In fact, the Bank of Canada should now be more concerned about the exchange rate than the inflation rate. Recent debate about Dutch disease highlights the Canadian dollar’s overvaluation.

While the loonie trades for about 98 U.S. cents on financial markets, the OECD calculates that its real purchasing power is equivalent to only 76 U.S. cents. This discrepancy hurts manufacturing and other industries that export output abroad, but buy inputs in Canada.

An interest-rate hike would aggravate this problem by driving up the exchange rate. On the contrary, the Bank of Canada should help alleviate Dutch disease by intervening in foreign-exchange markets to moderate the loonie to more competitive levels. (Directly managing their exchange rate is, in fact, how the Dutch cured Dutch disease.)

Wages vs. Inflation

The national average hourly wage rose by 2.3%, slightly more than inflation. However, Ontario’s provincial inflation rate of 2.1% is triple the average Ontario wage increase of 0.7%.

What’s new is that the government has just released the 2012-13 Reports on Plans and Priorities (RPP).  These are the departmental reports that project both employment and expenditures down to the program level for each department.  It takes some time to go through each department’s RPP, for the readers of this blog I’ve saved you the effort.

Between April 2012 and March 2015, the RPPs show that departments in the aggregate are going to eliminate 10,400 Full-Time Equivalent (FTE) positions.  Readers will recall that the 2012 federal budget stated that 19,200 FTEs would be eliminated.  So how do we reconcile this?

Well, the Budget 2012 is not the only budget that will affect the number of jobs over the next three years.  Two previous rounds of cuts will also impact federal government employment.  The 2007-2010 Strategic Reviews and the 2010 budget freeze both pushed their impacts into the future.  The future is now and they’re employment impact will be felt as well over the next three years.

What is also clear is that the cuts from Budget 2012 have not been incorporated into the 2012-13 RPPs, although they certainly could have been.  The Globe and Mail reported that Treasury Board President Tony Clement vowed that he would be “crushed by irony” if the cuts weren’t incorporated after his push for more open government.  He may well be feeling the squeeze, as with previous years clarity on job losses is only one year away.

By looking at the timing of when over the past three years of RPPs, the cuts first appear, it is possible to disaggregate them by which measure is causing them.  It appears that the loss of 6,300 FTEs is due to the 2007-2010 Strategic Reviews.  Another 4,100 positions will be lost due to the 2010 Budget Freeze.  Finally Budget 2012 tells us that 19,200 positions will be lost over the next 3 years.

The grand total is 29,600 FTEs cut by 2015 according to the most recent government documents.

But my own view is that this debate is largely distracting. The challenge is to focus on what matters –– reducing inequality, enhancing well-being / quality of life, ending poverty, low unemployment and good jobs, hard caps on GHG emissions that lower steadily over time, and limitations on the extraction of natural resources to ensure sustainability and protect biodiversity. Perhaps the result will be slow or even zero GDP growth. Then again, perhaps the investments needed to accomplish the above tasks will be so large that GDP will continue to rise for another few decades. Ultimately, this is not the central problem. The key is that governments should no longer be judged on the basis of the GDP record under their watch, but rather, on the basis of how well they accomplish the higher-order tasks just mentioned.

Clearly, there is an ecological imperative with which progressive economists must fulsomely grapple. Ecological limits necessitate that we see a drop in material throughput, waste and emissions. But this may or may not result in a drop in GDP/ income growth.

If we are to rise to the challenge of climate change, we would expect to see a decline in consumption (less consumer spending on useless things, and a great deal of redistribution, with higher income households spending less and poor households spending more); and a decline in trade (as we replace GHG-generating trade with more local production). However, in all likelihood, the task will require a substantially larger role for government (as governments spend more on meeting our core needs together, and on GHG reduction measures such as building retrofits, public transit improvements, inter-city high speed rail, etc.); and likely an increase in investment (as the private sector spends on new technology and capital equipment that allows it to capture and lower emissions). The net result of these shifts may well be that GDP still remains positive (at least for a few decades), given the scope of the task at hand.

The point is that while GDP may still grow, we would see a dramatic shift within the component parts of the GDP equation. An analogous example would be the experience of many countries re-tooling their economies during WWII: societies saw large reductions, indeed rationing, of consumer goods, and a redirection of resources by government and the private sector. People certainly changed their priorities, virtually overnight. But overall GDP increased. The challenge of climate change will ultimately require a societal effort and re-direction of resources on a similar scale.

