Worthwhile Canadian Initiative

A New Policy Think Tank

Well, there is a new policy think tank in Canada and they have just released a commentary on the minimum wage. 

The Real Minimum Wage

I was a bit surprised that the recent upsurge in unemployment in Ontario in June, which was especially concentrated amongst youth (individuals aged 15 to 24 years), did not generate much discussion about the impact of the minimum wage.  Ontario’s adult minimum wage rose 75 cents on June 1^st to hit 11 dollars per hour.  Ontario also lost 34,000 jobs in June and employment in the age 15 to 24 category dropped by 28,800.

Why do unions bargain for health benefits?

Unionized workers are more likely to have health insurance and other non-wage benefits than non-union workers (for US evidence see here or here (gated)). Yet it is not clear why. Some obvious explanations do not stand up to scrutiny:

1. Health insurance receives preferential tax treatment.

2. Workplace insurance is efficient, because it avoids the adverse selection problems that cause private insurance markets to fail. All employees must buy into workplace insurance, not just those who are likely to get sick, making a viable insurance market possible.

These first two considerations explain why employers pay their workers in the form of health insurance benefits rather than cash. But they cannot explain why union employees are more likely to receive health insurance benefits than non-union employees.

3. Unions act as monopolists, restricting the supply of labour, increasing worker compensation, and thus health and other non-wage benefits.

Monopolistic unions can explain why the typical unionized worker earns more, all else being equal, than the typical non-unionized one (Canadian evidence here). But monopoly power does not explain why unions bargain for higher benefits, as opposed to simply pushing for higher wages.

A more interesting and persuasive explanation can be found in some of Richard Freeman's old work (e.g. here):

4. Unions give voice to worker preferences.  

Unemployment, aggregate demand, and search/matching

For what it's worth, I thought I would lay out my own views, after reading John Quiggin and Noah Smith. This is what I think:

1. Fluctuations in the unemployment rate from year to year are mostly caused by fluctuations in aggregate demand. Very standard, boring, demand-side monetarist/keynesian view of the business cycle, that predates both monetarism and keynesianism, that most macroeconomists generally accept. An ideal monetary policy that eliminated those fluctuations in aggregate demand could, if it were possible, greatly reduce those fluctuations in unemployment associated with the business cycle.

Ontario Employment: Yours to Discover

Well, the latest Statistics Canada Labour Force Survey numbers paint a rather bleak picture for Ontario with employment dropping by 34,000 jobs and the unemployment rate rising from 7.3 to 7.5 percent. However, Ontario’s employment picture is much more complicated than that and regional numbers suggest that some parts of Ontario – well the GTA (The Greater Toronto Area) – is enjoying a boom comparable to a western resource producing province.

Employment and Investment: the great Canadian disconnect

[This is a guest post by Hashmat Khan of Carleton University and Nyamekye Asare of the University of Ottawa.]

Can policies stimulating private investment deliver higher employment? Maybe, but investment and employment have become disconnected recently in Canada.

John Taylor has noted a strong negative correlation between investment and the unemployment rate, and argued that higher investment is the best way to reduce unemployment. Paul Krugman has questioned the direction of this causality, and the Canadian evidence seems to be somewhat supportive of his position.

Pre Debate Warmup: Ranking Employment Across Ontario Political Regimes

Well, tonight is the Ontario election debate and inevitably job creation will come up as a topic.  On the one hand, Tim Hudak will have to deal with the fallout over his Million Jobs Plan.  On the other hand, Kathleen Wynne and Andrea Horwath will need to demonstrate what their plans for employment growth in the province are.  Whether they will venture an estimate of how many jobs their policies will create will be an interesting question.  To help everyone prepare for tonight’s clash of Ontario Titans, here is (an estimate of) average annual employment growth in Ontario from 1977 to 2013 with premiers and political affiliations duly noted.

One Million Jobs One More Time

The debate over the Ontario PC “Million Jobs” platform has certainly gone ballistic over the last few days and having posted on the subject in January when the plan was first announced I certainly think its worth another post.  When the “Million Jobs” plan was first mentioned in January, my response was to look at employment growth over the long term to see how plausible 125,000 jobs a year was as an outcome.

Flogging a Dead Horse II: A million jobs anyway?

 

This post was written by Mike Veall of the Department of Economics at McMaster University.

I have been asked by a few people about my statement here that “I would hope that whoever is in charge, whoever wins the election, that eight years from now we would have a million more jobs …I would expect the employment rate to continue to bounce back from the recession. That alone, probably, would get us to a million.”

I should have said “close to a million” but here’s my calculation:

Flogging a Dead Horse: Research the Progressive Conservatives misinterpreted was flawed

This post was written by Mike Veall of the Department of Economics at McMaster University.

David Reevely and Jim Stanford, followed up by Paul Boothe, Mike Moffat, the Globe and Mail and others have shown that the Ontario Progressive Conservative millions job plan does not follow from the research it is based on. For example, one of their commissioned studies says that a reduction in regulation (Ontario level to Alberta level, however measured) will yield a total of 10,600 jobs. But the PC plan says that will create that many jobs per year, so that over 8 years, that is 8 × 10,600 = 84,800 jobs. They make the same mistake looking at other proposals.

