Structural Change in the Induced Effects Model of the Washington State Economy: Evidence from

Seven Input-Output Models

William B. Beyers Department of GeographyUniversity of Washington

Dr. Ta-Win Lin Office of Financial Management

State of Washington

Outline of PaperI. IntroductionII. Background LiteratureIII. Data Base – History of the Washington Models &

Standardization ProceduresIV. Results

A. Change in OutputB. Change in Interindustry Structure, in the induced

effects linkage system, and output distribution due to final demand

C. Change in Employment RequirementsD. Changing Components of Final Demand

V. Concluding Comments

Background

• Leontief and Carter’s pioneering research

• Early national tests

• Early regional tests– The presumption of instability– Early data from Washington State– Early data from other region– Challenges—getting data into a consistent

sectoring scheme with constant prices

History of the Washington I/O models

• Models benchmarked against 1963, 1967, 1972, 1982, 1987, 1997, and 2002

• Each of these are Economic Census years• Sectoring scheme has changed not only due

to changes in SIC and NAICS, but also due to changes in the importance of industries in the state economy, especially the changing relative importance of goods versus services production

Standardizing Prices• The models were first converted to a common

sectoring scheme• Price indices were developed from BLS national

producer price series, and were applied to sales distributions of sectors

• Excluded from this are estimates for value added and imports, but we will make these estimates soon

• The roughly 50 sectors in each of the models were found to be comparable at the level of 25 sectors.

Industry SIC1987 NAICS20021. Agriculture 01 & 02 111, 1122. Fishing & Foresty 08 & 09 113 (Incl. state forests, etc.), 1143. Mining 10-14 214. Food Products 20 311, 3125. Textiles & Apparel 22-23 313, 314, 3156. Lumber & Wood Products 24 3217. Pulp & Paper products 26 3228. Printing & publishing 27 323, 51119. Chemicals 28 32510. Petroleum 29 32411. Stone, clay & glass 32 32712. Primary metals 33 33113. Fabricated Metals 34 33214. Industrial, Electrical & Instruments 35 & 36 & 38 333, 334, 335, 339115. Aerospace 372, 376 336416. Ship & Boat Building 373 3366 (Incl. federal/PSNS)17. Other Transport eq. 371, 374, 375, 379 3361, 3362, 3363, 3365, 336918. Other Mfg (incl. Furniture) 25, 30, 31, 39 316, 326, 337, 339919. Construction 15-17 236-23820. Transportation services 40-47 (inc. Post Office, etc. public ports ???)481, 482, 483 (Incl. Ferry), 484, 485, 486, 487, 488, 491, 492 (Incl. transit), 49321. Utilities 49 (incl public utilities) 2211 (Incl. public, BPA, etc.), 2212 (Incl. public), 2213 (Incl. public)22. Communications 48 51723. Trade 50 - 59 423-425, 44-45, 72224. FIRE 60 - 67 521, 522, 523, 524, 525, 5325. Services 70 - 89 115, 51 (excl. 5111, 517), 54, 55, 56, 61, 62, 71, 721, 81

8a. Printing 275, 276, 278, 279 3238b. Publishing 271-274, 277 5111

25a. Business Services 73, 81, 87, 89 5112, 518, 54, 55, 25b. Health Services 80 6225c. Other Services 07, 097, 70, 72, 75-79, 82-84, 86, 88 115, 512, 515, 516, 518, 519; 56, 61, 71, 721, 81

Industrial machinery and equipment 35 333Electrical machinery 36 334Instruments 38 335

