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The Myth of STEM Degrees: STEM as the Canary in the Coal Mine

What follow is a guest blog post from Glenn Burley:

If Science, Technology, Engineering and Mathematics (STEM) and professional fields like medicine, law, and dentistry are the so-called golden ticket to a good job in today’s labour market, what does that say about the current and future health of our economy?

The myth of the ‘skills gap’ in Canada is persistent. Along with increasing levels of student debt and a labour market in which good jobs are increasingly hard to find—especially for young people—this myth leads public discussion on employment to blaming individuals for their education choices. According to some, the only way to secure a decent job and address the labour market’s ‘skills gap’ is by studying in STEM fields.

Despite numerous contradictory reports, and even a degree of government back-pedaling, the skills gap narrative continues to hold considerable weight in public discourse. Most attempts to dispel the myth focus on general employment trends, noting a lack of wage evidence for a shortage of these qualifications, but not heavily focusing on the wage story.

The myth is also driving post-secondary education policies under the guise of encouraging students to study in fields that will “guarantee good jobs and high wages” and is used to justify significant year over year increases to tuition fees in STEM and professional programs (law, dentistry, medicine, etc.). In an attempt to dispel this myth, let’s tackle both arguments by looking at the actual wages these fields have earned from 1997 to 2013, as this was the largest set of data available at that time from the Labour Force Survey (LFS).

I relied on custom LFS data, which provided the median hourly wages for the most specific and closely related National Occupation Classifications (NOC-S), from 1997 to 2013 to the STEM and professional fields I was interested in:

  • C01: Physical Science Professionals
  • C02: Life Science Professionals
  • C03: Civil, Mechanical, Electrical, and Chemical Engineers
  • C06: Mathematicians, Statisticians, and Actuaries
  • C07: Computer and Information Systems Professionals
  • E01: Judges, Lawyers, and Quebec Notaries
  • D0-D1: Professional Occupations in Health, Nurse Supervisors, and Registered Nurses (more focused data for doctors and dentists were not available)

Starting out, I assumed both that incomes in STEM fields would be increasing fairly consistently and that these increases would be surpassed somewhat by increases in tuition fees. While I was largely correct in the tuition vs. wages assumption, it turned out the wage data on its own tells some very interesting stories.

Three clear points have emerged from the data:

  • Tuition fee increases are outpacing wage gains
  • There are cases where STEM and professional fields have seen their wages decrease when adjusted for inflation
  • Income inequality within the STEM and professional fields is very significant, but the general narrative about these fields assumes that everyone ends up in the top 10%

Taken as a whole, I believe the data show that the push for more STEM degrees is not only exaggerated, but highlights the poor short-term and long-term employment prospects for Canadian youth.

 

Tuition Fees

As public funding for post-secondary is eroded, the costs have been downloaded onto individuals through user fees. In most provinces, tuition fees increase annually at rates well above inflation for STEM and professional programs.

Between 1997 and 2013, tuition fees for these programs increased by between 38% (general science) and 202% (dentistry). These figures are national averages that have been adjusted for inflation.

Tuition fees in math and technology remain among the lowest in the fields examined (59.4% increase), mainly due to their more ‘core’ nature. Engineering, with one foot in the STEM pool and the other in the ‘professional field’ pool, has seen larger increases (69.8%) than the other STEM fields, but not nearly as much as other professional programs.

Medicine, dentistry, and law, with their largely unregulated tuition fees, have seen unparalleled increases. In 2013-14, the national average for a year of law school was just over $10,000 (up 156.4%); a year of medical school was over $12,000 (up 137.7%); and a year of dentistry school was over $17,000. These figures do not include ancillary, lab, or equipment fees, which can be upwards of $10,000 per year at some schools; let alone the cost of living.

 

Wages Since the Recession

We still often hear that if you get a STEM degree, you’ve got a golden ticket in today’s economy. Professional fields are generally thought of as safe ways to earn high salaries. These ideas are used to excuse ever-increasing tuition fees for these programs, because—the argument goes—it’s no big deal, you’ll more than earn it back!

The reality is that, since the recession, wages in these fields are not that golden.

In the physical sciences, national median wages have increased by an average of 11.9% when adjusted for inflation. However, this figure hides two of the most surprising figures I encountered: Since 2008, median wages in the physical sciences have decreased in both Alberta and British Columbia, by 2.5% and 21.4%, respectively.

The changes to the national median wages for the remaining fields examined, from 2007 to 2013 (pre-recession), and 2008 to 2013 (during the recession), adjusted for inflation are as follows:

  • Life Sciences: +1.2%, +2.8%
  • Technology: -0.5%, -0.4%
  • Engineering: +6.3%, +8.8%
  • Math: +35.8%, +21.4%
  • Medicine: +6.1%, +4.2%
  • Dentistry: +6.1%, +4.2%
  • Law: +6.8%, +8.1%

 

Wage Inequality

Stagnation and decreases in wages since the recession don’t necessarily mean the wages are low. The Canada Job Bank, which uses outdated information, provides a low, median, and high wage point for employment classifications used in the LFS. The ‘low’ refers to the 10th percentile, median is the 50th, and ‘high’ is the 90th.

While not perfect, let’s consider the 10th percentile (a.k.a. low wage, a.k.a. median of the bottom 20%) as an “entry level” wage. Unsurprisingly, these “entry-level wages,” both at national and provincial levels, are much lower than the wages that get talked about as part of the “golden ticket” narrative.

In 2013, “entry level” wages for these fields ranged from a low of $36,380 in Life Sciences to a high of $58,874 in Math. If someone graduates with above-average student debt, wages in this range can get a person close to qualifying for the Repayment Assistance Program—the program designed by the Canada Student Loans Program to help graduates who have difficulty repaying their loans.

Median wages at the national level ranged from a low of $67,787 in Physical Science, to a high of $115,850 as a Doctor/Dentist. While aligning a little more closely with the public narrative, even the median wages in these fields can come up well short of the “advertised” promise.

The most notable finding was just how far the top 10% of earners in the fields were from even the median earners. The top 10% of wages in the fields ranged from $113,790 in Life Sciences, to $340,917 in Medicine/Dentistry. While these wage figures are much more in line with the promises being made to young Canadians, they are obviously far from the norm.

When the high wages were compared to the median wages, the level of wage inequality is quite apparent. In Law and Technology, high earners earned approximately 58% more than median earners, and had the lowest level of inequality. At the other end, high earning dentists and doctors earned 194% more than the median.

Not only is the narrative misleading young Canadians into thinking they’ll walk into top earning wages in their field, it fails to mention that those top wages are far from the reality for the majority of workers in those fields.

 

STEM as the Canary in the Mine

After reviewing the data, I was left with a question: if these fields are truly the best fields for young Canadians to enter, what does that say about the state of our economy?

In almost all of the fields examined, wage decreases since the recession are visible in at least one province—and in one case, the national median has decreased. In almost all cases, this misleading narrative advertises a wage that is only earned by people in the top of the field. In almost all cases, income inequality within the field is significant.

With the increasing costs needed to get the credentials to enter these fields—not to mention that some of these fields require graduate degrees to obtain some of the best-paying jobs—and with the growing prevalence of precarious employment, a troubling trend becomes evident.

Based on the data, it’s becoming clear that we may have more than a “skills gap” myth to dispel; we may have an “economic recovery” myth as well.

