the Jefferson Switching Station is estimated to generate $1.3 million in local tax revenues.
Table 3 provides the per-million-dollar spending impacts for the Jefferson Switching Station. Note that these impacts are calculated per million dollars of total transmission line expenditures that is, on the basis of the $77 million to be spent both inside and outside of New Jersey.
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Table 3 Indicator Employment (job-years) GDP Compensation State Tax Revenues Local Tax Revenues Impacts per $1 million of total expenditures 9.6 $739,340 $574,392 $14,022 $17,315
Note that these per-million-dollar impacts are significantly higher than those of the East Hanover and Roseland stations. This is largely due to the fact that $70 million dollars of expenditures on transformers and circuit breakers for the East Hanover and Roseland stations is assumed to be spent out of state, while there are no comparable expenditures for the Jefferson switching station. Thus, there is less economic leakage assumed as a proportion of the total costs of construction.
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Combined Economic Impacts (Monopole Towers) Following are the combined impacts for all components of the project, including the transmission line and towers (assuming monopole towers) and all switching stations. Table 1 shows the aggregate economic impacts of the entire $741.5 million construction project (the total project budget is $750 million when the management reserve is included). The total expenditures estimated to be made in New Jersey are $497.9 million (or 66.1%) Table 1 Indicator Employment (job-years) GDP ($ 000) Compensation ($ 000) State Tax Revenue ($000) Local Tax Revenue ($000) Direct 2,646 345,664 278,446 Indirect 1,284 82,456 55,309 Total 3,931 428,122 333,755 8,991 7,865 Multiplier 1.49 1.24 1.20 -
As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor and material of approximately $456.7 million. They do not reflect the impacts of the remaining $284.8 million in expenditures to be made outside of New Jersey or the $8.5 million management reserve. Explanatory notes regarding each indicator follow Table 2.
Table 2 shows the total employment generated in New Jersey by the total combined project expenditures. Table 2 Sector Natural Resources & Mining Construction Manufacturing Transportation & Public Utilities Wholesale Trade Retail Trade Financial Activities Services Government Total 27 Employment (job-years) 18 2,134 359 107 120 352 206 631 2 3,931
Employment Total employment generated by the project is estimated at 3,931 jobs, with the majority of those jobs occurring in the construction industry (2,143 jobs). Other sectors with large direct and indirect job gains include the aggregate services sector (631 jobs), the retail trade sector (352 jobs), and the manufacturing sector (359 jobs).
GDP The GDP generated in the state ($428.1 million) is close to the total expenditures estimated for New Jersey due to the exclusion from the model of those material expenditures that are to be made outside of New Jersey. The per-million-dollar impacts reported below reflect the impact on New Jersey per million dollars of total expenditures, including those expenditures made outside of the state.
Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The project is estimated to generate $333.8 million in compensation in New Jersey.
State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales taxes associated with the economic output generated by the project. The project is estimated to generate $9 million in state tax revenues.
Local Tax Revenues Local tax revenues are comprised of increased property tax revenues that are generated over time because of property improvements associated with the increased business activity generated by the project. The value of these property
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improvements is, in time, included in assessments and hence in property tax revenues. The project is estimated to generate $7.9 million in local tax revenues.
Table 3 provides the per-million-dollar spending impacts for the full project. Note that these impacts are calculated per million dollars of total expenditures that is, on the basis of the $741.5 million to be spent both inside and outside of New Jersey and including the additional $8.5 million management reserve. Table 3 Indicator Employment (job-years) GDP Compensation State Tax Revenues Local Tax Revenues Impacts per $1 million of total expenditures 5.2 $570,829 $445,007 $11,988 $10,487
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Combined Economic Impacts (Lattice Towers) Following are the combined impacts for all components of the project, including the transmission line and towers (assuming lattice towers) and all switching stations. Table 1 shows the aggregate economic impacts of the entire $640.7 million construction project (the total project budget is $649.2 million when the management reserve is included). The total expenditures estimated to be made in New Jersey are $411.5 million (or 64.2%) Table 1 Indicator Employment (job-years) GDP ($ 000) Compensation ($ 000) State Tax Revenue ($000) Local Tax Revenue ($000) Direct 2,258 322,730 258,303 Indirect 1,156 73,418 49,178 Total 3,415 396,148 307,481 7,980 9,862 Multiplier 1.51 1.23 1.19 -
As noted previously, these impacts are based on estimated in-state expenditures on labor and material of approximately $411.5 million. They do not reflect the impacts of the remaining $229.2 million in expenditures to be made outside of New Jersey. Explanatory notes regarding each indicator follow Table 2.
Table 2 shows the total employment generated in New Jersey by the total combined project expenditures. Table 2 Sector Natural Resources & Mining Construction Manufacturing Transportation & Public Utilities Wholesale Trade Retail Trade Financial Activities Services Government Total Employment (job-years) 9 1,945 208 96 72 325 187 571 0 3,415
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Employment Total employment generated by the project is estimated at 3,415 jobs, with the majority of those generated in the construction industry (1,945 jobs). Other sectors with large direct and indirect job gains include the aggregate services sector (571 jobs), the retail trade sector (325 jobs), and the manufacturing sector (208 jobs).
GDP The GDP generated in the state ($396.1 million) is close to the total expenditures estimated for New Jersey due to the exclusion from the model of those material expenditures that are to be made outside of New Jersey. The per-million-dollar impacts reported below reflect the impact on New Jersey per million dollars of total expenditures, including those expenditures made outside of the state.
Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The project is estimated to generate $307.5 million in compensation in New Jersey.
State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales taxes associated with the economic output generated by the project. The project is estimated to generate $8 million in state tax revenues.
Local Tax Revenues Local tax revenues are comprised of increased property tax revenues that are generated over time because of the improvements associated with the increased business activity generated by the project. The value of these improvements is, in
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time, included in assessments and hence in property taxes. The project is estimated to generate $9.9 million in local tax revenues.
Table 3 provides the per-million-dollar spending impacts for the full project, assuming all lattice tower structures are used for the transmission line. Note that these impacts are calculated per million dollars of total expenditures that is, on the basis of the $640.7 million to be spent both inside and outside of New Jersey and including the additional $8.5 million management reserve. Table 3 Indicator Employment (job-years) GDP Compensation State Tax Revenues Local Tax Revenues Impacts per $1 million of total expenditures 5.3 $610,220 $473,639 $12,292 $15,191
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CONCLUSION This report presents an economic impact analysis of the proposed upgrade of PSE&Gs Susquehanna-Roseland transmission network. Using the Edward J. Bloustein Schools R/ECON Input-Output model, impact estimates were generated for construction of two switching stations and the transmission line and towers, including separate analyses for two different types of tower. Based on the proposed employment and other project expenditures to be made in New Jersey, we estimate that the $649.2 million (all lattice towers) to $750 million (all monopole towers) in project expenditures ($425.2 million to $467.7 million to be made in New Jersey), including management reserves, will generate:
between 3,415 (lattice) and 3,931 (monopole) job-years for workers in New Jersey; between $396.1 million (lattice ) and $428.1 million (monopole) in gross domestic product for the state; between $307.5 million (lattice) and $333.8 million in compensation for workers in the jobs generated by the project in New Jersey; between $8 million (lattice) and $9 million (monopole) in state taxes; and between $7.9 million (monopole) and $9.9 million (lattice) in local taxes.
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APPENDIX A: ECONOMIC AND DEMOGRAPHIC PROFILES AND DYNAMICS
The four counties where the transmission line work will occur Essex, Morris, Sussex, and Warren together represent a microcosm of New Jersey, mirroring the economic and demographic profile of the state, as well as the basic economic and demographic dynamics of change. The four-county region has dense urban job and residential concentrations, strong suburban job growth corridors and residential communities, and dispersed rural-suburban territories characterized by very low density development patterns. The four-county economies are dominated by private service-providing employment. The most significant service-providing sectors, in order of importance, are trade, transportation, and utilities, professional and business services, and education and health services. Employment growth rates in the four-county region have been relatively modest, somewhat below those of the state, with education and health services the leading growth sector. Slow-growth demographics also characterize the four counties, with population increases steadily declining through the decade. The principal reason for this slowdown has been growing net migration losses more people moving out than moving in that have now spread to even the low density counties of Sussex and Warren. The modest population gains for the decade to date are due solely to net natural increase (births minus deaths). This Appendix examines the employment composition of the each of the counties and the aggregated four-county region in the context of that of New Jersey as a whole, as well as the patterns of change during the 2002-2008 period. This will be followed by a demographic analysis of 2000-2008 period in terms of the basic components of population change.
State, County, and Region Employment Analysis The economies of Essex, Morris, Sussex, and Warren counties in total accounted for nearly one-fifth (18.2 percent) of New Jerseys total payroll employment in 2008 (730,495 jobs out of a state total of 4,007,911 jobs). Essex was the largest (363,038 jobs)
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of the four counties, followed by Morris (289,095 jobs). Much smaller in size are Sussex (40,407 jobs) and Warren (37,955 jobs). In general, Essex tends to have a concentrated urban employment base (as well as a secondary suburban one), while that of Morris is largely suburban highway-corridor oriented. Thus, Essex is the densest economy, followed by Morris. In contrast, employment in Sussex has a much less dense and more dispersed suburban-rural pattern. Warren is a mixture of urban, suburban, and rural, with much of the county similar to Sussex. However, there is an older manufacturing base centered in the area around Phillipsburg. Thus, the employment geography of the fourcounty region is quite heterogeneous in terms of geographic distribution and density, mirroring quite closely that of New Jersey in its entirety.
This is much less the case in the composition and growth patterns of each county. The broad general job dynamic in the 2002-2008 period has been employment growth in private-service providing activities and government, and employment declines in goodsproducing industries. The sector that dominated private-sector growth was education and health services. This stands as a microcosm of what has occurred in the New Jersey economy.
Employment Data To analyze the four counties, New Jersey as a whole will serve as the baseline. The source of both county and statewide data is the Quarterly Census of Employment and Wages (QCEW) produced by the U.S. Bureau of Labor Statistics. At the state level, the QCEW differs slightly from the Current Employment Survey (CES) payroll employment series, which is sample-based and is released monthly by the New Jersey Department of Labor and Workforce Development. The advantage of the QCEW is that it is a full count and not a sample, and is available at the county level; its disadvantage is that the data are not as current as the CES. The state data in the QCEW are the sum of the 21 counties. The analysis begins in the second quarter of 2002 and ends in the second quarter of 2008, the last quarter of data availability. The period of measurement was designed to have the beginning and end points at similar stages in the business cycle. New Jerseys employment had peaked in December 2000, the end of the great economic expansion of
