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Louis Pauly on Clarkson’s Great Transformation

Lou Pauly

The following is a contribution in the blog series on the exceptional contribution of Stephen Clarkson to Canada.  Stephen Clarkson died in 2016.

This piece is by Louis W. Pauly who is the J. Stefan Dupré Distinguished Professor of Political Economy at the University of Toronto. He is cross-appointed to the faculty of the Munk School of Global Affairs.   His publications include twelve books with his most influential work focusing on the politics of global finance, economic crisis management, and multinational corporate structure and strategy.

Stephen Clarkson’s Great Transformation
Louis W. Pauly

From Innisland to Polanyi

Stephen had a complicated relationship with a country that had changed dramatically during his lifetime. He was a 68er, who came from what would have accurately been described as the elite of his generation in what used to be called Upper Canada. Even if they hardly appreciated it at the time, the members of that group had inherited the rapidly expanding Canadian political economy of the post-war years. That economy was somewhere between Innis’ commodity-based dominion of the British Empire and the emerging continental production system of our own time. Stephen learned to like neither—despite being a prime beneficiary of both. Like Abe Rotstein, Mel Watkins, and his friend Daniel Drache, he yearned for a relatively more autonomous, prosperous, and egalitarian country—a country different from the late-imperial one that had benefited him at Upper Canada College, Trinity College, and Rhodes’ Oxford.

Needless to say, the nationalism born of that yearning, that aspiration, was complex.
The frustration created by the gap between aspiration and reality defined Stephen and his generation. That generation truly lived through a great transformation. No wonder they were inspired by Polanyi! They were born in Innis-land. They grew old in the land of the continental supply-chain, a land that seemed destined to be ever more deeply integrated into a financial and innovation system grounded in political structures south of the border. The best of both worlds? Some say so. But Stephen rejected that rosy view. He saw only a transfer of colonial allegiance. In the days of Trump, who can plausibly argue that he was wrong to hope for something better, something more noble.

Personally, I’m glad that Stephen did not have to witness the abomination currently unfolding in the USA. He might have liked it too much. It would have taken away more of the shades of gray that lie in between the urge for Canadian autonomy and the reality of deepening social and economic integration. It would not have led him to optimism.
The Legacy of ’68 and Stephen’s Elite Past

One thing, though, always did leave a smile on Stephen’s face. He loved his students, and he loved teaching them about Canada in a changing world. Of course, he had some unfair advantages. At the end of every year, he would visit the undergraduate office in the Political Science Department. There he would find out who were the top undergraduates finishing third year. He would gather their names and addresses, and over the course of the summer he would write personal letters to them. The letters invited them to register in his famous fourth-year political economy seminar. Ah, despite the legacy of ‘68, the old instincts persisted! He wanted to work with the best, he wanted to shape the leaders of the next generation, albeit now a truly multicultural generation. And he did work with them. During his last decade, he found ways to take his seminar-students—the survivors of a rigorous selection process—abroad. Every year, he led them on serious research missions, which would always lead to a collaborative publication. And despite his stated disdain for the glittering prizes of his own elite past, he would quietly but exceedingly diligently work very hard to help the brightest of his students win Rhodes, Commonwealth and other prestigious graduate scholarships.

For present purposes, it is quite interesting to note the research theme that his students and he pursued in those seminars during his last years. It was the same theme that continued to win him distinguished research grants in Canada and Germany—so much for the idea of retirement, which he detested! The theme was comparative continentalism. It was not exactly clear where that research was going, but let me take some guesses and put it into the longer term context of contemporary political economy.
Stephen’s doctoral dissertation dabbled in Marxist thought. In retrospect, it can be hard to distinguished from a critique of hyper-liberalism: a global division of labour, the rise of boundary-spanning markets beyond the control of nation-states, the inherent value of labour inexorably usurped by capital, the inexorable rise of an impoverishing system that in the end would surely collapse. Alas, that nightmare abated in the post-war years and especially in the wake of rising nationalism in the 1960s. By the 1970s, the Vietnam War rendered the prospect of globalism seriously problematic, for here was a misguided venture opposed by national and international capital, the defense industry notwithstanding, but pursued to its hideous conclusion by a hegemonic state that could no longer calibrate its own fundamental interests but could indeed control markets.

Clarkson’s Pan Canadian Nationalism: One of His Red Lines

In its wake locally, though, came not Stephen’s dream of a new pan-Canadian nationalism, or Abe Rotstein’s and Mel Watkins’ infrastructure for an independent Canada. No, in its wake came the Auto Pact, the FTA and then NAFTA. And during the same era, Canada itself almost fell apart with the Quebec referenda of 1980 and 1995. Stephen was not happy. Eventually, his unhappiness found a focal point in the Investor-State Dispute Settlement Mechanism at the heart of NAFTA, a structure that seemed to lock Canada into a single continental economic system with an accountability flaw at its heart. The US Congress still held the ultimate whip-hand, but Canadians had no representatives in that ultimate decision-making body. There is no doubt that had he survived to the present moment, his attention would have been riveted on this particular, and particularly ironic, aspect of the NAFTA renegotiation demanded by Trump.

For Stephen, I think, whether one’s political economy priors have Marxist, liberal or even Gilpin-style realist roots, the resulting research questions today are three: was the North American experience of transformation and trauma in traditional authority relations happening elsewhere? If so, was the direction of change toward fragmentation or integration? And what were the most consequential political reactions locally?

Stephen’s research guided by these questions was still underway when he died, but a couple of books had come out along the way and many papers were in the pipeline. I do not know where his unfinished magnum opus would have landed on these questions. But my guess would be as follows.

The Terrible Spectre of a Contested Future

Continentalist ideologies remain ascendant in the real world of political economy. Who can doubt the existence of a US-centered North and South American economy—linked by finance, goods and services, drugs, labour mobility, and a US-defined rule of law? Who is not asking him or herself right now if that regional economy is being matched by a rapidly evolving German-centered Europe? (By the way, I’m sure Stephen did sense that during his last years; he was as attracted by German culture and by the post-war German idea of the social market economy. Note in this regard that by his own request half of his ashes are now buried in Germany.) And finally, who is not fascinated these days by the implications of China’s rise in Asia?

By the time he left us, though, I think Stephen was aware of the fragility at the core of each of these continental economies, the continuing, even deepening, linkages across them, and perhaps most importantly the ideological weakness of continentalism. Unlike most variants of nationalism, it seems not to call forth any potentially constructive passion. But around the world, it certainly does seem to inspire a spirit of passionate resistance. And thus might Stephen have concluded.

His students, though, could not stop there. For they had begun to see clearly the immensity of the challenges in front of their generation. The problems of collective action looming—from climate change to financial instability to refugee-generating conflicts around the world—could not be avoided. If the nation-state was no longer up to the task of problem-solving, if nascent continental polities were incoherent, if supranational institutions were absent or ineffective, that only serves to clarify things. If they remain inspired by Stephen Clarkson, they will take that clarity as a challenge, the starting point for new and urgent research.

If Stephen had lived long enough to be inspired by that next generation and to write yet another book of his own, he might have looked to his past work for an appropriate title. He might have called it “Canada and the Global Challenge.”

Andrew Cooper on Stephen Clarkson’s Foreign Policy

The following is a contribution in the blog series on the exceptional contribution of Stephen Clarkson to Canada.  Stephen Clarkson died in 2016.

This piece is by Andrew F. Cooper, who is a Professor at the Balsille School of International Affairs and the Department of Political Science at the University of Waterloo.  He is also the Director of the Centre for the Study of Rapid Global Change.  Andrew Cooper is the author of 9 books including Group of Twenty (2013) Internet Gambling Offshore (2011) and Celebrity Diplomacy

Stephen Clarkson’s ‘Foundational Text’ on Canadian Foreign Policy

Andrew F. Cooper

Canada and The World Then

 We collectively miss Stephen Clarkson but our individual intellectual understanding and appreciation of his work are quite different. Stephen was idiosyncratic, in the sense that it is difficult to typecast him too tightly via a particular framework although the new Canadian political economy comes closes (Cameron, 2016). He was hopeful for Canada’s future, but his analysis led him to pessimistic conclusions. He despaired about the limitations of Canada’s ‘mandarins’ (especially its diplomats) but had high expectations for both citizen based activity and some technocratic driven policy solutions. And he appreciated ‘big’ individuals in a manner rare for a political scientist, but was duly worried about the nature of that personalism, especially emerging from the US with bouts of go it alone zealousness.

To try to tease out some of these fascinating features about Stephen’s thinking with regard to Canada’s position in the world, I have gone back to what is his foundational work – his edited collection An Independent Foreign Policy for Canada? Published in 1968 this volume attracted attention not only from established academics but aspirant scholars (including myself as an undergraduate). Although I didn’t know Stephen at the time, I was intrigued and to some extent inspired by his animation of this collection.

Organizationally there is a lot about An Independent Foreign Policy that speaks to Stephen’s personality. This was not a work with one tightly controlled view. Rather it was a pluralist endeavor containing chapters by many of the big highly argumentative academics of the day (if with only a single female contributor, Pauline Jewett, a gap Stephen made up later in life with an array of female collaborations).

Substantially the topics especially in the opening section remain – in a time of Trump – highly relevant. The Myths of the Special Relationship, Quiet Diplomacy revisited, Retaliation? Confronting Uncle Sam!

Stephen’s own contributions in binding the collection together are significant in locating major points of continuity and adaptation in his later (prolific) writings. Therefore, although not as well-cited now as many of these subsequent works it is a valuable exercise to go through An Independent Foreign Policy as we remember Stephen and celebrate his contribution.

Canada’s Potential versus Structural Limitations

At the core of Stephen’s work is what he considers the Canadian conundrum, the tension between Canada’s (unrealized) potential versus the formidable structural limitations (Clarkson, 1968: x). Indeed, it was this tension that underpinned An Independent Foreign Policy.

In general mindset Stephen was an optimist. Indeed, in many ways, he was the godfather of a wave of books (many decades later) that advocated Canada go beyond its traditionally cautious and modest habits, and go big in terms of ambition. A primary example of this evolution is Jennifer Welsh’s book, At Home in the World (2004), framed by the aspiration that Canada should be a model international citizen. Another example of this ambitious construct comes from Michael Byers, of the University of British Columbia, in his Intent for a Nation (2007). The core themes of this ‘model citizen’ approach is to look to a fully post-colonial Canada, with a deep distrust for the status quo.

What is striking from the start then is a rejection of the positioning of Canada as a quintessential middle power, at least how that framework has been identified and utilized by practitioners and mainstream academics. While of course he comes back to the middle power notion later on in his career, he never embraces the middle power model in terms of its familiar diplomatic toolkit.

The Search for Alternatives

Nor however does Stephen embrace the alternative notion that Canada is destined to be a principal or foremost power. Although this school – led initially by James Eayrs (also at University of Toronto) gained some strength by the mid-1970s, Stephen kept his distance. Stephen was extremely interested in institutions, but the institutions that grabbed his attention were almost always exclusively economic (and in large part continental) in nature. Unlike other University of Toronto colleagues (such as Bill Graham and John Kirton) he did not engage deeply in the debates about the G7/8.

What was salient to Stephen – and increasingly so after the publication of An Independent Foreign Policy – was the substance of political economy rather than the practice of diplomacy or geo-politics. In this shift we can see a fundamental split between Stephen and other key individuals that advocated a revisionist foreign policy in the mid to the late 1960s.

It is pertinent here to also note the divergence between Stephen and Lloyd Axworthy. Akin to Stephen, Axworthy departed from the established tenets of the past with considerable impatience with the static quality of Canada’s traditional middle power diplomacy.  Explicitly, Axworthy wanted to liberate the middle power model from its identification with the fixed ‘order’ driven worldview of the Pearson era. This impatience was a long-standing condition, which may be traced back to Axworthy’s younger days as a critical observer of Pearson’s “worth[y]” but “grey and oh so solid” diplomacy. As neatly captured, for instance, in a series of newspaper articles that Axworthy wrote for the Winnipeg Free Press in September 1965, this sense of impatience pointed – like Stephen’s – toward diplomatic activity that was more noisy and public-oriented (Axworthy, 1965).

