56 



r 



The standard model for modelling regional economies is the input-output model for 

 which Wassily Leontief received the Nobel Prize in Economics. A number of modifications 

 are done to the massive model so that it can be used with less data. The most accurate 

 modification used in the United States is the RIMS II model developed and updated annually 

 by the Bureau of Economic Analysis within the Department of Commerce. Another model is 

 the IMPLAN model developed by the US Forest Service. It is updated once a decade. I used a 

 mathematically identical approach (the identity is published in Bruce R. Billings. 1%9. "The 

 Mathematical Identity of the Multipliers derived from the Economic Base Model and the Input- 

 Output Model in Journal of Regional Science . Volume 9, p 471-473) known as the economic 

 base model. 



In most regional economic models, "basic" income is what drives the local economy. 

 Basic income in a rural region such as Humboldt County includes essentially all manufacturing 

 wages; agriculture and fisheries wages; mining; interest; dividend payments; and all 

 government transfer payments such as social security, medicare, medicaid, AFDC, and 

 unemployment insurance. AFDC and unemployment insurance constitute less than 9% of all 

 government transfer payments nationally (U.S. Bureau of Economic Analysis. 1990, Local 

 Area Personal Income ) and represent a similar proportion in Humboldt county. 



According to the oral presentation Mr. Grobey made on his research at a seminar I 

 attended on May 3,1991 at the University of California at Berkeley, he modelled local 

 economies using the IMPLAN model developed by the US Forest Service. He substituted in 

 his own survey data from the timber industry into the national coefficients developed for the 

 model in 1977. There are two problems witfi the accounting used in the IMPLAN model. The 

 most important one is that is does not account for any government transfer payments even 

 though they have grown consistently in Humboldt County and constituted 29% of total 

 personal income in 1989. The vast majority of these transfers are aititlements earned by 

 people over their earlier working lifetime when they paid into the system. The difference is 

 even more important in terms of the calculation of die economic stimulus because these transfer 

 payments are considered in all the economic literature to be part of the economic base. When 

 they are excluded, the resulting calculations are off. The following figure compares the relative 

 importance of po'sonal income from the timber industry and from all government transfers. 



Timber Wages and Government Transfers in Humboldt County 



■Timber Wages 

 - Govt Transfers 



I I I I I I I I I I I I I I I I I 

 74 76 78 80 82 84 86 88 



Year 



William Stewart, Importance of Timber Income Response, 10/15/93 



