Sorting Through the Job Creation Shenanigans of Politicians and Special Interests

Dave Swenson

Elected officials are keen to flash their job creation scorecard even though local and state government officials don’t really create many jobs. The economy in the aggregate creates the overwhelming majority of jobs, and some of those jobs locate in our cities, counties, and state. For elected officials, though, if it happened on their watch, ipso facto, they’ve created jobs. Credit is always claimed.

When job “creation” (see above) becomes the measure of public service performance, however lacking in substance or result, we inevitably get phony statistics, misleading inferences, or dubious claims. Sometimes politicians cherry-pick the numbers to make the best case possible. And sometimes politicians or their willing accomplices create brand new statistics.

Such is the current practice by the Department of Workforce Development in its reporting of the state’s gross over the month job gains (instead of net job gains) since Governor Terry Branstad was inaugurated in 2011. This self-serving economic distortion, which completely ignores job losses, has been well chastised by Bleeding Heartland, the Des Moines Register, and the Iowa Policy Project, but the Governor and his minions are undaunted. And it is doubly brazen considering the vast majority of all job gains in the state involved the long slow recovery from the great recession rather than any particular action of the Branstad administration, all of its questionable subsidies, trade trips, and ground-breaking ceremonies combined notwithstanding.

Concerns about the public’s perception of the importance of a particular sector or potential gains to the Iowa economy are also evident in a couple other examples not really involving our elected leaders directly. The first is the Bakken pipeline proposal now pending approval before the Iowa Utilities Board (IUB) that would carry North Dakota crude oil across the state to a refinery in Illinois. The economic impact report supporting that initiative contained inflated and misleading job impact claims, which I initially criticized here in Bleeding Heartland over a year ago.

The project, as would be expected, is heavily supported by both organized labor and construction trade groups because of the short-term boost it would give to the state’s construction sector, irrespective of the inflated original numbers. As we found out during the recent IUB public hearings on the proposed pipeline, to many members of organized labor, arguing against the Bakken pipeline meant you were arguing against labor and you were anti-job. Being pro-job, pro-labor, and pro-construction trumped all other consideration, no matter how salient. It didn’t matter at all to them whether the economic impact study had been done correctly: what really matters in Iowa are jobs, their jobs, and an approved pipeline would support the construction industry handsomely for a couple of years.

The second and a more vexing example is Iowa’s vaunted and very powerful biofuels industry, to include its equally vaunted and powerful agriculture allies. The Iowa Renewable Fuels Association, for example, purports that Iowa’s ethanol industry in 2014 supported a total of 42,400 jobs in the Iowa economy. Understood properly, that assertion would mean that if all of Iowa’s ethanol plants were shuttered, the state’s economy would contract by that number of jobs. But that’s a silly claim because, you see, the state had just 1,845 workers in its ethanol refineries in 2014. Once one accounts for a reasonable, research-based multiplier of all other jobs subsequently created in the state by those refineries, the best you can come up with is from 6,500 to 7,000 total Iowa jobs that exist but-for the ethanol industry. Yet the industry claims 42,400 jobs would be at stake – more than six-times the amount that conventional economic impact analysis would yield.

I first wrote about biofuels bloated economic impacts in a widely-circulated and cited staff report in 2006, Input-Outrageous: The Economic Impacts of Modern Biofuels Production. That research was subsequently validated by Sarah Low and Andrew Isserman (2009). Still, even though the inflated claims of the biofuels industry had been called into account, the industry nonetheless plowed ahead completely undaunted and continues to publish its laughable and widely quoted job impact claims.

A sense of job creation capacity, whether contrived or real, is the gold standard of political worth in our cities, state, and nation even though politicians create very few jobs on the margins. Special interests understand this, too, and when they bring something before the legislature, whether it is ag-related, energy-related, environment-related, or whatever-related, you can bet job impact numbers are likely part of the pitch. I know because, on an annual basis, a range of Iowa interest groups ask me to do economic impact studies for the explicit purpose of shaping the public’s and legislators’ perceptions of the value of what they propose. Everyone knows what gets funders’ attention.

But it is often a tainted process. The reason the ethanol industry can get away with “outrageous” job creation statistics or the governor can introduce a phony but self-serving job metric into the public arena is because, by and large, the public has been trained to respond positively to cynical and distorted portrayals of job creation rather than the substance of actual economic change.

This is all done through very sophisticated and expensive public relations efforts and contrivances. And so long as elected officials and special interests succeed in manipulating public perceptions, they will get away with, and continue to use, bogus job creation claims.

  • According to America's Renewable Future

    “The Renewable Fuel Standard supports 73,000 jobs in Iowa.”

    • that's what they say

      But groups backed by the ethanol industry have made other inaccurate claims too, as Dave Swenson showed in this post last month.

