A SAM for California
by Peter Berck, Ryan Kellog, Lingyun Nie, and Stephen Stohs
These documents describe the construction of a Social Accounting Matrix (SAM) and several ancillary accounting tables for California. The SAM is a record of the transactions between institutions, such as consumers, firms, and government, for the calendar year 2003. It is based upon multiple sources, including input output tables, California tax and spending records, and California employment data. This SAM includes energy and uses Energy Information Administration data. The ancillary tables include the capital coefficients matrix, which records the uses of investment, and several miscellaneous tables which record tax system details, inter alia.
The first section of this document is an introduction to SAM’s and explains the structure of the California SAM. This section borrows heavily from the description of the SAM used for the Dynamic Revenue Analysis Model. The succeeding sections are highly technical and explain the sourcing and imputations necessary for each section of the SAM. The appendices contain all of the files necessary for the construction of the final SAM as well as the SAM itself.
Data organization: social accounting matrix
A SAM is a square matrix consisting of a row and column for each sector of the economy. Each entry in the matrix identifies an exchange of goods and services purchased by one sector from another sector or itself. The entries along a row in the SAM show each payment received by that particular sector. Summing the data across the row gives the total of payments made to that sector. The entries down a column in the SAM show the expenditures made by a particular sector. Summing the data down a column gives the total expenditures by sector.
In this SAM California economy has been divided into a SAM composed of 75distinct sectors: 28industrial sectors, two factor sectors (labor, capital), seven household sectors, one investment sector, 36 government sectors, and one sector which represents the rest of the world. The design of the sectoring is an important element in the development of any CGE, Social-Accounting or IO model because it determines the flows that the model will be able to trace explicitly. If the sectoring is done correctly, the major flows in the economy, both positive and negative, will be evident. If the sectoring is done incorrectly, the impact of policy will be blurred, with negative and positive flows occurring within a single sector. Without a correct sectoring, it would be difficult, if not impossible, to differentiate the distributive impact of government spending and taxation.
In the sections that follow, the criteria for the sectoring of the SAM are presented and each sector is described in detail. The data sources for each sector are also discussed. Industrial sectoring is examined in the first section. The two factor sectors in the model are discussed in the second section. The household sectoring is described in the third section. And the government sectoring is described in the fourth section.
Criteria for Industrial Sectoring
Five criteria are considered in establishing the industrial sectoring for use in DRAM. First, the major industries in the economy in terms of employment, value of production, exports, and revenue are differentiated. Second, the major taxpayers in the economy are distinguished. Third, the distributive impact of government taxation and industrial-development policy are considered. Fourth, standard sectoring schemes, such as the NAICS (spell out). Each of these criteria is examined in detail below. Fifth, sectors that are important to either energy or pollution are differentiated.
Major California Industries
The first criterion considered when establishing the industrial sectoring is the importance of the industry in terms of its employment, value of production, exports, and revenue. Not only do these key industries capture the major flows in the economy but changes in these industries could trigger relatively large changes throughout the economy. Since this SAM follows the NAICS scheme at the very disaggregate Ndigit level, all major industries are separated.
A ranking of major industries according to value of gross output is presented in the table below. This ranking in clearly reflects the observation that California, like the rest of the country, has become increasingly a service- and trade-oriented economy. The first manufacturing industry to make the list, Aerospace, enters in seventh place with a value of production barely 40 percent that of Business-Related Services.
Table II-1 Ten Largest Industries According to Value of Gross Output (in thousand $)
Industry / Gross OutputBusiness-Related Services* / $116,512
Retail Trade / 95,308
Construction / 89,479
Real Estate / 75,260
Wholesale Trade / 64,252
Health Services / 63,157
Aerospace / 47,223
Electronic Technology / 44,898
Transportation / 43,671
Food Processing / 37,004
* Includes Business, Legal and Agricultural Services, Engineering and Management Consulting
Source: Ranking derived from Nov. 1995 update of 1992 IMPLAN.
The ranking of major industries according to the number of employees presented in the table below reproduces results similar to those in the previous table; service and trade industries are the dominant employment sectors for the State. In 1992, Manufacturing supplied only 30percent of the jobs that are found in the service and trade industries.
Table II-2. Wage and Salary Workers by Major Industry, 1992 (in thousands)
Industry / Number of workersServices / 3,426.3
Retail Trade / 2,121.4
Government / 2,095.6
Manufacturing / 1,890.5
Finance, Insurance, Real Estate / 791.9
Wholesale Trade / 713.5
Transportation and Utilities / 607.4
Construction / 471.7
Agriculture* / 351.6
Mining / 35.4
*Includes Agricultural Services and Forestry and Fishing (not Veterinary, Other Animal, or Landscape and Horticultural Services).
