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Three questions to ask the Minister of Finance

January 4, 2012

“Jobs and Growth the Priorities as Minister Flaherty Hosts Pre-Budget Consultations”, screams the title of a press release from the Department of Finance issued about a month ago.

Jim Flaherty wants to hear from Canadians about how he can maintain the federal government’s “focus on jobs and economic growth while reducing the deficit.”

But this week is a particularly good time to first pose a few questions to him in the hope of clarifying some facts about jobs, unemployment, and the role of government policy.

On Friday Statistics Canada will release–as it does on the first Friday of every month–estimates of employment and unemployment for the previous month. The December numbers will complete the picture for 2011, and rather than just focus on the month-to-month change invite a medium term perspective.

The canned response by government officials to questions about these numbers is something along the lines of: “we are pleased that the Canadian economy has recovered all the jobs lost during the recession, and created hundreds of thousands new net jobs.”

This is certainly true, and it is certainly encouraged by the way Statistics Canada edits its press release: a graph like the following regularly appearing as the first piece of information.

Source: Statistics Canada, The Daily, December 2, 2011

But the overall employment level masks as much as it reveals, with important facts hidden in the details or not even presented.

So here are three questions that invite more than a canned response.

1. What is being done about the fact that youth employment is stuck at the same level as during the depth of the recession?

While it is true that employment has more than recovered from its mid 2009 trough, this is not the case for the young. The Statistics Canada numbers show that employment for 15 to 24 year olds fell sharply with the recession, and has not improved at all. There has been no recovery in the number of employed young people; all the job growth has gone to those 55 years of age and older.

Surely, the voices of the Occupy movement echo these job prospects. The Minister does not need to consult further to realize this, and also to appreciate that his macroeconomic policies, to the extent that they have played a role in boosting jobs, have not benefited youth.

Where is Canada’s jobs strategy for the young?

2. Given that the unemployment rate for immigrants is so much higher than the national average why did the government not cut immigration levels during the worst recession of the post war era?

While it is bad enough that Statistics Canada doesn’t highlight the youth employment numbers, it does not even bother to publish the numbers for immigrants. You have to ask for it.

The immigrant unemployment rate was well above the national average the last time I asked, and I suspect that employment has not improved much since the recovery began.

But the Minister of Finance surely knows the details, and he should be asked to what extent the government’s policy of maintaining elevated immigration levels during the recession exacerbated the problem.

Just what is the economic logic for increasing labour supply when demand is collapsing? What are the longer term consequences of this, both for the immigrants and for others?

3. Why are so few of the unemployed receiving Employment Insurance benefits?

At the onset of the recession the government made Employment Insurance benefits more generous, a decision that was important in supporting laid off workers. But this moment has passed, and besides only a small fraction of the unemployed receive benefits.

Statistics Canada knows the number of beneficiaries, but never presents it alongside the number of unemployed. It takes an extra effort to realize that there are 2 1/2 times more unemployed individuals than there are EI beneficiaries: last October 1.37 million Canadians were unemployed, but only 541,200 received benefits.

It’s reasonable to suspect that the young and new immigrants are even less likely to receive benefits as their shorter work histories keep them from qualifying. Jobs are not forthcoming; nor is financial support.

But the Minister of Finance should know the details and offer an explanation as to why so few unemployed receive benefits, and for which groups this is particularly so.

Is the implication that the government does not believe unemployment causes hardship for these groups? If not, what reforms will the government entertain to increase the responsiveness of Employment Insurance to the needs of all Canadians?

Perhaps someone can get answers to these questions. They might be a first step in a conversation about who has shouldered the burden of the recession, what public policy is going to do about it, and make the Minister’s online consultation a little more meaningful as he begins to ponder the trade-offs between jobs, income support, and deficit cutting.

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15 Comments
  1. I don’t like the premise of your question about immigration; I’m not convinced that tying immigration levels to the whims of the business cycle would be good either for immigrants or for existing Canadian residents. For the immigrants, they’re making a long-term cost-benefit calculation to come here; it’s likely a very good bet when measured over generations (I note that your question isn’t about temporary work permits). In terms of the interests of existing Canadian residents, what’s the harm of having some unemployed immigrants here? The net effect of immigration on wages may very well be positive – the higher unemployment notwithstanding.