    • 73000 jobs

      No they do not. Firstly, I wrote about ethanol, not the renewable fuel standard; hence the 42,400 number. Second, there were only 1,845 ethanol refinery workers in 2014. You cannot get to 42,400 using standard economic impact measures. What they say versus what is reality is massively out of alignment.

      This has been the case since I first wrote about this in 2006, and my analysis and my criticisms of RFA-sponsored analyses have been validated by USDA economists.

      But you are welcome to say and believe whatever you want.

      • I respectfully disagree with Dave Swenson on tthe jobs parameter

        I’m sending along a graphic to desmoinesdem and I hope that she posts it with my comment, since this comment sheet does not support graphics.

        It is a concept template for ethanol jobs, and shows that extensive work was done on the Renewable Fuels Association (RFA) Model. The significant difference between it and Dave Swenson’s estimate is that it shows direct jobs, indirect jobs from the significant logistics tail and also includes induced jobs from the economic activity surrounding the 47% of Iowa’s corn that goes through ethanol prrocessing. It estimates that there 2,883 jobs are supported for every 100 million gallons of ethanol produced in Iowa. The actual amount of ethanol produced in Iowa in 2014 (the most recent year for which I have records, is 3.8 BILLION gallons from Iowa’s 42 ethanol plants. If you calculate that out, the first cut for ethanol jobs created in Iowa is 109,000 jobs. RFA obviously backed this number down from the concept template to 73,000 jobs. That is likely because ethanol production is so concentrated in Iowa (25% of national output) that many of the induced and indirect jobs slip across the state’s borders. For a counter methodology,let us look at the Iowa’s GDP. It is generally agreed that the ethanol industry is 3.5 percent of the state GDP. I have been accused of nefariousness when I rounded to 4% for the purposes of debate, so we will stick with the 3.5 percent. In 2014, Iowa had 1,630,000 total jobs. If you multiply the job population by 3.5%, you come up with 57,064 jobs. Rural ethanol jobs both direct and indirect are low paying jobs as compared to urban jobs generally. Consideration of this likely corrects the skew and gets the ethanol industry employment number up around 70,000 again as projected by RFA. Job counting is part of the dismal art of economics, and proofs are not always those of the bean counter. This is because the beans are so cross tabulated as to be nearly meaningless to source. So, an assessment such as RFA and I have made here is just as legitimate as the one done by Dave Swenson (who I admire greatly).

        • The RFA's numbers are not defensible

          When I calculate the net gain to the state’s economy as a result of ethanol production, I have to take the economy as it is, not how I imagine it to be. Ethanol producers need inputs, of which the main one is corn. When we estimate the impact of ethanol in Iowa, though, we do not count the corn production if we are counting fairly as the corn (crop production) was already here and the ethanol factory located advantageously to existing supply– the factory was, for lack of a beter term, opportunistic. That said, then, we look to the net boosts in state productivity (GDP) associated with the production of ethanol as an export sale or as a fuel import substitute. The industry buys a range of inputs, and the workers at the ethanol plant and in all of the supplying industries (except corn farmers) convert their incomes into household spending. When I sum all of these activities up, I get the amount of Iowa’s economy explained by the ethanol industry. The amount that would be lost were the industry to up and disappear.

          The ethanol industry does not, when multiplied through, explain 3.5 percent of state GDP. At best the industry accounts for a shade less than 1 percent. The entire manufacturing sector of Iowa considering all multiplied through consequences using input-output methodology explains about a quarter of the state’s GDP. But net gains to the state as a consequence of the ethanol industry’s existence (again, net of the crop production) is likely less than 1 percent (or it was last time I measured it).

          • But if you do not count jobs involved in corn production . . .

            But what happens if you do not then count the labor involved in the production of corn and the market option that is thereby created? Do you still blame ethanol production for the high nitrate levels in the water. I have always stated that corn will be here regardless of what becomes of RFS. But if RFS is repealed, farmers then have to find a new market for 47% of their corn. Most likely it would be fed to hogs in CAFO’s which would spike water problems in Iowa exponentially. But, it would certainly also spike the number of corn-based jobs in Iowa. Or it could go to export, but with the high dollar, international grain exports are not growing as significantly as they one were and certainly would not digest these volumes. When the Soviet grain embargo struck 20% of US feed grains were being sent to the Soviet Union. It became the trigger point for the greatest farm crisis in America since the Great Depression. It took many years for rural America to dig out of that hole. If a reduction in the 20% export market share caused that kind of an earthquake, how can you say that a 47% reduction would not do the same, and that Iowa would glide right through it?

            • A correction and more comments.

              First, a correction. My current model says, using my methods, that ethanol production explains about 1.4 percent of state net GDP in 2014.

              No one is talking about altering the current demand for corn from Iowa’s ethanol plants. Those plants and their linkages to the state’s economy are baked in for the near future. There is no impending loss to the state’s producers, as they would have us suppose whenever EPA makes marginal changes to allowable production levels. There is no crisis on the horizon beyond the propensity of U.S. farmers to drive themselves out of business by over-producing (which is good news to ethanol producers and to animal feeders).