But the divergence between Stephen and Axworthy after the late 1960s is illuminating. Shut out of the NAFTA debates, Axworthy’s focus as minister was towards a more fluid focus on ad hoc, normative driven issue-specific coalitions of the willing. The most dynamic expressions of this narrative come on the issues of land mines, the ICC, and the advance of the Responsibility to Protect (R2P) The narrative of the Axworthy doctrine puts orthodox conceptions of security and national interest on the defensive; at the same time, it is an implicit criticism of traditional Pearsonian conception of middle power diplomacy, as it regards this approach as being too slow and too cautious.

Stephen retained an interest in these sorts of diplomatic initiatives. In a 2010 talk he pointed to how the land mines and ICC initiatives were examples to how pressure from civil society could influence government (Clarkson, 2010). Yet, this was not at the heart of his concern, as he privileged less specific cases of diplomatic success but the need to address structural conditions.

Such ambition fitted into his original desire and optimistic spirit to reach Canada’s unrealized potential but also to highlight his enveloping concerns (even pessimism) that the structural constraints were simply too great. As he suggested: “These examples give some sense of how citizens have tried to correct the constitutional imbalance that is constraining the regulatory state, exacerbating global inequalities and threatening the planet’s survival as a hospitable environment for human life. But activism is not enough. If the market’s capacity to self-destruct is to be contained, governments must get in step with their citizenry to give clear priority to human emancipation” (Clarkson, 2010).

Stephen’s appreciation of the structural constraints facing Canada pushed him further into the analysis of political economy. If the Independent Foreign Policy volume was animated largely by the Vietnam war, over time it was the issue of how ‘Continentalism’ compromised the Canadian economy and constrained the Canadian state that dominated his work.

Clarkson:  The North American Political Economist

Others in this collection will deal with Stephen’s association with the study of new Canadian political economy in greater depth. What I will add is above all my appreciation not only of the depth of Stephen’s knowledge but also the extent of his normative commitment on these issues. Even scholars who disagreed with Stephen acknowledge the nuanced approach that Stephen used to tease out the contours of Continentalism, and the full implications of these conditions. As rehearsed most specifically in  his book 2008 Does North America Exist? Stephen revealed the highly varied nature of those contours, with some sectors, for example, water management and the steel industry, far more integrated than would be expected.   In others (like intellectual property and financial services), bilateral relations and globalization are more powerful forces than regional convergences (Clarkson, 2008).

In terms of normative concerns where Stephen has had the most influence of later debates is his showcasing “Canada’s Secret Constitution” Consistently, Stephen emphasized the undemocratic manner by which NAFTA – along with the WTO – “create a new mode of economic regulation with such broad scope and such unusual judicial authority “that it entrenches certain inviolate principles or norms that are above the reach of any politician to alter.”(Clarkson, 2002).

As always with Stephen he continued to expand his intellectual horizons, moving from a concentrated focus on Canada to extended studies of the trilateral North American relationship including in considerable detail Mexico, and the comparative study of NAFTA and the European Union. In both cases not only did he tap into some valuable themes, not least the huge asymmetries among the three partners, and the absence of a European-style system in North America of multi-level governance.

Gaps in the Clarkson Oeuvre

All of this is not to leave Stephen free of criticism (although he would be quick to debate these issues). His focus on structural conditions has a mercantilist air about it, with a conflation between US state and commercial interests. As we see to some extent through the Nixon years, and more robustly at the beginning of the Trump administration, however, this connection can be broken. It is not only the asymmetry between the US and its North American partners that needs study, it is also the asymmetry between different winners and losers in the US as well as Canada and Mexico that merits attention. Stephen put a heavy weight on the ‘hollowing out’ of corporate Canada, but without the same appreciation of how corporate America has hollowed out investment and jobs in the US, leaving space open for a populist backlash. Stephen could argue that, “NAFTA cannot be blamed for the growing income inequality within the US economy [- whereas] free trade appears causally related to the various factors increasing economic disparities within Canada and Mexico” – this is not the message drummed home with considerable impact by Trump (Clarkson, 1998).

A second criticism at least for liberal internationalists is the disjunction between Stephen’s normative-oriented criticisms about NAFTA, the WTO and indeed many other institutions and the hold of the more pragmatic attitude of Canadian citizens and politicians. Dealing with the US in terms of institutions might be bad, but dealing with the US without institutions is worse. The Trump attacks on NAFTA, the WTO, and NATO brings this embedded attitude out. Whatever the difficulties of having NAFTA in place – with a US imposed Chapter 11 highly prominent in terms of policy output – are the difficulties of dealing with a unilateral ‘rogue’ US without some ‘insurance’ from increased risk of arbitrary and unfair treatment.

And finally, there is the question of the EU model as a suitable alternative design. Stephen is highly laudatory of the EU model, both in terms of “the strength of its institutions or the sophistication of its jurisprudence. Yet, no less than in North America, the process towards continental integration could be viewed by the peripheral countries as “fast but secretive, controversial, and divisive, privileging business interests and excluding social partners” (Clarkson, 1998).

All of this is not to detract from Stephen’s contribution. On the contrary, in many ways what we find with the Trump phenomenon is a reinforcement of the accuracy of many of the other themes that Stephen concentrated on. No less than when he edited An Independent Foreign Policy, it is the centrality of the US relationship to Canada that comes to the fore. When there is space – for example – in the aftermath of the Cold War Canada could downplay this relationship as it main game. But when things get tough, as in the Reagan years or with Trump the main stream dominates. So, in this sense, Stephen’s work remains a crucial guide for understanding Canada’s position in the world.

The Deficiencies of Canadian State Practice Still Haunts Us

A second major theme that comes out of An Independent Foreign Policy is an intense frustration with the bureaucracy ‘managing’ Canada’s place in the world. If the structural conditions imposed enormous constraints on Canada’s freedom of action, these limitations were exacerbated by a combination of “traditional elitism and secrecy” (Clarkson, 1968: xi). Such a culture immobilized big creative thinking and action.

As in later eras, Stephen was appreciative of some of the contextual difficulties, especially the need to work under conditions of the communications revolution. But there was a deep concern whether under any circumstances Canadian mandarins had the will to things differently beyond a crisis management approach.

This critique was another sign of Stephen’s distance from orthodox scholarship about Canadian foreign policy. For most academics up to the late 1960s celebrated Canadian diplomats and policy makers more generally for their skills.

Stephen punctured this sense of pride and image of superiority. Not for him the art of the possible, or mere problem solving. In many ways, this distaste connected with his suspicion that the functional approach in regard to institutions undersold Canada, with an onus on joining and status enhancement as opposed to a transformative ethos.

Stephen came to see Canada as a middle power in terms of its place in the hierarchy of nations (a semi-peripheral country) but he never embraced middle power diplomatic techniques. In some areas this was by omission, as there was only brief mentions of mediation as a primary focus of attention.

The main cause of contestation was on the primacy of quiet diplomacy in the Canadian repertoire. For the traditional ‘External Affairs’ mandarin this was the dominant practice in the tool kit. What was important was access and influence in Washington DC. Urges to criticize the US and US leaders should be tempered. Changes in US policy should be anticipated before they go public in an atmosphere of controversy. And there should never be the utilization of retaliation via linkage of issues.

In hindsight much of Stephen’s critique in An Independent Foreign Policy seems quite moderate. After all he played down the revolutionary dynamics. Arguing that Canada did “not need the mountain moving voluntarism of Mao. simply needs a leadership that can make it clear to the public – if not in a little Red book at least in a White Paper- what role Canada can play and how its objectives are to be achieved.” (Clarkson, 1968: 268).

Moreover, some of the changes pushed for by Stephen were coming into being albeit unevenly. One of the first things the government of Pierre Trudeau did was to start a conversation about foreign policy – a conversation that continued in a variety of structured forms in later years. Plus, we can see bursts of activity trying to do things differently in foreign policy, from the Third Option to the National Energy Program (NEP) related initiatives in the early 1980s.

Stephen was supportive of these efforts, and of course distressed when the momentum for both opening up the debate on Canadian foreign policy and the implementation of robust policies dried up first in the Mulroney years and then the Harper years. In doing so he became a key source of memory in the championing of an open autonomous foreign policy.

Yet as with any robust template for foreign policy there are points of contradiction and gaps. For the paradox of moving towards an autonomous and robust policy template in the early 1980s was that the actual policy making process reverted to the closed format that Stephen was so frustrated about in the 1960s. The only difference was that instead of a generalist elite dominating foreign policy it was now a centralizing cohort of technocrats inside central agencies.

Trudeau’s Failed Third Option:  The Reagan Cowboys

The NEP shows off this problem of reconciling dialogue among Canadians and the pursuit of robust policy making. As Stephen appreciated the process of decision making was secretive not only in the context of public dialogue but bureaucratic interaction: “remov[ed] from the normal process of interdepartmental consultation..[with DEA] ‘not informed until the last moment” (Clarkson, 1982: 79).

At the same time US retaliation showed itself to be no paper tiger. With the US first Reagan administration in place retaliatory pressures increased, with the Trudeau Liberals shifting from the practices of accommodation of the past to a “complacent and superior” positon that was premised on the notion that the “Californian cowboys” needed time to learn their job (Clarkson, 1982: 32).

The hard-line position of the Reagan administration was complicated further by the fact that the Trudeau government had expected some support for a global initiative on North-South relations. Not only were these (unlikely hopes) dashed but Canada found itself under pressure from Washington’s “institutionalized and unpredictable vulnerability” a doctrine of reciprocity that pushed the Trudeau government (again to Stephen’s frustration) to seek again the “advocacy of indirect means of influence” on issues such as Cruise missile testing. As Stephen suggested – very much in the mindset of An Independent Foreign Policy– this backtracking marked “a striking resemblance to the old quiet diplomacy approach and offers as little concrete evidence of its effectiveness” (Clarkson, 1982: 282).

Where the mantra of retaliation did creep into the Canadian agenda was at the sub-national level, a domain allowing for some considerable fragmentation on issues of provincial responsibilities. This type of action was of course most recently highlighted by BC Liberal leader Christy Clark, who on the eve of the recent election pushed for retaliatory trade threats to pressure for a softwood deal: “With our ban on moving thermal coal, we have got the Americans’ attention…We aren’t going to be weaklings” (Bailey and Hunter, 2017).

Stephen’s main contribution to the debate about Canada’s own practice was as a catalyst for change in change. Arguably more than any other text An Independent Foreign Policy for Canada opened up the debate about how accepted practices had run their course. Few pushed back to defend the Department of External Affairs as the core ingredient in the making of foreign policy. And the manta of quiet diplomacy lost ground accelerated over time to new and sophisticated practices of public diplomacy and national branding designed to cushion Canada from retaliatory activities).

Nonetheless, Stephen set himself a high bar to pass in terms of wanting both an open citizen based and coherent technically sound foreign policy. As the experience of the Trudeau government showed in the early 1980s robustness commonly combines with a revised form of elitism. What is more, under the structural constraints that Stephen so ably depicted, any departure in the traditional habit by legitimizing retaliation runs risks especially in the context of an America first administration – whether Reagan or Trump.

Continentalism and Canada’s Perennial Leadership Dilemma

Arguably the main point of departure of Stephen with most of his counterparts studying political economy – or International Relations more generally – is his appreciation for not only agency but the individual agency. Although to be sure a good deal of his work focused on the structural imposed by Continentalism, space opened up over time concerning how of major individuals influenced policy making decisions.

Here it is not so much An Independent Foreign Policy for Canada that acts as the foundation for this appreciation, but arguably his earlier work on Nehru and other ‘third world’ leaders focused upon in his thesis and subsequent publication on The Soviet Theory of Development (Clarkson, 1978: 265).

As alluded to by the reference to Mao and Canadian public policy, Stephen did not show expectation in An Independent Foreign Policy for Canada for a dynamic form of personal leadership in Canadian public policy. Nonetheless, he clearly expected more in terms of leadership than what was on offer by Lester Pearson in the 1960s.

To Stephen, Pearson’s instincts for quiet diplomacy (if useful at the time of the Suez crisis) had become a weakness weighing Canadian foreign policy down. As he writes Pearson’s has turned an “unobtrusive” style of diplomacy – “tactics which lead to his own international successes in the mid 1950s into a dogma that frustrates” (Clarkson, 1968: 265).

As well rehearsed in a host of later publications, Pierre Trudeau was far more Stephen’s image of a leader. And although on many specific occasions frustrated by his actions, Pierre Trudeau was the model that Stephen used to judge other leaders right up to the time of the government of Justin Trudeau (Appel, 2015).

