New Brunswick: Nearly 1/5th into a New Century

As I get older I realize there actually isn’t much that old people have on the young.  These days skills can be acquired at lightening speed, many young people have figured out the importance of networks in a way that most in my generation did not.  There is one thing that age brings that is hard for the young – perspective.  You can read about events all day long but that is not the same as living them.  Characterizations of the ‘Moncton Miracle’ by  the young today do not have the same texture as those served up by David Jonah or others that were actively involved at the front end in the 1980s.

Recently while cleaning out old files I came across a hard copy of this McKenna era report  (New Brunswick at the Dawn of a New Century) on demography and how it would impact the province in the years ahead.

There are a few fun facts in this report.  It states, for example, that the per capita costs for publicly funded health care in New Brunswick for those 85+ was a shocking $477 in 1995 – more than double (!) the overall per capita costs.  According to the Bank of Canada inflation calculator $477 in 1995 would be the same as $713 in 2017.   Guess how much the per capita costs for 85+ health care are today?  Depending on your data source – around $12,000 per 85+ person.   Don’t even think about projecting this growth rate out over the next 20 years or you will be immersed in a Richard Saillantian world of cliffs and cleavages.

But what is most striking is what is not said in this report.  They set up a select committee of the Legislature – delve into the big issues – the global desire to moderate or reduce population, the fact that Canada will need 500,000 immigrants per year by 2030  – a target by the way we are well on the way to hitting nationally – all of the major drivers of New Brunswick’s demographics – and then virtually no recommendations – only vague statements about need to come up with innovative solutions, etc.

In the 1995 Throne Speech, McKenna stated “dramatic demographic changes are ahead, creating risks for the unprepared and opportunity for the far-sighted” and “New Brunswick will be ready for the twenty-first century.”

I can’t help thinking as my mother used to say “there is many a slip between the cup and the lip”.

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The importance of skin in the game

I’m not sure where this term, skin in the game, comes from – I won’t google it because I may not like its origin but I do like the concept.  I think it applies to economic development here in New Brunswick. Nassim Taleb – the black swan guy – co-authored an excellent paper on the general theory of skin in the game back in 2013.  I think he is coming out with a book on the subject soon.

New Brunswick has an economic development problem.  It’s economy is growing very slowly (on average, 0.5% per year since 2008), employment is declining and investment is flat.  Productivity remains a key challenge.  Why does this matter?  Can’t we just limp along as a province for the next 2-3 decades until we get beyond the Boomer demographic hump?

I’m not sure.  The premise behind the idea of Canada is that rich provinces will cover the shortfall in poorer provinces and every Canadian will have good quality public services and public infrastructure at reasonably comparable levels of taxation.  In an increasingly competitive world the ‘rich’ provinces (think Ontario) are facing their own heightened competition for investment, talent and ideas.

In my view, the best approach moving forward is for each province/region in Canada to buckle down and build an economic agenda that focuses on a substantial increase in the inward flow of migrants, high growth potential entrepreneurship and economic opportunities for which the region has a strong value proposition.

This brings me to the skin in the game concept as it relates to economic development.  I believe that industry groups, municipalities, and other actors need to put skin in the game and work with the provincial and federal governments on the growth-focused economic agenda.  It’s easy to blame government when things go wrong.   And government needs to shoulder some of the blame.  But if we really want industries and communities that thrive, we need a collaborative approach where each stakeholder plays a role based on its strengths.  Government has things it does reasonably well and others that it doesn’t.  This vision of government as a bank for industry that gives cash and then ‘gets out of the way’ is not going to get it done.

So, we need municipalities, industry groups, universities, not-for-profits, etc. to put skin in the game.  Some of the most inspiring stories I have heard in the past year have been community-level efforts to foster economic development. St. Stephen comes to mind with its wildly ambitious goal of adding 1,000 people to its population within a decade.    Transport yourself to 2025 to see how St. Stephen envisions its future.

The provincial government is trying to seriously evolve how it approaches economic development putting much more emphasis on the factors that drive long term economic success – the talent pipeline, infrastructure, innovation, focusing on areas of strength and we need our partners to step up to the plate too.  We should be well beyond the old NB value proposition of lower costs and lots of available young workers (the value proposition circa 1990).  We now need to be a place (actually many places) where entrepreneurs and companies want to be because there is a broad value proposition for them to be here.

