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Trevor Tombe: How to create two jobs for every Canadian worker

With each new subsidy, tax incentive, or project, we are told some number of jobs will follow.

With each new subsidy, tax incentive, or project, we’re told some quantity of jobs follows. No doubt you’ve seen the headlines. The Trans Mountain Pipeline can create 3,300 permanent jobs and East can create over 4,250. Bombardier, which is looking for government financial support, claims responsibility for 64,800.

The numbers aren’t pulled from nothing, they are available from what exactly are called economic impact studies. They are utilised in marketing campaigns and often are even mandated by governments. The application process for Alberta’s new subsidy for petrochemical plants, for example, requires them.

Unfortunately, such research is easy to misinterpret, rarely explained, and may make bad public policy look great. Let’s explore their limitations.

What’s really the net effect of the new petrochemical plant on overall employment? Roughly zero.

Suppose you spent $1 million on beer. This spending would employ a brewer or two, however it doesn’t stop there. Breweries must also buy inputs – grains, fuel, and so on. Suppliers then employ more workers, and themselves buy more inputs. The cycle continues on as well as on.

Statistics Canada does the math in what is called an “Input-Output Model.” For breweries, $1 million in sales will “create” over $1.8 million as a whole sales and 4.6 jobs throughout the economy. These are called the direct plus indirect effects.

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