All the stars, planets and other objects in the universe, exist under the governance of one force, namely gravity. A disruption in one place creates ripples of gravity – some minute and some massive – that affect the orbits and motions of astronomical objects far and wide, creating a sort of trickle-down butterfly effect.
The same can be said for the effects created by the establishment of a vertically integrated company within a community. The “trickle down” effect can produce both positive and negative effects upon the existing residents and businesses. Some of those effects involve incomes, lifestyles, community structure and an overall economic impact.
When a new company moves in, one as large as Costco Wholesale – which has proposed constructing a fully integrated poultry processing operation in the Fremont area – much time, energy, money and mind-numbing integrated mathematical calculations are deployed to establish indicators of possible ripple effects within and beyond a community.
One of those indicators is known as a “multiplier effect.” It originates with a company’s initial capital investment that can stimulate new employment, services and spending in the area. The multiplier represents a kind of circular flow of money through a community’s economy.
Darin Buelow of Deloitte consulting, the consulting firm that has been working with Costco provided the Fremont Tribune with a copy of an Economic Impact Study report on the proposed facility dated Nov. 13, 2015. He explained that such a study represents a “standard practice in site selection analyses” for a project like the one proposed by Costco. The impact study was performed using IMPLAN software, an industry standard for such analyses and evaluates “the statewide impact of the construction and ongoing operation of a large, state-of-the art poultry processing operation.”
“(The economic impact model) helps us understand the potential economic impacts in terms of job creation, output and income, beyond the direct activity on the project site itself,” Buelow wrote in an email.
The impact study projects good things for the state’s economy as a result of the large capital investment. For example when the plant reaches full operation, the anticipated income impact reported in by the study could be $239 million annually. That number represents a 2.14 income multiplier. In very basic terms, this means that for every dollar of income generated by the facility for its workers, additional dollars of income will be generated in other jobs indirectly related to the facility because the workers of that facility are spending their new income in the community.
Simply put, people of a community (i.e. the state) earn income, then spend that income within the community, which in turn becomes another person’s income. The income movement works in a circular pattern, so when a large company comes along and injects a big investment into the existing income circle, that investment creates additional circulating income for the workers in other jobs (e.g. restaurants, retail and other), and that additional income continues to circulate.
During the construction period the impact study reports an $88 million anticipated income investment, representing a 1.50 multiplier.
However, David Swenson an associate scientist for the department of economics at Iowa State University, and a well-known expert on IMPLAN analysis, cautioned that the economic and income multipliers depend on many factors.
“The appropriate questions on the construction impacts are how much of this is to be subcontracted to local firms,” he wrote in an email. He added, for such specialized facilities, out-of-region contractors – who possess abundant experience in the construction and technicalities of such facilities – will do most of the work.
Swenson was careful not to discount IMPLAN study’s results, explaining that it’s a complex analysis subject to many different influences.
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“The accuracy of IMPLAN hinges mainly on the skill of the analyst using the system,” explained Swenson. “Accuracy is a moving target. The credibility of an impact study depends on how carefully the study was done.”
Eric Thompson, director of the Bureau of Business Research at University of Nebraska-Lincoln, also identifies trickle down effects stimulated by population growth as possible benefits. A FAQ from the Greater Fremont Development Council noted that the proposed Costco operation would create 1100 new jobs at the technical, managerial and advanced manufacturing levels. It also stated that the company plans to hire production labor at $13 to $17 per hour (above the median production rate) that could help keep young people in the community.
Thompson points out that because Fremont is located on the edge an populous hub (i.e. Omaha) it will remain unclear – until the plant begins operations – as to what share of the work force would come from the local population, and what share would commute from outside.
However, Thompson did say that population increases spill over into other areas; more people require more available resources and services. Spillover effects into healthcare, education and retail could lead to job multipliers in all types of employment sectors, Thompson explained.
He further pointed out, when a community expands its economy the result can lead to the increases in various job opportunities. Additionally, when economies expand, wage levels tend to rise, he said.
“Purely from an economic perspective, it’s fair to say that attracting a large factory will positively impact an economy,” Thompson said. Theoretically however, he stressed, that many other complex elements are involved in such a large investment.
According to Lee Schultz, an agricultural and natural resource economics expert at Iowa State University, vertical integration of the poultry industry has resulted in reduced poultry prices and improved quality and consistency of product.
For many people who might be raising a family, that would seem a definite benefit.
Some issues still remain unclear as to their effects upon the local community. According to the GFDC FAQ, new traffic comprised of the “delivery of chickens and outgoing refrigerated product” could reach approximately 120 trucks per day. Effects on traffic patterns depends on many factors, not in the least the chosen location of the facility.
Finally, it is important to keep in mind that an economic impact analysis is just that: an analysis, a study of interrelated and integral parts in an effort to understand how those parts create a “whole.”
Prediction is a difficult science. And reiterating Swenson’s words, “Accuracy is a moving target.”