Source: 1995 Economic Report of the Governor.
Major Taxpayers
The second criterion considered when establishing the industrial sectoring is the tax structure. A primary focus of the study is to ensure that the Legislature and the Governor are presented with reliable information as to the “probable behavioral responses of taxpayers, businesses, and other citizens to changes in state tax laws.” In order to model explicitly taxpayer response to changes in state tax laws, SAM must necessarily identify the major taxpayers in the State and the major corporate taxpayers are listed in the table following.
Table II-6. Firms Reporting Net Income Subject to State Taxation of $1 Billion or More, 1992 (in thousand $)
Industry / Net income subject to state taxationInvestment and Insurance Companies / 5,320,185
Wholesale Trade / 4,126,940
Banks and Savings and Loans / 3,388,928
Retail Trade / 3,341,524
Electric Machinery and Equipment / 2,636,639
Communications / 2,537,911
Electric, Gas, and Utilities / 2,406,728
Business Services / 2,091,496
Petroleum, Coal, and Rubber Products / 1,761,465
Beverages / 1,608,991
Real Estate / 1,538,680
Chemicals and Allied Products / 1,512,653
Construction / 1,088,195
Source: Information reported inCalifornia Statistical Abstract, DOF, 1994.
Note: The treatment of government remains the same in this SAM as in the 1998 SAM.
Distributive Impact
The third criterion considered when establishing the industrial sectoring is the distributive impact of government taxation and spending. In order to trace effectively the impacts of government spending and taxation on the distribution and incidence of production, income, spending and savings in the economy, it is important to establish an industrial sectoring that can be used to map the effects of government policy. The sectoring in SAM distinguishes those industries that clearly stand to benefit from increased government spending from those industries that may incur negative repercussions from such spending.
As a first cut at differentiating the impacts of government policy, it is important to distinguish major taxpayers by size and by type of tax as was done in the previous section. Not only do the major taxpayers represent the primary source of funding for government spending but they also represent important variables in any industrial-development strategy. Targeted tax cuts or even general tax cuts to industry are primary tools in industrial-development incentive policy. The industrial sectoring must explicitly include the major taxpayers in order to trace the impact of such policies.
The industrial beneficiaries of government spending on infrastructure or education are difficult to isolate. Both theory and empirical observation suggest that the benefits of infrastructure and education are diffused throughout the economy. The direct beneficiaries of industrial-development spending are likely to be more narrowly delineated. A primary focus of many industrial-development strategies has been creating employment in wage-premium, high-export industries. Wage-premium jobs have a high salary to education ratio, and the earning effects of local employment are greater for new jobs in wage-premium industries. More jobs at higher wages provide the biggest “payoff” for employment-creation projects. Export industries are targeted because out-of-state earnings can have large economywide impacts.
California’s largest wage-premium export industries (in 1998) were Aerospace, Motion Pictures, Engineering and Management Consulting, and Computer Software and Systems Development. Even if these industries are not specifically targeted by development incentives, they are important industries to track with the model. The economywide impact resulting from changes in these industries should be large because they are large employers paying high salaries, making large export earnings.
NAICS Classification
The fourth criterion considered when devising the industrial sectoring is comparability with other industrial classifications. The sectoring follows the NAICS sectoring fairly closely, as can be seen from the table below. The advantage to this choice will be larger in future years when all Federal agencies follow NAICS without idiosyncratic additions and changes.
The Industrial Sectors
The 28 non-governmental “industries” or industrial sectors are differentiated for inclusion in DRAM. The industries included in DRAM, along with their SIC codes and IMPLAN codes are presented in the table below. A description of each industry follows.
