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.