              As to a repeal of the RFS, I do not think that is in the offing, but if it were the case, then ethanol would have to compete on price vis a vis oil. There are many mandated state blends plus oxygenate requirements. There would still be a lot of “mandated” demand. The industry would have to find its own correct size. There’s nothing wrong with that, especially when the industry has had major market protection for a decade.

              Lastly, the Soviet Grain embargo DID NOT CAUSE THE FARM CRISIS. The embargo started in January 1980. Over the course of that year, Iowa corn prices rose from $2.34 a bushel in January to $3.14 a bushel by December of 1980, and then to $3.20 a bushel in April of 1981 when Reagan repealed the embargo. Average annual prices in 1980 were $2.60 a bushel compared to $2.25 a bushel in 1979. And calendar year prices in 1981 were 9.2 percent higher than the embargo year. This is one of the largest canards still surviving. Farmers’ decisions and their complicit lenders caused the farm debt crisis, not Carter, not the embargo. It was a land price bubble of, at the time, fantastic proportions. And economists would not justify the land prices given net incomes — but like the housing bubble, it fed on itself until it popped.

              • The Farm Crisis and the Embargo

                Agreed that there were some slippage numbers that ameliorated the immediate impact of the embargo. As a Carter Administration appointee responsible for fixing granger railroads in the midwest at the time, I was at the very center of what was happening. If you compare farm production to a moving freight train, you can get the picture. It takes a long time to put the brakes on. The first big Soviet grain purchases were in 1973 and by 1980 farmers had fully ramped up production. Reagan’s repeal of the embargo did create some short shifts. But it did not at all address the Soviet’s (and other markets) revised expectation of the reliability of the US as a deliverer of grain. Alternate sources were developed while the US was still producing, and – Voila – a huge economic mess. As to how the repeal of RFS would impact Iowa ethanol. Remember that the alternate sources for oxygenates are all crude oil based. The reason that RFS was put in in the first place was that market power by big oil was locking ethanol out of the market. I doubt that given the opportunity, that big oil will have changed their monopolistic ways. $20 to $30 dollar per barrel oil might be just enough incentive to manipulate ethanol out of the pictture and increase the Big Oil market share of transportation fuels by about 10%.

        • belatedly

          I am posting this graphic. Sorry for the delay.

          Bob Krause ethanol photo EthanolJobsFromRFA-Dec2015_zps3pvwv2kc.jpg

          • Inanity

            Good God! This is not how economic impacts are parsed.

            Ethanol refining does not create corn farmers and it does not create fuel distributors. This is not how economic impacts are calculated by academics. It is, however, how economic impacts are imagined by trade groups and by politicians.

            At best, a 100 MGY ethanol plant supports a total of 150 jobs. This display would not pass muster in an econ 101 class.

            If this is what you believe, you are grievously misinformed.

  • Does ethanol mean jobs, income or both?

    The assessment of ethanol that Dave Swenson makes focuses exclusively on new jobs for some good reasons. But it misses on many points. Local trucking jobs are ignored because truckers would already haul the grain. Rail jobs are ignored because someone has to move the product out of Iowa. Farm jobs are ignored because the farmers are already farming. But if the grain does not move, even truckers and railroaders lose their jobs. And farmers can’t send their kids to college, replace worn out equipment, or pass along the family farm.

    By the same token, if we talk “net jobs and not gross jobs” as Governor Branstad resists, would we have more jobs if instead of placing 47 percent of Iowa’s corn in ethanol that we put it into increased animal production? That would approximately double the number of CAFO’s in Iowa at a time that clean surface water is a problem for many communities. Nitrates in water come from pig, cow and chicken poop and Iowa’s notoriously generous CAFO siting laws even allow CAFO’s in flood plains in certain instances, and allow them close to both urban and rural residences without recourse.
    A “jobs only” assessment is a habit the body politic falls into because jobs are important. We would not be sending so many of our youth out of state were it not. But Iowa life is not only jobs — it is jobs and income. We have teaching jobs in Iowa, but many great teachers still leave Iowa because they cannot make enough to pay off their student debt (Iowa is still 3rd in the nation for per capita student debt). This is why I challenge Dave’s statement concerning the demise of the ethanol industry. It is frankly unrealistic because it focuses only on a thin slice of new jobs he has identified within plants. It speaks nothing to the economic vitality of Iowa, and frankly, intuitively, many people recognize that it is just wrong. Here is the quote: “Understood properly, that assertion would mean that if all of Iowa’s ethanol plants were shuttered, the state’s economy would contract by that number of jobs. But that’s a silly claim because, you see, the state had just 1,845 workers in its ethanol refineries in 2014.”

    You cannot take away the market for nearly half of Iowa’s corn market and lose just 1,845 jobs. Unless you count the massive increase in jobs available for farm liquidation auctioneers as part of the “net.”

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