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the 1990s. It then contracted through early 2003, when growth resumed. Employment then kept expanding until it once again peaked, in December 2007, when the current recession began. So both the beginning and end points (second quarter of 2002 and second quarter of 2008) were in recessionary periods, with a modest economic expansion in between. Employment is classified into categories defined by the North American Industry Classification System (NAICS). The initial partition is between the private sector and the public sector (government). The private sector is further disaggregated into goodproducing industries and service-providing industries. There are three major goodsproducing industries natural resources and mining, construction, and manufacturing. Of the three, manufacturing is the largest. There are seven major industries in the service-providing group: trade, transportation, and utilities; information; financial activities; professional and business services; education and health services; leisure and hospitality; and other services. The three largest are trade, transportation, and utilities, professional and business services, and educational and health services. The smallest is information. We will refer to them as sectors or classifications. The following is a more detailed, but not complete, definition of these sectors.
Trade, Transportation, and Utilities include wholesale trade, retail trade, transportation, warehousing, and utilities.
Information includes publishing, telecommunications, Internet service providers, and data processing activities.
Financial Activities include finance, insurance, and real estate.
Professional and Business Services includes professional, scientific, and technical services; legal and accounting services; architectural and engineering services, advertising, management of companies and enterprises, and administrative support.
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Education and Health Services includes private education, health care, and social assistance.
Leisure and Hospitality includes arts, entertainment, recreation, gambling, amusements, accommodations, and food services and drinking places.
Other Services include repair and maintenance, personal and laundry services, and religious, grant making, civic, professional and similar organizations.
The Baseline New Jersey Employment Growth Pattern Between 2002 Q2 and 2008 Q2, total employment in New Jersey increased by 111,377 jobs or 2.9 percent, from 3.9 million to 4.0 million (Table 1). This 2.9 percent growth was considerably below the national 7.2 percent increase for the same time period. Employment growth in the state was concentrated in both the private serviceproviding sector (+134,173 jobs or +4.9 percent) and government (+34,445 jobs or +5.7 percent). Public-sector employment growth, while smaller in absolute magnitude than private service-providing employment growth, had a higher rate of increase (5.7 percent versus 4.8 percent). In contrast, employment in the private goods-producing sector declined by 57,241 jobs or -10.6 percent. This decline was largely due to the states long-term manufacturing hemorrhage. New Jersey lost 64,377 manufacturing jobs between 2002 and 2008, or -17.6 percent. Thus, nearly one out five of the states manufacturing jobs disappeared in a brief six-year period. In the goods-producing sector, this loss was only partially counter-balanced by growth in construction employment (+6,315 jobs or +3.9 percent). Education and health services had the largest employment increase of all of the service-providing industries. Between 2002 Q2 and 2008 Q2, this sector gained 72,285 jobs, a rate of increase of 15.1 percent, and it accounted for 64.9 percent of the states total employment growth (72,285 jobs out of 111,377 jobs). It was followed by leisure and hospitality (+41,553 jobs), professional and business services (+40,139 jobs), other
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services (+16,604 jobs), and finance (+7,028 jobs). Employment losses were suffered by information (-20,761 jobs), the consequence of the bursting of the telecommunications bubble, and trade, transportation, and utilities (-2,266 jobs).
Table 1 New Jersey Employment Change by NAICS Supersector 2nd Quarter 2002- 2nd Quarter 2008 2002 2008 Change Q2 Q2 Number Percent 3,896,534 4,007,911 111,377 2.9 3,289,608 3,366,541 538,877 12,283 160,620 365,973 481,636 13,104 166,936 301,596 76,933 -57,241 821 6,315 -64,377 134,173 -2,266 -20,761 7,028 40,139 72,285 41,553 16,604 34,445 2.3 -10.6 6.7 3.9 -17.6 4.9 -0.3 -18.3 2.8 6.9 15.1 13.4 14.6 5.7
TOTAL NONFARM TOTAL PRIVATE SECTOR GOODS PRODUCING Natural Resources And Mining Construction Manufacturing PRIVATE SERVICE-PROVIDING Trade, Transportation & Utilities Information Financial Activities Professional And Business Services Education & Health Services Leisure And Hospitality Other Services GOVERNMENT
2,750,732 2,884,905 860,135 857,869 113,187 92,426 255,107 262,136 577,582 617,721 477,974 550,259 310,673 352,226 113,594 130,198 606,925 641,370
Source: U.S. Bureau of Labor Statistics.
The broad pattern of employment change for this period can be characterized as modest below-average overall employment growth and contraction in the goodsproducing sector, led by manufacturing. The largest absolute advances were in the private service-providing sector, and the highest rate of growth was in the public sector. Within the private service-providing sector, education and health services dominated, accounting for nearly two-thirds of the states total employment growth. These statewide patterns are the baseline for the individual county analyses which follow.
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Essex County Essex County had the largest economy of the four counties in 2008 as measured by total employment (363,038 jobs), and detailed in Table 2. During the 2002-2008 period, it experienced growth in private service-providing employment and government employment, and a decline in goods-producing employment, the same pattern as exhibited by New Jersey. However, since the losses in the goods-producing sector exceeded the employment gains in the other two sectors, Essex County experienced an overall loss of 825 total jobs between 2002 and 2008. It was the only county of the four to lose employment. Manufacturing had the largest decline with a loss of 6,046 jobs (-20.4 percent).
Table 2 Essex County Employment Change by NAICS Supersector 2nd Quarter 2002- 2nd Quarter 2008 2002 2008 Change Q2 Q2 Number Percent 363,863 363,038 -825 -0.2 290,759 286,500 41,066 34 11,390 29,642 34,409 43 10,770 23,596 -4,259 -6,658 9 -620 -6,046 2,399 1,634 -2,731 -2,498 69 3,348 3,488 638 3,434 -1.5 -16.2 26.2 -5.4 -20.4 1.0 2.2 -30.2 -9.0 0.1 6.3 17.7 5.1 4.7
249,692 252,091 75,327 76,961 9,046 6,315 27,727 25,228 50,439 50,508 53,005 56,352 19,753 23,241 12,600 13,238 73,105 76,539
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Leisure and hospitality had the highest employment gain (+3,488 jobs), followed closely by education and health services (+3,348 jobs) and government (+3,434 jobs). The loss of information employment in Essex County (-2,731 jobs) occurred at a rate greater than that of New Jersey (-30.2 percent versus -18.3 percent). In direct contrast to the state, Essex County lost employment in financial activities (-2,498 jobs). Also in contrast to New Jersey, Essex County gained employment in trade, transportation, and utilities (+1,634 jobs), led by booming port, logistical, and distribution activities. And its modest gain in professional and business services just 69 jobs (+0.1 percent) stood in marked contrast to strong growth statewide (6.9 percent). Essex stands as the county employment-growth laggard, with pronounced job losses in manufacturing, information, and finance. Leisure and hospitality, education and health services, and government were the dominant growth sectors.
Morris County Morris County ranked second among the four counties in total employment in 2008 (289,095 jobs), as shown in Table 3. Between 2002 and 2008, employment in Morris County grew slightly faster than in New Jersey (3.3 percent versus 2.9 percent). Its growth profile is very similar to that of the state as a whole with one exception manufacturing (Table 4). Morris County actually added 894 manufacturing jobs between 2002 and 2008 (+3.6 percent), largely due to the modest expansion of the pharmaceutical industry, which is mostly categorized under manufacturing. As a result, the goodsproducing sector experienced positive growth (+4.8 percent) in sharp contrast to New Jerseys decline (-10.6 percent). Similar to the state, Morris County had employment declines in two of the seven service-providing sectors trade, transportation, and utilities (-4,291 jobs) and information (-3,846 jobs). Of the five growth sectors, education and health services had the strongest gains (+5,609 jobs), followed by leisure and hospitality (+4,430 jobs), other services (+1,479 jobs), professional and business services (+1,531 jobs), and finance (+49 jobs). Government employment (+2,896 jobs) grew at a rate higher than the state (+9.7 percent versus 5.7 percent).
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Table 3 Morris County Employment Change by NAICS Supersector 2nd Quarter 2002- 2nd Quarter 2008 2002 2008 Change Q2 Q2 Number Percent 279,922 289,095 9,173 3.3 250,086 256,363 36,917 476 11,795 24,646 38,704 435 12,729 25,540 6,277 1,786 -41 934 894 4,490 -4,291 -3,846 49 1,531 5,609 4,340 1,479 2,896 2.5 4.8 -8.6 7.9 3.6 2.1 -7.0 -32.1 0.2 2.6 19.4 26.1 17.9 9.7
Source: U.S.Bureau of Labor Statistics.
213,169 217,659 61,093 56,802 11,990 8,144 26,564 26,613 58,948 60,479 28,943 34,552 16,643 20,984 8,278 9,757 29,836 32,732
The pattern of growth and decline across Morris Countys employment sectors largely mirrored that of New Jersey, with the exception of positive manufacturing gains in the county.
Sussex County The growth in total employment in Sussex County (+7.3 percent), as shown in Table 4, was more than double that of New Jersey (+2.9 percent). This rate of increase was the fastest of any of the four counties. However, because of the countys relatively small employment base (40,407 total jobs), the overall increase amounted to only 2,759 jobs. In contrast to the state, the goods-producing sector in Sussex County experienced growth, despite a significant rate of decline in natural resources and mining employment 41
(-24.7 percent). Manufacturing employment was basically flat, while construction had strong growth (+198 jobs or +8.3 percent).
Table 4 Sussex County Employment Change by NAICS Supersector 2nd Quarter 2002- 2nd Quarter 2008 2002 2008 Change Q2 Q2 Number Percent 37,648 40,407 2,759 7.3 30,394 32,147 4,519 151 2,388 1,980 4,689 114 2,586 1,989 1,753 170 -37 198 9 1,583 -317 -6 265 -151 933 326 431 1,006 5.8 3.8 -24.7 8.3 0.5 6.1 -4.2 -1.2 22.3 -3.1 16.1 7.5 32.4 13.9
25,875 27,458 7,512 7,195 482 476 1,186 1,451 4,876 4,726 5,796 6,729 4,346 4,673 1,333 1,764 7,254 8,260
Government (+1,006 jobs) was the biggest individual growth sector. It was followed by education and health services (+933 jobs), other services (+431 jobs), leisure and hospitality (+326 jobs), and financial services (+265 jobs). Employment contracted in trade, transportation, and utilities (-317 jobs), professional and business services (-151 jobs), and information (-6 jobs). While employment growth was faster than the state, the pattern of Sussex County employment changes was generally consistent with the state growth template, with two major differences. First, the county experienced surprising losses in professional and
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business services employment, and second, its manufacturing sector demonstrated job stability in contrast to the significant losses experienced statewide.
Warren County Warren County has the smallest economy, comprising just 37,955 jobs in 2008, as detailed in Table 5. This total was slightly below that of Sussex County (40,407 jobs). Its overall employment growth rate (+3.2 percent or +1,186 jobs) between 2002 and 2008 was slightly above that of the state (+2.9 percent). The general statewide pattern of growth in service-providing and government employment, and decline in goodsproducing employment was also evident in Warren County.
Table 5 Warren County Employment Change by NAICS Supersector 2nd Quarter 2002- 2nd Quarter 2008 2002 Q2 TOTAL NONFARM TOTAL PRIVATE SECTOR GOODS PRODUCING Natural Resources And Mining Construction Manufacturing PRIVATE SERVICE-PROVIDING Trade, Transportation & Utilities Information Financial Activities Professional And Business Services Education & Health Services Leisure And Hospitality Other Services GOVERNMENT
2008 Q2
Change Number Percent 1,186 469 -350 101 477 -928 819 -550 31 -57 160 1,039 138 236 717 3.2 1.5 -4.1 35.2 32.3 -13.7 3.7 -6.1 10.1 -5.9 6.2 20.1 4.6 20.9 12.2
36,770 37,955 30,881 31,350 8,525 286 1,476 6,762 8,175 387 1,953 5,834
22,356 23,175 8,968 8,418 305 336 954 897 2,590 2,750 5,181 6,220 2,976 3,115 1,125 1,361 5,889 6,606
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Within the goods-producing sector, which lost 350 jobs, the decline in manufacturing employment (-928 jobs) overweighed the combined growth in construction (+477 jobs) and in natural resources and mining (+101 jobs). In the serviceproviding sector (+819 jobs), education and health services added 1,039 jobs (+20.1 percent), the highest of any private-sector employment category. Also growing at abovestate average rates were other services (+20.9 percent or +236 jobs), information (+10.1 percent or +31 jobs), professional and business services (+6.2 percent or 160 jobs), and leisure and hospitality (+4.6 percent or 138 jobs). Employment losses were suffered in trade, transportation, and utilities (-550 jobs) and financial activities (-57 jobs). Government employment, grew by 717 jobs (+12.2 percent). Warren Countys growth pattern during the 2002 and 2008 period was much more dominated by government compared to New Jersey. Government accounted for 60.4 percent of Warrens total employment growth (717 jobs out of a total 1,186 jobs). For New Jersey as a whole, government accounted for 30.9 percent (34,445 jobs out of 111,377 jobs). While there were some minor differences in several sectors, the same dynamic of goods-producing employment contraction and service-providing employment expansion was evident in both Warren County and New Jersey.
The Four County Region Table 6 provides the four county aggregate employment levels and change for the 2002-2008 period, along with the percentage change for the state as a whole. Employment in he four counties combined is growing somewhat slower than the New Jersey, mainly due to mature Essex County, which is virtually built out. But outside of this distinction, aggregating the four counties together tends to mute the individual county differences. This aggregation results in a region where the broad patterns of change or the order of magnitude of the changes are relatively close to those of the state as a whole. Thus, the region strongly mirrors New Jersey.
