If Each New Job Creates 3-5 Other New Jobs, Does Each Job Lost Create 3-5 Added Losses?

The news from the J.R. Simplot Wednesday is bad any way you look at it. Loss of up to 1,000 jobs and closure of potato processing plants in Aberdeen and Nampa is not anyone’s idea of holiday cheer.

It’s even worse using any of the gushingly optimistic estimates about “job creation” related to the new Greek Yogurt plant about to be built at Twin Falls. Here is an excerpt from a Twin Falls Times-News newspaper editorial:

“And before you know it, the 7.57 multiplier similar to that of a cheese manufacturer can parlay the economic benefit of 400 new jobs into a number closer to 3,000.”

Even if a potato processing plant has only a 2-4 multiplier, it’s reasonable to conclude the closure of the Simplot french fry plants would put another 3,000 Idaho workers on unemployment. The Idaho Dept. of Labor tells the GUARDIAN the official multiplier for that industry is close to 3.

Our point is new businesses seldom live up to projected economic benefits. Likewise, while closures are never good, they are seldom as bad as projected. Prior to the Simplot announcement, Gov. Butch Otter told a radio audience each of the 400 jobs at the yogurt plant create an additional 7 jobs. A former Simplot executive and family member himself, Guv Butch will have a hard time defending claims that loss of 1,000 jobs at the closed plants won’t mean 3,000 additional job losses.

Simplot simply can’t sell all the french fries (a style of fried potato, not really from France) it has the capacity to produce. Tastes are changing. Greek yogurt (a style of yogurt, not really from Greece) is all the rage among certain cultures.

It took an act of congress to get potatoes back on the school lunch menu approved by the U.S. Government. Our famous potato is being maligned by health enthusiasts and the USDA.

Like the Potato Famine in Ireland (1845-1852), our dependence on the underground tuber is causing hard times for Idahoans.

This excerpt from Wikipedia sounds all to familiar: “the impact and human cost in Ireland – where one-third of the population was entirely dependent on the potato for food – was exacerbated by a host of political, social and economic factors which remain the subject of historical debate.”

Comments & Discussion

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  1. I feel for the city of Aberdeen. The Simplot plant is one of those “life blood” enterprises. Aberdeen will become a more economically depressed area than it already is.

    The Nampa plant is fairly modern but the Achilles heel of that facility is waste water disposal. They are hooked up to the city sewer and like the Birdseye plants of the 1970’s the profit margins and costs of sewage along with the Stormwater fees means party over for this facility.

    The good news, if there is any, is Caldwell will get the new plant project. This plant has plenty of capacity for waste water treatment on all the property north of Hwy 19.

    A loss of 800 or more jobs to a State like Idaho is a sizable hit to the economy. Perhaps world demand for food and the products produced here will give agriculture a renascence and a better deal for Idaho farmers.

  2. The only FF I ever liked was at McD’s before they changed away from that nasty old fatty cooking oil a few years ago.

    You can bet if something is done right, the government will mess with it until it fails.

  3. I am not an economist, but if I remember correctly, the mulitplier effect has its roots in Keynesian economics and applies only to government spending. It is now considered to be debatable.. not hard fact. Any time you hear someone use a multiplier at a local level, you can bet it comes from someone with a bias and that it has little basis in fact. That goes for the yogurt plant, the new store in town, the train to nowhere, or the events like the triathlon, river festival, horse racing, fair, etc.

  4. I spoke with an agricultural economist at the University of Idaho who said the multiplier effect’s far lower than 5.0, but that, yes, Aberdeen will feel the hurt.

  5. “Multiplier effect” and interest rates
    Main article: Spending multiplier
    Two aspects of Keynes’ model had implications for policy:
    First, there is the “Keynesian multiplier”, first developed by Richard F. Kahn in 1931. Exogenous increases in spending, such as an increase in government outlays, increases total spending by a multiple of that increase. A government could stimulate a great deal of new production with a modest outlay if:
    The people who receive this money then spend most on consumption goods and save the rest.
    This extra spending allows businesses to hire more people and pay them, which in turn allows a further increase consumer spending.

    This process continues. At each step, the increase in spending is smaller than in the previous step, so that the multiplier process tapers off and allows the attainment of an equilibrium. This story is modified and moderated if we move beyond a “closed economy” and bring in the role of taxation: The rise in imports and tax payments at each step reduces the amount of induced consumer spending and the size of the multiplier effect.

    Second, Keynes re-analyzed the effect of the interest rate on investment. In the classical model, the supply of funds (saving) determined the amount of fixed business investment. That is, since all savings was placed in banks, and all business investors in need of borrowed funds went to banks, the amount of savings determined the amount that was available to invest.

    To Keynes, the amount of investment was determined independently by long-term profit expectations and, to a lesser extent, the interest rate. The latter opens the possibility of regulating the economy through money supply changes, via monetary policy. Under conditions such as the Great Depression, Keynes argued that this approach would be relatively ineffective compared to fiscal policy. But, during more “normal” times, monetary expansion can stimulate the economy

  6. So this multiplier effect explains why so many communities are thriving when Wal-Mart moves in and creates (They are job creators after all!)so many great jobs.
    Thanks you guys, for reminding me of this. We need to support our job creators. Perhaps Aberdeen should consider getting a Wal-Mart to replace the Simplot plant.

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