A Preliminary Review of Estimates used to compare employment in the British Columbia, Washington and Oregon forest industries- March 1996

TABLE OF CONTENTS

EXECUTIVE SUMMARY
INTRODUCTION

• 1.0 Is the estimate of 2.0 to 2.5 jobs per 1,000 m3 of timber harvested in Washington and Oregon correct?
• 2.0 Subject to correction as warranted, is the job ratio for Washington and Oregon a reasonable comparable for the BC forest industry?
• 2.1 A Comparable for the BC Coast Forest Industry?
• 2.2 A Comparable for the BC Interior Forest Industry?
• 2.2.1 Timber Harvesting
• 2.2.2 Solidwood Processing
• 2.2.3 Pulp and Paper Sector
• 2.2.4 Summary - BC Interior Forest Industry

END NOTES

EXECUTIVE SUMMARY

It has been suggested that 40,000 jobs could be created in B.C. by achieving the same ratio of employment per unit of timber harvested that is attributed to Washington and Oregon. This suggestion is based on estimates that attribute 2.0 to 2.5 jobs for each 1,000 m³ of timber harvested in Washington and Oregon and 1.4 jobs per 1,000 m³ of timber harvested in British Columbia.

KEY QUESTIONS

1. Is 2.0 to 2.5 the correct estimate of jobs per 1,000 m³ of timber harvested in Washington and Oregon?
2. Subject to such correction to that estimate as may be appropriate, is the ratio a reasonable comparable for the British Columbia forest industry?

ANSWERS

1. The estimate of 2.0 to 2.5 jobs per 1,000 m³ of timber harvested in Washington and Oregon overstates the correct ratio by at least 10 to 15 percent. Washington and Oregon import a considerable amount of fibre that generates employment in their forest industries. Once the employment dependent on imported fibre is accounted for, the correct ratio of jobs per 1,000 m³ of timber harvested in these states is in the range of 1.7 to 2.3, not 2.0 to 2.5.
2. The ratio for Washington and Oregon, as corrected, does not constitute a reasonable comparable for the B.C. forest industry as a whole. The B.C. forest industry has two distinct segments - the Coast and the Interior. The forest industry in Washington and Oregon can reasonably be compared to the Coast industry in B.C., but not to the B.C. Interior.

Employment in the Coast forest industry in B.C. is in the order of 2.0 to 2.3 jobs per 1,000 m³ of timber harvested, which is similar to the corrected estimate for Washington and Oregon of 1.7 to 2.3 jobs per 1,000 m³ of timber harvested.

The B.C. Interior’s timber types, geography, climate, distance from markets and other factors differ so markedly from those in much of Washington and Oregon that comparisons of employment per 1,000 m³ of timber harvested between these regions are not valid.

INTRODUCTION

It has been reported that some 40,000 jobs could be created in BC's forest industry if it were to achieve the same ratio of employees per 1,000 cubic metres of timber harvested as the forest industry in Washington and Oregon. This job creation estimate is based on a comparison of the 1.4 workers employed per 1,000 cubic metres (m3) of timber harvested in BC with an estimate of 2 to 2.5 for Washington and Oregon. 1

This raises two questions. First, is the ratio of jobs to 1,000 m3 of timber harvested for Washington and Oregon correct? Second, subject to such correction as may be appropriate, is the ratio for Washington and Oregon a reasonable comparable for the BC forest industry?

1.0 Is the estimate of 2.0 to 2.5 jobs per 1,000 m3 of timber harvested in Washington and Oregon correct?

A review of the available data indicates that the ratio of jobs to timber harvested for Washington and Oregon has not been calculated appropriately. It is based on a calculation in which all employment in timber harvesting, in solidwood production, and in pulp and paper production in Washington and Oregon in 1994 is attributed to the harvests in those states. 2

This calculation ignores the fact that employment in solidwood production and pulp and paper production is "enriched" by fibre imported from outside of Washington and Oregon.

Analysis of 1994 fibre balances indicates that imported fibre, in the form of logs for solidwood production and chips for pulp and paper production, accounts for some 10 to 15 percent of the total processed in Washington and Oregon in that year. In addition, recycled fibre accounted for some 16 to 25 percent of the fibre requirements of the pulp and paper sector 3. Some of this recycled fibre may originate from Washington or Oregon harvests, but not all of it. By failing to account for these imports, the total employment (timber harvesting, solidwood, pulp and paper) that can be attributed to timber harvested in Washington and Oregon is overstated by at least 10 to 15 percent.

