Unlocking the Job Market

Commentary, Poverty, Frontier Centre

The keys to reducing Canada’s persistently high unemployment rate continue to evade our politicians, but 1997 job statistics for the United States point to some answers.

There’s no questioning the magnificent performance of the American economy. In the last 15 years, since the depths of the last serious recession, our southern neighbours have created jobs at the net rate of two million a year. That’s the equivalent of producing a new General Motors workforce every four months, or a new IBM in less than two months. The unemployment rate for married men is just over two percent which, considering the fact that a varying number of people are always in transition, pretty well amounts to full employment.

Contrast that with the dismal results in other countries, and some unmistakable conclusions emerge.

First, low interest rates. There’s little doubt that lower costs for borrowing money have a stimulative effect. They encourage investment. Expansion by successful existing employers and start-ups by new ones follow.

If this were the only answer, many other countries should also be enjoying full employment. Japan, for instance, has short-term interest rates that are less than one percent, but now suffers its highest unemployment rate since World War II. Canada’s interest rates are the lowest in a generation, and they have helped reduce the number of idle workers. But our performance in job creation is lacklustre, to put it mildly, compared to that of the U.S.

Deregulation and the shedding of monopolies have boosted the American juggernaut. The transportation industry, for instance, has expanded jobs by almost 25% in the last five years, a period when open markets were forced on the railroad and trucking industries, a phenomenon identical to the experience of the airline industry a decade earlier.

But these trends have spread to Europe, where the breaking down of competitive barriers proceeds in tandem with the economic integration of the European Union. Yet Germany and France still suffer dismal double-digit unemployment rates. Europe has not created a single net new private sector job since the early 1980’s.

Canadian governments have deregulated many areas of the economy, but others remain mired in bureaucratic, monopolistic gridlock. Take health care. In the last 15 years, the United States added 3.9 million jobs in this field, a whopping two-thirds increase in an industry that is only semi-socialized. We are all too familiar with what’s happened in Canada, with cutbacks in service and deadly rationing by means of waiting lists. Net new jobs are less than zero.

Taxation levels play a part. Canada’s capital gains taxes add up to about twice the American rate. This fact especially impacts "new economy" industries like technology, where capital plays a vital part in underwriting risky ventures. American jobs in computers and data processing doubled in the last ten years, a success story that points to the importance of allowing risk capital to capture windfall profits. By punishing success, we lose the benefits of dynamic investment and push funds into "safe", lower growth ventures.

Another important difference between the United States and other industrialized countries lies in labour markets. Overly generous social safety nets in Canada, Europe and Japan discourage people from seeking work. They "provide the incentive, and the means, not to work," as a Harvard economist put it concisely. High payroll and income taxes that fund goodies like unemployment insurance, social services and pensions make work less rewarding, so fewer do it.

We know why we produce way fewer jobs than the United States. The mystery lies in the fact that we continue to embrace the policies which create that disparity.