Canada’s sluggish growth: Report urges focus on jobs

Canada’s stock market is on the upswing, but sluggish economic growth remains a “burden” that policymakers need to cope with in unconventional ways, argues an economist.

Despite stronger-than-expected growth in May, marking the fifth consecutive monthly rise, Canada’s economy is expected to drag along at a tepid pace around 2 to 2.5 per cent in the next few years, which is behind other developing nations such as the U.S. and Britain.

McGill University economist Christopher Ragan says policymakers should learn to live with this “slow-growth recovery” and focus more on the job market and less on monetary and fiscal measures.

Unemployment focus

In a paper released this week through the C.D. Howe Institute, Ragan offers up three recommendations on how Canada can tough it out.

His solutions include a temporary unemployment program that sees recipients repay the amount after a few years, more labour mobility across regions and sectors, and more training for people laid off in one industry to get a job in another.

"These policies would focus on addressing the burden of Canada's slow-growth recovery, which falls mostly on unemployed and underemployed Canadians," Ragan writes.

"Policy makers need to emphasize the importance of addressing these challenges that have faced Canada since the onset of the global financial crisis, and will continue to face over the next few years."

The Canadian economy is expected to grow 2.25 per cent between 2014 to 2016, the Bank of Canada said in its latest monetary report, up slightly from a 2 per cent increase in 2013.

The International Monetary Fund pegs Canada’s growth at 2.2 this year and 2.4 per cent next year. Britain and the U.S. are expected to perform better than Canada next year at 2.7 per cent and 3 per cent, respectively.

Citing the “lingering uncertainty and the continued slow pace of the global economic recovery,” Ragan says there’s not much more Canadian policymakers can do to stimulate growth through monetary policy; especially with interest rates already low.

“High household debt suggests that consumption is an improbable source of near-term growth,” adds Ragan. What’s more, he says there won’t be a rally in exports without a “strong and sustained foreign recovery,” and a boost in business spending at home won’t come until there’s a marked improvement in corporate confidence.

“Canadian policymakers should accept the continuation of Canada’s slow-growth recovery for the next few years,” Ragan writes.

That’s why he believes Canada should deal with the “undesirable consequences,” which include longer unemployment spells and more part-time employment.

“To address this slow-growth burden, Canadian policymakers should focus on approaches that improve income support for the unemployed, increase mobility in labour markets and improve incentives for labour-market training.”

Using the latest payroll figures from Statistics Canada, United Steelworkers economist Erin Weir notes today that salaried employees made wage gains of 4.3 per cent over the past year, with average weekly earnings rising from $1,225.25 in May 2013 to $1,265.60 in April 2014 and $1,277.81 in May 2014. However, he notes hourly workers only saw a 0.8 per cent increase over the past year, well below inflation.

“Government policies such as the Temporary Foreign Worker Program and attacks on collective bargaining have played a role in suppressing wages among Canadians paid by the hour,” Weir noted. “ more targeted approach to job creation and promotion of workers’ rights are needed to boost employee earnings, consumer spending and economic growth.”