Friday, May 25, 2012 4:17 PM EDT
Corporations also benefit from seasonal EI
Mike Moffatt
Lost in the debate over Employment Insurance changes were some very astute observations made by Elizabeth May, leader of the Green Party: “Most of the forest industries in this country would not be able to have a trained work force that could pick up when they’re ready to come to work, if their employees didn’t find work that was so compelling that they weren’t available,” she said.
“It’s a structural reality of the seasonal industries in this country. If you don’t like it, you can have a conversation about the fact that forestry, fisheries, tourism, mining in some parts of the country are seasonal and that very large corporations benefit from this system…”
Link to this post
Tuesday, May 22, 2012 3:18 PM EDT
How to raise the bar on debates about taxation
LINDSAY TEDDS
Lindsay Tedds is an Assistant Professor in the School of Public Administration at the University of Victoria
As citizens, we expect the government to provide us with various goods and services, from the mundane (water, sewers, roads, schools, airports) to the controversial (welfare benefits, student loans) to the patriotic (National defence, Snowbirds, RCMP, Canadian Space Agency).
Clearly, a government must raise revenues through taxation. This necessarily means that discussions regarding expenditures must include discussions on taxation and vice-versa.
Discussions regarding taxation and expenditures are often heated. Debates ensue over the bundle of goods and services provided by governments and the means by which this bundle will be paid. Unfortunately, those involved in the debates don’t often take the time to take a step back and consider the implications of their position or the perspective of others involved in the debate.
Tuesday, May 22, 2012 11:51 AM EDT
OECD urges rate hike: Hey, mind your own business
MIKE MOFFATT
For the second year in a row the OECD has called on the Bank of Canada to raise interest rates. For the second year in a row, the OECD has made the wrong call.
In its May 2012 Economic Outlook, the OECD projects both the CPI and core CPI measures of inflation in Canada to be between 2.0-2.3 per cent, hardly the hallmark of an overheating economy. Unemployment this year is projected to fall to 6.9 per cent in 2012 and 6.6 per cent in 2013, figures above the levels seen in 2007 and 2008, before the recession began in earnest. The report indicates that the situation in Europe is still unstable and the Euro area could plunge into recession at the end of the year.
Monetary policy through changes in interest rates is analogous to walking a tightrope – one needs to be careful not to fall to either side. Given that there exists significant downside risks to the Canadian economy thanks to a weak global economy, but the risk of the Canadian economy overheating in the short term is small, the prudent course of action would be to stay the course on interest rates until at least 2013.
The OECD does bring up legitimate concerns about high and rising house prices, particularly in Vancouver and Toronto. Altering interest rate policy to ensure mortgage borrowers do not get in over their heads is a very blunt instrument given that they affect the money supply as well as business lending. Reforming CMHC and refusing to increase its $600-billion mortgage insurance cap would be a good start. Changing criteria for HELOCs (home equity lines of credit) and cash-back mortgages should also be considered though are not popular with everyone.
Using interest rate policy to deflate a housing bubble is like using a shotgun to kill a housefly: ineffective and likely to cause a lot of collateral damage. Given the current rates of inflation and unemployment, there appears to be no reason to raise interest rates until 2013 at the earliest.
Mike Moffatt is an Assistant Professor in the Business, Economics and Public Policy (BEPP) group at the Richard Ivey School of Business - Western University. Mike also does private sector consulting for the chemical industry and can be found on Twitter at https://twitter.com/#!/MikePMoffatt.
Thursday, May 17, 2012 9:57 AM EDT
A secret to social mobility: Inherit your job from Dad
MILES CORAK
In an article that appeared earlier this year, The New York Times described the extent to which rich parents can expect to see their children grow up to be rich adults, as well as the likelihood that the poor raise children destined for poverty.
Surprisingly enough, the article came close to concluding that if Americans are interested in living the American Dream – where family background has little influence on adult outcomes – they should move to, of all places, Denmark, or if crossing the Atlantic seems daunting, then, as a second best, to Canada.
