From the December 1997 SURVEY OF
CURRENT BUSINESS
This article is the second of two articles that present the 1992 benchmark input-output (I-O) accounts for the U.S. economy. Last month's article discussed the procedures used for the 1992 benchmark accounts and described the concepts and methods underlying the accounts; it presented, and illustrated how to use, the I-O make (production) table (table 1) and the use (consumption) table (tables 2.1 and 2.2)./1/ This article presents, and illustrates how to use, the three remaining basic I-O tables: The commodity-by-industry direct requirements for a dollar of industry output; the commodity-by-commodity total requirements, direct and indirect, for a dollar of delivery to final use; and the industry-by-commodity total requirements, direct and indirect, for a dollar of delivery to final use.
The I-O requirements tables are an important analytical tool because they show the interdependence among the producers and consumers in the economy. Using these tables, analysts can estimate the direct and indirect effects of changes in final uses on industries and commodities. For example, these tables can be used to analyze the relative effects on industries and commodities of a decrease in Federal Government consumption expenditures or of a change in the composition of personal consumption expenditures that results from a change in consumer tastes./2/
The commodity-by-industry direct requirements for a dollar of industry output are presented in two parts: Table 3.1 shows the input coefficients for each commodity that an industry requires to produce a dollar of output; table 3.2 shows component detail for the value-added input coefficients that an industry requires to produce a dollar of output. The input coefficients in both tables are also referred to as "direct requirements coefficients." The sum of the coefficients for total intermediate inputs and for the total value added for each industry is equal to 1.00000.
Tables 3.1 and 3.2 are derived from tables 2.1 and 2.2, respectively, by dividing each industry's commodity or value-added input by that industry's total output. However, table 3.1, unlike table 2.1, does not include the components of final uses or gross domestic product.
In table 3.1, each column shows, for the industry named at the head of the column, the input coefficients for the commodities and for the total value added that an industry directly requires to produce a dollar of output. Each row shows the commodity or the total value added that the industry requires. For example, to produce a dollar of output, the industry "radio and TV broadcasting" (column 67) has direct requirements for 2.1 cents (calculated as 100 cents × 0.02064 from the table) of the commodity "radio and TV broadcasting" (row 67) and 2.8 cents of the commodity "advertising" (row 73D).
In table 3.2, industries are shown in the rows, and the total output, the total intermediate inputs, and the components of value added that are required to produce a dollar of output are shown in the columns. For example, to produce a dollar of output, the industry "radio and TV broadcasting" (row 67) has direct requirements for 40.2 cents of total value added; these requirements consist of 28.6 cents of compensation of employees, 1.8 cents of indirect business tax and nontax liability, and 9.8 cents of "other value added." The industry has direct requirements for 59.8 cents of intermediate inputs, which are shown in detail in column 67 of table 3.1.
The information in table 3.1 can be used with the information in the make table (table 1 in last month's article) to trace the changes in an industry's output, as well as the changes in that industry's total requirements for other industries' output that result from a change in final uses of a commodity. For example, tables 1 and 3.1 can be used to trace the direct effects of a $1 billion increase in sales of household appliances to final users on all industries producing household appliances.
In table 1, the total output of the commodity "household appliances" (column 54) was $16,833 million. The industry "household appliances" (row 54) produced $16,033 million, or 95.2 percent, of this commodity; the industry "audio, video, and communication equipment" (row 56) produced $268 million, or 1.6 percent, and 18 other industries produced the rest. Based on these proportions, production in the household appliances industry would initially increase $952 million ($1 billion × 0.952) to meet the $1 billion increase in household appliances sold to final users. Production in the audio, video, and communication equipment industry would increase $16 million ($1 billion × 0.016), and production in the 18 other industries would increase $32 million.
Table 3.1 can then be used to determine the commodity inputs required by each industry to produce its share of the $1 billion of household appliances sold to final users. The commodities required by the household appliances industry will be traced first. For example, column 54 in table 3.1 shows that the household appliances industry would require, in addition to other commodity inputs, $1.2 million ($952.0 million × 0.00126) of the commodity "household appliances" (row 54); to provide this commodity input, the industry's production would have to increase an additional $1.1 million ($1.2 million × 0.952). Thus, the increase in the production of the household appliances industry would be $953.1 million ($952.0 million for final users plus $1.1 million for its own intermediate use). In turn, this production would require $65.1 million ($953.1 million × 0.06835) of primary iron and steel manufacturing (row 37), $83.0 million ($953.1 million × 0.08710) of rubber and miscellaneous plastics products (row 32), and so on down the column. From table 3.2, the value added required by the household appliances industry would total $335.9 million ($953.1 million × 0.35243). Of this total, $200.9 million ($953.1 million × 0.21075) is for compensation of employees, $7.4 million ($953.1 million × 0.00781) is for indirect business tax and nontax liability, and $127.6 million ($953.1 million × 0.13387) is for "other value added."
The information in tables 1 and 3.1 can now be used to trace the continuing repercussions of the $953.1 million of additional output produced by the household appliances industry on the output of other industries. For example, to supply the primary iron and steel required by the household appliances industry, the industry "primary iron and steel manufacturing" (column 37 in table 3.1) requires $12.0 million ($65.1 million × 0.18508) of the commodity "primary iron and steel manufacturing" (row 37 in table 3.1)—of which it produces $11.8 million ($12.0 million × 0.987 derived from table 1) and all other industries produce $0.2 million ($12.0 million × 0.013). Other commodities required by the primary iron and steel manufacturing industry include $1.3 million ($76.9 million × 0.01663) of general industrial machinery and equipment (row 49), $1.4 million ($76.9 million × 0.01762) of coal mining (row 7), and so on. Similarly, all the other industries that produce primary iron and steel manufacturing (column 37 in table 1) as secondary products—such as primary nonferrous metals manufacturing (row 38 in table 1)—would also require commodities to produce their shares of the output of primary iron and steel manufacturing that is required by the household appliances industry.
