Job Creation—Political Choices, Economic Realities
Job Creation—Political Choices, Economic Realities

Job Creation—Political Choices, Economic Realities

June 1 st 1997

With Canada's official unemployment rate stubbornly stuck in the 9-10 per cent range, this country is experiencing its longest period of high unemployment since the 1930s. Worse, this figure actually minimizes the problem since it fails to show the special burden borne by some regions and social groups, such as the 19 per cent jobless rate in Newfoundland and a national youth unemployment rate of 17 per cent—almost twice that of adults.

The gravity of this problem has not been lost on either ordinary Canadians or their politicians. Those polled during the recent federal election cited unemployment and job creation as primary concerns. And each of the political parties claimed they alone possessed the formula for creating permanent, well-paying jobs.

But while all parties agreed on the need for job creation, their approaches differed markedly. Some wanted to cut taxes. Others wanted to foster private sector job creation by cutting deficits. Yet others were untroubled by high taxes or deficits and instead proposed increasing government spending to create jobs and stimulate the economy.

That such very different—and seemingly contradictory—solutions could be proposed for this problem illustrates a fundamental truth about job creation—it's as much about political choice as economic reality. How we seek to create jobs flows directly from our worldview, what we are prepared to pay, and whom we think should pick up the tab.

Roots of joblessness

But why has it proved so hard to create jobs?

To begin with, it is harder to fight unemployment than it used to be because the roots of joblessness are more complex. Our traditional solutions don't work as well as they once did.

In the past, unemployment was a function of business cycles, and so Keynesian prescriptions worked reasonably well. Governments borrowed during recessions and increased spending on job creation, infrastructure projects, and social programs. As tax revenues recovered and unemployment and social benefits declined, governments repaid their debts in anticipation of the next downturn.

Unfortunately, this does not work as well as it once did, in part, because generations of politicians, viewing public spending as the royal road to reelection, have continued to borrow and spend even during boom years. As a result, we now have a huge national debt which requires high taxes to maintain, inhibits economic growth and job creation, and restricts governments' ability to act during periods of high unemployment.

The nature of unemployment has also changed and increasingly results from structural factors related to intensified competition, globalization, new technologies, and labour market mismatches.

Attacking this new and more complex unemployment problem is thus more difficult, and, while politicians may claim easy answers, most insiders privately fear that this is a war that cannot be won either easily or quickly. A few even suspect that some unemployed workers may never fully adapt. In the view of such people, the best governments can do is to provide them with income support and make sure their children get the education and training they will need for the jobs of the future.

Some special situations, related to ageing industries, regional disparities, and politics, have proved difficult to address, in part, because of the tricky cultural, constitutional, and political issues involved. Such issues just never seem to go away—which is not surprising since the hard decisions required always seem to get put off for future generations of politicians and taxpayers.

New realism

In this new economic environment, governments have become more realistic about what they can do to create jobs. Indeed, many now believe that most job creation can only be accomplished by the private sector—in particular, small and medium-sized businesses. In such a view, the role of government becomes that of creating a fiscal and economic climate capable of fostering economic growth and private sector job creation.

This new realism has led to the development of a new breed of employment and job creation programs. Unlike their predecessors, which were "one-size-fits-all" Ottawa-based programs, these new programs tend to be more responsive to local needs, more cost-effective, and more results-oriented. As well, they seek to better target the specific needs of clients, deliver services as close to clients as possible, and foster a spirit of partnership and community involvement by including all interested parties—employers, unions, educational and training institutions, community groups, and various levels of government—in program design and delivery.

This new approach is partly due to the federal government's more modest financial resources, which limits its ability to intervene in provincial affairs, and the rise of regionalism, which is causing many provinces to demand more control over employment and training programs. The new approach is also part of a global trend—best demonstrated by Germany—to bring together employers, unions, and all levels of government to solve labour market problems.

Still, there are signs that this new approach to job creation, training, and labour market issues may be working, and as a result these programs have continued in spite of changes in governments.

A key element is the federal government's support for better training programs and facilities so that workers can acquire the skills they need to fill the jobs that are available. This has taken a number of forms: sponsoring apprenticeships, subsidizing new training facilities and programs, and encouraging the use of new technologies in education and training. It has also involved targeting the special needs of young people by funding programs that encourage young Canadians to stay in school or that bridge the "school-to-work" gap by providing young people with the training and work experience needed to get a first job.