Indeed, Denmark has been a darling of sorts ever since Richard Wilkinson and Kate Pickett highlighted in their book, The Spirit Level, that Danish life is so much better along a whole host of dimensions because income inequality is so much lower.
But Denmark has a little secret, one it shares with Canada, about how kids get jobs, and about how this determines life chances even in places with low inequality.
This secret is described in a chapter that I and two Danish co-authors contributed to a book just published by the Russell Sage Foundation, From Parents to Children.
About 30 per cent of young Danes and 40 per cent of Canadians have at some point been employed with a company that also employed their father.
In large measure this is associated with the first jobs these individuals get during their teen years, but for 4 to about 6 per cent it also refers to their main job in adulthood.
This is important because in both Denmark and Canada the transmission of employers between fathers and sons is greater, the greater the father's earnings, and particularly so for top earners.
If the father's earnings placed him in the top 10 per cent, the chances that his son will inherit his employer are above average. The majority of sons raised by fathers in the top 1 per cent – indeed almost 7 out of 10 in Canada – worked for an employer at which the father had also worked.
There are a number of reasons for these patterns.
Some firms may give preference to the children of employees when making their hiring decisions, but this falls short of outright nepotism since parents do not necessarily control the hiring process.
Networks may also matter. It may be that richer parents are able to offer better information to their children about job openings with more stable employers.
Self-employed fathers are more likely to pass jobs along to their sons, but this is not so great as to suggest that direct control over the hiring process is the main reason why 30 to 40 per cent of sons at some point worked for the same firm as their fathers.
Parental networks and information are a more likely explanation, and should be seen as another type of investment that parents make in the prospects of their children.
This said, there is a sense that nepotism may be part of the story for some segments of the population, particularly those at the very top.
But equally important is the fact that the transmission of employers between fathers and sons has implications for earnings. The degree to which a son's earnings are related to his father's is very similar in Canada and Denmark, with similar tendencies for those born to low and high-income fathers to become low and high income adults.
In both countries sons born to fathers in the bottom 25 per cent of the earnings distribution have about a 30 per cent chance of ending up in the bottom 25 per cent as adults, and about a 15 per cent chance of rising to the top 25 per cent. These are enviable rates when compared to other countries like the United States or the United Kingdom.
At the same time, sons born to fathers in the top 25 per cent show similar rates of mobility in both countries, more than a third staying in the top 25 per cent as adults, and about a fifth falling to the bottom.
But mobility out of the bottom has little to do with inheriting an employer from the father, while the preservation of high income status is distinctly related to this tendency.
This research raises the importance of recognizing that child outcomes are related not just to the quality of the early years, but also to the structure of labour markets, and the resources parents have – through information, networks, or direct control of the hiring process – to influence the final transition children make in becoming self-sufficient and successful adults.
Most importantly it also makes one wonder what is happening in other countries.
If the inheritance of employers is this strong in a country with a great deal of equality like Denmark, and if it is even stronger in Canada, where inequality is somewhat greater, then how do labour markets function in the United Kingdom and the United States where inequality is even greater and generational mobility lower?
Miles Corak is a professor of economics with the Graduate School of Public and International Affairs at the University of Ottawa. The full version of this post is available at milescorak.com with a link to the research study “The Intergenerational Transmission of Employers in Canada and Denmark”
Thursday, May 10, 2012 7:26 AM EDT
Why no rules are good rules for monetary policy
PHILIP CROSS
Philip Cross is a senior fellow at the C.D. Howe Institute and former chief economic analyst at Statistics Canada
John Taylor was on the short list, with Ben Bernanke to succeed Alan Greenspan as chairman of the Federal Reserve Board in 2006. The recent publication of his latest book First Principles is a reminder of the ongoing debate between those who want monetary policy to be rules-based and those who want more room for discretion in its conduct.
Milton Friedman was the most well-known of the rules-based crowd, famously calling for the Fed to be replaced by a computer that would simply let the money supply grow at a steady rate. Taylor advanced what came to be known as the Taylor Rule, which says that monetary policy should respond almost mechanically to changes in inflation and the gap between current and potential output.
