by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
Credit where it’s due — e.g., there is none due to ABC11 — but The Charlotte Observer shows a little skepticism regarding the claim that Charlotte not getting 400 PayPal jobs will cost its economy $285.5 million, as the Charlotte Chamber claims. Steve Harrison writes:
PayPal was planning to hire 400 people for a global operations center, with an average wage of $51,000. That annual payroll would be $20.4 million. Including benefits could push that number to perhaps $30 million.
So how did the chamber arrive at a “missed economic opportunity” estimate that’s nearly 10 times as large?
The chamber said it used economic forecasting software called IMPLAN—
I wrote about it in my newsletter a few weeks back. A snippet:
Often the models (input/output models like IMPLAN, JEDI, etc.) are designed to translate costs into benefits. Costs, benefits — hey, they’re all “economic impacts” of some kind or other, right?
As my colleague Roy Cordato, an economist, explained,
‘in large part these studies take a measure of the value of resources that go into production and count the payment of these costs to resource owners as benefits when in fact, from the perspective of economics, they are costs. Benefits come from the value of outputs, not the cost of inputs.’
The impact modeling software is especially averse to opportunity costs. If you want to include opportunity costs, you need an economist, not “user-friendly” plug-‘n’-play software designed for economic “novices.”
Here’s more from the Observer:
Chuck McShane, director of research for the Charlotte Chamber… said IMPLAN is a “standard model for economic impact analysis used by several universities and federal agencies such as the USDA.”
But IMPLAN forecasts have also been ridiculed by economists, particularly when used to promote a specific project like a new sports stadium.
Economic impact analysis uses what’s known as a “multiplier” to determine how new money ripples through the economy. … If the cost of PayPal’s wages and benefits are included, then a multiplier of nearly 10 would need to be used to reach $285 million.
“I do not know where they would find a multiplier of that level – especially on an ongoing basis,” said Craig Depken, a professor of economics at UNC Charlotte.