The terms "economic impact" and "economic activity" are often used interchangeably. This leads to all manner of bad public discussion and public policy. These economic activity studies, masquerading as economic impact studies, demonstrate either ignorance or a deliberate attempt to impact public opinion with misleading conclusions.
A local think tank recently released a study on the economic impact of state workers. Wow, and I thought public employees were users of revenues, not, as the study asserts, generators of economic growth! I guess if we put every working person on the state's payroll with a guaranteed income of $100,000 a year, we'd be the richest state in the nation.
If you skipped Econ 101 as part of meeting your undergraduate general studies requirements, here's what you missed. And think-tankers....you can learn too.
For the sake of this quick explanation let's define the "market" as the state of Colorado. Economic impact occurs when new revenue is brought into the market. Economic activity is what happens after the new revenue is spent in the market. The new revenue is referred to as "primary." Primary income and the primary jobs associated with it are the new money into the market-the growth elixir that helps the economy expand. To economic developers, it's the gold standard in every sense of the word.
Then, something called "economic activity," follows. This is the money that gets spent after primary income enters the market. This is not new money. These dollars are being "re-spent" by consumers who are making discretionary spending decisions. Jobs benefitting from this discretionary spending are often called "support service" or "spin-off" jobs. This is where the "multiplier effect" comes in. A primary job's new money creates a demand in the local economy for services to support the primary job-jobs like waiters, realtors, lawyers, doctors and, yes, government employees. These non-primary jobs are created by the primary jobs. If there are no primary jobs, then there are no other jobs...period.
Consider a state employee whose entire salary is paid by Colorado taxpayers. There is no new money here at all. The new money has been made someplace else and the result of that new money is taxation. This particular government employee is a spin-off or support service job. He or she has no economic impact. His/her salary is part of the economic activity generated by the primary or new revenue.
Some state employees do have an economic impact. People who work for the Colorado Tourism Board, for example, are engaged in marketing activities that bring out-of-state tourists to spend their money in Colorado. So too, portions of the Department of Natural Resources, Agriculture, and even the Department of Revenue (auditors who collect taxes from out-of-state employers) are part of the economic impact of state government. But these are tiny numbers compared to the vast majority of state workers who gain their salaries from primary revenue already created by someone else.
So, if someone runs up to you and says the economic impact of a state worker is "X" dollars, ask this simple question, "What is the source of the revenue that creates the impact?" If the answer is, "The state's General Fund," refer them to this blog.