Economics for Everyone: Second Edition

This week marks the official publication release of the second edition of Economics for Everyone: A Short Guide to the Economics of Capitalism.  In this blog I explain my motivations in writing the book, and promoting critical economic literacy more generally; the commentary was originally published by Pluto Books (the international publisher).  The book is released in Canada by the Canadian Centre for Policy Alternatives, and is available for purchase here: http://economicsforeveryone.ca/buy-book/. The e4e website contains many free resources and teaching materials for anyone who wants to undertake their own course in popular economics. Read more »

Energy and climate in the Harper decade

The costs of climate change are piling up, and can no longer be ignored. 2015 is poised to be a landmark year, with a new global treaty on climate to be signed in Paris. In contrast, the Harper decade succeeded in stalling any meaningful climate action. The PM’s record is not just of neglect, but of moving the yardsticks backwards in both the international arena and within Canada.

Climate change is primarily caused by human use of fossil fuels (coal, oil and natural gas) for energy, whereas extraction and export of those fossil fuels is central to the Harper government’s economic strategy. With political roots in Alberta and the oil patch, it is no surprise that the Harper government champions the oil sands.

In its minority days, the Harper government felt obliged to at least pay lip service to climate change. In 2007, then Environment Minister John Baird released “Turning the Corner: An Action Plan to Reduce Greenhouse Gases and Air Pollution,” which promised “tough industrial regulations.”

No such regulations have yet to appear for oil and gas, the source of one-quarter of Canada’s industrial and commercial GHG emissions. At best, one can point to the transportation sector, where the Harper government has followed the lead of the Obama administration’s higher fuel efficiency standards for vehicles. Measures to address pollution from coal-fired electricity generation, on the other hand, carve out existing plants from any action until 2030.

If anything, climate policies have provided the PM a well-spring of rhetorical attacks. During the 2008 election campaign Harper took aim at Liberal leader Stephan Dion’s proposal for a carbon tax, calling it a “tax on everything” that would “screw everybody across the country.” With new attention on climate change in 2015, the PM recently returned to script, calling carbon pricing a “tax grab,” thus framing the preferred climate action instrument of many in small-government, anti-tax terms.

Within months of achieving a majority government, PM Harper pulled Canada out of the Kyoto Accord, a move that undermined the first global treaty aimed at constraining carbon emissions. More recently, in the lead-up to the Paris climate conference, Canada could not be bothered to meet a deadline for submitting greenhouse gas reduction targets.

One of the Harper government’s top foreign policy goals has been to seek approval of the Keystone XL pipeline through the United States. Amid popular resistance and delays from the Obama administration, the Harper government battled for new pipelines to the BC coast, to supply the Chinese market. Then-Natural-Resources minister Joe Oliver defined this as “an urgent matter of Canada’s national interest” in an open letter that smeared concerned citizens as radicals in the service of US interests.

If anything, Oliver’s letter in early 2012 appears to have backfired, triggering widespread opposition in BC to pipelines and tankers, most notably Enbridge’s Northern Gateway project. The Harper government’s response has been to up the ante, approving the project, while using Canada Revenue Agency audits to intimidate critics in the environmental movement and beyond (my organization has also been singled out for audit).

Contrary views were also silenced. National Energy Board reviews of fossil fuel mega-projects no longer welcome public input, and in any event are not subject to scrutiny with regard to their climate impact. The National Roundtable on the Environment and the Economy, which had a habit of pointing out the credibility gap between government rhetoric and action, was shut down.

PM Harper’s record is thus one of relentlessly tearing down barriers to new fossil fuel development. This is perhaps best characterized by the 2012 omnibus bill, which among other things, dismantled environmental regulations that might affect oil sands growth, and accelerated approval processes for new pipeline and tanker projects.

In the courts, the Harper government has fought tooth and nail against the legal challenges posed by First Nations affected by oil sands development. However, fierce opposition from First Nations may be the undoing of Harper’s oil sands ambitions, as their rights are constitutional in nature and cannot be over-run by fiat.

More potent than pipeline protests, the collapse of oil prices starting in July 2014 dealt a critical blow to Harper’s economic plan. Saudi Arabia’s decision to no longer constrain production, and thus let world oil prices fall, has exposed Canada’s weakness as a high-cost producer.

Another looming shift will come from action on climate change, with an estimated four-fifths of Canada’s proven oil reserves needing to stay underground. The fossil fuel divestment movement is also having an impact, making fossil fuels into the new tobacco, and challenging a business model incompatible with a habitable planet.

Energy and climate have been central to the story of the Harper decade. In the end, history may render PM Harper’s central strategy of making Canada an “energy superpower” a failure.

Wages: Up, Down, or Sideways?

We’re coming up to a Federal Election, and one where “The Economy” will likely be a central battlefield. As such, we’re going to hear many claims and counter-claims that support the view that Stephen Harper is either the Greatest or Worst Prime Minister ever.

One point of contention is wages. Part of the problem are the units of measurement and analysis – hourly, weekly, or annual earnings, total vs. market income, median vs. average. So this post is a bit of a stream of conciousness graphing of the ways that we measure income, and what that means.

Weekly Wages

We often see graphs of total average wages, rather than median wages or other distributional analysis.

By both the Labour Force Survey (self-reported) and the Survey of Employment and Hours (payroll data), average wages have risen consistently since 2001 (as far back as this iteration of SEPH goes).

SEPH LFS

(Note, this is an index where 2001 = 100).

When we look at all wages, we miss some important dynamics – women’s labour force participation and education rates have dramatically changed over the past 30 years. So that’s going to have an impact on wages. This isn’t a new observation, but it’s often overlooked. SEPH tables don’t disaggregate based on sex, though, so this analysis is often missing. (At least sex isn’t available from the free tables on CANSIM).

Annual Earnings

Annual median earnings only goes up to 2011, because SLID has been replaced (sigh). Still, what it shows is falling annual earnings for men in the middle of the income distribution, and only modest increases for women.

SLID earnings

 

Have taxes and transfers helped? For sure. We still see pretty stagnant income for men in the middle of the distribution, but a more significant increase for women.

TotalincomeSLID

 

Note that total income in SLID includes EI, Worker’s Comp., Social Assistance, inheritance, returns on investments, pensions, as well as gov’t transfers such as GIS or the Canada Child Tax Benefit.

Full Year Full Time Workers

One other major difference between weekly earnings and annual earnings is whether or not you collect that money every week for the whole year. SLID gives us a picture of what proportion of workers were employed full-time for the whole year.

FYFT

Since the 1990’s there has been a decline in the proportion of workers who work full-time for the whole year, again, more pronounced for men.

Median vs. Average

The second issue is that averages obscure growing inequality. Following the recession of the 1990’s, there was a marked divergence in men’s average and median annual earnings.

mensavgmed

 

Women’s average and median annual earnings have diverged as well, but here the median is experiencing growth, just at a slower pace than those at the top.

SLID women

 

The final word?

Men’s wages have definitely stagnated, and household income boosts from women earning more and working more may be near an end. Also: inequality matters.

Quintiles

CANSIM 202-0707

(Note on how Statistics Canada arrives at this measure: In order to take into account the economies of scale present in larger households, the household after-tax income is transformed to express the household after-tax income per adult equivalent. All the persons of the population are ranked from lowest to highest by the value of their adjusted household after-tax income. Then, the ranked population is divided into five groups of equal numbers of units, called quintiles.)

