Crowding Out Bill Robson

Tuesday’s Financial Post featured an op-ed by William Robson, President and CEO of the C. D. Howe Institute, arguing that “The expansion of the public sector in an economy with no slack is squeezing the private sector, driving up interest rates and the dollar in the short run, and threatening Canadian prosperity in the long run.” Today’s Financial Post includes the following responses from Toby Sanger of CUPE and me.

My letter:

Re: Crowding Out: Bloated Government is Worse for the Economy than Loonie, William Robson, Nov. 13

Statistics Canada’s latest Labour Force Survey compared October, 2007, with October, 2006. It indicated that 159,000 more Canadians have jobs in the public sector, 96,000 more have jobs in the private sector, and 167,000 more are self-employed.

To create the impression of a “tight labour market,” William Robson cites statistics that include this surge in self-employment. Then, to create the impression of “government crowding out,” he excludes self-employment to compare only employees in the public and private sectors. Mr. Robson cannot have it both ways.

Consistently including self-employment, a private-sector phenomenon, suggests that private-employment growth exceeds public-employment growth. However, as Mr. Robson notes, the self-employment figures likely mask unreported unemployment. In this case, government hiring is not “crowding out” the private sector, but picking up the slack.

Finally, Mr. Robson writes that public employees produce less and are paid more than private employees. This claim is highly questionable given extreme difficulties in measuring public-sector productivity and that average-hourly earnings in “public administration” fall below the economy-wide average.

Erin Weir, economist, Canadian Labour Congress, Ottawa

Toby’s letter:

William Robson claims that employment growth in the public sector is a far greater threat to the economy than the high Canadian dollar. A large majority of Canadians and probably also a majority of businesses would disagree.

Numerous polls show that the top priorities for Canadians are better public services – such as health care, education, protecting the environment and re-building municipal infrastructure – and not more tax cuts. The recent growth in public sector employment reflects these priorities after a decade of cuts.

Even with recent job growth, the share of total public sector employment today is less than 20%, which is far less than it was in any year before 1997 and less than in other more productive countries.

Public services contribute enormously to increased economic productivity in many ways. Modest recent real wage increases for workers come after decades of stagnant real wages, including wage freezes for many public sector workers.

The real waste and drag on our country’s productivity is from high-income salary increases and the low levels of productive investment in our economy by many corporations, despite their skyrocketing profits.

Toby Sanger, economist, Canadian Union of Public Employees

2 comments

  • Well done Toby and Erin.
    Canadian interest rates are higher than they otherwise would be because of the turmoil in the asset backed securities market. The Bank of Canada was an active market intervenor this week trying to protect its bench mark rate. None of this has anything to do with the number of public service jobs created. The exchange rate is yo-yoing because traders know the Bank of Canada is unwilling to depart from its monomaniacal policy of low inflation, which should be known as the no re-distribution of income policy, because that is what it is about.

  • Also, if you visit Alberta you notice that the kinds of businesses that are having a hard time employing people are generally the low-pay and low-prestige jobs, like convenience store clerks, people busing tables, and gas station attendants (particularly night shift). What’s really happening when the economy nears capacity is that employers can’t treat workers like they are serfs. So low-value-added businesses that can’t “afford” to pay workers higher wages will simply have to wind down. And this phenomenon is most pronounced in Alberta, not exactly known for its large public sector.

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