1. When it comes to the ripple effects that spread to the rest of the labor market, one lost dollar of economic output or one lost job is not the same as another.
2. Each industry has backward linkages to economic sectors that provide the materials needed for the industry’s output, and each industry has forward linkages to the economic sectors where the industry’s workers spend their income.
3. Therefore, in addition to the jobs directly supported by an industry, a large number of indirect jobs may also be supported by that industry. The subtraction (or addition) of jobs and output in industries with strong backward and forward linkages to other economic sectors can cause large ripple effects.
4. This brief calculates employment multipliers by industry to illustrate the importance of these linkages, updating earlier work by Bivens (2003) and Baker and Lee (1993). Employment multipliers measure how the creation or destruction of output or employment in a particular industry translates into wider employment changes throughout the economy.
BACKGROUND AND FINDINGS
1. Production in a given economic sector involves linkages with other sectors—that is, production in one industry depends on suppliers in other industries (backward linkages), while wages earned in the production and supplier sectors are spent in other economic sectors (forward linkages).
2. In the case of automobile production, there are backward linkages to industries that produce tires, glass for windshields, and steel for automobile frames (among many others). Forward linkages occur when automobile workers (and suppliers’ employees) spend their income in restaurants and retail stores and at the doctor (to name just a few).
3. Industries that are heavy users of materials are vital to their suppliers. If an automobile factory were to close, its suppliers in the glass, steel, and rubber industries would have a big hole to fill in demand for their own output. Industries that pay higher wages are vital to their forward-linked industries. If a steel factory closed, surrounding restaurants and retail malls would also have a big hole to fill in demand for their output.
4. There are two obvious ways to measure how intensive an industry’s backward and forward linkages are to the rest of the economy. The first estimates the ripple effects of a given number of jobs being lost directly in an industry. In this case, the direct job loss is assumed to be, say, 100, and then the resulting backward and forward ripple effects can be estimated. The second takes a given dollar value of final demand for an industry’s output and calculates how much of this final demand spills over into backward- and forward-linked industries.
5. An example would be assessing the impact of a fall of $1 million in final demand for autos (that is, $1 million less being spent on cars by consumers). This fall in final demand would cost jobs directly in the auto production industry, but would also cause demand to fall in supplier industries and in forward-linked industries that rely on automobile workers (and on workers in the supplier industries) to purchase their output. With the right data, researchers can empirically estimate the number of jobs lost in each link of these chains.
6. There are virtues and drawbacks to both the output and the employment measures as the bases of employment multipliers (as discussed in the methodology appendix); this paper presents estimates using both measures.
7. The summary findings for major industry groups are provided in Tables 1 and 2. The appendix describes our methodology in detail, and Appendix Tables A1 and A2 provide the employment multipliers for all 179 industries tracked by the data sources we use in this paper. Finally, an accompanying spreadsheet providing the raw data is being released with this paper for those interested in exploring the multipliers.
* Includes materials and capital services supplier jobs
** Includes jobs supported by respending of income from direct jobs and supplier jobs, as well as public-sector jobs supported by tax revenue
Notes: See methods appendix for derivation. The industry-specific multipliers from Appendix Table A1 are weighted and summed across industries within major industry groups to get the multipliers in this table. For the per-100-jobs multipliers, the weight used is hours of work (weights are included in the Bureau of Labor Statistics Employment Requirements Matrices data).
Source: EPI analysis of data from the Bureau of Labor Statistics (BLS) Employment Requirements Matrices, the BLS Current Employment Statistics program, and the Bureau of Economic Analysis GDP-by-industry accounts
* Includes materials and capital services supplier jobs
** Includes jobs supported by respending of income from direct jobs and supplier jobs, as well as public-sector jobs supported by tax revenue
Notes: See methods appendix for derivation. The industry-specific multipliers from Appendix Table A2 are weighted and summed across industries within major industry groups to get the multipliers in this table. For the per-$1-million multipliers, the weight used is an output weight (weights are included in the Bureau of Labor Statistics Employment Requirements Matrices data).
Source: EPI analysis of data from the Bureau of Labor Statistics (BLS) Employment Requirements Matrices, the BLS Current Employment Statistics program, and the Bureau of Economic Analysis GDP-by-industry accounts
CONCLUSION
1. An understanding of employment multipliers—the degree of backward and forward linkages that exists between industries—may often be useful to policymakers and analysts. As an example, the three largest U.S. automobile firms (General Motors, Ford, and Chrysler) directly employ substantially less than 200,000 workers in the United States.
2. Yet it was widely (and correctly) considered imperative among policymakers to not let these firms fail and become casualties of the financial crisis of late 2008. This belief from policymakers was driven by the fully rational fear that the substantial backward and forward linkages from auto assembly jobs would be large enough to cause mammoth ripple effects throughout the economy. Without understanding the scope of these effects, this decision would be harder to understand.
Souce:
https://www.epi.org/publication/updated-employment-multipliers-for-the-u-s-economy/