Another element in this strategy is the notion that those currently involved in a given industry probably have the best idea of what future jobs will look like and what skills workers will need to fill them.

The new realism recognizes that job, training, and labour-market issues are problems that threaten all of the players in each industry. Labour and management need to work together to solve common problems so that profits, wages, and working conditions can be maintained and improved.

Variety of approaches

One illustration of this new approach involves the human resource councils which have been created in a number of industry sectors. These councils, funded by government and the private sector, bring together representatives from business, union, educational and training institutions, and community groups. They have proven successful in identifying the number and type of workers likely to be needed in the future as well as the skills and training they will need.

A number of councils have developed industry action plans, training standards, and apprenticeship programs which have created entry-level jobs for young people leaving school as well as better opportunities for workers already employed to upgrade their skills and reduce their vulnerability to layoffs. While such approaches are promising, they are nevertheless just one part of the solution, especially given the dramatic transformation of the workplace which is changing the nature of work and our understanding of what it is to have a job.

Take, for instance, the dramatic growth of self-employment—a source of profound ambivalence for government since it is hard to regulate, control, and tax. While some government initiatives aimed at self-employment have been negative—such as the Finance Minister's announcement that Revenue Canada will hire hundreds of new auditors to review the tax returns of unincorporated, self-employed Canadians—others have been more positive and have recognized the job creation potential of this trend.

One example is the federal government's highly innovative Self-Employment Assistance Program (SEA), which helps unemployed workers qualifying for Employment Insurance (EI) start new businesses while they continue to collect benefits. The program provides a mix of counselling, mentoring, and training, resulting in a higher new business survival rate.

Participants put together a business plan outlining the business they want to start, why it will succeed, and the assistance they need from government. Once approved, both sides agree to an action plan which commits them to investing in the success of the project. For the government, this might mean training, advice, and counselling. For the worker, this might require an equity investment as a sign of good faith and commitment.

An evaluation done by the federal government in 1996 found the SEA program to be highly successful in promoting self-sufficiency. Only 7.2 per cent of participants went back to collecting benefits within a year, compared to 29.7 per cent for those not in the program. SEA participants were also significantly less likely to draw social assistance once they left the program, compared to those who had taken the traditional EI path. An added benefit was that each SEA business created an average 1.5 full-time jobs and 1.8 part-time jobs. Clearly, this new strategy is starting to pay off.

Looking to the future

Unfortunately, some potential threats to these promising developments loom, the most worrying being the results of the recent federal election. The close victory by the Liberals—and especially their huge losses in the Maritimes—could tempt them to return to traditional ways of attacking unemployment in an effort to win back lost seats in the next election.

Of course, such a change would not be new, for Canada's job creation efforts have traditionally been highly vulnerable to political change. For instance, since World War I, the prime responsibility for employment programs moved from the municipalities to the provinces to the federal government and now is reverting back to the provinces. And even within the federal government, responsibility has shifted among departments, seemingly a reflection of the political "flavour of the month."

Tactics have also varied enormously and have included such very different approaches as cost-sharing projects delivered by the provinces or municipalities; winter-works projects; direct job creation, "make work" projects designed to provide workers with the weeks needed to qualify for unemployment insurance; and, more recently, support for training and skills development.

However, while a change in job creation policies might not be new, it could nevertheless be very negative, for governments can create problems too—or at least perpetuate them.

For instance, when government programs create temporary jobs that pay more than permanent, private-sector jobs, they discourage workers from seeking permanent employment. And when programs dull the pain of change too effectively or for too long, they discourage workers and communities from making the changes needed to thrive in our new—and more-demanding—labour markets, thus hurting the very people they seek to help.

Another danger is that new, politically-motivated projects could drain money from current projects that address the long-term needs of unemployed workers. As well, pumping more money into traditional regional development schemes with little chance of success could distort already hard-pressed regional economies even more, thus reducing the chances of real job creation.

Redirecting government job creation efforts to short-term, politically-inspired projects would almost certainly require increased government spending, which would in turn hinder tax cuts—and so eliminate one of the potentially most effective job creation strategies.

Still, governments are elected to lead and this government is no exception. But which path it will choose remains to be seen.

Paul Malvern
Paul Malvern

Paul Malvern is an Ottawa-based consultant.


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