Debating the Canada Job Grant debate - Macleans.ca

Debating the Canada Job Grant debate

John Geddes, Stephen Gordon and Erica Alini discuss the deep policy, big money and intriguing personalities at play

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Aaron Lynett/CP

John Geddes (Ottawa bureau chief) and Econowatch bloggers Erica Alini and Stephen Gordon discuss the debate around the Canada Jobs Grant.

John Geddes: Among the innovations he’s introduced since winning power in 2006, Prime Minister Stephen Harper’s decision to almost never meet with the provincial premiers as a group has to rank as among the most simple and effective. Why put yourself through having to sit around regularly with a bunch of politicians who, pretty much inevitably, demand that you give them more money?

But simply erasing First Ministers Conferences from the annual calendar of Canadian political events hasn’t eliminated the underlying transfer-payments tension. And so, at last week’s meeting in Niagara-on-the-Lake, Ont., of the Council of the Federation (as we call the premiers’ club when they meet without the PM), the big unifying item was seething resentment over the Harper government’s planned “Canada Job Grant.”

In case you missed it, the grant was a surprisingly ambitious program unveiled by federal Finance Minister Jim Flaherty in his spring budget. It amounts to a unilateral overhaul of existing deals between Ottawa and the provinces to fund training. Here at Maclean’s, we find the resulting conflict engrossing—a tangle of deep policy, big money, and intriguing political personalities—and this post is meant to begin an exchange among some of our writers on the subject.

With the Canada Job Grant, the federal Conservatives  aim to accomplish two things: increase their own influence in shaping training policy, while forcing provinces (and businesses) to pony up more of the money. Here’s how this neat trick would work. When Ottawa’s labour market agreements with provinces expire next year, they are to be replaced with very different deals. Instead of just giving provinces $500 million a year to deliver training, fully $300 million of that federal contribution would be repurposed to fund a new program—the Canada Job Grant. Under it,  any businesses planning to train a worker for a new or better job could put up $5,000 toward the cost of that trainee attending an eligible training institution, and thus qualify for $5,000 from each of the federal and provincial governments.

The provinces still get $200 million a year from Ottawa to help support existing employment programs. But the premiers are, not surprisingly, fuming about losing $300 million in federal funding—unless they are willing to match that amount and able to find companies in their jurisdictions wiling to ante up, too. In their meeting last week in Niagara-on-the-Lake, Ont., they joined in a chorus of bitter complaint about the Harper government imposing the demanding new scheme with little consultation.

Several premiers went so far as to predict that no province would play along with the Canada Job Grant under the cost-sharing formula now on the table. They asked for a meeting between their jobs ministers and Jason Kenney, who took over the file as Harper’s new employment minister in the early summer cabinet shuffle.

Kenney quickly agreed to a fall meeting. But he declared that his purpose would be to “move forward with timely implementation of the Canada Job Grant,” not to go back to the drawing board. A key factor in determining whether he ends up having to bend, to some degree, to provincial pressure will be the business community’s stance. Immediately after the budget, the federal government compiled an impressive list of private-sector groups praising the job grant.  But provincial officials at Niagara-on-the-Lake said that in the four months since Flaherty’s budget business enthusiasm for the Canada Job Grant has waned considerably, as companies digest the details.

This is not a straightforward, old-school, fed-prov wrangle that can be boiled down to the provinces wanting more money than Ottawa cares to give. The sheer dollar figures matters, of course, but so does designing the training programs.

And the political dramatis personae here is top-tier. Several premiers just now rank among Canada more dynamic political actors, including Ontario’s Kathleen Wynne, Saskatchewan’s Brad Wall and B.C.’s Christy Clark. And, as it happens, the federal point man on the issue, Kenney, is arguably the most interesting minister in Harper’s cabinet. So we have all the elements: an important economic policy, big money, highly watchable players. It’s shaping up as the fall’s most unexpectedly lively political dossiers.

Erica Alini: The politics of the Canada Job Grant are certainly intriguing, but the policy side of it remains a big question mark. On the politics of why Ottawa might want to overhaul the jobs training system, we’ve found some convincing answers: Harper doesn’t want to give the money to the provinces because he wants more visibility and recognition for the federal government — or so one popular theory goes.

