The great labour market squeeze

There have been a number of stories recently about the shortage of labour in New Brunswick. Mexicans have been brought in to pick potatoes. The Dutch have been brought in to drive trucks. Employees from the Phillipines and India as well as Newfoundland have been brought in to work in the aquaculture industry in the Bay of Fundy.

Yet well over 90,000 people in New Brunswick were on non-maternal benefits EI last year. That’s 90,000 people who during the year were ‘looking for work’ at some point. During any given month, there are approximately 40,000 people unemployed.

What gives?

Well, I am not a labour market economist but there are a few points that are worthy of consideration. Most of the jobs that are experiencing a shortage are seasonal jobs (except the retail sector which has other challenges). More and more New Brunswickers are leaving the province for Alberta and other greener pastures.

But more importantly, from a public policy perspective, most of these jobs that are experiencing shortages are on the low end of the wage scale. Why this is a serious problem is simple. The government (Federal and Provincial) has gone to great lengths to ensure that people making less than $15,000/year pay no tax. No income tax but also no HST (through rebates) and other tax benefits.

So the obvious problem is this. The Government of New Brunswick spends about $15,000 per employed worker ($6B over 400k workers). This money has to be generated out of tax revenue. Corporate income tax only contributes 3% of the total taxes raised for the NB government, so the overwhelming bulk of taxes generated comes from two sources: individual taxpayers in New Brunswick and transfer payments from Ottawa.

So, for every job created at the low end of the wage scale, it actually puts an additional financial burden on the provincial government.

So where does the money come from to pay for the public services that go along with jobs created in the low end economy? Higher income taxpayers and transfer payments from Ottawa.

However, the calculus gets ever so sticky when we add this dimension. The bulk of the high end jobs in New Brunswick are public sector or publicly funded jobs (health care, education, public administration, etc.). And over the past six years, something like half of the new jobs created have been as a result of government spending.

So we generate the majority of our high paying jobs through government spending and the majority of the jobs created by the private sector – expected to fund the public jobs – don’t pay anywhere near enough tax to do so.

That’s the squeeze folks.

So, without a pile of new federal transfers or a pile of new private sector jobs paying $40k and up, you can expect this problem to get progressively worse over the next 5-10 years.

My solution? Well, here are my back-of-the-napkin thoughts.

Use immigrants to work these lower end jobs. If it’s a major step up from where they came from, I think it makes sense. But don’t bring them in for 2-3 months and exploit them and send them back. Bring them in as bona fide immigrants. Stream them into our system. Allow their kids access to our education system and ultimately the opportunity to move up the economic food chain.

Don’t use government money to fund lower end jobs. Over 70% of the economic incentive programs that I looked at recently in the US have minimum wage requirements in order to qualify for any government support. And these are typically set at levels where the individuals will actually pay taxes.

Stop using the government payroll to stimulate high end jobs and then patting yourselves on the back for creating high end jobs. We need a serious strategy to grow a few private sector high wage sectors in New Brunswick. The government should invest in the infrastructure, training and marketing/promotion required to grow these sectors. My picks? Oil & gas, computer animation, e-Learning, financial back offices, selected high end manufacturing, etc. The focus should be on sectors that have a long term growth horizon – not on short term fixes.

Finally, a little tightness at the low end is good, if I can say this without being a socialist. I used to marvel at the fact that a seasonal furniture manufacturer could get workers at $7.50/hour in the mid 1990s. Talented, experienced wood workers. Now, they are paying $12/hour and still having challenges.

We have got to be competitive on the wage front (i.e. lower than Toronto and calibrated to cost of living) but not slave wages. Very low wages don’t generate taxes and then don’t generate the quality of life neccessary to keep people from moving to Alberta.