1. Identifying Impacts
When an employer announces a closure or layoff, the community’s first response should be to assess the total potential impact. It is important to realize that the loss of one company and even a relatively small number of jobs can have a fairly dramatic effect on the community. In Table 1 we have removed 100 jobs from the automotive manufacturing sector (specifically, NAICS 336332: Other motor vehicle electric equipment manufacturing) in one local area to illustrate how a change in that industry affects other parts of the economy.
The results, which were quickly generated using EMSI’s Economic Impact module, provide data on the potential “direct” and “indirect” impacts of losing 100 jobs. In this case the loss of 100 jobs creates a ripple effect of an additional 128 jobs in manufacturing and other seemingly non-related industry sectors.
The Direct Effects
What are direct effects? The direct effects are fairly easy to understand. The loss of 100 jobs has an initial impact of putting 100 people out of a job, and creates the loss of all of their income and spending on the region.
The Indirect and Induced Effects
What are indirect/induced effects? When a business scales back or people lose their jobs, this spills over into the rest of the local economy. First, there will likely be losses in the upstream supplier businesses that served the employer being analyzed. Next, people who lose their jobs will change their spending habits. This means they will likely have less money to spend at the doctor’s office, the grocery store, the local car dealer, and so on. They may also leave the area, taking their buying power with them.
In our example, the areas hit hardest because of indirect effects are: Manufacturing (another 20 jobs will be lost in manufacturing as a result of the first 100), Retail trade (21 jobs), Other services, except public administration (15 jobs), Health care and social assistance (13 jobs), and Government (12 jobs).
Summary
Job losses like this are obviously not good news for the community. However, if regional planners understand and harness this information they will have a very useful source of information at their disposal. Everyone from community colleges who need to know about the community’s training needs, chambers of commerce who need to understand how the business community will be affected, economic development groups who need to retain or recruit companies, and workforce boards who need to connect workers and businesses can use this information as credible source to understand what jobs will be affected and who might be in need of help.
More Resources
Read about how others use economic impact analysis in their own communities:
1. Jay Hardin, Workforce Alliance Inc, Palm Beach, FL
Read more about economic impact analysis from EMSI’s Senior Economist, Hank Robison.
1. The Common Pitfalls of Economic Impact Analysis
2. Who’s Afraid of IO?
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