Wednesday, May 9, 2012 7:05 AM EDT
What Hollande must tell Germany
Martin Wolf
The elections in France and Greece tell us that austerity fatigue has set in. This is not surprising. For many countries no plausible exit exists from depression, deflation and despair. If the currency union were a normal fixed exchange rate arrangement, it would collapse, as did the gold standard in the 1930s and the Bretton Woods system in the 1970s. The question is whether the fact that it is a monetary union will do more than delay that outcome. The last chance of bringing needed change rests on the shoulders of François Hollande, the newly elected president of France. Mr. Hollande says his mission is to give Europe “a dimension of growth and prosperity.” So can he achieve this laudable aim?
Tuesday, May 8, 2012 8:22 AM EDT
Why modern-day tax revolts are doomed to fail
LINDSAY TEDDS
Lindsay Tedds is an Assistant Professor in the School of Public Administration at the University of Victoria
Tax revolts are not a modern day creation. According to Charles Adams, tax revolts are suggested to have led to the collapse of Aztec, Egyptian, Roman, and Spanish Empires. The Magna Carta’s origin lies in a revolt against the high taxes imposed by King John. The United States of America was founded, in part, by a tax revolt related to a British tax on tea. In March 1930, Mahtama Gandhi led a massive march of protest against the British imposed salt tax which began an almost two-decade long process of creating an independent India. In 1990, hundreds of thousands of British citizens protested the community charge (aka poll tax), a protest that unfortunately deteriorated into a riot popularly known as the Battle of Trafalgar, and began the downfall of then prime minister Margaret Thatcher.
The common thread underlying these revolts is a notion of tax fairness and equity and not the belief that taxes are illegal and the government has no authority to levy tax on people. This latter view is, instead, the tie that binds modern-day tax protesters.
Friday, May 4, 2012 3:34 PM EDT
Flexibility is no sin when policies are failing
MARTIN WOLF
In a democracy, willingness to inflict economic pain is rarely a route to credibility. Investors will refuse to believe that the policies will survive. Once they reach that conclusion, credibility disappears.
I learnt this in 1992. With the U.K. economy in recession, the credibility of the government’s commitment to membership of the exchange rate mechanism of the European Monetary System came into question. Many thought that a willingness to raise interest rates when sterling came under pressure would restore credibility. It did the opposite: few believed the pain could be sustained. The government could not enhance the credibility of an incredible commitment.
Friday, May 4, 2012 8:36 AM EDT
A fast way to lower jobless rate: Use U.S. metrics
MILES CORAK
Miles Corak is a professor of economics with the Graduate School of Public and International Affairs at the University of Ottawa. The full version of this post is available at milescorak.com
At 8.1 per cent the unemployment rate in the United States is about one percentage point above the 7.2 per cent currently reported for Canada, but this gap would be almost two percentage points if the Canadian rate was measured in the same way as the American.
This revealing picture (attached graphic) from the recent Canadian federal government Budget document paints a more accurate portrait by using unemployment rates defined in a similar way across the two countries.
The left panel shows the evolution of employment compared to its level in 2006. The striking fall and incomplete recovery in the U.S. is all the more evident by the comparison to Canada. These numbers can be confidently compared because they are defined and measured in the same way on both sides of the border (though it would be more appropriate to express them as a percentage of the working age population as I suggest in this post).
The right panel shows that the gap between the American and Canadian unemployment rates is much bigger when a comparable Canadian rate is used in place of the headline measure regularly reported by Statistics Canada.
While the statistical agencies in both countries use the same methods to describe the jobs market, the gap between the unemployment rates rests on a couple of subtle differences in the criteria used to classify someone as unemployed.
The Bureau of Labour Statistics and Statistics Canada base their calculations on monthly surveys that use a sample of between 50,000 and 60,000 households to represent the working age population in each country, those 15 years of age and older.
In the United States, 15-year-olds are not included in the calculations but this does not play a large role in determining the gap in unemployment rates.