 

 

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Ensuring there are workers across the labour market spectrum

The new immigration pilot worked out with the feds is unique because the Atl. provinces can now attract needed workers across the labour market spectrum – from fish plant workers to engineers. I have had more than a few people question why we would want to attract immigrants into sectors not paying particularly high wages. The logic goes that the firms struggling to find workers should pay higher wages or become more productive. One economist said that the “only way” to reduce our 10% unemployment rate would be for firms to raise their wages to a level that would attract in workers.

In theory there may be some logic to this but in practice there are many other factors at play.  Firms in export industries compete in global markets and therefore cost competition is set globally.  If input costs increase too much in one location and not another it puts the former at a competitive disadvantage.  Productivity is a good thing for sure but many firms still require lots of workers.

Look at the growth in below average wage jobs across Canada between July 2008 and July 2016.  This data is taken from the Survey of Employment, Payrolls and Hours (SEPH).  The average wage includes overtime.  Across the country jobs in below average wages have increased by 10.5%.   In New Brunswick below average wage (occupations) jobs decreased by 0.1% – and if you back out health care and social assistance (which, yes, is a slightly below average wage sector because of the many support occupations in there – nursing home care workers, child care workers, etc.), the number has dropped by 7.3%.  When you look deeper you will see that many of the high wage occupations are dependent on the state of the local economy (doctors, lawyers, architects, electricians, etc.) so not addressing labour shortages in below average wage occupations drags down the potential of high wage jobs in the economy.

lwer1

The compounding challenge here is that young New Brunswickers increasingly don’t want to work in ‘lower wage’ occupations.  Between 2008 and 2014 there was a 15% decline in the number of persons under the age of 35 declaring annual income of $35,000 or less – a 3x times larger drop than Canada as a whole . At first glance you might say that is a good thing but look at the following graph.  Look at Alberta.  The strongest economy over the period actually saw growth in the number of young people earning less than $35,000 per year.  Why?  Because there are lots of jobs in any economy – for better or worse – that pay below average wages.   A  strong and sustainable economy is one where there are workers to fill jobs across the spectrum – with a healthy upward pressure on wages over time.

 

lower

 

If you look at the case of Manitoba it has witnessed record numbers of young immigrants coming in to fill jobs in food manufacturing, back offices and other service industry jobs (it’s no accident they are second only behind Alberta in the chart above).  The wage levels aren’t particularly high but they are an order of magnitude higher than what the immigrants were earning before.

This could be the biggest public policy challenge of our time.

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Millennial self-employment in export-oriented industries: An NB challenge

I have been thinking a lot lately about entrepreneurship among Millennials. If we want a vibrant and durable economy moving forward we need the next generation of ambitious and growth-focused entrepreneurs to step up.  Over the past decade we have witnessed a substantial boost to the government supported services meant to support entrepreneurs – and we have seen an expansion of the private capital available to them.  Governments have invested millions in support and expanded the small business investor tax credit program to encourage more investment in startups.

Unfortunately the most recent data we have is from the 2011 NHS but that paints a rather bleak picture of self-employment among Millennials in New Brunswick.  The chart below tells the story.  It is an index where the country’s workforce as a whole is represented by 1.00.  Anything above the line means NB has a higher share and anything below the line means we have a lower share compared to the national workforce.  For self-employment in occupations that are only focused on the local market (Lawyers, doctors, vets, accountants), we have a higher share of young people that are self-employed compared to the national workforce but among those occupations that tend to have high concentrations in export-focused industries we are well below the line.  Across the country 8.5%  of IT workers are self-employed.  In New Brunswick it is 2.3%.

In the manufacturing sector (not depicted in the chart) only 30 young people out of the 5,200 working in the sector are self-employed.  Across the country there are 4x as many young people in the manufacturing sector classified as self-employed.

Hopefully the numbers have improved since 2011.  However, Dr. Haan’s statistic looms large in the background.  Those who leave the province are twice as likely to own a business as those that stay.

self

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New Brunswick’s missing 35 to 44 year olds: A lesson in demographics

There is a view that youth out-migration is something that can be fixed – like you would fix an old car.  The reality is much more nuanced.  The following chart shows the New Brunswick population by age cohort relative to the national population.  As an example, in 1971 New Brunswick had 8.5% more 0 to 4 year olds in its population (as a share of the total) than Canada as a whole and 3 percent fewer 50 to 54 year olds.  If you look at the graphic you will see that not much has changed in the last four decades.  New Brunswick still has a higher share of its population under the age of 24 and a higher share of its population over the age of 60.

