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In reality, total employment is largely pinned down by how many workers there are. More jobs in one part of the economy mean fewer jobs in another. Demand for labour is important, of course, but so is supply.

So what’s really the net effect of a new petrochemical plant on overall employment? Roughly zero. Workers, with few exceptions, would otherwise have been employed elsewhere. The plant doesn’t increase employment, it shifts employment.

This leads us to a final point: The models account for benefits, but not costs. Want a subsidy? Point to the concentrated and visible gains. Want a larger subsidy? Point to large spillover gains from indirect and induced effects.

The costs, on the other hand, are less visible – though they are no less real. As we saw, workers that shift into one activity are no longer available to work in another. Money to provide subsidies must also come from somewhere. Typically, the funds are raised through distortionary taxes that lower economic activity. Income taxes lower employment, and corporate taxes lower investment. These costs are absent from typical economic impact studies.

So how can we improve? Better models are available. Instead of simple “input-output” models, we can use what are known as “general equilibrium” ones. They have many benefits, including recognizing that workers are in limited supply.

We can also put more weight on income and productivity, and less on job creation claims. Producing electricity with a fleet of stationary bicycles, after all, would employ an army of workers but is hardly sensible policy.

Finally, we should push back against those making dodgy claims. Results from economic impact studies, especially those regarding induced effects, aren’t what they’re cracked up to be.

Trevor Tombe is an Assistant Professor of Economics at the University of Calgary.