To state the obvious: fundamental to achieving this sustainable re-balancing of GDP is a great deal more re-distribution of income, higher taxation, and much more regulation/planning of the economy. What we cannot sustain is growing inequality, with some households spending dramatically more than they need, while others are barely making ends meet.

Another recent Statistics Canada report, Friday’s Labour Force Survey, indicates that Saskatchewan lost 400 manufacturing jobs in April. I had previously written that the province lost 4,600 manufacturing jobs since Wall took office. That figure is now an even 5,000.

Since Wall’s premiership began in November 2007, manufacturing employment has declined by 16% in Saskatchewan (from 32,000 to 27,000) compared to 11% nationally (from 1,998,200 to 1,786,100).

Are Saskatchewan manufacturers suffering from Dutch disease, Sask. Party sickness, or both?

Erin Weir is an economist with the United Steelworkers union and a CCPA research associate.

Last month, the NSCAD administration provided their response to a report, commissioned by the provincial government and written by Howard Windsor, that reviewed NSCAD’s finances and made recommendations regarding the institution’s future. While the university system as a whole has been underfunded for decades, NSCAD has suffered additional problems as a result of a funding formula that has never fully recognized the true cost of providing a studio-based fine arts education.

To make matters worse, these long-term, systemic problems have been exacerbated by poor decisions made by a former administration, and authorized by a previous board of governors. They agreed to construct a new campus, while failing to secure the funding required to actually pay for it. The combination of paying the operating costs of a second campus while servicing the large debt accruing from its construction has resulted in substantial ongoing annual operating deficits, which — in the absence of government intervention — are likely to increase.

The Windsor report was released on Dec. 13, 2011. NSCAD and the provincial government adopted its eight recommendations. The report opens the way to the possibility of program closures at NSCAD, and urges the exploration of “collaborative arrangements” with other institutions — arrangements that sound like a recipe for merger.

It also states NSCAD’s survival plan cannot rely on more provincial funding. This reflects the province’s approach of largely treating NSCAD like a university gone astray rather than recognizing the systemic problems that contributed to NSCAD’s current financial situation.

Also in December 2011, the province committed $50 million in order to keep the Bowater Mersey paper mill open. This included a $23.75-million land purchase. The bailout was delivered after it came to light that the mill’s parent company had shelled out major management bonuses and after workers had taken significant concessions.

This approach is seen as acceptable for private, for-profit industry, but the government has been unwilling to take the same measures to secure the future of this cultural institution.

The government should recognize that NSCAD is more than a university — it is a world-renowned cultural institution that is a cornerstone of Nova Scotia’s arts and culture sector. The municipal and provincial governments benefit from having such an important institution in the province; the Granville and Port campuses are important anchors in Halifax’s downtown. Nova Scotians should be asking why the province is failing to take some responsibility for this major cultural institution.

To address these issues at NSCAD, this year’s Nova Scotia Alternative Budget, titled “Forward to Fairness” and prepared by the Canadian Centre for Policy Alternatives Nova Scotia, made two recommendations.

The first is to take $19 million of the $25 million allocated to a “University Excellence and Innovation program,” intended to give an incentive to universities to cut costs, and redirect it to pay NSCAD’s outstanding debt.

Second, the government should review each university’s legislation and involve stakeholders to develop boards of governors’ membership criteria that prioritize public accountability, and student, staff and faculty involvement. While universities receive a significant amount of public funding, there are no formalized structures to hold them accountable to the government or the public. This can lead to those in charge making decisions that are not in the best interest of students, staff and faculty or the general public.

When for-profit companies face challenges, we see it fit for the government to intervene so workers and communities are not punished for poor management decisions or economic challenges. When our cornerstone cultural institution faces difficulties based on poor management decisions and government funding challenges, why do we think that students, staff, faculty and the Nova Scotia community should pay the price?

Kaley Kennedy has co-authored the CCPA’s alternative provincial budgets for several years. This piece was adapted from “Forward to Fairness: N.S. Alternative Budget 2012.” A version of this blog post appeared on April 13 in the Chronicle Herald newspaper.

Not that the facts appear to matter, but it is surely notable that – even after two months of strong job growth – we still have an unemployment rate of 7.3%. The “real” unemployment rate in April – which includes involuntary part-time workers – was 10.7%, down only marginally from 11.3% a year earlier.  The “real” unemployment rate for youth is still 20.4%, down a tad from 21.2% a year ago.