The population overall has significantly moved to the right – i.e. both NB and Canada are much older now and it has grown much faster across Canada –  but the mix in distribution has not changed much.

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In 1971 New Brunswick’s largest population gap with Canada as a whole was in the 35 to 44 year old age cohort.  In 2015 it remains this cohort and remarkably almost by the same exact percentage share.  In 1971 we had 15 percent fewer 35 to 44 year olds in the population than Canada as a whole and in 2015 we had – you guessed it – 15 percent fewer 35 to 44 year olds in the population.  44 years later.

The reality is that this phenomenon is similar in other small provinces and U.S. states.  Small jurisdictions end up losing a lot of young people to the large urban centres.  The small jurisdictions – such as Manitoba and Saskatchewan – are those that are seeking a significant of inward migration to counter the outward effect.

That may seem counter-intuitive to some people. Why try to bring in younger immigrants when your young sons and daughters are leaving?  We have 40+ years of making that same argument.  We don’t need immigrants because we have youth out-migration.  How has that worked out so far?

As I have pointed out many times before – Toronto has a high net outward inter and intra provincial migration rate.  They make up for the loss with 95,000 mostly younger immigrants every year.

No matter how hard it is to get our heads around it is my view that a big boost in immigration should actual lead to more jobs for young, Canada born New Brunswickers.   Many of the new immigrants will fill positions that are not being filled now and that should boost output and create more jobs in the local economy.

You would think that 40 years of data would lead to a little new thinking.

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New Brunswick’s $250,000 problem

New Brunswick has 59% fewer people who earn $200,000 per year and 63% fewer people who earn $250,00 per year compared to Canada as a whole.

To put that into some kind of context, you would have to look far and wide to find any major social, demographic or economic indicator where New Brunswick had a 60% spread with the rest of Canada.  Not literacy, education, poverty or health outcomes.  Not median income or any other main economic indicator.

But when it comes to ‘high’ income earners we have a huge gap.  And the gap is widening at least at the highest level.  In the past five years the national growth rate of those earning $250,000 was 50% faster than New Brunswick.

Does this matter?   Well, I think it does.  By my estimate just getting to the national average for higher income earners would add some $200 million in provincial government tax revenues each year.  And that is grossly understated because it doesn’t account for other sources of tax revenue that would be derived from the economic activity generated by those high income earners (I only looked at the direct taxes off the additional personal income).  In other words it pushes the tax burden down the income pyramid.

Now let me be clear.  If the price to get more higher income earners means less income for those lower in the income pyramid (i.e. creating more inequality) – that is not acceptable.  But I am talking about generating relatively high incomes from creating new wealth from entrepreneurial activity, risk taking and hard work.

How do we do that?  We need more ambitious entrepreneurs looking to build markets outside New Brunswick and we need world class companies willing to step outside their comfort zone and take risk.

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Energy and mining export values down, gypsum, aquaculture and peanut butter up

A quick look at the international export data for the first four months of 2016 reveals that the value of energy-related exports is down significantly this year so far. The total value of refined petroleum exports, gas exports (mostly LNG) and NB Power exports is down by $869 million this year so far. You have to be careful with this, however, as the lost ‘value from refined petroleum exports could be upstream as the value of oil and gas imports is down by $636 million during the same period.  The decline in Canaport exports to New England is likely due to the mild winter.

Other decliners including non-metallic minerals (potash) – no surprise there – and the rest of the declines are quite marginal and could be due more to currency fluctuations than production declines.

International merchandise exports – Biggest declines (Jan-April 2015 to Jan-April 2016) – in CDN $000s
exports1
Source: Trade Data Online.

On the winners side, Gypsum product exports are up (but in absolute terms by a fairly limited amount).  Aquaculture exports are up strongly by $35 million in the first four months.  Peanut butter exports are rolling along (snack food).  The value of seafood exports is up by $30 million.  The value of pulp million exports are up by $31 million.

International merchandise exports – Biggest increases (Jan-April 2015 to Jan-April 2016)  – in CDN $000s
exports2
Source: Trade Data Online.

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Learning from Leicester City

I think there are lessons to be drawn from the Leicester City Foxes who recently won the 2015-16 English Premier League. The Foxes were 5,000 to 1 to win on the season’s opening day.

