Estimating Indirect and Induced Impacts with Economic Multipliers and Ratios

Measurement of indirect and induced economic  activity is difficult. While it may be possible to conduct a survey of downstream employers, the survey would need to cover thousands of firms in order to completely cover indirect employment. For induced employment, the entire economy would need to be scrutinized. In addition to the time and financial resources needed to conduct such surveys, the quality of responses would be suspect.

Statistics Canada economic multipliers and ratios (2016) for the Province of Manitoba were used for the analysis

As an alternative to costly and inaccurate surveys, indirect and induced effects are typically measured using economic multipliers and ratios. Multipliers are derived from models of the general economy. They come in a variety of forms and differ greatly in definition and application. Thus, great care must be exercised in choosing the appropriate set of multipliers. In addition, the use of multiplier analysis is limited by a number of factors, these being:

  • the accuracy of the structure and parameters of the underlying model;

  • the level of unemployment in the economy;

  • the assumption of constant returns to scale in production;

  • the assumption that the economy's structure is static over time; and

  • the assumption that there are no displacement effects.

Multiplier impacts must be interpreted with caution since they may be illusory when the economy experiences high employment and output near industry capacity. When they are reported, it is recommended that the reader be reminded of the limitations on the use of multipliers. Mindful of these limitations, this study has undertaken multiplier analysis to estimate indirect and induced employment, with emphasis nonetheless placed on the direct economic impacts as these are based on data from the employer survey and are clearly identifiable.

For this study, InterVISTAS applied economic multipliers and ratios for the Province of Manitoba based on Statistics Canada’s 2016 Interprovincial Input-Output model, the most recent available. The multipliers and ratios are based on a highly detailed accounting of provincial economic structures or relationships. The model tracks how the goods and services produced by industry are used by other industries and final users. The provincial multipliers were updated with Consumer Price Indices to account for inflation.