Example of Bill-of-goods Method

 

If detailed data on a firm’s local purchases of goods and services (including labor) are available, then these “bill-of-goods” data should be used to estimate the impact of a final-demand change. 

 

Purchases must be valued in producer prices, which exclude wholesale and retail margins and transportation costs, before using the multipliers.  The national Distribution Costs tables on the RIMS II online order and delivery system website contain data that can be used to separate purchases valued in purchaser prices into the production costs, transportation costs, and wholesale and retail margins. 

 

In the bill-of-goods method, the initial change is added to the sum of impacts of the locally produced outputs that are purchased to account for the total change in economic activity. 

 

Information Assumed in the Bill-of-goods Example

 

Suppose that a local university plans to construct a $10 million health care facility. This estimate includes the construction of the building, but does not include the purchase of medical equipment.

 

·          Final-demand change—$10 million increase in demand for construction. 

 

·          Affected industries—Local industries that produce and distribute the goods and services purchased for the construction project. 

 

·          Labor—The project will require 116 full-time and part-time construction workers.  75% of the construction workers on the project will reside in the region.

 

·          Affected region—A region where most of the construction employees reside and most of the goods and services purchased for the project can be produced by firms in the area.

 

The implied multiplier using local purchases and labor supply estimates is 14.4 new local jobs per $1 million of new construction.  Table 1 further illustrates the derivation of this multiplier.

Table 1. Bill-of-goods Approach Assuming 75% of Jobs Sourced to Local Labor and Purchases of Locally Produced Inputs

Purchases/Expenditures

Regional purchases in producers' prices

Final-demand employment multiplier
(jobs)

Employment impact
(jobs)

Employee earnings

$3,356,244

10.6365

35.70

 

Architectural, engineering, and related services

$642,286

15.8886

10.21

 

Wholesale trade

$299,453

11.6000

3.47

 

Plate work and fabricated structural product manufacturing

$115,439

11.1470

1.29

 

Ornamental and architectural metal products manufacturing

$170,165

12.7232

2.17

 

Air conditioning, refrigeration, and warm air heating equipment manufacturing

$43,901

8.3076

0.36

 

Wood windows and doors and millwork

$16,761

10.7359

0.18

 

Monetary authorities and depository credit intermediation

$85,034

10.4901

0.89

 

Other concrete product manufacturing

$104,195

12.6422

1.32

 

Commercial and industrial machinery and equipment rental and leasing

$83,873

11.3279

0.95

 

Petroleum refineries

$3,734

5.3173

0.02

 

Material handling equipment manufacturing

$1,043

10.1330

0.01

 

Subtotal

$4,922,129

n.a.

56.57

 

Plus: Initial change

$10,000,000

n.a.

87.00

 

Total

n.a.

n.a.

143.57

 

Implied final-demand employment multiplier

n.a.

14.36

n.a.

 

   * Calculation of implied final-demand employment multiplier:  143.57 ÷ $10 million = 14.36