income assistance programs and the labour market - relevant canadian experiences & worker well...
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Income Assistance Programs and the Labour Market - Relevant Canadian Experiences & Worker Well Being
Lars Osberg Economics
Department, Dalhousie UniversityHalifax, Nova Scotia
What’s “relevant” ? Why ? Income Assistance Programs
intersection between social & labour market policy
What is the objective ? Worker well-being ?
What are the constraints ? Small, peripheral, seasonal labour market ?
How do we conceptualize the process ? Voluntary unemployment or risk exposure ?
What defines “success” ? unemployment rate ?
utilization rate of an input in the production process economists typically argue individuals derive utility from
time spent not working
hourly wages ? a price from which individuals derive no direct utility
indirect indicators of something else potential consumption or insecurity ?
Index of Labour Market Well-being
Dimensions of Worker Well BeingConcept Present
Representative Agent / “Typical Worker”
Average Flow of Current Earnings
Hourly Wage or “Constraint Adjusted” Average Earnings ?
Issues: Market returns only, heterogeneity, stocks
Dimensions of Worker Well BeingConcept Present
Representative Agent / “Typical Worker”
Average Flow of Current Earnings
Diversity of Population Experiences
Distribution of Earnings
Social Welfare Function literature SWF = f ( , )
Dimensions of Worker Well Being
Concept Present Future
Representative Agent / “Typical Worker”
Average Flow of Effective Current Earnings
Aggregate Accumulation of Human Capital
Issues: Average Current Earnings does not reveal Human Capital acquisition in on-the-job training or schooling
Dimensions of Worker Well BeingConcept Present Future
Representative Agent
Average Flow of Effective Current Earnings
Aggregate Accumulation of Human Capital
Diversity of Population Experiences
Distribution of Earnings
Insecurity of Earnings
Dimensions of Economic Well BeingConcept Present Future
Representative Agent
Average Flow of Effective Current Consumption
Aggregate Accumulation of Productive Stocks
Diversity of Population Experiences
Distribution of Current Income:- Poverty and Inequality
Insecurity of Future Income
Well-Being ECONOMIC WELL-BEING=
1 [ CONSUMPTION ]+ 2 [ TOTAL WEALTH ]+ 3 [ DISTRIBUTION ]+ 4 [ SECURITY ]
DIFFERENT VALUES WILL IMPLY DIFFERENT WEIGHTS Useful to know whether (& how much) aggregate
trend depends on weighting = 0 is a (strong) value choice
Chart 1: Index of Labour Market Well Being in G7 Countries, 1980-1999
0.30
0.35
0.40
0.45
0.50
0.55
0.60
0.65
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
ILM
WB
Canada France
Germany Italy
Japan United Kingdom
United States
Chart 2Hourly Direct Pay for Production Workers in Manufacturing
Unemployment Rates in Canada and the US (1990-2001)
0
5
10
15
20
25
30
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Cdn Unemp Rate
US Unemp Rate
Cdn Pay
US Pay ($Cdn)
US Pay (at PPP)
Source: Cansim Table 282-0002, Table 451-0006 [B53106], Table 176-0064 B3400], and Table 380-0037 [D23353]; Data for hourly direct pay from w ebsite of US Bureau Labour of Statistics (f tp://f tp.bls.gov/pub/special.requests/ForeignLabor/supptab.txt)
Chart 3 Real Social Assistance, Worker's Compensation, Vocational Training, and EI Expenditure Per Person
Ages 15-64 (1990-2002)
0
100
200
300
400
500
600
700
800
900
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Real Social Assist
Real Worker's Comp
Real Vocational Train.
Real EI Expenditure
Source: Cansim 2 Table 385-002, Table 478-0005, and Table 276-0005 [D73028]
Employment as Percentage of Working Age Population (15-64)
48
50
52
54
56
58
60
62
64
66
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Canada
France
Germany
Italy
J apan
UK
US
Source: US Bureau of Labour Statistics, http://www.bls.gov/fls/flslforc.pdf
Net Job Creation (Change in Employment/Population, 1992-2002))
-2.4
-1.4
-0.4
0.6
1.6
2.6
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Canada
France
Germany
Italy
J apan
UK
US
Source: US Bureau of Labour Statistics, http://www.bls.gov/fls/flslforc.pdf
Chart 5Ratio of Nominal to PPP Exchange Rate
(foreign currency equivalent per Canadian $, 1986-2002)
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
US
Fra
Ger
UK
J AP
Euro
Parity
Source: Cansim 2 Table 387-0006 and Table 380-0037
Chart 6Ratio of Average Weekly EI Benefit Payments to Average Weekly Wages
(1990-2002)
0.38
0.39
0.40
0.41
0.42
0.43
0.44
0.45
0.46
0.47
0.48
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Wkly EI/ Wkly Wage
12-mo MA
Source: Cansim 2 Table 276-0016 [D730479], Table 281-0026 [L172126] and Table 281-0002 [L57711]
Chart 7Ratio of Regular EI Beneficiaries to Number of Unemployed
(1990-2002)
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Years
Beneficiaries/Unemployed
12 month Moving Average
Source: Cansim 2 Table 282-049 and Table 276-001 [D730603]
Worker Well-being & Unemployment Insurance cuts
What are the constraints ? Large urban labour market with chance of
unemployment ? OR Small peripheral market with seasonal
certainty? Compared to what ?
Actual alternative was Social Assistance GAI offers greater work incentives
D
C
B
EF
0
$
weeksnon-labourtime
b42
A52
Compared to What ? Policy defects / advantages are always
relative to some alternative Social Assistance or Guaranteed Annual
Income – neither require work effort SA has high tax back rates GAI – work incentives via lower implicit tax
rate But irrelevant if weeks work unavailable
UI private sector workfare in seasonal markets
B'
0
$
weeksnon-labourtime
A'52
C'
C
B
F
0
$
weeksnon-labourtime
b42
A52
B'
g
G
G
work weeks available
Canadian Experiences Undervalued currency will generate jobs Unemployment Insurance cuts have very
different implications in Urban labour markets – increased insecurity Small seasonal markets – reduced work
incentives but less insecurity Objectives need clear specification + Caution required – before importation