Just like any other trade, economics has its own language. The commonly used term ‘multiplier’ may seem mysterious and not something you might even notice, but it is an important tool that reveals much about business and our economy.
A ‘multiplier’ is simply a way to estimate and compare the economic impacts, such as the impact of adding or subtracting a business, jobs/services, goods, tasks, etc. The multiplier amount is typically represented in the form of a decimal (i.e. like 1.4). Sometimes, the multiplier may be an aggregate of related processes, phases, or relationships, or even a negative number.
These multiplier decimals are created through studies using fairly complicated bean-counter techniques which may apply to a specific point in time and place. The end result is often used to generate a numerical report or perhaps a summary statement similar to “For every $1 spent in tourism, the region has seen an increase of $Y in capital expenses and $Z in payroll.”
Let's take manufacturing. It was reported that in the fourth quarter 2018, that manufacturers contributed $2.38 TRILLION to the U.S. economy, accounting for 11.4 percent of the Gross Domestic Product. In terms of a multiplier, their summary statement would look something like "For every $1.00 spent in manufacturing, another $1.82 is added to the economy" which is one of the highest multiplier effects of any economic sector supporting the claim that four employees are hired for every one worker in manufacturing. 1/
We can measure the value of manufacturing activities and justify why it might be a high priority business to attract to our community. We also know that, like other businesses, they will need qualified talent to survive. It is estimated that over the next decade, 4.6 million manufacturing jobs will be needed and many of these could go unfilled due to a skills gap. The lack of talent provides an opportunity for future employees and a risk. A persistent skill shortage could cost $4.5 trillion in reduced output. 1/
At this point we can compare these figures to other businesses and activities and prioritize for the types of businesses we would want to attract and retain. Multipliers help us identify activities that can generate the most 'bang for the buck,' how much an activity contributes to the economy, and start the discussion over what is needed to support their continued success. It also let's us measure the impact in a community when a business is loss (a negative multiplier pops up).
Multipliers create a standardized way to analyze economic trends and performance over time and start the conversation of workforce development opportunities. Amazing!
1/ "Facts about Manufacturing" at https://www.nam.org/facts-about-manufacturing/
Business Recruiting Retention, & Expansion
We are all about Business recruiting/retention and expansion. But like any other topic, economics has some unique language such as Multipliers and Unicorns. The purpose of this Blog is to help clarify that language and concepts.