If he found Trudeau fascinating (and in many admirable) Stephen became just as taken up by the personality types of American leaders. An indication of this shift from structure to agency in studying Continentalism is his tile of Canada and the Reagan challenge (as opposed to the neo-conservative challenge).

NAFTA and Market Integration

As a consequence of this shift Stephen became a close observer of bilateral (and later trilateral) summits between North American leaders. In the actual benefits of these summits Stephen was ambiguous. In some appearances, he supported greater institutionalization: “it’s amazing actually to think that, given all the attention spent on NAFTA, the three heads of government don’t meet regularly. They didn’t even meet after September 11, 2001, when the borders were blockaded, which put the whole notion of NAFTA in jeopardy” (Clarkson, 2005). At the same time, though, he was as worried as other observers that such meetings could be highly problematic, animating a securitization of North America.

But the importance of Stephen’s bringing individual agency in is that he was (or could have been!) well situated to take into account new unanticipated and disruptive changes at the apex of the US political system. A major contribution of his in the 1980s was to capture the individual importance of the Reagan challenge: “Reagan was serving notice on the world that America’s decade of instability and indecision was over [with a) simplistic and self-serving moralism” (Reagan, 1982: 21).

While a topic never allowed to be elaborated upon, Stephen was early on aware of the “tsunami” like implications of a Trump victory (Metro, 2015). In a December 2015 public event in Toronto he signaled that the Trump revolution would go beyond that animated by Reagan or George W. Bush “He’s off the map, even for conservatives”. Stephen stated, adding that Trump would “create an earthquake with Canada suffering tidal wave” (Metro, 2015).

The Clarkson Legacy

From his editorship of An Independent Foreign Policy for Canada, therefore, Stephen indicated his unique attributes as a scholar and a commentator. While building on his expertise in political economy in comparative perspective, he honed in on the Canadian continental condition. Although immersed in theory of economic development, what jumps out is his eclecticism: his concern with history and his blend of an analysis of structure and over time an appreciation of big personalities, albeit not always in a positive fashion.

For all of these of reasons– and many more- Stephen stands out among Canadian intellectuals. Yet if we miss him, we can still learn from him, not the least about how to balance tough interrogation of what is happening in everyday politics and policy making with an enthusiastic expectation that we can move beyond cautious and limiting habits.

References

Appel, Jeremy. 2015. “The Harper Doctrine in Red? Justin Trudeau’s Foreign Policy” Canadian Dimension, 1 June < https://canadiandimension.com/articles/view/the-harper-doctrine-in-red-justin-trudeaus-foreign-policy>

Axworthy, Lloyd. 1965. “Canada’s Role as a Middle Power.” Winnipeg Free Press, 8-9 September.

Byers, Michael. 2007. Intent for a Nation: What is Canada for? Madeira Park, BC :Douglas & McIntyre.

Cameron, Duncan. 2016. “Why is Justin Trudeau invited to the White House?” Rabble, 8 March 2016 < http://rabble.ca/columnists/2016/03/why-justin-trudeau-invited-to-white-house>

Clarkson, Stephen. 2010. “The unbalanced world of global governance,” Globe and Mail, 19 March https://www.theglobeandmail.com/opinion/the-unbalanced-world-of-global-governance/article4311549/

Clarkson, Stephen. 2008. Does North America Exist? Governing the Continent after NAFTA and 9/11. Washington, D.C., Woodrow Wilson Center Press.

Clarkson, Stephen. 2005. Presentation to the 38TH PARLIAMENT, 1ST SESSION STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE, 2 November  < http://www.ourcommons.ca/DocumentViewer/en/38-1/FAAE/meeting-66/evidence>

Clarkson, Stephen. 2002. “Canada’s Secret Constitution: NAFTA, WTO and the End of Sovereignty?” CCPA, October < https://www.policyalternatives.ca/sites/default/files/uploads/publications/National_Office_Pubs/clarkson_constitution.pdf

Clarkson, Stephen. 1998. Fearful Asymmetries: The Challenge of Comparing Continental Systems in a Globalizing World http://homes.chass.utoronto.ca/~clarkson/publications/fearful_pub.html 

Clarkson, Stephen. 1982. Canada and the Reagan Challenge. Toronto: Canadian Institute for Economic Policy.

Clarkson, Stephen, ed. 1968. An Independent Foreign Policy for Canada? Toronto: McClelland and Stewart for the University League for Social Reform.

Metro (Toronto). 2015. “A president Donald Trump would be a ‘tsunami’ for Canada: Prof”,  (Toronto) Metro, 2 December < http://www.metronews.ca/news/toronto/2015/12/08/what-president-donald-trump-would-mean-for-canada.html>.

Welsh, Jennifer (2004) At Home in the World: Canada’s Global Vision for the 21st Century. Toronto: Harper Collins.

 

 

 

Ontario’s Electricity Sector IV: Pre-Election Update

My first, second and third posts on the Ontario electricity sector described how policy and administrative decisions by different Liberal Governments gave rise to excess electricity generation with an inflated cost structure, leading to higher electricity prices. In anticipation of June 2018 elections, the Liberal Government recently implemented a costly and first-in-Canada financial scheme to fund its “Fair Hydro Plan” (FHP) to provide a short-term 17% price reduction. Given that the FHP is now a financial reality, this post focusses on the options available to a new Government with respect to both the FHP and the main driver of Ontario’s inflated cost structure, long-term contracts with independent power producers (IPPs).

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Why Toronto needs a national housing strategy

Dr. Colin Phillips is an up-and-coming scholar in Canada’s homelessness sector. He has an opinion piece in today’s Toronto Star titled “Why Toronto needs a national housing strategy.”

Points made in the opinion piece include the following:

-The City of Toronto has worked hard to develop good practices on the ground to address homelessness.

-But, like all of Canada’s major urban centres, it can’t properly address homelessness without substantial increases in funding from the federal and provincial governments.

This opinion piece is quite timely, as a new “national housing strategy” is expected to be unveiled by the Trudeau government later this month.

On Monday, the Calgary Homeless Foundation will be publishing a peer-reviewed report authored by Dr. Phillips. That report’s focus will be Toronto’s Streets to Homes program (a program that provides immediate access to housing to persons experiencing homelessness).

The Private Corporation Tax Loophole and the Ultra Rich

The 2017 Economic and Fiscal Update provides some detailed data (see pp. 51-53) on who will be impacted by the government’s plan to limit how much passive investment income can be earned in a private corporation.

Income from investments held in a private corporation is taxed at a lower rate than investments held by a person in a non registered account such as an RRSP or TFSA. For most small businesses, there is no incentive to save in a private corporation rather than an RRSP of TFSA.

Responding to anguished cries from small business, the vast majority of which are not impacted at all, Minister Morneau will allow $50,000 of income to be earned within a private corporation. This is equivalent to assets of more than $1 million.

The government estimates that putting a cap on private corporation investment income will affect just 3% of private corporations with investment income. But this small group of just 8,400 companies accounts for a stunning 88% of private corporation passive investment income.

Crunching the numbers shows that the affected 8,400 companies have average assets of $35.7 million.

The Department of Finance estimate that earning investment income in a private corporation instead of a personal account provides a higher annual after tax rate of return over ten years of 12.5% compared to 6.9%.

Again crunching the numbers, this means that the after tax return for the average private corporation impacted by the changes will fall from about $4.5 million to $2.5 million per year. (This depends on the details of how the new cap is to be applied, which will be in future legislation.)

Minister Morneau is entirely correct to argue that his proposed changes to taxation of passive investment income will have no impact on genuine small businesses, and are squarely aimed at a very small group of wealthy Canadians seeking an unjustifiable tax advantage.

Update on Jimbo’s Minimum Wage Wager

It’s been over a week now since I challenged the authors of 5 business-friendly economic reports to a friendly wager over the future trajectory of employment in provinces that are raising their minimum wage to $15 per hour.  The challenge was issued in my Globe and Mail column of October 3.

I was responding to the several business groups and business-funded think tanks that had issued several reports predicting job losses from the higher minimum wage, in the run-up to the coming vote in the Ontario legislature on the policy.  I summarized some of the major flaws of the various studies: including their misreading and misapplication of recent economic research on the employment effects of minimum wages (which typically find very small, or even slightly positive, effects); their misleading arguments regarding the connection between minimum wages and poverty; and their spurious concerns about the supposedly undue pace of the increases in Ontario and Alberta (in fact, of course, business lobbyists stridently oppose higher minimum wages on any timetable).

My main concern, however, was not these methodological critiques, but rather that the headlines generated from these reports about “coming job losses” resulting from higher minimum wages were very misleading, and in fact misportrayed the reports’ actual findings.  The reports generally describe an implicit counterfactual simulation relative to some base case forecast (which presumably incorporates normal ongoing employment growth).  At worst, in their scenarios (even if we accept their pessimistic approach), employment would grow more slowly than would otherwise be the case.  That doesn’t really mean that “jobs are destroyed by higher minimum wages.”  But that is how the results were portrayed in media coverage.  The scale of potential job losses in even the more negative of these studies will almost certainly be overwhelmed by normal job creation, and hence employment will continue to grow even after minimum wages are raised.

It’s important to note that this is not because of higher minimum wages (the economic research suggests that the expansionary effects of higher minimum wages through stronger consumer spending roughly balance out potential contractionary effects experienced primarily through slower business investment).  I am not arguing that a higher minimum wage in and of itself creates new jobs; only that fears they will destroy jobs and reduce employment are not valid.  The small effects of minimum wages (in either direction) will be overwhelmed by the other, more important determinants of employment.  Meanwhile, the distributional effects of higher minimum wages (shifting income from capital to labour, and towards low-wage workers in particular) will be very positive.

To highlight this point, I challenged the authors of five different critical studies to a $500 wager (each) that total employment in the relevant province they analyzed would be higher (not lower) one year after the minimum wage is increased.  To propose this wager, I have corresponded personally with the lead authors of the studies published by the Ontario Chamber of Commerce, TD Bank, the C.D. Howe Institute, the Fraser Institute, and the Ontario government’s own independent Office of Financial Accountability.  (That last group is in a different category from the others: it is not a business-friendly think tank but rather a government-funded body meant to provide arms-length analysis of government fiscal policy matters; its mandate apparently allows it to wade into broader economic issues like this one. I remain deeply suspicious of the FAO’s decision to wade into this particular debate, and I think there should be a broader critical discussion of its mandate and governance.)  The C.D. Howe report was focused on Alberta – and hence my proposed wager is based on the change in Alberta’s employment.  All the others focused on Ontario, and the bet was defined accordingly.

In my correspondence I indicated that if I won the bet, I would donate both my winnings and my original ante to the Workers’ Action Centre (the fine organization which has spearheaded the Fight for $15 in Ontario), or in the case of the Alberta study to the Fight for Fifteen network based in Calgary.

To date I have heard back from three of the five authors.  Two of the authors (lead authors of the TD Bank and Ontario FAO reports) replied noting that their own research in fact indicates their expectation that total employment in Ontario will indeed grow after the minimum wage is increased (although more slowly, in their judgment, than it would have otherwise).  They were understandably puzzled why I would ask them to bet against their own forecasts!  The lead author of the Ontario Chamber of Commerce study sent me a pleasant but noncommittal reply, referring me to a posted response which restates their key arguments, expresses concern at “ideological” misrepresentations of their findings, and declines the proposed wager.  The reply (like the original study) makes no mention as to whether the authors expect total employment in Ontario to rise or fall after the minimum wage is increased (that is, whether the job losses they expect from the minimum wage will outweigh the normal expected increase in employment).  I repeated this explicit question to them in subsequent correspondence, with no reply.  I should note that all three of these authors also indicated they did not think betting on an important economic issue was appropriate or ethical.

I have not yet received a reply from the authors of the Fraser Institute and C.D. Howe reports.  I will update this blog post (in the Comments section below) if I have any subsequent correspondence regarding the proposed wager.

For now, this offbeat exercise has confirmed my argument in the original column that none of the minimum wage critics are actually arguing that employment is going to decline in any of the provinces lifting the minimum wage to $15. Highlighting this point – that employment growth has been relatively strong in all three provinces (Ontario, Alberta, and B.C.), and will almost certainly continue even as the minimum wage increases – is an important way of responding to the fear-mongering of the business critics.

New book on Indigenous homelessness

I’ve recently reviewed a new book on homelessness among Indigenous peoples. The book, published by the University of Manitoba Press, was edited by Evelyn Peters and Julia Christensen.

My review can be accessed at this link.