    • Thank you for your comments.

      The federal government regularly adjusted the number of new immigrants with the state of the business cycle, increasing the inflow during booms and decreasing it during recessions. This changed in the mid to late 1980s, and the recession in the early 1990s was the first in which immigrant inflows were unchanged. This is now the rule of thumb.

      My position is not about permanent changes in the number of immigrants that we let in, but rather how that varies over the course of a business cycle. So I have no problem agreeing with the long-term calculation you suggest immigrants are making, and in particular with the importance of thinking about the costs and benefits over generations.

      “What’s the harm of having some unemployed immigrants here?” Well, there is evidence from the experience in the early 1990s that those immigrants who arrived in Canada during the recession were scarred by the experience, after a period of unemployment being shunted to occupations for which they were over qualified and from which they had trouble moving out of later on. Their long term earnings suffered as a result, and they were in direct competition with low skilled Canadians.

      The situation is a bit different now because of the structure of immigration policy: the Provincial Nominee Program for example seems in some cases to have worked in spreading immigrants around the country outside of Montreal, Toronto, Vancouver. But the magnitude of these flows is still relatively small when compared to the overall size of the immigrant inflow.

      I don’t understand what you mean when you say that the “net effect of immigration on wages may be positive” … In the short term when the capital stock is fixed increases in labour supply imply downward pressure on wages, and this will impact on the low skilled the most. Over the long term the case is debatable, but that is not what I am concerned about. Let’s set whatever level of immigration we want, but with the scope to reach this target over say a five year period, with the government using its discretion in adjusting the annual numbers around the peaks and troughs of the business cycle.

  2. Thanks for your reply (great blog, by the way). I wasn’t aware of the scarring effects on immigrants from having arrived during the recession of the early 90s (makes perfect sense, just hadn’t considered it or read about it; I’ve now looked into it a bit).

    Overall, I worry that adjusting immigration levels based on the business cycle could lead to lower levels of immigration for political reasons (indeed, the move to non-fluctuating levels went hand-in-hand with a large increase in immigration levels, I believe).

    I wonder if there are ways to put this decision about when to arrive into the hands of immigrants themselves, so that they would have a window of several years to come and could time their arrival themselves based on myriad considerations – personal and economic (and if given that choice what the immigrants themselves would in fact choose).

    When I was thinking of the “net effect” of immigration, I was trying to trade off the downward pressure on wages against things like the capital that Investor Class and Business Class immigrants bring, the effect of immigrants supporting the housing market during recessions, the counter-cyclical effects of immigrants arriving during recessions and demanding services, etc. (perhaps those positive effects are negligible)

    All the best.

  3. ron svajlenko permalink

    Great work Miles!!

    I have listened to Jim Stanfords account of “real Job numbers” since the recession and he has been another loud speaker on the the failure to recover. In light of new government direction of cutting public costs by job reduction….things will not improve. How do we educate a distracted public into actions that will grow our real economy and grow jobs!

  4. ron svajlenko permalink

    Please keep up the good work!

  5. Shoba Zachariah permalink

    I arrived in Canada in July 2011 with my family and was called for exactly one job interview a couple of weeks ago. To say I am scarred is putting it mildly. I left a very successful career with the knowledge that it will be difficult to get a similar position but I never anticipated that I would end up feeling invisible and a non-entity with absolutely nothing to offer. Since coming here I have been shelling out money for everything, university fees for my kids and so on. Other than contributing to the Canadian economy through our expenses, I feel immigrants are not considered to be of any particular value.

    Canada is lucky that it is resource rich and has the USA as its neighbor as its strong economy is based essentially on exports of lumber and oil. Or maybe thats the problem. The only internationally known Canadian product is the Blackberry, and most people outside of North America do not know its Canadian. Frankly while other countries work hard to get new markets and position themselves internationally, from what I can make out most Canadian organizations focus only internally or the US. Those that have a few international deals are rare. Hence the attitude is that immigrants do not have anything much to offer unless they have doused themselves with sufficient Canadian experience. This allows the status quo to be maintained which seems the number one priority. How long can Canada afford to do this, ignore the rest of the world, I mean?