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Table 6 Four County Aggregate Employment Change by NAICS Supersector 2nd Quarter 2002- 2nd Quarter 2008 NJ 2002 2008 Change Q2 Q2 Number Percent Percent 718,203 730,495 12,292 1.7 2.9 602,120 606,359 91,028 948 27,049 63,031 511,092 152,899 21,823 56,430 116,853 92,925 43,719 23,336 85,976 979 28,038 56,959 520,383 149,375 15,270 54,189 118,463 103,854 52,012 26,120 4,240 -5,052 31 989 -6,072 9,291 -3,524 -6,553 -2,241 1,610 10,929 8,293 2,784 8,052 0.7 -5.5 3.3 3.7 -9.6 1.8 -2.3 -30.0 -4.0 1.4 11.8 19.0 11.9 6.9 2.3 -10.6 6.7 3.9 -17.6 4.9 -0.3 -18.3 2.8 6.9 15.1 13.4 14.6 5.7
116,084 124,136
Employment Profiles The 2008 employment profiles of New Jersey and the four counties are presented in Table 7. The first two numerical columns of Table 7 show the basic profile of the state: Thus, 72.0 percent of New Jerseys total employment base was in the private service-providing sector, 16.0 percent in government, and 12.0 percent in the goodsproducing sector. The last two columns of Table 7 show the equivalent distribution for the four counties aggregated together: 71.2 percent of the four county regions total employment base was in the private service-providing sector, 17 percent in government, and 11.8 percent in the goods-producing sector. Thus, the broad economic profiles of the state and region are virtually identical, with the largest difference for the three categories only a single percentage point. The same is true when the 10 detailed employment 45
Table 7. New Jersey and Selected Counties Employment Shares by Sector 2008 Q2 Employment Data NJ Absolute Share 4,007,911 100.0 3,366,541 481,636 13,104 166,936 301,596 2,884,905 857,869 92,426 262,136 617,721 550,259 352,226 130,198 641,370 84.0 12.0 0.3 4.2 7.5 72.0 21.4 2.3 6.5 15.4 13.7 8.8 3.2 16.0 Essex Absolute Share 363,038 100.0 286,500 34,409 43 10,770 23,596 252,091 76,961 6,315 25,228 50,508 56,352 23,241 13,238 76,539 78.9 9.5 0.0 3.0 6.5 69.4 21.2 1.7 6.9 13.9 15.5 6.4 3.6 21.1 Morris Absolute Share 289,095 100.0 256,363 38,704 435 12,729 25,540 217,659 56,802 8,144 26,613 60,479 34,552 20,984 9,757 32,732 88.7 13.4 0.2 4.4 8.8 75.3 19.6 2.8 9.2 20.9 12.0 7.3 3.4 11.3 Sussex Absolute Share 40,407 100.0 32,147 4,689 114 2,586 1,989 27,458 7,195 476 1,451 4,726 6,729 4,673 1,764 8,260 79.6 11.6 0.3 6.4 4.9 68.0 17.8 1.2 3.6 11.7 16.7 11.6 4.4 20.4 Warren Absolute Share 37,955 100.0 31,350 8,175 387 1,953 5,834 23,175 8,418 336 897 2,750 6,220 3,115 1,361 6,606 82.6 21.5 1.0 5.1 15.4 61.1 22.2 0.9 2.4 7.2 16.4 8.2 3.6 17.4 Four County Absolute Share 730,495 100.0 606,359 85,976 979 28,038 56,959 520,383 149,375 15,270 54,189 118,463 103,854 52,012 26,120 124,136 83.0 11.8 0.1 3.8 7.8 71.2 20.4 2.1 7.4 16.2 14.2 7.1 3.6 17.0
TOTAL NONFARM TOTAL PRIVATE SECTOR GOODS PRODUCING Natural Resources And Mining Construction Manufacturing PRIVATE SERVICE-PROVIDING Trade, Transportation & Utilities Information Financial Activities Professional And Business Services Education & Health Services Leisure And Hospitality Other Services GOVERNMENT Source: U.S. Bureau of Labor Statistics.
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sectors are compared. In only two sectors trade, transportation, and utilities (1.0 percentage points) and leisure and hospitality (1.7 percentage points) is the difference in share equal to or greater than a single percentage point. The difference in share for the other eight detailed sectors is less than a single percentage point. There is much more variation when the individual county profiles are compared to the state and with one another. Morris County has the highest share of its total employment in the service-providing sector (75.3 percent) while Warren County had the lowest share (61.1 percent). In contrast, Warren County had the highest share of its total employment in the goods-producing sector (21.5 percent), while Essex had the lowest (9.5 percent). The government sector was most pronounced in Essex County, where it accounted for 21.1 percent of total employment. In contrast, government accounted for only 11.3 percent of total employment in Morris County. Of the major individual sectors, construction employment had the greatest proportional representation in Sussex County (6.4 percent of total employment) while Essex County had the least (3.0 percent). Manufacturing employment had its greatest proportional share in Warren County (15.4 percent) and its lowest in Sussex County (4.9 percent). Trade, transportation, and utilities employment had a much smaller variation among the counties, with its share ranging from a low of 17.8 percent (Sussex County) and a high of 22.2 percent (Warren County). Information employment had its highest share in Morris County (2.8 percent) and its lowest share in Warren County (0.9 percent). The same pattern prevailed in financial activities and professional and business services employment. Morris County had the greatest share of its total employment in financial activities (9.2 percent) and Warren County had the lowest (2.4 percent). Similarly, Morris County had the highest share of its total employment in professional and business services (20.9 percent) while Warren County had the lowest (7.2 percent). Education and health services employment had only minor variations in the four counties relative to its 13.7 percent share of the states total employment, with the highest share in Sussex County (16.7 percent) and the lowest share in Morris County (12.0 percent). The outliers in leisure and hospitality employment were Sussex County, where this sector had the highest share (11.6 percent), and Essex County, where it had the
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lowest share (6.4 percent). Other services share had small variations between 3.4 percent and 4.4 percent. These distributional patterns reveal that the economies of the four individual counties do reflect the economic structure of the state as a whole, but at the same time they each have some unique features and specializations. Most importantly, Morris and Essex counties each have large powerful office markets that compete with nations largest metropolitan areas. Morris County ranked first among the 21 counties in the state with more than 30.3 million square feet of office space, while Essex County ranks fourth with 28.8 million square feet of office space. Thus, these two large counties have the greatest concentrations of high-end jobs in information, finance, and professional and business services. Sussex and Warren counties have very much smaller office inventories, particularly Class A office buildings (the most attractive, technologicallyequipped, investment-grade properties). Information, finance and professional and business services jobs in these two counties tend to be more population oriented, i.e., providing services to households and individuals, rather than serving much broader state and national markets, as is the case in Morris and Essex counties.
Demographics The four-county region in total accounted for 17.5 percent (1,519,008 persons out of 8,682,661 persons) of New Jerseys population in 2008, a slightly lower percentage than its share of the states total payroll employment (18.2 percent). Essex County dominated in terms of absolute size (770,675 persons), followed by Morris County (487,548 persons), as shown in Table 8. Sussex Countys population totaled only 150,909 persons in 2008, while Warren Countys population was even smaller (109,875 persons). As was the case with employment, Essex County has the highest population density, as it contains New Jerseys largest city as well as some of its densest older suburbs. Morris County is far more suburban in character, while Sussex County is mostly low-density rural and secondarily suburban. Warren County is a mixture of suburban and rural, with a small urbanized area surrounding Phillipsburg. So the residential development and population density variations within the four-county region tend mirror the wide variations evident in the state as a whole.
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Table 8. New Jersey and selected county population change and components, 2000-2008
Population 2001 NJ Essex Morris Sussex Warren 8,490,942 793,238 473,281 146,046 105,270 2002 8,547,410 793,280 476,692 147,891 106,871 2003 8,589,562 791,203 479,944 149,506 108,232 2004 8,620,770 786,346 482,762 150,318 108,607 Change NJ Essex Morris Sussex Warren 2005 780,189 484,003 150,729 109,000 2006 775,041 485,658 151,030 109,265 2007 8,653,126 772,273 486,172 151,257 109,492 2008 8,682,661 770,675 487,548 150,909 109,876 2000-2008 251,748 16,200 6,299 6,929 2000-2008 2005-2006 2006-2007 39,663 5,099 2,313 634 370 44,876 5,853 2,233 630 403 2007-2008 46,272 5,659 2,165 660 456 333,477 42,013 20,781 5,287 3,421 2000-2008 2005-2006 2006-2007 -31,434 -9,904 -430 -265 -53 -30,763 -8,292 -1,634 -411 -192 2007-2008 -14,412 -6,617 -701 -1,020 -128 -60,077 -59,172 -1,968 1,705 3,898 2000-2008 2005-2006 2006-2007 46,205 5,393 2,284 141 188 41,607 4,895 2,077 116 163 2007-2008 41,796 4,898 2,081 117 164 370,173 43,167 18,710 1,075 1,459 2000-2008 2007-2008 -56,208 -11,515 -2,782 -1,137 -292 -430,250 -102,339 -20,678 630 2,439 -67,340 -15,853 -3,075 -126 -87 -77,639 -15,297 -2,714 -406 -241 -72,370 -13,187 -3,711 -527 -355 39,857 5,061 2,494 537 402 % 3.0 3.4 4.3 6.6 Resid. 21,652 4,485 2,613 693 390 TOTAL 273,400 -17,159 18,813 6,992 7,319 % 3.2 -2.2 4.0 4.8 7.0
8,634,657 8,640,218
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 * 60,029 56,468 42,152 31,208 13,887 5,561 12,908 29,535 919 1,933 1,436 2,323 42 3,411 1,845 1,601 -2,077 3,252 1,615 1,361 -4,857 2,818 812 375 Natural 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 -6,157 1,241 411 393 -5,148 1,655 301 265 -2,768 514 227 227 -1,598 1,376 -348 384
-21,644 -2.7
NJ Essex Morris Sussex Warren
39,386 4,781 2,936 792 521
38,025 4,838 2,800 690 430
42,594 5,371 2,979 701 521
42,804 5,351 2,861 643 318
Net Migration 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 NJ Essex Morris Sussex Warren 23,665 -3,158 -623 775 1,862 21,165 -4,190 1,033 1,280 1,249 3,071 -6,989 888 1,076 943 -8,422 -9,327 322 261 128 International 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 NJ Essex Morris Sussex Warren 55,813 6,442 2,855 157 213 52,214 6,089 2,671 149 205 45,346 5,413 2,355 128 180 42,799 4,879 2,135 132 170 Domestic 2000-2001 2001-2002 2002-2003 2003-2004 NJ Essex Morris Sussex Warren -32,148 -9,600 -3,478 618 1,649 -31,049 -10,279 -1,638 1,131 1,044 -42,275 -12,402 -1,467 948 763 -51,221 -14,206 -1,813 129 -42 2004-2005 2005-2006 2006-2007 44,393 5,158 2,252 135 176 -22,947 -10,695 -823 9 89
Source: US Census Population Estimates. *The cumulative data are underestimated by the residual amount. The total is the change ** These data may also differ from previous state population data, which (cumulative + residual) from July 2000 - July 2008. These data may differ from other have since been revised. reports that begin from April 2000.
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Table 8 also provides year-by year population levels for New Jersey and the four counties, as well as the annual changes in population. Population change has three major components: net natural increase (births minus deaths), net international immigration (the difference between the number of people from outside the United States moving into New Jersey and the number of people from New Jersey moving outside the country), and net domestic migration (the difference between the number of people from New Jersey moving to the rest of the United States and the number of people from the rest of the country moving into New Jersey). Net migration is the sum of international and domestic migration. All of these components are detailed in Table 8 for each county and the state. A technical note is warranted here. When the Census Bureau tabulates this data, the sum of the components (which yields the net annual population change) this sometimes differs slightly from the net annual change as computed directly from annual population totals. This difference is what the Census Bureau calls the residual. So the final change data for the 2000-2008 period, presented in the far right column of Table 8, includes the residual. Between 2000 and 2008, New Jerseys population grew by 273,400 people (+3.2 percent), a pace far slower than that of the nation (+7.8 percent). The four-county region had a 2000-2008 population growth of 15,965 persons (+1.1 percent). So, the four-county region was growing slower than New Jersey and far slower than the United States (7.8 percent). This is largely due to the absolute population decline that took place in Essex County during this period (-17,159 persons or -2.2 percent). Positive growth was registered by the other three counties, led by Warren County (+7,319 persons or +7.0 percent). It is important to note that even Warren Countys growth rate lagged that of the nation. Sussex County had the second highest growth rate (+4.8 percent or +6,992 persons) followed closely by Morris County (+4.0 percent or 18,813 persons). Much of this growth took place in the early years of the 2000-2008 period. For example, New Jerseys overall population increase totaled 60,029 persons in 2000-2001. The annual net growth increment then steadily declined to just 5,561 persons in 20052006, before rebounding in the next two years. The slowdown in growth was largely due to a surge of domestic migration losses, from -32,148 persons in 2000-2001 to -77,639
