Higher education, big big numbers

I don't think we can blame the consultants for this one.

Normally, big big numbers in economic impact reports are a black mark on the consultancy producing them. They don't come with enough health warnings, and the misleading big big figures draw headlines too easily.

Dave Guerin's Ed Insider newsletter (essential reading for anybody following tertiary ed in New Zealand) covers the Universities NZ report, produced by NZIER. He writes:

Universities NZ released Regional activity of universities (30 pages) on 27 Apr 2017 (UNZ media release).

• The report had straightforward analysis of the direct university spending and employment in their region, and the contribution to regional GDP.
• NZIER also estimated the indirect and induced expenditure due to universities, but placed major caveats on those figures, stating that UNZ had specifically asked for them. They noted that the government did not see such numbers as a credible argument for increased government expenditure on universities. NZIER repeated their 2-paragraph warning 9 times in the report, and added an appendix with more detail on the issue.
• Universities NZ cited the largest number possible ($19.95b) in their media release.

For an example of a nice health warning, here's a bit from NZIER's Exec Summary:

Estimating the size of these indirect and induced effects in a way that is economically meaningful is problematic. They can be estimated using multipliers that try to reflect the ripple effects of university expenditure on the economy, but this approach makes so many assumptions that the estimates should be seen as indicative only. The multiplier analysis approach (used in the mid-2000s but now discredited) massively overstates the indirect and induced economic activity attributable to any industry because it fails to consider alternative uses for the resources employed by the industry. At best, multiplier based estimates of indirect and induced effects are a measure of the current footprint of the university in the city/region. They cannot be added to calculate a national total across cities/regions and they are not accepted by central government as a credible argument for increased expenditure on university education or R&D.

Though indirect and induced effects are estimated in this report they should be seen as indicative only. See Appendix A for further caveats and comments on indirect and induced effects.

Pretty blunt. When clients use the big big numbers, even when the reports have health warnings as blunt as these are... yikes.

Economic Impact Assessments and the value of fishing

Me at Newsroom on the perils of using economic impact assessments to measure the value of anything - this time, rec fishing:

The New Zealand Marine Research Foundation’s commissioned economic impact assessment of recreational fishing in New Zealand says that fishing generates $1.7b in economic activity. Legasea argues “We now have a handle on the value of recreational fishing” and that the results provide “enough evidence to support a recalibration” from commercial fishing to high-value recreational fishing.

But there are two problems. First, even if the economic impact assessment figures were correct, that still provides no basis for deciding whether the next fish caught would be more valuable in a commercial boat or on a recreational hook. And, second, the numbers come from an economic impact assessment. Let’s deal with the second one first.

Enjoy! I also got to quote from one of my favourite Stephen Gordon tweets.

Our Research Fellow Dr Randall Bess provided the numbers I used at the end of the piece. Keep an eye out for his coming report on recreational fishing....

Happy journalistic mischief

Economist Stephen Gordon had a great rule of thumb about economic impact reports.

Every economic impact study, ever:

1) Estimate costs
2) Estimate benefits
3) Add costs to benefits
4) Multiply by 2

— Stephen Gordon (@stephenfgordon) June 27, 2016

Wouldn't it have been fun if, instead of just doing a cut and paste from Otago University's press release on Otago University's massive economic impact, a reporter there would have checked if any academic economists in Otago University's economics department would vouch for the economic impact assessment.

As for the multiply by two rule, the press release says the direct spending by staff and students is $881.1 million, and the trickle-down effects get you to an overall $1.55 billion. Not quite two. So it looks more like "Estimate costs, multiply by 1.76" in this case.

The press release does not link to the cited report. It says the report was "released", but I couldn't find it anywhere on the university's website.

Like every other Economic Impact Assessment, though, it did its job. The newspaper reported the Really Big Number. Nobody's going to check. Nobody ever does. Mission accomplished.

In no way should this post be construed as an offer to provide QA on that Economic Impact Assessment.

Local Workers First

Labour leader, David Shearer, wants to bring in rules making it harder for employers to bring in migrant workers without having first explored all possibilities for hiring New Zealand workers.

Let's leave aside the moral question of whether non-New Zealanders should be included in the government's welfare function, and just accept, morally repugnant though that view may be, that most voters probably think that New Zealand policy should care only about New Zealand residents. Even with that welfare criterion, there are a couple of problematic things in Labour's proposed policy.

First, according to the article, Mr Shearer wants to use government procurement as a branch of social policy:

Mr Shearer said that starting in the construction sector, Labour would impose a "one in a million" condition on companies that won significant government contracts, forcing them to take on one apprentice for every $1m of investment.

and

Government agencies would have to give contracts to local firms wherever possible and undertake a wider economic analysis to ensure maximum benefit to the economy. (Emphasis added)

If it is good policy to require a firm to take on a certain number of apprentices, surely that is good policy independently of whether the firm has won a government contract. But worse, by imposing conditions other than value for money on firms winning government contracts, you will not only increase the price that firms are prepared to charge, even in a competitive market, but also lesson competition.  

Second, it seems that Shearer wants to use immigration policy to restrict the supply of low-wage workers in order to influence wage rates:

Immigration NZ would have to assess the impact on wages and working conditions when it considered an application to bring in temporary workers.

[Mr Shearer] wanted to ensure the Canterbury rebuild was not used as an opportunity to bring in workers prepared to work 12 hours a day, seven days a week for minimum wages simply to undercut competitors.

As a Christchurch resident, the thing that jumps out at me here is the notion that it seems that the main objective for the Christchurch rebuild should be to provide benefits to workers, not to get our city back as soon as possible without an excessive burden on future ratepayers. Benefits to workers are important, but workers are consumers and taxpayers too. If there is a pool of workers overseas willing and able to work long hours at low wages why wouldn't we want to avail ourselves of that resource? There are easier ways to increase after-tax wages without creating labour and procurment monopolies. The cost to government revenue from reduced economic activity of government-created monopolies would surely be less than the cost of a cutting the income tax rate at the lowest levels.

It is hard to square all this with the quote in boldface above. A proper "wider economic analysis", that considered both visible and invisible effects in a general equilibrium context is unlikely to ever suggest a bias to hiring local firms or local workers in preference to outsiders, so one can only assume that the analysis Shearer has in mind is more along the lines of dodgy economic impact studies.