The real impact of Manitoba’s Core Infrastructure plan

Not long ago the provincial government in Manitoba announced an ambitious plan to spend $5.5 billion on “core infrastructure” over the next 5 years. This is the main pillar of the NDP’s economic strategy, and as such the government needs to show that it’s all worthwhile.

To that end, the government commissioned a study by the Conference Board of Canada to analyze the economic impact of the infrastructure program. Based on the findings in this study, the government has declared that “Manitoba’s $5.5-billion investment in core infrastructure will create 58,900 jobs”.

Local twitter dude Dave Routhier (@SymptomOSociety) pointed out that those numbers are not quite correct. What the study actually says is that the infrastructure spending will create 58,900 person-years of employment, over the five years of the program, which is much different than 58,900 new jobs. In fact, at it’s peak in 2017 the infrastructure spending is anticipated to support 13,400 jobs, not 58,900.

If I work in a job for 5 years, I still only have one job, not five. “This really … is an issue of jargon that bureaucrats use” Minister Teresa Oswald said, when challenged about the numbers by the Canadian Press. It is unfortunate that the government would so casually dismiss an 80% exaggeration of employment numbers as “jargon”.

The Canadian Press did well in publicizing this discrepancy in the media, but I would argue that the exaggeration is even greater than what is being reported. The Canadian Press reports that “extra jobs” resulting from the program will range from 8,500 to 13,400, but “extra jobs” and the term “created” imply that all this employment is over and above what we already have. My reading of the Conference Board of Canada report is different.

The study breaks down the $5.5 billion in spending as $1.9 billion in new spending supported by the PST hike, added on to the “2012–13 Baseline investment” of $3.6 billion ($729 million per year). In other words, only 1/3 of the total infrastructure spending is “extra” or above and beyond the baseline. If we want to objectively measure new jobs created, we have to look at the incremental spending on infrastructure.

These are the real numbers: new jobs created by the program will range from 2460 in the first year to a high of 5293 in the final year of the program.

This is a far cry from 58,900, but if we’re talking about “extra jobs” or new jobs “created”, then these are the numbers you should use. It’s all a matter of perspective I guess.

All this of course depends on the government spending what it says it will spend. In the past, spending commitments on infrastructure have not always be met.

*****

I should note that I have a problem with infrastructure spending for the purposes of creating jobs. Don’t get me wrong: we need infrastructure improvements and I like some of the things that the government is planning, but as a matter of economic principle, this kind of spending should be done because it’s necessary, not to boost employment. Creating jobs directly through government spending is terribly inefficient, and as the Conference Board of Canada study reports, the economic multipliers associated with it (1.16) are not particularly impressive. Better to encourage job growth through private industry where each job generates tax revenue, rather than consuming it.

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5 thoughts on “The real impact of Manitoba’s Core Infrastructure plan

  1. For those criticizing Manitoba jobs plan, it is worth noting that that BC uses similar logic touting a million jobs by 2020. Also, Ontario’s PC leader plans 1 million new jobs over 8 years by reducing business taxes. Not likely – there are only about 550,000 unemployed people in Ontario. So Oswald does seem correct that this is the usual way these numbers are used.

      • “Creating jobs directly through government spending is terribly inefficient, and as the Conference Board of Canada study reports, the economic multipliers associated with it (1.16) are not particularly impressive. Better to encourage job growth through private industry where each job generates tax revenue, rather than consuming it.”

        And what economic multipliers do they associate with tax cuts or other conceivable means of encouraging growth through “private industry”?

        At least in the US context in 2008 (which does differ from Manitoba’s present circumstances) indicated that food stamps (a form of direct government spending via social transfer) was very stimulative, whereas a specific form of tax cuts weren’t.

        “In findings echoed by other economists and studies, he said the study shows the fastest way to infuse money into the economy is through expanding the food-stamp program. For every dollar spent on that program $1.73 is generated throughout the economy, he said.

        Finally, Moody’s report says business incentives such as tax breaks for buying new equipment – so-called accelerated depreciation – would give the least bang for the buck and potentially provide the slowest infusion of money. A dollar spent there would generate only 33 cents in the economy because, Zandi said, it takes longer for businesses to implement any benefit received.” – CNN’s Kate Bolduan and Lesa Jansen

        http://money.cnn.com/2008/01/29/news/economy/stimulus_analysis/

  2. I’m not a fan of boutique tax credits. The one you mention is especially poor because companies likely claim it for buying equipment they would buy anyhow. Better for the government to build an environment for businesses to grow and hire people. Eliminating the payroll tax would be a big help.

    I can’t argue with the food stamp example either. I’m sure that’s a good use of money in many places, both from an economic point of view and as a social priority.

    Neither of those examples discount the argument I was making about infrastructure spending as a bad way to generate economic activity.

  3. In some ways it is more honest to talk about person years of work rather than actual jobs, but only if people are informed about what a person-year represents. When I say more honest I am referring to the fact that person-years represents the actual full amount of employment, including in it the dimension of length of employment. To talk only about the number of distinct jobs created does clarify the number of people who will be actually employed, but it also gives the impression that these jobs will continue indefinitely, whereas person-years quantifies the total amount of employment being produced, including in it the fact that these are not permanent jobs. However, I understand your point, that being that it is nice way of making it appear that there are a lot more jobs being created than there actually will be. If people understood person-years it would be a different story. Of course, if we all understood everything the world would be a much different place.

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