Tough questions about the Canada Job Grant in Budget 2013

Stephen Gordon explains why there’s no reason for the government to intervene in the labour market

Perrin Beatty, the president of the Canadian Chamber of Commerce, is quoted in the 2013 budget documents. “Everywhere I go, business of all sizes tell me that their No. 1 concern is finding the right people to do the job,” he says. The government’s “solution” to this “problem” — the new Canada Job Grant.

Here are the questions we should be asking:

  1. “Is this a problem that needs solving?”
  2. “Is this a solution to the problem?”

I’m pretty sure the answer is “no” and “no.”

The market solution to a shortage in any market is simple: increase the price. If wages in a sector increase, workers will make it their business to acquire the necessary skills. There’s no obvious reason for the government to intervene, unless there is some intrinsic feature of the labour market that prevents this mechanism from operating properly.

It seems to me the labour market is reacting exactly the way we’d expect: workers with trades certificate have seen their wages increase faster than those with any other level of education. If the Chamber of Commerce is worried that it’s harder to hire skilled workers today at the wages they were used to paying 10 years ago, the appropriate policy response is to say “tough noogies.”

In any case, the problem of labour shortages isn’t about trades workers. As Alex Usher notes, according to a list of 25 occupations that the CIBC identified as showing signs of labour shortages, the vast majority are in fields that require a university degree, particularly in health sciences.

In the short term, there may be bottlenecks when it comes to training, but it’s not clear how the measures announced in the budget will help. There’s as yet no clear indication how the Canada Job Grant will work, but the most likely scenario is that it will amount to a wage subsidy to firms. Our experience with similar “economic development” programs is long and unhappy. There’s little reason to think this will be more effective than any other boondoggle.




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Tough questions about the Canada Job Grant in Budget 2013

  1. I like the idea behind this article, but there still seems to be a persistent problem, in the US at least, with employers not offering high enough wages for engineers and high skilled workers.

    Boston Consulting Group released a report in October that basically said large manufacturing firms are simply not investing enough in recruiting (ie. paying more and offering better incentives): http://www.bcg.com/media/pressreleasedetails.aspx?id=tcm:12-118945

    • Thanks. I had to write this while offline, so I couldn’t add the link. I’ll try to add that link (and others) when I can.

      • No worries. Also, clear-eyed post as usual. Cheers.

  2. As with everything else conservatives try to do, if successful this will only serve to drive down wages as the skilled trades become flooded with labour.

  3. Convincing your children to attend university at an immediate cost to both of you now and in the future for a dead end degree in a dying occupation is economic suicide. This strategy only employs the university staff who really don’t care about your child’s future employability but do care about their own status. We don’t need burger flippers with teaching degrees.

  4. From what I see, the grant goes to unemployed or underemployed. I was talking to a friend who has trained 4 apprentices in the last few years, (I’m training one right now, probably a second next year). We are actually training the old way, on the job with schooling, and we depend on the quality of the training because otherwise we have to redo the work ourselves.

    There is nothing for us. I don’t think any of the apprentices were unemployed. I suspect what will happen is that the $15k will replace the existing programs and it will cost us more. We shall see, but usually the way these programs are structured make it more costly for serious people and give money to those who would be in the business of getting money from government.

  5. I think one important factor is that young people come into the work force thinking they are worth more than they really are. Narcissism in the younger is set running rampant. University education usually equates with no experience yet big expectation. Secondly, they don’t want to work “too” hard once their in. You can’t be an engineer sitting behind a desk.
    Attitudes need to change first.

  6. Bob Arnott
    Perrin Beatty (president of the Canadian Chamber of Commerce) quoted. The market

    solution to a shortage in any market is simple: increase the price!!
    Obviously Beatty has never been self employed or in the private sector. If you increase

    prices in a competitive market you won’t need skilled workers because you will be out of business. We are not all on the taxpayers dime.

    • Bob,

      In a competitive market, businesses close all the time. When the demand for labour increases, wages have to increase in response in order to remain competitve. Yes, this would mean that slower/smaller businesses fail but that is the nature of the market: compete or perish. The ones that survive emerge leaner and fitter, which over time, is good for the general market. Those that fail — well, they can find work at a nice wage with the surviving companies. The implied alternative that you suggest (not increasing price/wages) also leads to the same path — failing to increase wages poses challenges in attracting labour over the long run, which would also mean going out of business –> no labour = no work = no business

      Public subsidies for wages or training artificially keep businesses open that should otherwise close. Over time, this creates an over-supply of businesses in the market because those that should have closed have been allowed to remain open, and dependent upon on the public subsidy. This makes the overall market sluggish and less competitive.

  7. Interesting that this should arise when subsidy funding for trades programs has been demolished. It has changed the tuition from about 3200 to 10700. This is much higher than what we are paying for my child who is attending university coursework. Many apprenticeships are now asking that pre-apprenticeship programs be completed prior to taking on an apprentice. This is done so that the apprentice can be started at a level that is helpful to the employer. The earlier subsidy to take the tuition down was to entice students to enter the program. I guess that has been done but the new tuition is prohibitive to students and their parents trying to enter these fields. The loan possibilities are next to negligent on these. Why not put some effort into these new entrees. If an unemployed worker was trying to get a new start in a new field, this is what they would face… another blow to getting reemployed

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