Guaranteed minimum income: Permanent underclass or innovative way to share prosperity?

Niall Ferguson is one of the more interesting historians out there today.  He is a prolific writer and out there in a very public way espousing history as a tool to influence current public policy.  In the past few years I have read an impressive bio of Henry Kissinger (Kissinger: Volume I: 1923-1968: The Idealist), Empire: How Britain Made the Modern World, and, just finished, The Square and the Tower: Networks and Power, from the Freemasons to Facebook.

In that book, of which I will use for other blog and column content, Ferguson takes on the idea of a guaranteed annual income.  It is being pushed heavily by the new Silicon Valley plutocrats and he thinks it could just create a permanent underclass of citizens that don’t work and that earn a bare minimum to survive while the tech. and professional classes get ever richer.

I have talked with many economists about the guaranteed annual income idea.  I particularly think there may be something there that could replace EI and its labour market distortions in New Brunswick but I am sympathetic to Ferguson’s concerns.

The basis for society throughout history has been work.  I know the proponents of the guaranteed annual income idea don’t believe it will discourage work – many think it might have the opposite effect.

But in the end I think we have many examples were people decide that a relatively low income is ‘enough’ if it comes with 6 months off each year.  They assign ‘value’ to the 6 months off collecting EI.  Or take the issue of the 55+ workforce.  We have a very low rate of 55+ people employed in New Brunswick.  The participation rate is only 33% (Jan. 2018) meaning that only one in three over the age of 55 is working or looking for work in New Brunswick.  In Alberta it is 46.3%.  To put this into perspective, if 46% of NBers 55+ were working or looking for work – it would add another 34,000 people to the workforce.

Now you astute readers might remind me that we have more people over the age of 70 and 80 than Alberta – so am I suggesting that 80 year olds should work?   I hope to be working at 80 if my health holds. But even adjusting for the age difference, having a comparable participation rate with Alberta would add 30,000 to the provincial workforce in New Brunswick.

But lots of New Brunswickers – again with rational calculation – conclude that retirement with a lower income but with no work – is better for them than working part time and earning a little more income on top.  The low cost of living in New Brunswickers combined with relatively low expectations drives down employment among the 55+, IMO.

In short, I have written that New Brunswick probably has somewhere between 60,000-70,000 people that could be brought into the workforce in a more permanent way – similar to SK and AB – but the jobs, the incentives, the skills alignment – the lack of flexibility – culture – whatever is holding this group back.

Hence the need for a large boost in immigration but I don’t think we should completely forget about the 60,000-70,000.

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Why the bond rating agencies’ opinions matter

To clear things up DBRS did not downgrade the bond rating.  It confirmed New Brunswick at A (high) and R-1 (middle) but it changed the trend from stable to negative.  This matters because in the fairly arcane world of bond rating agencies every single word has significance.

DBRS concludes GNB debt is a little more worrisome because there no big investment projects and a shrinking labour market – making the province vulnerable to shocks.  Sound familiar?

What does this mean? It’s actually pretty simple.  New Brunswick has to issue hundreds of millions of dollars worth of bonds in a typical year (for new debt and to roll over some of the $14 billion in debt that comes due) and if the bond rating agencies get more cranky that will lead to higher interest rates – meaning the cost of servicing the debt will go up – kind of like personal interest rate if you have a bad credit rating.

Overall, regardless of the bond rating, New Brunswick remains vulnerable to increasing interest rates.

But facts are facts.  As shown below we pay a lot less today as a share of the total budget on interest payments (service of the public debt) than we did 15 years ago because of lower interest rates.

debt

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Attracting and retaining international students. Two thumbs up!

Liberally applying Bryan Adams’ lyrics inappropriately, I have been writing about the importance of international students ’til my fingers bled.   I was glad to hear the feds are now taking this seriously in Atlantic Canada.  There is so much to like about this as a population growth tool: 1) they get Canadian education (overcoming a barrier); 2) they learn better English and/or French (overcoming a barrier); 3) they ‘test drive’ the community (overcoming a barrier); and 4) they get a look at our lovely winters (overcoming a barrier).