The most recently released Statscan data on job vacancies – for the three months ending in January, 2012 – show that there were 6.4 unemployed workers for every reported job vacancy. That is actually worse than the previously reported number for September when there were 5.4 unemployed workers for every reported vacancy.

Further evidence of labour market slack and high unemployment is the fact that average hourly earnings in April were up 2.3%  compared to a year earlier, barely matching inflation.

Even the Bank of Canada argues in the current Monetary Policy Report that there is “excess supply”and “unused capacity”  in the job market.

“Developments in labour market indicators have been consistent with the persistence of a slightly greater degree of excess supply. Despite notable improvements in March, both employment and the unemployment rate are little changed, overall, from their levels six months ago (Chart 22). Similarly,the proportion of involuntary part-time workers has only partially recovered from its sharp rise during the recession, pointing to the persistence of unused capacity in the labour market. The proportion of firms reporting labour shortages in the Bank’s spring Business Outlook Survey also remained below its historical average.” (p.22.)

First, a word on what is not in the Budget. It is disappointing, to say the least, that the government is failing to respond to the fact that less than 40% of unemployed Canadians are now qualifying for EI, well below the already low pre-recession rate.  And, for all of the talk about skills shortages in Canada, it is notable that there is NO  increased investment at all in EI supported training which would assist unemployed workers to find good jobs.

Instead, the focus is on tightening discipline over those workers who have managed to qualify for a claim.

The vast majority of regular EI claimants welcome positive efforts to assist them in a search for a new job and will not turn down reasonable employment opportunities. And there are rules now in place.

As things now stand, EI regular claimants are expected to undertake “reasonable and customary efforts to obtain suitable employment” and can be cut off benefits if they do not do so. “Suitable” employment is defined in S. 27 (2) and (3) of the Act. A job is not suitable if it is in the claimant’s occupation but offers wages and conditions less than those offered in agreements between employers and employees, or by “good” employers.  Jobs not in the claimant’s usual occupation are not suitable if they offer a lower rate of pay than the worker enjoyed previously, except that after a “reasonable interval” a claimant is expected to accept a job which offers wages and conditions matching those in agreements or offered by “good” employers.

The clear intent of these Sections is to allow for a period of job search to find a job matching previous employment wages and conditions, and to prevent the unemployed from driving down wages and conditions.

Sections 605 and 608 of the Budget Bill repeals these Sections, and give the Minister the power to set through regulation definitions of “suitable” employment for different categories of claimants, and “reasonable and customary efforts” to find a new job. These regulations will likely oblige claimants to take offers of jobs at lower wages and with worse conditions at an earlier point in their claim, and perhaps to take any available job at some point in a claim. Language in the Budget itself suggest there may be a focus on frequent claimants.  The intent may be to require claimants to move to take an available job.

Forcing workers to take the first available job is not good labour market policy since periods of job search allow for a better fit between unemployed workers and job vacancies across the country. For example, an unemployed welder in Moncton may need time to find a suitable job in Western Canada, and deserves income support from EI for the needed period of active job search.

These pending new rules are of particular concern given the proposed changes to the appeal system for claims. A new Social Security Tribunal will replace the current system of EI Boards of Referees and the Umpire.

Appeals, which mainly concern denial of claims, are currently made to local EI Boards of Referees for 83 regions, which have three members, one appointed from each of labour and business by the respective EI Commissioners, and a neutral chair appointed by the government. The part-time members of Boards are knowledgeable of local labour conditions as well as of EI legislation and regulations, and deliver timely decisions, usually within 28 days.

In 2010-11, there were 53,905 appeals, about half of which were resolved before a Board hearing, usually due to Departmental recognition of an error. 26,290 appeals were heard by Boards of Referees, and many claims that were initially denied are upheld, underlining the importance of the process of getting a fair hearing. The great majority of Board decisions are, apparently, unanimous.

The some 1,000 part-time members of Boards of Referees who currently handle something like 25,000 cases per year are to be replaced by just 39 full-time members of the EI section of the new Social Security Tribunal (plus a very few part-timers up to a maximum of about 4 full-time positions.) Hearings from April, 2013 will be before a single, supposedly expert, full-time member of the tribunal.

It is unclear if hearings will be held in the community and how the volume of complaints can be handled without leading to long delays. There are serious grounds for concern that determinations will be much less informed by knowledge of local conditions and the changing realities of the job market than is now the case, and will instead be decided on narrow legal and technical grounds.