Note: All graphs are adjusted for inflation.

Inequality, the Financial Crisis and Stagnation: Competing Stories and Why They Matter

Inequality, the Financial Crisis and Stagnation: Competing Stories and Why They Matter

Thomas Palley
There exists several mainstream explanations of the financial crisis and stagnation, each explaianing the role they respectively attribute to income inequality. Those explanations contrast deeply with a structural Keynesian explanation of the crisis. The role of income inequality also differs substantially, giving rise to very different policy recommendations. That highlights the critical importance of economic theory, which shapes the way we understand the world, thereby shaping how we respond to it. The theoretical narrative we adopt therefore implicitly shapes policy. That observation applies forcefully to the issue of income inequality, the financial crisis and stagnation, making it critical we get the story right.
See full paper here.

The slow transformation of the IMF

Louis-Philippe Rochon
Associate Professor, Laurentian University
Co-Editor, Review of Keynesian Economics

In its recent report released in early June, the International Monetary Fund (IMF) has made some startling policy announcements: given the general depressed economic condition in the world economy, now is not the time to pay down the national debt if that implies sacrificing economic growth. This advice was aimed notably at Canada: worry about deficits later.

This is quite a remarkable statement from an institution that is better known for defending austerity and so-called neo-liberal policies of free markets. Indeed, in the 1990s, the IMF tied financial aid to many developing countries to the adoption of a series of specific neo-liberal policies that imposed harsh reforms on them that only worsened their already fragile economies.

Read more »

Judging the Odds for an “Election Recession”

Canada’s first-quarter GDP report was not just “atrocious,” as predicted by Stephen Poloz.  It was downright negative: total real GDP shrank at an annualized rate of 0.6% (fastest pace of decline since the 2008-09 recession).  Nominal GDP fell faster (annualized rate of 3%), as deflation took hold across the broader production economy (led, of course, by energy prices).

This sets the stage for a politically explosive second-quarter report, which will be released by Statistics Canada on September 1.  The official definition of a recession is two consecutive quarters of negative real GDP growth.  This definition, of course, is utterly arbitrary: it can feel like a recession in the economy (with rising unemployment, poverty, and pessimism) even if real GDP is sluggishly expanding.  Nevertheless, if the second quarter number is also negative, then by that conventional definition, Canada will be in a recession — just in time for the federal election campaign.

What are the chances of that happening?  Here I parse the odds: Read more »

Climate Justice and the Good Life, for Everyone

In our Climate Justice Project, our research has stressed structural changes and collective action to lower carbon footprints rather than individual behavioural change. The ability of many actors to respond to incentives like a carbon tax is constrained by their circumstances. Suburban households often have no realistic option but to keep driving. Renters have little agency over energy efficiency investments where they live. Even for concerned homeowners, the area of energy efficiency is plagued by market failures in information, such that profitable investments often go unrealized in favour of the status quo.

We also make the case that effective and fair climate action is also good industrial and employment policy. There is lots of work that needs to be done, and this should be embraced as part of a national project. We advocate divestment from fossil fuels and re-investment in green infrastructure and services. Done well, the shift off of fossil fuels can provide additional benefits in terms of health and well-being, economic security and much lower inequality.

A growing body of research into well-being and happiness tells us to look beyond money and consumption. While income matters a great deal at lower levels – when one is poor, a little money makes a big difference – but once basic needs are met, higher income does not necessarily translate into gains in happiness. Research points to substantial benefits to be had from a more equitable distribution of wealth – inequality manifests in weaker performance on a range of social and health indicators. Social fairness in terms of income and employment distribution may, in fact, be vital for achieving the changes required for a transition to a sustainable economy.

Some key insights into well-being relevant to a new conception of “the good life” include (key references at end):

Full employment and decent work – Unemployment has been shown to have huge negative consequences for our well-being, and is one of the biggest sources of unhappiness. Even the employed in a society are unhappier in an economy with high unemployment, particularly those with weak job security. The quality of the work we do also affects our well-being because it gives us purpose, a challenge and opportunities to develop relationships with others. Work not only provides income, but it helps to sustain social relationships. Thus, full employment policies offer gains that span across having work, decent income, and reduced social inequality, and a green jobs program that promotes work that has meaning and purpose is precisely the type of work that contributes to higher levels of well-being.

Time use and work-life balance – Finding a suitable balance between work and life is a real challenge for Canadians, and especially so for working parents. The amount and quality of leisure time is important for well-being, due to physical and mental health benefits, whereas long work hours may harm our health and increase stress. Time pressures from work can also reduce time available to families, for caring work and volunteering. Increased sharing of work and reduced work hours could both reduce unemployment and increase leisure time. Saving time from reducing long commutes can also liberate time and increase well-being.

Community and social cohesion – The most important sources of happiness seem to include having close relationships with family and friends, helping others, and being active in community, charitable, and political activities. In large urban areas, participation in community and thus the ability to psychologically flourish can be constrained by social isolation and loneliness. Countries with a high degree of social equality, trust, and good governance show to be the happiest in the world. In fact, the quality of governance and the rule of law matter more for life satisfaction than a household’s income. Investment in public goods and infrastructure (broadly defined to include access to nature/parks, arts and sports facilities, and other public spaces) can encourage more social cohesion, suggesting that we must renew our sense of public space and invest time and money in shared goals for healthy social participation.

These findings have led to a growing understanding that too narrow a focus on GDP is a flawed approach to well-being. One major report to the French government from two Nobel laureates in economics argues that progress should be understood by assessing a diverse array of well-being indicators to capture a more comprehensive understanding of people’s lives, spanning key areas of: health, education, environment, employment, material comfort, interpersonal connectedness and political engagement.

The Canadian Index for Wellbeing (CIW) was launched only recently in 2010 as a counterweight to the gross domestic product numbers. It aims to measure and track the quality of life of Canadians and is comprised of 64 indicators. The CIW has demonstrated that Canadians’ quality of life has not kept pace with the country’s economic growth from 1994 to 2008, where although GDP grew 31%, CIW rose only 11% in the same period. A key reason is that Canadians are spending less and less time on healthy social and leisure activities, and the state of the environment has declined.

This growing body of research is broadly consistent with the notion of climate action and climate justice. As the 2012 World Happiness Report comments:

The environmental debate could be importantly recast by changing the fundamental objectives from economic growth to building and sustaining the quality of lives, as assessed by those whose lives they are. This will depend crucially on the human capacity for cooperation … people gain in happiness by working together for a higher purpose. There can be no higher purpose than promoting the Earth’s environmental balance, the well-being of future generations, and the survival and thriving of other species as well. Sustainability is an instrumental goal, because without it, our health and prosperity are bound to collapse. But environmental sustainability is also an end goal: we care about nature, we care about other species, and we care about future generations.

*Hat tip to Noelani Dubeta for research assistance.

Additional references:

R Wilkinson and K Pickett. The Spirit Level: Why More Equal Societies Almost Always Do Better.

Jackson, T., 2009. Prosperity Without Growth. London: Earthscan.

Layard, R., 2005. Happiness: lessons from a new science. London: Penguin Books.

Marks, N., and Shah, H., 2004. A well-being manifesto for a flourishing society. The power of well-being. London: New Economics Foundation.

Johnson, E., Sharpe, A., Ghanghro, A., and Kidwai, A., 2011. Does Money Matter? Determining the Happiness of Canadians. Centre for the Study of Living Standards.