But it is important to remember that most new jobs still do not require a university – upwards of 70% depending on the timeframe and source.  Take a look at the following table for Moncton.  Other than the professional and management positions the other occupational groups do not require university (for the most part).

I love bringing kids here to study university but I really love bringing kids here to study at college for a year or two with a direct path into the industries that need workers.  For the international students studying at university we need to think about more creative ways to tie them into the labour market – self-employment support, experiential learning, remote work (I know several international students that graduated and are no working from home for national firms).

Fastest growing occupations – Moncton CMA (2013-2017)

typesSource: Statistics Canada CANSIM Table 282-0159.

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The myth of the full time worker

If most of us were asked to describe what ‘work’ looks like I suspect we would talk about getting up in the morning, going off to work – maybe fighting rush hour traffic, putting in eight hours and then going home.

The truth is that across Canada only about 50% of us actually worked full time and all year in 2015 (Census data).  The rest of us (all workers) worked part time or part year or part time and part year.  You can break this data down further into age groups and tease out students, etc. but at the end of the day a lot of people work part time or seasonal jobs.

Why this matters is that many people working seasonal or part of the year are considered ‘unemployed’ when they are not working.  As I have written before this distorts the labour market picture around the province and can lead to policies – and business decisions – that are holding back growth.

The following table shows a select group of communities by the number of persons working either part time or part year (at the municipality level I can’t break out part time or part year), the share of total workers and the average weeks worked during the year.  In the northeastern part of the province only about 35% of the population works full time and year round.  The other 65% work part time and or seasonal jobs.  In Bas-Caraquet only 19% of workers were employed full time and full year.

There are other pockets around the province that have a high share of part time/part year workers.  Miramichi, some communities in Charlotte County, etc. but when you get to the larger urban centres the communities start to look more like the national labour market.

Again this is not a criticism per se or any kind of a judgement.  I’ll leave that to others.  My interest is ensuring firms around the province – from restaurants and grocery stores to fish plants and trucking firms – have workers and I think we are pretending there is an available workforce (i.e. with the skills and interest in the available jobs)  in many of these communities when there is not.

parttime

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It’s time to end the EI fiction

There’s a story on the CBC website this morning about the plight of workers on EI that work seasonally at Kings Landing.  It’s unfair, they say, because they get fewer weeks of EI than their counterparts in the Village historique acadien.  The trusted federal government labour market economist patiently explained that the policy is that EI weeks are longer in areas of high unemployment because it is presumed to be harder to find a job in areas with high unemployment.

But if no seasonal worker is actually looking for work why does the unemployment rate matter?  In fact, mathematically the higher rates of seasonal EI usage push up the unemployment rate leader to longer weeks of EI collection.  Because of this folks on EI should cheer when the unemployment rate goes up.

It’s time to stop the fiction that is the EI program – or to reform it.  The gentlemen complaining that their EI has run out live within a short commute of Harvey (unemployment rate of 43.9% from the Census) and Nackawic (22.4% unemployment rate).  They live reasonably close to Woodstock and Fredericton that have low unemployment rates.  According to NBJobs.ca there are more than 500 jobs on offer right now within a 50km radius of Nackawic.

But as the gentleman in the article implies he has no intention of working another job as his real job starts in May. He just needs EI to cover him from February to May and, besides as he says – who would hire him to work for just a few months?

From the Census we know that nearly 50 municipalities in New Brunswick have unemployment rates of more than 20%.  This should be a crisis of Grecian scale but there are lots of employers in those communities and surrounding areas struggling to find workers.  And the MP for that area is dutifully looking for a solution (i.e. so those workers can get more EI).

ei

 

In 2015 there were 54,000 people that lived outside NB’s urban centres who collected EI at some point during the year or 37% of everyone that collected wages/salary income.  A large share of that 54,000 works seasonally and it is fiction to think they are ready and willing to work the jobs on offer in their communities and surrounding areas.

