Linking Production, Consumption, Employment, & Skills

LINKING PRODUCTION,
CONSUMPTION,
EMPLOYMENT,
& SKILLS
Over 25 Years of Economic & Demographic
Policy Research at Penn State
David L. Passmore

today…
< background >
origin of the Penn State Economic
Modeling & Forecasting Project
< input-output model >
non-mathematical explanation of economic &
demographic models applied by the
Project
< examples >
some of the varied policy modeling &
forecasting efforts at Penn State

background…
< 1990s >
coalition of faculty members initiated
Penn State Economic Modeling &
Forecasting Project
< multidisciplinary coalition>
mineral economics, geography, industrial
economics, forestry, demography, education
< the common link >
input-output analysis developed by
Wassily Leontief

the economy is like
a huge ball of string…
< complex >
< intertwined >
< large >
< unexpected >

one way to organize data
about an economy…
< input-output
tables >
summarize
production,
consumption,
& employment

input-output table
ind 1
ind 2
ind 3
ind 4
ind 1 ind 2 ind 3 ind 4
final
demand
total
output

industries produce
goods & services
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
producers

industries purchase
goods & services
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
purchasers

production sector
of the economy
ind 1
ind 2
ind 3
ind 4
final
demand
total
output

production sector
of the economy
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
interindustry
transactions

production sector
of the economy
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
direct
requirements

a closer look at
interindustry transactions
ind 1
ind 2
ind 3
ind 4
final
demand
total
demand
purchases of
ind 2 from ind 1
purchasers
producers

a closer look at
ind 1
ind 2
ind 3
ind 4
final
demand
total
demand
purchases of
ind 3
from ind 2;
or, ind 2
produces
for ind 3
producers
purchasers

a closer look at
ind 1
ind 2
ind 3
ind 4
final
demand
total
demand
purchases of
ind 1 from
itself; some
industries use
the products
they make
producers
purchasers

industry production function
-- the direct supply chain
ind 1
ind 2
ind 3
ind 4
final
demand
total
demand
All purchases
of ind 1;
aka industry
production
function
purchasers
producers

producing & purchasing
continues until goods or
services created
ind 1
ind 2
ind 3
ind 4
final
demand
total
demand
< make/use…
make/use…
make/use…
the production
cycle goes
round & round >

consumption
ind 1
ind 2
ind 3
ind 4
final
demand
total
output

final demand…
gross domestic product…
consumption
ind 1
ind 2
ind 3
ind 4
final
demand
total
demand
< personal consumption >
< government purchases >
< investments >
< exports, net of imports >
ind 1
ind 2
ind 3
ind 4

total economic output…
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
production + consumption = total output

jobs are created because…
• total output is created by a mix of productive
resources
• labor is a productive resource, along with
land and capital
• human capital is required to produce goods
and services
• people, with other resources, create output

jobs are tied to
total output…
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
ind 1
ind 2
ind 3
ind 4
< in each industry, it takes a
certain number of people to
create each dollar’s worth of
total economic output >

jobs are tied to
total output…
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
ind 1
ind 2
ind 3
ind 4
< if It takes .001 workers to
create $1 of economic output,
then,

jobs are tied to
total output…
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
ind 1
ind 2
ind 3
ind 4
< if It takes .001 workers to
create $1 of economic output,
then, with $1 billion of total
industrial output, 1 million
workers are required >

jobs are tied to
total output…
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
ind 1
ind 2
ind 3
ind 4
< changes in labor intensity
or in the kind or amount of
total economic output
create changes in numbers
and kinds of jobs >

occupational employment is
tied to total industrial
output…
ind 1
ind 2
ind 3
ind 4
final
demand
total
output
ind 1
ind 2
ind 3
ind 4
< industries use different occupations >
< industries use different labor intensities >
< occupational employment differs by industry >

occupational employment
is created when people
use their unique human
capital to create goods &
services

input-output tables
are used for…
• economic accounting
• forecasting
• “what if” simulation

“what if” simulations
< more formally — a counterfactual >
an expression of a conditional proposition
containing an “if”–clause which is
contrary to fact
< examples>
What if tax policy changes? A natural
disaster occurs? Innovation disrupts
human morbidity and mortality?
International trade is affected by
regulation or currency changes? Or, if
policies for immigration are altered?

policy
effect
counterfactual method
baseline
of economy
economy
with
counterfact =
with no change;
economy status quo
with policy change;
economy perturbed
effect of
counterfactual on
status quo of
economy

wide range of analyses
• California pollution
standards in PA
• table eggs
• literacy
• adolescent fertility
• engineer shortages
• technical skills deficits
• educational reform
• planning career &
tech ed
• gas severance tax
• town planning
• military base closing
• occupational supply
• highway
construction
• ski industry
• energy workforce
• motorsports track

• plastics jobs
• general aviation
• royalty income
• tourism
• electricity lines
• long-term care
• landfills
• cosmetology jobs
• bookkeeping /
medical record jobs
• manufacturing
forecasts
• vehicle emission
testing
• ethane cracking
• elimination of
electricity price caps
• baseball strike
• health care reform

over 100 “Economic
& Workforce Brief”
reports.
reports about
almost every county
and major industry
in Pennsylvania

a detailed example…
< health care reform >
How National Health Care Spending Affects
Pennsylvania Health Care Employment

the health care reform
debate in the 1990s…
< health & medical technology had improved
remarkably >
< health care & service spending increased as
share of GNP >
< increasing numbers of people became
uninsured >
< strong, partisan, acrimonious debate over
health care funding occurred >
< numerous proposals offered for reform >

aim…
< examine sensitivity of Pennsylvania
health care & service employment to
alternative national spending patterns in
health-related industries >

approach…
< create two counterfactuals representing
high and low national spending scenarios that
we “pushed down” to Pennsylvania to capture
effect of national policy change on state
employment >

sample of findings…
Major Health
Occupations
Categories
Low Spending
Scenario
High Spending
Scenario
Health Diagnosis -15.1% +32.2%
Health
Assessment &
Treatment
-14.2% +33.3%
Health
Technology
-13.5% +31.7
Health Service -13,6% +31.6%
% job differences from baseline

sample of findings…
Baseline
Jobs
Forecast
Low Spending
Scenario
High Spending
Scenario
(1) 1990
(baseline year)
8,505 8,505 8,505
(2) 2005
baseline
forecast
10,843 9,025 15,087
(3) = (2) – (1) 2,338 520 6,582
Difference
between (3) for
scenario and
(3) for baseline
— -1,818 4,244
in one occupation: dental hygienist jobs

Linking Production, Consumption, Employment, & Skills

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