Local multipliers

Local employment multipliers toolkit published on 20 May 2019. Local multiplier effects of changes in public spending rapid evidence review published on 1 July 2025.

Multipliers are a concept used by economists to capture the impact that a change in activity in one part of the economy has on other parts of the economy. Different types of multipliers look at the different types of activity.

Policy appraisal often uses estimated multipliers to help assess the likely impacts of local growth policies. Many of these appraisals use multipliers from ‘input-output’ models that focus on the positive demand-side effects adjusted for ‘leakages’ from the local economy (demand that is served by businesses from elsewhere). Less frequently, more complicated ‘general equilibrium models’ are used for appraisal to allow for the possibility of offsetting price and wage effects.

Our resources take a very different approach and instead consider the available evidence on the size of the local multipliers that we see in practice. They do not rely on theoretical models and assumptions, instead letting the data tell us about the balance of offsetting forces and the size of any multipliers.

Local employment multipliers

Employment multipliers capture the effect of increases in employment in part of the economy (for example, the public sector) on other parts of the economy (for example, the private sector).

Increased employment can have indirect effects on local employment, in the same sector (for example, through agglomeration effects) or other sectors (for example, through increased demand for local goods and services). However, these positive effects may be offset by increases in local wages and prices.

Key findings

• Additional jobs in the tradeable sector tend to increase employment in the non-tradable sector (for example, local shops and restaurants). On average, for each additional job in the tradeable sector, 0.9 jobs are created in the non-tradeable sector.
• The impact of additional jobs in the tradeable sector on other tradeable jobs is smaller. An additional job in the tradeable sector creates, on average, 0.4 jobs in other parts of the tradeable sector.
• Skilled jobs or jobs in high-tech industries generate larger multipliers. An additional high-skilled job creates an average of 2.5 jobs in the non-tradeable sector. For tech industries more generally, an additional job creates, on average, 1.9 jobs in the non-tradeable sector.
• Growth in public sector employment has smaller multiplier effects on private sector employment. Each additional job in the public sector creates, on average, 0.25 jobs in the private sector. Two studies report crowding out for manufacturing with effects offset or more than offset by a positive multiplier on services.

Things to consider

• These jobs are new to the local economy, but they are not necessarily new jobs. This employment may simply be displaced from elsewhere.
• Jobs for high-skilled workers appear to create the highest multipliers. High tech jobs also create higher multipliers, although that may be because many of these jobs are high-skilled rather than reflecting some specific feature of tech industry. More work is needed to disentangle these effects.
• Additional employment may have indirect effects elsewhere in the local economy. A study looking at real wages finds that growing tech employment in US cities also raises housing and other living costs. While more work is needed on the size of the effects, policymakers should take these effects into account when considering the impact on poorer families who may not benefit from increased employment.

Local multiplier effects of changes in public spending

Increases in public expenditure can have a direct effect on local economies through the purchasing of goods or services locally, or by increasing local public sector employment or wages. If businesses acting as suppliers to the public sector purchase their own inputs from other local businesses, this will result in an indirect effect. If public sector workers, or workers at businesses that are suppliers to the public sector, spend a proportion of their income in the local economy, this will also result in an indirect effect, further increasing local output, employment or wages.

Key findings

• Taken as a whole, the evidence suggests that increased public spending can have positive multiplier effects on employment at the local level. The policies chosen, and the economic performance of the area, may influence the size of the multiplier.
• The evidence on income effects is mixed. Stimulus and day-to-day spending seems to have moderate positive effects, especially in areas experiencing larger economic recessions, while cuts to public spending do not appear to have effects on local incomes.
• There may be different multiplier effects experienced in response to an increase in spending compared to in response to a decrease in spending because decreases can often be accompanied by offsetting measures.

Things to consider

Policy lessons

• Evidence suggests that increases in public spending can have multiplier effects on economic outcomes at the local level but there is not always an effect.
• Most of the evidence for this comes from studies looking at stimulus spending or cuts in spending so the extent to which this finding carries over to day-to-day spend is less clear.
• As the evidence base on the local multiplier effects of public spending changes is limited, and mostly not based on business-as-usual expenditure, it would be preferable to use employment multipliers wherever possible. This will require translating spend into jobs before applying the multiplier.

Need for more evidence

• Most of the evidence reviewed looks at stimulus spending – government channelling public money into projects or activities that it hopes will counteract economic downturns – or scenarios where spend was cut due to external circumstances. We need more evidence on the local economic effects of changes due to ‘everyday’ spending to help build an understanding of how this spending may affect local outcomes.
• There is a need for evidence from the UK.

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