So we either a) reform the EI system to compel people to work even if they don’t want to (i.e. they work at Kings Landing for 5 months and Walmart for 7 months every year – its almost guaranteed that Walmart would agree to this arrangement; or b) we move the people on seasonal EI (i.e they have collected EI at least 3 years in a row) out of the labour market altogether and fund them separately with the understanding they have no intention of working outside of their seasonal job.

I believe the unemployment rates around the province would drop precipitously if we did this.

The problem here is more than just the fact that unemployment rates are distorted.  It drives broader government policy.  Why do we need immigrants when we have 40% unemployment in Harvey?  We set up ‘training’ programs for EI workers but they are really just a bridge to pay people between seasonal work.

It’s time to change this now.  I realize it is toxic for both provincial and federal politicians – the mighty federal Cabinet Minister Doug Young was brought down because of EI tweaks back in the 1990s.

This is no excuse not to act.  This issue is holding back our province and its economic potential.

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The disappearing wage gap between NB and Ontario

Someone asked me about the wage gap between New Brunswick and Ontario after reading my column this week.  Happy to accommodate.

If you go back to the 1950s, depending on the measure you use the wage ‘gap’ between New Brunswick and Ontario was around 40% – meaning on average you could earn 40 percent more in Ontario than you could here in New Brunswick. This is just wages – not net worth which has more factors such as the value of your housing, accumulation of savings, etc.

There has been a steady decline in this wage gap since.  In 2016, using Statistics Canada’s Survey of Employment, Payrolls and Hours the average weekly wage (including overtime) in New Brunswick was 10% less than in Ontario – up from 15% less a decade ago.  The table below expresses this as an index with the Ontario wage being 1.00.  Anything below 1.00 means wages are higher in Ontario and above means wages are higher in New Brunswick (average weekly wages).  We are really seeing upward pressure on wages in the sectors that are having the hardest time recruiting workers.  Look at truck transportation.  In 2006 there was a 19% wage gap with Ontario and that has essentially evaporated.  Look at grocery stories and building materials stores.  Already average weekly wages are higher here.  Nursing care is an interesting one.  There are many pushing for higher wages in this sector (and home care) as a way to draw more in to the workforce.  Government essentially sets the wages in this sector.  The average weekly wage in this sector is already 10% more than in Ontario.  How high should it go?   Computer systems design and services (the main IT industry) is another interesting example with wages now basically on par with Ontario.

An interesting counterpoint is insurance.  This industry is booming in New Brunswick as national firms are expanding their operations in this province serving clients across Canada – but the work is mostly back office and customer support which is not high wage which is why the index is going the other way.   This is a good thing in this case.  Would you rather have a few high paying jobs serving just the local market or a large, export sector bringing in several hundred million in revenue but with jobs that don’t pay as much?

wagearbi

 

Of course there are usual caveats here.  Average weekly wages are not the same as starting wages.  But it certainly looks like Ontario is able to more easily fill jobs in the $12-$15/hour range than New Brunswick these days.  This is likely due to the high flow of immigrants and also likely why the Wynne government is moving to a $15/hour minimum wage to force up wages at the lower end of the labour market spectrum.

Rising wages are a good thing if they are tied to productivity and overall industry profit growth.  But in tight margin industries without productivity gains, the jobs that are mobile (i.e. those that can be done elsewhere like trucking) will leave if wage rates get too high.

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Are we fostering ‘fake’ startups? Separating fact from hyperbole

Diane Francis loves to stir the pot. Her column, Grants to ‘fake startups’ won’t build Silicon Valley North. They will only spawn Bombardier-like boondoggles, got a lot of blood boiling – particularly in Atl. Canada for whom she lobbed some particular verbal grenades.