Stephen Clarkson: An Introduction to a special blog series

Stephen Clarkson: Political Economist with a Global Vision (1937 – 2016)

Marjorie Griffin Cohen and Daniel Drache

Stephen Clarkson died early in 2016 in Freiburg, Germany and Canada lost someone very special. Stephen was a Professor in Political Science at the University of Toronto and engaged in teaching, research and writing until his death. He has contributed, in an extraordinary way, to the public understanding of Canada and North America in the 20th and 21st centuries, Europe in the 21st century, and the politics of globalization in the Western World.  He was one of Canada’s leading experts on Canada/US relationships and in this, his absence is acutely felt now as we are in the midst of renegotiating NAFTA.

At the annual gathering of academics in Toronto at Congress 2017, we organized a series of panels related to Stephen Clarkson’s work. We constructed the panels with the idea of bringing together experts who work in the various areas related to what interested Stephen to understand Stephen’s impact in the area.  The papers that were presented at Congress will each appear in the PEF forum. The point of the papers was not necessarily to be a comment on or critique of his work per se, but to show his influence on the entire thinking in an area of political economy, relating to issues such as the mega-trade deals, the machine politics of the Liberal and Conservative Parties, corporate influence, North American integration, and the new issues arising for regional and world politics such as the investor state dispute settlement mechanism trade court.

Stephen’s work was centered on the leading issues of the day foremost of which was the erosion of national sovereignty facing the unstoppable, far-reaching invasiveness of globalization and WTO’s complex, difficult legal culture.  He authored 14 books, and edited four others.[1]  He was a gifted linguist and fluent in French, Russian, Spanish, Italian and German.  He could present in each of these languages (in their home countries) what many of us struggle to do in English in Canada – deliver an academic paper or lecture without notes.

He received many honours and awards – some of them the most prestigious this country can give, such as the Order of Canada.  Stephen was also a gifted teacher and loved that aspect of his life.  He particularly enjoyed teaching undergraduates (another departure from many colleagues).  He even managed, through his charm and determination to include undergraduates on panels at Congress (the yearly gathering of Canadian academics where undergraduates are not permitted to present papers).

He has had an exceptionally productive career with a great many significant publications that have affected thinking in this country. An Independent Foreign Policy for Canada, 1968 is an edited collection, in which he wrote a chapter that presaged Trudeau’s Third Option and began his life-long concern researching the Canada’s declining importance in the global economy.

Uncle Sam and Us,: Globalization, Neoconservatism, and the Canadian State 2002 provides a powerful study documenting the massive reorientation of Canadian state policy, the rise of North American corporate power and the increasingly toxic role of neo-liberal ideology as a separate commanding policy space. The Big Red Machine, 2005 delved into the exercise of power, disappointments, betrayals and leadership battles of Canada’s Liberal Party, once the country’s unchallengeable hegemonic political party whose grip on power seemed unassailable at the polls despite a string of minority governments and the shift of power regionally from Quebec to the West.

These massively documented volumes are an excellent example of his vast knowledge and deeply analytical approach to Canada-US relations.  Before this book, his earlier book, Canada and the Regan Challenge:  Crisis in the Canadian-American Relationship, 1985 was one of the best contemporary studies of Canada/U.S. relations available from a critical Canadian perspective. His book became a classic of the new critical nationalism of English Canada of the 1980s, along with Kari Levitt’s earlier work Silent Surrender (1970), and was used extensively in universities all over the country on the asymmetrical, nuanced relationship between the two countries.

Another major initiative was to undertake a two volume magisterial study of the career, personality, ideas and exercise of power of the protean Pierre Elliot Trudeau during his decade long, tumultuous time as Prime Minister. He wrote this with his wife, at the time, Christina McCall Newman, a well-known journalist.  The vibrancy of their exhaustive reckoning and biting assessment of the Trudeau years in part came from their finely-honed writing skills exemplified by their unforgettable opening line of the first volume of their biography, “He haunts us still”.  Its impact also, derived from the dozens of interviews carried out in Ottawa, London and Washington about Canada’s larger than life Prime Minister who transformed modern Canada linguistically, economically and constitutionally. As these volumes showed, for many Trudeau became the ideal love-hate polarizing actor, change-agent, activist, theoretician, global celebrity with a grand federal vision for a newly constituted English Canada. In the Clarkson/McCall authoritative account we relive the nail-biting excitement and high and low drama of Canada’s constitutional wars particularly through Trudeau’s struggle against René Levesque’s and later with Lucien Bouchard’s la grande stratégy pour l’independence. Stephen and Christine won the Governor General’s medal for the first volume.

After the liberalism of the Trudeau years Canada changed, and Clarkson continued to focus on power, ideology, and state policy. In addition to his broad knowledge of Canada/US relations, Clarkson published extensively on North American political economy along with a proliferation of studies and reports, with a special emphasis on NAFTA and its implications for Canada and Mexico. While working on issues related to free trade, he became fluent in Spanish, developed a close working relationship with significant scholars in Mexico, and spent considerable time in Mexico doing research for publications.

It is a tribute to his perseverance that he not only learned Spanish to be able to better communicate with Mexican scholars and government officials, but also shifted his focus of analysis to include the implications of North American trade relations on Mexico as well.  One large-scale project (and most of his books are what he called “his big book projects” e.g. Does North America Exist, 2008, running over 500 pages) is innovative analytically in that he examines whether North America is becoming a cohesive economic and political unit akin to the European Union, with its increasing integration of political, economic, sociological and cultural integration.  Because of the dominant power of the U.S. he felt it is incorrect to think North American integration was an embryonic form of European integration. There is no separate political center, and no governance equivalent to that in the EU.  He concluded with a sense that the asymmetrical power system in North America might be the template for the regionalism emerging in the twenty-first century.

In a book he co-authored with Matto Mildenberger, Dependent America?  How Canada and Mexico Construct U.S. Power, 2011, they turned the usual Canadian approach to the US on its head by examining the impact of Canada and Mexico on the U.S. policy making process.  This book contests the idea that US power is self-determined and a result of the autonomous actions of its own citizens’ industriousness.  Rather it shows the myriad ways that the US in both the past and present derives benefits from other states’ resources, but even more significantly they delineate and how both countries, rather than recognizing this power, constantly demonstrate dependent-country comportment toward the U.S.

Dependent America is a piece of bold scholarship that takes the entire continent and gives the current economic and political relationships an analytical and grounded historical context.  It also gives a framework for understanding the current NAFTA negotiations and the highly volatile political relationships post-Trump.

In all of Stephen Clarkson’s work, his expertise does not lose sight of the knowledge that institutions are grounded in the lives of people and communities. Throughout his work he is acutely aware that the pushback of social movement actors in search of large-scale political change can become change-makers, even when the institutional universe is heavily stacked against them. It comes as no surprise then, that for Clarkson there is no straight line of causality between the fatalism of  ”there is no alternative” to the powerful and  seemingly unstoppable forces of markets globally and the empowerment of citizens to act collectively and locally.

Stephen resumed his interest in the German language and Germany in the later years of his life.  With his wife, Nora Born, he spent about half the year in Canada and half in Germany, where he would lecture and pursue research and writing on subjects related to regionalism.

We very much miss him personally as a good friend but also as an intellectual presence in Canada.  He was forthright and fearless in his public commentaries, and was frequently heard on the CBC and Radio-Canada.

The papers to appear in this series in PEF are as follows:

  1. Andrew F. Cooper, “A Critical Appreciation of Stephen Clarkson: Looking Back at his ‘Foundational Text’ on Canadian Foreign Policy”
  2. Greg Inwood, “Nationalism versus Continentalism: Clarksonian Perspectives”
  3. Laura Macdonald, “When Will the Fiesta Start? Mexico-Canada Relations in a New North America”
  4. Louis W. Pauly, “Canadian Political Economy: The Legacy of Stephen Clarkson”
  5. Michele Rioux, “Globalization and the Neoliberal Trade Agenda @ Bay: New Challenges for Canada and North America
  6. Daniel Drache, “The Clarkson Story Up Until Now and The Uncertain Future Of The WT

 

[1] Among his many books are: An Independent Foreign Policy for Canada 1968, Canada and the Reagan Challenge: Crisis in the Canadian-American Relationship 1985, Trudeau and our Times (with Christina McCall two vols.) 1990 and 1994, Uncle Sam and us: Globalization, Neoconservatism and the Canadian State 2002,  The Big Red Machine: How the Liberal Party Dominates Canadian Politics, 2005, Does North America Exist?: Governing the Continent after NAFTA and 9/11, 2008, A Perilous Imbalance: The Globalization of Canadian Law and Governance (with Stepan Wood), 2010, Dependent America? How Canada and Mexico Construct US Power (with Matto Mildenberger), 2011.

 

 

Self-insurance for workers doesn’t work

This is a guest post from Rod Hill, a Professor of Economics at the University of New Brunswick, Saint John campus. A previous version of this post first appeared in the New Brunswick Telegraph Journal.

In a report this month for the Halifax-based Atlantic Institute for Market Studies (AIMS), entitled “An Alternative to Employment Insurance”, Justin Hatherly proposes replacing the Employment Insurance (EI) system. A look at the proposal quickly reveals how unsatisfactory it is.

Instead of EI, Mr. Hatherly wants individuals and employers to contribute to Personal Security Accounts (PSAs). These accounts would be the property of the individuals, which they could draw upon in certain circumstances in the event of unemployment. The funds would be invested in the stock market by an independent board.

In effect, he is proposing to eliminate EI while expanding the current Registered Retirement Savings Plan (RRSP) system with some compulsory contributions, while restricting the withdrawal of those additional funds.

He writes “Persons who lose work through no fault of their own can draw 55 percent of their wages [up to the insured maximum] for 24 weeks, provided they had contributed for 960 hours” (about 24 weeks of full-time work). “Those who left their prior employment voluntarily would be ineligible” – but why deny them access to their own savings? Quitting a job get a better one is something to be encouraged.

Crucially, “those with insufficient savings receive benefits from a common fund financed by general revenue. However, they incur a negative balance and must pay back the government before contributing to their PSA” to be eligible for further withdrawals or loans.

AIMS is proposing that individuals should rely entirely on their own savings or borrowed money to survive during a period of unemployment.

Every insurance system, public or private, has the feature that those who experience a bad outcome (a house fire, a car accident, a health crisis, layoff, and so on) have benefits that are paid by those who have not (yet) experienced a bad outcome. That is the whole point of insurance. Risk for everyone is reduced as risk is pooled across the whole population.

Instead, Mr. Hatherly is inviting people to ‘self insure’ like people do if they fail to buy house insurance. We all know how that turns out if your house burns down.

A few lengthy periods of unemployment would be no more pleasant. When people self-insure, they bear the entire risk themselves. Those with high and steady incomes may be able to shoulder that risk, but most people, particularly those with lower incomes, would not.

I did a calculation to see how this system would work. Someone earning $50,000 a year and making contributions of 4 percent could take 6 years to accumulate enough resources to cover the proposed maximum withdrawal from their Personal Security Accounts. (Under the current EI system, such a person would be guaranteed a minimum of 36 weeks of benefits, not the 24 in the AIMS scheme.)

This assumes that the invested funds would grow steadily. When the last recession began in 2008-2009, the national unemployment rate rose from 6.1 percent to 8.3 percent, while the Toronto Stock market index fell by more than 40 percent. If unemployed workers had been relying on Personal Security Accounts, their funds would have been decimated at the time they needed them the most.

In his report, Mr. Hatherly notes that even unemployment might not diminish the Personal Security Accounts very much because of “restrictive conditions on benefit withdrawal and duration” – a point which underscores the inadequacy of his proposal for maintaining income and spending after job loss.

An important feature of EI is that benefits and the spending they support kick in quickly where and when layoffs occur. This helps shorten recessions by maintaining total spending.

Mr. Hatherly is right about one thing. With workers left to support themselves during periods of unemployment, they will have an incentive to find employment quickly – assuming, as he seems to, that jobs are available. (Particularly in recessions, the number of people looking for work far exceeds the number of job openings.)

However it’s better for both workers and employers if people to take time to find a job well suited to their skills. As well, a lack of income support during unemployment would increase the bargaining power of employers and push down wages.

No one would argue that the existing EI system is perfect. A much criticized feature is its division of the country into regions where eligibility criteria and benefit duration vary greatly.

