For the analysis of industry linkages and economic impacts, it is more meaningful to represent the Use Table in industry by industry (IxI) form or product by product (PxP) form. These symmetric tables form a basis from which a wide range of macroeconomic models and impact analyses can be constructed. The fundamental purpose of the Input-Output framework is to analyse the interdependence of industries in an economy. A key output from this analysis is the production of multipliers.
Please note these published results are designated as “experimental” statistics to reflect their status as new official statistics undergoing evaluation. The statistics are published to encourage feedback from users and to build in quality at an early stage in line with the Code of Practice for Official Statistics.
Users should adopt a cautious approach to the use of the multipliers which are prototype in nature.
Industry by Industry Table
In order to calculate "multipliers" NISRA has produced an Industry by Industry (IxI) symmetric Input-Output Table which is derived from the Supply-Use Tables (SUTs). This table shows the amount purchased by each industy from industries in the rows to produce the demand of the column. The IxI table can be an important component of macro-economic modelling and analyses. The IxI table derived from the 2016 SUTs can be accessed below.
Further information on the multipliers produced from the IxI table is presented below.
If there is an increase in final use for a particular industry output, we can assume that there will be an increase in the output of that industry, as producers react to meet the increased use; this is the direct effect. As these producers increase their output, there will also be an increase in use on their suppliers and so on down the supply chain; this is the indirect effect. As a result of the direct and indirect effects the level of household income throughout the economy will increase as a result of increased employment. A proportion of this increased income may be re-spent on final products, this is the induced effect. The ability to quantify these multiplier effects is important as it allows economic impact analyses to be carried out on the NI economy.
Multipliers - Assumptions & Limitations
Multipliers derived from Input-Output Tables are a useful tool and provide a framework for estimating economic impacts and changes to the domestic economy. Input-Output Tables (and their Multipliers) are based on a strict set of assumptions/limitations, which users should familiarise themselves with to ensure the application of the multipliers is reasonable. These Multipliers are designated as experimental to reflect the fact that they are still under development and we welcome any feedback or comments from users.
The overarching assumption is that the interdependency between inputs and outputs is solely based on the structure and composition of the NI economy in the relevant reference year.
Some of the key assumptions include:
Responsive Supply Chain - relevant industries in the supply chain will vary their own production to meet the change in the demand for their outputs within the relevant time period.
Fixed Price Supply Chain – there will be no price adjustment or supply constraints.
Fixed Production patterns – input proportions are fixed in the production process.
Industry Homogeneity – a change in production for an industry/product classification is based on the characteristics of all production within that classification.
No Inter-regional feedback effects – makes no adjustment for demand in NI production as a result of changes in demand outside NI.
As a result, Input-Output Table Multipliers are not well suited, for example, to estimate very large scale changes to the economy or aspects of the economy experiencing significant or rapid changes from the reference year.
Type 1 multipliers
Supplier linkage effects or Type 1 multipliers cover direct and indirect effects only. They estimate the impact on the supply chain resulting from a producer of a certain product increasing their output to meet additional demand. In order to meet the additional demand the producer must in turn increase the goods and/or services they purchase from their suppliers to produce the product in question. These suppliers in turn increase their demands for goods and services and so on down the supply chain. These Type 1 multipliers are also referred to as direct and indirect effects. Type 1 multipliers underestimate the effect on the economy as they do not estimate induced effects. Different multipliers measure the effect on different policy targets:
The Northern Ireland Type 1 multipliers and Industry by Industry table for 2016 can be accessed below.
The output multiplier for an industry is expressed as the ratio of direct and indirect output changes to the direct output change due to a unit increase in final use. Multiplying a change in final use e.g. demand for an industry’s output (direct impact) for an industry’s output by that industry’s Type I output multiplier will generate an estimate of direct + indirect impacts upon output throughout the NI economy.
The GVA multiplier is expressed as the ratio of the direct and indirect GVA changes to the direct GVA change, generated by an increase in the final use of a sector. In other words, if you have the change in GVA for the industry the GVA multiplier can be used to calculate the change in GVA for the economy as a whole.
The employment multiplier, expressed as FTE is the ratio of direct plus indirect employment changes to the direct employment change. In other words if you have the change in FTE employment for the industry the employment multiplier can be used to calculate the change in FTE employment for the economy as a whole
Please note that care must be taken when interpreting multiplier analysis of industries that contain a large number of self employed persons. Unfortunately robust data for self employed at the required industry level was not available for NI.
An example of how the multipliers can be used to estimate the effect of an increase in demand is presented below.
The direct impacts upon an industry are often presented in monetary terms, i.e. increased exports or a change in Government spending. The following example uses the hypothetical scenario of an increase in demand (i.e. final use) of £5 million for "Basic metals".
The effect on output (using Industry output multipliers)
The direct impact of an increase in demand of "Basic metals” will be a requirement to increase the total output of this industry by £5 million to meet this additional final use. To estimate the direct and indirect effect on this industry's suppliers, we multiply the direct impact (£5m) by the Type I output multiplier for this industry (1.3) giving a total of direct plus indirect impacts of £6.5 million. Please note that Type 1 multipliers underestimate the effect on the economy as they do not include induced effects.
The effect on GVA (using GVA Industry multipliers)
The direct impact on total GVA caused by an increase of £5m in the GVA of products in the "Basic metals” industry group is an increase of £5m. To estimate the direct and indirect effect on this industry's suppliers, we multiply the direct impact (£5m) by the GVA multiplier for this industry grouping (1.3) giving a total of direct plus indirect impacts of £6.5 million. Please note that Type 1 multipliers underestimate the effect on the economy as they do not include induced effects.
The effect on employment (using FTE employment multipliers)
Multiplying the direct increase in jobs by the employment multiplier gives the direct and indirect full time equivalent jobs. For example multiplying an increase of 100 FTE jobs by the employment multiplier for Basic Metals gives (100 x 1.2) 120 direct and indirect full time equivalent jobs. Subtracting the initial direct job increase gives the additional indirect number of jobs supported throughout the NI economy as 20 FTE jobs. Please note that Type 1 multipliers underestimate the effect on the economy as they do not include induced effects.
DfE Research Bulletin
In December 2018, the Economic Account Project authored a short paper (as part of the DfE Research Bulletin Series, 18/9) which provided a brief overview of Input-Output Tables and their Multipliers. The article can be accessed here.
Other useful sources of information relating to Multipliers derived from Input-Output tables: