Contract Research: Forecasts and Research Applied to User Needs

The needs of a user often go beyond a standard forecast and require special studies drawing on Inforum's strengths. Some recent applications of Inforum models and databases include:

U.S. Impact Studies, and Studies Relating to Particular Industries

The Economic Costs of Disruptions in Container Shipments

In this March 29, 2006 CBO report to congress, Inforum provided simulations of the effects on the U.S. economy of shutdowns of several west coast ports. The port closures would significantly affect the amount of freight sent and received by shipping containers. Potential disruptions pose significant threats to national security and the U.S. economy. The full text is available here.

Clean Energy and Jobs

This study was done with the Center for a Sustainable Economy. We used the LIFT model to investigate the economic impacts of an energy policy which is designed to protect the environment, yet not harm the economy, or result in unfair burdens for affected workers and firms. Technology and energy efficiency assumptions were incorporated from the Department of Energy Clean Energy Futures (CEF) study. The policy package examined had 4 components: (1) A carbon/energy tax; (2) A market mechanism that would lower the costs of labor in industries impacted by the tax, without decreasing wages; (3) Energy efficiency changes indicated by the CEF report; (4) Private investment and government spending necessary to achieve these energy efficiencies; (5) Compensation for lost jobs and community transition assistance; and (6) Border adjustments applied to each industry with a carbon/energy tax burden of 2% or more of the total cost of production. The findings were that U.S. carbon emissions can be reduced significantly by 2020, with a slight increase in GDP and total employment.

Local Impacts of Electricity Industry Restructuring

This study was done for the National Rural Electric Cooperative Association (NRECA). The goal of the study was to analyze several policy changes being considered that may affect the local electric cooperatives and their communities. These include: 1) electric industry restructuring; 2) legislation to encourage adoption of new generation technologies; and 3) various incentive programs to reduce carbon emissions. To support this analysis, a detailed county/utility model was constructed, that maintains economic detail for 14 industries for each of 3140 countries comprising the U.S., as well as data on about 3500 electric utilities. This model was linked to the Inforum LIFT model of the U.S. Thus far, the model has been used to study the effects of a $10/ton carbon tax at the local level.

The Digital Economy

For several years, Inforum has supported the Department of Commerce in the development of its Digital Economy report. For the 2002 report, the Commerce department used Inforum projections of equipment spending by industry by asset to study the relative productivity contributions of IT-intensive industries, as measured by the IT investment share. Inforum projections were also used to gauge near-term prospects for growth of output in IT industries as indicated by the Inforum base case outlook.

The Asian Crisis and the U.S. Economy

Inforum performed this study in 1998 for the Manufacturers Alliance. A report was issued by Manufacturers Alliance describing the results. The consequences of the financial and economic crisis on relative currency valuations, Asian economic activity and international trade patterns was developed, and then used in the context of the Inforum International System to determine the impacts on the U.S. economy in general, as well as on 48 manufacturing industries.

Fundamental Tax Reform

In this study, the Inforum LIFT model was linked with microsimulation models developed by Coopers & Lybrand to estimate the revenue and macroeconomic impacts of fundamental tax reform. Three tax reform regimes were considered: 1) Consumption tax with transition; 2) Consumption tax without transition; and 3) Unified income tax. Results were presented in a 1997 symposium sponsored by the Joint Committee on Taxation. Other participating models in the symposium included the Jorgenson-Wilcoxen model (Peter Wilcoxen), DRI (Roger Brinner), Congressional Research Service (Jane Gravelle), Macroeconomic Advisors (Joel Prakken) and the CBO (Diane Lim Rogers, Kent Smetters). The Inforum/Coopers & Lybrand model was the only model at the symbosium to integrate microsimulation tools with a large scale econometric model at the industry level.

U.S. Jobs Supported by Exports

Inforum has done several studies for the Commerce Department which estimated the production and labor requirements of U.S. exports. The most recent study was completed in 1996 and the results were reported by Lester Davis in "U.S. Jobs Supported by Goods and Services Exports, 1983-1994" (Commerce, 1996). In 1994, 10.3 million jobs could be attributed to exports of goods and services. Estimation techniques and data sources were described in "Requirements for Exports, 1983-94: Documentation" (Inforum, 1996). This study was also described in the Washington Post.