In those with the lowest unemployment rates, typically urban areas, a minimum of 700 hours of work are required to be eligible for only 14 weeks of benefits. A minimum of 1820 hours (about 46 weeks of full-time work) are needed for 36 weeks of benefits.
In regions with the highest unemployment rates, 420 hours of work gives eligibility for 32 weeks of benefits. The result is a permanent subsidy to regions of high unemployment and inadequate access to EI benefits for many in urban areas. Just because the unemployment rate is low does not mean that it is easy to get a job. Many people are increasingly stuck in ‘precarious work’, temporary or part-time with no job security.

Any change to this system towards one with greater national uniformity would have to be done gradually to avoid undue hardship in high unemployment regions. It would be best done in conjunction with other changes to income supports, such as guaranteed minimum incomes, an idea governments are now seriously considering.

However, but AIMS’ radical proposal to scrap Employment Insurance completely and to leave individual workers on their own to bear all the risk of unemployment is not an improvement.

Income and geographic distribution of low-income renters in Toronto

In this second of a series of housing-related posts I analyze the income and geographic distribution of renter-occupied households in the City of Toronto. My first post focussed on affordability and inequality trends by analyzing time series (2001-16) data for Ontario by household income quintiles. As a complement, this blog studies the income and geographic distribution of low-income and other renter households in Toronto based on census-tract (CT) data for 1996 and 2006. I expect to update and expand on this analysis after 2016 data is released later this year. This Toronto-specific analysis confirms the earlier provincial-level findings with respect to the broader structure and dynamics of the rental market. Based on this more disaggragate basis, I find that increased between-CT household income inequality is being driven by increases in inequality in owner households. The data shows significant income sorting by geography, so that higher (lower) income renters and owners tend to live in the same higher (lower) income CTs. Lower-income renters are concentrated in lower average income CTs, pay lower rents, but face a much higher rent burden. In subsequent posts I will update this analysis and discuss the policy implications and initiatives of these and other findings.

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Some comments on the Financial Accountability Office of Ontario’s minimum wage commentary

The Financial Accountability Office of Ontario (FAO)—an independent, arm’s length, non-partisan research institute—released a paper on September 12th outlining the likely economic impacts flowing from the pending minimum wage increase (see here). The FAO’s findings are already garnering significant media attention and will almost certainly be used by the opponents of Bill 148 as further proof that the Ontario Government is economically reckless.

Contrary to the study commissioned by the Ontario Chamber of Commerce (which warned of 185,000 jobs lost over two years), the Financial Accountability Office is not institutionally or ideologically wedded to a particular political position. This non-partisanship is reflected in the FAO’s findings, which flagged the potential drawbacks associated with a higher minimum wage, yes, but also included many (though not all) well-documented benefits.

Before I provide my reflection on the study’s contents, I wanted to summarize some of the key findings, both positive and negative.

First the negative findings, which are bound to dominate the headlines:

  • The single largest and most potent prediction is that a $15 minimum wage will result in the ‘loss of approximately 65,000 jobs’ (50,000 when we take into consideration the job creation associated with greater consumer spending). This will be the headline-grabbing take away from the study. I will return to this claim below, but it is important to note that a $15 minimum wage will not mean that 50,000 workers will lose their jobs.
  • In response to higher payroll costs, business will try to reduce expenses by increasing automation and by substituting minimum wage workers for higher-paid, more productive workers, thus leading to job losses for workers presently at the minimum wage.
  • Job losses are expected to be concentrated amongst teens, young adults and recent immigrants.
  • Business will attempt to raise prices to deal with the higher payroll costs. This, in turn, is expected to reduce sales, which will trigger further job losses.
  • Consumer price inflation is expected to be ratcheted up by 0.5 percent, which will dampen consumer spending.
  • The FAO concludes that a higher minimum wage is not an effective tool for alleviating poverty because many people working at the statutory minimum come from affluent (above-median income) households. The FAO estimates that just 27 percent of the total gains in labour income will benefit low-income households, while another one-third will flow to households between the low-income threshold ($46,000) and the median-income households ($92,000), leaving 40 percent of the income gains for households with above-median incomes.
  • The overall conclusion is unfavourable: by targeting low-income workers instead of low-income households, the pending increase to Ontario’s minimum wage will fail to significantly reduce poverty, though it will cost many Ontarians their jobs.

On the positive side of things, the FAO’s study notes:

  • Roughly 1.6 million workers will be directly affected by the minimum wage increase (that is 22 percent of the labour market), while those currently making $15-$19 per hour will likely be indirectly affected.
  • Whereas the majority of people currently working at the statutory minimum wage (520,000 people, or seven percent of the labour market) are either teenagers (15-19 years of age), young adults (20-24) or part-timers, once the $15 minimum wage is brought in, most minimum wage workers will be adults and most will be full-time earners. This suggests that the main group benefitting from the minimum wage increase is the people who are most likely to be economically independent and/or have economic dependents (namely children). I raise this because, ordinarily, the group to be most directly benefitted by an increase to the minimum wage—an increase that would usually range from $0.25 to $1.00—would be the teens and young adults working directly at the statutory minimum. Because the proposed increase to the minimum wage is so large ($3.40/hr over the next 17 months) it will capture many more adults in its net (and many more low-income households, too).
  • The new minimum wage is expected to redistribute income from businesses to workers, raise total labour income by 1.3 percent by 2019 and, in turn, boost economic activity. The associated increase in consumer spending will stimulate economic activity and lead to 15,000 new jobs being created, thus partially offsetting the 65,000 expected jobs lost.
  • The scholarly research in Canada finds that higher hourly wages are associated with greater employee satisfaction, reduced turnover and associated training costs, and improved labour productivity, all of which was mentioned (or implicitly recognized) by the FAO study (unlike the study commissioned by the Ontario Chamber of Commerce, which focused only on the economic costs of Bill 148).
  • The scholarly research also suggests that there is no significant impact on adult employment from a higher minimum wage, which the FAO built into their framework.
  • There is expected to be a significant spillover effect arising from a $15 minimum wage. The FAO assumed that those currently earning between $15 and $17 per hour would experience a wage increase of 7.5 percent and those currently earning $17 to $19 per hour would see their earnings increase by three percent. So it’s not just those under $15 per hour who are scheduled to see an increase. Those currently between $11.40 and $19 per hour will likely see an increase. That’s a big portion of the labour market that is about to get a pay raise!

In what follows, I elaborate and assess the findings contained in the FAO report.

First, and most significantly, a $15 minimum wage is not expected to cause 50,000 people to be laid off. The language used by the FAO is ambiguous on this issue. They refer, variously, to ‘job losses’ and ‘reduced employment’, but in footnote #5 they refer to three dis-employment effects including outright job losses, decelerating job creation and a reduction in hours worked. In conversation with FAO economists, I asked for clarification on this matter and was told that 50,000 workers are not expected to lose their jobs. Rather, the combined dis-employment effects add up to 50,000 jobs equivalent lost.

I doubt the media will note this, and part of the problem flows from language selection, but there is a difference between an existing worker being laid off and the rate of (future) job creation slowing down. In in the former scenario an actual person is made materially worse off, while in the latter situation, a hypothetical worker—someone who is not presently employed, but who may seek work in the future—is not able to find a job. In public policy research there is a balance to be struck between terminological precision and conceptual clarity, on the one hand, and readability and accessibility on the other. I don’t fault the FAO for their choice of words, but the likelihood that their claim will be misinterpreted by large swaths of the public (and by public officials) will approach 100 percent.

Second, it is not clear that the job loss estimates for teens and young adults are in line with the latest economic research. The FAO explicitly references Morley Gunderson’s research on the interplay between teen and young adult employment and the minimum wage. Without citing them directly, though, in conversation with the FAO I learned that they also relied on a more recent inquiry by Pierre Brochu and David Green, who find a much weaker relationship between a higher minimum wage and the dis-employment effects among young workers. The FAO claims that their estimates are based on the ‘mid-point in the range’ of scholarly estimates, which implies that the negative employment effects may well be too high (or too low, as they note).

Third, the demographic makeup of those who may lose their jobs is surely significant, though it went unmentioned in the study. The FAO notes that the dis-employment effects will be most strongly felt by teenagers and young adults. The FAO also notes that many of the beneficiaries of the minimum wage hike will be workers in households with above-median incomes, some even from very affluent families. The implication, confirmed in conversation with FAO economists, is that 50 percent of the job losses are going to be felt by young workers coming from affluent households. From a policy perspective this is important. There is surely a social (and indeed, moral) difference between an individual losing a job who has significant financial responsibilities, including provision for economic dependents (including children), and someone unable to find work who, themselves, is economically dependent on another adult. If future job creation for affluent teenagers is one casualty of higher earnings for low-income working parents, that may be a policy trade-off that is worth making.

Fourth, the figure of 50,000 sounds high, but there was no timeline attached to this estimate. In correspondence with the FAO, I learned that the dis-employment effects will play themselves out in the ‘short to medium term’, meaning a few months to a few years. This is also significant. 50,000 ‘job losses’ in one month will have a very different macroeconomic effect than 50,000 jobs lost over a three-year period. Likewise, had the FAO not used absolute job loss numbers, relying instead on relative job losses, the public perception would be rather different. Just think of the headline: ‘50,000 jobs lost as a consequence of a $15 minimum wage’ in comparison with ‘0.7 percent of Ontario’s labour market likely to be negatively affected by $15 minimum wage’. Both headlines are equally true, but the public perception in the first will be very negative, while the perception in the latter would be indifference (0.7 percent amounts to a rounding error in the context of a labour market of 7.7 million people).

Fifth, there are significant omissions in the study, some of which were flagged but some of which were overlooked. For example, there is well-documented research linking a broad range of health outcomes with income and socio-economic status (see here and here, for example). Moving up the income ladder is associated with improved health outcomes, including life expectancy, and by implication reductions in health care spending and hospital budgets. The relationship between low-income and health outcomes was flagged in footnote #1, but was excluded from the study.

Likewise, recent research by Daniel Kahneman and Angus Deaton (two of the greatest living economists) finds that there is a positive relationship between income, on the one hand, and happiness, on the other. In this context, ‘happiness’ can mean either ‘emotional well-being’ or ‘overall life satisfaction’. And while these two dimensions of happiness differ in important ways, both rise with one’s income (though emotional well-being maxes out around $75,000 USD). The Government of Ontario has very few policy levers at its disposal that can directly and immediately improve either the emotional well-being or the overall life satisfaction of roughly two million Ontarian workers and their families. Surely this is a lever that should be pulled.

Similarly, while the economic cost associated with absolute poverty was not assessed, the very well-documented positive social consequences associated with reductions in relative poverty (read: income inequality) were completely overlooked. In its review of the literature, the Ontario Government’s 2014 Advisory Panel on the Minimum Wage noted that a higher minimum wage is associated with both reduced wage inequality and overall income inequality. This is a significant omission and, while it may not have fit inside the parameters of the study, policy-makers cannot remain deaf to the call of income inequality.

Sixth, the FAO’s study overlooked the issue of the gender wage gap (and labour market segmentation, generally). Women are over-represented in minimum wage jobs, including part-time status and in some industries that are heavily reliant on low-wage work, including retail and accommodation & food services. Given the policy significance of the gender wage gap for the Ontario Government’s political objectives, this seems like a considerable oversight. An increase to the minimum wage will likely help close the gender wage gap, as will other provisions with Bill 148, including facilitating access to union representation.

Seventh, poverty is a complex phenomenon with many causes. It must be noted that there is an important distinction between the poverty associated with unemployment and/or the absence of income and the poverty associated with a low-paying job. Clearly, an increase in the minimum wage will not help those who are poor because they do not have a job. A higher minimum wage (nor any single policy instrument, for that matter) cannot solve the problem of poverty as such, though boosting the minimum wage can help alleviate working poverty, both relative and absolute.

Eighth and finally, it is not clear to me that, even if we accept the FAO’s estimates as true, their conclusion necessarily follow from the evidence. The FAO states that 1.6 million people will be directly affected by a $15 minimum wage and that those currently working between $15 and $19 will benefit from the spillover effects. In other words, a very large proportion of Ontario’s labour market is set to receive a pay raise. The Ontario Government certainly has other policy options at its disposal when it comes to improving the economic station of the least well off (including the working income tax credit), but to conclude that a higher minimum wage is an ‘ineffective tool’ for dealing with poverty does not seem in line with the FAO’s findings. A more accurate conclusion, from my perspective, is that a higher minimum wage is not the only tool for dealing with poverty. It is one tool in a broad array of tools, but because the minimum wage will give a large chunk of Ontarian workers a pay raise, I fail to see how this tool could be deemed ‘ineffective’.