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persons in 2005-2006. So the wave of New Jerseyans moving to other states reduced the states overall annual population growth almost down to zero by 2005-2006. However, there was a growth rebound in the last two years of this period. This rebound was due an increase in the natural component of population (births minus deaths) which rose from 39,663 in 2005-2006 to 46,272 in 2007-2008. It was also caused by a reduction in domestic mobility caused by the housing bust if you cant sell your house, you cant move. While New Jersey still had significant domestic outmigration losses -72,370 persons in 2006-2007 and -56,208 persons in 2007-2008 this decline in net domestic outmigration and the gain in the natural component of population growth resulted in an increase in the states annual population growth to 29,535 persons in 20072008. As seen in Table 8, net domestic outmigration was initially restricted to Essex and Morris counties through 2002-2003. Then in 2003-2004, they were joined by Warren County. By 2004-2005, all four counties were experiencing net domestic migration losses. And this remained the case for the years that followed: net domestic migration losses were pervasive in 2005-2006, 2006-2007, and 2007-2008. For the entire 2000-2008 period, net domestic out migration in New Jersey (-430,250 persons) was greater than net international immigration (+370,000 persons), which yielded an overall net migration loss (-60,077 persons). Thus all of the 2000-2008 total population growth in the state (+273,400 persons) was due to net natural increase (+333,477 persons). This general pattern is reflected in the four-county region, where the net domestic outmigration (-119,948 persons) was proportionally far greater than net international immigration (+64,411). As was the case for the state as a whole, population growth was solely due to net natural increase (+71,502 persons) since international immigration did not fully counterbalance net domestic migration losses. Since, overall net migration losses totaled 55,537 persons, the four-county population change totaled 15,965 persons. To summarize, the four-counties combined had positive population growth between 2000 and 2003. Starting in 2003-2004, the net annual population change turned negative. This was largely due to population losses in Essex County. It was also caused by sharply lower annual gains experienced by the other three counties. The four counties
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combined now basically comprise a very slow-growth demographic region, with all four individual counties currently experiencing net domestic migration losses. With the full impact of the Highlands Act yet to be fully realized in terms of developmental growth restrictions, the four counties are likely to be destined to remain on a slow-growth population trajectory.
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APPENDIX B: INPUT-OUTPUT ANALYSIS This appendix discusses the history and application of input-output analysis and details the input-output model, called the R/Econ I-O model, developed by Rutgers University. This model offers significant advantages in detailing the total economic effects of an activity (such as historic rehabilitation and heritage tourism), including multiplier effects.
ESTIMATING MULTIPLIERS
The fundamental issue determining the size of the multiplier effect is the openness of regional economies. Regions that are more open are those that import their required inputs from other regions. Imports can be thought of as substitutes for local production. Thus, the more a region depends on imported goods and services instead of its own production, the more economic activity leaks away from the local economy. Businessmen noted this phenomenon and formed local chambers of commerce with the explicit goal of stopping such leakage by instituting a buy local policy among their membership. In addition, during the 1970s, as an import invasion was under way, businessmen and union leaders announced a buy American policy in the hope of regaining ground lost to international economic competition. Therefore, one of the main goals of regional economic multiplier research has been to discover better ways to estimate the leakage of purchases out of a region or, relatedly, to determine the regions level of self-sufficiency.
The earliest attempts to systematize the procedure for estimating multiplier effects used the economic base model, still in use in many econometric models today. This approach assumes that all economic activities in a region can be divided into two categories: basic activities that produce exclusively for export, and region-serving or local activities that produce strictly for internal regional consumption. Since this approach is simpler but similar to the approach used by regional input-output analysis, let us explain briefly how multiplier effects are estimated using the economic base approach. If we let x be export employment, l be local employment, and t be total employment, then
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t=x+l For simplification, we create the ratio a as a = l/t so that l = at
then substituting into the first equation, we obtain t = x + at By bringing all of the terms with t to one side of the equation, we get t - at = x or t (1-a) = x Solving for t, we get t = x/(1-a)
Thus, if we know the amount of export-oriented employment, x, and the ratio of local to total employment, a, we can readily calculate total employment by applying the economic base multiplier, 1/(1-a), which is embedded in the above formula. Thus, if 40 percent of all regional employment is used to produce exports, the regional multiplier would be 2.5. The assumption behind this multiplier is that all remaining regional employment is required to support the export employment. Thus, the 2.5 can be decomposed into two parts the direct effect of the exports, which is always 1.0, and the indirect and induced effects, which is the remainderin this case 1.5. Hence, the multiplier can be read as telling us that for each export-oriented job another 1.5 jobs are needed to support it.
This notion of the multiplier has been extended so that x is understood to represent an economic change demanded by an organization or institution outside of an economyso-called final demand. Such changes can be those effected by government, households, or even by an outside firm. Changes in the economy can therefore be calculated by a minor alteration in the multiplier formula: t = x/(1-a)
The high level of industry aggregation and the rigidity of the economic assumptions that permit the application of the economic base multiplier have caused this approach to be subject to extensive criticism. Most of the discussion has focused on the
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estimation of the parameter a. Estimating this parameter requires that one be able to distinguish those parts of the economy that produce for local consumption from those that do not. Indeed, virtually all industries, even services, sell to customers both inside and outside the region. As a result, regional economists devised an approach by which to measure the degree to which each industry is involved in the nonbase activities of the region, better known as the industrys regional purchase coefficient. Thus, they expanded the above formulations by calculating for each i industry li = r idi and xi = ti - r idi
given that di is the total regional demand for industry is product. Given the above formulae and data on regional demands by industry, one can calculate an accurate traditional aggregate economic base parameter by the following: a = l/t = lii/ti
Although accurate, this approach only facilitates the calculation of an aggregate multiplier for the entire region. That is, we cannot determine from this approach what the effects are on the various sectors of an economy. This is despite the fact that one must painstakingly calculate the regional demand as well as the degree to which they each industry is involved in nonbase activity in the region. As a result, a different approach to multiplier estimation that takes advantage of the detailed demand and trade data was developed. This approach is called input-output analysis.
REGIONAL INPUT-OUTPUT ANALYSIS: A BRIEF HISTORY
The basic framework for input-output analysis originated nearly 250 years ago when Franois Quesenay published Tableau Economique in 1758. Quesenays tableau graphically and numerically portrayed the relationships between sales and purchases of the various industries of an economy. More than a century later, his description was
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adapted by Leon Walras, who advanced input-output modeling by providing a concise theoretical formulation of an economic system (including consumer purchases and the economic representation of technology).
It was not until the twentieth century, however, that economists advanced and tested Walrass work. Wassily Leontief greatly simplified Walrass theoretical formulation by applying the Nobel prizewinning assumptions that both technology and trading patterns were fixed over time. These two assumptions meant that the pattern of flows among industries in an area could be considered stable. These assumptions permitted Walrass formulation to use data from a single time period, which generated a great reduction in data requirements.
Although Leontief won the Nobel Prize in 1973, he first used his approach in 1936 when he developed a model of the 1919 and 1929 U.S. economies to estimate the effects of the end of World War I on national employment. Recognition of his work in terms of its wider acceptance and use meant development of a standardized procedure for compiling the requisite data (todays national economic census of industries) and enhanced capability for calculations (i.e., the computer).
The federal government immediately recognized the importance of Leontiefs development and has been publishing input-output tables of the U.S. economy since 1939. The most recently published tables are those for 1987. Other nations followed suit. Indeed, the United Nations maintains a bank of tables from most member nations with a uniform accounting scheme.
Framework
Input-output modeling focuses on the interrelationships of sales and purchases among sectors of the economy. Input-output is best understood through its most basic form, the interindustry transactions table or matrix. In this table (see figure 1 for an example), the column industries are consuming sectors (or markets) and the row
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industries are producing sectors. The content of a matrix cell is the value of shipments that the row industry delivers to the column industry. Conversely, it is the value of shipments that the column industry receives from the row industry. Hence, the interindustry transactions table is a detailed accounting of the disposition of the value of shipments in an economy. Indeed, the detailed accounting of the interindustry transactions at the national level is performed not so much to facilitate calculation of national economic impacts as it is to back out an estimate of the nations gross domestic product.
FIGURE 1 Interindustry Transactions Matrix (Values) Final Demand 10 25 90 100 Total Output $100 $200 $120 $225
Agriculture Manufacturing Services Other Value Added Total Input
Agriculture 10 40 15 15 20 100
Manufacturing 65 25 5 10 95 200
Services 10 35 5 50 20 120
Other 5 75 5 50 90 225
For example, in figure 1, agriculture, as a producing industry sector, is depicted as selling $65 million of goods to manufacturing. Conversely, the table depicts that the manufacturing industry purchased $65 million of agricultural production. The sum across columns of the interindustry transaction matrix is called the intermediate outputs vector. The sum across rows is called the intermediate inputs vector.
A single final demand column is also included in Figure 1. Final demand, which is outside the square interindustry matrix, includes imports, exports, government purchases, changes in inventory, private investment, and sometimes household purchases. The value added row, which is also outside the square interindustry matrix, includes wages and salaries, profit-type income, interest, dividends, rents, royalties, capital consumption allowances, and taxes. It is called value added because it is the difference between the total value of the industrys production and the value of the goods and
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nonlabor services that it requires to produce. Thus, it is the value that an industry adds to the goods and services it uses as inputs in order to produce output.
The value added row measures each industrys contribution to wealth accumulation. In a national model, therefore, its sum is better known as the gross domestic product (GDP). At the state level, this is known as the gross state producta series produced by the U.S. Bureau of Economic Analysis and published in the Regional Economic Information System. Below the state level, it is known simply as the regional equivalent of the GDPthe gross regional product.
Input-output economic impact modelers now tend to include the household industry within the square interindustry matrix. In this case, the consuming industry is the household itself. Its spending is extracted from the final demand column and is appended as a separate column in the interindustry matrix. To maintain a balance, the income of households must be appended as a row. The main income of households is labor income, which is extracted from the value-added row. Modelers tend not to include other sources of household income in the household industrys row. This is not because such income is not attributed to households but rather because much of this other income derives from sources outside of the economy that is being modeled.
The next step in producing input-output multipliers is to calculate the direct requirements matrix, which is also called the technology matrix. The calculations are based entirely on data from figure 1. As shown in figure 2, the values of the cells in the direct requirements matrix are derived by dividing each cell in a column of figure 1, the interindustry transactions matrix, by its column total. For example, the cell for manufacturings purchases from agriculture is 65/200 = .33. Each cell in a column of the direct requirements matrix shows how many cents of each producing industrys goods and/or services are required to produce one dollar of the consuming industrys production and are called technical coefficients. The use of the terms technology and technical derive from the fact that a column of this matrix represents a recipe for a unit of an
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industrys production. It, therefore, shows the needs of each industrys production process or technology.