All I can say is that in the past few years, this region has done – the Maritimes – has done particularly well when it comes to the contribution of the IT sector to GDP growth. New Brunswick and Nova Scotia had a few years in the valley but between 2014 and 2016 the two provinces are leading the country for IT GDP growth.  Note that I excluded telecommunications (the C in ICT) because most of that GDP is from your spending on Netflix and cellphones.  I also exclude IT manufacturing (computers, etc.) because like just about all other non-natural resources-based manufacturing it is most done in Quebec and Ontario.

With these caveats something seems to be working right now in the Maritimes – fake companies or not. Maybe it is fake GDP?it2

It is important to put  things in perspective.  The entire IT sector in New Brunswick (as defined above) contributed $370 million in real GDP to the province in 2016 – or 1.4% of total GDP.    To put that in context, if the IT industry doubled its GDP contribution in a single year it would only boost provincial GDP by 1.4%.   We need, IMO, to get back to 2-3% GDP growth per year in this province so don’t expect the IT industry to do the heavy lifting.

itgd

 

 

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Engineering economic development: Who’s got the power?

I see that Quebec City-based Englobe Corp. has bought Crandall Engineering following a trend of national and international firms scooping up New Brunswick-based engineering firms (ADI, etc.).    It might just be me but it seems that an increasing number of New Brunswick firms are being scooped up by national or international firms.  New Brunswick’s dairies are now all owned by Quebeckers but we are seeing this trend in vision care, funeral homes, insurance brokerages, etc.

The engineering sector is a particular concern because at least some of the firm were actually doing export-based work from here.  In other words, the engineering sector was a high value, export sector bringing in several hundred million in export revenue each year fueling the salaries of highly paid engineers.  I hear Hatch has already left Moncton and there is a fear that over time Englobe will do more and more of the work that Crandall used to do in Moncton from Quebec.  They will keep a physical presence here but less and less highly paid engineers.

So far the Fredericton example is mixed.  I am hearing that some administrative and management functions in the engineering sector have moved to Toronto and Calgary but the Statistics Canada data suggests there are more engineering-related workers in Fredericton today then there were back in 2006.   In fact there are 27% more in 2016 than in 2006 as shown in the chart.

engineers

That is not the perfect statistic because at least some of these engineers work for government in Fredericton. But if you look at industry employment there are 1,115 persons working in NAICS 5413 Architectural, engineering and related services in the Fredericton CA (2016) up from 1030 in 2006.   We can’t get more granular than that with the industry data.  So, the industry is still growing in Freddy Beach but not as fast as the rest of Canada.  In 2006, 49 out of every 10,000 people working in this sector across Canada were in the Fredericton CA.  By 2016 that had dropped to 45.

The truth is that companies based outside New Brunswick have less affinity to New Brunswick (quelle surprise!).  So they will, over time, do the work where ever it makes best sense.  We need to make sure it ‘makes best sense’ to do engineering work in New Brunswick – not just local market but export market work as well.

The Moncton CMA already has one of the lowest concentrations of engineers and as I mentioned Hatch closed its Moncton operations (I’m told).  This is frustrating as 5-6 years ago they were talking about putting a ‘centre of excellence’ in Moncton.

As the national economy moves towards more of a services economy, exporting high value services is the next big driver of the Canadian economy.   Small places like NB are at a disadvantage but we have a proven track record of firms that can export services – accounting services, engineering services, business support services, IT services, etc. We are not good at exporting legal services, marketing/PR services, language translation services, etc.

It behooves local and provincial economic development agencies to build a strong relationship with the national and international engineering firms here and try and figure out what it would take to ensure they keep growing here.

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Competition is good, comrades!

I’m watching Comrade Detective on Amazon Prime Video while on the treadmill these days.  It’s a fascinating thing to behold.  The show is a Romanian detective show from the 1980s that is completely laced with socialist propaganda.   All dialogue and sets/scenery is meant to scorn the West and capitalism and boost the ideals of Leninism.  But the result is a kind of odd comedy.  There’s a scene where the two cops are in the U.S. embassy and they watch two very, very fat men sloppily eating a tray of Big Macs while reading the magazine “Guns & Ammo”.

