Economic Contribution of the Sawmill Industry in New Hampshire Calendar Year 2014

Prepared for New Hampshire Timberland Owners Association

by Daniel S. Lee and Ben Amsden

The Center for Business and Community Partnerships
Plymouth State University

August 2016

Table of Contents

I. Project Description
II. Definition of Key Measures
III. Literature Review
IV. IMPLAN Model and Data
V. Assumptions of the Model
VI. Definition of Industries
VII. Economic Contribution Estimates
VIII. Survey Results and Model Adjustments
IX. References

I. PROJECT DESCRIPTION
The Center for Business and Community Partnerships (CfBCP) at Plymouth State University was contracted by the New Hampshire Timberland Owners Associations (NHTOA) to estimate economic contribution of the sawmill industry to New Hampshire's economy. An economic impact model was created from 2014 IMPLAN (Impact Analysis for Planning) data, the latest data available. This model traces spending by sawmills. Sawmills make a significant contribution to the state's economy as they purchase supplies from local businesses. In addition, spending by sawmill workers and by companies supplying sawmills provides a boost to the region's economy. After reviewing and discussing the preliminary estimates, a survey of the sawmills was jointly designed by NHTOA and CfBCP. The survey results were used to customize and improve the baseline model and data.

II. DEFINITIONS OF KEY MEASURES
1. Employment: annual average number of jobs, including both full- and part-time jobs. For example, 10 jobs for the first half of the year and 20 jobs in the second half results in 15 average jobs for the year
2. Labor income: employee compensation (wages and salaries plus other compensations) and proprietor income
3. Value added: labor income, other types of property income (such as dividends, interest income, rent income, and profits), taxes on production and imports
4. Output: total value of production, which is the sum of value added and the cost of all the inter-industry purchases required for production
5. Multiplier effect: The sawmill industry's contribution spreads across the state's economy by creating and supporting jobs, incomes, and taxes. The sawmill industry supports its supply industries in the region by making purchases from them (indirect effect). These supply industries include commercial logging, logging equipment merchant wholesalers, truck transportation, and payroll services. In addition, workers in the sawmill industry and its supply industries spend their earnings in the region's services industries (induced effect), such as restaurants, medical services, grocery stores, real estate, retail stores, and so on.

III. LITERATURE REVIEW
Economic contribution studies of the sawmill industry have often been included as a part of economic contribution studies of agriculture and forestry-related industries. Studies measured economic contributions on the following measures – employment, labor income, value added and output. IMPLAN has been widely used in the literature. In fact, every study that we reviewed used IMPLAN in its analysis.

IMPLAN econometrically estimates multipliers using various federal government data. Minor adjustments were made to these multipliers based on data directly collected from a sample of sawmills that operated in the state during calendar year 2014. All but one of these multipliers turned out to be slightly larger than those that were found for other states in the literature. The larger multiplier effects are largely due to larger indirect effect than induced effect: for example, the industry's employment multiplier of 3.3 is the sum of the direct effect (1), the indirect effect (1.5), and the induced effect (0.7). This reflects the presence of strong supporting industries for the sawmill industry within the state, such as the logging industry. An extensive network of supporting industries increases the sawmill industry's spillover impact on the state's broader economy. Lastly, the multipliers found in the literature may not be directly comparable since some of them were estimated for a broader industry group such as the forest product manufacturing, which includes the sawmill industry as a sub-group. The summary of the findings is reported in Table 1 below.

The employment multiplier ranges from 1.4 to 3.6 in the literature. The New Hampshire's employment multiplier for 2014 is 3.3, which lies within the range suggested by the literature. The employment multiplier of 3.3 means that every 100 jobs in the state's sawmills industry supported an additional 230 jobs in the rest of the economy during 2014.

The labor income (employee compensation and proprietary income) multiplier ranges from 1.4 to 2.6 in the literature. The New Hampshire's labor income multiplier for 2014 is 3.3. The labor income multiplier of 3.3 means that every $1 million labor income in the state's sawmill industry supported an additional $2.3 million labor income in the rest of the economy.

