- 3.1 Tables Used
- 3.2 Output Multipliers at Current and Constant (1986/87) Prices
- 3.3 Employment Multipliers
- 3.4 Income Multipliers
- 3.5 Direct and Total Impacts
- 3.6 Price Indices
- 3.7 Data Sources
- 3.8 Employment:Output Ratio Changes
3.0 METHOD OF ESTIMATION
3.1 Tables Used
The 1976/77, 1981/82 and 1986187 inter-industry tables used were those produced by Statistics New Zealand, while the 1990/91 table used was that estimated by Butcher (1993). All tables were converted to a 35 industry basis, in pan since these were all that were readily available for 1976/77, but also because it seemed that further disaggregation would not have added any further insights. The 35 industries chosen had meat, wool and dairy processing identified separately rather than lumped together with the other industries which make up "Food" and "Textiles".
The 35 industries were not common to all periods. in 1976/77 "Beef" was included with "Dairy", whereas in 1981/82 it was included in "Sheep and Beef", and in 1986/87 and 1990/91 was split out independently. In 1981/82 and 1976/77 wood processing industries had been disaggregated into "Sawmills" "Planing Mills", "Plywood, Veneer, Board and Other Mills", and "Prefabricated and Pre-cut Buildings", whereas in 1986/87 and 1990/91, these were all amalgamated into the single industry "Sawmills, Planing and Other Wood Mills".
3.2 Output Multipliers at Current and Constant (1986/87) Prices
The output multipliers for each industry were calculated at current prices. They were then calculated at constant 1986/87 prices. To do this, multipliers were first calculated on a disaggregated basis (i.e. the direct, indirect and induced impacts of an increase in dairy production were expressed in terms of the resultant change in output of each industry in the New Zealand economy). These disaggregated impacts were converted to 1986/87 prices (using a vector of industry-specific price deflators) and then added together to give a total impact. This was then compared to the initial impact, also expressed in 1986/87 prices, to get a constant price multiplier. Hence the multipliers now took into account relative price shifts and were effectively on a constant price basis,
If technology remains unchanged but there is a change in relative prices, output multipliers expressed in current prices will alter. Output multipliers may also alter if technology alters. Since ii was of interest to see whether changes in output multipliers reflected technology changes or price changes, multipliers were calculated at both current and constant prices.
It can be expected that changes in relative prices will lead to either changes in input mixes to minimise total costs or (particularly in the case of agriculture where input coefficients can be elastic, especially in the short term) to reductions in inputs to maintain profits.
For the above reasons, it can be expected that multipliers will be more stable when expressed in constant prices in those industries with relatively fixed production functions, and more stable when expressed in current prices in those industries with relatively flexible production functions.
3.3 Employment Multipliers
The inter-industry tables were combined with relevant employment data and employment multipliers were calculated directly at current prices (using the I072 software package). Then disaggregated output impacts were calculated and combined with data on employment:output ratios for each industry (expressed in 1986/87 prices) to estimate the employment impacts of a $1 million (constant prices) change in output of each industry, and to see whether these impacts had increased over time or not. Note that even if an employment multiplier is unchanged, the employment impact may have altered through all industries having similar changes in employment:output ratios. The employment impacts estimated included both standard Type II multipliers and multipliers including forward linkages. For details of how to calculate the forward linkages, see Butcher (1985).
3.4 Income Multipliers
A similar procedure was followed to estimate changes in income impacts. First, current price impacts and multipliers were assessed. Then impacts were assessed at constant wage rates to see whether shifts in multipliers had been caused by shifts in relative wages. Hence the deflator used was the Prevailing Wage Rates index for each industry. The differences in current price and constant price multipliers were small, and only the current price income multipliers are reported here.
3.5 Direct and Total Impacts
The advantage of looking at both direct and total (direct plus indirect plus induced) changes in income and employment is that the total impact takes into account increases in sub-contracting. Simply comparing direct employment:output ratios for an industry over time can conceal the impact of greater specialisation or greater sub-contracting (whereby transactions and hence value of sales increase faster than employment or income). In such industries, an increase in output per employee does not necessarily indicate increased labour productivity.
3.6 Price Indices
Outputs were deflated using the Producers Price Index (PPI) for the appropriate industry, except in the case of agricultural production where the deflators were related to product prices. The PPI goes back only to December 1977, 50 the 1976/77 prices were converted to December 1977 prices using the PPI's much less disaggregated predecessor, the Wholesale Price Index, A particular problem with meat and dairy processing is that although there is a primary foods price index, dairy and meat prices often move in very different ways. Hence a composite index is not very accurate for either industry. Alternative proxies are the price indices for dairy exports and meat exports, and these were investigated. The use of these deflators made a significant difference to employment multipliers3, and these deflators were used in the analysis reported here.
3.7 Data Sources
The primary source of data was the Department of Statistics' 1976/77, 1981/82 and 1986/87 inter-industry studies, and the estimated 1990/91 table (Butcher 1993). In this latter table, agricultural coefficients were adjusted to reflect expectations about average coefficients in the early 1990s. Employment data was census data adjusted to annual average employment for the relevant year using Department of Labour quarterly survey data for the earlier years and Department of Statistics survey data for 1990/91.
The 1976/77 inter-industry table was no longer available from the department on computer file, and the only hard copy the department had available was at a level of aggregation which made it hard to estimate some of the forward linkages with accuracy. This problem was resolved by using data from an earlier project (Butcher 1985) which included disaggregated data for the industries of importance. An initial intention was to extend the comparison back to 1971/72 using multipliers and impacts calculated by Hubbard and Brown (1981). However, the 1971/72 results are reported at a very aggregated level (agriculture was just one composite industry, as was food manufacturing) and for this reason the comparison was of little interest and was not completed.
3.8 Employment:Output Ratio Changes
Over the last 15 years there has been a significant change in employment:output ratios. Estimates of the changes from 1976177 to 1990/91 were made on the basis of data on real output changes (nominal output deflated by the Producers Price Index - outputs) and employment as revealed in various censuses (adjusted to annual average figures using the Department of Statistics and Labour survey data). The absence of individual price deflators for meat processing works and dairy factories means that it is not possible to accurately assess the change in productivity in each of these individual industries. It is not sufficient to simply use raw materials processed as an indicator of changes in real output because of the increase in the degree of processing and added value which has reportedly been a feature of these industries in recent years. However, it is hoped that the proxy price deflators used have given tolerably accurate results.
2 I07 software is available from tile author (NZ agent).
3 The estimated total employment impacts in constant dollars were 20% higher in meat processing and 32% higher in dairy processing in 1981/82 when the commodity export price deflator was used than when the primary foods deflator was used.
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Sector Performance Policy
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