Demystifying the benefits of out-migration: Smaller may not be better

I used to make the statement that bigger is not necessarily better and we may have to ‘right size’ the population of certain areas of Atlantic Canada to bring it more in line with the size of the economic pie in those areas.  I used the example of Miramichi which had roughly 30,000 population and I said that if it had 22,000 it would have very low unemployment and a healthy – if smaller – economy.  This view is widely held across Canada.  Economists and pundits from Halifax to Victoria told us in the 1990s that all Atlantic Canada needed was a large scale out-migration and that would solve our unemployment and economic problems.  I have speculated elsewhere that former Premier Lord’s inner circle held this view.

However, our theory was flawed (in fairness to me I knew the effect below but I didn’t clearly articulate it at the time in the essence of simplicity):

Take a economic area with a population of 45,000 people, an adult population of 30,000 and total employment of 15,000.  That leaves you with a very low employment rate of only 50% (although this is actually higher than some New Brunswick communities).

Total population          45,000
Adult Population          30,000
Employment          15,000
Employment rate 50%

 

The theory states that if we reduce the adult population by 8,000 and total population by 11,000 through outward migration we will end up with:

 

New total population          34,000
New adult Population          22,000
New employment          15,000
New employment rate 68%

Now we have an employment rate at the national average and a ‘right sized’ population and economy.  Wunderbar, right?

Wrong.

It turns out that 80% of more of the employment in a local community is actually based on the economic activity (and population) in that community – nurses, electricians, hairdressers, waiters, plumbers, taxi drivers, teachers, etc.

Therefore, if we reduce the population by 11,000, we reduce the overall local economy by a significant amount leading to widespread losses in the 80% of the economy that was hurt by the loss of those 11,000.

So we really end up with:

New population          34,000
New adult population          22,000
New total employment          11,000
New employment rate 50%

 

So we have done nothing to impact the low employment rate (and hence high unemployment rate) but we have unintentionally created other negative impacts.

The other deeply flawed assumption regarding the ‘rightsizing’ of communities is the linearity of public services and public infrastructure costs.     If you drop the population by 20%, the theory goes, you will reduce the cost of these services by 20%.  This turns out not to be the case.  In fact, you could argue that public spending goes up – particularly in the area of income transfers – where EI, social assistance and even workers’ compensation costs rise.  The insurance firms will quietly tell you the number of homes that burn down also rises as economic prospects fall.

The learning here is that we can’t shrink communities to economic health.

Or, to be more direct, we need to spend far more time on the 20% of the economy that is export-based.

The reality is that many of these economically challenged regions are in that place because of a steep decline in their export businesses.  The Miramichi is a perfect example.  The community lost its largest mills (and mining) and tried to replace it by encouraging local small businesses (i.e. the 80%).  It didn’t work.

This brings us full circle to my theory about the need to attract investment and foster more ambitious (i.e. export oriented) entrepreneurship.   Increasingly I include immigration as the third leg of the stool.

The proper ‘right sizing’ of a community will be focused on understanding the mix of local services and export-based activity needed to have low unemployment, moderate population growth and the economic foundation that will allow governments to carve off enough tax revenue to pay for good quality public services and infrastructure.  Further, it will involve having the wisdom to have a proper role for government that doesn’t exacerbate the problems.

 

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6 Responses to Demystifying the benefits of out-migration: Smaller may not be better

  1. Sarah O says:

    Atlantic Canadian historians have been showing since the 1970s the devasting economic effects outmigration has had on this region since the 1850s. Who is most mobile in a culture of outmigration? The young, the educated, the already-employed or highly employable. I am shocked to learn that outmigration was ever considered a viable economic strategy.

  2. mikel says:

    Very interesting, but I’d have to see footnotes. WHO advances the theory that “If you drop the population by 20%, the theory goes, you will reduce the cost of these services by 20%.” Thats insane and goes against virtually every argument we have for building cities. The whole point of a city is that the more people, the less per capita is paid for public services. If there are six people renting a house, who in their right mind thinks than getting rid of two will make it CHEAPER because there will be less hot water use??

    Like Sarah says, any politician that thinks this is ‘good public policy’ needs to be outed straight away. People will fight like grim death to hold onto their schools, so even drops in student population have to be drastic before there are savings to public services. And of course healthwise we are finding out just how wrong that ‘theory’ is. Its not the children and the elderly who are packing up and leaving in droves, its those who pay taxes and use relatively few public services. Now, I would think that that would be ‘common sense’, but somebody let know, because maybe I’m missing something.

    Politically, I think you are giving these guys too much credit. You posted the perfect blog the other day about how good the unemployment numbers look when outmigration is ’emphasized’. However, the fact is, I don’t think politicians in Canada really know how to advance policies that may end outmigration, and like the rest of us, probably don’t understand much about it at all. We have always been a ‘follow the natural resources’ kind of economy, and I think thats all we really understand.

  3. Mike E. says:

    I feel like you may not be adequately considering the long run in your analysis, you have also ignored the health of the wider provincial and national economies as those people move from low productivity employment to higher productivity employment. Not saying we should let those communities die out, but if that 20% as you call it doesn’t change in absolute size, maybe there is a smaller size community that is optimal or at least more optimal.

  4. mikel says:

    There is no ‘optimal size’ for a community, the very idea is ludicrous. Singapore is a miniscule fraction of the size of canada, yet it is a much larger financial centre. Virtually all the primary needs of a community can be imported, and if ALL those people were, say, employed in telecommuting in the IT sector, then there would be no conversation about it.

    What we are talking about in Canada, in case you missed the Royal Bank scandal, is the problem of skills development, unemployment and location. None of those have to do with urban development. Fredericton could easily be the physical size of Toronto, and immigration could swell its population.

  5. John Percy says:

    The government must find better ways to encourage immigration into Nova Scotia. This is a major topic that is never talked about in the Legislature or in the media. Nova Scotia has an aging population and last year we broke even in births and deaths, but lost 3,000 citizens to other provinces.

    There is a provincial strategy for immigration but it needs a serious re-working if we are going to attract enough new immigrants. The government can strongly lobby the federal government to dramatically increase the quota of provincial nominees. We can also do a better job of selling the province in both the rest of Canada and overseas.

    In order for this strategy to be successful however, there have to be jobs here that will attract quality immigration. We can’t all be shipbuilders. Governments should not be in the business of creating jobs, but they should be creating the proper atmosphere to attract new business and allow existing businesses to expand.

    What we can all do is begin to realize how vitally important immigration is to our survival. It needs to be part of the conversation. Ten or twenty years from now is not when we should begin thinking about this. It needs to start now.

  6. richard says:

    “they should be creating the proper atmosphere to attract new business”

    Attempts (many of them perhaps misguided) have been made to do just that. I’ve concluded that the best approach might be to find a way to increase the local concentration of nitrous oxide. That way, we can at least laugh at ourselves.

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