A third concern with the Budget Bill is changes to pilot projects which will impact on high unemployment regions found mainly in the North, Quebec and rural Atlantic Canada. As of September, unemployed workers in these regions will lose access to an extra 5 weeks of benefits, and some will no longer have their benefits based on their best 14 weeks of prior earnings.  The first $75 of earnings from taking a very short-term job will now be subject to a 50% clawback (though the 100% clawback now in place above $75 or 40% of the claim amount will be replaced by the universal 50% clawback.)

In fairness, on the positive side, the Budget does promise to deliver more timely information on available jobs to unemployed workers, and tweaks the rules regarding working while on a claim and establishing the rate of benefit based on weeks worked in such a way as to lower penalties paid by most unemployed workers who accept part-time and temporary jobs. The Department also promises to review all disputed decisions  to reduce the volume of appeals.

Still, the major intent is to tighten the system to get the unemployed back to work, any work, much faster.  At a minimum, these changes demand much closer consideration than they will get before the Budget Bill is passed.

Erin Weir is an economist with the United Steelworkers union and a CCPA research associate.

WTO Called Upon to Dismiss Japan, EU Challenge to Canadian Renewable Energy Policy

Canadian NGOs and labour unions have sent an amicus curiae submission to the World Trade Organization (WTO) on the eve of a second hearing tomorrow into Japan’s and the European Union’s joint attack on the Ontario Green Energy Act. The groups address Canada’s failure to properly defend Ontario’s actions and call upon the WTO to respect the priority of Canada’s international climate change obligations.

“These are the first international trade disputes which create the potential for conflict between a nation’s commitments under the WTO and its obligations under the Framework Convention on Climate Change and the Kyoto Protocol. It raises fundamental questions about whether the goals of trade liberalization can be reconciled with ecological imperatives to reduce greenhouse gas emissions, and if not, which are to prevail,” says the joint amicus curiae submission from Blue Green Canada, the Canadian Auto Workers, the Canadian Federation of Students, the Canadian Union of Public Employees, Communications, Energy and Paperworkers union of Canada, the Council of Canadians and the Ontario Public Service Employees Union.

Canada, the EU and Japan are signatories to the Framework Convention and Kyoto Protocol, which seek to avert catastrophic climate change. Unfortunately, say the Canadian civil society groups, the Harper government is playing into Japan’s and EU hands by ignoring these international climate change treaties. In fact, having recently repudiated its commitments under the Kyoto Protocol, Canada has threatened to use the WTO to challenge climate measures such as fuel quality standards in the United States and EU.

The Canadian NGOs and labour unions involved in the amicus curiae submission have a strong presence and hundreds of thousands of members in Ontario, including those in the green energy sector. They support the phase-out of coal-fired electrical power generation and the development of renewable energy infrastructure and power generation to replace it.

“In simple terms, Ontario’s Feed In Tariff program for renewable power is a perfect expression of the principles of sustainable development in which environmental and economic goals are married to address the imperatives of climate change,” says their submission to the WTO, which was prepared by Steven Shrybman, international trade and public interest lawyer with Sack, Goldblatt Mitchell LLP.

The Canadian NGOs and labour unions insist that the WTO should resist efforts by countries like Japan, the EU and Canada to enlist its dispute procedures to defeat or discourage climate measures. WTO dispute panels must recognize and accede to the jurisdiction and competence of multi-lateral institutions and instruments, including the Kyoto Protocol, designed to address the climate change imperative.

For more information, and for a copy of the amicus curiae submission to the WTO:

Dylan Penner, media officer, The Council of Canadians 613-795-8685 dpenner[a]canadians.org
Stuart Trew, The Council of Canadians strew[a]canadians.org
Charles Campbell, United Steelworkers 416-544-5970 ccampbell[a]usw.ca
Greg Taylor, CUPE 613-818-0067 gtaylor[a]cupe.ca
Steven Shrybman, lawyer, Sack Goldblatt Mitchell LLP 613-482-2456 sshrybman[a]sgmlaw.com

Royalty hike cure for Dutch disease

Premier Brad Wall calls federal NDP Leader Tom Mulcair “very, very divisive” for expressing concern that Canada’s overvalued petro-dollar is eliminating manufacturing jobs.

In reality, Wall is being divisive by exploiting this legitimate concern to fan the flames of western alienation. Saskatchewan and other provinces would benefit by collecting more revenue from non-renewable resources, as suggested by Mulcair.

