'Type I' employment multiplier

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joh2001smile

Senior Member
Chinese
This is about broadband's impact on the economy, especially on job creation and GDP growth. What does the subject expression mean here?
Context:
According to the analysis, the investment of USD 6.390 billion will generate 37,300 direct jobs over the course of the stimulus program (estimated to be four years). In addition, based on a Type I employment multiplier of 1.83, the bill could generate 31,000 indi-rect jobs, and based on a Type II multiplier of 3.42, the policy could generate additional 59,500 induced jobs.
 
Last edited:
  • pops91710

    Senior Member
    English, AE
    Apparently there are many types (at least more than one) of employment multipliers. Type I and Type II would be at least two of them, and there may be more.
     

    Fabulist

    Banned
    American English
    This would probably require a labor economist, or at least a macroeconomist, to furnish an answer. If there isn't one among our correspondents, perhaps Google searches for "Type" with "Employment Multiplier" would provide some kind of explanation.
     

    SwissPete

    Senior Member
    Français (CH), AE (California)
    Indeed, there appears to be two types of multipliers. They are explained here.

    Recap:
    Type I and Type II multipliers are presented in the downloads section of this website. In summary, Type I multipliers sum together direct and indirect effects while Type II multipliers also include induced effects.
     

    Thomas Tompion

    Senior Member
    English - England
    A multiplier is a measure of the well known secondary effects of increases in spending on newly-produced goods and services:

    if £100m extra is spent on X this year then the people who produce X receive an increase in income, some of which will be spent on Y, so the people who produce Y will receive an increase in income, and so on... If we assume that each increase in income of £X leads to a secondary increase in expenditure on newly-produced goods and services of £.75X, then any intitial increase of expenditure of £100m leads to a total (i.e. when the multiplier effects have worked through the system) increase in expenditure of

    100 + .75 (100) + .75 (.75 (100)) + etc = 100 x 1/(1 - .75) = 100 x 4

    i.e. the multiplier is 4

    Obviously the size of the multiplier is going to depend on the way the initial expenditure translates into secondary, third order, fourth order, etc. new expenditures, i.e. how much of any increase in income goes off in taxation, saving, etc. rather than translating into new expenditure.

    The consequences of the multipliers are secondary, third order, and so on increases in employment, and if you make different assumptions about the way new expenditure translates into new employment, you get different predictions about likely total increases in employment.
     

    joh2001smile

    Senior Member
    Chinese
    A multiplier is a measure of the well known secondary effects of increases in spending on newly-produced goods and services:

    if £100m extra is spent on X this year then the people who produce X receive an increase in income, some of which will be spent on Y, so the people who produce Y will receive an increase in income, and so on... If we assume that each increase in income of £X leads to a secondary increase in expenditure on newly-produced goods and services of £.75X, then any intitial increase of expenditure of £100m leads to a total (i.e. when the multiplier effects have worked through the system) increase in expenditure of

    100 + .75 (100) + .75 (.75 (100)) + etc = 100 x 1/(1 - .75) = 100 x 4

    i.e. the multiplier is 4

    Obviously the size of the multiplier is going to depend on the way the initial expenditure translates into secondary, third order, fourth order, etc. new expenditures, i.e. how much of any increase in income goes off in taxation, saving, etc. rather than translating into new expenditure.

    The consequences of the multipliers are secondary, third order, and so on increases in employment, and if you make different assumptions about the way new expenditure translates into new employment, you get different predictions about likely total increases in employment.
    Thank you very much, Thomas, I need some time to think about and digest it. A quesiton for the moment: why just for " newly-produced goods and services"? Does it have nothing to do with the goods or service which are already there?
     

    Thomas Tompion

    Senior Member
    English - England
    Thank you very much, Thomas, I need some time to think about and digest it. A quesiton for the moment: why just for " newly-produced goods and services"? Does it have nothing to do with the goods or service which are already there?
    I'm glad you noticed that. Economists have to be careful to distinguish between expenditure on newly-produced things, which generates work, and that on goods already produced, which doesn't, except insofar as there is selling effort (which is, of course, a newly-produced service).

    An example might help. If you buy a restaurant meal, then people have to work to produce it, to cook it and to serve it to you. If you buy a second-hand car, you don't cause people to make the car; you simply provide work and income for the second-hand car salesman (i.e. a newly produced service). It's very important not to count the whole expenditure on the second-hand car, because only part of it will go to the person providing the newly-produced service.
     

    joh2001smile

    Senior Member
    Chinese
    Thank you very much, Thomas. Your explanation helps very much for me to understand both your previous post and the source text I am now working on. It is about how broadband, as a new technology impacts the economy and job creation.
     
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