One of the more puzzling features of the Canadian labour market in the last few years recovery has been the stubborn refusal of youth employment rates to recover from the recession:
There may a relatively simple (partial) explanation. This is taken from a recent Statistics Canada study on trends in the minimum wage:
There seems to be a broad consensus around "small increases in the minimum wage will have small effects on employment", but this is not a small increase: the CPI-corrected Canadian minimum wage increased by 12.9% between 2008 and 2013. So in this post I'm going to try to put together some back-of-envelope numbers about what sort of effect this increase has had on youth employment.
The counterfactual I'm going to consider is: What would have happened to youth employment if Canadian real minimum wages had simply increased in line with the CPI since 2008? That is to say: what were the effects of that extra increase of 0.1215 ( = log[1.1292]) in the log of the minimum wage between 2008 and 2013?
Most penalty kicks result in a goal; this is why soccer players go to such comical lengths to draw a penalty. The distance between the ball and the goal is so short that goaltenders don't have time to react; they have to commit to a strategy as the ball is being kicked. The usual strategy is to try and guess where the ball will be kicked and to jump in that direction. Surprisingly enough, the tactic of not jumping - that is, guessing that the ball will be kicked down the middle - is under-utilised.
An interesting study from a group of Israeli researchers (Bar-Eli et al, 2007) offers a plausible explanation: 'action bias'.
The Economist has a story on the state of the Canadian economy and it features an appearance by Livio Di Matteo:
Yet luck played a large, unacknowledged part, says Livio Di Matteo, an academic and contributor to Worthwhile Canadian Initiative, the world’s best-named economics blog.
It's official: WCI is now the best-named economic blog. Take that, Marginal Revolution!
With the release of November 2013 data, Statistics Canada converted the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) series to 2010=100, with 2010 as the base year. These indexes have also been updated using a weighting pattern based on the 2010 production values of Canadian manufacturers.
At the same time, the classification system was converted to the North American Product Classification System (NAPCS) developed by Canada, the United States and Mexico.
What this self-congratulatory blurb doesn't mention is that Statistics Canada has replaced an IPPI that went back to 1956 with one that goes back to 2010. I can't think of any interesting question that can be answered with a price index that starts in 2010.
[Note: I noticed an error in some of the graphs a few minutes after publishing the original post.]
[Update: Everyone should read Kevin Milligan's take using the SLID data. I'll get back to this in another point soon.]
I noted on Econowatch at Maclean's a few weeks ago that average and median real earnings increased over the recession, and the point was surprising enough to me that I decided to dig deeper. I was also inspired by this post that reproduced a couple of fascinating graphs from this paper by David Green and Benjamin Sand plotting real wage changes against wage percentiles. This way of representing data is so good that I can't help but steal it, and that's what I'm going to do here. Their paper stops with the 2006 census, and since the 2011 National Household Survey data are unusable (thanks again, Tony Clement!) so I've decided to work with the public use microdata files from the Labour Force Survey instead. The weekly nominal wage data are constructed by multiplying reported usual weekly hours by the reported usual hourly wage. The real earnings data are the nominal earnings divided by the CPI.
I've decided to revisit this post from last year. The background context is the Conservative government's 'starve the beast' agenda - documented by me here and here, by Livio here and by Paul Wells in his excellent new book. The Conservatives have made two significant tax cuts during their time in office. The GST rate was reduced from 7% to 5%, and the corporate income tax (CIT) rate continued the downward trend begun during the Chrétien-Martin years: the statutory rate went from from 21% (22.1% with the surtax) in 2006 to 15% (no surtax) now. So far, the only tax cut anyone seems to want to rescind is the CIT. The NDP has already said as much, and the Liberals may or may not follow suit as they did in 2011.
I've been having a hard time getting my head around the 'hollowing out of the middle class' theme that were seeing so much of. What, exactly, does that mean? And is it actually happening? In a Maclean's post a couple of months ago, I tried looking at it in terms of the proportion of the income distribution that was within a certain distance of the median, and this is what I got:
I posted this graph at Maclean's earlier today:
The hook of the piece was that Canadian real wages had increased in Canada, and I made the point that this increase was largely due to the Bank of Canada's undershooting its inflation target.
I went to the FRED site and put together a similar graph, using two wage measures that seemed fairly broad:
This looks a lot like what the macro I used to teach 20 years ago would have predicted: the goal of monetary policy in times like these is to engineer an economy-wide wage cut, be it by increasing the price level, depreciating the currency, or both. Labour demand curves slope down.
I've looked at graphs like this many times over the past few years:
One of the things that I notice in that chart is that countries that are reputed to have strong union movements have market inequality outcomes that don't appear to be all that much better than those with weaker union movements.
So this post offers some cross-country evidence about the empirical link between unionisation and inequality. All data are taken from the OECD. The inequality measure is the Gini coefficient, which means that this post has nothing to say about 'top end' income concentration. (See here for why I think the distinction is important.)
Everyone knows - and should have known - that the numbers from the National Household Survey (NHS) would be dodgy. Statistics Canada has always claimed that the NHS numbers would be useful for many purposes, and this line has been swallowed by many. After all, Statistics Canada has a deserved reputation for professionalism, and their work deserved the benefit of the doubt.
