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Keystone Jobs Versus Competitive-Dollar Jobs

Monday, 02 January 2012 08:18 By Dean Baker, Truthout | News Analysis

The new great hope for job creation in Washington is the Keystone pipeline, a plan to create a pipeline that would transport oil from Alberta, Canada, as far as New Orleans. According to the Republican leadership and other proponents of the pipeline, it is expected to create 20,000 jobs in the construction and supplier industries.

There have questions raised about this number by analysts and by the State Department, which must approve the pipeline. It seems that this 20,000 number refers to "job years," not jobs. This means that if a construction worker is employed for two years working on the pipeline, she would count as holding two jobs in the 20,000 jobs number. The number of jobs created at a point in time would likely be closer to half of this figure, perhaps less than 10,000.

It's also likely that many of these jobs will go to Canadians. This is good for them, but beside the point if the goal is to create jobs for people in the United States.

But even 10,000 jobs would be better than nothing. The question is: how much better? Without some context, the public is not well positioned to assess the economic argument for the pipeline.

One basis of comparison is the economy's normal rate of job creation. Back in the late 1990s, the economy created 3 million jobs a year for four years. At this pace, the jobs created by the Keystone pipeline would be equal to about 30 hours of job creation.

Of course, the economy created jobs at an even more rapid pace in the recoveries following the 1974-75 and 1981-82 recessions. If we were to see the sort of normal recovery that is expected after a steep downturn, then Keystone pipeline jobs would be equal to around 20 hours' worth of job creation.

But we can't just snap our fingers and get the economy back into a job creation mode. The question is how Keystone measures up to other potential job-creation policies.

One that should be on the agenda is lowering the value of the dollar. If the dollar falls in value, it will make our exports cheaper to people in other countries, causing them to buy more US exports. Similarly, imports will be more expensive for people living in the United States, leading people to buy domestically produced goods instead of imports.

Suppose that the dollar fell by an average of 10 percent (adjusting for differences in inflation rates) against the currencies of our trading partners. Economists often assume that the change in the quantity of imports and exports will be roughly twice as large as the change in relative prices.

This means (using some simplifications) that if the dollar fell by 10 percent, then our exports would rise by 20 percent and our imports would fall by 20 percent. Since most of the items traded are manufactured, this would translate into a huge increase in the output of our manufacturing sector.

Working off the 2010 trade data, this decline in the value of the dollar would imply an increase in manufacturing output of more than $500 billion a year. This is equal to almost 44 percent of current manufacturing output. If employment increased proportionately, that would translate into more than 5 million additional manufacturing jobs.

Comparing this to the Keystone pipeline, we could say that a 10 percent reduction in the value of the dollar would have roughly the same impact on employment as 500 Keystone pipelines. Since the effect of the dollar on exports is roughly proportionate, even a 1 percent drop in the value of the dollar would create as many jobs as 50 Keystone pipelines. A drop in the value of the dollar of just one-tenth of one percent would create as many jobs as 5 Keystone pipelines.

Of course, these calculations are oversimplifying issues considerably. First, trade flows will not adjust immediately to changes in prices. It will likely be many months after a change in currency prices before we see any effect, and close to two years before most of the effect is felt.

Furthermore, these numbers assume that no steps are taken to offset the decline in the value of the dollar. For example, importers may squeeze their profit margins rather than lose market share. On the export side, our trading partners may impose tariffs or other barriers to keep out US-made goods, especially in countries that are still reeling from the recession themselves.

But the general story is right. If we want to create jobs and put the stimulus genie off the table for superstitious reasons, a more competitive dollar provides an excellent alternative to the Keystone pipeline. It can create many more jobs, and it won't threaten the environment.

Dean Baker

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout's Board of Advisers.


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Keystone Jobs Versus Competitive-Dollar Jobs

Monday, 02 January 2012 08:18 By Dean Baker, Truthout | News Analysis

The new great hope for job creation in Washington is the Keystone pipeline, a plan to create a pipeline that would transport oil from Alberta, Canada, as far as New Orleans. According to the Republican leadership and other proponents of the pipeline, it is expected to create 20,000 jobs in the construction and supplier industries.

There have questions raised about this number by analysts and by the State Department, which must approve the pipeline. It seems that this 20,000 number refers to "job years," not jobs. This means that if a construction worker is employed for two years working on the pipeline, she would count as holding two jobs in the 20,000 jobs number. The number of jobs created at a point in time would likely be closer to half of this figure, perhaps less than 10,000.

It's also likely that many of these jobs will go to Canadians. This is good for them, but beside the point if the goal is to create jobs for people in the United States.

But even 10,000 jobs would be better than nothing. The question is: how much better? Without some context, the public is not well positioned to assess the economic argument for the pipeline.

One basis of comparison is the economy's normal rate of job creation. Back in the late 1990s, the economy created 3 million jobs a year for four years. At this pace, the jobs created by the Keystone pipeline would be equal to about 30 hours of job creation.

Of course, the economy created jobs at an even more rapid pace in the recoveries following the 1974-75 and 1981-82 recessions. If we were to see the sort of normal recovery that is expected after a steep downturn, then Keystone pipeline jobs would be equal to around 20 hours' worth of job creation.

But we can't just snap our fingers and get the economy back into a job creation mode. The question is how Keystone measures up to other potential job-creation policies.

One that should be on the agenda is lowering the value of the dollar. If the dollar falls in value, it will make our exports cheaper to people in other countries, causing them to buy more US exports. Similarly, imports will be more expensive for people living in the United States, leading people to buy domestically produced goods instead of imports.

Suppose that the dollar fell by an average of 10 percent (adjusting for differences in inflation rates) against the currencies of our trading partners. Economists often assume that the change in the quantity of imports and exports will be roughly twice as large as the change in relative prices.

This means (using some simplifications) that if the dollar fell by 10 percent, then our exports would rise by 20 percent and our imports would fall by 20 percent. Since most of the items traded are manufactured, this would translate into a huge increase in the output of our manufacturing sector.

Working off the 2010 trade data, this decline in the value of the dollar would imply an increase in manufacturing output of more than $500 billion a year. This is equal to almost 44 percent of current manufacturing output. If employment increased proportionately, that would translate into more than 5 million additional manufacturing jobs.

Comparing this to the Keystone pipeline, we could say that a 10 percent reduction in the value of the dollar would have roughly the same impact on employment as 500 Keystone pipelines. Since the effect of the dollar on exports is roughly proportionate, even a 1 percent drop in the value of the dollar would create as many jobs as 50 Keystone pipelines. A drop in the value of the dollar of just one-tenth of one percent would create as many jobs as 5 Keystone pipelines.

Of course, these calculations are oversimplifying issues considerably. First, trade flows will not adjust immediately to changes in prices. It will likely be many months after a change in currency prices before we see any effect, and close to two years before most of the effect is felt.

Furthermore, these numbers assume that no steps are taken to offset the decline in the value of the dollar. For example, importers may squeeze their profit margins rather than lose market share. On the export side, our trading partners may impose tariffs or other barriers to keep out US-made goods, especially in countries that are still reeling from the recession themselves.

But the general story is right. If we want to create jobs and put the stimulus genie off the table for superstitious reasons, a more competitive dollar provides an excellent alternative to the Keystone pipeline. It can create many more jobs, and it won't threaten the environment.

Dean Baker

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout's Board of Advisers.


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