6.3 Productivity effects should be included in the calculation of UK costs and benefits where they can be objectively demonstrated. Productivity effects may arise from movement to more or less productive jobs, changes in the structure of the economy, benefits from dynamic clustering or agglomeration (benefits that arise through close location of businesses and/or people), private investment, product market competition or the generation and flow of ideas. Productivity effects will typically lead to higher wages, rather than higher employment. The benefits can be calculated from the different levels of total employment costs under different options.
6.4 Interventions which increase human capital, job-search activity or provide better access to jobs can have positive labour supply and macroeconomic effects. Provided they can be supported by clear, objective evidence labour supply effects can be included in appraisal.
6.5 Any macro level effects not resulting from productivity or labour supply effects only contribute to temporary deviations from trend growth. For example, any differences in labour demand between individual types of spending within a portfolio of programmes and projects, or between individual options within a proposed intervention, cannot generally be reliably observed or measured from a UK perspective. As a result, they should not be counted in the overall appraisal of UK social value unless they can be demonstrated to have supply side effects. Annex 3 sets out the approach to labour demand effects for the appraisal of distributional effects at a sub-national level and appraisal of Official Development Assistance.
6.6 Multiplier effects are further economic activities which result from either labour supply or direct labour demand effects. They are likely to have limited additionality and the effects are generally already accounted for at a macro level by aggregate decisions to spend at a particular level. If multiplier effects do occur it is usually not possible to reliably observe or measure differences between individual programmes and options within projects at a UK level. It is therefore recommended that they should not be included in estimates of social value. With robust, objective evidence supply chain effects may be used for local level analysis (see Annex 3 for the approach to local level effects in distributional analysis).