Methodology for Assessing the Impact of Major Projects on Employment

Sara Savastano, UVAL

sara.savastano@tesoro.it

Methodology for Assessing the Impact of Major Projects on Employment

•OBJECTIVES

•To make and ex ante evaluationex ante evaluation of employment impact of Major Projects (COUNCIL REGULATION 1260/1999 Art. 25/26)

•To take better account of employment impact of major projects at the early stage of the decision making process during the preparation of the project proposal

•To help member states and/or the managing authorities, by means of an user friendly procedure, estimating and evaluating the composition of the labour demand in a major project financed by the EU.

MOTIVATIONS

•Lack of information, on the feasibility studies prepared by Italian managing authorities, upon the relation between major projects and job creation

•Delay in the approval process by the services of the European Commission: request of comments and integrations especially on this topic

•As a matter of fact, in the Special Issue of the Annual Report 12/2001 of the European Court of Auditors, there is evidence of difficulty in evaluating impact of communitarian programmes on employment

Major Projects

Definition Major Projects:Art. 25 of the Council Regulation 1260/1999 of June 21st states: The Structural Funds may finance expenditure in respect of major projects, i.e. those:

a) which comprise an economically indivisible seriesof works fulfilling a precise technical function andwhich have clearly identified aims; andb) whose total cost taken into account in determiningthe contribution of the Funds exceeds 50 Million EURO.

Different type of MP

Infrastructure investment

Productive investmentTransport

Infrastructure

Other Public Infrastructure

Private Structure for services and

goods production

Major Projects

30 MP presented by MA to EU from 2002•9 part of the Transport National Operational Program •7 part of Regional Operational Program SICILY•6 part of Regional Operational Program CAMPANIA•5 part of Regional Operational Program PUGLIA•2 part of Regional Operational Program CALABRIA•1 part of Regional Operational Program SARDEGNA

At April 2006 only 7 fully approved

Council Regulation 1260/1999 Guide CBA and Orientation Note

Approval or m otivated refusal

Approval

SuspendedRequest o f additional in form ation

to MC or MA

Outcom e of the evaluation process

European Com missionAnalysis of the docum entation receivedInternal consultation w ith other services

C onsultation w ith E IB (eventually)

MC/MA Prepare:technical, financial, econom ic and environm ental assessm ent

F ill the Large Pro ject Form and send to EC

Mem ber Countries (MC)or

Managing Authorities (MA)

Iter of Approval

Iter of Approval

•Comments on the procedural aspect (lack of documentationon specific topics, authorizations, concerning the implementation of the project)

•Technical Comments: (Demand Analysis, Sensitivity and risk Analysis, Economic Analysis, Financial Analysis, Environmental Impact, Territorial Impact AnalysisEmployment Impact Analysis)

MP and Employment (2)

Impact of Major Projects on employment:Art. 26 ….the member states or the managing authorities shall provide an ex ante evaluation of the contribution to the major project on employment. In particular:

a) the direct and indirect effects on the employmentsituation, as far as possible in the Community;b) The Commission shall appraise the project,consulting the EIB if necessary, in the light of theexpected economic and social benefits, particularly interms of employment, having regard to the financialresources deployed

Employment Data and MP: Theory versus Practice

THEORYTHEORY:Specific surveys on construction firms: data on demand and supply of labour in each sector of interestExample: Survey on construction firms of public infrastructure:•Past employment conditions•Individual characteristics of employees (age, sex, education)•Average wages received (actual and past)•Sector of origin •Geographical mobility (on the local, national and European market)•Sectoral mobility•Recruitment strategy of the firms involved in the project

Employment Data and MP: Theory versus Practice

PRACTICEPRACTICE

•Unavailability of firm data and labour data at the sector level (construction of roads, railways, airports, container terminals, etc…)•Italian Institutions who collect data on construction firms do not have data disaggregated on specific public infrastructures •Construction sector in Italy encompasses public work and building construction: difficulty to compute the relative contribution to employment.

Employment Data and MP:Proposed Solution

• In our methodology we use the national quarterly labour force survey (RTFL) carried out by the Istat - the national statistics institute -,

• RTFL provides population estimates for the main labour market characteristics, such as employment, unemployment, inactivity, hours of work…

RTFL and ILO

• Active PopulationActive Population1. Employed persons are all

persons who during the reference week worked at least one hour for pay or profit, or were temporarily absent from such work.