There is more to say about this study, but I leave it there for now. It is likely to cause quite a stir in the coming weeks. Let’s just hope the policy discussions that flow therein are factually-grounded.

 

 

 

 

The headline you didn’t see: $15 per hour will have a big net benefit

You wouldn’t know it from today’s headlines about impending job losses, but an analysis of the impact of Ontario’s move to a $15 minimum wage from the province’s Financial Accountability Office shows a net benefit for Ontario workers.

Overall, this is a much more cautious report than what the Ontario Chamber of Commerce and its allies had furnished, noting both the costs and benefits of $15. While the media is focusing on job loss figures (more on this below), the report predicts a big overall rise in incomes. Even if we assume its job loss estimates come true, the FAO says real labour income will go up by 1.3% after taking into account any negative effects, with over 60% of that going to the bottom 50% of households. Read more »

Book review: Social policy in Canada (2nd edition)

Oxford University Press has recently released the second edition of Social Policy in Canada, co-authored by the father-daughter duo of Ernie Lightman and Naomi Lightman. I recommend this book as an excellent resource for students of social policy. It will be useful for classroom instruction, while also being a handy reference for researchers, persons who design and administer social policy, and persons who advocate for improved social policy.

Here are 10 things to know:

1. The book does an outstanding job of explaining important ideas in very succinct ways. Chapter 1 explains that low-income earners benefit greatly from Canada’s ‘tax and transfer’ system—since our tax system taxes the rich more than the poor, and then redistributes this income in ways that tend to benefit lower-income households. Chapter 4’s discussion of the family—and why it can’t be relied on as the only source of poverty alleviation—is very good (but should appear much earlier in the book, and should have included a consideration of how some families are more effective than others at advocating for social services for their own family members).

Read more »

Housing Affordability and Inequality: Low-Income Renters in Ontario

I dedicate this post to the memory of Bonnie Briggs, who died earlier this month, in honour of her lifelong and tireless work on housing and homeless issues in Toronto.

In this first of a series of housing-related posts I analyze rental housing expenditures for low-income households in Ontario. Rent is the single largest expenditure element for renters in the first and second household income quintiles and is therefore an important indicator of housing affordability and expenditure inequality. This is a relatively under-studied component of the overall housing market; most policy analysis in Ontario has focussed on ownership affordability. Rent-related data is comparatively less comprehensive and detailed than ownership-related data and hence an important aspect of this first post consists of data compilation, projections and analysis. In subsequent posts I discuss policy initiatives from the perspective of affordability and inequality for low-income renter households.

Read more »

The Ontario Chamber’s economic impact analysis of Bill 148 still doesn’t make sense

On Monday, the Keep Ontario Working coalition spearheaded by the Ontario Chamber of Commerce released an analysis of the impacts of Bill 148 in Ontario, which will introduce a $15 minimum wage by 2019 and a host of other employment standards improvements. The analysis raised many red flags: it focused only on costs, predicting very large negative impacts out of line with decades of research in economics and appeared to include a significant math error. What’s more, the analysis was incomplete: just a few summary slides and no description of how results were derived, the study a black box.

Zohra Jamasi, an economist at the CCPA and I, summarized these concerns in a post at the CCPA’s Behind the Numbers blog. I also outlined the math error, which incorrectly claimed that a 0.7% increase in prices would amount to $1300 of new spending on average per household per year, on Twitter: Read more »

Ease up on shareholder payouts, pay your workers more instead

With Alberta and Ontario raising their minimum wage to $15 per hour, and BC possibly following suit soon, the usual suspects have begun their predictable howling about how this is a bad time, or it’s happening too fast, or how it will simply hurt those we are trying to help. It is true that increasing the minimum wage may result in slightly fewer jobs for teenagers, and slightly fewer hours for other workers – but the evidence shows that overall the effect is positive, especially for low income households.

Thank goodness progressive economists have been on the case, with this great analysis of corporate fear mongering from Zohra Jamasi and Michal Rozworski, and Shelia Block’s article explaining how a higher minimum wage will reduce inequality in Ontario.

Cole Eisen has added another dimension to this analysis for Canada – specifically linking short term corporate strategies such as share buybacks to decreased investment in wages & training, which has a negative effect on worker’s share of income as well as long term economic growth. In the UK, Corbyn has made a similar argument (subscribers only), that there should be a link between dividends and fair pay.

I appeared on the Business News Network to make the case that Cole and I outline below. It first appeared in the Hamilton Spectator, titled: Yes Mr. Weston, You Can Afford to Pay Your Employees a Living Wage

Loblaw Companies Ltd. chairman and CEO Galen G. Weston recently joined the chorus of business leaders to come out against the Liberal’s proposal to increase Ontario’s minimum wage to $15 per hour by 2019. Weston – whose family’s sprawling business empire includes Loblaw stores, No Frills, Shoppers Drug Mart and high-end fashion retailer Holt Renfrew – fretted about the proposal’s effect on his bottom line in a call with analysts last week.

This comes on the heels of Queen’s Park’s plan to increase the minimum wage to $14 per hour on January 1, 2018, and then to $15 the following January. A similar policy in Alberta will see the minimum wage raised to $13.60 this October, and increase to $15 in October 2018. Approximately 1 in 5 Albertan workers and 30% of Ontario workers currently earn less than $15 per hour.

Referring to the reforms as “a significant set of financial headwinds,” Weston said “the organization is mobilizing all of its resources to see whether or not it can close that gap,” warning, “at this point, we don’t know the answer.”

He went on to outline possible steps the company would take to mitigate the $190 million dollar increase in labour costs he forecasted would arise from the new minimum wage laws and Quebec’s recent efforts to reduce the price of prescription drugs. These steps included efforts to automate tasks currently done by employees, presumably to make paid workers redundant.

Even if Weston’s $190 million estimate is correct, his suggestion that a company like Loblaw lacks the resources to comply with the policy is misguided.

Canadian research shows that increasing the minimum wage is not just good for workers, but also for individual businesses and the wider economy.

First, and most importantly, it’s pretty tough to get by on minimum wage wherever you live in Canada. So when minimum wage workers get a raise, they usually spend it in their local economy. Economists call this “a higher marginal propensity to consume.” The good news is that with more income, workers can better meet their basic needs, and local businesses benefit from having customers with more money to spend.

But higher minimum wages are also a good strategy for transforming precarious work into decent work. Raising the minimum wage encourages employers to abandon low-wage, high turnover strategies. Instead, employers are more likely to invest in their current workforce, lowering turnover and increasing productivity.

UBC economist David Green suggests that increasing the minimum wage is one of the few mechanisms that encourages employers to abandon an inefficient low-wage, high turnover strategy. This is an important long term impact of increasing wages.

Weston’s claims are also in conflict with Loblaw’s financial statements which clearly show the company can absorb the impact of a policy that will help more than 1.6 million workers in Ontario make ends meet. Last year alone, the company paid shareholders over $1.1 billion dollars with $708 million delivered through share buybacks. Ostensibly finding no productive use for these resources within the firm, Loblaw executives elected to hand this money over those holding company stock – a significant portion of which belongs to Weston and his family.

These numbers are up from a combined total payout of $695 million in 2015 and $675 million in 2014. For a company with 2016 net earnings of $990 million, disbursing that kind of money to shareholders either indicates a lot of excess cash or a broken incentive structure.

For someone who praised family firms’ ability to create value for all stakeholders when freed from the pressures of meeting quarterly targets in a book called Re-imagining Capitalism, Weston’s recent posturing reeks of the myopic outlook that has taken over the provinces’ boardrooms and helped solidify a slow growth equilibrium. Employees are a key piece of any retailer’s success and investment in them is an essential component of realizing long-term value creation.

Over the past several decades, a pivot in corporate strategy that privileges short-term value extraction over growth has seen inequality balloon and economic mobility stagnate.

These trends are by no means natural but are the direct result of policies that eroded both the position of workers within the economy and the conditions necessary for equitable and sustained economic growth. Egged on by tax loopholes, executives face powerful financial incentives to neglect important investment in workers and technology. Directing cash flow towards shareholder payouts, they can pump up share values and trigger large bonus payouts. This leaves little to invest in employees’ capacity.

Breaking this cycle requires more than tinkering with corporate governance requirements or the tax code. Policies that mandate firms recognize the contribution that employees make to their success are necessary to overturn a status quo that has produced a paltry 0.7% increase in real wages over the past 15 years.

Implementing the new policy will require some adjustment on the part of companies as they switch from a model of low wages and high turnover to one based on sustained productivity growth and investment in their employees. However, not only is raising the minimum wage the right thing to do, it also makes good economic sense.

Ten Things to Know About Social Assistance in Alberta

I’ve just written a blog post about social assistance in Alberta.

Points raised in the post include the following:

-It’s very difficult to quality for social assistance in Alberta (this is also the case in all other provinces and territories). Reasons why are discussed in this previous blog post of mine.

-In the 1990s, there were changes to the rules governing social assistance in Alberta. From that point on, it became even harder to qualify for social assistance in Alberta.

-In Alberta, persons experiencing homelessness are not eligible to receive some forms of social assistance.

The full blog post can be accessed here

Income transfers, means testing, and universality, oh, my!

Overall, the NDP leadership race has provided a lot for progressive economists to be excited about.

From progressive tax reform to fair wages and worker’s rights, poverty fighting income transfers to new universal social programs, the four leadership candidates have put substantive and laudable social democratic proposals on the table.

Unfortunately, the last debate waded into unhelpful – if not disingenuous – exchanges on income transfers, means testing and universality, particularly on the topic of Jagmeet Singh’s proposed senior’s guarantee. In the interest of supporting well-informed and honest debate, I want to take this opportunity to clarify what Singh has proposed, and elaborate on why I think targeted income transfers are useful and progressive tools in the fight for economic equality.

What is the Canada Seniors Guarantee?

Critiques of Singh’s income security policy have mainly focused on the Canada Seniors Guarantee, which proposes some changes to the current Old Age Security (OAS).

The guarantee combines a number of existing seniors’ benefits into a single income tested benefit, administered through the tax system. This includes OAS, and the Guaranteed Income Supplement (GIS), but also the regressive & non-refundable Age and Pension Income credits. By adding the Age Credit and the Pension Income Credit, Singh claims an additional $4 billion will be added to the core benefits provided by OAS / GIS. (According to federal tax expenditure data, in 2016 the Age Credit cost $3.3 billion and the Pension Income Credit cost $1.2 billion.)

(Update: this graph only shows the combined Age and Pension benefit available to a single individual, some higher income earners in a couple may have higher benefits from spousal amounts.)

Some of the confusion results from critics who suggest that the OAS is universal. As Andrew Jackson rightly pointed out, OAS begins to be clawed back for those with incomes around $75,000 and is fully phased out for those with taxable income of $120,000. But Guy Caron was correct in pointing out that OAS is near universal, since the vast majority of seniors have taxable income below $75,000. Among those over 65 with any income, fewer than 10% have total incomes over $75,000, and about 4% have total incomes over $100,000 (See CANSIM 111-0008).

I asked Singh’s campaign for more details, and they told me that his new benefit would fully phase out by the time a senior’s individual taxable income is $100,000. Along with the $4 billion from the reallocation of the age credit and the pension credit, this allows a significant increase in benefits for seniors with low and middle incomes by redistributing income that currently goes to the top 5%-10% of income earners over 65.

Not all means-testing is the same.

It is important to note that all four candidates are proposing income tested supports in some capacity – Caron’s basic income, Ashton’s expansion of the GIS and GST tax credits, and Angus’ call for an expansion of the Working Income Tax Benefit (WITB). As they should— income transfers are a key social policy tool in the fight against poverty.

While income-testing is a form of means-testing, some have conflated Singh’s proposed targeted income transfers with other degrading means tests — the endless forms and surveillance rightly reviled for the stigma, barriers and hardship they create for many who rely on provincial social assistance programs. This is clearly an incorrect characterization of his seniors guarantee.

There are also those that suggest that by supporting income tested transfers, one leaves the door open for attacks on universal public programs and services (“the rich can pay for their healthcare”). Social democrats agree that universal social programs serve a public good in and of themselves, that there are social and economic rights that every citizen is entitled to, regardless of means. The debate surrounding targeted poverty reduction methods should not be confused with an attack on these universal programs.  All of the leadership candidates, including Singh, are clearly on record supporting universal childcare, pharmacare, and homecare, as well as income tested supports.