I can’t help but take a little jab at my Edmonton Oilers – a team I have followed since they joined the NHL in 1979 (I was 12 at the time).  In many country professional sports leagues (like the EPL) whole teams can be demoted if they don’t play good enough to remain in the top league.  I suspect if the NHL had that approach (i.e. the Oilers as a team would get demoted to a lower league) you would have far better hockey because teams would be extra vigilant to make sure they put a quality product on the ice.  These days teams like Toronto and Edmonton can languish in obscurity and still turn a nice profit for their owners (in fairness I have no idea if Edmonton has been profitable).

One of New Brunswick’s biggest challenges relates to how a small jurisdiction positions itself in a world that is more open and global than ever before.  Capital, talent and ideas are more mobile than at any time in our history (at least until the Trump Express hits the Whitehouse) and New Brunswick risks being left behind.

Leicester City shows that an innovative approach, a little luck as well as a version of the Tortoise and the Hare story can help elevate underdogs.

I am a little concerned that New Brunswick is too under the radar from a national economy perspective.  If Ontario had our province’s economic performance over the past eight years it would be an international issue.  When Alberta’s economic growth fell to zero (and slightly below), the nation’s media was awash in stories.   When NB has zero growth for seven straight years (on average) no one notices or they shrug their shoulders and say “that’s just New Brunswick”.

Why this matters is that we need the federal government to be concerned about NB’s economic trajectory and help where it can – in areas such as immigration, our share of national innovation funding, helping promote NB around the world using its global network of trade and investment officers, etc.

We need to attract national and international investment – like we have in the past – if we are too under the radar that becomes more difficult.

We need to attract a lot of talent in the coming years.  That too requires a focused effort.

The Economist magazine, after several articles extolling the virtues of Leicester City and drawing much broader lessons for the economy – has piece concluding that “underdogs are overrated”.

That too is an illustration of the challenges we face moving forward.

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Brasileiros em New Brunswick: Will a wave of Brazilians help rebalance our demographics?

A YouTube channel that describes itself as “dedicated to Brazilians wish to one day live in Canada” recently featured an hour and 12 minute conversation with Sergio and Kaísa who recently moved to Moncton where Sergio is taking a course at the NBCC.  They would like to stay in Moncton after he finishes his course and the conversation was very positive on New Brunswick and Moncton – both Kaísa and Sergio could see themselves building their careers here.

The YouTube conversation has been viewed over 2,000 times (sorry, folks, its 100% in Portuguese – although they do talk about a new kind of Chiac – their word not mine) that is half English, half Portuguese.

Since Sergio and Kaísa’s  free promotional plug for New Brunswick the group’s Facebook site in Moncton has been pinged by numerous Brazilians asking more about New Brunswick and expressing an interest in moving here.

I think it would be kind of cool to attract more young Brazilians here – New Brunswick could use a little more samba.

I’ve taken to preparing quite a bit of Brazilian food – feijoada, feijao, farofa, pao de queijo, mousse de maracuja, etc.  It’s good.

But I do wonder about the cold winters.  Speaking from experience, most Brasileiros are not hardwired for 30 below winter days.

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Growth in the provincial workforce and GDP by Premier

Between 1987 and 1997, the years when Frank McKenna was Premier the provincial workforce expanded by 32,000 people and total employment increased by 29,800.  Real GDP grew by 11.3%.

Between 1999 and 2006, when Bernard Lord was Premier, the workforce expanded by 21,400 and total employment grew by 24,700.  Real GDP grew by 17.8%.

Between 2006 and 2010 when Shawn Graham was Premier the provincial workforce expanded by 10,400 and total employment by 7,700. Real GDP grew by 2.1%.

Between 2010 and 2014, during Premier Alward’s term, the provincial workforce shrunk by 1,300 and total employment dropped by 4,200. Real GDP declined by 0.7%.

Between 2014 and 2015, the provincial workforce has declined by 2,800 and total employment is down 2,100. We don’t know the final tally for 2015 GDP yet – we are expecting a marginally positive number but not outstanding.

I wonder how many people out there still don’t see a connection between the trajectory of the workforce and economic growth?

By the way, if I put up the national numbers you would see roughly the same correlation – the only difference is the workforce nationally has been growing rapidly in line roughly with GDP growth.  Between 2008 and 2015, New Brunswick’s workforce declined by 4,100.  The national workforce increased over the same timeframe by 1.16 million.

And most of the net growth was made up of immigrants. FYI.

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