Cutting Edge Economic Techniques for Assessing Regional Innovations


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Presentation by Rose Baker and David Passmore at 2008 Pennsylvania Workforce Investment Board Symposium in University Park, Pennsylvania, on 25 June 2008.

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  • Cutting Edge Economic Techniques for Assessing Regional Innovations

    1. 1. Cutting Edge Economic Techniques for Assessing Regional Innovations Rose M. Baker David L. Passmore
    2. 2. Penn State Workforce Education & Development Initiative Rose Baker David Passmore Program Manager Workforce Assessment Center & Assistant Professor of Education Professor & Director Penn State Institute for Research in Training & Development
    3. 3. Symposium presentation web site
    4. 4. Reports are available Through links on web site: • Two Economic & Workforce Brief reports. • Electricity rate cap study. • Gas royalty impact study. • Links to reports about records linkage processes.
    5. 5. Three assessment techniques
    6. 6. < Input–Output Analysis > • Economic & Workforce Brief Series •
    7. 7. The economy is like a ball of string < complex > < intertwined > < large > < unexpected >
    8. 8. Way to organize data < input-output tables > Summarize production & consumption.
    9. 9. producer/purchaser data… ind 1 ind 2 ind 3 ind 4 ind 1 ind 2 ind 3 ind 4 final demand total output producers purchasers
    10. 10. Producing & purchasing multiplies… ind 1 ind 2 ind 3 ind 4 ind 1 ind 2 ind 3 ind 4 final demand total output
    11. 11. Multipliers <ul><li>Economic impact of change in final demand. </li></ul><ul><li>Calculated for output, income, employment, taxes, and other factors. </li></ul><ul><li>Show total effects of change on economy. </li></ul><ul><li>Expressed as a positive number. </li></ul>
    12. 12. Multipliers display three components of change <ul><li>Direct. </li></ul><ul><li>Indirect. </li></ul><ul><li>Induced. </li></ul>
    13. 13. Direct effects <ul><li>Changes in production as a result of immediate effects of a change in final demand. </li></ul><ul><li>E.g., increase in demand for autos increases production of autos. </li></ul>
    14. 14. Indirect effects <ul><li>Changes in production in industries supplying industry delivering the final product. </li></ul><ul><li>E.g., increase in auto production increases production in supplying industries (like glass, steel, plastics). </li></ul>
    15. 15. Induced effects <ul><li>Changes in direct and indirect production increase income and, therefore, consumption (and, maybe saving). </li></ul><ul><li>E.g., workers in auto industry and supplying industries spend and save their income, creating additional economic activity. </li></ul>
    16. 16. Two types of multipliers Type 1 = Type 2 =
    17. 17. Two examples of input-output analysis Economic & Workforce Brief Series
    18. 18. < Counterfactual Analysis > • Electricity Rate Caps • • Gas Royalties •
    19. 19. A counterfactual analysis is… <ul><li>An analysis that goes counter to facts. </li></ul><ul><ul><li>What would happen if the U.S. invaded Iran? </li></ul></ul><ul><ul><li>What would have happened if the U.S. did not go to war with Iraq? </li></ul></ul><ul><ul><li>What would happen if gas prices rose to $6/gal. </li></ul></ul><ul><li>A “what if” analysis. </li></ul><ul><li>Counterfactual reasoning reveals implications of counterfactual suppositions to be examined in case what is supposed actually happens. </li></ul>
    20. 20. REMI Policy Insight Model
    21. 21. Counterfactual analysis method
    22. 22. Two examples of counterfactual analysis
    23. 23. Regulation, Deregulation, Caps… <ul><li>Natural monopoly </li></ul><ul><ul><li>Generation </li></ul></ul><ul><ul><li>Transmission </li></ul></ul><ul><ul><li>Distribution </li></ul></ul>Regulation Deregulation Rate Caps Stranded Costs
    24. 24. Methods… <ul><li>Baseline forecast of the Pennsylvania economy through 2015 </li></ul><ul><li>Rate cap elimination forecast conducted by simulating 10% increase in electricity rates through 2015 </li></ul><ul><li>Benchmark of effects of rate removal = </li></ul><ul><ul><li>Baseline forecast minus </li></ul></ul><ul><ul><li>Rate elimination forecast </li></ul></ul>
    25. 25. Preliminary findings… <ul><li>Impact on macroeconomy and demography depends on perspective </li></ul><ul><li>Impact on individual households could be substantial </li></ul>
    26. 26. Impact on macroeconomy and demography… <ul><li>Substantial, in terms of absolute numbers </li></ul><ul><li>Small, as a % of total economy and demography </li></ul>
    27. 27. Impact on individual households… <ul><li>Small, but real, risk of job and income loss </li></ul><ul><li>Risks and changes affect low income household more than high income households </li></ul>
    28. 28. Hot off the presses…. <ul><li>• Marcellus shale is creating exciting opportunities for natural gas exploration, extraction, and sales. </li></ul><ul><li>• Lease rights are being negotiated. </li></ul><ul><li>• Royalties will be paid. </li></ul><ul><li>• “ What if” royalty income affects the Pennsylvania economy. </li></ul>
    29. 29. Counterfactual findings of impact of gas royalty income
    30. 30. < Records Linkages > • Youth in Transition •
    31. 31. How do we follow youth in transition from school to work?
    32. 32. Survey-based approaches with out–of–school youth <ul><li>Difficult to find. </li></ul><ul><li>Difficult to maintain contact. </li></ul><ul><li>Difficult to stimulate response. </li></ul><ul><li>Difficult to obtain sensitive data elements. </li></ul>
    33. 33. One solution: Link youth and unemployment insurance records <ul><li>Employers report quarterly wages by social security number to state unemployment insurance system. </li></ul><ul><li>Social security numbers of youth and a vector of indicators can be merged with insurance records. </li></ul><ul><li>Confidentiality is preserved by procedural security buffer as well as by statistical means. </li></ul>
    34. 34. Potential for learning from records linkages <ul><li>Cross–sectional and longitudinal employment by industry. </li></ul><ul><li>Cross–sectional and longitudinal wages by industry. </li></ul><ul><li>Geography and geographic and industrial mobility of youth employment. </li></ul><ul><li>Youth employment turnover by industry. </li></ul><ul><li>Correlates of youth employment, wages, and mobility. </li></ul>
    35. 35. Some problems with implementing records linkages <ul><li>Errors in records of youth or employer </li></ul><ul><ul><li>Social Security numbers </li></ul></ul><ul><ul><li>Names </li></ul></ul><ul><li>Youth not necessarily in covered employment. </li></ul><ul><li>Censored data </li></ul><ul><ul><li>Reporting period is 3 months </li></ul></ul><ul><ul><li>Many transitions can occur within reporting period </li></ul></ul>
    36. 36. Penn State records linking project currently in process <ul><li>Project funded by the Central Pennsylvania Workforce Development Corporation is developing a methodology to link records of school dropouts and youth aging out of foster care with UI employment and wage data. </li></ul>
    37. 37. Cutting Edge Economic Techniques for Assessing Regional Innovations Rose M. Baker David L. Passmore