Victorian Department of Treasury & Finance
Victoria
Transparent and repeatable modelling process estimates the costs and benefits, and therefore net benefits, of job creation in Australian regions.
Job creation is not necessarily a benefit that should be incorporated into the economic evaluation of projects. However, there are clearly some circumstances when job creation improves the allocative efficiency of labour resources – for example, targeted occupations in disadvantaged regions.
When these circumstances arise, estimating job creation benefits is complex. A variety of approaches are currently adopted by practitioners; some invoke arbitrary assumptions about the labour force origins of newly employed project workers, while others apply detailed economic modelling to estimate the job substitution effects, and therefore the net employment gains, in the regional economy.
To address this issue, SGS developed a transparent and repeatable modelling process that estimates the costs and benefits, and therefore net benefits, of job creation in Australian regions. The model enables the net regional benefit of a project’s job creation to be calculated assuming the following inputs are provided by a project proponent:
- Number and timing of full time equivalent jobs created
- Composition of jobs by occupational category
- Average wage rates by occupational category.
The model estimates the ‘opportunity costs’ and ‘after tax earnings’ experienced each year into the future, reflecting the scaling up of a project’s employment, before discounting these annual streams of costs and benefits back to present day values using nominated discount rates.
