What Does Economic Development Do for You? The Significance of the Economic Multiplier

By: Sunnie Dawn Baker

People often find the term “economic development” vague and confusing. Understanding how economic development works and benefits the community can be challenging. Though there are many areas in which Grow Ada, formerly known as the Ada Jobs Foundation, provides economic development services to the City of Ada, the main thread that runs through all these initiatives is the “Economic Multiplier.”

            For Carol Ervin, President and CEO of Grow Ada, the economic multiplier is her favorite thing about economic development. In an interview from November 13, 2024, she explained why, saying, “Let’s say an industry comes in and they have 35 new jobs, paying $35,000 each. Well, that’s a million dollars in payroll. That payroll turns over 1.5 times. So, you have people who have new jobs but they are also out there spending money on gas, clothes, cars, new goods and services—all you need is one big win and it impacts the whole town. And we need more wins, especially in rural communities.” While the number of jobs created is one way to measure the success of economic development, a more accurate metric is to consider how the economic multiplier factors in with the various activities of an organization.  

            Grow Ada has four main areas of focus: Workforce Development, Entrepreneurship, Industry Attraction and Expansion, and Community Grants Management. The economic multiplier effectively measures and explains the significance of each of these areas. Workforce Development helps the community in multiple ways. First, it helps local businesses and industries find workers with the optimal skillsets. Second, it helps the workers find better, higher paying, jobs. Each new or filled job impacts the community by indirectly generating additional jobs. For instance, according to the Economic Policy Institute, for every 100 jobs created in retail, there are 122 total indirect jobs created. However, for every 100 jobs created in professional, scientific, and technical services, there are 418 total indirect jobs created. Upskilling the workforce extends its impact beyond a single company, industry, or worker. It helps create other jobs as well that positively impact the community.

            While you can see the indirect jobs created by each industry and how workforce development aids in job creation, you can also look at the economic multiplier of the other focal points of Grow Ada. For instance, Entrepreneurship has an economic multiplier of .93. Leading macroeconomists have developed a complex formula for the economic multiplier, but the basic math of its outcome remains simple. So, for entrepreneurship, if there are $300,000 worth of new jobs created, you multiply that amount by .93 and get $279,000. That figure is the amount of payroll created by indirect jobs due to the entrepreneurship sector. Adding those figures together reveals that the original jobs in entrepreneurship generate a total economic impact of $579,000 on the community. And the more entrepreneurs and small businesses, the larger that figure becomes.

            Entrepreneurship positively impacts the community, but industries—another area of focus for Grow Ada—create an even greater effect. Instead of .93, this multiplier is 1.5. So, if a new industry comes into our community and creates $500,000 worth of new jobs, the indirect payroll created is $750,000, with a total economic impact of $1,250,000. People reinvest these dollars into the community by purchasing goods and services, but also by supporting school fundraisers, little league teams, and local charities, not to mention the local tax base which leads to improvements within our city.

            The fourth area of focus for Grow Ada is Community Grants Management. Grow Ada, Ada’s only community-based 501(c)(3) non-profit, collaborates with organizations like the City of Ada to secure grants, which yield the highest economic multiplier at 2.5. A $2,000,000 grant awarded to the community generates an indirect economic impact of $5,000,000, resulting in a total investment of $7,000,000.

            Understanding economic development becomes clearer when viewed through the lens of the economic multiplier. Each new small business significantly impacts the economy, and as the workforce gains new skills and advances to better-paying jobs, the positive economic effects grow. A new industry with hundreds of jobs creates a major economic impact, but grants generate an even greater effect within the community. The economic multiplier is core to understanding economic development because no business or industry stands alone. Every member of the community plays a vital role, and by working together, we can build a more vibrant and prosperous local economy.

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