Table II-7. Industrial Sectoring and Codes
Sector / Name / SIC / Name / IMPLAN SectorAGRIC / Agriculture / 01
02 / Crops
Livestock / 10-21,23
1-9
ENMIN / Energy Mining / 12
13 / Coal Mining
Oil and Gas Mining / 37
38-39
OTHPR / Other Primary / 08
09
10
14 / Forestry
Fishing
Metal Mining
Nonmetallic Non-fuels Mining / 22, 24
25
27-36
40-47
CONST / Construction / 15
16
17 / Building Construction
HeavyNon-building Construction
Special Trade Contractors / 48-57 (not by SIC)
FOODS / Food Processing / 20 / Food and Kindred Products / 58-90, 95-103
ALTOH / Tobacco / 21 / Tobacco, Alcohol, & Horse Racing / 91-94,104-107, 487
APPAR / Apparel / 23 / Apparel / 124-132
MFRCO / Construction-Oriented
Manufacturing / 24
25
32
34 / Lumber and Wood Products
Furniture and Fixtures
Stone, Clay, Glass, & Concrete
Fabricated Metals / 133-147
148-160
230-253
273-306
PAPER / Paper, Printing & Publishing / 26
27 / Paper and Allied Products
Printing and Publishing / 161-173
174-185
CHEMS / Chemicals & Related / 28
29
30 / Chemicals and Allied Products
Petroleum Related
Rubber & Miscellaneous Plastics / 186-209
211-214
215-220
PETRO / Petroleum Refining / 291 / Petroleum Refining / 210
ELECT / Electronic Technology / 357
366
367
382 / Computers and Office Equipment
Communications Equipment
Electronic Components & Accessory
Laboratory & Measuring Instrument / 339-344
372-374
375-378
401-403
AEROS / Aerospace / 372
376
381 / Aircraft and Parts
Guided Missiles & Space Vehicles
Search, Detection, Navigation Equip / 389-391
396
400
MOTOR / Motor Vehicles / 371 / Motor Vehicles / 384-388,395,397
OTHMA / Other Manufacturing / 22
31
33
35
36
37
38
39 / Textile Mill Products
Leather
Primary Metals
Machinery & Equipment
Electronic Equipment
Transportation Equipment
Instruments
Miscellaneous Manufacturing / 108-123
221-229
254-272
307-338,345-354
355-371,379-383
384-388,392-395,397-399
404-414, 415-432
TRANS / Transportation / 40
41
42
44
45
46
47 / Railroads
Transit & Interurban Passenger
Motor Freight
Water Transportation
Air Transportation
Pipelines, except Natural Gas
Transportation Services / 433
434,510
435
436
437
438
439-440
COMMU / Communication / 48 / Communications / 441-442
UTILI / Utilities / 49 / Electric, Gas, and Sanitary Services / 443-446,511,514
WHOLE / Wholesale Trade / 50
51 / Durable Goods
Non-durable Goods / 447 (combined)
RETAI / Retail Trade / 52
53
54
55
56
57
58
59 / Building Materials
General Merchandise
Food
Automotive & Gas Stations
Apparel
Home Furniture
Eating & Drinking
Miscellaneous Retail / 448
449
450
451
452
453
454
455
BANKS / Banking / 60
61 / Depository Institutions
Non-depository Credit Institutions / 456
457
INSUR / Insurance Carriers / 63 / Insurance Carriers / 459
REALE / Real Estate / 65 / Real Estate / 462
OFIRE / Other Finance, Insurance, Real Estate / 62
64
67 / Security & Commodity Brokers
Insurance Agents, Brokers, Services
Holding and other Investment / 460
458
(457)
BSERV / Business Services / 07
73
81
87 / Agricultural Services
Business Services
Legal Services
Engineering, Accounting, etc. / 26-27
469-476
494
506-509
HEALT / Health Services / 80 / Health Services / 490-493
ENTER / Entertainment / 78
79 / Motion Pictures
Amusement & Recreation / 483
484-486,488-489
OSERV / Other Services / 70
72
75
76
82
83
84
86
88
89 / Personal Services
Hotels
Automobile Services
Miscellaneous Repair Services
Educational Services
Social Services
Museums, Galleries, & Zoos
Membership Organizations
Private Households
Miscellaneous Services / 464-468
463
477-479
480-482
495-497
498-501
(502)
502-505
525-528
NA
FEDDE / Federal Defense / 97 / National Security & Int. Affairs / 519
FEDNO / Federal Non-defense / 43
91
92
93
94
95
96 / U.S. Postal Service
Executive, Legislative, General
Justice, Public Order, & Safety
Public Finance, Taxation, Monetary
Admin. of Human Resource Policy
Admin. of Env. Quality & Housing
Admin. of Economic Programs / 513, 515, 520, 521
State (6 units) / 522 S&L Education
Local (5 units) / 512 Oth. Local Ent.
