MAKING SENSE OF THE JOB NUMBERS
During elections, all political parties try to “produce” numbers that show their proposed policies are better than the proposed policies of their opponents.
So far there are four numbers for the Progressive Conservative Party (PC) that have attracted a lot of media attention: the number “1,000,000”; the number “100,000”; the number “3”; and the number “$7.4” billion.
Putting out too many numbers runs the risk of attracting a lot of criticism.
The PCs claim that their policies will create a “million” jobs over the next eight years. Regardless of the party who wins the next election, job creation would happen naturally, unless of course economic growth assumed in the PC platform turns out to be much different than expected.
This is similar to the “million” jobs created in Canada since the economic recovery started, and tediously used by the federal Conservatives as evidence of its policies working. Apparently “1,000,000” is a nice big number that is bound to impress people.
But does this mean that employment at the end of eight years will be a million higher than in 2014? No. As it turns out the claim by the PCs that their policies will create a million jobs is completely bogus. According to the PC numbers, normal economic growth would account for 523, 200 jobs, with the remainder (476,800) coming from their policies to strengthen economic growth.
The PCs released detailed material showing the average annual increase in employment for each initiative. For example, lowering the corporate tax rate from 11.5% to 8% would increase employment by 14,976. Ending wind and solar subsidies would increase employment by 5,048. Breaking traffic gridlock in Toronto and the GTA would increase employment by 12,000.
These numbers may seem somewhat fanciful, but they became even more so when the PCs decided to multiply the estimated increase in employment by the number “eight”: the number of years required to reach a “million”. In other words, each job was actually counted “eight” times. They claim, for example, that the corporate tax cut would lead to a cumulative increase of 119,808 “jobs”. This is complete nonsense. This number refers to what is known as “employment-years”, not employment. Employment resulting from the corporate income tax cut would only be about 15,000 higher after eight years, not 119,808.
The Liberal Party put out a technical briefing on Saturday, which shows that if you adjust for “multiplying by the number eight”, the level of employment after eight years would be about 35,000 higher assuming the PC policies actually worked. This is well short of the 476,800 new jobs required to meet the 1,000,000 job plan.
The 1,000,000 new jobs is a mixture of apples and oranges. It includes 523,200 new jobs that would be created through the normal growth in the economy. The rest is inflated by the number 8, grossly over estimating the employment impact of their policy initiatives.
The PC numbers become more confused with respect to the commitment to lay off 100,000 (another key number) public sector workers over four years. The number does not refer to 100,000 public sector “employment-years”. It refers to actual jobs. If a new PC government succeeded to downsize the government, then after four years employment in the public sector would 100,000 lower.
It would appear that the PC job strategy, if the 100.000 public sector loss number were correctly measured, would actually have a negative direct impact on employment of about 65,000 after eight years. This would be larger if economic growth slowed. Here the Ontario PCs have taken a leaf out of their federal counterparts’ playbook. The federal government showed the employment impacts of the Economic Action Plan stimulus measures, proposed in the 2010 Budget. However, like the Ontario PCs, the Federal government also did not show the potential job losses associated with their restraint measures.
The number “three”, is the number of years it will take a new PC party to eliminate the deficit. This is seen as better than the number “four”, the number of years it would take a new Liberal government to eliminate the deficit.
According to the PC plan, expenditure cuts of $7.4 billion are required in 2015-16 in order to eliminate the deficit in 2016-17. However, as we pointed out in “Bad math: The Ontario election fiscal platforms crunched”, the PC plan did not adjust for the impact of the 2014 Budget proposals to freeze public sector wages and to undertake a Program Review exercise. As a result, the PC plan requires an additional $2.6 billion of restraint in 2016-17, bringing the total amount of expenditure restraint in that year to $10.0 billion.
This is equivalent to 1.3% of provincial GDP, a substantial amount of restraint. It is hard to estimate the multiplier affects of this direct cut in spending, but a multiplier between 1.2 and 1.5 would reduce provincial GDP by between 1.6% and 2%. This would cut the current forecast of 2.5% to between 0.9 and 0.5%. This would reduce employment growth and increase unemployment.
Is the Ontario economy strong enough to absorb such a sever austerity package at this time? Economic growth in Ontario has been falling since 2010, and employment growth has also been modest. The unemployment rate at 7.5, remains well above its pre-recession level. The manufacturing sector is struggling to be competitive. In other words the economic recovery in Ontario remains weak. Severe austerity would no doubt lead to a loss in output and jobs.
Taking into account the uncertain outlook for the global economy and the domestic recovery, perhaps it would be better to let the economy strengthen before taking the actions that will be needed to restore fiscal stability.