OECD, 2012. Better Life Index: Canada.

Bok, D., 2010. p.209. The Politics of Happiness: What Government Can Learn from the New Research on Well-Being. New Jersey: Princeton University Press.

 

Is another recession on its way?

Is another recession on its way?

Louis-Philippe Rochon

Associate Professor, Laurentian University

Co-editor, Review of Keynesian Economics

 

Canada’s economy shrank in the first quarter by a whopping 0.6%. Is this the beginning of a new recession?

Recessions of course are defined as two consecutive quarters of negative growth. Now we learn today that Canada’s economy shrank between January and March, the biggest decline in GDP since 2009, and the first contraction in the last four years. In fact, the economy contracted in all three months. It is even more dramatic when you think that Q4 2014 registered a growth of 2.4%!

Read more »

The Austerity Trap

Louis-Philippe Rochon is associate professor of economics at Laurentian University and co-editor of the Review of Keynesian Economics.

Originally published by CBC.  See here.

In its April budget, the federal government announced it had succeeded in balancing the budget. Such an achievement, however, will prove to be at best a Pyrrhic victory. History shows austerity and balanced budgets never work and only doom our economies to more misery.

The Austerians, as American economist Rob Parenteau calls them, are clearly winning the policy war.

Read more »

Guest Blog from Kim Pollock: Stagnation Without End

We are pleased to present this guest commentary from Kim Pollock, a former union researcher based in B.C. and Saskatchewan. Now retired, Kim is investigating various aspects of Canada’s economic performance.  A longer version of this paper will be presented by him at the upcoming Society for Socialist Studies meetings in Ottawa, and can be obtained by e-mailing him at kbpollock54@gmail.com. Thanks Kim for this insightful and provocative analysis!

The Promise of Canadian Capitalism: Stagnation Without End

The Great Recession has ground on for over six years.  Working-class Canadians face unemployment, declining incomes, precarious jobs, reduced savings and mounting poverty. Read more »

Should we be taxing the rich 1% more?

Louis-Philippe Rochon

Associate Professor, Laurentian Economics

Founding Co-Editor, Review of Keynesian Economics

Follow him on Twitter @Lprochon

 

Originally published by CBC. Find commentary here.

 

The federal Liberal Party’s recent election promise to create a new tax bracket for rich Canadians has been quickly decried by – well, rich Canadians. But is it an appropriate and sensible approach to fiscal policy? The answer is unequivocal: yes.

Understandably, Conservatives have been equally quick to denounce the proposal, calling it ‘Trudeau’s tax.’

Mr. Trudeau should not shy away from this epithet, but rather wear it proudly.

Read more »

BC’s Carbon Emissions on the Rise

It was a good story while it lasted. Over the past few years, the BC government and many in the policy community have spun a tale about the remarkable success of BC’s climate action policies, with a big spotlight on the carbon tax as a driver of lower emissions while BC’s economy outperformed the rest of the country. In BC’s case, the carbon tax was announced in the February 2008 “green” budget, and implemented in July (starting at $10 per tonne, with annual $5 increments to the current $30 per tonne, in place since July 2012).

Because of time lags, only a few years of data were available when judgements about BC’s climate action success began to roll out. With Canada’s new National Inventory Report (NIR), we now have data up to 2013, and it’s not a pretty story for BC (Part 3, Table A10-20).

In the supposed era of climate action, the trend for BC’s emissions is moving in the wrong direction. Emissions have been rising every year since 2010, and as of 2013 are up 4.3% above 2010 levels. Moreover, if you look closely at the underlying table, the rise is almost entirely explained by the growth of the natural gas industry. On the bright side, however, BC’s emissions are down 2.5% relative to 2005 levels, and 3.2% since 2000.

Screen Shot 2015-05-08 at 10.30.16 AM

Unfortunately, the new NIR table does not fill in all of the years in-between, and astute observers would note that BC’s base year for its legislated GHG reduction targets is 2007. The new national report adopted changes in measurement to reflect the latest climate science (Part 1, Chapter 8), so we cannot use previously published numbers from the BC government. BC has more detailed data available online but the next update won’t happen until mid-2016, so their data only go to 2012.

The older numbers show that emissions were already falling by the time BC’s 2008 green budget and carbon tax came into play. The data show no change from 2007 to 2008, but a notable 4.6% drop from 2008 to 2009, which accounts for essentially all of the claim of emission reductions. I suspect, however, that this is better explained by the financial crisis in Fall 2008 and subsequent recession than by the carbon tax.

Why? As mid-2008, BC’s shiny new carbon tax added only 2.3 cents per litre at the gas pump, while prices were already north of $1.40 per litre. Those high prices were driven by market forces but also by other taxes. You often hear that Canada has “no price on carbon” but fuel taxes are just carbon taxes with a smaller tax base. Indeed, BC’s motor fuel taxes are substantially larger than the carbon tax then or since, with a general rate of 14.5 cents per litre of gasoline and up to 25.5 cents per litre in Metro Vancouver. The federal excise tax on gasoline of 10 cents per litre, plus GST on the purchase price, is also larger than the carbon tax, even at today’s 6.67 cents per litre equivalent ($30 per tonne).

The BC government makes the dubious claim that they met their interim GHG reduction target for 2012 of 6% below 2007 levels. Even then, BC’s numbers showed only a 4.4% drop, which as noted, there is a one-time drop from 2008 to 2009 that is at play. The claim of 6% reduction is based on the purchase of bogus carbon credits (or offsets). This is more fiction than fact: there is no detailed reporting on how offsets were used, especially amid an offset regime that has massive credibility problems after a scathing Auditor-General’s report in 2013.

Stripping out the bogus offsets, in national terms BC’s performance is nothing special. Going back to the new NIR data, BC’s slight drop in emissions since 2005 (2.5%) is similar to Canada as a whole (down 3.1%). Also like BC, Canada’s emissions have been growing since 2009 (up 3.9%). BC has fared better than Alberta, whose emissions shot up 14% since 2005, but Canada’s true climate leaders are Quebec (down 8.4%) and especially Ontario (down 19%), which is phasing out coal-fired electricity generation.

OK, what about the storyline that, in spite of the new carbon tax BC’s economy has outperformed the rest of the country. From 2008 to 2013, BC’s economy grew 12.6%, while Canada’s grew 15.1%; from 2010 to 2013, BC 11.5% to the national 13.9%; and even just 2013, BC 3.2% to Canada 3.4% (all from CANSIM Table 384-0038). If we go to constant dollars, there is a very slight edge to BC over Canada, but it works out to 0.07% per year in GDP growth rates.

So BC can claim that the carbon tax has not lead to weaker economic performance than Canada as a whole. But that’s not saying much because the carbon tax is still too small to be very effective. Even less so with current oil prices – it would take an additional carbon tax above $200 per tonne just to get prices at the pump back to where they were a year ago.

Bottom line: BC’s emissions are on the rise. We need to stop telling fairy tales about BC’s climate action policies and its carbon tax (and I say this as a general supporter of carbon taxes). BC’s proposed “climate action 2.0″ is wishful thinking; so far all we have is the intention to create a committee to propose further actions.

