It's The Economy, Stupid

A new Nova Scotia study finds the government focus on job creation has hurt the province’s productivity.    It is interesting when studies are needed to confirm the obvious.

But I think we have to be really careful when having the jobs vs. productivity discussion.  For whatever reason, we are living in a time when people want black/white, yes/no, up/down answers to questions that don’t provide us with that luxury.

Sure, productivity matters.  It’s critical, in fact, to a healthy, competitive economy over time.  But, I would argue that jobs matter even more that productivity.  If you have a highly productive economy but at the same time high unemployment what have you accomplished?

Again, it can’t be a binary choice.  We need to focus on productivity while also looking to achieve full employment.

Nowadays, it is even more important not to use public policy to try and squeeze more jobs out of a stagnant economic base.    It is true that in the past, governments provided significant incentives to ‘create jobs’.  Combine that with a low value Canadian dollar and a hot American market and companies were able to make profit even with a relatively low output to worker ratio (although even at this there were economists saying it was not sustainable).

Now, we have to think about both.  How do we foster a more productive economy while addressing our labour market challenges?

New Brunswick, as one example, needs to see far more ‘job’ creation – not by trying to engineer more jobs out of the current level of output but by genuine and new economic growth.

I have written about this before but to achieve the  Saskatchewan or Alberta employment rate, NB would have to create 70,000 or 80,000 new jobs.  At the same time, right now ceteris paribus we would need to reduce the employed workforce by more than 45,000 FTE jobs in order to reach the national average for GDP/hours worked (one measure of productivity).

So, in order to reach full employment and average productivity, we would need to create enough new economic activity to create 125,000 jobs.

I understand this methodology is simplistic but it is meant to show how important the jobs part of the equation is.

If you could wave your magic wand and bring us to national levels of productivity, it would mean a steep drop in employment in an economy that is already well below full employment.