The Impact of Foreign Trade on the Demand for Electricity: 1977-2010

A 1994 study done for the Edison Electric Institute was entitled "An Optimistic Forecast for the U.S. Economy to 2010 with the Impact of Foreign Trade on the Demand for Electricity 1977-2010". It examined the implications of robust economic growth for electric utilities. It also examined how changing patterns of foreign trade, both those that occurred in the past as well as those expected in the future, influence the demand for electricity. This study illustrates how input-output techniques can be brought to bear to study the electricity embodied in U.S. imports and exports.

Demand Side Management in the Broader Economy: The Economic Impacts of Utility Efficiency Programs

In 1992, Ed Moscovitch worked with Margaret McCarthy at Inforum and used LIFT to determine the economic and employment impacts of an aggressive program of energy efficiency investments by electric utilities. Implementing DSM (demand side management) in LIFT involved changing interindustry input coefficients, revising the mix of capital used by utilities, and changing personal consumption expenditures for electricity. Impacts on the price of electricity depended upon these factors as well as the manner in which investment was financed. Because of the scope of the program, it was important to use a macroeconomic model to capture impacts on GDP, employment, and inflation rates. LIFT was used as the modeling framework because it included feedback's from industry changes to macro aggregates. The study concluded that the DSM program would cause no loss in employment and no long-term increase in price levels.

The Impacts on the U.S. Economy of the Construction, Operation and Decommission of the International Thermonuclear Experimental Reactor

This study was performed in 1996 for Argonne National Laboratory and the Department of Energy. The International Thermonuclear Experimental Reactor (ITER) is a large to make fusion reactor whose total construction cost is estimated to be about 7 billion dollars. This is planned to be a joint international effort, with budget and workforce to be drawn from the U.S., the European Union, Japan and Russia. The purpose of this study was to determine the long-term impacts on the U.S. economy if the U.S. were determined as the site for TIER. The construction phase is assumed to run from 1999 to 2006, the operational phase from 2007 to 2024, and the decommission phase from 2025 to 2029. For these periods, both industry and macroeconomic impacts of the direct expenditures, as well as the impacts of consumption expenditures of the foreign workers were determined. The maximum increase in employment over a base case (no ITER) was in 2002, of almost 9000 jobs. Some of the industries most impacted by ITER were Business services (engineering and management), Metalworking machinery and Metal products. The principal investigators in this study were Margaret McCarthy, Ralph Monaco and Douglas Meade.

Plastics and the U.S. Economy

"Contribution of Plastics to the U.S. Economy", a 1992 report by Fred Peterson of Probe Economics, used Inforum estimates of the demands that the production of plastics generated for goods and services. In addition, Inforum estimated the "plastics content" of final demand. The study was updated in 1995, and will be updated again in 1997. (Lorraine Monaco made the calculations for the 1992 study; Margaret McCarthy has made the other Inforum estimates.)

Forecasting the Demand for Copper Scrap Using an Input-Output Model

This study was done by Douglas Meade for Arthur D. Little in 1992, as a component of a larger study for a large copper scrap dealer. The purpose of this study was to identify all sources of demand for copper scrap, and to forecast this demand for the next several years. An additional purpose was to identify the proportions of "new"and "old"scrap that would be consumed. New scrap consists of wastings and trimmings resulting from current production activities that use copper. Old scrap consists of copper recovered from discarded motor vehicles, electrical machinery, buildings and old telephone wire. We were supplied with historical data on total consumption of copper scrap by end market as well as the proportions of new and old. Total scrap consumed by end market was forecasted using outputs of the main purchasing industries. The proportion of old scrap used is really more of a supply question, because this proportion will be affected by the amount of old scrap coming on the market each year. To determine this supply, we constructed capital stocks and depreciation streams for the types of equipment and structures that were known from the capital flow and construction matrix to have large amounts of copper embodied in them, and related the proportion of old scrap to the depreciation of this capital.

