A Brief Review of Input-Output Approaches to Employment Impact Assessment

The input-output (IO) method—a classic approach of macroeconomic modelling—is widely used to assess the employment impact of investments and is an important part of the monitoring and evaluation frameworks of bilateral and multilateral development banks and international financial institutions. There are a variety of IO techniques used by different organizations, ranging from Leontief multipliers to the computable general equilibrium (CGE) type of models that are able to incorporate more realistic constraints prevalent in an economy (such as limited production capacity and price effects) and to capture long-term employment effects. The purpose of this paper is to provide an overview of the modelling tools available, describing their methodologies and underlying assumptions.

Even within the same methodology, there are many different choices that a modeller can practically make, such as the size of the economic shocks (which may differ from total investment), the source data, and the definitions of indicators, which will lead to different estimates of employment supported/created in the country where an investment is taking place.

International organizations should play a leading role in promoting common definitions, common data, and common practices to ensure that the analyses carried out by various institutions and implementers are broadly comparable, thereby enhancing the credibility and usability of Employment Impact Assessments.