[LINK] On the math and jobs issues of Tim Hudak and the Ontario PCs

[rfmcdonald]

Tim Hudak, leader of the Ontario Progressive Conservatives, has promised while campaigning to create one million jobs over the next eight years. The CBC highlighted his opposition's criticism of the math involved.

Tim Hudak was forced to defend his "Million Jobs Plan" Wednesday as a growing number of economists questioned the math behind the Ontario Progressive Conservative leader's promise, which is the centrepiece of his election platform.

Despite being hammered repeatedly on the issue, Hudak was adamant that the PC figures were right.

"I stand behind our numbers," he said at a furnace-making facility in Niagara Falls, Ont. "I simply believe that permanent tax reductions on job creators, more affordable energy is going to create jobs."

Hudak has promised a PC government would bring a million jobs to Ontario over the next eight years, although about half of those would be created through normal economic growth, regardless of which party is in government.

First the Liberals, and then a number of prominent economists, including a former federal associate deputy minister of finance, have poked holes in Hudak's numbers. They focus, in particular, on the possibility that the Tories misinterpreted information from a Conference Board of Canada report commissioned by the PCs.

"A number of highly respected independent economists have gone through Tim Hudak's plan. They have said that it is riddled with errors," Liberal Leader Kathleen Wynne said. "I think it's pretty clear that Tim Hudak and his team got it flat wrong.

rabble.ca's Jim Stanford took the plan apart.

Ontarians can and should have a serious policy debate over whether Hudak's proposals would have any stimulative effect on employment at all (let alone creating a million new positions). However, those substantive policy debates may be swamped by an enormous arithmetic mistake which can be deduced by comparing the numbers in the PC technical backgrounder, with the supposedly supporting evidence contained in the two consultant's reports. Ontario Finance Minister Charles Sousa has critiqued this error. Here are the details as I read them. In essence, the two consultants generated estimates of the number of cumulative jobs that would be created from the simulated policies over several years. But the PCs have assumed that those jobs would be created in each year of the 8-year plan. They have thus exaggerated the number of jobs by several times (as many as eight-fold).

Let's start with the Conference Board report on the employment effects of a one-percentage-point corporate income tax cut. Their results are reported in their Table 5. That table (as it notes) shows the "level difference" of each variable versus the base case scenario: that is, it shows the running impact of the one-time policy change. In the lower half of that table is a line titled "Employment." That shows how much the level of employment is higher in each year of the 10-year simulation, compared to what it would be without the one-point corporate tax cut. There are 2,071 extra jobs in the first year, and the difference (compared to the base case) grows gradually over time (on the assumption that corporations respond to the lower tax rate with more investment spending over time -- even though in practice that has not happened with past CIT cuts). By the 10th year there are 5,869 extra jobs. In the eighth year (which is 2020 in their scenario, assuming the tax cut was implemented in 2013), there are 5,323 extra jobs. If you believed the Conference Board report, therefore, you should claim that a one-point CIT cut should create 5,323 jobs by the eighth year after its implementation.

The Conservatives are promising a 3.5-point cut, so we should multiply that number by 3.5, giving a total of 18,631 new jobs. This assumes the full 3.5-point reduction is implemented in the first year (whereas the PCs have said it will be phased in over time), so in reality even that number is too high.

Now, the PC backgrounder claims (referring to the Conference Board study for evidence) that the CIT cut will in fact produce 119,808 jobs over 8 years. Where did that number come from? A little forensic accounting can answer the question. The last column of the Conference Board Table 5 reports something called "Cumulative Total." The cumulative total for the employment line (as explained in the text of the Conference Board report at the bottom of p. 9) represents the total additional person-years of employment created over all 10 years by the one-point tax cut. Over the 10 years combined, there were 42,788 additional person-years of employment thanks to the tax cut. There were only 5,869 new jobs by the 10th year, but counting each year for each worker provides the number of person-years.

The PCs took the 10-year cumulative increase in person years, divided it by 10 (to get an "average annual increase in person-years," a very odd concept), and then multiplied it by 3.5. That equals 14,976 -- the number listed in the PC technical backgrounder. Then they assumed that many jobs would be created each year! Multiplied by 8, that equals 119,808. That is a gross and obvious mis-reading of the Conference Board's own results.

So did MacLean's Mike Moffat.

My initial reaction when I saw Jim Stanford’s piece on how the Tory plan confused jobs with person-years of employment was disbelief. I thought it could not be possible that the Tories would make such an elementary error. In fact, at first I did not believe it. I have a network of economists I call when I need an opinion or a second set of eyes to look at something. I spent about two days on the phone, and kept hearing the same thing over and over: “Jim is right.” One of those economists, my Ivey colleague Paul Boothe, wrote a detailed piece outlining the Tory math error.

Here is a short primer on the mistake the Tories made. In the first line of their million jobs plan, they have 523,200 jobs from “baseline growth.” This number should be interpreted as saying the number of persons in the province with a job eight years from now will be 523,000 higher than it is today. However, when they claim that reducing the regulatory burden will create 84,800 jobs, this is based on the 10,600 job-creation estimate in the Zycher report (which the party commissioned) and multiplying it by eight to give 84,800 person-years of employment. But only 10,600 actual people (not 84,800) will have a job eight years from now who do not today. The Tories are adding baseline growth “jobs” to regulatory burden “person-years” to get their million-job estimate—despite the fact the two are in completely different units[.]

This error is not limited to the line item for reducing regulatory burden: the Tories made the same mistake for every item they adopted from the Zycher and Conference Board of Canada reports.

While the policies of the million jobs plan may be economically beneficial, the Tory job numbers are an absolute disaster. The entire plan needs to be redrafted, as the party made an inexcusable and elementary mistake in mathematics. I have serious concerns on what this episode will do for political discourse in the province. If the lesson that politicians draw from this lesson is not “check your math” but rather “don’t release details,” then we are all made worse off.