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Are Enbridge's job numbers credible?

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Putting aside the impact of the proposed Enbridge pipeline on GHG emissions or spills on land and at sea, the case in favour of the pipeline rests on creating jobs. Personally, I think industry and government use "jobs" as a euphemism for "profits" as that is where the lion's share of revenues go. But for the moment let's consider the possibility that trading the environment for the economy is a bet we are willing to take. So how many jobs are we talking here?

The pipeline is a $5-billion investment, according to Enbridge. The number thrown around by pipeline proponents is 63,000 person-years of employment, which sounds pretty good (National Energy Board document here). Careless journalists and cynical politicians sometimes blur a person-year of employment with a job, in which case I've been at my current job for 13 person-years.

In terms of hard numbers, Enbridge figures there will be an average of 1,850 workers building the pipeline over the three-year construction period, peaking at 3,029 in the third quarter of 2015. They note that all of these jobs may not be filled locally, and in construction of large projects, workers typically move around to where the action is. It is also worth noting that these workers would not all be unemployed if the pipeline did not go ahead; the vast majority would likely be working somewhere else. There is some case to be made that these jobs would reduce unemployment based on the current stagnation in the economy, though by 2014-15 this may no longer be the case, and we may have excess demand for skilled construction workers.

On a permanent basis, the number of jobs is quite small, estimated by Enbridge at 217 workers on the pipeline and terminal facilities. That is, the vast majority of employment for the project comes during the construction phase, which is consistent with an industry that is one of the most highly capital-intensive.

So how do we get from an average of 1,850 workers for three-years and 217 permanent jobs 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").

Neither of these impacts is particularly controversial, and the early description of such in the application to the NEB is consistent with normal practice. But when the numbers are presented a massive over-estimate of job creation results. The main juice for indirect jobs comes from sourcing the manufactured pipe domestically through Canadian steel mills -- this is assumed to happen, and should if the project goes ahead, but I have yet to see a firm commitment that this will be the case. Anyway, the purported impact of purchasing inputs is misleadingly labelled "direct input purchases" and is counted as "direct employment" rather than indirect employment. This employment from "direct input purchases" is estimated to about three times the person-years as "on-site employment" (17,227 vs 5,537 person-years), which seems overstated to me given how labour-intensive construction is.

The fuzzy math comes in what is normally considered "induced employment" but is labelled as "indirect employment" leading to 13,251 person-years of employment (figures in Table 4-9). This error (dare I say sleight of hand?) can be seen in Table 4-10, which purports to show direct and indirect employment effects by industry category, but clearly includes induced employment in the form of, for example, 137 person-years of arts, entertainment and recreation employment, and 401 person-years in information and cultural industries, 95 in crop and animal production, and 423 person-years in government (as if the latter is going to happen federally, in B.C. or Alberta where public service cuts have been on the order books!).

Finally, a second run of the model is undertaken using all of this new employment income as the shock to come up with what they are calling induced employment, adding 26,679 person-years of employment. This leads to a stated estimate of 39,930 person-years of "spin-off employment" by adding 26,679 and 13,251. The total number represents 64 per cent of the claimed employment gain of project construction. Such a number is truly incredible as it suggests that for every job created in actually building the pipeline and its inputs leads to two spin-off jobs; whereas in typical I-O models you get one induced job for every new direct or indirect job.

The analysis cited in the Enbridge application claims this work was done for them by Statistics Canada's Industry Accounts Division. I have a call into Statscan to get my hands on the original document, and I have also asked Enbridge for the background document, so I can figure out if Statscan made the error or whether Enbridge has mistakenly or deliberately twisted the numbers.

Also, those numbers are just the construction phase. For operations, the 217 permanent jobs I noted above turn into a five-fold employment increase, to 1,146 total jobs per year in Table 4-14, seemingly with the same error as construction.

The danger in all of this is that a number gets established, and then becomes pasted into various summaries, briefing notes and so forth, and few people go and check the math, and any assumptions and caveats associated with the number are left out of the summary. More to come...

[AFTERNOON UPDATE] OK, I had a call with Statscan and they are not able to release the study they did for Enbridge to me, so I will have to wait on my request from Enbridge. I was able to talk through multipliers for direct, indirect and induced broadly for the Oil and Gas Construction Industry sector, that provide a rough estimate. They lead to about 3,000 fewer direct, 11,000 more indirect, offsetting 11,000 fewer induced person-years. The same caveats about induced jobs would still apply, though, even with the lower number.

Still, while the total jobs is about 3,000 person-years fewer than the Enbridge, they are in the same ballpark. 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 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).

This article was first posted on the Progressive Economics Forum.

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