Category Archives: Unemployment

We Need to be Ready for Immigration in New Brunswick

Shanghai Times Square, and bus 926

Published in the Telegraph-Journal 7th May 2013

The shortage of skilled labour in the Alberta oil sands has become a vexing issue that today is emblematic of our thinking about how Canada can maintain its prosperity in the 21st century. A similar lack of labour exists across the country. The Conference Board of Canada has forecast that within 10 years, there will be a shortage of more than a million workers across Canada. This shortage is a serious risk to our potential to compete into the future.

In Atlantic Canada, a third of the population will be over 65 in less than two decades. In the absence of Atlantic Canadians suddenly having radically larger families, the region will need to dramatically increase its immigration levels in order to compensate for the steady out-migration that continues to characterize the region. Even promising growth in some industries, in ship building in Nova Scotia and oil and gas finds in Newfoundland and Labrador, has not stemmed the flow of young people from the Atlantic provinces to the West.

For New Brunswick, the great challenge for the 21st century will be to find and attract the people we need to rebuild our economy and way of life. To achieve this, we will need to provide immigrants with real opportunities. We will need to embrace the ways they will reshape this province and integrate them into our communities.

The solution would appear straightforward enough: simply open New Brunswick’s borders to immigrants and wait for people from other countries to populate the province. The reality is more complex.

To grow our population and maintain our standard of living, we will need to welcome thousands of immigrants, a far larger number than are attracted to the province today. To compete with the magnetic pull of cities such as Toronto, Montreal, Calgary and Vancouver, New Brunswick communities must grow substantially and sustainably. Immigration is not a panacea, but ignoring immigration and its attendant diversity, as well as its beneficial effects on trade, innovation and international networks, is not an option. We need to realize that an essential and defining part of New Brunswick’s identity and brand must be that the province is recognized as an open and welcoming society.

Enormous transformation will be necessary for New Brunswick to achieve economic success in the near and medium term. Radical alterations in immigration policy — and the dramatic demographic changes that will be brought about by the large-scale arrival of immigrants to this province — will not come without wrenching dislocation.

In her 1961 classic, The Death and Life of Great American Cities, urban activist Jane Jacobs argued that “economic development, no matter when or where it occurs, is profoundly subversive of the status quo.” This is a succinct explanation for the failure of many policies and programs that generate and support economic development and why they are not implemented. New rules of the game can be an inherent threat to those that benefit from the status quo.

This argument has it that the real preference of those with entrenched influence in many cases is the maintenance of the status quo rather than disruptive economic development. It is also an explanation for why there is so much public obsessing over labour shortages, lack of innovation and shortfalls in investment, but relatively less discussion of the more radical approach that substantial increases of immigration would represent.

Currently, the issue is largely moot. While the imperative to stabilize New Brunswick’s population is real enough, there are substantial challenges associated with keeping immigrants in this province. Attracting skilled workers is one obstacle to be overcome but retaining them is another. New Brunswick first needs to be viewed by the world not as a second-class destination but as a place of opportunity equal to Ontario, Alberta and Saskatchewan.

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Filed under Immigration, Innovation, Job creation, Unemployment

Troubling Signs on the Economic Horizon

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Published in the Telegraph-Journal 3rd May 2013

We didn’t need to review the data to know that the New Brunswick economy has not fared well in recent years. The combined effects of the decline of traditional industries such as the forestry, weakened U.S. markets in the wake of the 2007-2009 financial crisis and cutbacks in government-sponsored construction have resulted in low or no growth across the province.

The output numbers tell part of the story. The province saw GDP fall by 0.6 per cent in 2012 after increasing only 0.2 per cent in 2011. According to Statistics Canada, goods-producing industries fell 3.6 per cent with declines in construction, mining and the energy sector, while manufacturing declined 1.6 per cent. Services output barely rose at 0.4 per cent in 2012 with marginal gains in finance, insurance and real estate services.

Unemployment has maintained a persistently high level and sits at more than 20 per cent in much of the province outside the three cities in the south. Despite the efforts by the Alward government to reduce its costs, the fiscal deficit continues to grow as does the net debt. The latter has climbed to more than $10 billion.

The U.S. is New Brunswick’s most important export trading partner. A particular concern continues to be the American economy which has effectively stalled since the financial crisis.

On the face of it, an American economic recovery seems to be well underway. The U.S. GDP expanded at 2.5 per cent on an annualized basis in the first quarter of 2013, following marginal growth for the previous three-month period. But even this apparently positive figure masks other more disturbing signs that an economy whose recovery has not matched the pace of past expansions could now be facing a deceleration in its own modest growth rate.

In fact, adjusted for those changes due to temporary fluctuations in inventories maintained by corporations, the U.S. economy’s annualized growth rate shows a steady deceleration over the past three quarters, falling from 2.4 per cent to 1.9 per cent to 1.5 per cent. Other economic measures, from retail sales to the index of leading economic indicators, exhibit symptoms of fragility or even outright declines. The alarm has been sounded by numerous investors who are now concerned that the U.S. has entered yet another spring slowdown.