2. Unemployed persons are all persons who were not employed during the reference week, had actively sought work during the past four weeks and were ready to begin working immediately or within two weeks

• Inactive PopulationInactive Populationare all persons who are classified neither as employed nor unemployed.

Italian Quarterly Labour Force Survey

• The matrix reports the entrance, exit, and permanence of the labour force in the labour market. It is therefore possible to compute the probability of transition between employment state.

• It summarizes the composition of the labour demand (employed at a specific date where previously employed, unemployed or inactive)

• The strongly underline assumptionstrongly underline assumption is that the project under analysis has only marginal effect on the overall economy, and therefore, the composition of the employment follows the aggregate level of employment

Italian Quarterly Labour Force Survey

Final Period t+1

Employed

Initial Period t

Employed N1

Unemployed N2

Inactive N3

Total t+1 TOt+1

Italian Quarterly Labour Force Survey

N1/TOt+1= % of employed in t+1 already employed;

N2/TOt+1= % of employed in t+1 previously unemployed

N3/TOt+1= % of employed in t+1 previously inactive.

Italian Quarterly Labour Force Survey1998-2002

Employment Composition

1998/1999 1999/2000 2000/2001 2001/2002 Average in the period

95/02 Employed 89.97% 91.11% 90.33% 91.22% 90.66% Unemployed 4.66% 4.00% 3.91% 3.24% 3.95% Inactive 5.37% 4.89% 5.76% 5.54% 5.39% Total 100.00% 100.00% 100.00% 100.00% 100.00%

Methodology Procedure (1)

• Based on RTFL we have prepared an excel spreadsheet that MC/MA will complete.

• User friendly procedure to compute employment composition during the construction and operational phases

• Common methodology for all MP => advantage of comparability

• MC/MA have to fill only few cells and comment the results based on territorial, sectoral and labour market context

Methodology Procedure (2)

• What does the methodology compute:• Direct and Indirect Employment Composition of

skilledskilled and unskilledunskilled workers based on their previous employment activity (employed, unemployed or inactive)

• The hypothesis is that skilled workersskilled workers were already employedemployed in other activities.

• Unskilled workersUnskilled workers are divided into previous employed, unemployed and inactiveemployed, unemployed and inactive workers based on the share computed from the RTFL

Methodology Procedure (3)

• WhatWhat and WhereWhere are the data to use:• Engineers and technical project analysts

will estimate the amount of workers needed divided into skilled and unskilled workers during the construction and the operational period.

• By filling a few cells of the excel spreadsheet the results are computed automatic

Methodology Procedure Example

Composition Skilled

Workers: Employed

Unskilled Workers: Employed

Unskilled Workers:

Unemployed

Unskilled Workers: I nactive

Construction Period

45 70% 30%

Employment composition

90.66% 3.65% 5.39%

Operational Period

55% 50% 50%

Employment composition

90.66% 3.65% 5.39%

From RTFL

From RTFL

Only cells to fill

Table 1: hypothesis

Composition Skilled

Workers: Employed

Unskilled Workers: Employed

Unskilled Workers:

Unemployed

Unskilled Workers: I nactive

Total J obs: Construction Period

75% 70% 30%

Employment composition

90.66% 3.65% 5.39%

Operational Period 25% 50% 50% Employment composition

90.66% 3.65% 5.39%

Table 2: Direct Number of J obs created

Unit Skilled

Workers: Employed

Unskilled Workers: Employed

Unskilled Workers:

Unemployed

Unskilled Workers: I nactive

Total J obs: Construction Phase

1585

Employment composition

713 499 194 8 12

Time (years of operation)

4

Nb. of jobs created/year

178 125 48 2 3

Operational Phase 550 Employment composition

303 212 82 3 5

Time (years of operation)

25

Nb. of jobs created/year

12 8 3 0 0

Potential and Limitations

• POTENTIALPOTENTIAL

1. User friendly procedure

2. Use the best data available

3. Comparability

4. Discussed with EU

• LIMITATIONSLIMITATIONS

1. Use national data instead of regional ones

2. Same procedure for direct and indirect job creation

Specific Next Steps

• Use Input Output Procedure to compute indirect effect

• At the moment we have the procedure using national input output matrix

• We are involved in a project for the regionalization of the input output matrix