The Impact of the Electric Car on the U.S Economy

This 1994 study, performed by Douglas Meade for the Maryland Department of Employment and Economic Development, analyzed the industry and macroeconomic impacts of structural change in the motor vehicles industry resulting from increased penetration of electric cars into the auto market. This penetration is the result of an assumption that by 2003, 3.6% of U.S. automobiles sold will be electric, due to California legislation expected to be adopted by 13 other states. To determine these impacts, alternative input-output coefficients were derived for electric cars, and the motor vehicles column of the direct requirements matrix was adjusted over the forecast to show the increased share of electric vehicles. Auxiliary assumptions about fuel consumption and maintenance expenditures were also developed. The findings are that although macroeconomic effects are minimal, impacts on particular industries are significant. Particularly, Petroleum refining and Motor vehicles had lower output and the Electrical equipment and Electric utility industries had higher output. Electrical equipment substituted for traditional auto parts in the intermediate use by Motor vehicles, and electricity substituted for fuel in the operation of these vehicles.

Policy Studies and Tools


The Long-Term Economic Impacts of Implementing the Energy Security Leadership Council's Recommendations to the Nation on Reducing U.S. Oil Dependence

In this April 2007 report, Inforum provided economic analysis of the policies advocated by the Energy Security Leadership Council. The study finds significant improvements in energy efficiency yielding welfare improvements and increased economic security. The full working paper is available here.

Macroeconomic and Industrial Effects Of Higher Oil and Natural Gas Prices

In this December 2006 Department of Commerce report, Inforum provided simulations of the effects on the U.S. economy of high oil and natural gas prices. Inforum's LIFT model was used to estimate effects on both the macro economy and on industries. In particular, Inforum studied the effects of high prices on energy-intensive industries. The full text is available here.

Macroeconomic and Industry Impacts of Currency Valuation: A Global Modeling Analysis

On June 27, 2005, Jeff Werling presented an analysis of the effects of Chinese currency revaluation to the International Input-Output Association in Beijing, China. The research employed Inforum's Bilateral Trade Model. The full working paper is available here.

The Defense Economic Purchases and Projections System

This system, abbreviated DEPPS, is an annual recurring project done for the Department of Defense. The objective is to calculate and analyze the impacts of defense expenditures on industry output and employment in the U.S., both direct and indirect. The LIFT model is used to obtain a base macroeconomic projection consistent with the defense expenditures implied by the Future Years Defense Plan (FYDP), and the Iliad model is used to calculate national level output and employment consistent with these expenditures. In order to obtain direct defense spending by industry, the Defense Translator is used, which is a matrix that determines the purchases by industry resulting from a given defense budget, which is classified into 11 major categories. A defense interindustry model is used to determine direct and indirect impacts of each of these 11 major categories. A state-level forecasting model uses state shares by industry of each major category to determine direct and indirect impacts by state. Finally, an occupational matrix is used to show the composition of employment in the government defense workforce, the employment generated directly by defense expenditures, and the employment generated by total requirements for defense. The results of these projections are published by the Department of Defense. The system is further described in the Inforum Working Paper "An Introduction to DEPPS".

Health Care Spending and the Rest of the Economy: A Short Look at the Long Term

This is a paper summarizing some of the work the Inforum has done with the Health Care Financing Administration. It shows a variety of simulations relating the effects that the health care system has on the health of the overall economy. Two simulations with LIFT 2050 are highlighted. First, the paper briefly describes the effects that an aging population has on the economy, operating through the channel of increased spending on medical care. Next, the paper revisits the issue of the consistency of social insurance fund economic assumptions and the projected insolvency of the Medicare trust funds. The paper shows that taking account of the growing insolvency of the Medicare trust fund would reduce projected economic growth dramatically and raise projected interest rates to about three times the level assumed in the Social Security trust fund report. This paper was written by Ralph Monaco and John Phelps, and presented at the annual meeting of the National Association of Business Economists, Boston, September 1996.

