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What is a Multiplier?
What is a Multiplier?
Updated over a week ago

A multiplier is a way of measuring how important one industry is to other industries in the region. So if an industry has a multiplier of 2.5, for every positive or negative change on that industry, the total effect on the regional economy will be 2.5 times the original change. Lightcast's multipliers are developed in-house through our proprietary Input-Output model, which uses Lightcast's final unsuppressed industry data, gravitational flows, commuting patterns, and the BEA's "make and use" tables, among other sources.

Sales Multipliers

Sales multipliers show how “deeply-rooted” an industry is in your region—for example, a highly-developed cluster will have a high sales multiplier because every dollar fed into the cluster from the outside has a high ripple effect, propagating through the regional economy for some time before it leaks out. One dollar of sales coming into a highly-developed Automotive Manufacturing cluster, for example, might have a ripple effect of 2.8 (that dollar led to a total of $2.80 in regional sales). Industries and clusters with very low multipliers are usually owned outside of the region (so the profit is lost immediately) and also buy mostly from outside the region (a "shallow root system").

Jobs Multipliers

A jobs multiplier indicates how important an industry is in regional job creation. A jobs multiplier of 3, for example, would mean that for every job created by that industry, 2 other jobs would be created in other industries (for a total of 3 jobs).

Jobs multipliers are easily misinterpreted—jobs multipliers of 17 or higher are sometimes seen—but a high jobs multiplier for a set of one or more industries in an added-jobs scenario does not necessarily mean that attracting businesses in those industries to the region is the best or most viable option for regional economic growth.

Jobs multipliers are primarily tied to the type of industries in the scenario—industries with a high sales/labor ratio typically have a high jobs multiplier, and vice versa. For example, a nuclear power plant might have only 20 workers, but “behind” each of those workers there are millions of dollars of equipment costs and millions of dollars of electricity being generated. Thus, if we bring 20 more nuclear power jobs into the region, that would involve a huge amount of investment flooding into the region (to build another nuclear power plant or double the size of the current one) and millions of dollars in new sales and profits.

Some of that money would go to the employees’ high salaries, some would go to local construction companies, real estate, janitorial services, etc. The overall jobs multiplier would be impressive—each new job in nuclear power might support 14 other jobs scattered throughout the rest of the economy (i.e. a jobs multiplier of 15). However, the effort it takes to attract 20 jobs in nuclear power (with all the necessary infrastructure) is substantially more than to attract 20 jobs in an industry with a lower jobs multiplier.

Earnings Multipliers

An earnings multiplier of 1.5 means that for every dollar of earnings generated by a new scenario, a total of $1.50 is paid out in wages, salaries, and other compensation throughout your economy. This is important for understanding how a given scenario will affect not the number of jobs in your region, but the quality of those jobs. A scenario whose ripple effect brought two dozen lawyers and accountants into your region would have a much higher earnings multiplier than if that scenario brought the same number of indirect jobs into the region, but mostly in Food Services and Hotels.

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