    • Thank you very much for sharing your experiences, and your point of view.

      Certainly the latter part of your comment raises big and important issues about Canada’s industrial structure, the degree to which its entrepreneurs are innovative and the underlying reasons for productivity growth, but also by implication a long history of needing external sources of capital to fund the extraction of resources and living off of those rents. Labour economists are certainly concerned about these issues, but this more the territory of those dealing with industrial organization and international trade. So I am not certain if I have much to add in this regard.

      But the first paragraph you wrote has me thinking about some research showing that the challenges immigrants face in our economy are much broader than what most commentators believe. For example, there was an editorial in The Globe and Mail yesterday, February 8th, suggesting that what Canada should increasingly select immigrants that speak English or French. Obviously this would not address the situation you are facing.

      I think I will post a longer article on this. I hope you can come back to the site and read it.

      • Shoba Zachariah permalink

        Thanks for the article on Feb 10, Miles. It certainly pulls together several issues and also sort of helps me feel a little less invisible.

        I can say quite definitely that the problems immigrants face in integrating into the workplace cannot be reduced to simple issues such as lack of language skills. Most newcomers I have met have very good English language skills and as for me, English is my first language. However, I do have an ethnic sounding name and although 2 of my qualifications are from top ranked UK universities, makes absolutely no difference, here.

        I really think that Canada should change its immigration policy to allow only those below the age of 30 to immigrate here. This will ensure that they have adequate time to start fresh and still achieve their career goals. Encouraging immigrants above this age limit is a criminal waste of experience as well as cruel as they are in their prime in terms of productivity and achievement. I agree that during periods of recession, immigration quotas should be reduced. I also think that immigration quotas should be much lower on the whole.

        On the surface there is lot of attention paid to immigrants i.e. settlement agencies, career counseling etc but most offer superficial help in terms of polishing up resumes and the like. I have come to look on this as just another means to provide employment to a lot of people but not really addressing the core issue: connecting immigrants with employers who are all risk-averse.

      • ron svajlenko permalink

        The discussion on immigration is great but the basic failure of our economy to generate good jobs is the core problem. Productivity is often raised as a problem with the false belief that this is a business problem. Two large factors in productivity are wages and currentcy values. No one wants to work for “China Wages” but the Minister of Finance is delusional if he believes that Corp Tax cut will make Canada competitive. The fastest way to create an advantage in Canada would be to return our currentcy to the 80 to 85 cent range versus the US dollar. Much more has to be done to create work for new Canadians and young Canadians who face simular challenges entering the work force but some quick action is needed on currentcy!!

      • I think this is reasonably stated, and fair … though productivity is also tied up with innovation, the generation of new technology, and the application of existing ideas. Other economists have also pointed out the role of the currency, but have linked this to the resource boom. The phrase “Dutch Disease” is used to describe the differential impact of currency appreciation in a diversified industrial structure: the change in the terms of trade for natural resources bidding up the Canadian dollar on international markets that then has a negative impact on the growth and employment of the manufacturing sector. Robin Boadway, a Queen’s University economist, has suggested that we might learn lessons from countries like Norway where a good deal more of the resource rents have been saved, and then invested abroad thereby putting downward pressure on the appreciating currency. There seems to be less scope for monetary policy to impact the exchange rate given the very low level of interest rates.

        Bottom line … your points are well taken.

    • Please see the February 10th post.

      A version of this article is also posted on The Globe and Mail Blog called Economy Lab and available here.

      Thank you once again for sharing your experiences.

Trackbacks & Pingbacks

  1. Why new Canadians struggle to find jobs – Globe and Mail – How Do I Find Work?
  2. Immigrants face challenges in finding jobs that are not of their own making « Economics for public policy
  3. The Challenge of Getting a Job - Smart Canadian
  4. Our immigration system needs to be overhauled! - Page 8 - City-Data Forum

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