No longer. It took Frances Woolley only a couple of hours to come across some seriously wonky numbers from the very first NHS release. Moreover, StatsCan isn't planning to release the technical documentation for the NHS until 2014. (In the ordinary course of things, methodology is presented before results.) And now there's today's last-minute delay in the NHS income numbers.
Chief Statistician Wayne Smith was telling us a few weeks ago
It’s irresponsible to try and dissuade Canadians from using what is an extraordinary rich and powerful database. To make them nervous about that is I think irresponsible.
It's entirely reasonable to be skeptical about numbers generated by an untried and untested methodology in the absence of technical documentation. Many people - me included - were prepared to give StatsCan the benefit of the doubt. They no longer deserve it.
The Department of Finance's Fiscal Monitor has been a useful tool in keeping track of the federal government's spending and revenues is a timely fashion. I've been using 12-month moving sums to account for seasonal patterns in revenues and spending, and they've been useful check to see if federal finances are consistent with budget projection.
I say 'has been', because for the second year in a row, Finance has changed its accounting rules without restating the historical data. The furthest they will go is that when they publish the numbers for a given month, they'll restate the numbers for the same month of the previous year. This means that it takes a year for them to get around to providing a consistent series of numbers going back one year before the accounting change.
Finance changed its accounting rules in April 2012, so I had to wait a year before I could put together 12-month moving sums with data collected under the new regime. And they just repeated the trick, adopting new, 'better' accounting practices as of April 2013.
It will be another year before I can put together 12-month moving sums using the new rules. In the meantime, here are the numbers I've been able to put together using the rules before 2012 and for 2012-13.
Bruce Bartlett draws attention to three developments in the US economy over the past 30 years or so:
I've never used Dynamic Stochastic General Equilibrium (DSGE) modeling techniques for pretty much the same reasons that Noah Smith outlines. I keep meaning to write a post about my misgivings about DSGE, and it appears now is the time. This is going to be a pretty technical and wonkish post, but there's really no way around that: the issue is technical and wonkish.
As Mark Carney steps aside from his role at the Bank of Canada to undertake all manner of easy money in the UK, we thought a reflection on the 'stealth' QE that he has been engaged with, very much under the radar, in the US' neighbor-to-the-north was worthwhile. It seems quietly and with little aplomb, Carney's BoC has grown its balance sheet by over 21% YoY - the most since 2009. If that was not enough to make someone nervous, the quantity of Canadian government bonds on the BoC's balance sheet has grown at a remarkable 46% YoY! All of this has taken place during a time when 'supposedly' the Canadian economy has been reasonably strong and foreign demand for debt high. With Canada's CAD267bn debt due in 2013, we suspect this 'stealth' QE will continue to rise.
Sure enough, something is going on. [Updated - maybe Operation Twist?]
In this post, Nick looked at this graph
and made the following comment:
In a counterfactual world, where the Bank of Canada was supposed to be targeting the level path of NGDP to follow that 5% trend line, what would we say? We would say that monetary policy was a little too loose in the years leading up to 2008, and then suddenly became much too tight in 2008, and stayed too tight thereafter.
In that counterfactual world, where the Bank was supposed to be targeting NGDP, but actually allowed NGDP first to rise a little above target, then suddenly fall well below target, we would all be looking at that third graph, and we would all be blaming the Bank of Canada for the 2008 recession.
(emphasis in the original)
The newly-elected Parti québécois government wants to (among other things) eliminate the 'health tax' introduced in the 2010 budget and make up the shortfall by introducing two new tax brackets at the top end of the income distribution:
The current top Quebec rate is 24%, and it applies to taxable incomes above $78,000. The top federal rate of 29% kicks in at around $130,000, so the (net of the 16.5% Quebec abatement) federal + provincial top rates will be
If you assume that there are no behavioural responses to the new tax rates - that is, if you perform a static analysis - new revenues work out to around $835m. But if you incorporate the sort of behavioural responses based on available data - 'dynamic scoring' - you find that revenues will more likely to be half that, and probably less.
I'm going to work through the math below the fold.
Last month, the Canadian Association of Petroleum Producers organised a field trip for a group of economics professors to see a couple of the oil sands installations. I once wrote somewhere that the oil sands are the most important Canadian economic fact of our time, and I jumped at the offer to join the tour. I'm glad I did. There are many very good articles out there describing what is going on in northeast Alberta - much better than I could write - but reading those accounts is most emphatically not the same as seeing the installations in person.
Other people who have gone more often and seen more will have longer and better stories to tell. What follows are my impressions of what I saw and learned.
The May GDP number came out today, so it's time for my quarterly exercise in trying to come up with a preliminary estimate for quarterly GDP growth a month before Statistics Canada makes its first announcement. As regular readers will no doubt be weary of being reminded, the estimate is based on the GDP numbers for the first two months of the quarter along with the information in the LFS release for the third month. The most recent exercise is here.
The number I get for the annualised growth rate for GDP in the first quarter of 2012 is 1.6%.