The value added multiplier ranges from 1.4 to 3.3 in the literature. The New Hampshire's value added multiplier for 2014 is 3.7. The value added multiplier of 3.7 means that every $1 million in value added in the state's sawmills industry supported an additional $2.7 million value added in the rest of the economy.
The output multiplier ranges from 1.2 to 2.0 in the literature. The New Hampshire's output multiplier for 2014 is 2.1, which is slightly above the range suggested in the literature. The output multiplier of 2.1 indicates that every $1 million in output in the state's sawmill industry supported an additional $1.1 million output in the rest of the economy.

Table 1: Multipliers for Sector 16: Commercial Logging

State	Year	Employment	Labor Income	Value Added	Output	Model

New Hampshire	2014	3.3	3.3	3.7	2.1	IMPLAN
Virginia**	2011	2.8		2.8	1.9	IMPLAN
Alabama	2010	3.0		3.3	2.0	IMPLAN
Minnesota*	2011	3.6		2.4	1.8	IMPLAN
Texas*	2014	2.4	2.6	2.8	1.8	IMPLAN
W. Virginia**	2003	1.9	1.8		2.0	IMPLAN
Tennessee	2011	2.0	2.4	2.8	1.6	IMPLAN
Florida	2013	1.4		1.4	1.2	IMPLAN
Georgia**	2013	2.7	2.3		1.7	IMPLAN
Kentucky**	2015	2.2			1.6	IMPLAN
Louisiana**	2012	2.3	1.4	1.8	1.5	IMPLAN
N. Carolina**	2013	2.1	1.9	2.2	1.6	IMPLAN

* The multipliers are for primary forest-product manufacturing industries that procure and/or utilize wood fiber directly from the forest in roundwood, chip, or equivalent form.
** The multipliers are for forest-related industries, which include logging and secondary forest product manufacturing as well as sawmills.
Cells were left blank when they were not reported in the literature.

IV. IMPLAN MODEL AND DATA
The model used in this analysis was built by customizing the Impact Analysis for Planning (IMPLAN) regional input-output software. The first input-output model was developed by Dr. Wassily Leontieff to help the United States mobilize to meet the demand of the World War II. For this work in input-output models, he won the Nobel Prize in Economic Science in 1973.

The input-output model was later applied to regional economies. With the enactment of the National Forest Management Act in 1976, the U.S. National Forest Services needed a systematic tool for evaluating the national forest management plans on local residents and businesses. Hence, the creation of the IMPLAN. The advancement of computer technologies made it possible to extrapolate, extend, and convert existing data to regional economies using non-survey methods without the cost of onsite data collection.

Today, IMPLAN is widely used for evaluating economic impacts beyond the forest and logging sector. It traces impacts through direct, indirect, and induced impacts. Direct impact is the initial expenditures, or production, made by the industry experiencing the economic change; indirect impact represents the effects of local inter-industry spending through the backward linkages; and induced impact is the results of local spending of employee's wages and salaries for both employees of the directly affected industry, and the employees of the indirectly affected industries. Backward linkages are the tracking of industry purchases backward through the supply chain.

IMPLAN data is constructed primarily from federal government data, including:
• U.S. Bureau of Economic Analysis Benchmark I/O Accounts of the U.S.
• U.S. Bureau of Economic Analysis Output estimates
• U.S. Bureau of Economic Analysis REIS Program
• U.S. Bureau of Labor Statistics Covered Employment and Wages Program
• U.S. Bureau of Labor Statistics Consumer Expenditure Survey
• U.S. Census Bureau County Business Patterns program
• U.S. Census Bureau Decennial Census and Population Surveys
• U.S. Census Bureau Economic Censuses and Surveys
• U.S. Department of Agriculture Crop and Livestock Statistics
• U.S. Geological Survey

V. ASSUMPTIONS OF THE MODEL
All the usual assumptions of the input-output model apply in this study.
• Constant returns to scale
o As all inputs increase by a factor, output increases by the same factor. For example, output doubles if all inputs double.
• National production coefficients and margins
o An industry is assumed to have identical production functions and margins in all regions in the country.
• No substitution among inputs
o No substitution among inputs is assumed for simplicity. In practice, firms may look for an alternative for an input that becomes increasingly more expensive, which may happen if its demand increases and/or its supply falls.
• No constraints to the supply of commodity

VI. DEFINITION OF INDUSTRIES
Table 2 describes the sawmill industry used in this study, along with its IMPLAN and the North American Industry Classification System (NAICS) code. It also describes a few of its primary supply industries.

