Alex Paterson

Think Tank Round Up Volume 3: March 22, 2013

March 22, 2013

It has been a busy week here in Ottawa with the presentation of the 2013 budget (Take a minute to look at our co-founder, Tim Barber’s, reaction to the budget.)

This Economic Action Plan placed a major focus on skilled trades and the need for professional training, topics which are close to our heart at Canada 2020. On the 21st of March we released the report from our day-long conference on Skilled Trades in the Energy Sector Conference, which highlighted the need for the federal government to play a greater role in creating apprenticeship programs, in reforming Labour Market Agreements, in facilitating labour mobility between provinces, and in a national forum for partnership and dialogue on labour market and skills issues.

As we prepare for next week’s public panel event Asia’s cities: Canada’s opportunity?, here is a short commentary on the latest releases from think tanks in Canada and abroad.

Income Inequality

Income inequality continues to be a major concern in the United States; we can expect that this will continue to be the case as the country grapples with important questions about how it wants its society to evolve over the years of the second Obama presidency and beyond.

The Centre for American Progress published a short issue brief (The United States Needs to Guarantee Paid maternity Leave) pointing out that the United States is the only country in the OECD that does not provide guaranteed maternity leave to women. This has serious implications not only for women’s health but also for poverty and inequality: countries with longer maternity leaves have lower rates of child poverty. Women are better able to give their children a good start in life.

This was a timely release in light of the recent media interest in Facebook COO, Sheryl Sandberg’s book, Lean In: Women, work and the will to lead. Many column inches have been dedicated to analyzing the structural issues that women face in the workplace. Lack of paid maternity leave is just one hurdle women must overcome in their careers.

Also in the area of inequality, The Brookings Institution’s report Family Structure: the Growing Importance of Class analyses how changes in family structure are impacting on economic mobility. The report’s author, Isabel Sawhill, draws parallels with a 1965 report (The Negro Family: The Case for National Action) pointing out that the fragmented structure of African American families in the 1960s is now being replicated in white families. Race-based differences between families have thus been reduced, leaving the economic class into which an individual is born as the key determinant of mobility.

Sawhill sees the United States becoming a more class-based society in which upward mobility is falling. Growing up in a single-parent family impacts a child profoundly, leading (on average) to lower educational achievement, greater involvement in crime and higher rates of teen pregnancy. Moreover, economic opportunity and status affect an individual’s ability to marry and therefore can create a vicious cycle of poverty.

The Brookings Institution also produced a study (Rising Inequality: Transitory or Permanent? New Evidence from a Panel of U.S. Tax Returns) on March 21 on the factors underlying rising inequality. Is it due to temporal volatility in earnings or is it a more permanent phenomenon? The authors used time-series panels of tax data to draw the conclusion that almost the entire recent rise in inequality is due to permanent changes in income, means that the rich are getting richer and we should not expect that to change. Although progressive taxation helps reduce income inequality, it does not do enough to offset this new phenomenon.

Another aspect of the debate on income inequality revolves around fair wages. The Economic Policy Institute, another Washington think tank, investigated the impact of minimum wage increases on the American economy in Raising the federal minimum wage to $10.10 would give working families, and the overall economy, a much-needed boost. According to the EPI, increasing the minimum wage to $10.10 by July 1, 2015 would affect approximately 30 million workers who would receive an extra $51 billion in wages. Raising the minimum wage would in itself increase GDP by $32.6 billion and create an additional 140,000 net new jobs. The main reason for this is that low-wage workers are more likely than their employers to spend the new money they are earning, thus creating a virtuous circle.

Rising to meet the Asia challenge

The Asia-Pacific Foundation, always a source of reliable data and polling on Asia, produced a study (Seizing the continent: Opportunities for a North American Gateway) outlining the opportunities for Canada to become a dynamic North American Gateway to Asia and even Europe. Canada’s advantage over the U.S. in this area stems from our relatively strong economic position and still functional political system. The U.S. is hamstrung and unable to increase its leadership in transportation because of budget shortfalls, environmental concerns and political gridlock.

In order to become such a Gateway, Canada would need to invest heavily in transportation infrastructure, especially ports on both coasts, which would provide unrivalled access to Asia and Europe. The study emphasizes Canada existing strengths and potential. For example, the port of Prince Rupert is 3 days closer to Asia than any other major west coast port. It is not surprising, then, that it was the only port to grow economically during the 2008 recession.

The Budget

It was an interesting week in that the Canadian and UK budgets came down a day apart. The U.K. budget controversially ring fenced spending on the National Health Service, education and overseas aid while demanding spending cuts of a further 6.7% across other departments. It made no mention of skills, despite the fact that one in five U.K. adults between the age of 16 and 24 is unemployed.

The Canadian budget merged the overseas development agency (CIDA) with Foreign Affairs and International Trade – partly to render the department more efficient (no ring fencing here) but also to better align it with other governmental priorities. It ignored the issue of health (although federal transfers are due to fall after the 6% guarantee falls off in 2016-7). Education is not a federal issue, although the budget focused heavily on skills training – normally the responsibility of provinces.

The priority placed on infrastructure investment stands out as the main link between the two budgets. Canada’s 2013 Economic Action Plan committed $32.2 billion over 10 years for various infrastructure in communities; $14 billion to support projects “of national, regional and local significance”; $1.25 billion for public-private-partnerships and finally $6 billion from older infrastructure funds. The U.K. government pledged £3 billion ($4.7 billion) a year for infrastructure projects starting 2015, in the hopes of boosting the economy.

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That’s it for this Think Tank Round Up but we’ll see you in two weeks for volume 4! Remember to register for our upcoming events Asia’s cities: Canada’s opportunity? and How to sell carbon pricing to Canadians and to sign up to our mailing list for monthly updates and news about Canada 2020.

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