Meanwhile, we cannot ignore the inconvenient truth about BC’s  ambition to launch a massive Liquefied Natural Gas industry. If realized, these plans would put into the atmosphere some 200-300 million tonnes of carbon dioxide equivalent per year (4-5 times BC’s own annual emissions in 2013). This carbon is currently safely sequestered underground in deep shale formations, and climate action demands it stay that way. The bulk of those emissions would count in the importing country’s (Japan or China) emissions inventory, not BC’s. But even the smaller amount of emissions in BC that do get counted (associated with fracking, processing, and getting product onto those LNG tankers) would make it impossible for the province to meet its legislated targets.

The central banker who talked too much

The central banker who talked too much

Louis-Philippe Rochon

Associate Professor of economics, Laurentian University

Co-Editor, Review of Keynesian Economics

 

On Tuesday, Governor of the Bank of Canada, Stephen Poloz testified in Ottawa in front of the House of Commons Standing Committee on Finance. He had a lot to say about the state of the Canadian economy. But sometimes saying nothing is better.

I want to make clear that I have great respect for Mr. Poloz. His approach to monetary policy in Canada has been rather balanced. He has kept rates low at a time when they should be remaining as low as possible, and he has resisted pressure, and rightly so, to start raising rates. So far, his approach has generally been a very pragmatic one.

Read more »

The Conservatives, sound finance and the facts of recent history

Louis-Philippe Rochon

Associate Professor, Laurentian University

Co-Editor, Review of Keynesian Economics

 

With the tabling of a new federal budget on April 21, the Conservatives are trying to reinvent themselves as good economic managers, stalwart of sound finance. But after almost nine years in office, the data simply does not confirm this story. Mr. Harper’s more recent optimistic façade is a smokescreen that hides a dismal record on the economy.

Despite this fact, Conservatives have nevertheless traditionally portrayed themselves as fiscally-responsible tax cutters, job creators, and engineers of economic growth. At the same time, they have painted Liberals and New Democrats as irresponsible, free-spending parties focused on bankrupting the country. But recent history simply does not support the Conservative claim of good fiscal stewards; if anything it paints them as a fiscally-irresponsible party. In fact, on a number of economic variables, the Conservatives report card is worse: Conservatives have mismanaged both our finances and our economy.

Read more »

The Return of the Gilded Age: Consequences, Causes and Solutions

On April 8, I had the honour of delivering the Harry Kitchen Lecture in Public Policy at the invitation of the Department of Economics at Trent University.

I took the opportunity to offer a broad reflection on economic inequality, arguing that while inequality is inherent in capitalism, too much inequality undermines economic as well as social well-being. I also argue that priority has to be given to shaping the distribution of market incomes as opposed to purely redistributive solutions.

Here is the text of The Return of the Golden Age; Consequences, Causes and Solutions.

Budget 2015: A tale of austerity past, present and future

Cross-posted from my blog.

I’ve been banging the drum of “slow-motion austerity” for a while and little in the 2015 federal budget suggests any change from the pattern of death by a thousand cuts. This budget is another is a series of unspectacular austerity budgets. Taken together, however, the cuts rapidly add up and budgets become more remarkable for the tenacity with they’ve made us pay to get to the present.

A long-term view focused on austerity is very different from much of the mainstream coverage of the budget with a tawdry focus on “goodies” for this group or that. While the media should be criticized for too easily swallowing government talking points and dividing people into opposed special interest groups, it would be naive to think of this budget outside the context of electioneering to carved up demographics. On the one hand, this reinforces a neoliberal narrative of each for themselves; on the other, this is also the reality of the on-going neoliberal transformation.

So while this budget may be more politicized than average in light of the fall election, I won’t write about goodies for groups. Instead, I’ll take the opposite tack: look at the election year budget as a continuity of slow-motion austerity past, present and future. Read more »

Budget 2015: Robin Hood in Reverse

Here’s a link to the longer analysis I prepared of the federal budget, now on-line at CUPE’s website, to accompany the press release and notes we put out immediately following the budget.

The entire document may be too long to post here, so here’s the 1st two paragraphs.

The Big Picture: more tax cuts for the rich: nothing for jobs and working Canadians.

The Conservative’s 2015 federal budget demonstrates they have nothing new to offer workers and the majority of Canadians. Once again it includes tax cuts for business and the wealthy, and nothing substantial to create decent jobs or to help Canadians struggling to make ends meet. In fact, it takes money from workers contributed through the surpluses in the Employment Insurance fund to pay for these tax breaks for the wealthy and corporations.

The Conservative’s economic policies and spending cuts are destroying jobs, squeezing workers’ wages, slowing down economic growth and making it harder for working families to get by.

_______________

Economics is the dismal science, but I have to admit that the budget is not without elements of unintended humour–but you have to wade deep in to find them.

Read more »

My “Top Five” Most Outrageous Things About This Budget

With a document whose very timing, let alone content, was so transparently politicized and manipulative, it’s hard to even know where to start.  Among the many galling, short-sighted, and ultimately destructive components of this federal budget, here are 5 that stand out in my view: Read more »

ROCHON on 2015 budget: Conservatives making a mockery of working Canadians

CONSERVATIVES MAKING A MOCKERY OF WORKING CANADIANS

Louis-Philippe Rochon

Associate Professor of Economics, Laurentian University

Co-Editor, Review of Keynesian Economics

 

Today, with great fanfare, Minister of Finance, Joe Oliver, tabled his much-delayed budget in the House of Commons. Despite the government’s best effort to confuse Canadians with tales of terrorism, the economy and job creation remains by far the single most important issue facing hard-working Canadians. Unfortunately, this budget, full of accounting tricks, will do very little to revive Canada’s moribund economy, and it contains far less in terms of good news for working Canadians.

In fact, Mr. Oliver, with Mr. Harper by his side, has managed to accomplish quite the feat with this budget: they showed how the government is devoid of any real vision for Canada’s economy, while simultaneously mocking hard-working Canadians by giving away a panoply of boutique tax breaks … to rich friends and very targeted groups that they hope will vote Conservative in October.

This is less a fiscal budget than it is a shopping list.

Overall, two things stand out most from this budget.

First, the government seems to be oblivious to the fact the economy is essentially dead in the water, despite the government’s rhetoric to the contrary. Bank of Canada Governor, Steven Poloz, admitted as much last week when telling Canadians there was zero growth in the first three months of the year. This will no doubt be followed by another quarter of poor or even negative growth. Mr. Poloz believes the economy will come back to life in the second part of the year, but so far this has been greeted with much skepticism by the private sector and many economists.

But Mr. Poloz deserves some credit at least for taking this threat seriously. For instance, to counter the effects of the oil crisis and other elements ailing the Canadian economy, Mr. Poloz lowered the bank rate in January to 0.75 per cent. Mr. Poloz is keenly aware of the poor and “atrocious” nature of the Canadian economy.

Mr. Oliver and Mr. Harper in contrast appear not to be.

This brings me to the second element that stands out the most from this budget: nothing in it will contribute to resuscitate the economy. Sure, there are some tax breaks, but 1) these do not amount to a consistent and logical approach to fiscal policy; 2) these tax breaks (some announced before the budget – 160 since taking office) will largely go to rich Canadians who really don’t need any additional fiscal assistance.

And tax breaks are never as effective as large-scale fiscal expenditures. There is of course a $1 billion a year in transit spending, but it is so grossly inadequate that is sad. Mr. Harper is simply ignorant of the real needs of Canadians, and of the kind of spending that is really required to get the economy moving again.