Lost in the critiques of Singh’s proposed adjustments to OAS is the fact it is that he is increasing the progressiveness of benefits that are already delivered through the tax system, and that the vast majority of seniors would see an increase in their benefits.

Of course, as Jackson and Rozworski have argued, there is an important case to be made for solidaristic income security programs that are universal, to say nothing of universal social programs Singh clearly supports, and which can build support across social classes for economic security measures delivered as a right.

Difference is good.

While it is useful to clarify our thinking on which programs are best delivered as targeted income transfers, and which are better as delivered universal transfers or services, it is important to remember that the differences between the four candidates on this point are very small. All four candidates are putting forward exciting ideas that are clearly to the left of the debates we had in the last federal election, to say nothing of the current Liberal government.

It’s always good to remember that violent agreement does nothing to advance our thinking. Constructive and honest debate is necessary, healthy – and exciting for lefty policy wonks!

Now let’s have a debate that highlights the flaws in the federal government’s privatization / corporate welfare industrial policy.

Unwarranted Gloom and Doom: The IMF on Canada and NAFTA

To read the media today, one would think that NAFTA is a keystone of Canadian prosperity and that renegotiation could lead to a national economic disaster.

That view has already been rebutted in a report by Scott Sinclair for the Canadian Centre for Policy Alternatives. He finds that a reversion to WTO tariffs and trade rules would have only a modest impact, albeit that some auto and agricultural exports would suffer. The key take-away is that we can afford to walk away from a bad deal if necessary.

The International Monetary Fund also do not see an economic disaster in the making in their latest country report on Canada.

In the first place, NAFTA has ultimately been quite disappointing in terms of the performance of the all important manufacturing export sector.

“Staff research has suggested that years of low labor productivity growth has eroded Canada’s external competitiveness in the manufacturing sector and caused a permanent loss of manufacturing capacity. The entry of China into the U.S. market following its accession to the WTO and the appreciation of the Canadian dollar during the oil boom in the mid-2000s made the problem worse. Canada’s early gains in NAFTA have been diminished. Today, Canada’s export share in the U.S. market for non-resource goods is about 11 percent, half of what it used to be in the mid-1990s.” P8.

Second, reversion to WTO tariffs would have only a modest short term impact and the economy as measured by GDP would soon recover.

“Scenario analysis of a tariff increase.

If the U.S. raises the average tariff on imports from Canada by 2.1 percentage points to the WTO most favored nation level, and there is no retaliation from Canada, simulations based on the IMF Global Integrated Monetary and Fiscal Model suggest a negative short-term impact on Canada real GDP of about 0.4 percent. The lower external demand weighs on exports, profits and disposable income, leading to permanently lower investment and private consumption. The Canadian dollar depreciates, softening the effect of the tariffs on exports, but increases the price of foreign goods. The trade balance deteriorates, then recovers as the exchange rate remains depreciated.”

One could add that the end of NAFTA would restore some significant policy space to Canadian governments. In short, we do not need to panic.

Book review: Understanding spatial media

I’ve just reviewed a new book about spatial media (and have written it from the vantage point of somebody working in Canada’s homelessness sector).

One point raised in the blog post is the fact that the language used when enumerating persons experiencing homelessness has an impact on policy discussions.

One point raised in the book itself is the fact that large subgroups of the world’s population have little if any Internet access—in Canada, this is particularly relevant to persons experiencing homelessness and to persons living in northern regions.

My full review can be accessed at this link.

Second Annual Canadian Homelessness Data Sharing Initiative

I’ve just blogged about the Second Annual Canadian Homelessness Data Sharing Initiative.

This is now an annual event that takes place in Calgary. It’s co-sponsored by the Calgary Homeless Foundation and the University of Calgary’s School of Public Policy.

A summary of the inaugural event (which took place in May 2016) can be found here, while the link to the just-published summary of the 2017 event is here.

Economists support $15 minimum wage in Ontario

We, the undersigned economists, support the decision to increase the minimum wage in Ontario to $15 an hour. Raising the wage floor makes good economic sense.

Today, Ontario’s minimum wage is $11.40 per hour. Adjusted for inflation, this is barely one dollar higher than its value in 1977. Yet over the same four decades, the average productivity of workers has increased by 40%. And the prevalence of minimum wage work is spreading. Around 1 in 10 Ontario workers make minimum wage today, with a large increase in this proportion over the last two decades.

Low wages are bad for workers as individuals. An individual working full-year, full-time on the minimum wage can still fall short of the poverty line. The situation for minimum wage workers trying to support families is no better—and evidence shows that this is increasingly what is asked of minimum-wage workers. The stereotype of the teenager living at home making minimum wage is out of date: over 60% of workers earning minimum wage in Ontario in 2015 were over the age of 20, as were over 80% of those making $15 or less.

But low wages are also bad for the economy. There are good economic reasons to raise the incomes of low-wage workers. Aggregate demand needs a boost. While Canada escaped the harshest impacts of the 2007-08 financial crisis, our country has also seen a slowdown in growth. We risk further stagnation without reinvigorated economic motors. As those with lower incomes spend more of what they earn than do those with higher incomes, raising the minimum wage could play a role in economic revival, improving macroeconomic conditions.

For years, we have heard that raising the minimum wage will kill jobs, raise prices and cause businesses to flee Ontario. This is fear-mongering that is out of line with the latest economic research. Using improved techniques that carefully isolate the effects of minimum wage increases from the remaining noise in economic data, the weight of evidence from the United States points to job loss effects that are statistically indistinguishable from zero. The few very recent studies from Canada that have used these new economic methods agree, finding job loss effects for teenagers smaller by half than those of earlier studies and no effect for workers over 25.

There are many possible reasons for minimum wage increases to lead to little or no job loss. Studies have found lower turnover, more on-the-job training, greater wage compression (smaller differences between higher- and lower-paid workers) and higher productivity after minimum wage increases. In short, raising the minimum wage makes for better, more productive workplaces.

The business lobby has also suggested that any minimum wage increases will simply be passed on as higher prices. First, the above-mentioned improvements will offset some part of the higher labour costs to business. Second, there is no instantaneous, automatic mechanism between higher labour costs and higher prices. Some of the costs not absorbed by increased efficiency may go to price increases, but these are likely to be small and, for low-wage workers, offset by higher incomes coming from rising wages. Furthermore, if we remember that over 1 in 4 workers in Ontario makes under $15 per hour, we should not treat slightly higher inflation as the main criterion of successful policy; instead we should focus on the substantial benefit to low-wage workers, their families and the economy as a whole.

Across North America, recent years have seen more minimum wages increases, some quite substantial. And so far, none of the doom-and-gloom predictions have come true. Seattle and the municipality of SeaTac, two of the first to institute minimum wage increases, continue to thrive even after increases. Of course, more rigorous studies will have to be conducted (as scientists we are excited by the prospect of new data to analyze) but so far the effects of minimum wage increases have been in line with the expectations of those of us who believe that raising the minimum wage is a positive step for workers and the economy.

Economics may be known as the “dismal science” but on the issue of the minimum wage many economists are ready to admit that the weight of evidence points to a strong case for raising the minimum wage. 600 of our colleagues in the United States, 7 Nobel Prize winners among them, signed a letter urging the United States government to raise the federal minimum wage to $10.10 an hour from the current $7.25—in percentage terms an even larger increase than that from $11.40 to $15 in Ontario. A further letter calling for a staged increase of the federal minimum wage to $15 was signed by 200 economists. There is no consensus against raising the minimum wage among our profession; indeed, the emerging understanding is quite the opposite.

We believe that raising Ontario’s minimum wage to $15 an hour is a good idea and one that is economically sound.

1. Abdella Abdou, Brandon University
2. Fletcher Baragar, University of Manitoba
3. Michael Bell, Manitoba Teachers’ Society
4. Sheila Block, Canadian Centre for Policy Alternatives – Ontario
5. Hassan Bougrine, Laurentian University
6. Michael Bradfield, Dalhousie University
7. Jordan Brennan, Unifor
8. Robert Chernomas, University of Manitoba
9. Robert W. Dimand, Brock University
10. Catherine Douglas, University of British Columbia
11. Lynne Fernandez, Canadian Centre for Policy Alternatives – Manitoba
12. Kelly Foley, University of Saskatchewan
13. Marc-André Gagnon, Carleton University
14. David Green, University of British Columbia
15. Marjorie Griffin-Cohen, Simon Fraser University
16. Pierre-Antoine Harvey, Centrale des syndicat du Québec
17. Rod Hill, University of New Brunswick
18. Ian Hudson, University of Manitoba
19. Mustapha Ibn Boamah, University of New Brunswick
20. Gustavo Indart, University of Toronto
21. Iglika Ivanova, Canadian Centre for Policy Alternatives – British Columbia
22. Andrew Jackson, Carleton University
23. Mohsen Javdani, UBC Okanagan
24. J. Rhys Kesselman, Simon Fraser University
25. Anna Klimina, University of Sasketchwan
26. Marc Lavoie, University of Ottawa
27. Marc Lee, Canadian Centre for Policy Alternatives – British Columbia
28. John Loxley, University of Manitoba
29. David Macdonald, Canadian Centre for Policy Alternatives
30. Angella MacEwen, Canadian Labour Congress
31. Hugh Mackenzie, Canadian Centre for Policy Alternatives
32. Brian MacLean, Laurentian University
33. Fiona MacPhail, University of Northern British Columbia
34. Joan McFarland, St. Thomas University
35. Anthony Myatt, University of New Brunswick
36. Lars Osberg, Dalhousie University (past President of the Canadian Economics Association)
37. Patricia E. Perkins, York University
38. Mathieu Perron-Dufour, Université du Québec en Outaouais
39. Craig Riddell, University of British Columbia (past President of the Canadian Economics Association)
40. David Robinson, Laurentian University
41. Louis-Philippe Rochon, Laurentian University
42. Michal Rozworski, Ontario Confederation of University Faculty Associations
43. Toby Sanger, Canadian Union of Public Employees
44. Mario Seccareccia, University of Ottawa
45. John Serieux, University of Manitoba
46. Garry Sran, Alberta Union of Public Employees
47. Jim Stanford, McMaster University
48. Kaylie Tiessen, Unifor
49. Peter Victor, York University
50. Jesse Vorst, University of Manitoba
51. Barry Watson, University of New Brunswick
52. Armine Yalnizyan, Public Economist
53. Vicki Zhang, University of Toronto

A PDF version of this letter is available here.

The NDP and Old Age Security

NDP leadership candidate Jagmeet Singh has proposed (with few details) to reform the current Old Age Security system by integrating Old Age Security (OAS) and the Guaranteed Income Supplement (GIS.)

“A Jagmeet Singh-led government will implement the Canada Seniors Guarantee to ensure that no Canadian senior has to live in poverty. The Canada Seniors Guarantee will combine a number of existing seniors’ benefits into a single, income-tested benefit. This includes Old Age Security (OAS), the Guaranteed Income Supplement (GIS), the Age Credit, and the Pension Income Credit. By adding the Age Credit and the Pension Income Credit, an additional $4 billion will be added to the core benefits provided by OAS-GIS.”

Here I offer a mildly critical analysis. Just to be clear, I think Singh is an excellent leadership candidate and he has put forward positions on other issues which I strongly support.

Currently, all Canadian seniors are (subject to a lifetime residence requirement) eligible to collect a monthly OAS benefit of $578. This is an individual benefit, and is only income-tested at high incomes. (OAS is phased out when individuals have an annual income above $74,000 and is lost completely at an annual income of $120,000 or more.)

The GIS is an income supplement for low income singles and couples. For couples it pays a maximum of $1140 per month, which is lost completely when the combined income of the couple exceeds $23,000 (not counting OAS income.) About one in three of all seniors qualify for some GIS.

While some progressives have been critical of creating a combined seniors benefit, it should not be rejected out of hand. The proposal is modelled on the current system of child benefits which was championed by anti poverty groups and is based on family income and slowly phased out to zero for high income families with children. As noted, OAS is already clawed back for very high income seniors. True universality (as used to be the case with family allowances for children and universal OAS) no longer exists. Some progressive social policy groups, notably the Caledon Institute, have favoured a seniors benefit as did, temporarily, the Chretien government. (They backed off under strong political pressure.)

