Thursday, January 19, 2012

Checking Enbridge's homework: I-O models edition

Marc Lee at the Progressive Economics Forum (and Rabble)has his Sherlock hat on sleuthing out the the math behind the employment numbers Enbridge is claiming for the Northern Gateway project. He explains how economic input-output models are manipulated to produce person-year employment numbers.

Input-output models are fairly standard economic models used by government and industry predict the impact of an economic event on a region, such as the addition or loss of a major industry. I'm not an economist so I'm not the one to ask about the details of these things, but I can tell that as with all economic models, a certain set of assumptions are made about the nature of the economy and variables are added.

Socio-economic impact statements as part of the overall environmental impact statement (EIS) put forward by project proponents use I-O models to come up with their job and economic benefit numbers before later processes like the Northern Gateway JRP hearings convene. I-O models were used in the Mackenzie Gas Project and the assorted diamond mine impact assessment projects. Lee explains the first part of the problem with Enbridge's numbers with reference to how I-O models work:

So how do we get from an average of 1,850 workers for three-years to 63,000 person-years of employment (construction only)? To answer this question we have to understand input-output models, which use GDP data to proxy the flow of income through the economy. Modellers “shock” the I-O model to estimate an increase in economic activity. The important pieces are (a) that direct expenditures on the pipeline also lead to employment in upstream industries that provide the goods and services that are inputs to construction and operations (called “indirect employment”); and (b) income to workers, whether direct or indirect, support jobs in the local economy on food, housing, cars, entertainment and so forth (called “induced employment”).

The second part is where the Sherlock Holmesing comes into play and pertains to the question of indirect jobs and how that relates to the 63 000 person years figure. Lee contacted Statistics Canada and writes the following:
So I am scratching my head a bit, in particular as it relates to direct jobs and how all of those reported indirect jobs could include such large numbers of in far-flung industry categories. There is some kind of flaw in how this is being modelled but without deeper information I cannot get at it. It could be that Oil and Gas Construction Industry [code 2300D0] in the I-O Model is broader than pipeline building (in the NAICS, 23712, Oil and Gas Pipeline and Related Structures Construction).
To translate, every job, yours, mine, and your neighbour's falls under a job classification code. NAICS is the North American Industry Classification System, a coding system for classifying jobs that is standardised across Canada, the US, and Mexico. It isn't as simple as it looks as a person's job title doesn't necessarily correlate with the most obvious industry they're involved in. For example, a plumber working at an airport might be coded as working in air transportation, not in something more intuitive like home or commercial construction.

So when Lee speculates that coding for "the Oil and Gas Industry in the I-O model is broader than pipeline building" he is suggesting that the I-O model Enbridge used to come up with their person-year numbers may have used a much more generous code than it should have. It may have included estimates of indirect employment that really would have nothing do to with the pipeline! I mean, does Oil and Gas Construction Industry include someone welding oil derricks in rural Alberta who would have been employed regardless of what Enbridge wanted to do?

I think there's also something to be said about the difficulty in obtaining from a government department work it did for a private firm regarding something in the clear public interest undergoing a massive public consultation. It appears to put Statscan in the unenviable position of protecting Enbridge from potential scrutiny of the support for its claims. It will be telling if Enbridge obfuscates the release of their I-O models and what went into them. 

1 comment:

meadowlark said...

What happens in BC is. An American company won the contract for the tear down of the smelter in Kitimat. They brought their own workers.

China is sending their people to school, to learn English, they get the coal mining jobs.

Enbridge has their own pipeline crew. When the pipeline is done, so are the very few BC jobs. Most of the pipeline is in wilderness. How long will it take to find a pipe burst? How in the hell can they get the equipment in to clean up their disaster? Or will Enbridge not bother to clean up their mess, as they didn't in the Kalamazoo River?

Enbridge had a 1,500 barrel spill in Wrigley N.W.T. They tried to lie and say it was four barrels. This was when the fire was burning in Slave Lake. There was a delay, getting the clean up equipment into Wrigley, the spill was 1,500 barrels.

Enbridge, Harper, Alberta, big gun Boessenkool and China, can go to hell. The BC people and the F.N. people, have been cheated enough, by Harper and Campbell.

So if, the seven mines going into BC are foreign owned, they will bring their own miners.

The Ship building contract, is an American company, The Washington Marine Group, that Christy's brother Bruce was involved with. In BC that company is called SeaSpan. Will they bring their own ship builders too?