I wonder what Romanians actually thought/think of that show then – and now.   It’s an entertaining show and Amazon says millions of Romanians tuned in every week to watch.

But it got me thinking that competition is good – competition in markets and in the marketplace of ideas.

When you don’t have competition it can lead to sclerosis.   If your house is burning down it forces you to act.  If the Soviets are knocking at the door, it focuses the mind.  BTW when I went to school in the U.S. in the mid 1980s they were still having nuclear war drills in schools.  I was never quite sure how cowering under you desk was going to help you escape the mushroom could, but I digress.

New Brunswick needs a little shakin’ up. Right now there isn’t much competition for new ideas.

We need a lot more immigrants.  We need more openness to natural resources development.  We need to be able to get things like municipal reform done.  We need to have an honest debate about health care.  I heard some economist throwing around the term 25% HST this week – in reference to NB being able to fund health care.  It’s not going to happen.  I am pretty sure the economy will collapse long before tax rates got that high – unless the 25% HST is across the country then people and investment have nowhere to hide (at least in Canada).

Competition, comrades, is good.

 

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Stranger Things: New Brunswick labour market edition

Statistics Canada recently published a report stating that the growth in paid employment in New Brunswick is highly correlated to the growth in the working age population.

Quelle suprise.

The article seems to imply the causality is one way.  If you have lots of jobs, the people will come to the jobs.  If you lose jobs you will lose people.   But as I have pointed out before there are jobs that have that magnetic effect and jobs that do not.  New Brunswickers will move to Alberta for $100k+ jobs but are less likely to move to Alberta for minimum wage jobs.  So, Alberta has boosted the number of immigrants in recent years and many of them are going into services and other jobs that it would be hard to get people from the rest of Canada to move there to take.

The truth is that there are a lot of jobs in New Brunswick right now that are going unfilled or that are really hard to fill.  These are not ‘magnetic’ jobs – for the most part Canadians will not move to a community to work in a fish plant, a <$15/hour manufacturing facility or customer contact centre and a host of personal services, retail, food and accommodation jobs.

This is what puzzles me about the CBC article.  It quotes one of my favourite migrants – Dr. Herb Emery as follows:

“Whereas, governments are increasingly focused on adding people first and hoping that that will drive labour demand by potentially driving capital in or unlock business potential where there’s perceived labour shortages, this study really points to the fact that it really is labour demand which ultimately comes from the export sector, which is driving everything,” he said. He pointed to examples of government strategies to bring more people to Atlantic Canada, like the Atlantic Immigration Pilot, that is aimed at bringing more immigrants to the region to stimulate the economy.

Emery knows full well the Atlantic Immigration Pilot was set up specifically to deal with existing and real labour demand not primarily to bring in people willy nilly.  In fact, the AIP’s explicit purpose is to avoid bringing in immigrants without a job and economic prospects.

The fact of the matter is that we have anecdotal and statistical data showing a decline in employment in many export-focused sectors because of a lack of workers.  I just heard this week that one of the larger foreign-owned fish plants is close to shutting down because their TFW allocation is down to 15% of the workforce and they are really struggling to fill the other 85%.  While the jobs are not high paying by any stretch and they are hard work too – if that plant shuts it will have a seriously negative effect on that local community.

This is the definition of labour demand.  Now, there is a good point about productivity and efforts to drive up wages.  This is good but not at the point it pushes firms and their export revenue out of New Brunswick.

Dr. Emery is right when he says:  “What we could be doing is focusing on making business conditions in New Brunswick more favourable for investment, which really means that even at whatever the world prices are for lumber, timber, fish, whatever we’re going to produce, that our producers are competitive”.

If we increasingly can’t fill the jobs on offer it will (and is) have a dampening effect on the economy.  We can wait around for mining and higher high wage jobs to come back to New Brunswick but I’m not willing to sit around and do nothing.

Bring in immigrants.  If some leave so be it.  As I have said many times before human capital is starting to look a lot like financial capital.  If it becomes too scarce it is a barrier to growth.

 

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