Wall and others are correct that the exchange rate is not the only factor reducing manufacturing employment. However, as noted by The SP’s May 9 editorial and Les MacPherson’s May 10 column, economic analyses from universities, banks and international organizations indicate that “Dutch disease” caused much of the particularly sharp decline in Canadian manufacturing employment over the past decade.

Much like the Netherlands in the 1960s, Canada’s currency has surged due to a fossil fuel boom. Between 2002 and 2011, the loonie’s average exchange rate skyrocketed to 101 American cents from 64 cents.

But while Canadian-based exporters are consequently receiving much less for their output, they are paying the same amount for their inputs. The Organization for Economic Co-operation and Development calculates that, in both 2002 and 2011, the loonie’s purchasing power in Canada (including imported products) equalled 81 American cents in the U.S.

Saskatchewan has itself suffered from this Dutch disease. Statistics Canada reports that, since Wall took office in November 2007, manufacturing employment has declined by 14 per cent in this province, compared to 12 per cent nationally.

Specifically, Saskatchewan lost 4,600 manufacturing jobs, including the closure of sawmills and pulp mills harmed by the overvalued exchange rate. Other provinces lost a further 231,300 manufacturing jobs during the same period.

MacPherson is correct that judicious saving and investment of resource income could alleviate upward pressure on our currency. However, provincial governments must collect the income before they can save or invest it.

The Saskatchewan Ministry of Energy and Resources’ most recent annual report indicates that it collected only $2.2 billion of revenue from $17.6 billion of non-renewable resource sales in 2010. Such low royalties allow private companies to reap super-profits by extracting publicly-owned resources.

The Canadian Association of Petroleum Producers’ most recent Statistical Handbook indicates that the industry sold $11.1 billion of Saskatchewan oil and gas in 2010, but paid only $1.8 billion in royalties and spent a further $6.5 billion on exploration, development and operations.

In other words, oil and gas companies made enough in Saskatchewan to immediately pay off all of their investments, with $2.8 billion of extra profit left over.

Foreign investors eager to get in on the action have been buying loonies in order to take over, or acquire shares of, Canadian resource companies. This inflow of foreign funds drives up the exchange rate, to the detriment of manufacturing and other Canadian-based export industries.

Ironically, since resources are priced in American dollars, the higher exchange rate further reduces provincial resource revenues in Canadian dollars. Saskatchewan’s recent budget estimates that each U.S. cent of appreciation in the loonie reduces non-renewable resource revenue by $34 million.

The solution is to increase royalty rates, which would moderate the flow of foreign funds into our resource industries and collect the public revenue needed for the provincial savings funds that MacPherson advocates.

Of course, if Saskatchewan did so alone, it would have relatively little impact on the national exchange rate. That is why Mulcair’s comments were directed at the unbalanced development of Alberta’s oilsands – a larger-scale giveaway of public resources.

But Wall is defensive because he has mimicked and even undercut Alberta by guaranteeing ultra-low royalties to the private corporations that extract Saskatchewan’s non-renewable resources. This policy would be short-sighted even if it had no effect on the exchange rate. Dutch disease, including a proportionally larger loss of manufacturing jobs in Saskatchewan than in the rest of Canada, is just another negative consequence.

Mulcair has articulated a balanced approach to resource development that would generate more public revenue, a more competitive exchange rate, and more manufacturing jobs. Saskatchewan is well positioned to help implement and benefit from this approach by raising provincial resource royalties.

Erin Weir is an economist with the United Steelworkers union, which represents workers in Saskatchewan’s mining and manufacturing industries.

Paradoxically, official unemployment increased as more Canadians entered the labour market. This development provides an important reminder that unemployment is actually even worse than the official tally of 1.4 million.

Hundreds of thousands more have been discouraged from looking for work by the recession, but will try again when the labour market shows signs of life. The policy challenge is to create jobs not only for those officially counted as unemployed, but also for this reserve army of discouraged workers.

Unfortunately, government policy is moving in the opposite direction. Budget austerity is proving to be a drag on the labour market, with the public sector shedding 19,200 employees in April.

Ontario’s private sector also subtracted from the national figures, shedding 9,300 jobs in April. Worse still, provincial unemployment leapt by 32,800. Ontario’s average hourly wage rose by a measly 0.7% over the past year, less than one-third of the provincial inflation rate.

Erin Weir is an economist with the United Steelworkers union and a CCPA research associate.

UPDATE (May 12): Quoted in The Hamilton Spectator