FIGURE 2 Direct Requirements Matrix Agriculture .10 .40 .15 .15 Manufacturing .33 .13 .03 .05 Services .08 .29 .04 .42 Other .02 .33 .02 .22
Agriculture Manufacturing Services Other
Next in the process of producing input-output multipliers, the Leontief Inverse is calculated. To explain what the Leontief Inverse is, let us temporarily turn to equations. Now, from figure 1 we know that the sum across both the rows of the square interindustry transactions matrix (Z) and the final demand vector (y) is equal to vector of production by industry (x). That is, x = Zi + y
where i is a summation vector of ones. Now, we calculate the direct requirements matrix (A) by dividing the interindustry transactions matrix by the production vector or A = ZX-1
where X-1 is a square matrix with inverse of each element in the vector x on the diagonal and the rest of the elements equal to zero. Rearranging the above equation yields Z = AX
where X is a square matrix with the elements of the vector x on the diagonal and zeros elsewhere. Thus, x = (AX)i + y
or, alternatively, x = Ax + y
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solving this equation for x yields x= (I-A)-1 y
Total = Output
Total
Final Demand
Requirements
The Leontief Inverse is the matrix (I-A)-1. It portrays the relationships between final demand and production. This set of relationships is exactly what is needed to identify the economic impacts of an event external to an economy.
Because it does translate the direct economic effects of an event into the total economic effects on the modeled economy, the Leontief Inverse is also called the total requirements matrix. The total requirements matrix resulting from the direct requirements matrix in the example is shown in figure 3.
FIGURE 3 Total Requirements Matrix Agriculture 1.5 1.0 .3 .5 .33 Manufacturing .6 1.6 .1 .3 2.6 Services .4 .9 1.2 .8 3.3 Other .3 .7 .1 1.4 2.5
Agriculture Manufacturing Services Other Industry Multipliers
In the direct or technical requirements matrix in Figure 2, the technical coefficient for the manufacturing sectors purchase from the agricultural sector was .33, indicating the 33 cents of agricultural products must be directly purchased to produce a dollars worth of manufacturing products. The same cell in Figure 3 has a value of .6. This indicates that for every dollars worth of product that manufacturing ships out of the economy (i.e., to the government or for export), agriculture will end up increasing its production by 60 cents. The sum of each column in the total requirements matrix is the output multiplier for that industry.
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Multipliers
A multiplier is defined as the system of economic transactions that follow a disturbance in an economy. Any economic disturbance affects an economy in the same way as does a drop of water in a still pond. It creates a large primary ripple by causing a direct change in the purchasing patterns of affected firms and institutions. The suppliers of the affected firms and institutions must change their purchasing patterns to meet the demands placed upon them by the firms originally affected by the economic disturbance, thereby creating a smaller secondary ripple. In turn, those who meet the needs of the suppliers must change their purchasing patterns to meet the demands placed upon them by the suppliers of the original firms, and so on; thus, a number of subsequent ripples are created in the economy.
The multiplier effect has three componentsdirect, indirect, and induced effects. Because of the pond analogy, it is also sometimes referred to as the ripple effect. A direct effect (the initial drop causing the ripple effects) is the change in purchases due to a change in economic activity. An indirect effect is the change in the purchases of suppliers to those economic activities directly experiencing change. An induced effect is the change in consumer spending that is generated by changes in labor income within the region as a result of the direct and indirect effects of the economic activity. Including households as a column and row in the interindustry matrix allows this effect to be captured.
Extending the Leontief Inverse to pertain not only to relationships between total production and final demand of the economy but also to changes in each permits its multipliers to be applied to many types of economic impacts. Indeed, in impact analysis the Leontief Inverse lends itself to the drop-in-a-pond analogy discussed earlier. This is
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because the Leontief Inverse multiplied by a change in final demand can be estimated by a power series. That is, (I-A)-1 y = y + A y + A(A y) + A(A(A y)) + A(A(A(A y))) + ... Assuming that ythe change in final demandis the drop in the pond, then succeeding terms are the ripples. Each ripple term is calculated as the previous pond disturbance multiplied by the direct requirements matrix. Thus, since each element in the direct requirements matrix is less than one, each ripple term is smaller than its predecessor. Indeed, it has been shown that after calculating about seven of these ripple terms that the power series approximation of impacts very closely estimates those produced by the Leontief Inverse directly. In impacts analysis practice, y is a single column of expenditures with the same number of elements as there are rows or columns in the direct or technical requirements matrix. This set of elements is called an impact vector. This term is used because it is the vector of numbers that is used to estimate the economic impacts of the investment.
There are two types of changes in investments, and consequently economic impacts, generally associated with projectsone-time impacts and recurring impacts. One-time impacts are impacts that are attributable to an expenditure that occurs once over a limited period of time. For example, the impacts resulting from the construction of a project are one-time impacts. Recurring impacts are impacts that continue permanently as a result of new or expanded ongoing expenditures. The ongoing operation of a new train station, for example, generates recurring impacts to the economy. Examples of changes in economic activity are investments in the preservation of old homes, tourist expenditures, or the expenditures required to run a historical site. Such activities are considered changes in final demand and can be either positive or negative. When the activity is not made in an industry, it is generally not well represented by the input-output model. Nonetheless, the activity can be represented by a special set of elements that are similar to a column of the transactions matrix. This set of elements is called an economic disturbance or impact vector. The latter term is used because it is the vector of numbers
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that is used to estimate the impacts. In this study, the impact vector is estimated by multiplying one or more economic translators by a dollar figure that represents an investment in one or more projects. The term translator is derived from the fact that such a vector translates a dollar amount of an activity into its constituent purchases by industry.
One example of an industry multiplier is shown in figure 4. In this example, the activity is the preservation of a historic home. The direct impact component consists of purchases made specifically for the construction project from the producing industries. The indirect impact component consists of expenditures made by producing industries to support the purchases made for this project. Finally, the induced impact component focuses on the expenditures made by workers involved in the activity on-site and in the supplying industries.
FIGURE 4 Components of the Multiplier for the Historic Rehabilitation of a Single-Family Residence DIRECT IMPACT Excavation/Construction Labor Concrete Wood Bricks Equipment Finance and Insurance INDIRECT IMPACT Production Labor Steel Fabrication Concrete Mixing Factory and Office Expenses Equipment Components INDUCED IMPACT Expenditures by wage earners on-site and in the supplying industries for food, clothing, durable goods, entertainment
REGIONAL INPUT-OUTPUT ANALYSIS
Because of data limitations, regional input-output analysis has some considerations beyond those for the nation. The main considerations concern the depiction of regional technology and the adjustment of the technology to account for interregional trade by industry.
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In the regional setting, local technology matrices are not readily available. An accurate region-specific technology matrix requires a survey of a representative sample of organizations for each industry to be depicted in the model. Such surveys are extremely expensive.4 Because of the expense, regional analysts have tended to use national technology as a surrogate for regional technology. This substitution does not affect the accuracy of the model as long as local industry technology does not vary widely from the nations average.5
Even when local technology varies widely from the nations average for one or more industries, model accuracy may not be affected much. This is because interregional trade may mitigate the error that would be induced by the technology. That is, in estimating economic impacts via a regional input-output model, national technology must be regionalized by a vector of regional purchase coefficients,6 r, in the following manner: (I-rA)-1 ry or ry + rA (ry) + rA(rA (ry)) + rA(rA(rA (ry))) + ...
where the vector-matrix product rA is an estimate of the regions direct requirements matrix. Thus, if national technology coefficientswhich vary widely from their local equivalentsare multiplied by small RPCs, the error transferred to the direct requirements matrices will be relatively small. Indeed, since most manufacturing industries have small RPCs and since technology differences tend to arise due to substitution in the use of manufactured goods, technology differences have generally been found to be minor source error in economic impact measurement. Instead, RPCs and
4
The most recent statewide survey-based model was developed for the State of Kansas in 1986 and cost on the order of $60,000 (in 1990 dollars). The development of this model, however, leaned heavily on work done in 1965 for the same state. In addition the model was aggregated to the 35-sector level, making it inappropriate for many possible applications since the industries in the model do not represent the very detailed sectors that are generally analyzed. 5 Only recently have researchers studied the validity of this assumption. They have found that large urban areas may have technology in some manufacturing industries that differs in a statistically significant way from the national average. As will be discussed in a subsequent paragraph, such differences may be unimportant after accounting for trade patterns. 6 A regional purchase coefficient (RPC) for an industry is the proportion of the regions demand for a good or service that is fulfilled by local production. Thus, each industrys RPC varies between zero (0) and one (1), with one implying that all local demand is fulfilled by local suppliers. As a general rule, agriculture, mining, and manufacturing industries tend to have low RPCs, and both service and construction industries tend to have high RPCs.
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their measurement error due to industry aggregation have been the focus of research on regional input-output model accuracy.
A COMPARISON OF THREE MAJOR REGIONAL ECONOMIC IMPACT MODELS
In the United States there are three major vendors of regional input-output models. They are U.S. Bureau of Economic Analysiss (BEA) RIMS II multipliers, Minnesota IMPLAN Group Inc.s (MIG) IMPLAN Pro model, and CUPRs own REcon IO model. CUPR has had the privilege of using them all. (R/Econ IO builds from the PC IO model produced by the Regional Science Research Corporations (RSRC).)
Although the three systems have important similarities, there are also significant differences that should be considered before deciding which system to use in a particular study. This document compares the features of the three systems. Further discussion can be found in Brucker, Hastings, and Lathams article in the Summer 1987 issue of The Review of Regional Studies entitled Regional Input-Output Analysis: A Comparison of Five Ready-Made Model Systems. Since that date, CUPR and MIG have added a significant number of new features to PC IO (now, R/Econ IO) and IMPLAN, respectively.
Model Accuracy
RIMS II, IMPLAN, and RECON IO all employ input-output (IO) models for estimating impacts. All three regionalized the U.S. national IO technology coefficients table at the highest levels of disaggregation (more than 500 industries). Since aggregation of sectors has been shown to be an important source of error in the calculation of impact multipliers, the retention of maximum industrial detail in these regional systems is a positive feature that they share. The systems diverge in their regionalization approaches, however. The difference is in the manner that they estimate regional purchase
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coefficients (RPCs), which are used to regionalize the technology matrix. An RPC is the proportion of the regions demand for a good or service that is fulfilled by the regions own producers rather than by imports from producers in other areas. Thus, it expresses the proportion of the purchases of the good or service that do not leak out of the region, but rather feed back to its economy, with corresponding multiplier effects. Thus, the accuracy of the RPC is crucial to the accuracy of a regional IO model, since the regional multiplier effects of a sector vary directly with its RPC.
The techniques for estimating the RPCs used by CUPR and MIG in their models are theoretically more appealing than the location quotient (LQ) approach used in RIMS II. This is because the former two allow for crosshauling of a good or service among regions and the latter does not. Since crosshauling of the same general class of goods or services among regions is quite common, the CUPR-MIG approach should provide better estimates of regional imports and exports. Statistical results reported in Stevens, Treyz, and Lahr (1989) confirm that LQ methods tend to overestimate RPCs. By extension, inaccurate RPCs may lead to inaccurately estimated impact estimates.