The policy questions, though, are still wide open. First of all: What exactly is the problem that the money Ottawa and the provinces are fighting over is supposed to resolve? Obvious, you might say, Canada has a skills shortage — skills mismatch, or whatever you want to call it — problem. On this, the provinces and the federal government agree. They also agree on the idea that government intervention is required in order to rectify the situation: Public funds should help dislocated Canadian workers acquire the skills that will allow them to fill all those vacant jobs.

Now, many economists believe that worker training programs can be desirable. They can help alleviate the social costs of big transformations in the economy, such as when entire industries become obsolete because of the effects, say, of globalization and technological change. Globalization and technological change are positive forces that make us better off as a society, but they often come with mass layoffs and plant closings that can leave individuals, families and entire communities reeling. The evidence indicates that economies absorb these shocks on their own: Technology kills some industries but creates new ones and free trade hits uncompetitive sectors but makes the competitive ones flourish. Governments can still intervene to help dislocated workers find jobs in growing industries faster. The aim is to facilitate and shorten the transition.

All of the above applies to Canada too, of course, but evidence that we are currently suffering from an severe skills shortage is thin. As Joe Castaldo reported on Canadian Business some time ago: “the percentage of businesses reporting difficulty hiring in the Bank of Canada’s business outlook survey is 25%, well below the 15-year average of 35%.” When labour shortages are serious, he noted, employers react by raising pay, but wages in Canada have been growing on par with inflation. There seem to be a genuine skills shortage problem in the Prairies (not the whole country), he writes, but increasing wages in labour-starved areas and industries might solve the problem. Another important question to ask then, is: What, if anything, is keeping certain employers from hiking up worker compensation enough to fill those vacant jobs?

Stephen Gordon, here on Econowatchzeroed in on that recently:

… when the wage is right, workers feel motivated to move from far-flung places or acquire extra-training to get the vacant jobs. This solution seems to have escaped Canadian employers, possibly because they had grown so used to paying the same wages for so long that it simply hadn’t occurred to them that paying higher wages was an option. Whining to the government, on the other hand, is a long-established and invariably successful Canadian business practice.

Long story short, Canada seems to have a localized labour shortage problem and subsidized training seems to be only part of the solution.

But let’s assume that the provinces and the federal government have correctly diagnosed the problem (nation-wide skills shortage) and the policy prescription (government-funded training programs). Then the questions would be: What’s the best to design and implement these training programs?

The provinces insist that they’ve done a good enough job. Ottawa seems to imply that they haven’t. It would be nice to see some studies and numbers to substantiate either claim.

There is also the issue of whether it’s better to give the money to employers or the displaced workers. Here’s Gordon’s take:

If workers had access to income supplements, firms could offer reduced-wage training positions. And since the money is tied to the worker and not the firm, competitive pressures — and not bureaucrats — would determine the best employer-trainee matches. To the extent that these grants would be portable across provincial boundaries, provincial governments would be unlikely to contribute, but then again, it’s the federal government’s responsibility to advance its own policy goals.

 

Responding to that, Employment and Social Development minister Jason Kenney tweeted last week that the government “seriously considered” that option but concluded it would end up subsidizing training in low-demand occupations.

Interesting. How did Ottawa reach that conclusion? What evidence did it look at? It would be nice to know.

Stephen Gordon: I must confess that I didn’t understand Minister Kenney’s distinction between ‘low-demand’ and ‘high demand’ occupations. It seems to me that these distinctions depend on the wage being offered: occupations that are in high or low demand at the prevailing wage. Labour demand curves slope down: demand falls as the wage goes up. Labour markets work pretty well: higher wages attract more and better workers. If the so-called shortage of skilled workers is the policy problem, it’s pretty easy to solve.

The questions of paying for training and defraying the costs of moving to another province are trickier. But as I noted earlier, these would be better dealt with by direct grants to workers who wanted to take advantage of those higher wages.

Of course, as John Geddes notes, the issue has gotten bogged down in the usual mire of interest-group politics. Provinces want free federal money, business groups want free federal money, and we have a federal government that wants to be seen doing something. But no-one seems to be interested in what would make workers’ lives easier.