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 RIMSII 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.

The implied multiplier using local purchases and labor supply estimates is 14.4 new local jobs per $1million 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