Further, the estimating equation used by CUPR to produce RPCs should be more accurate than that used by MIG. The difference between the two approaches is that MIG estimates RPCs at a more aggregated level (two-digit SICs, or about 86 industries) and applies them at a desegregate level (over 500 industries). CUPR both estimates and applies the RPCs at the most detailed industry level. The application of aggregate RPCs can induce as much as 50 percent error in impact estimates (Lahr and Stevens, 2002).
Although both RECON IO and IMPLAN use an RPC-estimating technique that is theoretically sound and update it using the most recent economic data, some practitioners question their accuracy. The reasons for doing so are three-fold. First, the observations currently used to estimate their implemented RPCs are based on 20-years old trade relationshipsthe Commodity Transportation Survey (CTS) from the 1977 Census of Transportation. Second, the CTS observations are at the state level. Therefore, RPCs estimated for substate areas are extrapolated. Hence, there is the potential that
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RPCs for counties and metropolitan areas are not as accurate as might be expected. Third, the observed CTS RPCs are only for shipments of goods. The interstate provision of services is unmeasured by the CTS. IMPLAN replies on relationships from the 1977 U.S. Multiregional Input-Output Model that are not clearly documented. RECON IO relies on the same econometric relationships that it does for manufacturing industries but employs expert judgment to construct weight/value ratios (a critical variable in the RPCestimating equation) for the nonmanufacturing industries.
The fact that BEA creates the RIMS II multipliers gives it the advantage of being constructed from the full set of the most recent regional earnings data available. BEA is the main federal government purveyor of employment and earnings data by detailed industry. It therefore has access to the fully disclosed and disaggregated versions of these data. The other two model systems rely on older data from County Business Patterns and Bureau of Labor Statistics ES202 forms, which have been improved by filling-in for any industries that have disclosure problems (this occurs when three or fewer firms exist in an industry or a region).
Model Flexibility
For the typical user, the most apparent differences among the three modeling systems are the level of flexibility they enable and the type of results that they yield. R/Econ IO allows the user to make changes in individual cells of the 515-by-515 technology matrix as well as in the 11 515-sector vectors of region-specific data that are used to produce the regionalized model. The 11 sectors are: output, demand, employment per unit output, labor income per unit output, total value added per unit of output, taxes per unit of output (state and local), nontax value added per unit output, administrative and auxiliary output per unit output, household consumption per unit of labor income, and the RPCs. Te PC IO model tends to be simple to use. Its Users Guide is straightforward and concise, providing instruction about the proper implementation of the model as well as the interpretation of the models results.
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The software for IMPLAN Pro is Windows-based, and its Users Guide is more formalized. Of the three modeling systems, it is the most user-friendly. The Windows orientation has enabled MIG to provide many more options in IMPLAN without increasing the complexity of use. Like R/Econ IO, IMPLANs regional data on RPCs, output, labor compensation, industry average margins, and employment can be revised. It does not have complete information on tax revenues other than those from indirect business taxes (excise and sales taxes), and those cannot be altered. Also like R/Econ, IMPLAN allows users to modify the cells of the 538-by-538 technology matrix. It also permits the user to change and apply price deflators so that dollar figures can be updated from the default year, which may be as many as four years prior to the current year. The plethora of options, which are advantageous to the advanced user, can be extremely confusing to the novice. Although default values are provided for most of the options, the accompanying documentation does not clearly point out which items should get the most attention. Further, the calculations needed to make any requisite changes can be more complex than those needed for the R/Econ IO model. Much of the documentation for the model dwells on technical issues regarding the guts of the model. For example, while one can aggregate the 538-sector impacts to the one- and two-digit SIC level, the current documentation does not discuss that possibility. Instead, the user is advised by the Users Guide to produce an aggregate model to achieve this end. Such a model, as was discussed earlier, is likely to be error ridden.
For a region, RIMS II typically delivers a set of 38-by-471 tables of multipliers for output, earnings, and employment; supplementary multipliers for taxes are available at additional cost. Although the models documentation is generally excellent, use of RIMS II alone will not provide proper estimates of a regions economic impacts from a change in regional demand. This is because no RPC estimates are supplied with the model. For example, in order to estimate the impacts of rehabilitation, one not only needs to be able to convert the engineering cost estimates into demands for labor as well as for materials and services by industry, but must also be able to estimate the percentage of the labor income, materials, and services which will be provided by the regions households and industries (the RPCs for the demanded goods and services). In most cases, such
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percentages are difficult to ascertain; however, they are provided in the R/Econ IO and IMPLAN models with simple triggering of an option. Further, it is impossible to change any of the models parameters if superior data are known. This model ought not to be used for evaluating any project or event where superior data are available or where the evaluation is for a change in regional demand (a construction project or an event) as opposed to a change in regional supply (the operation of a new establishment).
Model Results
Detailed total economic impacts for about 500 industries can be calculated for jobs, labor income, and output from R/Econ IO and IMPLAN only. These two modeling systems can also provide total impacts as well as impacts at the one- and twodigit industry levels. RIMS II provides total impacts and impacts on only 38 industries for these same three measures. Only the manual for R/Econ IO warns about the problems of interpreting and comparing multipliers and any measures of output, also known as the value of shipments.
As an alternative to the conventional measures and their multipliers, R/Econ I O and IMPLAN provide results on a measure known as value added. It is the regions contribution to the nations gross domestic product (GDP) and consists of labor income, nonmonetary labor compensation, proprietors income, profit-type income, dividends, interest, rents, capital consumption allowances, and taxes paid. It is, thus, the regions production of wealth and is the single best economic measure of the total economic impacts of an economic disturbance.
In addition to impacts in terms of jobs, employee compensation, output, and value added, IMPLAN provides information on impacts in terms of personal income, proprietor income, other property-type income, and indirect business taxes. R/Econ IO breaks out impacts into taxes collected by the local, state, and federal governments. It also provides the jobs impacts in terms of either about 90 or 400 occupations at the users request. It goes a step further by also providing a return-on-investment-type multiplier
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measure, which compares the total impacts on all of the main measures to the total original expenditure that caused the impacts. Although these latter can be readily calculated by the user using results of the other two modeling systems, they are rarely used in impact analysis despite their obvious value.
In terms of the format of the results, both R/Econ IO and IMPLAN are flexible. On request, they print the results directly or into a file (Excel 4.0, Lotus 123, Word 6.0, tab delimited, or ASCII text). It can also permit previewing of the results on the computers monitor. Both now offer the option of printing out the job impacts in either or both levels of occupational detail.
RSRC Equation
The equation currently used by RSRC in estimating RPCs is reported in Treyz and Stevens (1985). In this paper, the authors show that they estimated the RPC from the 1977 CTS data by estimating the demands for an industrys production of goods or services that are fulfilled by local suppliers (LS) as LS = De(-1/x) and where for a given industry x = k Z1a1Z2a2 Pj Zjaj and D is its total local demand. Since for a given industry RPC = LS/D then ln{-1/[ln (lnLS/ lnD)]} = ln k + a1 lnZ1 + a2 lnZ2 + Sj ajlnZj which was the equation that was estimated for each industry.
This odd nonlinear form not only yielded high correlations between the estimated and actual values of the RPCs, it also assured that the RPC value ranges strictly between 0 and 1. The results of the empirical implementation of this equation are shown in Treyz and Stevens (1985, table 1). The table shows that total local industry demand (Z1), the supply/demand ratio (Z2), the weight/value ratio of the good (Z3), the regions size in 70
square miles (Z4), and the regions average establishment size in terms of employees for the industry compared to the nations (Z5) are the variables that influence the value of the RPC across all regions and industries. The latter of these maintain the least leverage on RPC values.
Because the CTS data are at the state level only, it is important for the purposes of this study that the local industry demand, the supply/demand ratio, and the regions size in square miles are included in the equation. They allow the equation to extrapolate the estimation of RPCs for areas smaller than states. It should also be noted here that the CTS data only cover manufactured goods. Thus, although calculated effectively making them equal to unity via the above equation, RPC estimates for services drop on the weight/value ratios. A very high weight/value ratio like this forces the industry to meet this demand through local production. Hence, it is no surprise that a regions RPC for this sector is often very high (0.89). Similarly, hotels and motels tend to be used by visitors from outside the area. Thus, a weight/value ratio on the order of that for industry production would be expected. Hence, an RPC for this sector is often about 0.25.
The accuracy of CUPRs estimating approach is exemplified best by this last example. Ordinary location quotient approaches would show hotel and motel services serving local residents. Similarly, IMPLAN RPCs are built from data that combine this industry with eating and drinking establishments (among others). The results of such aggregation process is an RPC that represents neither industry (a value of about 0.50) but which is applied to both. In the end, not only is the CUPRs RPC-estimating approach the most sound, but it is also widely acknowledged by researchers in the field as being state of the art.
Advantages and Limitations of Input-Output Analysis
Input-output modeling is one of the most accepted means for estimating economic impacts. This is because it provides a concise and accurate means for articulating the interrelationships among industries. The models can be quite detailed. For example, the
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current U.S. model currently has more than 500 industries representing many six-digit North American Industrial Classification System (NAICS) codes. The CUPRs model used in this study has 517 sectors. Further, the industry detail of input-output models provides not only a consistent and systematic approach but also more accurately assesses multiplier effects of changes in economic activity. Research has shown that results from more aggregated economic models can have as much as 50 percent error inherent in them. Such large errors are generally attributed to poor estimation of regional trade flows resulting from the aggregation process.
Input-output models also can be set up to capture the flows among economic regions. For example, the model used in this study can calculate impacts for a county as well as the total New Jersey state economy.
The limitations of input-output modeling should also be recognized. The approach makes several key assumptions. First, the input-output model approach assumes that there are no economies of scale to production in an industry; that is, the proportion of inputs used in an industrys production process does not change regardless of the level of production. This assumption will not work if the technology matrix depicts an economy of a recessional economy (e.g., 1982) and the analyst is attempting to model activity in a peak economic year (e.g., 1989). In a recession year, the labor-to-output ratio tends to be excessive because firms are generally reluctant to lay off workers when they believe an economic turnaround is about to occur.
A less-restrictive assumption of the input-output approach is that technology is not permitted to change over time. It is less restrictive because the technology matrix in the United States is updated frequently and, in general, production technology does not radically change over short periods.
Finally, the technical coefficients used in most regional models are based on the assumption that production processes are spatially invariant and are well represented by
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the nations average technology. In a region as large and diverse as New Jersey, this assumption is likely to hold true.
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APPENDIX C: ECONOMIC IMPACTS OF COMBINED LATTICE-MONOPOLE SCENARIO