Table 2: Sawmill industry and its primary supporting industries

IMPLAN Sector ID	Description	Examples	NAICS Code
134	Sawmills	Sawing dimension lumber, boards, beams, timbers, poles, ties, shingles, shakes, siding, and wood chips from logs or bolts	3211
Supply industries
16	Commercial logging	Cutting and transporting timber, stump removing in the field, timber piling, tree chipping in the field	1133
395	Wholesale trade businesses	Logging equipment merchant wholesalers	4238
19	Support activities for agriculture and forestry	Cruising timber, estimating timber, forest fire prevention, forest firefighting, forest management plans and preparation, pest control services	1153
461	Management of companies and enterprises	Bank holding companies, insurance holding companies, financial holding companies, holding companies that manage	551
411	Truck transportation		484
448	Accounting, tax preparation, bookkeeping, and payroll services		5412

VII. ECONOMIC CONTRIBUTION ESTIMATES

The sawmill industry's contribution spreads across the state's economy by creating and supporting jobs, incomes, and taxes. The sawmill industry supports its supply industries in the region by making purchases from them (indirect effect). In addition, workers in the sawmill industry and its supply industries spend their earnings in the region's services industries (induced effect). For example, Table 3 shows that there are 778 jobs in the state's sawmill industry. These 778 sawmill jobs support an additional 1,194 jobs in its supporting industries, such as logging. These 778 sawmill jobs and 1,194 jobs in its supporting industries together support an additional 621 jobs in services sectors, such as grocery stores, hospitals, gas station, utility, restaurants, etc.

Table 3. Summary of Economic Contribution, Year 2014

Impact Type	Employment	Labor Income	Value Added	Output
Direct Effect	778	$40.9	$48.0	$213.5
Indirect Effect	1,194	$62.9	$79.4	$153.0
Induced Effect	621	$29.4	$49.0	$81.1
Total Effect	2,593	$133.2	$176.5	$447.7

The dollars are expressed in millions of 2014 dollars.

Table 5 shows the top 25 industries supported by the sawmill industry in terms of employment. The largest employment contribution of the sawmill industry was in "Commercial logging." A total 478 jobs in this industry were supported by the sawmill industry.

Table 5: Top 25 Industries Affected, Employment

Sector	Description	Direct	Indirect	Induced	Total
0	Total	778	1,194	621	2,593
134	Sawmills	778	60	0	838
16	Commercial logging	0	478	0	478
395	Wholesale trade	0	137	19	155
19	Support activities for agriculture and forestry	0	85	0	86
501	Full-service restaurants	0	16	37	53
502	Limited-service restaurants	0	15	29	44
440	Real estate	0	15	29	43
482	Hospitals	0	0	37	37
461	Management of companies and enterprises	0	32	4	36
411	Truck transportation	0	28	3	31
468	Services to buildings	0	20	9	29
448	Accounting, tax preparation, bookkeeping, and payroll services	0	22	5	26
400	Retail - Food and beverage stores	0	0	25	25
62	Maintenance and repair construction of nonresidential structures	0	18	4	22
10	All other crop farming	0	21	0	21
405	Retail - General merchandise stores	0	2	19	21
475	Offices of physicians	0	0	18	18
504	Automotive repair and maintenance, except car washes	0	7	11	18
464	Employment services	0	10	8	17
503	All other food and drinking places	0	2	15	17
483	Nursing and community care facilities	0	0	17	17
492	Independent artists, writers, and performers	0	12	4	17
436	Other financial investment activities	0	4	11	15
469	Landscape and horticultural services	0	10	5	14
460	Marketing research and all other miscellaneous professional, scientific, and technical services	0	11	2	14

Table 6 shows the top 25 industries supported by the sawmill industry in terms of labor income. The largest labor income contribution of the sawmill industry was in "Commercial logging." A total $20.3 million in this industry was supported by the sawmill industry.