521 S&L Non-Ed.
Miscellaneous
In IMPLAN, not in SIC / Non-comparable Imports
Scrap
Used and Secondhand
Inventory Valuation Adjustment / 516
517
518
528
Agriculture
Agriculture includes four SIC categories: Crops, Horticultural Specialties, Greenhouse and Nursery Products, and Livestock. It does not include Agricultural Services. California is one of the largest and most diverse agricultural states in the nation. California farmers produce more than 250 crops, and California has led the nation in farm production and farm income for the past 45 consecutive years. On just three percent of U.S. farmland, California farmers produce more than half of the country’s fruits, vegetables, and nuts. Total net income for California agriculture exceeded $7 billion in 1990, corresponding to an average of $82,710 per-farming operation or $228 per acre. In 1992 California farmers sold an estimated $18.1billion of farm products and approximately 10 percent of all U.S. agricultural exports are shipped by California farmers (1994).
Direct employment in agricultural production (not including Agricultural Services) was 225,700 in 1992, falling to 215.6 by 1994. Gross agricultural production for 1992 (IMPLAN data) was valued at approximately $19 billion. Total value added was approximately $12.5 billion with employee compensation estimated at approximately $2.5billion.
Energy Mining
Energy Mining in California includes oil and natural-gas extraction. Energy Mining is the largest mining industry in the State, accounting for three-quarters of all employment in mining. California ranks fourth in the nation in oil production though California production only meets about 50 percent of the State’s oil demand and 65 percent of the State’s natural gas demand. In 1994, California produced about 15 percent of the nation’s domestic crude oil, 344million barrels. At the beginning of 1994, California oil reserves were estimated at 4.0billion barrels. Crude-oil production in the State includes onshore sources (82 percent), federal offshore sources (12 percent), and State waters (6 percent). Most California oil is heavy and has a high sulfur content, making it expensive to refine. Recent weak market prices have reinforced the long-term decline in California oil production. In 1992, approximately 27,000 people were employed in Energy Mining in California. By 1993, this number had dropped to approximately 24,000. In 1992, the Energy Mining industry was valued at $6.5 billion (IMPLAN). Value added was estimated at $4.3 billion and employee compensation at $1 billion.
Other Primary
Other Primary includes four SIC categories: Fishing, Hunting and Trapping, Forestry, and Metal Nonmetallic and Non-fuels Mining. Together, the 1992 output of these three industries was valued at $2.6 billion and they employed approximately 17,000 workers (IMPLAN, 1992).
Fishing and Hunting and Trapping are the smallest of the industries included in the Other Primary grouping. As an industry, Fishing and Hunting and Trapping employed less than 1,000 people in 1992 and represents a very minor industry in California.
The Forestry Industry classification includes two IMPLAN categories: Forest Products (IMPLAN sector 22) and Forestry Products (IMPLAN sector 24). The IMPLAN database documentation manual distinguishes the two sectors according to commodity output orientation. Forest Products primarily comprises stumpage, pulp wood, fuel wood, Christmas trees, and fence posts (commodity output is secondary). Forestry Products primarily consists of establishments engaged in the operation of timber tracts, tree farms, and forest nurseries as well as activities including reforestation and the growing of Christmas trees (IMPLAN, 1993). All other horticultural specialties are included in agriculture. Other Horticultural Services are included in Agricultural Services. From 1988 to 1992, lumber production in California fell from 5.5 billion board feet to four billion board feet (a fall in production of 18 percent). Harvest levels on both national forests and private lands have been declining and will probably continue to do so as a result of environmental regulations, endangered species acts, and declining number of trees available for harvest. Despite declining harvest levels, California is among the top three lumber producing states in the nation. As an industry, Forestry is assessed a special tax called the Timber Yield Tax, and this tax will be tracked through the Other Primary sector.
In California, non-energy mining principally includes gold and building materials. Industrial minerals account for 85 percent of the total value of non-energy mining in the State, and metals account for 15 percent. California ranks second among the states in non-energy mining. California is the sole producer in the nation of boron and tungsten and is the nation’s largest producer of sand, gravel, Portland cement, diatomite, rare earth concentrates, natural sodium sulfate, and asbestos. California is the nation’s second largest producer of gold. Non-energy Mining in California has been fairly stable for the past few years; since 1992, approximately 8,000 wage and salary workers have been employed.
Construction
Construction includes three SIC categories: Building Construction, Heavy Non-building Construction, and Special Trade Contractors. Commercial, industrial, and residential building all serve as indicators of the strength of the economy. Construction, particularly Building Construction, is firmly tied to the rest of the economy; the link between the creation of new jobs and the demand for new housing is well documented as is the link between economic growth and the demand for commercial and industrial space. Heavy construction, primarily public works and utilities, is less sensitive to business cycles but will be one of the first sectors to react to changes in government spending on infrastructure.