economic growth and labour markets jack m. mintz c. d. howe institute and j. l. rotman school of...

C.D. Howe InstituteInstitut C.D. Howe

ECONOMIC GROWTH AND LABOUR MARKETS

Jack M. MintzC. D. Howe Institute

And J. L. Rotman School of Management,

University of Toronto


Contribution of Labour Markets to Economic Growth

Participation in work forceEmploymentAging Matching demand and supply for skillsImmigrationTalent


Overall

Canada in the past decade has had a substantial increase in its labour force with high rates of female participation

Services employment has grown and dominated industry in industrialized economies

Canada’s unemployment rate has declined but remains higher the US and Australia

Much of Canada’s unemployment is temporary in nature (less than one year)


Labour Force 2003

Canada US Europe-15 Australia

Labour Force % Change 93-03

17.3% 14.0% 6.7% 16.5%

Female 73.0% 70.4% 61.7% 66.9%

Industry Share 22.5% 20.0% 27.8% 21.2%

Unemployment Rate

7.6% 6.0% 8.0% 5.7%

Long-term Unemployment share

10.1% 12.4% 15.3% 11.6%

65 and over 12.8% 12.3% 17.0% 12.8%


Regulations and Labour Markets

Canada is average among OECD in terms of employment restrictions such as job security and conditions of employment and less restrictive on average in terms of industrial relations laws (collective bargaining, participation in management).

However, within North America, provincial employment laws are most restrictive for many of the provinces.


Employment Standards(Huberman)

Index NA Ranking in Restrictiveness

Alberta 51.6 51

BC 72.4 1

Ontario 65.5 3

Quebec 66.4 4

Saskatchewan 68.4 5

Nova Scotia 52.9 11


Talent

Canada has well educated work-force. Education testing has shown that Canada has one of

the top five education system with Alberta, Quebec and British Columbia the most highly ranked.

Some soft spots – high school drop-outs, proportion of post-graduate degrees and skill-training

Government support for university education has increased since 1998 once taking into account all subsidies and tax measures.


Gross Rates of Return, Effective Subsidy Rates, and Effective Tax Ratesfor Median University Graduates, 1998 and 2003

(Collins and Davies)

Gross Private Rate of Return

Effective Subsidy Rate

Effective Tax Rate

ESR minus ETR

1998 12.53% 19.38% 13.6% 5.79%

2003 12.14% 20.50% 9.66% 10.83%


Taxation and Work

Canada has relatively high marginal tax rates on work effort once including taxes and clawbacks for income-tested programs.

Rates are as high as 60% including for those with relatively modest income.

High marginal tax rates not only affect work effort but also returns to human capital, participation in work force.

Aging will result in higher taxes as governments will need to fund social services for the elderly (OECD estimates a 9.4 percentage increase in the gap between spending and taxes as a share of GDP (although this is over-estimated to some degree).


Taxes and Work Effort

A v e r a g e a n d m a r g i n a l e f f e c t i v e t a x r a t e s f o r a f a m i l y w i t h t h r e e c h i l d r e n ; a l l p r o v i n c e a v e r a g e , 2 0 0 5

- 6 0 %

- 4 0 %

- 2 0 %

0 %

2 0 %

4 0 %

6 0 %

8 0 %

0 2 5 0 0 0 5 0 0 0 0 7 5 0 0 0 1 0 0 0 0 0 1 2 5 0 0 0 1 5 0 0 0 0

T a x a b l e i n c o m e , d o l l a r s

Tax

rat

e, p

erce

nt


Worker Productivity and Capital Investment

Capital investment has a significant impact on worker productivity.

Canada’s investment rate per worker is low by international standards (except in Alberta).

The effective tax rate on capital (corporate income and other capital-related taxes) is high in Canada relative to the rest of world.


Capital Per Worker 2005

Capital Per Worker ($Can, PPP)

Effective Tax Rate on Capital 2005

Alberta $19,079 39.0%

Ontario $7,208 43.5%

Quebec $6,563 36.3%

US $11,774 37.7%

OECD $10,233 23.8%


Reform Measures

Education – skills and high-school drop-outs Labour restrictions -- trading off protection with cost

of employment Employment insurance – experience-rating Taxation – reducing high marginal tax rates to

encourage both participation and skill-training. Improve capital investment to create more demand

for workers.

economic growth and labour markets jack m. mintz c. d. howe institute and j. l. rotman school of...

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