Direct, indirect and induced categories are part of terminology used in economic input-output models, explains Weimin Wang, senior research economist with Statistics Canada.
Wang is the author of a July 2020 Statistics Canada report that estimates the economic impact of the potential decline in production and investment in the oil and gas industry due to recent shocks in oil prices.
“For a million dollar increase or decrease in the sector’s output, the number of jobs in the sector will increase (decrease) by 0.831 (direct impact), and associated indirect and induced impact on the number of jobs would be 3.2225 and 1.69, respectively,” Wang told the Canadian Energy Centre by email.
The ripple effect pattern is roughly the same for job creation as for job loss, he said.
A 2017 report by the Canadian Energy Research Institute (CERI) found similarly; that every direct job created in oil and gas creates two indirect and three induced jobs on average.
A “direct” job in oil and gas is what it sounds like — employment that is directly linked to the production of oil and gas. This includes jobs like drilling, engineering, supply chain, regulatory affairs and stakeholder engagement. According to Statistics Canada’s most recent data, in 2016 there were 202,171 Canadians directly employed in oil and gas.
CERI describes “indirect” jobs as those involved in the production of intermediate goods and services to support oil and gas production. Rather than employees in the oil and gas sector, these are employees of suppliers to the oil and gas sector in industries ranging from engineering and manufacturing to finance and insurance, CERI says. Statistics Canada says that in 2016 there were 338,446 Canadians employed indirectly by oil and gas.
CERI vice-president Dinara Millington says that induced jobs are created when households that receive income from direct or indirect employment in oil and gas spend their money.
Induced employment usually manifests in industries such as wholesale and retail trade, education, medical services, and activities that are generated by household spending on additional goods and services, she says.]
“That spending has to be supported by some sort of activity where there’s another job, whether that’s a taxi driver or a grocery store clerk or Tim Horton’s counter cashier. It’s that next tranche of the jobs that are outside of the sector directly,” Millington says.
Oil and gas may create more induced jobs than other sectors because of higher wages, she says. Canadian Energy Centre research found that in 2018, average weekly earnings in oil and gas extraction were $2,727 compared to $1,025 in motor vehicle parts manufacturing and $1,435 in aerospace product and parts manufacturing.
Millington says “the average wage rates are higher in oil and gas, and so by that rationale you could say that those households are in receivership of higher incomes, which means they potentially will generate higher economic activity by spending more money.”