Health Care Prices, The Federal Budget, and Economic Growth

Rising health care spending, led by rising prices, has had an enormous impact on the economy, especially on the federal budget. This study uses the LIFT model, running through 2010, to show that if rapid growth in health care prices continues, under current institutional arrangements, real economic growth and employment will be lower during the next two decades than if health price inflation were somehow reduced. How big the losses are and which sectors bear the brunt of the costs vary depending on how society chooses to fund the federal budget deficit that stems from the rising cost of federal health care programs. Federal alternatives examined include deficit financing, and raising the federal payroll tax. This study was done by Ralph Monaco and John Phelps, and published in Health Affairs, Volume 14, Number 2 (Summer 1995).

Effects of Future Demographic Changes on the U.S. Economy: Evidence from a Long-Term Simulation Model

The size and characteristics of a country's population have long been recognized as key influences on almost all aspects of economic performance. The simple fact that the age composition of the U.S. population will change substantially over the next 50 years creates predictable age-composition effects on the U.S. economy. This paper examines the predictable effects using LIFT 2050. The paper reviews U.S. demographic history over the last 150 years, and then outlines the areas where demographic variables exert strong influence in the model. These are primarily (1) the distribution of consumer spending, (2) federal transfer payments for medical care, and (3) labor force growth. The study does a counterfactual analysis, examining what the economy would look like in 2050 if we held the age composition of the population constant at the 1995 distribution, and comparing with a baseline forecast with natural population aging. The study concludes that aging will put severe stress on the federal budget, reallocate economic activity away from high-productivity sectors to low measured productivity sectors, and severely reduce labor force growth. The model captures general equilibrium effects along with the first-round aging impacts. This paper was written by Ralph Monaco, Tim Dowd and Jeffrey Janoska, and submitted to Economic Systems Research in December 1996.

LIFT 2050: A Framework for Making Very Long-Term Economic Projections, with Illustrations

This study introduces the Demographic Projections Model (DPM) and the LIFT 2050 version of the LIFT model. The paper reviews U.S. demographic history, and creates the first baseline forecast through 2050 using the DPM and LIFT 2050 in tandem. The study outlines some of the problems entailed in extending the forecast horizon from 2010 to 2050. Four simulation experiments are highlighted. In the first, we examine the effects that reduced Medicare spending would have on the economy, both in the aggregate and for particular sectors. In the second, we show the economic impacts of an increase life expectancy on various industries and the distribution of consumer spending. In the third, we examine the effects on the economy of restricting immigration. We show that, even when the extra welfare costs of immigration are accounted for, restricting immigration hurts the economy in the long run. Finally, we examine the effects on the economy of an increase in fertility, and show that, although the economy is larger overall, there is a slight reduction in per-capita disposable income throughout the forecast horizon. This study was done by Ralph Monaco, Jeffry Janoska, Tim Dowd and Chris Scandlen, and presented at the November 1995 Inforum Subscribers' Meeting.

Beyond Ten Years: The Need to Look Further

This study was done by Ralph Monaco and John Phelps, and addresses the issue of the lack of feedback from the projections of the size of the health care sector contained in the Medicare trust fund reports and the assumptions about real GDP, inflation, and labor productivity that were used as a basis for the Medicare reports in the first place. We use LIFT 2050 to show that a growing health care share of GDP would likely cause economic effects that would tend to reduce labor productivity and real GDP growth, while increasing interest rates and the inflation rate. These differences are not very important in the 10-to-15 year horizon, but become increasingly important as the horizon moves to 2050. The study notes that ignoring the economic feedback's from the health sector to the rest of the economy paints too-rosy a picture of the aggregate economy through 2050. The paper was presented April 1996 at the Federal Forecasters Conference in Washington DC, and is forthcoming in the proceedings volume.