When you think about it, Harper’s government has been mired in the great economic and financial crisis almost from the day it has taken office in 2006. Of course, the crisis was a truly worldwide phenomenon and Harper is certainly not to blame for creating it (but certainly his kind of policies certainly are). But we can certainly hold the government to account for how it is dealing with the aftermath of the crisis. What Conservative policies aided it putting an end to the crisis? What Conservative policies contributed to ensure a strong economic recovery? Sadly, not many.

Harper seems to be more interested in letting markets and consumers lead the way at a time when markets themselves are demanding governments take the reign. This cat-and-mouse dance is harmful to our economy: more than ever, the government must take the lead now and propose bold steps to ensure our shared prosperity.

Eight years after the crisis, and the economy is still stalled. This budget would have been the perfect opportunity to inject some life into it with some infrastructure spending. Yet, rather than give Canadians a bold and much-needed vision, the strategy is rather a piece-by-piece approach the aims of which are difficult to understand apart from offering tax breaks to the select few.

There is an important disconnect between Mr. Harper’s rhetoric on wanting to help the middle and working classes, and his actions. In the end, this budget is a gross mockery of working Canadians.

We are left with a set of very inconsistent policies, with the two most powerful policy branches of government working against each other. Whatever good Mr. Poloz is trying to achieve with his expansionary monetary policy is being completely obliterated by Mr. Harper’s restrictive and austere fiscal policy. This is not productive.

This budget has added nothing and will contribute even less to the economy.

 

 

 

 

Budget Balanced with EI Surplus

Mr. Oliver likes to say that most of the growth in jobs has been high wage, private sector growth. This is simply not true. Two-thirds of net new jobs created between 2008 and 2014 pay below average wages.

Own account self-employment, those self employed workers who have no employees, have dominated growth in self-employment, and account for 1/3 of net new jobs since 2008. Another 1/3 net new jobs are temporary or part-time. And job growth has skewed to older workers, leaving young workers with few opportunities to find meaningful employment.

Proportion Employment Change

Nothing in the 2015 Budget does anything to address these issues.

This budget is literally balanced on the backs of workers, as record low EI coverage rates have meant a surplus of $1.8 Billion in the EI Operating Account. Exactly as the PBO predicted, this money went directly into general revenues, and provided the federal government with enough money to book a tiny surplus.

Workers needed that money to improve access to Employment Insurance, so that families that have been rocked by recent layoffs could make ends meet while searching for another job. Right now, new labour market entrants need 910 hours to qualify for benefits, which is nearly impossible to accumulate when working part-time. These workers often must resort to Social Assistance or borrowing in absence of EI benefits.

Cuts to Service Canada have meant months of delays for workers who need to access benefits, and this includes workers accessing critical training opportunities. One of the biggest barriers for apprentices seeking to complete their training is delays in receiving EI benefits.

This budget was superficially balanced, but under the surface are very real imbalances – a generational imbalance, and environmental imbalance, and an infrastructure imbalance.

This government balanced the budget to pay for tax cuts that primarily benefit the wealthy – instead of investing in Canadians and the communities that we live in.

ROCHON on the IMF and labour market deregulations

LABOUR MARKET DEREGULATIONS NOT WORKING: IMF

See original CBC column here.

Recent — and potentially watershed — International Monetary Fund (IMF) documents have cast doubt on the merits of labour market deregulation of the last three decades, with important consequences for Canada. But will anyone listen?

The last 30 years have not been kind to economic growth and wealth creation.

The economic “successes” of the neo-liberal era, from roughly 1980 to 2007, pale in comparison to the three decades that followed the Second World War with respect to almost every economic variable imaginable.

One of the core arguments of the neo-liberal era, adopted at one time by the IMF and the World Bank, among other institutions, has been a belief in what economists have called labour market flexibility.

Labour market flexibility is aimed largely at making wage settlements more difficult and less generous, labour force reductions easier for the private sector, and labour union participation more difficult.

According to this argument, in a growing competitive global environment, Canadian companies have to remove any inefficiency in the labour market, especially any that could stifle the private sector’s quest for flexibility and profits.

So efforts have taken place over the last three decades to make labour markets more flexible: A push toward term or temporary contracts, a de-emphasis on job security, laws that made participation in unions more voluntary. And the Harper government has been an active and willing participant in this misplaced quest for labour market flexibility.

The private sector labeled labour unions as disruptive and detrimental to their bottom line: Wage gains were too high and unions too powerful, thereby making it too difficult to “restructure” hiring practices to make Canadian companies competitive (a fancy way to say it was difficult to fire people).

In reality, of course, this was an awful idea in terms of economic theory and economic consequence. In terms of building social peace between labour movements and the private sector, it was no good, either. The attack, however, has been carried out largely on the backs of working Canadians. And now we have proof.

In twin reports, the IMF revisits the question of the success of these policies.

In what can only be labeled a gigantic mea culpa, the IMF now claims that these policies have failed — and miserably, at that.

In two reports, the IMF carefully lays out the empirical evidence and it ain’t good.

In one of them, dated March 2015, the IMF argues that the decrease in unionization rates has largely fed the increase in incomes of those at the top.

Subsequently, for its April 2015 edition of the World Economic Output (WEO) report, which featured data from 16 G20 countries, the IMF concludes that there is no evidence that the neo-liberal deregulatory reforms had any positive impact on labour markets and economic growth.

These painful deregulatory policies, often imposed by force, have had no impact on total factor productivity.

It took courage for the IMF to arrive at these conclusions, and it reminds me of John Maynard Keynes, who famously once said, “When the facts change, I change my mind. What do you do, Sir?”

To its credit, the IMF looked at the evidence and admitted they had been wrong.

The IMF reports are just some in a series of recent reports from reputable institutions casting doubt on the whole neo-liberal era. Some of us have been arguing these same issues for years, concluding this era was one colossal failure, not only for the economy as a whole, but also for workers and their families.

In a recent report echoing the IMF findings, the Economic Policy Institute in Washington argued that there is a direct correlation between the decline in unionization rates in the U.S. and the decrease in the share of income going to the middle 60 per cent of working Americans (more or less, the middle class).

Evidence against the panoply of policies imposed on developed and developing countries over the last three decades is growing.

This requires a full rethinking of economics and economic policies, which is already well underway in many countries, led in many instances by students disillusioned with the teaching of economics. For instance, I have just returned from a conference in Vienna hosted by intelligent students looking for better solutions, and attended by over 200 students.

Many political parties in power, however, still refuse to acknowledge these findings, and continue with the same policies that largely contributed to the 2007 crisis.

It’s time we demand an end to policies that work against working Canadians, and in the process, we must demand from our governments better policies that share gains more broadly.

Louis-Philippe Rochon is an associate professor of economics at Laurentian University in Ontario, and the co-editor of the Review of Keynesian Economics.

Bank of Canada Holds Rate Steady

The Bank of Canada released it’s quarterly Monetary Report today, and held rates firm at 3/4 per cent.

The Bank cut growth expectations for 2015, but expects Canada’s GDP to rebound in 2016. Much of this rebound will depend on a growing U.S. and global economy, and on the ability of Canadian exporters to capture a bigger share because of our lower dollar.

The Bank’s estimates for growth also depend on maintaining strong consumer demand, which may be difficult to maintain given high levels of household debt and lingering labour market weakness.

