Economic Impact of Coal Industry

ECONOMIC IMPACT - METHODOLOGY The methodology employed to estimate the impact of the coal industry (the Industry) on the economy of Alabama, is derived from regional economic models. The basic premise is that the spending by the Industry stimulates various sectors in the economy. First, the transaction activities originated due to the Industry spending increase the demand for goods and services in the local economy. Next, the affected sectors increase their demand from their suppliers throughout the region to respond to the demand for their products. Classifying the impacts into three broad categories facilitates an understanding of how an initial change in the demand for goods and services, on the economy, due to an economic activity, is multiplied into additional impacts. THE THREE CATEGORIES OF IMPACTS ARE: Direct: The direct impact of spending by the Industry is the additional demand and expenditures in the economy that are directly attributable to the regular and day-to-day operation originated by various activities of the Industry. Indirect: To the extent that direct purchases of goods and services associated with the Industry’s spending reverberate throughout the economy and result in further increases in business transactions, there will be indirect impacts. An indirect impact, for example, results when a business needs additional construction materials and labor to service the increased demand directly attributable to the operation of the Industry. The suppliers of these items find their sales increasing and, in turn, need more input to meet the new demand. This process continues, yielding a multiplied effect on the output of the state economy. Whenever the extra demands are met by industries, outside the local economy, there are leakages from the flow of products and income from the local economy. The greater the number of leakages, the lower the indirect impacts, and the lower the multiplier. On the other hand, the more diversified the local economy, the higher the value of multipliers. Induced: Additional indirect effects are induced by the change in income in the economy. For example, when a business hires an additional worker to meet the demand caused by the Industry, the worker’s spending further enhances economic activity in the region. Determining multipliers for the projects under consideration is a fundamental step toward conducting an economic impact analysis. The term multiplier refers to the ratio of all direct, indirect, and induced effects to the direct effects. Once the total direct impact of the Industry’s spending —specifically, earnings, employment, and output directly attributable to—are estimated, they are linked to other relevant criteria to estimate the pursuant demand on housing, labor force, and any addition to sales tax, property tax, and income tax revenues realized by the state officials. For the purpose of estimating the economic impact of this project, economic, demographic, and housing market information were gathered from: The U.S. Department of Labor The U.S. Census Bureau The U.S. Bureau of Economic Analysis Alabama Department of Revenue Economic Development Partnership of Alabama 12 ECONOMIC IMPACT OF THE COAL INDUSTRY ON THE STATE OF ALABAMA