Employment Impacts

BC Hydro Provincial Integrated Electricity Planning Committee Meeting 2 (February 22-23, 2005) Information Sheet #5 Creating Decision Criteria From Employment Impacts Introduction Discussions at the December 2004 Provincial IEP Committee meeting revealed that the role of employment and its impact across the province will be guiding some committee members in choosing amongst long term electricity planning options. This topic will be addressed at the February working group sessions, where the committee can decide how much more work needs to be put into this topic. This note lays out a suggested structure for this discussion and a potential set of next steps for this topic. How Employment is Characterized in the Resource Options Report Closing the gap between the demand and supply of electricity will require a substantial number of new projects to be created. These projects will differ by size, location and technology, as well as by the date which they are brought on line. This sequence of which projects are brought on line, where, and when, is what makes up the electricity planning portfolio. Each resource option (e.g., coal, natural gas, small hydro, etc.) represents a different piece of this puzzle. BC Hydro’s resource options report contains descriptions of each potential project that could be built in a new portfolio. These characterizations have been supplied to BC Hydro by the private power producers, and contain information about the energy characteristics of each potential project as well as costs, land footprint and employment aspects. The employment aspects of each project are broken down into the direct short-term construction jobs that are required to build the project (part time employment, or PTE), and the long-term jobs that are required to run and maintain the project (full time employment, or FTE). The mix between long term employment and short term employment required for each resource type will differ because of the difference in building and operating technologies. For instance, a large dam will require a substantial amount of construction effort, but require relatively little labour to actually run, whereas wind projects are relatively easy to build but will require a high level of ongoing staffing to operate. These employment impacts are laid out in an example below where each resource type was required to produce 1,000 GWh of energy. Note that the part-time employment impacts were converted to full-time jobs over the 20-year period for comparison purposes. Table 1 – Employment Impacts Across Resource Options, for 1,000 MWh of Energy BC Hydro 2005 IEP— PIEPC Meeting 2 — Employment Impacts Page 1 Data regarding the employment impacts of biomass and Power Smart projects are incomplete, and therefore are not included in this discussion. The IEP project team is working on developing estimates for these two options. Describing the Value of Employment Impacts Discussions by provincial committee members around the benefits of additional employment followed two general themes: social and economic impacts. Neither of these was pursued in detail, and as a result, fleshing these out will be a priority at the February technical meetings. As Figure 1 shows, short-term employment and long-term employment were both described as generating benefits to society. The conversation around the table suggested that these benefits might differ depending on: • • • • the nature of the community where the jobs are located the level of employment within the community whether these jobs are full time or part time the level of skill required in these jobs. If committee members are able to more fully articulate what the social impacts of job creation might be, then it may be possible to generate a simple but accurate proxy measure of the social impacts of these jobs. Figure 1 – Tracing the Impacts of Employment Short term employment Social Benefits of Employment – list? ? Economic Benefits of Employment Long term employment BC Hydro 2005 IEP— PIEPC Meeting 2 — Employment Impacts Page 2 Employment impacts were also of interest to committee members insofar as they led to economic growth and development. Economic theory is clear on the link between job creation and economic benefits; counting jobs is not an adequate measure of employment benefits. Jobs can only be created where there is persistent unemployment due to poorly functioning labour markets. This occurs where labour cannot, or will not, move from areas of low employment to high employment. In such cases, a construction project or a new business will create jobs where none existed. In areas where labour is free to move in pursuit of employment opportunities, the creation of a project only temporarily locates jobs from one part of the economy to another. Estimating the economic value of job creation across the province for various projects would be difficult, as labour is more mobile in and out of some communities than others. One method to measure the economic value of job creation that takes into account a diversity of people being hired onto the new project pegs that value of new jobs as roughly half of the total wage outlay1. As a starting point for discussion, assume that the average job pays roughly $50,000 per year2. This means that each job created through new energy production, full-time or part-time equivalent of work, provides 0.5 * $50,000 = $25,000 of economic benefits. Note that multiplier effects are not included in this estimate. Again, this is an area where standard economic theory is clear. Estimating and including re-spending effects (the “spillover” effects of the workers spending their incomes) is not appropriate when measuring employment benefits. While this theory was developed for economic analyses during the Great Depression, it does not apply to an economy where labour and capital markets are functioning relatively well. For committee members who feel that employment is important only insofar as it provides economic benefits, these dollar estimates can be rolled up over the 20 years for each portfolio and netted out with the financial figures to have an overall financial impact. However, for committee members that feel that employment provides economic benefits and other benefits, the appropriate measures can remain separate from the financial figures and given weights that better reflect the overall contribution of employment to economic and social factors in B.C. The actual calculations of these numbers and how they can be incorporated together will be addressed once the measures of employment impacts have been agreed upon by the committee. Boardman, Greenberg, Vining, and Weimer (1996) Cost Benefit Analysis: Concepts and Practice. Boardman and Vining are professors of economics at UBC and SFU, respectively. Recent work presented from SFU to BC Hydro on the 2004 IEP suggested that the total benefits should be roughly 5% of wage outlays. 2 1 These numbers can be updated with more job sector specific wage estimates, if needed. Page 3 BC Hydro 2005 IEP— PIEPC Meeting 2 — Employment Impacts BC Hydro 2005 IEP— PIEPC Meeting 2 — Employment Impacts Page 4