The underlying thinking behind the Bank’s optimism is that the negative consequences of falling oil prices hit quickly, and any benefits from the lower dollar will take longer to appear. So it looks bad now – growth stalled in 2015 Q1, but we’ll rebound eventually.

It’s also worth noting that government will only contribute 0.2% to GDP growth in 2015, pretty measly given the opportunities for public infrastructure investment. Take a look at the FCM pre-budget call for investments in clean water & public transit.

The Harper Record on Jobs, 2006 to 2014

Here is the link to a short study I have done for the Broadbent Institute on the Harper Record on Jobs from 2006 to 2014 based on annual averages from the Labour Force Survey.

Coverage in today’s Toronto Star is here.

The basic findings, that there is still a lot of slack in the job market compared to the pre recession period (especially for youth) and that there has been a heavy tilt to part time work (one in three of the new jobs), will come as no surprise to readers of this blog.

What I found a bit more surprising is that 38% of the new jobs created 2006 to 2014 were in the lowest paid occupational category – sales and service jobs – and a lot of the good jobs created (35%) were in public sector occupations. Table 4 provides a lot of detail.

The Harper government claims that “since the depths of the recession, we have created more than 1.2 million net new jobs—overwhelmingly full-time, good-paying jobs in the private sector.” They hide their poor record by using the bottom of the recession as the starting point, and clearly if we look at their tenure as a whole the tilt is NOT to well-paid private sector jobs.

 

 

 

 

Workers Link $15 Minimum Wage to Decent Work

Wednesday April 15th is a global day of action on a $15 minimum wage and decent work. Actions are happening across the U.S., and in BC, Ontario, and Nova Scotia.

Both in the US and in Canada, workers are making links between decent wages and other employment standards.  The Ontario campaign is named $15 and Fairness, calling for a “$15 minimum wage, and decent hours, paid sick days, respect at work, and rules that protect all of us.”

We thought this would be a great time to release a report written by Gwen Suprovich, a PAID intern at the CLC. The Minimum Wage in Canada reviews the demographics of minimum wage workers in Canada, and the methods that provinces use to determine minimum wages.

Gwen finds that minimum wage earners in Canada don’t fit the stereotype of teenagers in their first job. The majority are over 20, not in school, and one in six have a child at home. The proportion of minimum wage workers employed by large employers (more than 500) has grown from 30% in 1998 to over 45% in 2013.

Gwen notes the lack of federal leadership in setting the minimum wage, and finds that most provinces use mechanisms that are not transparent and lack accountability. While several provinces have review boards, only Nova Scotia requires the board’s reports to be released publicly. (Newfoundland and Labrador and Saskatchewan do release their reports online, but are not required to do so.) Review boards can be effective, but must be transparent and government’s must be accountable to their findings.

In terms of policy recommendations, Gwen finds that the minimum wage should be set at a level that would keep a full-time worker above the poverty line. To reduce the impact on business, increases should be announced well in advance. Once wages reach a livable level, they should be indexed to inflation.

Our case for raising the minimum wage is well supported by a CCPA report out of BC, The Case for Increasing the Minimum Wage, which noted that the minimum wage could be a useful tool for reducing poverty, as long as it was set sufficiently high.

Maybe I’ll see you out in the streets tomorrow.

Jobs Gains Skew Part-time, Over 55

The Canadian labour market added 29,000 jobs in March, beating expectations. Underneath the headline, though, the numbers aren’t as rosy.

A jump of 57,000 part-time jobs masked the loss of 28,000 full-time jobs between February and March.

Given the jumpy nature of monthly LFS data, I’ve decided to base most of my analysis on quarterly numbers. And since most of the job gains were in the 55+ age group, I thought it would be interesting to look at the FT / PT breakdown by age.

Using seasonally unadjusted data, I compared Q1 2014 with Q1 2015. We find that part time jobs dominate in the under 55 age group, and full-time jobs dominate in the over 55 age group. Since more boomers age into that category every day (and will be doing so for the next few years still) the meaning of that is questionable.

JobsQ1

 

In fact, what we see when we look at employment rates, is that they haven’t budged for any age category. So employment growth in all age groups has only just kept pace with population growth, and not made a dent in our stagnant labour market.

 

EmpQ1

Over the medium term though, we have seen an increase in the employment rate of 55+, and a decrease in the employment rate of 15-24 year olds. Using seasonally adjusted data, there has been a steady increase in the employment rate of workers over 55, with nary a blip for the recession.

On the other hand, the employment rate for young workers 15-24 fell 5 percentage points during the recession, and remains 3 percentage point lower than in Q1 2007.

Generations

 

Take away – there’s a stagnant job market for core age workers, and an awful one for young workers.

What we don’t need is more of the same economic mismanagement, focused on cuts rather than opportunities for growth. We need to build a sustainable economy for the future.

ROCHON on balanced budgets

Balanced budget legislation will be disastrous for Canada

Louis-Philippe Rochon

Associate Professor of Economics, Laurentian University

Co-Editor, Review of Keynesian Economics

Twitter @LPROCHON

 

Finance Minister Joe Oliver’s latest muses about introducing balanced budget legislation is the worst policy for Canada, and will doom us to European-style crises and rob future generations of prosperity.

While the details of the specific plan are not yet available, the very idea of forcing governments in good or bad times to have a balanced budget is one of the worst economic ideas this government has had in its 9 years in office. To wit, such a policy has never worked in any of the places it was adopted. It never leads to growth, and in fact depresses economies.

I am currently lecturing in France, where I see everyday the disastrous consequences of austerity and of forcing governments to avoid deficit spending in times of crises. As a result, the government is unable to help young people find jobs, with the youth unemployment rate at 25%; elsewhere in Europe, youth unemployment is more than 50%. Governments are introducing difficult cuts to social programs that are leaving Europeans considerably worse off.

And in Canada, a mere week after Bank of Canada Governor Steven Poloz announces that first quarter growth in Canada will be “atrocious”, the government is forging ahead with plans to bring in balanced budget legislation. This is insensitive. The government seems simply oblivious to the hardship of so many working Canadians, yet at the very same time, introducing income splitting policies that will benefit the rich, and doubling the annual contribution limit for Tax Free Savings Accounts, which will largely benefit once again, Canadians who have the luxury of saving roughly $1,000 a month. How many Canadians, especially among those working two jobs simply to make ends meet, can save $1,000 a month?

But it also smacks of hypocrisy: for 2/3 of its time in office, the Harper government had deficits. In a very important way, imagine what Canada would look like today had this law existed in 2006? The recovery, no matter how weak it is, would never have taken place. It would have doomed up to several more years of crisis.

Not only is it bad economics today, balanced budgets will also doom future generations of Canadians, your children and theirs, to depression-style economics. Why? When governments spend, there are two types of expenditures, what we call current account spending (imagine spending on pencils, desks and government employee salaries, in other words, government’s current spending on goods and services to satisfy current needs) and capital account spending. This latter category is essentially spending on our infrastructure (imagine spending on roads, bridges, sewers, electrical grids and other vital areas); in other words, this type of spending is investment in our future.

This distinction is well-established in national accounting, and with good reasons. Capital spending (also called gross fixed capital formation) is an investment done by the government on behalf of the population, to meet the future needs of Canadians. When the government builds a bridge or new roads, the costs are born out today but the benefits will span several year and even decades.