STATUS: An I-O Calculator for the U.S. Economy

STATUS is not a model, but a calculator. For specified direct spending, it calculates the requirements associated with that spending. The requirements include domestic production, imports, jobs, and labor income. The calculations rely upon the LIFT data base for four factors: I-O tables for the input composition of each product, import shares of domestic demand for each product, labor productivity of each industry, and labor income per worker, by industry. STATUS was used in two studies for HCFA. A 1995 study estimated export requirements and import displacements. It estimated that exports supported 10 million jobs in the U.S. economy in 1994, while imports displaced 11 million jobs. A 1996 study estimated the labor content of final demand by category.

International Studies

The Impact of Defense Offsets in Hungary

A new model of Hungary has been built with support from Lockheed Martin. Hungary is interested in modernizing its air force, and Lockheed will be bidding on that modernization. It is typical for these contracts to involve an "offset" program of investment within the purchasing country. A modeler within Lockheed had the revolutionary idea that a model of the Inforum type might be useful in evaluating such a program. The objective is to determine the impacts on the Hungarian economy of the impacts of the offset program, which will involve increased purchases of Hungarian exports. The Hungarian government is particularly interested in the impacts on investment and productivity.

The Impact of Deregulation on the Japanese Economy

This study was done in conjunction with our Japanese partners, the Institute for International Trade and Investment (IITI), for MITI. The objective was to determine the response of the Japanese economy to a program of price deregulation, which would bring the prices of nontradeable sectors down to the level of U.S. prices, assuming purchasing power parity. It is well known that although the Japanese have a much higher income per capita in terms of dollars at current exchange rates, that their real income is in fact only 65% to 75% of that of the U.S. This is because the prices of certain sectors are much higher than in the U.S. This is especially true in Agriculture, Construction, Trade, Transportation and Utilities. To reduce the prices in these sectors, we did not attempt to explain what policies would be required, but relied on a combination of productivity increases, slower wage growth and lower profit margins to achieve the lower prices. The findings were that the economy reached a higher real growth path, stimulated by higher exports and investment growth. However, the unemployment rate was much higher than the base case, as the economy did not absorb all of the extra labor freed up by increased productivity. Real disposable income per capita was slightly lower than in the base case. The principal investigators were Douglas Meade and Yasuhiko Sasai.

Jobs and Production Requirements Needed for Exports of the G-7 Countries and EU 12

For each of the G-7 countries (USA, Canada, Japan, Germany, Britain, France and Italy) plus the 12 country European Union calculations of production and jobs needed for exports to each of the other countries and the Rest of the World have been made for the period 1983-1994. This study was done by Douglas Nyhus.

Japanese Regional Input Output Modeling System (JARIOMS)

Using 1990 data for some seven regions in Japan a detailed, but static, input-output model has been created. The model distinguishes some 406 sectors and trade, by sector, between each of the regions and the rest of the world.

Should Austria Join the European Union?

This study was done by Josef Richter, an Inforum partner who works in the Federal Economic Chamber in Austria. It used the Inforum model of Austria, developed by Josef, to study the sectoral impacts of Austria joining the European Union (EU). Before the results of the Richter study were released, the polls showed the Austrian voters as 60% against joining the EU. The study found that, as a result of reduced trade restrictions, prices of tradable goods were reduced. Although some manufacturers would be hurt by these price reductions, consumers in general benefited from higher real disposable income. Furthermore, much of this increased income would be spent on services, so that the service sector of the economy would benefit. After this study was released to the press, the polls flipped to favoring joining the EU.

Data Development

Updates of I-O Table

In several studies, Inforum has updated the U.S. Input-Output Table. The most recent project, for Japan's Institute of International Trade and Investment" is described in "An Update of the 1987 Benchmark I-O Table to 1990" (Inforum, April 1996). MITI, Japan's Ministry of International Trade and Investment, develops international linked I-O tables and plans to use this table to revise its 1990 Japan-U.S. Input-Output Table. In several studies, prior to the publication of the benchmark tables, Inforum has used data from the economic censuses to provide I-O updates for the Federal Emergency Management Agency. "Update of the 1982 Benchmark I-O Table" (Inforum, June 1993), described updates to 1987 and 1990.


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