3391

Sectoring Scheme

Deflator SeriesSector Name

I-O Sectors 1963 1967 1972 1982 1987 1997 2002

Agriculture IO-C-01 0.714 0.758 1.000 1.868 1.736 2.073 1.682 Fishing & Forestry IO-C-02 0.558 0.662 1.000 1.480 2.176 3.502 3.098 Mining IO-C-03 0.868 0.905 1.000 2.807 3.056 3.605 3.796 Food Products IO-C-04 0.769 0.827 1.000 2.043 2.188 2.725 2.798 Textiles & Apparel IO-C-05 0.822 0.862 1.000 1.761 1.895 2.206 2.188 Lumber & Wood Products IO-C-06 0.659 0.722 1.000 2.013 2.240 3.337 3.280 Pulp & Paper products IO-C-07 0.839 0.885 1.000 2.402 2.745 3.471 3.713 Printing and Publishing IO-C-08 0.717 0.807 1.000 2.235 2.902 4.280 4.508 Chemicals IO-C-09 0.938 0.959 1.000 2.641 2.919 4.109 4.235 Petroleum IO-C-10 0.884 0.924 1.000 6.263 4.036 4.899 5.711 Stone, clay & glass IO-C-11 0.765 0.786 1.000 2.431 2.663 3.254 3.481 Primary metals IO-C-12 0.728 0.793 1.000 2.518 2.613 3.229 3.033 Fabricated Metals IO-C-13 0.738 0.805 1.000 2.394 2.541 3.140 3.350 Industrial, Electrical & Instruments IO-C-14 0.791 0.852 1.000 2.087 2.550 2.447 2.603 Aerospace IO-C-15 0.744 0.813 1.000 2.501 2.689 3.300 3.600 Ship & Boat Building IO-C-16 0.745 0.786 1.000 2.345 2.795 3.680 4.072 Other Transport eq. IO-C-17 0.804 0.831 1.000 2.226 2.466 2.934 2.884 Other Mfg IO-C-18 0.807 0.854 1.000 2.237 2.620 3.368 3.984 Construction IO-C-19 0.645 0.726 1.000 2.384 2.730 3.692 4.475 Transportation services IO-C-20 0.738 0.777 1.000 2.224 2.276 2.883 2.972 Utilities IO-C-21 0.830 0.824 1.000 4.336 4.192 5.074 5.507 Communications IO-C-22 0.822 0.870 1.000 1.496 1.925 2.307 2.016 Trade IO-C-23 0.724 0.807 1.000 2.036 2.178 2.786 2.660 FIRE IO-C-24 0.693 0.774 1.000 2.015 2.561 3.701 4.090 Services IO-C-25 0.657 0.770 1.000 2.297 3.011 4.499 5.012 Earnings 0.7839 0.8177 1 2.42 2.7805 3.7283 3.8343

IV. Analyses of Change

A. Change in OutputB. Change in Interindustry Structure, in

the induced effects linkage system, and output distribution due to final demand

C. Change in Employment RequirementsD. Changing Components of Final Demand

Trends in Output In Broad Sectors 1963-2002

$0

$5,000

$10,000

$15,000

$20,000

$25,000

1963 1967 1972 1982 1987 1997 2002

Ou

tpu

t ($

1972

in

mil

lio

ns)

NaturalResources

Food Products

ForestProducts

Aerospace

OtherManufacturing

Construction

Transport,Communications & UtilitiesTrade

FIRE

Services

Shares of Output By Broad Sector

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1963 1967 1972 1982 1987 1997 2002

Services

FIRE

Trade

Transport, Communications& Utilities

Construction

Other Manufacturing

Aerospace

Forest Products

Food Products

Natural Resources

Change in Interindustry Structure and Output Distribution due to Final Demand

% Intermediate in Washington State

21%

22%

23%

24%

25%

26%

27%

1963 1967 1972 1982 1987 1997 2002

Sh

are

of

To

tal

Pu

rch

ases

% Intermediate Constant$

% Intermediate Nominal$

Share of Intermediate Sales by Broad Sector

0%

20%

40%

60%

80%

100%

1963 1967 1972 1982 1987 1997 2002

Sh

are

of

Inte

rmed

iate

Sal

es

Services

F.I.R.E.