Taking these imports into account in the calculation, the ratio is more properly in the order of 1.7 to 2.3 jobs per 1,000 m3 of timber harvested in Washington and Oregon.

2.0 Subject to correctionas warranted, is the job ratio for Washington and Oregon a reasonable comparable for the BC forest industry?

The adjusted ratio of 1.7 to 2.3 jobs per 1,000 m3 of timber harvested is not a reasonable comparable for the BC forest industry as a whole.

The BC forest industry consists of two markedly different industries - a Coast industry and an Interior industry. A search for a reasonable comparable for the BC forest industry must recognize these two different industries, and understand the "determining factors" that have shaped each.

The Coast and Interior forest industries have evolved quite differently, in response to the differing timber types, climate, geography, and distance from markets. The Ministry of Forests has always recognized this, and compiles data separately for the two regions. 4

The most recent estimates prepared by the Ministry of Forests indicate that for BC as a whole there are some 1.4 jobs per 1,000 m3 of timber harvested. 5

However, the Ministry data show that the estimate of 1.4 jobs per 1,000 m3 harvested for BC as a whole actually represents:

2.0 to 2.3 jobs per 1,000 m3 harvested on the Coast; and,

0.9 to 1.0 jobs per 1,000 m3 harvested in the Interior. 6

2.1 A Comparable for the BC Coast Forest Industry?

Trees on the BC Coast are generally larger than those in the Interior. The Coast industry is based on highly valued decorative wood products made from these large trees, with structural grades of lumber and pulp and paper products made from trees or parts of trees unsuitable for decoratives. The Coast industry enjoys relatively low cost water-borne transport access to its principal markets.

Similar basic determining factors shaped much of the forest industry in Washington and Oregon. Given these similarities, it is reasonable to use the estimate from Washington and Oregon, as appropriately adjusted above, in a comparison with the BC Coast forest industry.

When the adjusted estimate of 1.7 to 2.3 jobs per 1,000 m3 harvested for Washington and Oregon is compared to the estimate of 2.0 to 2.3 jobs per 1,000 m3 harvested for the BC Coast industry, the comparison suggests a rough equivalence in employment per unit of timber harvested.

2.2 A Comparable for the BC Interior Forest Industry?

In the Interior, tree species and characteristics are such that structural lumber is the dominant high quality and economic product, with lesser volumes of decorative product, and with by-product chips used in pulp manufacture. The Interior industry relies on rail and truck transport to move its products to relatively-distant markets.

These factors make the BC Interior forest industry significantly different from much of the Washington and Oregon industries. Not surprisingly, the industries have evolved quite differently, with respect to both the end products that they produce and the manner in which labour and capital are combined in production. The Washington and Oregon forest industries cannot be considered comparable to the BC Interior forest industry. The ratio of jobs per 1,000 m3 harvested in those states cannot, therefore, be used in a comparison with the Interior forest industry or to suggest a benchmark in terms of employment per unit of timber harvested.

2.2.1 Timber Harvesting

While harvesting conditions in the BC Interior are highly varied, a significant portion of Interior harvests consists of relatively small trees. These can be harvested and transported economically only with highly mechanized equipment. This, coupled with high wages, determines the relatively low overall labour input in Interior timber harvesting operations.

If these mechanized harvesting methods were not available to the Interior forest industry, it would have to either pay much less to industry workers, or concentrate on a much narrower profile of timber, in order to realize an economic return from the timber resource. The result would be either an industry of current size but with a much lower paid work force, or a much smaller industry.

2.2.2 Solidwood Processing

The timber input determines what can be produced by Interior solidwood processing plants. The species available in the Interior, and the large component of small trees in the harvests, limit the potential for milled product, as compared to the BC Coast or to Washington and Oregon. This relatively limited range of output must be sold in markets to which BC producers are often the most distant suppliers, thus facing the highest transport costs. To compete in these markets, timber must be processed as efficiently as possible. The cost of labour in BC has meant that primary processing plants must be highly mechanized in order to achieve least cost production and maximize net value added.

