How to Use the AGC Construction Impact Model

Overview

AGC has partnered with a leading regional economist, Brian Lewandowski of the University of Colorado Boulder (Brian.Lewandowski@colorado.edu), to create AGC’s Construction Impact Model. The model is a tool that can be used by members, chapters, policy makers and researchers to understand the economic impact of investments in various types of construction by state.

Specifically, the model projects the impact of 10 separate categories of construction and related investment on state employment, employee compensation, labor compensation, value added (state gross domestic product) and gross output (total spending in the state).

Users can specify national or state specific results based on start year, report year (adjusts report to new base year for inflation), project duration (in years), dollar size of the project and project type. The model produces a paragraph summarizing total and average annual impact and two economic impact tables. The first table breaks out the total impacts by direct effects (from the construction activity itself), indirect effects (from suppliers and service providers to the project) and induced effects (from the added spending throughout the state’s economy by workers and business owners in the construction and supplier industries). The second table shows in-state industries that get the largest boost to sales.

Using the Calculator tab

Classification section: Users select the values that pertain to the type of project they wish to model.

1. National or State. Click on the category (Alabama in the screen shot), then on the arrow that will appear. Scroll up or down if needed to find desired state or the U.S. (at the top) and click on it.
2. Year. Click on the year to specify when the project started/will start (2023 in the screen shot), then on the arrow that will appear. Scroll up or down if needed to find desired year and click on it.
3. Report Year $. Click on the year to adjust the price to fixed dollars of a different year if desired then on the arrow that will appear. Scroll up or down if needed to find desired year and click on it.
4. Duration (Years). Click on the number (3 in the screen shot) and write a new number if desired. That will change the Average Per Year line in the Economic Impact table. For instance, writing in 1 will change the average per year for each variable to match the total effect, since the effect will no longer be spread out over the 3 years shown in the screen shot.
5. Amount ($). Click on the amount (100,000,000 in the screen shot) and write a new amount if desired. Each number in the Economic Impact and Total Output tables will change proportionately.
6. Project. Click on the project type (Construction of other new nonresidential structures in the screen shot), then on the arrow that will appear. Scroll up or down if needed to find the desired project type and click on it. See the box below for project types.

Project Types

Results

Projected economic impact section: The model projects the economic impact of the selected project type across the state’s labor market and economy. Only in-state employment, compensation and spending impacts are shown. Results are listed first in two sentences of text, then in a table that displays the components of each total effect (direct, indirect and indirect effects) and the average effect per year.

In the screen shot, a 3-year, $100 million investment in construction of other new nonresidential structures in Alabama, beginning in 2023, supports 1,073 jobs (an average of 358 per year), including 634 direct (construction) jobs, 221 indirect (supplier and service provider) jobs and 218 induced jobs (in all sectors) within Alabama. The project generates total labor income in Alabama of $61.7 million for employees and sole proprietors (self-employed individuals), including $47.7 million of employee compensation (wages, salaries and benefits). The value added (state GDP), or labor income plus profits, totals $83.7 million. Gross output totals $183.1 million, including the $100.0 million paid to contractors, $47.6 million to in-state suppliers, and $35.5 million purchased from the full range of industries in the state out of the additional earnings and profits of construction and supplier workers and owners.

Projected industry impact section: The model lists the state’s top 10 industries by increased sales. Note that the first industry is the construction sector, which receives the full amount of the added spending.

The remaining industries reflect in-state sales generated by the construction project itself and induced sales generated by spending from the added income received by workers and owners of the project’s contractors and suppliers.

The industries shown in the screen shot represent a wide variety of sectors. Some, such as architecture, engineering, and related services (#7) and ready-mix concrete manufacturing (#10) largely reflect goods and services for the project itself. Others, such as owner-occupied dwellings (#2) probably reflect the purchases by workers and owners out of the labor income and profits they receive from the project.

How it works

The model projects direct, indirect, and induced economic effect of a construction investment based on the historical relationship between a given investment and each supplier industry. These relationships are calculated using the widely used IMPLAN input-output model (www.implan.com). There are locked tabs that contain lists of data, multipliers and deflators, developed by IMPLAN and the Bureau of Economic Analysis to generate the results shown in the Calculator.

These relationships are historical averages. They are useful for predicting the impacts of classes of investments (highways and streets, commercial structures, etc.) but cannot capture the impacts of a particular investment, which depends on economic conditions at the time of investment as well as site conditions, materials mix and other project-specific elements.

The information generated from the model should be useful in illustrating the scale of benefits (jobs, income, etc.) and types of industries most likely to benefit from a project. As such, it should be helpful to contractors, suppliers, policy makers and others.