One of the primary uses for the models that REAL has developed is in impact analysis; the types of applications are incredibly varied. In some cases, clients are interested in estimating the impact of an event on the region or community in which it was located; in other instances, the interest centers on “what if…?” type of questions. A good example here would be the evaluation of alternate school reform proposal on the Illinois economy.
What analysts have learned is that the direct impact of an event or activity is not necessarily a good predictor of the total impact on an economy. For example, few would think that tourism expenditures would have a major impact on the manufacturing sectors of an economy – until one begins to trace through some of the expenditures made by tourists. Hotels require processed food products, furniture, bed linens and other manufactured products – as do restaurants; the average tourist may allocate 30 to 40% of his/her direct expenditures on these two categories (hotels and eating and drinking) and when the indirect effects are traced, a large percentage of them end up in the manufacturing sector. However, that may be true in terms of the volume of flows (i.e. the dollar values); when these impacts are translated into jobs, the total impacts are still very heavily concentrated in the service sectors.
Uses
Impact analysis is used for a variety of purposes; in many cases, sponsors of events (such as art exhibitions, marathons, auto shows) are interested in understanding just how extensive the economic impact is on the local economy. In other cases, firms and their consultants use impact analysis as part of proposals for tax relief – on the assumption that the indirect effects of a new activity might offset any losses of tax revenue associated with the opening of a new firm. REAL has also used impact analysis to generate impacts of electricity deregulation, riverboat casino gambling and the potential impact of restrictions on airport capacity. In Brazil, alternative government investment programs in the state of Minas Gerais were evaluated in terms of their impacts on job creation – as well as the potential, long-term benefits to the competitiveness of the state’s economy.
Who uses
Users vary from individual firms, government agencies, consultants working for a variety of public and private clients – as well as academics who are interested in the way regional economies respond to shocks (for example, the impacts of defense cuts and reallocation of the federal budget from defense to non-defense spending). The City Colleges of Chicago are using REAL’s occupational forecast system to assist in the design and re-design of curricula to meet the needs of the market place in the next decade.
Examples
REAL has undertaken a variety of impact analyses; some representative examples are shown below.
Economic Impact of the Gas Price Shock in Chicago
Geoffrey J.D. Hewings and John JY Seo (June 13, 2000)Impact of the Monet Exhibition at The Art Institute of Chicago
[Client: The Art Institute of Chicago]
Cultural tourism and urban-centered tourism are two of the fastest growing areas in a sector that is itself growing rapidly. REAL undertook an impact of this several month long exhibition; a survey was administered to visitors to ascertain whether the primary reason for their visit to Chicago was the exhibition or the degree to which their visit was lengthened by the presence of the exhibition. Almost 1 million visits were made to this exhibition and 55,000 new members joined the Art Institute; the direct impact amounted to $140 million and through the ripple effects, the total impact was estimated to be $393 million. For local businesses (such as hotels and restaurants, the impact was especially significant since they were able to accommodate the influx of visitors over an extensive period without having to hire additional staff. The magnitude of the total impact created a great deal of attention – both in the US and abroad – and highlighted the role that events of this kind can play in enhancing the economic vitality of a region’s economy.
Impact of Airport Capacity Limitations on the Chicago Regional Economy
[Civic Committee of the Commercial Club of Chicago]
For the last several years, an intense debate has swirled around the Chicago region about the role that the airport system plays in the economic vitality of the region. Attention has focused on options to expand O’Hare (opposed by many suburban localities) or to build a third airport south of the city (opposed by the major airlines). REAL undertook analysis designed to show the relationship between airport capacity and employment growth – without specifying whether this capacity enhancement might take place in existing facilities or in a new facility. The results indicated the potential for dampening employment levels by 11% by the year 2018 – that translates into 400-500,000 jobs – if capacity levels were to remain at or near current levels.
Impact of the LaSalle Banks Chicago Marathon
[Client: LaSalle Bank]
The annual LaSalle Banks Chicago Marathon now attracts over 15,000 participants; since many of these participants come from out-of-state (and an increasing number are international), they tend to stay for several days bringing additional spending capacity into the region. REAL estimated that the 1996 race generated about $30 million worth of economic activity in the region and the equivalent of over 500 jobs.
Impact of the New Madrid Earthquake on the Midwest Economy
[Client: Midwest Earthquake Center/National Science Foundation]
Scientists have estimated that sometime in the next two decades, there is a very high probability that the New Madrid fault in southern Illinois will generate a significant earthquake with the potential to disrupt major east-west traffic flows, and potentially cause damage to the Memphis and St. Louis airports. REAL is part of a multi-disciplinary, multi-university team that is attempting to identify to major transport flows within and across this region to provide information to engineers about where to direct investment in improving the earthquake-resistance of highways and railroad systems in the region. Part of the information will be generated from REAL’s study of Midwest Interstate Trade.
Impact of Electricity Deregulation on the Chicago Economy
[Client: Crain’s Chicago Business]
With deregulation of the electricity industry imminent in Illinois, attention has been directed to the potential impact of this change on the economy. REAL estimated that a 30% cut in electricity rates would generate an additional 20-30,00 new jobs in the Chicago region while boosting annual income by $2 billion. The assumptions made suggested that consumers would direct a large portion of energy cost savings into consumption while it was assumed that businesses might opt to either lower prices, increase output or allocate the savings to wages or profits.
Impact of the Democratic National Convention on the Chicago Region
[Client: Democratic National Committee]
In 1996, the Democratic National Convention was held in Chicago; REAL estimated that the event generated about $360 million worth of activity in the region.
Impact of Tourism on the Chicago Region
[Client: Office of Tourism, State of Illinois]
For 1995, REAL estimated that all forms of tourism generated about 690,000 jobs state-wide and $7.8 billion of taxes. International tourism expenditures recorded an 8.75% increase between 1994 and 1995 – far in excess of the average growth for any sector in Illinois. However, the $1.2 billion of expenditures are heavily concentrated in the Chicago region. Taken as a whole, Illinois tourism supports, directly and indirectly about 1 in 10 jobs within the state. While the direct effects are concentrated in a relatively small number of sectors (the hotel and motel industry, retail trade, restaurants, entertainment and transportation), the indirect effects are spread throughout the economy. Many jobs in manufacturing may be traced to tourism (especially in the food and kindred products sector, providing a variety of food products to restaurants). On average, a tourism dollar spent in Illinois generates an additional dollar elsewhere in the economy; a direct job translates into a little over another job. Thus the ripple effect is about 2. Taxes generated amount to over $7.7 billion in 1995, a 4.3% increase over 1994.