In the absence of the capital intensive methods used, the Interior processing industry could only be maintained if labour costs were much lower, or if a much more select portion of the available timber were processed. As with the harvesting sector, two end results are possible - an industry of its current size with a much less well paid work force 7, or a much smaller industry.

2.2.3 Pulp and Paper Sector

In comparison to the Coast, little paper is produced by the Interior industry, which primarily exports market pulp. As a result the employment in paper production that is realized on the Coast is not realized in the Interior, and overall employment per unit of harvest is lower in this sector.

Distance to markets that require truck and rail transport has a strong bearing on the decision to produce largely pulp in the Interior. Transport costs for Interior producers are such that they have little choice but to sell pulp, for which unit transport costs are much lower. In addition Coast paper producers have a distinct location advantage with respect to end product users within BC, which mitigates against paper production in the Interior.

2.2.4 Summary - BC Interior Forest Industry

The relatively low per unit labour input in the BC Interior forest industry results from the industry responding rationally to the economic opportunities afforded by the Interior forest resource. What the industry produces and the manner in which it combines capital and labour in doing so reflects the competitive forces it must contend with. These include its location and transport costs to principal markets, the cost of key inputs such as labour, and the quantity and type of timber available.

The determining factors noted above are such that BC's Interior forest industry is markedly different from that in Washington and Oregon. It follows that the comparison of employment per unit of timber harvested in BC's Interior forest industry with that of the industry in Washington and Oregon is inappropriate.

While comparisons with Washington and Oregon are not appropriate, analysts of the global forest products industry are generally of the view that if a key goal of public policy is to ensure that the forest industry provides high-paying jobs supporting British Columbia's high standard of living, the Interior industry's performance is highly satisfactory.

In terms of providing high paying employment opportunities, it should be noted that the Interior timber harvest supports some 50,000 direct forest industry jobs in the Interior, and a further 75,000 or more indirect and induced jobs throughout the province. Moreover, when the economic structure of the Interior is examined, the forest industry is found to provide more employment opportunities than any other basic sector industry. Recent socio-economic reports consistently indicate that the forest industry is the largest basic sector employer, accounting for from 35 to 65 percent of basic sector employment in individual forest regions, and variously providing from 3 to 10 times as much employment as the next largest basic sector industry. 8

END NOTES

1. See the Vancouver Sun, "Clark raises forestry job hopes", January 31, 1996; and the Times Colonist, "Forests could see 40,000 new jobs, Clark tells crowd", January 31, 1996.
   
   
2. The calculations are based on data from the United States Department of Agriculture, Forest Service, Resource Bulletin PNW-RB-210, September 1995, Production, Prices, Employment, and Trade in Northwest Forest Industries, First Quarter 1995.
   
   
3. Data for logs and chips from United States Department of Agriculture, Forest Service, Resource Bulletin PNW-RB-210, September 1995. Production, Prices, Employment, and Trade in Northwest Forest Industries, First Quarter 1995; estimates of recycled fibre from industry sources.
   
   
4. Economics and Trade Branch, Ministry of Forests. October 1993. The Economic Impacts of Timber Harvesting in British Columbia. The annual report The Forest Industry in British Columbia, published by Price Waterhouse, also distinguishes between the Coast and Interior in much of the data that are presented.
   
   
5. Economics and Trade Branch, Ministry of Forests. April 04, 1995. Table titled "Employment in the Forest Industry in B.C." Data for 1977 to 1994 revised in 1994.
   
   
6. Based on the distribution of employment between the Coast and Interior from the Ministry of Forests' 1993 report The Economic Impacts of Timber Harvesting in British Columbia, adjusted to reflect revisions to the data from the April 04, 1995 tabulation. See footnotes 4 and 5, respectively.
   
   
7. For example, workers in the remanufacturing or value-added sector, which is more labour intensive, receive lower remuneration than those in the more mechanized primary processing plants. Total compensation per employee in the value-added sector is estimated at $37,400, versus $59,100 for employees in the balance of the industry. See Price Waterhouse, The Forest Industry in British Columbia 1994, Table 9.
   
   
8. See various reports, such as the 1994 Okanagan Timber Supply Area Socio-Economic Analysis, completed by and for the Ministry of Forests as part of its province-wide Timber Supply Review. Basic sector industries are defined as those which are the "driving force" in the economy and on which other industries depend for markets for their goods and services.