This paper investigates the impact of change in sectoral water supply on employment in Maricopa County, Arizona using input-output model. The main contribution of this study is two-fold. First, we generate a database on water use by water source: surface water and groundwater. Second, we develop a modified input-output model that captures the economic impact of substitution in water use from surface to ground water due to variation in the cost of water supply. The study exercises two water supply change scenarios. Scenario I assumes that the total water supply/use decreases by 1% but the reduction comes only from surface water use, holding groundwater use constant. Scenario II assumes that surface water supply/use in all sectors decreases by 1%, and the reduction in surface water use is replaced by the exact amount of more expensive groundwater. We found that the magnitude of economic impacts depends on consumer’s responsiveness to water price change. When price elasticity of water demand is relatively low (<0.2), the economic impact of a 1 percent reduction in surface water supplies was smaller than under the first scenario. However, the more water users in all industries are responsive to a change in water price, the bigger are economic impacts are in terms of reductions in jobs, value added, and indirect business taxes.
Keywords: economic impacts, input-output model, water supply