Virtually every prospective EB-5 investor understands the importance of job creation. After all, it is the main factor in whether an investor can convert their two-year conditional green card to a permanent green card.
Many potential investors also understand that one of the main advantages to investing in an EB-5 regional center project is that regional center projects create a significantly greater number of jobs than a direct investment. However, prospective investors may lack an understanding of how job creation occurs in a regional center project. Unlike their direct project counterparts that are only credited with direct job creation, regional center projects also create indirect and induced jobs.
What exactly is indirect and induced job creation? Let us imagine for a minute a large hotel project – hundreds of rooms, event space, restaurants, fitness center and all the other amenities of a modern large-scale hotel project – and examine how indirect and induced job creation occurs.
Indirect Job Creation
Indirect jobs are jobs that are created in a project’s supply chain. In the case of our large modern EB-5 hotel project there are numerous examples of how jobs are created in the project’s supply chain. For example, a large hotel will need a constant supply of cleaning supplies. These supplies must be produced and distributed to the hotel.
The company that produces and distributes the cleaning supplies to the hotel would likely need to hire additional employees in production, distribution and accounting to accommodate such a large client. The same employee additions would likely also be needed for the company that produces and supplies the hotel with its linens.
Additionally, if the restaurant located within the hotel might be independently owned and operated. If this is the case, these jobs would also be considered indirect job creation.
Induced Job Creation
Induced jobs are jobs that are created in the surrounding community from the impact of the EB-5 project. In our large hotel example, you can imagine that a restaurant located a block away from the new hotel may see a significant uptick in business when the hotel opens. The restaurant will need to add extra wait staff and line cooks to keep up with the new business.
With a large event space with a full schedule of events, the new hotel would likely lead to increased business for delivery companies that have increased business related to the conferences and events occurring in the hotel’s event space. It is easy to see how the ripple effects of a large project can be felt throughout a community.
How Are These Jobs Counted?
The good news for EB-5 investors is that no one must run around town trying to pin down each job that was added as the result of our large hotel project. All regional center jobs, whether direct, indirect or induced, are calculated through economic multipliers.
These input-output economic multipliers utilize the project’s construction spend and/or the project’s operating revenue, the type of industry the project is in, and regional population factors to calculate the jobs total. These economic multipliers are not just used for EB-5, but are frequently used by federal, state, and local governments in economic impact studies.
