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Jobs Figures Can Distort Public Policy 19/09/2004

Measures of ‘Indirect Employment’ are being misused and could distort government policy by exaggerating the importance of certain sectors, says a new paper by the Policy Institute.

The report, ‘Fantasy Jobs’, by Professors Sir Alan Peacock and David Simpson, says that government figures on the economy are regularly being used to claim that these sectors employ thousands of people ‘indirectly’ in other industries. “They may be misleading policy makers into attributing greater importance to some sectors over others”.

The problem lies in using data describing where sectors source their raw materials to extrapolate ‘mulipliers’ of indirect employment. Professors Peacock and Simpson say that if the same multipliers were applied to the whole economy, the aggregate number would be greater than 1. “This would produce the nonsensical result that the total number of jobs directly and indirectly created would exceed the total number of jobs in Scotland!”

Examples of sectors using such methods are the financial, whisky and fishing industries.

The method is misleading, says the report, because it wrongly assumes that a rise or fall in demand for one sector would lead to job gains or losses in those industries where it sourced its raw materials. In practice, demand would be shifted elsewhere, and the economy would adjust according to the state of the labour market and other complex factors.

Instead, say Peacock and Simpson, we should “stick to what we know” and use traditional ‘Value Added’ measurements of the importance of particular industries.
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