Trade

Transportation,Communications, Utilities

Construction

Other Mfg.

Aerospace

Forest Products

Food Products

Natural Resources

Elements of the Induced Matrix$ from 2002 model

0Earnings $127.3 billion32% of total purchases

InterindustryTransactions

$95.1 billion24% of total purchases

P.C.E

$102.9Billion

67% of Totalearnings

Shares of Intermediate and Personal Consumption Expenditures

4066

5014

5907

9276

13398

20578

25863

5031

6425

7107

9701

13251

20697

28446

0% 20% 40% 60% 80% 100%

1963

1967

1972

1982

1987

1997

2002

Intermediate

PCE

$1972 Billions

Composition of Inputs

Sectoral Composition of Purchases

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1963 1967 1972 1982 1987 1997 2002

Other Value Added & Imports

Earnings

Intermediate

PCE / Earnings Ratios

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1963 1967 1972 1982 1987 1997 2002

Sh

are

of

Den

om

inat

or

PCE/Total Earnings

Industrial Earnings/TotalEarnings

Industrial Earnings/TotalPurchases

Mix of Overall PCE

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1963 1967 1972 1982 1987 1997 2002

Imports to WA P.C.E.

Value Added P.C.E.

Washington P.C.E.

Composition of Personal Consumption Expenditures –Share of total declined from 24% in in 1963 to 11% in 2002

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1963 1967 1972 1982 1987 1997 2002

Services

FIRE

Trade

Communications

Utilities

Transportation services

Construction

Other Mfg

Other Transport eq.

Ship & Boat Building

Aerospace

Industrial, Electrical & Instruments

Fabricated Metals

Primary metals

Stone, clay & glass

Petroleum

Chemicals

Printing & publishing

Pulp & Paper products

Lumber & Wood Products

Textiles & Apparel

Food Products

Mining

Fishing & Foresty

Agriculture

PCE except Services, Trade, FIRE, and Communications

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1963 1967 1972 1982 1987 1997 2002

Utilities

Transportation services

Construction

Other Mfg

Other Transport eq.

Ship & Boat Building

Aerospace

Industrial, Electrical & Instruments

Fabricated Metals

Primary metals

Stone, clay & glass

Petroleum

Chemicals

Printing & publishing

Pulp & Paper products

Lumber & Wood Products

Textiles & Apparel

Food Products

Mining

Fishing & Foresty

Agriculture

Induced Effects Output Multipliers

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

2.00

1963 1967 1972 1982 1987 1997 2002

(1) Direct & Indirect Avg.Multiplier

(2) Direct, Indirect, &Induced Average Multiplier

Ratio (2/1)

Correlations Induced Output Multipliers

1963 1967 1972 1982 1987 1997 1967 .916 1972 .799 .763 1982 .648 .688 .777 1987 .641 .606 .851 .856 1997 .646 .634 .706 .829 .890 2002 .569 .568 .610 .640 .766 .800

N=26 for each pair of correlationsAll are significant at the .01 levelCorrelations weaken with time

Scattergram of 1963 & 2002 Type II Output Multipliers

MULT02

2.62.42.22.01.81.61.41.2

MU

LT6

32.4

2.2

2.0

1.8

1.6

1.4

R2 = .57

Earnings Ratios Induced Effects Models

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1963 1967 1972 1982 1987 1997 2002

0.0

0.5

1.0

1.5

2.0

2.5

Average Direct EarningsCoefficient (Left Scale)

Average Total Earnings/$Final Demand (Left Scale)

Ratio Total/DirectEarnings (Right Scale)

Correlations of Induced Earnings Multipliers

1963 1967 1972 1982 1987 1997 1967 .856 1972 .780 .699 1982 .614 .714 .766 1987 .749 .692 .877 .848 1997 .729 .737 .730 .825 .916 2002 .698 .697 ,750 .797 .886 .922

N = 26 for each pair of correlationsAll are significant at the .01 levelAs with Output Multipliers, values weaken with time

Output with constant 2002 Final demand

0% 20% 40% 60% 80% 100%

1963 - $107.0

1967 - $100.3

1972 - $100.3

1982 - $102.8

1987 - $110.6

1997 - $109.7

2002 - $107.0

Natural Resources

Food Products

Forest Products

Aerospace

Other Mfg.