But the federal government does not distinguish between current spending and capital spending: its’ all lumped in together. Therefore forcing balanced budgets will lead to considerable underinvestment in our infrastructure: it will grossly depress an already-depressed commitment to infrastructure spending in Canada.

So imagine a government wanting to upgrade health care, or our sewers, or electrical grid, or improving our roads and bridges, or increasing social security. Well, under the current proposed legislation, governments won’t be able to deficit spend to improve our infrastructure, unless it drastically offsets the whole amount of the investment. So what will it do? Only two possibilities: 1) nothing; 2) introduce draconian cuts in other areas, like social services, to offset the full amount of the investment. This will have one of two consequences: 1) allow a further deterioration of our infrastructure; or 2) the eventual elimination of our social safety net.

Worse even, it could force the government, in the name of cutting expenditures, to push unto provinces some of the existing federal programs. If provinces don’t want to run deficits because of these extra costs, they will be forced to increase taxes.

If the government insists on carrying out this myopic policy, the least it could do is to propose to balance current spending over the business cycle. An argument can be made that governments should not overspend in buying goods and services for current needs, over the entire business cycle. This would at least leave governments with the ability to respond in times of recession, and to cut back spending when the economy is growing. But constraints should never be placed on capital spending: this is a gross misunderstanding of economics and national accounting.

This policy is one that opposition parties must denounce at once; they must vow to scrap this legislation once they take office in October. Otherwise, this policy has the potential of doing more harm to Canada’s economy, and to push us into European-style crisis for decades to come.

 

*Special thanks to Nick Zorn and Pablo Bortz for some useful comments

ROCHON on the upcoming federal budget (April 2015)

THE FEDERAL BUDGET AND CANADA’S ANNUS HORRIBILIS

See Original post here for the CBC.

Canada’s Finance Minister Joe Oliver announced a new – and long overdue – federal budget for April 21. With the Canadian economy doing so badly, this budget will be crucial.

Will the minister do the right thing and give Canadians a budget that will stimulate the economy? Or will he continue with the government’s obsession of balancing the budget and further doom the Canadian economy to a recession?

The facts about the Canadian economy are not encouraging: increasing unemployment (a real unemployment rate of nine per cent), and economic growth once again in negative territory.

A recent analysis on PBS even questioned whether a recession is imminent, and I have gone on record to say 2015 will be Canada’s ‘annus horribilis’.

In light of this economic mess, the government tried to change the channel on us, and focus our attention away from the deteriorating economy to terrorism.

The government wanted to convince us that another attack was somehow imminent and that terrorism is what threatens our livelihood.

Economy is No. 1 priority

But Canadians wanted none of it.

To our credit, we told the government we want jobs. Polls indicate Canadians overwhelmingly see the economy still as more important than protecting us from terrorism.

We have told the government in a strong, unified voice: the economy is still our No. 1 priority. So expect the government to address this matter, for ignoring it will come with some real dangers at election time.

Bank of Canada governor Steven Poloz is trying his best at keeping our economy afloat by lowering interest rates, but this will have little or no effect. When the economy is this depressed, monetary policy becomes ineffective. Mr Poloz can lower rates again but what we really need is more fiscal policy.

So as the economy deteriorates even further, the focus will inevitably be on the federal budget.

Yet, the federal government seems uninterested in helping the economy. Instead, it prefers to give out some tax benefits here and there, with no clear fiscal strategy. And if 21 is anything like the past, there will be nothing in this budget that will stimulate the Canadian economy.

Shrink the government?

So what’s going on? Why is the government so obsessed with balancing the budget?

There are two grand views of how economies work. Some, like myself, see economies as naturally volatile and unstable, and in need of government intervention on a regular basis to prevent the economy from falling into periodic recessions or worse, into crises.

Private markets are driven by speculation that destabilizes the economy. Regulations are needed to keep it orderly.

Others, like Mr. Oliver and Harper, see free markets as wise places, prone to stability. Government intervention is destabilizing and is not welcome.

What is needed, in fact, is to shrink the size of government. This is achieved first by lowering taxes, thereby lowering revenues and creating deficits. Then, to balance the budget, governments must cut expenditures.

These are diametrically opposing views. Which one is right?

To answer this, one can just turn to recent history. Since 1980, governments around the world have dismantled regulations that had kept our markets fairly stable until then.

What happened next is supported by a massive amount of data: increased inequality, higher unemployment, lower wage growth, greater volatility. And now the IMF says lower unionization rates contributed to great income inequality.

In light of this, the problem with the view shared by the prime minster and his lieutenant of finance therefore is that history does not prove them right. In fact, if anything, the ongoing crisis, which began in 2007, is proof of how markets acting on their own can easily deteriorate into a world crisis from which only fiscal policy can save it.

This is the lesson taught to us by John Maynard Keynes: 80 years after he published his great book, the world still needs governments to soothe the savage beast.

So with our economy inching itself toward another recession, will the government still stick to its dangerous ideology of free markets? Or will it recognize that it is in need of some serious stimulus.

I hold little hope the budget will contain any promising news. In the end, the government will tell Canadians: “let them eat cold camembert.”

Transforming Precarious Work

The Ontario government has launched a review of their Labour Relations Act and Employment Standards Act. The premise is that the workplace has changed, and Ontario labour law no longer does as much as  it should to protect vulnerable workers.

The Workers’ Action Centre in Toronto took this opportunity to document the myriad ways that workers are left behind, and make 47 concrete recommendations to improve legislative protections.

What’s unique about this report is that worker’s voices are central. Throughout the report links are made between the lived experiences of workers, current labour market statistics, and thoughtful recommendations to make workers’ lives better.

One huge problem in precarious work is the downloading of risk to workers. This is done through just-in-time scheduling, overuse of part-time and temporary employment relationships, and employee misclassification. Too many “workers” are classified as self-employed, and this practice has spread into a surprising number of sectors.

A 2010 review of the construction sector in Ontario found that misclassified independent contractors cost the province $1.4B to $2.4B in WSIB, income tax, CPP, and EI payments. This doesn’t even begin to touch on the lost wages and benefits to workers. The Workers’ Action Centre report offers suggestions that put the legal onus on an employer to prove there is no employee / employer relationship, which could help stem this trend in precarious work.

Another key issue highlighted by the report is “Equal Pay for Equal Work”. One might be forgiven for thinking that this has to do with the gender wage gap (well, it’s related, as we’ll see). Workers in temporary and part-time positions earn far less money than their permanent full-time counterparts. Workers in temporary positions tend to be young workers, women, and racialized workers (which is a factor in the gender and racialized worker wage gap).

This answers the question of why we care about part-time work when the vast majority of workers ‘choose’ to work part-time. It’s because part-time and temporary workers are overwhelmingly low wage, and along with that tend to have much weaker bargaining power in all aspects of their employment.

ONTwages1

 

I absolutely encourage anyone who is putting together their own organization’s response to read this report, and to support the recommendations found within. Precarious workers are counting on us to make sure the Employment Standards Act recognizes their lived reality. This is not only a show of basic solidarity, but the base upon which all worker’s protections stand.

Homelessness in Canada’s North

Over at the blog of Northern Public Affairs, I’ve written a post titled “Ten Things to Know About Homelessness in Canada’s North.”

Topics covered in the post include the high cost of construction in many parts of the North, the relatively high costs of operating housing in the North, and declining federal funding for social housing in the North.

The full post can be found here.