Redux: Does labour follow capital or vice versa?

Should New Brunswick focus more on trying to attract jobs or on growing the population?An interesting new study out of Indiana has important implications for economic development in New Brunswick.

The researchers looked at whether or not job growth (efforts to foster more jobs) lead to population growth or did having a growing population foster new job growth.

They found that “in the 1970s people followed jobs, but by the 2000s they had stopped.”  If the economy was going to grow the workers had to be in place.  In other words, the researchers conclude that communities need to be great places to live and attract people and the jobs will come rather than trying to attract jobs to places with tight and shrinking labour markets.

That sounds a lot like New Brunswick these days.

I have been saying all along that there are some jobs that will attract labour.  Think Fort McMurray.  Sectors such as mining tend to be a magnet for workers.  But most industries are not like that.   If there isn’t a pool of labour, over time investment and jobs will decline. I would not say this is a universal fact but for places such New Brunswick (and apparently Indiana) this is the case.

The study goes further and suggests the tax incentives used to lure jobs to the state were not well spent and the money should have been used to improve the quality of place and boost population.

I wouldn’t be as stark on this point.

I still believe there is an important role for communities and governments to expose firms to potential investment opportunities in their areas.  For example, if a small community has enough local demand for a dentist and there are not a pile of dentists lining up to come, the community should build a business case and use it to convince a dentist to locate there.  Likewise if a province has opportunities in shellfish aquaculture, mining, blueberries, etc.  it should package and promote those opportunities to investors. If it has gateway infrastructure – roads, ports, airports with opportunities – it should promote these opportunities to investors. If it has low cost energy it should promote this benefit to industry.

If other jurisdictions are offering tax breaks or other forms of subsidy, we may well need to play some version of that game but I believe if we are ‘selling’ real opportunities with tangible value to investors, incentives will be less important.

The idea of trying to lure firms to New Brunswick with cash incentives even as the labour market is shrinking is increasingly problematic.  Even if the firms move in they may take workers from existing employers who will then not be able to fill the vacancies.

New Brunswick needs to focus on intentionally growing its population – it’s working age population.  This is foundational to ensuring investment and sustained GDP growth is in our future.

 

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2 Responses to Redux: Does labour follow capital or vice versa?

  1. Frederic Gionet says:

    As a pure academic and intellectual debate, I see the merit of measuring the merits of spending taxpayer money in providing incentives for foreign direct investment and wage subsidies. As society with limited means and considerable structural challenges, accountability and responsibility are in top order.

    What I see in such a simple ‘A vs B’ is a limitation that it forces a view that if we grow our human capital (immigration, family growth incentives, retention, attraction, etc.), will this ‘excess’ resource only become attractive to investors because of its ample supply, or will the offer-demand of skillets required by industries exacerbate our current problems.

    If for simplicity’s sake we have the perfect pool of talent ready to feed a growth industry, unless we are in a unique position to become a gem to investors, wouldn’t global or at least continental competition seek out the better deal ? Why wouldn’t they attempt to get some of their capital expenditures covered, or tax obligations reduced, etc. ?

    Other jurisdictions who take the aggressive path (often at the detriment of a solid ROI), will throw everything at those investors, and unless we have a unique advantage, our choice of not playing this game because it is a times an risky/controversial use of our public resources will likely reduce our chances of success. We cannot be the only ones not playing in the sandbox.

    This being said, our inability (or unwillingness) to compete at the insane levels of our ‘sub-prime’ competitors should not preclude us from being present. Our human capital and incentives to industries should not be mutually exclusive. We need to have strategies that growth both.

    On a side note, some of the major incentives given to industry in North America have little impact on public purse, as they are in the form of long term tax deferrals…a shared risk approach.

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