Similarly, the continuing effects on each industry producing its share of the $1 billion of household appliances sold to final users can be traced, and the increase in production required from each industry can be derived. For each industry that produces household appliances, either as a primary product or as a secondary product, the direct requirements coefficients corresponding to that industry are used from table 3.1. For example, for household appliances as a primary product of the household appliances industry, the direct requirements coefficients from column 54 in table 3.1 are used; for household appliances as a secondary product of the audio, video, and communication equipment industry, the coefficients from column 56 are used.
This section presents the two total requirements tables: The commodity-by-commodity total requirements table (table 4) and the industry-by-commodity total requirements table (table 5). These tables—which combine the information in tables 1 and 3.1—completely trace and summarize as a multiplier the continuing repercussions of a dollar change in the final use of a specified commodity./3/
The commodity-by-commodity total requirements table.—Table 4 shows the inputs of each commodity that are directly and indirectly required to deliver a dollar of the commodity to final users. Each column shows the commodity delivered to final users, and each row shows the total production of the commodity that is required. The coefficients in this table are referred to as "commodity-by-commodity total requirements coefficients." The table is derived from both the make and use tables.
In the household appliances example, the total requirements for each commodity can be calculated from the entries in column 54. Providing consumers with $1 billion of household appliances would require $1,001.3 million ($1 billion × 1.00133) of household appliances (row 54) from all industries. Similarly, it would require $15.3 million ($1 billion × 0.01530) of paperboard containers and boxes (row 25), $51.5 million ($1 billion × 0.05153) of plastics and synthetic materials (row 28), and so on.
The total at the bottom of each column in table 4 is the sum of all the changes in commodity outputs that are required to deliver a dollar of a commodity to final users. Because each total change is a dollar multiple of the initial dollar spent for the output of the given commodity, the total change in output is often called the total commodity output multiplier.
These multipliers can be used to estimate the impact of changes in the final uses of commodities on total commodity output. For example, for the household appliances commodity (column 54), the total commodity output multiplier is 2.33419 (the sum of all the entries in the column). The total dollar change in all commodity output that is required for an additional $1 billion of household appliances delivered to final users is $2,334.2 million ($1 billion × 2.33419).
The industry-by-commodity total requirements table.—Table 5 shows the input requirements coefficients for the output from each industry that is directly and indirectly required to deliver a dollar of a commodity to final users. Each column shows the commodity delivered to final users, and each row shows the total production that is required from an industry. The coefficients in this table are referred to as "industry-by-commodity total requirements coefficients." The table is also derived from both the make and use tables.
The calculations made using this table are similar to those using the commodity-by-commodity total requirements table. For example, to provide final users with an additional $1 billion of household appliances, the household appliances industry (row 54) is required to produce $954.3 million ($1 billion × 0.95433) of industry output; the paperboard containers and boxes industry (row 25) is required to produce $15.5 million ($1 billion × 0.01545) of industry output, the plastics and synthetic materials industry (row 28) is required to produce $45.1 million ($1 billion × 0.04510) of industry output, and so on.
The total at the bottom of each column in table 5 is the sum of all the changes in industry outputs that are required to deliver a dollar of a commodity to final users. Because each total change is a dollar multiple of the initial dollar spent for the output of the given industry, the total change in output is often called the total industry output multiplier.
These multipliers can be used to estimate the impact of changes in the final uses of commodities on total industry output. For example, the total industry output multiplier for the household appliances commodity (column 54) is 2.31873 (the sum of all the entries in the column). The total dollar change in the output of all industries that is required for an additional $1 billion of household appliances delivered to final uses is $2,318.7 million ($1 billion × 2.31873).
Comparison of total multipliers.—The total multipliers in tables 4 and 5 are similar but not identical. The main reason for the difference is that the total commodity output multipliers in table 4 include "noncomparable imports," which by definition, do not have a domestic industry counterpart and are not included in the total industry output multipliers in table 5.
When using the two total requirements tables, one should be aware that the amount of output required to deliver a dollar of commodity to final users may include both imported commodities and domestically produced commodities. However, both the total commodity output multiplier and the total industry output multiplier represent the output required as if all of the commodity were domestically produced. Therefore, if a portion of the commodity was imported, the impact on domestic output would be lower than that implied by the multiplier.
Footnotes:
1. Ann M. Lawson, "Benchmark Input-Output Accounts for the U.S. Economy, 1992: Make, Use, and Supplementary Tables," SURVEY OF CURRENT BUSINESS 77 (November 1997): 36–82.
2. As noted in last month's article, analysts using the I-O tables to estimate the effects of changes in final uses on industries and commodities need to be aware of the underlying I-O assumptions. For example, the I-O tables are based on a set of relationships that exist between producers and consumers in a given year; these relationships reflect constant technology and relative prices. The interindustry relationships reflect the average input structure in each industry for that year, but these relationships do not necessarily reflect those of an additional unit of production. Therefore, for analyses that require alternative assumptions, other economic tools may be required.
3. The final-use multipliers presented in this article identify the cumulative effects on total industry and commodity outputs that result from a change in final use. In contrast to conventional macroeconomic multipliers that measure the cumulative impact on final output of a policy change, such as the decline in GDP that results from a reduction in government spending, these final-use multipliers measure the impact of a change in final demand (uses) on gross output (final and intermediate output). Indeed, shifts in the composition of final uses can have a "multiple" impact on industry and commodity output but can have no effect on the level of total GDP.