Construction

Transportation Services

Utilities

Communications

Trade

FIRE

Services

Change in Employment Requirements

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Ag

ricu

ltu

re

Fis

hin

g &

Min

ing

Fo

od

Pro

du

cts

Tex

tile

s &

Lu

mb

er &

Wo

od

Pu

lp &

Pap

er

Pri

nti

ng

&

Ch

emic

als

Pet

role

um

Sto

ne,

cla

y &

Pri

mar

y m

etal

s

Fab

rica

ted

Ind

ust

rial

,

Aer

osp

ace

Sh

ip &

Bo

at

Oth

er T

ran

spo

rt

Oth

er M

fg

Co

nst

ruct

ion

Tra

nsp

ort

atio

n

Uti

litie

s

Co

mm

un

icat

ion

s

Tra

de

FIR

E

Ser

vice

s

Em

plo

ym

en

t p

er

$m

illio

n 1

97

2$

Yr 1967

Yr 2002

Jobs Required to Meet 2002 Final Demands and Output Per Job

0

1000000

2000000

3000000

4000000

5000000

6000000

1963 1967 1972 1982 1987 1997 2002

Job

s B

ased

on

Pro

du

ctiv

ity

by

Yea

r

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Co

nsa

nt

$197

2

Employment

Output per Job

Employment Related To 2002 Final Demand

0

1000000

2000000

3000000

4000000

5000000

6000000

1963 1967 1972 1982 1987 1997 2002

Job

s R

equ

ired

to

Su

pp

ort

200

2 F

inal

Dem

and

Natural Resources

Food Products

Forest Products

Aerospace

Other Mfg.

Construction

Transport Services

Utilties

Communications

Trade

FIRE

Services

Share of Output Among Major Categories of Demand

0% 20% 40% 60% 80% 100%

1963

1967

1972

1982

1987

1997

2002

Share of Output ($1972)

Intermediate

PCE

Investment

S&L

Federal

ExUS

ExFor

Tables 6 and 7- Sales in Constant $, and Percentages in this figure

Share of Regional Final Demand

0% 20% 40% 60% 80% 100%

1963

1967

1972

1982

1987

1997

2002

Share of Regional Final Demand

PCE

Investment

S&L

Composition of Regional Final Demand by Aggregate Sector

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1963 1967 1972 1982 1987 1997 2002

Services

F.I.R.E.

Trade

Transportation,Communications, Utilities

Construction

Other Mfg.

Aerospace

Forest Products

Food Products

Natural Resources

Share of Export Base

0% 20% 40% 60% 80% 100%

1963

1967

1972

1982

1987

1997

2002

Share of Export Base ($1972)

Federal

ExUS

ExFor

Sectoral Composition of Exports

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1963 1967 1972 1982 1987 1997 2002

Services

F.I.R.E.

Trade

Transportation,Communications, Utilities

Construction

Other Mfg.

Aerospace

Forest Products

Food Products

Natural Resources

Conclusions and Future Analysis (1)

• This paper provides an unparalleled view of structural change in a region of the U.S. economy

• The data reported here may be quite different in other states

• Output has had a major realignment since the 1963 Washington Input-Output Model, labor productivity has shown major changes, and the level of exports has risen, particularly to foreign countries

Conclusions and Future Analysis (2)• We need to extend the analysis of non-

earnings components of value added• We also need to include estimates of changing

imports• We look forward to comments on this paper.• We realize that there are major statistical

issues associated with the analyses reported here, but we believe that this paper provides a sound perspective on structural change in a growing regional economy in the United States