Economy Lab Roundup: War On Poverty, on its 50th birthday

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Fifty years ago this week – Jan. 8, 1964, to be precise – U.S. President Lyndon Johnson declared his "War on Poverty," launching a legislative agenda aimed at dealing with a U.S. poverty rate that at the time was about 19 per cent. In the five decades since then, we've seen the War on Drugs, the War on Terror, and several Wars on Small and Distant Countries – but relatively little progress in the War on Poverty.

As of 2012, 15.1 per cent of Americans lived below the poverty line. While that's significantly better than the poverty rate at the time of President Johnson's initiative, most of the improvements were achieved within the first couple of years since the War on Poverty was declared. The U.S. poverty rate hasn't been above 15.1 per cent since 1965. Indeed, after dipping as low as 11 per cent in 2000, the poverty rate has risen over the past decade (the Great Recession being a key culprit).

But Forbes.com contributor Tim Worstall argues that the comparisons since President Johnson's time are apples-to-oranges. In the 1960s, the U.S. government's basic approach to assisting the poor was giving them money directly; the straight-line effect was an increase in income that lifted some above the poverty line. Since then, anti-poverty programs have evolved to providing services rather than direct money benefits; this does nothing to increase income (and thus won't lift people above the poverty line), but it does reduce the living expenses of the poor – something that's not captured by the official poverty rate.

Meanwhile, other critics point out that the U.S. poverty rate has long been based on the ratio of income to the cost of putting food on the table. The problem is, food is no longer the biggest economic burden to families; where people spent more than a quarter of their household budget on food in the 1960s, today it's estimated at less than 10 per cent. But other expenses, such as housing and child care, have grown.

A few years ago, the U.S. Census Bureau started accounting for all these factors by creating the Supplemental Poverty Measure (SPM). Many critics of the official poverty rate expected that this would generate lower poverty readings; it did not. the SPM poverty rate in 2012 was 16 per cent – that's just under 50 million Americans.

In Canada, meanwhile, we've made substantial progress since the 1990s, when poverty rates taken on a pretax basis (as the U.S. measure is) were near 20 per cent. In 2011, the most recent figures available, 12.9 per cent of Canadians were below the pretax poverty line. On an after-tax basis – probably a better measure, since it captures the tax credits extended to poor Canadians – the rate was 8.8 per cent, down from 15 per cent in the mid-1990s.

Are services a better trade bet than manufacturing?

A new C.D. Howe Institute report suggests that when it comes to international trade, maybe Canada has been betting on the wrong pony. Our focus has been on reviving the shrinking manufacturing sector, where goods export volumes shrank 1.8 per cent from 2001 to 2012. But little attention has been paid to the export of services, which grew by 35 per cent over the same period. Employment in tradable services – such as research, engineering, consulting and financial services – rose by 274,000 from 2001 to 2012, while manufacturing employment declined by 492,000.

What's more, the report noted, jobs in this booming export sector pay a lot better. Average weekly earnings in tradable services were 37 per cent higher than in manufacturing, it said.

The report concludes that Canadian trade policy shouldn't be pushing manufacturing at the expense of promoting tradable services, and that policy makers should work to remove barriers to international trade of services, such as those proposed in the new Canada-EU trade pact.

The coming retirement brain drain

The corporate world is bracing for a different kind of brain drain in the coming years. Now, the worry is not so much about top talent being lured away to competitors or other countries – but to retirement.

A report from work force experts Challenger Gray & Christmas Inc. notes that 55-to-64-year-olds represent 19 per cent of U.S. workers aged 25 and over. In a survey conducted by the firm, 23 per cent of companies reported that 55-plus workers made up between a third and half of their staff.

For most companies, it said, "the biggest concern is not the number of workers retiring, but the skills they take with them when they depart" – as a lot of these older staffers "are in key, hard-to-fill positions." It said nearly 24 per cent of the survey respondents said their companies are "very concerned" about the coming surge in retirements, while another 30 per cent were "somewhat concerned."