I had been looking at this too but was slow to the draw. One point that I don’t think that has yet been covered is that one of the pieces the PCs misinterpreted, the study by Washington D.C. economist Benjamin Zycher, is not exactly technically watertight itself.  So let’s flog the dead horse. I am grateful to WCI for giving me the space to do so.

Canadian Manufacturing Employment: Growth and Decline (But more decline than growth)

Ontario’s budget will be  presented today in the wake of new GDP numbers from Statistics Canada showing that Ontario’s real GDP growth was amongst the poorer performers in the country in 2013 (Quebec, NS, & NB were lower).  Manufacturing was again singled out as one of the sectors in which Ontario is doing rather badly with a decline in output in 2013 of 2.3% as “computer and electronic products, motor vehicle and motor vehicle parts, machinery, and iron and steel mills and ferro-alloy products all declined.” However, 2013 saw an increase in manufacturing output in Saskatchewan of 3.4 percent with the gains in the areas of chemical, food and wood products.  Alberta also saw an increase in manufacturing output of 1.1 percent.  It would appear that the news in manufacturing is not all bad even if one considers employment.

Feminist framing and general equilibrium theory

Consider a very simple general equilibrium 2X2 example to illustrate my point:

Divide the population into two groups: call them "men" and "women". Divide all outcomes into two groups: call them "arts" and "science". Everybody is somewhere in the 2X2 matrix.

Here are four questions we could ask of the data:

1. Why are women under-represented in science?

2. Why are women over-represented in arts?

3. Why are men over-represented in science?

4. Why are men under-represented in arts?

Think up an answer for each of those 4 questions.

Alberta Juggernaut Continues...For Now

Friday’s Labor Force Survey release showed total employment and the unemployment rate were little changed and that there has been little overall employment growth in Canada since August.  Indeed, total employment shrank slightly in Canada with Quebec and British Columbia faring the worst in terms of the total number of jobs lost.  Of course, Alberta was on top –again.

The anti-NK model and minimum wages

I present a simple model that has exactly the opposite predictions to the standard New Keynesian model: if the central bank sets the nominal interest rate too high (too low), that will cause an increase (a decrease) in output and employment.

If you think that an increase in the minimum wage will cause increased employment, because firms have monopsony power in the labour market, you will like my model.

The intuition is straight out of the first-year micro textbook. If the price of X is sticky, and is above the competitive equilibrium (monopoly), then the quantity of X bought-and-sold is determined by the demand for X. If the price of X is sticky, and is below the competitive equilibrium (monopsony), then the quantity of X bought-and-sold is determined by the supply of X. The short side of the market determines quantity traded. Q = min{Qd;Qs}.

International Employment Update: U.S. Resilience and Australian Exceptionalism

I thought it was time for an updated look at employment creation in the advanced economies given that we are now at just over five years since the 2008-09 Great Recession that walloped world economies.  I’ve taken the IMF World Economic Outlook Database employment numbers for the period 2007 to 2013 to get employment levels and calculate some growth rates.  Two interesting results in my view are first, the resilience of the U.S. economy over the longer-term and second the high overall performance of the Australian economy. 

One Million Jobs

Ontario Conservative Leader Tim Hudak has promised to create one million jobs over eight years and plans to introduce his Million Jobs Act Bill in the Ontario Legislature when it resumes sitting on February 18^th.  Tim Hudak is presenting a five-point plan in his private member’s bill to create jobs that includes among other things encouraging more people into skilled trades, increasing trade with other provinces and reducing red tape.  Given the precarious minority government environment Ontario is in, this looks like a major platform plank for Tim Hudak in what looks like a spring election. 

Buyers and sellers, bargaining power and recessions, and asymmetric taboos

Think about a model where prices are determined by relative bargaining power. The buyer wants to do the deal, but wants a lower price. The seller wants to do the deal, but wants a higher price. Each threatens to walk away from the deal if the other side refuses to budge on the price. The better his alternative opportunities relative to this deal, and the easier it is to walk away from this deal, the more credible his threat, and the stronger his bargaining power.

Efficiency wages and recessions

I'm not 100% sure what Paul Krugman is arguing here, but I think he is probably wrong. And I'm going to take him up on his invitation: "(I’m going to try some formal modeling on all this, but if anyone else wants to jump in, be my guest.)". Not that my modelling here is very formal.

Yes, it is theoretically possible for corporations/employers/firms/capitalists/whatever to gain in a recession, but an efficiency wage model seems to make it less likely rather than more likely.

My simple diagram shows why:

So we work harder in Canada, eh?

In a recent blog post, Noah Smith points to some graphs posted by my old friend David Andolfatto. David's graphs show a widening gap between Canadian and US labour force participation rates, with the Canadian rate now outstripping the US rate by some margin.

David - having learnt the hard way what happens to people who give their opinions too freely - is careful not to speculate on what might be behind these trends. Noah Smith has no such reservations. His interpretation of these graphs is that "young and prime-age Canadians work more than do their American counterparts."

In fact, the graphs show no such thing. Let me just list all of the things wrong with seeing a difference in labour force participation rates and concluding that Canadians "work more."

What happened to the distribution of real earnings during the recession?

[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.