Abstract
Public policy design plays a significant role in alleviating the economic effects caused by this pandemic in local economies across the globe. This chapter suggests the use of input-output analysis (IO) to provide guidelines to stakeholders and policy makers in the air transportation sector to address economic concerns during the pandemic and in the post-pandemic era. IO is helpful in estimating the economic effects of COVID-19 pandemic in the air transportation sector and allows to estimate its impact on other economic sectors in a local economy. Output, value added, employment, and personal income are the variables estimated through IO. The chapter applies IO technique to evaluate the economic impact of COVID-19 on the air transportation sector in Austin, Texas. Impact estimates suggest a total loss of $1.02 billion USD in Austin MSA's economy in 2020; the number of jobs lost are estimated at 3.87 thousand and the total loss in personal income at $229.97 million USD in Austin MSA in 2020. Lastly, the value-added loss in Austin MSA is estimated at $514.20 USD in 2020.
TopInput-Output Analysis (I-O) is an economic modeling technique consisting of linear algebra applications widely used as an attempt to predict how the economy of a country will respond to exogenous or planned changes (Hastings and Brucker, 2019). For example, a planned change in the economy of a country could be the construction of a new highway or changes in government policy. Examples of exogenous changes in a country’s economy include natural disasters or public health crisis such as a pandemic. In addition, I-O is used to calculate intermediate demand of final goods and services produced by an economy because it portrays the way industries interact with each other. This interaction is given by the interconnectivity of industries (Rey, 2000). Moreover, I-O provides information about the economic sectors of a country in terms of sales, wages, and employment. I-O serves as an attempt to quantify, at a point in time, the economic interdependencies in an economy. More specifically, “a fundamental underlying relationship of input-output analysis is that the amount of product (good or service) produced by a given sector in the economy is determined by the amount of that product that is purchased by all the users of the product” (Hasting and Broker, 2019, p. 3). In order to further elaborate on applications of I-O analysis applications and its purpose, an explanation of the model is provided next.
Key Terms in this Chapter
Economic Impact Analysis: Methodology used to estimate the direct, indirect, and induced effects of a change in economic activity, policy change or project taking place in a particular area on various outcomes. These outcomes are generally output, value added, earnings, and employment.
Value Added: Equivalent to gross domestic product. It is the total income generated from production measured as the difference between an industry’s total output minus the costs of its intermediate inputs.
Induced Effects: Changes in spending resulting from changes in household labor earnings due to changes in production in directly and indirectly affected industries.
Metropolitan Statistical Area (MSA): It is a city and its adjacent areas. More formally, it is a central urbanized area and contains the majority of the population hub and surrounding communities that have a high degree of economic and social interaction with that center, as determined by the United States Census Bureau.
Total Effects: Sum of direct, indirect, and induced effects.
Indirect Effects: Changes in intra-industry demand as it responds to a change in economic activity in directly affected industries.
Earnings: Total value of all forms of labor income.
Direct Effects: Initial changes in production or spending emerging as a result of a change in economic activity or policy by the final-demand industry.
Employment: Number of full-time and part-time jobs.