It is possible that the U.S. economy is merely in transition. But this time may be different. First, after adjustment for inflation, wage compensation hasn’t increased since 2010 and in the absence of higher incomes, consumers have been reluctant to increase their purchasing to pre-recession levels, even with record-low interest rates.

The weakened EU economies have made it much more difficult for the U.S. to increase growth by boosting exports. Today export sales are barely growing, and sales to Europe’s hardest-hit economies have actually declined.

In the interim, Washington’s dysfunctional politics has resulted in numerous unproductive policy moves, instead of the reforms that are sorely needed. And while the U.S. federal deficit has been significantly reduced, the sudden contraction in growth will serve to slow the economy even further, reducing growth in America’s economic output this year by as much as 1.5 per cent. That loss in economic activity will equate to 1.5 million fewer jobs.

In spite of the weaknesses in global economies, the New Brunswick government has admitted its spending cuts and the lack of major infrastructure projects on the horizon will impede economic growth in the province.

“Reduced levels of public sector capital spending along with the absence of any new major projects in the private sector will limit the contribution of capital investment to economic growth. As well, fiscal consolidation at all levels of government will serve to weaken overall economic growth.” Mr. Higgs said.

In the circumstances, it is critical for the government to revisit its commitment to what has become a counterproductive push for austerity. The New Brunswick economy shows little capacity for sustainable growth in the short term. It is necessary now to ensure that the capacity of the economy to recover in the medium term is not jeopardized.

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Filed under Austerity, Fiscal Policy, Job creation, New Brunswick, U.S.Economy, Unemployment

What’s an SLA?

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Claiming that they were scammed by Indian multinational outsourcing firms and “dazzled” by their sales pitches, some executives of Canadian companies deny accountability for poor job performance, work delays and outright project errors. Apparently, these executives prefer being characterized as incompetent managers, unaware of basic contractual countermeasures such as service level agreements (SLAs), rather than admit they made decisions to outsource work to offshore locations. This line of reasoning also extends the definition of “plausible deniability” to include practices that are intrinsic to executive decision-making. The changes introduced by the federal government will do nothing to change the fundamental problem associated with the purported skills gap.

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Filed under Labor force management, Productivity, Unemployment

The Economy Isn’t Working As Planned

higgs-alward

A substantial amount of public support for fiscal consolidation is predicated on the assumption that profligate government spending has been responsible for fiscal deficits and debt. But New Brunswick is a clear example of how revenue shortfalls, as the result of lowered taxes, have conspired with too-low spending to create a fiscal imbalance. Policies aimed at reducing government deficits and debt accumulation have increased unemployment at the same time that they have been fiscally counterproductive.

Published in the Telegraph-Journal 26th April 2013

Today’s economy wasn’t part of David Alward’s plan. Before taking office in 2010, his campaign pledge was that he would “lower small business taxes, freeze power rates, increase the budgets for tree-planting and woodworkers, and put more decision-making power into the hands of local economic development agencies” to restore the province’s economic health.

Three years later, the health of the economy has scarcely improved. The most stark evidence of this failure is on the fiscal side. Standard & Poor’s Rating Services downgraded New Brunswick’s credit from its A-plus grade to AA-minus over fears of its high tax-supported debt and the long-term demographic trends facing the province. In 2009-2010, New Brunswick had the second largest deficit in Canada as a proportion of GDP and it has been growing steadily. The interest on the net debt reached $643 million in 2010-2011, even with record-low interest rates. The rating agency says the Alward government is on the right track to turn the situation around. But it is clear that fiscal consolidation has become mired in the reality of near-zero GDP growth.

New Brunswickers are acutely aware that things aren’t working as planned. Since 2010, unemployment has risen to over 10 per cent, real wages have fallen and despite record-low interest rates, businesses are not investing. The federal government has made changes to Employment Insurance prompting Premier Alward to call for a moratorium on the new provisions until more study is done on their impact. The response of a record number of New Brunswickers to the moribund economy has been to join those who already have sought more favourable employment conditions in Alberta, Saskatchewan and Ontario.

New Brunswick joins those jurisdictions in which the practices of fiscal consolidation have only worsened an already bad set of economic conditions. Even austerity hawks have begun to reconsider whether the cure is more onerous than the disease. The International Monetary Fund said this month that “it may be time to consider adjustments to the original fiscal plans.” The IMF may have been referring to Great Britain, but the observation is equally relevant to New Brunswick.

The question is what kind of adjustments would work in New Brunswick at this stage. Mr. Alward and Minister of Finance Blaine Higgs blame the fiscal situation on years of profligate government spending. Mr. Higgs has on numerous occasions said that the government plans to stick to the economic course it has set which focuses on reducing government expenditures to kick-start growth.