Singh’s proposal to fold in the pension and age credit to OAS and GIS is progressive. And the impact of his proposal to integrate OAS and GIS would be more or less progressive depending upon the exact parameters. The intent is clearly to re-distribute fiscal resources from more to less affluent seniors and to counter the recent increase in seniors poverty, especially among single, very elderly women.

All that said, I favour retention of OAS.

We should bear in mind that the rationale for income transfer programs includes income stabilization and replacement for individuals, not just redistribution of family income. Traditionally, social democrats have favoured universal public pensions, paid for from taxes and premiums, and universal Unemployment Insurance coverage to cover individuals against the predictable risk of income loss due to old age, unemployment and disability (though CPP disability benefits are very meagre.) We have also generally accepted income-tested programs such as GIS and child tax credits which have an explicit anti poverty objective.

The current near universal payment of OAS (subject to income tax it should be noted) provides individuals with a predictable pension on top of CPP. CPP and OAS combined provide only a modest, predictable, inflation adjusted pension for life. If OAS were to be significantly rolled back for middle and higher income seniors, they would have to increase their reliance on costly and unpredictable RRSP savings. Individuals would also have to make savings decisions over their lifetimes in ignorance of what their incomes would be in retirement.

Further, there is an increasing trend for seniors over age 65 to combine public pension income with earnings from employment. The GIS claw back at modest income levels already punishes seniors who choose to work with high marginal tax rates. (Claw back rates should be reduced.) Integrating OAS and GIS would push the problem higher up the income scale.

We should also be careful about going too far in terms of family income testing. Women still have significantly lower annual earnings than men, and family income testing OAS would result in a loss of benefits for women depending upon the retirement income of a spouse

In conclusion, proceed with caution.

Canada Lags in Job Quality

The 2017 OECD Employment Outlook provides an assessment of member country performance in terms of the quantity and quality of employment as judged by a new set of key indicators.

Overall, we do well in terms of job quantity. The employment rate (the proportion of the working age population with jobs) stands at 72.5% compared to an OECD average of 66.4%. However, the Scandinavian countries rank higher for this indicator (eg Sweden, 75.5%.)

It is interesting to note that the employment rate in the United States is, at 68.7%, just a bit above the OECD average. Poor job quality does not provide an obvious boost to jobs.

The gap between the employment rate of prime age men and disadvantaged groups (each of youth, older workers, young mothers, persons with disabilities) is slightly below average in Canada, but well below leading countries.

The annual gender earnings gap in Canada is slightly worse than the OECD average of 39.0% – women earn 39.7% less here than do men, compared to a gap of 24.4% in Sweden. And unlike most other countries, progress in closing the gender gap has stalled.

Where we fare especially badly is in terms of low income. The low income rate for the working age population (percentage with incomes below one half of median annual income) is 12.8% in Canada compared to an average of 10.6% for the OECD, and just 9.4% in Sweden and 6.7% in Denmark.

Canada could and should be doing much better.

http://www.oecd.org/els/oecd-employment-outlook-19991266.htm

The Wage Structure, Rents and Urban Inequality in Canada

Richard Florida’s new book, The New Urban Crisis (Basic Books, 2017) takes a careful look at rising inequality in big cities in the United States. He details the fact that many of the winners of today’s economy, the top 1% and top 10%, are located in a small number of “superstar” cities such as New York, Los Angeles, the Bay area, Washington and Boston where well paid jobs in higher education, finance, tech, higher education and entertainment are highly concentrated.

These cities are increasingly polarized between very rich and poor neighbourhoods as the affluent and young professionals return to the city while soaring rents and house prices force the middle-class and many of the poor out to the deteriorating older suburbs.

Similar but less extreme patterns have been found in Canada by David Hulchanski of the University of Toronto and other urban geographers who have documented increased income polarization and erosion of the middle-class and mixed income communities in Toronto in particular.

Statistics Canada recently released data from the Job Vacancy and Wage Survey which show hourly earnings of full-time workers by detailed occupation by city as well as for rural areas. (See CANSIM Table 285-0050.) These provide some insight into the question of whether earnings in Canadian cities are highly polarized.

WAGES BY CITY
Senior Managers Sales and Service Ratio
All $52.40 (100%) $18.85 (100%) 2.8
Halifax $44.10 (84.2%) $17.50 (92.8%) 2.5
Montreal $49.60 (94.7%) $20.90 (110.8%) 2.4
Toronto $63.70 (121.6%) $20.35 (108.0%) 3.1
Calgary $62.50 (119.3%) $19.30 (102.4%) 3.2
Vancouver $55.30 (105.5%) $19.10 (101.3%) 2.9
Hourly Wage of Full Time Workers. CANSIM 285-0050

 

The Table shows earnings of the highest and lowest paid broad occupational categories, senior managers, and sales and service workers, for Canada and for selected cities. As shown the ratio of the highest to the lowest paid group is 2.8 at the national level, meaning that senior managers earn on average 2.8 times as much as sales and service workers. But the ratio is significantly greater in Calgary (3.2) and Toronto (3.1)

Unsurprisingly, the most highly paid senior managers are to be found in Toronto and Calgary which are major financial centres and the home of many corporate head offices.

What is interesting is the relatively more uniform level of hourly earnings of sales and service workers. These are only very modestly above the national average in Toronto (108.0%), Calgary (102.4%) and Vancouver (101.3%.) And sales and service wages in these cities actually lag behind Montreal.

House prices in Vancouver and Toronto are, of course, far higher than the national average, as are rents. CMHC data show that the average monthly rent of a two bedroom apartment in Toronto is $1327 and $1450 in Vancouver (and $1258 in Calgary), compared to a national average of $962 per month and just $668 in Montreal.

Richard Florida highlights the low incomes of urban service workers in many big US cities after adjusting for inflated rents. This is clearly also a problem in some of Canada’s most successful big cities.

Fiscal situation of Canada’s ‘oil rich’ provinces

I’ve just written a blog post about the fiscal situation of Canada’s ‘oil rich’ provinces (i.e., Alberta, Saskatchewan and Newfoundland and Labrador). It consists of a summary of key points raised at a PEF-sponsored panel at this year’s Annual Conference of the Canadian Economics Association.

Points raised in the blog post include the following:

-The price of oil is impossible to accurately predict, and there’s no guarantee it will rise to past levels.

-Each of Canada’s ‘oil rich’ provinces should therefore find other ways of financing future spending.

The full blog post can be found here.

Monitoring Program Performance in Calgary’s Homeless-Serving System of Care

I’ve just written a blog post discussing how program performance is monitored in Calgary’s Homeless-Serving System of Care.

Points raised in the blog post include the following:

-The Calgary Homeless Foundation (CHF) is the System Planner for Calgary’s Homeless-Serving System of Care (full disclosure: I work as CHF’s Director of Research and Data). As System Planner, CHF disburses approximately $42 million annually to programs in Calgary that assist households experiencing homelessness (I’ve previously blogged about those various programs here).

-CHF also monitors performance of the programs it funds; it uses Key Performance Indicators (KPIs) as part of that effort.

-CHF has recently unveiled new KPIs (which are the subject of my new blog post).

The link to the new blog post is here.

A Post-Keynesian Summer School – TORONTO – June 23-25, 2017

The Review of Keynesian Economics and the Progressive Economic Forum are sponsoring a

“Post-Keynesian Summer School”, to be held on the campus of the University of Toronto, June 23-25, 2017, and featuring leading post-Keynesian scholars from Canada, the US, and Europe.

The summer school is aims at both undergraduate and graduate students, and registration is only $25 US per person, which includes all coffee breaks.  In addition, Edward Elgar Publishers has graciously donated a number of important post-Keynesian books that will be given away at the end of the school.

 

The programme

9h15: Welcome address
Louis-Philippe ROCHON (Laurentian University, Canada)

9h30 – 10h30: What is post-Keynesian economics?
Louis-Philippe ROCHON (Laurentian University, Canada)

10h30 – 11h00: Coffee Break

11h00 – 12h30: The role of fiscal policy and the state in post-Keynesian theory
Mario SECCARECCIA (University of Ottawa, Canada)

12h30 – 13h45: Lunch

14h00 – 15h30: The role of debt in post-Keynesian economics: Real and financial components
Joelle LECLAIRE (SUNY- Buffalo State, USA)

15h30 – 16h00 Coffee Break

16h00 – 17h30: The importance of interdisciplinary research in post-Keynesian economics
Guillaume VALLET (University of Grenoble – Alpes, France) and  Nicolas ZORN (University of Montréal, Canada)

 

SATURDAY, June 24, 2017

9h00 – 10h30: A history of endogenous money/monetary policy in post-Keynesian analysis
Louis-Philippe ROCHON (Laurentian University, Canada)

10h30-11h00: Coffee Break

11h00 – 12h30: Post-Keynesian theories of financial stability
Esteban Pérez CALDENTEY (ECLAC, Chile)

12h30-13h45: Lunch

14h00-15h30: A history of central banking
MatÍas VERNENGO (Bucknell University, USA)

15h30-16h00: Coffee Break

16h00 – 17h30: A post-Keynesian approach to development: The case of Africa
Salewa ’Yinka OLAWOYE (Ryerson University, Canada)

SUNDAY, June 25, 2017

9h00 – 10h30: Some theoretical roots of post-Keynesian economics
Robert DIMAND (Brock University, Canada)

10h30 – 11h00: Coffee Break

11h00 – 12h30: An introduction to mathematics for heterodox economists
Matheus GRASSELLI (McMaster University, Canada)

12h30 – 12h45: Saying Goodbye

Income Inequality Surged Under Harper

Just as Conservatives gathered to elect a new leader, Statistics Canada released income data for 2015. These allow us to look at trends under the full term of the Harper Government from 2006 to 2015.

Average after tax income of economic families rose over this period – from $68,200 to $76,900 in inflation-adjusted dollars. But the gains were very unfairly distributed.

The after tax income share of the top 10% of families and persons rose from 27.2% to 27.7% and that of the next 10% rose from 16.7% to 17.0%. Thus the share of income of the top 20% rose by almost one full percentage point from 43.9% to 44.7%. The share of the all income groups in the bottom 80% fell under Harper.

The poverty rate (low income measure after tax) under Harper rose from 13.4% to 14.2%, mainly because of a big jump in the low income rate for the elderly which rose from 10.2% to 14.3%.

Data from CANSIM 206-0041 and 206-0011.

Precarious work, Federal government edition

There was a recent article in the Hill Times about temporary workers in the federal public service, noting that this number is growing even under Trudeau’s sunny ways (that’s not entirely fair, the report only covered the first 5 months of the Liberal’s tenure).

The numbers come from the Privy Council clerk’s annual report, which shows that the number of temporary and contract workers in the federal public service increased by 2,800 between March 2015 and March 2016, to 35,000 workers, or about 13% of the total federal public service.

Because the recent Changing Workplaces Review from Ontario was on my mind, and the recent attention on the abuses of temporary employment agencies, I wondered if we even knew how many temporary agency workers there are in the federal public service, or the federally regulated sector.

From the Annual Survey of Service Industries: Employment Services, we do know the size of the Employment Services Industry – $13.3 billion in 2015, and we know that over half of that was temporary staffing. Government and non-profits make up about 10% of sales – but there would also be temporary agency workers placed in transportation and telecommunications, for example, and that breakdown wasn’t available here.

I had better luck with the Federal Jurisdiction Workplace Survey (FJWS). This survey covers industrial companies under the federal jurisdiction (not workers directly employed in the federal service). In 2015 the FJWS asked about the number of temporary workers paid through an employment or personnel agency over the course of 2015. Employers reported 60,000 workers paid through temporary agencies, most of these workers were employed with large workplaces. The breakdown by company size and industry is shown below.

Distribution of temporary workers paid through an employment agency, 2015

# of employees
Company size
1 to 5 employees 900
6 to 19 employees 800
20 to 99 employees 1,300
100 employees and more 57,100
Industry
Air transport 800
Rail transport x
Road transport 4,600
Maritime transport x
Postal & pipelines 39,700
Banks 8,100
Feed, flour, seed & grain 300
Telecomm & broadcasting 6,000
Miscellaneous industries 300
Total 60,000

Source: FJWS (2015)

Note: The “x” indicates that the data has been suppressed due to confidentiality concerns as required by the Statistics Act.

This all tells me two things. First, it is totally reasonable to look at ways to protect precarious workers in the federal public service and the federally regulated sector (remember all that noise about the NDP federal minimum wage promise not helping anyone?), and second – we need better data to do it.