The surveys ask a series of very similar questions in order to classify respondents as either being Employed or Unemployed: it is the way in which these questions are asked – particularly the distinction between “active” and “passive” job search methods – that drives an important part of the gap.
To be considered “Unemployed” a survey respondent must not have done any work for pay during a particular week of the survey month, must be available for work, and – most crucially – must have done something to find a job during the last four weeks.
The U.S. makes a distinction between job search activities that involve “active” measures (activities that on their own could lead to a job offer), as opposed to “passive” measures (activities that require some additional effort to obtain an actual job offer).
Placing or answering a job ad, visiting employment agencies or businesses, making job inquiries and sending applications as well as attending interviews are all examples of active search methods. Asking family and friends for jobs or leads is also considered an active measure.
Passive measures are more along the lines of information gathering, like simply looking at job ads in the newspaper or on the internet.
In the United States only active measures lead to someone being designated as “unemployed”; in Canada either type of activity will do the trick.
The crux of the matter is that flipping through the want-ads in a newspaper gets you classified as unemployed in Canada, but not in the United States.
A nicely written paper by Constance Sorrentino, an analyst with the Bureau of Labour Statistics, notes that a rise in the use of passive job search methods in Canada is important as an explanation for the difference.
Passive search methods have been on the rise because as the duration of unemployment spells increases, the longer-term unemployed become more discouraged and therefore more likely to uniquely use them as they step closer and closer to giving up looking altogether.
Writing in 2000, Ms. Sorrentino claims that if the Canadian unemployment rate were adjusted to U.S. concepts it would be reduced by 1 percentage point.
As the picture from the Budget makes clear, this remains the case now.
The Canadian unemployment rate would be lower if only those actively looking for a job were used to calculate the unemployment rate, and this subtle difference in statistical method implies that the unemployment rate gap between the two countries is much bigger than it seems when looked through the lens of the official statistics.
Monday, May 7, 2012 12:56 PM EDT
Changes to immigration policy could transform society
ARMINE YALNIZYAN
Have you noticed how common it has become to talk about replacing workers with even cheaper workers? If you’re looking over your shoulder, you’re not paranoid; you’re paying attention. There’s probably a cheaper you out there. And in Canada, the feds are helping your boss find them.
This week, the International Labour Organization noted there are 50 million fewer jobs in the global economy than before the financial crisis began in 2008. Some 200 million people are now looking for work.
People around the world are on the move, leaving their homes in search of opportunity. Many of them have landed here.
Canada has welcomed newcomers in record numbers throughout the recession, even as unemployment rates spiked. But our policies are shifting, and with it the type of labour market and society we are creating. Today, the preferential nod is being given to a soaring number of temporary foreign workers, or “guest” workers. These are people who are brought here at the pleasure of employers, and stay at the pleasure of employers.
In 2011, 156,000 economic immigrants entered Canada as permanent residents, while 191,000 people entered with a temporary work permit, granted to employers by the federal government. Many of these permits extend beyond a year, so as of Dec. 1, 2011 there were 300,111 temporary foreign workers in Canada, the highest number on record. The number of temporary foreign workers has more than doubled since 2006.
The federal government is promoting the temporary foreign worker program as a solution to skills shortages now faced by employers, particularly in the West. Yet 35 per cent of the nation’s temporary foreign workers are in Ontario, and almost one in five (18 per cent) are in Toronto, which has an unemployment rate of 8.6 per cent. Labour shortage? I don’t think so.
Those numbers will soon rise. Last week, the federal government announced that employers could usher in highly skilled temporary workers such as engineers and electricians in 10 days instead of the current 12- to 14-week approval process, noting red tape will likely be reduced in processing other categories of temporary foreign workers as well. Of note, the fastest growing category of temporary foreign workers is low-skilled workers, whose numbers have grown ten-fold in just five years. These are not the seasonal fruit-and-vegetable pickers on which our nation also relies. These folks toil year-round at Tim Hortons, Canadian Tire, in our abattoirs, nursing homes, and hotels; workplaces where employers say they can’t find Canadian workers willing to work at the offered wages.
