A key to the input/output modeling process is calculating how the impact of one dollar or one job “ripples” through the economy creating additional expenditures. Economic impact assessments have three main components:
Direct Impacts: An activity that has an immediate effect (i.e. employment and income – people are hired, money is spent). This is the first round of spending in an economy. As this money is spent, it causes income creation, spending, and re-spending. To help determine the economic impact, you can use industry-supplied data such as templates provided by AFCI. For jurisdictions that offer a film production incentive, data collection is inherent as the government needs to verify every expenditure to be certain that it qualifies for the incentive. In this scenario, however, the data is often protected under law and even the film commissioner does not have access to it. Many film commissioners have found a way to work with productions to share their data voluntarily with the film office, in aggregate form.
Indirect Impacts: This refers to production or employment income in other businesses that supply inputs. For example, caterers are hired to feed crew, car rental companies rent cars to the production, and hardware stores supply building materials for sets.
Induced Impacts: This is the effect of spending derived from direct and indirect effects. For example, a food caterer buys food and film crews buy equipment from local suppliers. This money is re-circulated through the local economy. Induced effects occur when staff and crew on the production set spend their “new” income in the community. Money is being made, and these individuals buy something additional that might not normally be purchased.
Forward and Backward Linkages: This is a flow of money that comes into an economy because of an impact and is the result of the direct and indirect impacts. For example, local tourism increases because a unique or scenic spot was used in filming.
Total Effect: This is the result of combining all impacts. Direct + Indirect + Induced = Total Effect. Job creation and income generation continue as long as some local spending occurs.
There are three major types of regional multipliers:
Output (Income) Multiplier: This refers to the additional impact of regional output or income in the local economy because of the output of the basic industry. If a film in your community accounts for $20 million in income for the region and results in $10 million in additional output by local companies or suppliers, the output multiplier would be 1.50
Employment Multiplier: This is the total generated employment amount divided by a number of additional jobs created outside of the region. If the production employs 200 workers and the total job effect, or generated employment is 250, the multiplier would be 1.25.
Earnings Multiplier: This multiplier refers to the added earnings or income that is paid back to a region in the form of direct, indirect and induced employment, divided by the earnings or income generated by the changes or effects from outside the community. As an example, Paramount Pictures has a $3 million payroll in your community while a film is in production. The total payrolls for Paramount and all the suppliers it supports through the purchase of goods and services during filming, and the dollars spent locally by its employees total $9 million. The earnings multiplier, therefore, is 3.
The results of these multipliers vary greatly and will be impacted by other factors such as leakage.
Leakage: This refers to money that disappears from the community (i.e. products have been created and purchased in another community). A retail store or commercial operation typically have lower economic impact numbers because products are often manufactured elsewhere or purchased from a source outside of the local region.