In a speech in New York back in April, the Governor of the Bank of Canada, Stephen Poloz, quietly spoke about the same topic that Donald Trump and the Brexit backers have shouted about on one side, and progressives and reformers on the other.
Globalization, that central actor of change, brings adjustments that “can be painful for individuals,” he told a room of suited business folks at a financial conference. But then, in the measured way of a central banker, Mr. Poloz added that “it is incumbent on policy makers to help buffer the transition by ensuring adequate safety nets for workers and facilitating retraining and relocation.”
The key word is painful – an emotion, a sense of unfairness, anger. So much of the presidential race in the United States, particularly the clipped talk of Mr. Trump, has exploited those emotions.
Yet anger belies the reality, economists say, of understanding who in fact is most affected by globalization. In order to provide safety nets, one must know who has been left behind and why, economists argue.
“Why has Trump come along now?” asked David Green, a professor of economics at the University of British Columbia. “The answer is that, post 2008, it has become more and more apparent that there isn’t something to save those people.”
And who are those people? Dr. Green approaches this by looking at sectors of the economy, chiefly manufacturing, and at education.
For decades, North American factories absorbed workers with low education. Then they expelled them into joblessness as manufacturing moved overseas. Later, many found construction jobs, at least in the United States during the housing boom, Dr. Green said.
“That bubble got bigger and bigger. And then when that burst, all of these lower educated guys were in trouble and had nowhere to go,” Dr. Green said.
“I don’t think this is cyclical, and those guys will all have good jobs in the future,” he said. “No, that was a bubble.”
In Canada, the situation was cushioned by the resource sector. Before the oil patch unravelled in Alberta, wage differentials between those with university degrees and those with less education in the province had reached near parity by 2014 for men, Dr. Green said.
After the fall in oil prices, however, the differential widened again.
The spillover effect went all the way to the East Coast. Communities across Canada had sent workers to Alberta, and these places “had relatively big increases in wages,” Dr. Green said. But when wages fell, “not only was this happening in Alberta and Saskatchewan and Newfoundland, it was actually being spread across the country.”
At the same time, countless businesses have simply stopped replacing workers, to the extent that economists have had to lower assumptions about the cost of labour in their economic models. It used to be that a high expenditure on labour was a certainty. Not any more, Dr. Green said.
“This is a sea change on a scale that I don’t think anybody other than economists know is going on. It harkens back to the issue which is that the people who are going to suffer most are the people for whom labour [i.e., a paycheque] is their complete source of income. They don’t own capital. They probably have very little savings.
“For that group in particular, this is a real sign that things have turned against them to some degree,” Dr. Green said.
Education is the key variable, he said.
He shares the example of a plumbing instructor at the British Columbia Institute of Technology. Students would come to the class thinking, “This guy is going to teach me how to turn a wrench, and then I’m going to be making $60,000 a year,” Dr. Green said.
But the instructor noted that, when he started teaching something more complex than wrench-turning, attendance would drop. The students needed to understand flow rates through pipes, he said, “which is not fun math, if you don’t like math that much. And his class size would drop by half.”
So, with dropout rates from trades programs and apprenticeships running high, the solution might require more than skills training.
“We have to take a harder look at our primary and secondary education first. We’re not doing a good enough job on math and science at those levels to really make sure you have a work force that is ready to take on that training, now that the need is here.”
Demographics also play a role, says David Watt, chief economist at HSBC Bank Canada.
Some experts point to stagnant employment rates among younger workers in Canada, But those numbers can be misleading because the youth population has also declined, Mr. Watt said.
The number of workers age 55 and older has continued to increase, which effectively has put an expiry date on many jobs. Once older workers retire, an assumption among many economists is that many of these positions may not be refilled, given the prevailing mood among so many companies to contain payrolls. The risk therefore is that those skills will be lost with those workers, and young workers may feel left behind as jobs remain occupied by aging workers and then disappear.
“The population is aging, and the work force is aging, and it’s been fine for the Canadian economy for the past decade because the bulk of the labour force is 25 to 54,” Mr. Watt said.
“But one of the drivers of Canadian employment over the past decade has been these people turning 55 and staying in the work force. Most of them had fairly good jobs,” he said. And so they stayed in the labour force.
With the strong Canadian dollar and cheap borrowing costs, that helped to drive the health of the economy during this larger demographic shift. “People could borrow. They had high income. Stuff that they would buy was cheap. So you had the home renovation boom. People would buy imported marble and all sorts of stuff around the world to put in their home.
“I like using that story to describe Canada over the past decade, rather than saying it was oil prices that drove the Canadian economy,” Mr. Watt said. Yet, “as you get the 55-and-over workers turning 65, you’re probably not going to get companies eager to fill those positions.”
The diverse economy in a province such as Ontario has been able to absorb many of the jobs lost from manufacturing, he said. Workers in resource-dominated economies such as Alberta’s, on the other hand, might need to go elsewhere to find jobs.
“The Canadian economy has been quite good at labour shifting from where it’s not needed to where it’s needed,” Mr. Watt argued, because the labour market is relatively open and people are willing to move.
Yet, the anomaly in Canada compared with the United States – or with Britain and the Brexit vote – is the resource sector. Reduced resource wealth is likely to perpetuate the feeling of being economically cut off among workers who can’t find other work, UBC’s Dr. Green said.
“That to me is the bellwether. That is the problem in a part of our economy that we don’t know how to deal with so far. And they’re the ones who would come out in favour of a Trump, if a Trump showed up here,” he said.Report Typo/Error