Table 6: Top 25 Industries Affected, Labor Income (in $1,000)

Sector	Description	Direct	Indirect	Induced	Total
0	Total	$40,912	$62,921	$29,410	$133,243
134	Sawmills	$40,912	$3,136	$4	$44,051
16	Commercial logging	$0	$20,253	$8	$20,261
395	Wholesale trade	$0	$13,076	$1,764	$14,840
461	Management of companies and enterprises	$0	$3,932	$430	$4,362
482	Hospitals	$0	$0	$2,617	$2,617
475	Offices of physicians	$0	$0	$2,158	$2,158
19	Support activities for agriculture and forestry	$0	$2,126	$6	$2,131
411	Truck transportation	$0	$1,649	$167	$1,816
448	Accounting, tax preparation, bookkeeping, and payroll services	$0	$1,416	$296	$1,713
501	Full-service restaurants	$0	$391	$871	$1,263
62	Maintenance and repair construction of nonresidential structures	$0	$998	$206	$1,204
504	Automotive repair and maintenance, except car washes	$0	$412	$695	$1,107
435	Securities and commodity contracts intermediation and brokerage	$0	$422	$675	$1,097
449	Architectural, engineering, and related services	$0	$880	$167	$1,047
440	Real estate	$0	$351	$695	$1,047
437	Insurance carriers	$0	$227	$747	$974
502	Limited-service restaurants	$0	$307	$600	$906
454	Management consulting services	$0	$621	$256	$877
447	Legal services	$0	$458	$384	$842
396	Retail - Motor vehicle and parts dealers	$0	$189	$611	$800
433	Monetary authorities and depository credit intermediation	$0	$342	$443	$785
464	Employment services	$0	$433	$333	$766
507	Commercial and industrial machinery and equipment repair and maintenance	$0	$634	$85	$719
468	Services to buildings	$0	$503	$211	$714
400	Retail - Food and beverage stores	$0	$9	$700	$710

Table 7 shows the government taxes and receipts the sawmill industry contributed. The sawmill industry generated $11.8 million of tax revenues to the state and local governments from all sources and an additional $39.9 million to the federal government.

Table 7: Tax Contribution (in $1,000)

Description (in $1000)	Employee Compensation	Proprietor Income	Tax on Production and Imports	Households	Corporations

*State and Local*
Dividends	0	0	0	0	$24
Social Ins Tax- Employee Contribution	$85	$0	0	0	0
Social Ins Tax- Employer Contribution	$165	0	0	0	0
Tax on Production and Imports: Sales Tax	0	0	$1,975	0	0
Tax on Production and Imports: Property Tax	0	0	$7,139	0	0
Tax on Production and Imports: Motor Vehicle Lic	0	0	$83	0	0
Tax on Production and Imports: Severance Tax	0	0	$0	0	0
Tax on Production and Imports: Other Taxes	0	0	$570	0	0
Tax on Production and Imports: S/L NonTaxes	0	0	$3	0	0
Corporate Profits Tax	0	0	0	0	$963
Personal Tax: Income Tax	0	0	0	$154	0
Personal Tax: NonTaxes (Fines- Fees	0	0	0	$305	0
Personal Tax: Motor Vehicle License	0	0	0	$116	0
Personal Tax: Property Taxes	0	0	0	$94	0
Personal Tax: Other Tax (Fish/Hunt)	0	0	0	$93	0
Total State and Local Tax	$250	$0	$9,770	$761	$987

Description (in $1000)	Employee Compensation	Proprietor Income	Tax on Production and Imports	Households	Corporations

*Federal*
Social Ins Tax- Employee Contribution	$6,275	$1,161	0	0	0
Social Ins Tax- Employer Contribution	$6,179	0	0	0	0
Tax on Production and Imports: Excise Taxes	0	0	$773	0	0
Tax on Production and Imports: Custom Duty	0	0	$287	0	0
Tax on Production and Imports: Fed NonTaxes	0	0	$82	0	0
Corporate Profits Tax	0	0	0	0	$2,417
Personal Tax: Income Tax	0	0	0	$10,951	0
Total Federal Tax	$12,454	$1,161	$1,142	$10,951	$2,417

VIII. SURVEY RESULTS AND MODEL ADJUSTMENTS

The industry was well represented by the survey responses used in this study. Although just 16 of a total of 50 sawmills in the state returned the survey, and 14 of those 16 responses were usable, the 14 companies that provided usable responses are believed to make up nearly all of the industry's production. There are just 12 large and medium-sized sawmills in the state, and together they produce most of the industry's production. The 14 sawmills reported total sales of $177 million during 2014, compared to $230 million total output for the entire industry reported by 2014 IMPLAN. Sales and output are similar but not exactly the same; in the manufacturing sector, output is sales minus inventories.

