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