Brushing up on your economics lingo

Here are a few common mistakes when it comes to economics data.   I hear these mistakes made quite a bit particularly by journalists but also by others.

1. When an economist says something like “public spending as a percentage of GDP” or “provincial debt as a percentage of GDP” they are using GDP as an anchor and they don’t mean it in the sense of “I ate 40% of the apple”.    For example, economists use the term provincial spending as a percentage of GDP and that comes in at around 24% in New Brunswick. That is not 24% of GDP (i.e. one quarter of GDP) because the public spending is an output number – GDP is a sub-set of output.  The reason we say 24% of GDP is to allow us to compare NB to Quebec or Ontario or Alberta – it adjusts for scale.

Economic output – this is the spending (I buy a car for $30,000).

GDP in New Brunswick – this is the amount of economic activity that stays in New Brunswick as a result of that spending (maybe $5,000 as the bulk of the GDP created from a car purchase in New Brunswick happens in South Korea or Windsor, Ontario).

So you can’t take a number like the provincial budget $7.5 billion and express it as a percentage of GDP and assume it is a fraction of GDP.  The $7.5 billion is a fraction of economic output not GDP.  Gross output in New Brunswick in 2008 was something like $57 billion while GDP was something like $27 billion.  We can compare the GDP from the public sector to the overall GDP but that is not the same as trying to talk about output ($7.5 billion) as a faction of GDP.

In short you get lots of economic leakage from a province like New Brunswick.  When you go to the movie, the bulk of the GDP impact is in Hollywood.  When you buy a flat screen TV, the bulk of the impact will be in China.  When you eat at a restaurant, if you buy the Russian caviar… you guessed it – GDP impact in Russia.

2.  You can’t equate the monthly employment numbers from the Labour Force Survey with total employment in New Brunswick.  In 2011, there were 418,000 people who declared employment income in New Brunswick.  According to the LFS, there were 352,000 employed in 2011.  The LFS is the average monthly employment in New Brunswick – not the total number of persons who worked at some point during the year.  Why does this matter? Because people will talk about the number of people on EI, for example, as a percentage of the 352,000 (or about 31%) when the right answer is 110k collecting EI over the 418k employed (or 26%).

 

These are little things.  There are many more.  The problem is they can add up to big differences.  Next time I’ll cover the difference between direct, indirect and induced economic impacts; the definition of ‘urban’ (this mistake is common) and other economic boo boos.

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