Table 9 shows per-worker statistics of the survey results that were considered for customizing the IMPLAN model. Sales per worker found in the survey was discarded for a couple of reasons. First, it appears to be inflated. The survey shows that sales per worker of $344,000, which compares to IMPLAN's output per worker $280,000 for the nation and $274,000 for the state. Secondly, output (used in IMPLAN) is not exactly the same as sales (used in the survey). Output, which is also used in the U.S. Bureau of Economic Analysis, is defined as sales minus inventory. On the other hand, the other two variables seem reasonable compared to IMPLAN data: 1) payroll (employee compensation) per worker; and 2) taxes per worker. The payroll per worker is reported to be $50,000, which compares to IMPLAN's estimates of $47,000 for the nation and $48,000 for the state. Payroll statistics excludes proprietors. The taxes per worker is reported to be $2,000, which falls between the range of the IMPLAN estimates for the nation and the state. The payroll per worker and the taxes per worker were used to customize the baseline IMPLAN model.

The survey data was also examined in terms of the type of wood produced by the sawmills. Of the 14 usable responses, five sawmills were classified as hardwood producers and nine as softwood producers. Of the nine softwood producers, seven sawmills reported that they exclusively produced softwood; one reported that it produced 99% softwood; and one reported that it produced 98% softwood. Of the five hardwood producers, three sawmills reported that they exclusively produced hardwood; one reported that it produced 99% hardwood; and one reported that it produced 75% hardwood. Breaking down the data by the type of wood revealed some interesting facts about the state's sawmill industry. First, the state's sawmills industry was dominated in 2014 by softwood producers in terms of sales, employee compensation, and jobs. For example, softwood producers collectively reported total revenue of $134 million for the year, in comparison to $42 million reported by hardwood producers (Table 10). Note that the comparison with the Economic Census 2012 suggests that the sample of these 14 sawmills makes up nearly all of the industry's production. Second, not only were the softwood producers larger collectively, they were also larger individually. Table 11 shows that a typical softwood producer is nearly twice as large as a typical hardwood producer in terms of sales, employee compensation, and jobs.

Table 8 Summary Statistics of the Survey

	*Sales*	*Payroll*	*Taxes*	*Jobs*	*Intermediate Expenditure*	Capital Expenditure*

Mean	$12,650,200	$1,826,174	$75,475	37	$8,113,849	$2,843,938
Standard Error	$3,820,543	$453,588	$16,288	8	$3,372,452	$1,061,547
Median	$6,759,543	$1,495,485	$68,607	40	$3,537,628	$1,159,511
Standard Deviation	$14,295,162	$1,697,170	$60,943	29	$12,618,560	$3,971,945
Range	$48,576,542	$4,645,100	$184,732	84	$48,396,900	$13,981,650
Minimum	$82,000	$0	$300	2	$14,000	$2,000
Maximum	$48,658,542	$4,645,100	$185,032	85	$48,410,900	$13,983,650
Sum	$177,102,799	$25,566,438	$1,056,652	516	$113,593,881	$39,815,134
Count	14	14	14	14	14	14

*This is the sum of capital expenditure over the period of 2010 – 2014. The rest of the table is for the calendar year 2014.