Lattice Towers Monopole Towers 50% Monopole 168,755,238 248,946,795 1,300 800 500 124,875.7 160,038.8 Combination
Expenditures in NJ Total Expenditures Employment Direct Indirect Income ($000) GDP ($000) Roseland Switching Station Expenditures in NJ Total Expenditures Employment Direct Indirect Income ($000) GDP ($000) Jefferson Switching Station Expenditures in NJ Total Expenditures Employment Direct Indirect Income ($000) GDP ($000)
249 Towers 292,305,381.9 397,082,336.1 2,083.6 1,211.6 872.0 223,476.8 288,104.3
Per Tower 1,173,917.2 1,594,708.2 8.4 4.9 3.5 897.5 1,157.0
50% Lattice 146,152,691 198,541,168 1,042 606 436 111,738.4 144,052.2
249 Towers 337,510,475.3 497,893,589.7 2,600.1 1,599.6 1,000.4 249,751.3 320,077.6
Per Tower 1,355,463.8 1,999,572.6 10.4 6.4 4.0 1,003.0 1,285.5
50% Each 314,907,929 447,487,963 2,342 1,406 936 236,614 304,091
57,074,195.0 166,613,772.0 592 462 130 39,776 51,115
57,074,195.0 166,613,772.0 592 462 130 39,766 51,115
57,074,195.0 166,613,772.0 592 462 130 39,766 51,115
62,089,015.0 77,000,000.0 739 584 154 44,228.2 56,929.2
62,089,015.0 77,000,000.0 739 584 154 44,228.2 56,929.2
62,089,015.0 77,000,000.0 739 584 154 44,228.2 56,929.2
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Total Expenditures & Impacts Expenditures in NJ 411,468,592 Total Expenditures 640,696,108 Management Reserve 8,492,638 649,188,746 Total Budget Employment Direct Indirect Income ($000) GDP ($000) 3,414 2,258 1,156 307,481 396,148
456,673,685 741,507,362 8,492,638 750,000,000 3,931 2,646 1,285 333,746 428,122
434,071,139 691,101,735 8,492,638 699,594,373 3,672 2,452 1,220 320,608 412,135
75

