The government needs a growth agenda for the economy if more money is to be put into the pockets of Canadian workers, writes Jack Mintz.
By Jack Mintz, December 16, 2019
The U.S. and Canadian November employment reports released last Friday could not have been any starker. Canada lost 71,200 jobs while the United States reported an increase of 266,000 in non-farm payrolls. This is Canada’s worst employment result since 2009, already causing some to argue that the country is on the cusp of a recession (a view I don’t personally hold — yet).
The Canadian numbers are concerning because employment has now fallen for two consecutive months. The unemployment rate has jumped from 5.5 per cent to 5.9 per cent in November. With GDP growth in Canada expected to be only 1.7 per cent in 2019, it looks like Canada’s economy is Goldilocks at best — not too hot nor too cold.
In a fiscal update to be presented before Christmas, Finance Minister Bill Morneau will likely bring in the Liberals’ promised tax cut, to be phased in over four years, which will spur consumer demand but do little to encourage work effort. A $3,000-a-year increase in the personal exemption might encourage some low-income workers to join the workforce but will result in higher marginal tax rates to claw back the increase for high-income workers. This redistributive policy will not address Canada’s weak productivity performance (as I discussed in these pages on Aug. 22).
Given the U.S. unemployment rate is now 3.5 per cent, it is hard to believe that so many new jobs can be created — after all, where do employers find the people to work? The answer is that many Americans who once left the work force are now returning, allowing employment growth to continue. The main beneficiaries have been lower-income workers with faster accelerating wages.
The U.S. economy prospects were boosted in January 2017 when Donald Trump and Congress introduced deregulation and 2018 tax reform, accompanied by large federal deficits. Trumpian tariff policies have undermined these growth-enhancing gains resulting in a slower growth in 2019.
Canada’s approach to growth has been different, with rising deficits (but not anywhere as bad as the United States) and higher federal government spending on infrastructure and social programs.
So which approach affects job creation the most? Both Canadian and U.S. employment (the latter with tighter labour markets) increased by the same amount (4.5 per cent) since January 2017. Now we don’t know how much of a role Canadian economic policy played in its employment growth because we are so dependent on the U.S. market for our exports — better growth there helps growth here.
But is that generally true across industries? Employment growth has been demonstrably different among industries between the U.S. and Canada.
The most obvious is the blowout in employment growth in the U.S. mining/oil and gas sector at 14.9 per cent since January 2017. Not true in Canada, where employment has fallen by 3.2 per cent. We can’t blame our poor job creation performance on the decline in low commodity prices after 2014. Instead it reflects differences in economic policy. The U.S. promotes energy development while Canada is hostile to it, with confidence-busting regulatory policies.
Manufacturing employment growth has also been lower in Canada (1.7 per cent) compared with the United States (four per cent), the latter a reversal of past fortunes in the U.S. American employment growth in construction is also double Canada’s growth, in part due to stronger commercial construction in the U.S. Both countries have experienced a loss of employment in the utility sector.
As for services, Canada seems to do better in employment growth than the United States, especially in transportation, finance and real estate, professional and business services, education and health. It is the goods-producing industries in Canada that have been slower in creating jobs (except for construction).
And, of course, Canada’s larger government sector has growing faster in employment than in the U.S. This should not be a shock.
Looking at industrial breakdowns tells an important story. The highest value-added industries in Canada are mining/oil and gas, utilities, real estate and information (including our telcos). Except for real estate, these industries in the past two years have had relatively poorer employment growth than the United States. This shows up in slower GDP growth as our strongest sectors are underperforming with lacklustre job creation.
Perhaps, Canadian firms are slower at adopting technologies because business investment has been poor. Maybe, managers and workers are protected too much from competition so don’t innovate much. Or tax and regulatory policies have gotten in the way of growth. Or all of the above.
What we should learn is that propping up consumer demand by running deficits and distributive tax policies is not the answer to improving our stagnant growth in per capita incomes. The government needs a growth agenda if more money is to be put into the pockets of Canadian workers.
Jack M. Mintz is the President’s Fellow at the University of Calgary’s School of Public Policy and is a Distinguished Fellow at the Macdonald-Laurier Institute.