Table 9 Survey Statistics in Comparison to IMPLAN and Economic Census ($1,000)

		Industry Total		Per Worker
	Survey	IMPLAN	Economic Census 2012	Survey	IMPLAN	IMPLAN, USA	Economic Census 2012
Employment	516	838	610
Sales/Output*	$177,103	$229,927	$150,900	$344	$274	$280	$247
Employee Compensation	$25,566	$40,332	$23,028	$50	$48	$47	$38
Taxes	$1,057	$1,926		$2.0	$2.3	$1.1
Intermediate Expenditure	$154,656	$179,263		$300	$214	$214

*Figures of survey and Economic Census represent sales, while IMPLAN's reflect output. Per worker statistics were calculated by industry totals divided by industry total employment. Taxes represent all the government taxes and receipts the sawmill industry contributed through its total economic contribution (direct, indirect, and induced). See Table 7 for detailed examples of these taxes. Intermediate expenditure includes the sawmill industry's spending in its supply industries, including commercial logging, logging equipment merchant wholesalers, truck transportation, and payroll services. For definitions of employment, output, employment compensation, see Section II: DEFINITIONS OF KEY MEASURES.

Table 10 Totals by Type of Wood

Type of Sawmills	Number of Sawmills	Sales	Employee Compensation	Taxes	Jobs	Intermediate Expenditure in NH	Capital Expenditure
hardwood	5	$42,225,821	$6,109,344	$403,000	121	$24,184,562	$19,041,192
softwood	9	$134,876,978	$19,457,094	$653,652	395	$89,409,319	$20,773,942

Capital expenditure is the sum of yearly capital spending over the period of 2000 – 2014.

Table 11 Averages per Sawmill by Type of Wood

Type of Sawmills	Number of Sawmills	Sales	Employee Compensation	Taxes	Jobs	Intermediate Expenditure in NH	Capital Expenditure
hardwood	5	$8,445,164	$1,221,869	$80,600	24	$4,836,912	$3,808,238
softwood	9	$14,986,331	$2,161,899	$72,628	44	$9,934,369	$2,308,216

IX. REFERENCES

"West Virginia's Forests: Growing West Virginia's Future." Bureau of Business and Economic Research, College of Business and Economics, West Virginia University, 2005
http://www.wvforestry.com/Economic%20Impact%20Study.pdf

"Economic Impacts of Alabama's Agricultural, Forestry and Related Industries." The Department of Agricultural Economics and Rural Sociology, Auburn University, 2013.
http://www.aces.edu/pubs/docs/A/ANR-1456/ANR-1456.pdf

"Economic Contribution of Minnesota's Forest Products Industry – 2011 edition." UMD
Labovitz School of Business and Economics, University of Minnesota Duluth, 2011
http://files.dnr.state.mn.us/forestry/um/economiccontributionMNforestproductsindustry2011.pdf

"Economic Contributions of Agriculture, Natural Resources, and Food Industries in Florida in 2013." University of Florida–IFAS, Food & Resource Economics Department, 2015
http://forestryimpacts.net/reports/florida/FE969-FullReport.pdf

"2013 Economic Benefits of the Forestry Industry in Georgia." Enterprise Innovation Institute, Georgia Institute of Technology, 2015
http://forestryimpacts.net/reports/georgia/EconomicBenefitsoftheForestryIndustryinGA2013FR.pdf

"Kentucky Forestry Economic Impact Report 2015." University of Kentucky, 2016
http://forestryimpacts.net/reports/kentucky/KY%20Forestry%20Economic%20Impact%20Report%202015_final.pdf

"The Economic Contribution of Forestry and the Forest Products Industry on Louisiana's Congressional Districts." Louisiana State University Agricultural Center, 2014
http://forestryimpacts.net/reports/louisiana/LA_EconContrib_2012.pdf

"North Carolina's Forests and Forest Products Industry by the Numbers, 2013." North Carolina State University, 2016
http://forestryimpacts.net/reports/north-carolina/north-carolinas-forest-and-forest-products-industry-by-the-numbers-handout.pdf

"Texas 2014." Texas A&M Forest Service
http://forestryimpacts.net/reports/texas/Texas2014.pdf

"The Economic Impacts of Agriculture and Forest Industries in Virginia." Weldon Cooper Center for Public Service, University of Virginia, 2013
http://www.coopercenter.org/sites/default/files/publications/Virginia%20AgricultureForest%202012reva.pdf

"Economic Impacts of Agriculture and Forestry in Tennessee, 2011." The University of Tennessee Knoxvill, 2013
http://forestryimpacts.net/reports/tennessee/Report2011Pub.pdf