Use in local spending campaigns
One perspective of the local multiplier effect focuses on the greater local economic return generated by money spent at locally-owned independent businesses compared to corporate chains or other absentee-owned businesses. Localisation advocates cite the multiplier effect as one reason, of many, for consumers to do more of their business locally. Two U.S.-based entities have published studies measuring the local multiplier. Civic Economics, a for-profit economic consultancy, has undertaken studies in Austin, TX, San Francisco, CA; Chicago, IL and Western Michigan. TheUse in regional economic development
In the field of regional economic development, local multiplier effect refers to the spillover effect the presence of a particular type of job has on additional local economic activity. Current scholarly debate around local multipliers center around the magnitude of the effect from different industries and sectors on local employment. This section will lay out the current theory as to how local multipliers operate in the local economy, its policy implications, and highlight current research into the magnitude of the effect.Theory of local multiplier effect
In discussing local multipliers, regional economists focus on differences in job creation in thePolicy implications
Arguments for policy mechanisms to attract certain industries to a particular region often are based on analysis of local multiplier effects as justification for the associated costs of the policy. The perceived strength (or weakness) of a particular industry's local multiplier effect thereby affects what industries are most often targeted by policy makers. Other proponents disagree with the logic behind trying to attract whole industries to new areas. They cite the difficulty in attracting established industries with high local multipliers (such as the technology industry). Such industries are not easily engineered by government intervention as their current locations are often due to random coincidences during their founding periods. An alternative solution proposed by Enrico Moretti is for the government to subsidize relocation costs for workers currently in areas with high unemployment to areas with industries that provide high local multipliers.Research
United States
Several scholars have found strong evidence for the presence of the local multiplier effect. Within tradable industries, Enrico Moretti discovered that, for each additional skilled job created, 2.5 jobs were also generated in the local non-tradable goods and services sectors, and an additional unskilled job created 1 job in the local non-tradable sector. Highly skilled sectors such as technology have the highest multiplier effect with five non-tradable jobs for each technology job. Moretti cites the example of Apple Computers which directly employs only 13,000 workers but generates 60,000 additional service jobs in the area. Of those 60,000, 36,000 are unskilled, such as restaurant or retail workers, while 24,000 are skilled jobs such as doctors or lawyers. Other academics have taken issue with the large magnitude of the local multiplier effect claimed by Moretti. One study reanalyzes the claim of Enrico Moretti that five non-tradable jobs are created for each highly skilled tradable job. Using a modified version of Moretti's method it found that the true multiplier effect was only 1.02 non-tradable jobs created. Furthermore the study finds that there is no difference on the local multiplier effect between whether the tradable job is skilled or unskilled.Sweden
A comparison study of local multiplier effects in Sweden revealed similar multiplier effects as those found in the United States. The study found that while sizable effects did occur, on average, they were smaller than the effects found in the United States. For Sweden, adding a high-skilled job to the traded sector resulted in the creation of 3 additional jobs in the non-traded sector, as opposed to the 5 additional jobs created in the United States. The authors argue the difference is due to the difference in local factors. For example, Sweden's relatively smaller wage difference between skilled and unskilled workers negatively impacts the overall multiplier effect.Italy
Another study conducted in Italy using the same methodology as Morretti concluded that, in Italy, there was no evidence of a local multiplier effect from the creation of tradable jobs on the rest of the local economy. The study found the local multiplier effect to be zero and occasionally negative in all regions of Italy. In explaining this discrepancy, the authors points to excessive government regulation in the non-tradable sector, the government's role in wage setting, and barriers to labor mobility.Guido de Blasio e Carlo Menon. Local effects of manufacturing employment growth in Italy https://www.bancaditalia.it/pubblicazioni/altri-atti-convegni/2012-trasform-sist-produttivi/local-effects.pdfSee also
*References
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