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Economic Impacts on New Jersey of Upgrading PSE&Gs Susquehanna-Roseland Transmission System

ECONOMIC IMPACT ANALYSIS

APPENDIX A: ECONOMIC AND DEMOGRAPHIC PROFILES AND DYNAMICS

Financial Activities include finance, insurance, and real estate.

Source: U.S. Bureau of Labor Statistics.

Source: U.S. Bureau of Labor Statistics.

Source: U.S. Bureau of Labor Statistics.

NJ Essex Morris Sussex Warren

39,386 4,781 2,936 792 521

38,025 4,838 2,800 690 430

42,594 5,371 2,979 701 521

42,804 5,351 2,861 643 318

t=x+l For simplification, we create the ratio a as a = l/t so that l = at

REGIONAL INPUT-OUTPUT ANALYSIS: A BRIEF HISTORY

Agriculture Manufacturing Services Other Value Added Total Input

Agriculture Manufacturing Services Other

solving this equation for x yields x= (I-A)-1 y

Agriculture Manufacturing Services Other Industry Multipliers

REGIONAL INPUT-OUTPUT ANALYSIS

A COMPARISON OF THREE MAJOR REGIONAL ECONOMIC IMPACT MODELS

Advantages and Limitations of Input-Output Analysis

APPENDIX C: ECONOMIC IMPACTS OF COMBINED LATTICE-MONOPOLE SCENARIO

249 Towers 292,305,381.9 397,082,336.1 2,083.6 1,211.6 872.0 223,476.8 288,104.3

Per Tower 1,173,917.2 1,594,708.2 8.4 4.9 3.5 897.5 1,157.0

50% Lattice 146,152,691 198,541,168 1,042 606 436 111,738.4 144,052.2

249 Towers 337,510,475.3 497,893,589.7 2,600.1 1,599.6 1,000.4 249,751.3 320,077.6

Per Tower 1,355,463.8 1,999,572.6 10.4 6.4 4.0 1,003.0 1,285.5

50% Each 314,907,929 447,487,963 2,342 1,406 936 236,614 304,091

57,074,195.0 166,613,772.0 592 462 130 39,776 51,115

57,074,195.0 166,613,772.0 592 462 130 39,766 51,115

57,074,195.0 166,613,772.0 592 462 130 39,766 51,115

62,089,015.0 77,000,000.0 739 584 154 44,228.2 56,929.2

62,089,015.0 77,000,000.0 739 584 154 44,228.2 56,929.2

62,089,015.0 77,000,000.0 739 584 154 44,228.2 56,929.2

456,673,685 741,507,362 8,492,638 750,000,000 3,931 2,646 1,285 333,746 428,122

434,071,139 691,101,735 8,492,638 699,594,373 3,672 2,452 1,220 320,608 412,135

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