A growing chorus of economists and policy makers argue that there are some things the government could do to spur growth without risking a large increase in the budget deficit. The simplest would be an injection of investment in infrastructure such as roads, bridges and schools. The logic is that such projects create jobs and generate business investment. They could get off the ground almost immediately, yet would not add significantly to the deficit because they are financed by long-term borrowing. There are a significant number of infrastructure projects across the province that would meet an urgent need, from the building of water treatment facilities to hospital improvement to school repair. Each of these projects eventually will need to be undertaken anyway but with record-low interest rates, these projects today represent a real bargain.

The challenge even to this relatively modest undertaking is that infrastructure development requires government funding. Government however, has borrowed beyond its ability to pay, at least according to the bond ratings agencies that are watching this province closely. This offers the politically partisan opportunity to criticize Mr. Alward and his party but New Brunswick has supported heavy government spending for far longer than Mr. Alward has been premier. New Brunswickers today enjoy the legacy of substantial government spending in health care, education, roads and pensions. But this has occurred at the same time that taxes were reduced to levels that ultimately have proven to be unable to sustain this spending.

Mr. Higgs is right that unbridled spending has been the primary cause for the province’s financial mess. But increasingly, being right may not be enough.

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Filed under Austerity, Fiscal Policy, New Brunswick, Unemployment

Where’s the Recovery?

senate

A key reason that the economic recovery has been unable to gain momentum is that our policies have been doing precisely what basic macroeconomics says we shouldn’t do. By cutting government spending in the middle of an anemic economy, we’ve been engaging in a self-destructive process calculated to increase long-term unemployment. Austerity policies are counterproductive not only from the perspective of growth and employment but even in strictly fiscal terms.

Published in the Telegraph-Journal 23rd April 2013

Just when it seemed that the U.S. economy was finally on the right track, it has again lost momentum. And in the process, America’s wobbly economic performance has shaken confidence in the prospect that the world’s economies could rise above the anemic performance that has characterized them for more than four years.

The year started well enough in the United States. In the face of a sizable tax increase on January 1st, employment, retail sales and housing all improved substantially in January and February. GDP grew at an estimated annualized 3 per cent in the first quarter while stock markets reached new highs.

The bottom fell out in March. Employment growth, reaching an average of 208,000 in January and February, slowed abruptly to register only 88,000 in March. Retail sales declined as did new construction starts on single-family homes. The dip in housing activity is especially problematic since fundamental determinants, such as low mortgage rates and lean inventories, and an increase in the household formation, had been pointing to continued gains.

Predictably, the economic slump in the U.S. has had its impact in Canada. The Canadian economy lost more than 54,500 jobs in March 2013, according to Statistics Canada. That figure pushed Canada’s jobless rate higher to 7.2 per cent and represents the worst month for Canadian employment since February 2009. In addition to January and February job statistics, the latest numbers show that the Canadian economy has lost more than 26,000 jobs in 2013.

Explanations for the American decline ranged from the possibility that government statisticians failed to adjust the economic data for seasonal effects to the impact of different hiring patterns between large and small firms. Neither of these explanations is persuasive and in any event fail to take into account why economists have been so wrong in their job forecasts over the last 18 months.

The likelihood that the sputtering American economy is the consequence of a single or even a concatenation of misfortunes is extremely low. We are better off to blame global incidents such as those in Cyprus or North Korea or the instability of oil prices, though none of these credibly explain the scope and scale of America‘s weakness.

The more likely culprit is austerity. Stalemates in Congress have resulted in the expiry of a payroll-tax cut and the imposition of higher income taxes on the wealthy which will cost American taxpayers $150 billion in higher taxes in 2013. A similar lack of Congressional resolve resulted in the “sequester” which on March 1st brought across-the-board federal spending cuts worth $85 billion in the current fiscal year. Economists who have been critical of austerity, such as Paul Krugman, have remarked that the American economy may now be less resilient in the face of austerity than it was when austerity measures were first imposed.

Despite the stalling economy, the stock market has, in the main, shrugged off the bad news. This further reinforces the claim that the performance of stock markets bear no relationship to the actual economic experience of most Americans. Moreover, there is emerging evidence that large companies are faring much better than small firms. A substantial number of these large firms operate offshore where the benefits of their growth and profitability do not contribute to the health of the American economy directly. That large firms expend far more lobbying dollars on Congress than their small company counterparts will come as no surprise to critics of Beltway politics.

It is clear that the U.S. economy has not shrugged off the effects of austerity. Instead, it still limps along with growth hovering around 2 per cent. At some point, the evidence that austerity has not achieved its stated objectives will become too difficult to brush aside. For millions of unemployed, this moment cannot come soon enough.

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Filed under Austerity, Economics, Income Inequality, Unemployment