'The Financial Post April 29, 1995 Focus on quality of jobs, not just the quantity WE HAVE CREATED A GREAT NUMBER OF JOBS IN THE LAST 20 YEARS, BUT WE HAVE ALSO BUILT UP THE HIGHEST PER CAPITA NET DEBT -- By John Meyer Jobs, jobs, jobs. Lots of them. That is what Canada has been creating over the past 20 years and at a faster rate than any other industrialized nation. Every successive government has trumpeted our job creation achievements over the past two decades. With that kind of record, the economy should be in great shape and the budget should be nicely "on side." Of course, one look outside the gross job statistics confirms that things aren't quite adding up that way. Slowly, the trumpeting about jobs has given way to alarm-bell ringing as another issue looms inexorably above the horizon. The deficit. That is now the main pre-occupation of government. But how was it possible to create jobs at the fastest rate in all industrialdom for a generation and build the highest per capita net debt at the same time? A debt so massive and a deficit so lopsided even modest reduction targets have drawn the doomsday commitment of "come hell or high water" through the pursed lips of Canada's finance minister. What kind of jobs have we been creating anyway? A job is a job isn't it? From the way we have directed the economy, that has clearly been the assumption. But from the way the economy has been running, maybe not. Maybe the quality of jobs has something to do with the reason job growth has not eliminated the growth of debt and in fact, has gone hand in hand with it. If job quality is related to the deficit, one doesn't have to look hard to see where a good deal of our current fiscal problems are coming from. The wage categories experiencing the greatest employment growth in this country over the past decade have been at the bottom of the wage scale. A good deal of the net job creation in Canada since 1981 has been in the wage categories which (assuming both income earners are in these categories) would place a family of four below the poverty line. Some wage categories pay their way tax-wise and some do not. We have been creating jobs on a mass level in the categories which are a net drain on the treasury. If this trend continues, it will make a balanced budget impossible. A few relevant statistics: From 1981 to 1990 the sub-$8/hr. (using 1981 constant dollars) accounted for 78% of Canada's job growth. All other job category shares declined except for $16/hr.-$23/hr. which went up .04%. The less-than-$8/hr. category draws more than 10% of its income from unemployment insurance, while the $20/hr. category draws only 1%. Eight-dollar-an-hour workers are more than three times more likely than the $20/hr. worker to draw UI and they remain out of work longer. There are a host of other social costs that kick in for unemployed and the low-income workers but UI is used in this comparison as a basic barometer. This comparison shows the relative instability of $8/hr. employment, not the willingness of people at that wage level to work. The percentage of the labor force earning less than $20,000 per year in 1981 was 46.8%. In 1990 it was 51%. If trends hold, the figure will be 65% in 2011. The only person who could balance a budget in the face of those numbers could also walk on water. Net income tax revenue (income tax less direct payments to individuals) in 1990 was 16% lower than it would have been had the 1981 wage structure not changed. In 1996, the revenue will be 25% lower. How bad will it get? Projecting to 2011 we see net income tax revenue per worker (in 1990 dollars) falling by 60% to $1,308 from the 1981 level of $3258. Projecting way out, by 2026, net income tax revenue actually goes negative, but we all know substantial changes will occur well before then. Aging has been fearfully described as a trend that will lead to massive deficits. In fact, it will be more a shift of spending than an unstoppable hemorrhage. The cheap labor trend, by comparison, has a net impact many times the magnitude of that of aging and it is all negative. Unless this trend is halted and reversed, deficits will continue to exist and even grow despite draconian cost-cutting measures. The simple fact is, if this labor force shift continues, a large percentage of the "untouchable" social programs we now have in place will cease to exist in any form. The current debate over how to "cut," "reduce" or "manage" the deficit has started to gel into the camps of the "surgeons" versus the "therapists." "Short-term pain for long-term gain" enthusiasts versus "the costs of unemployment are higher than you think" ameliorators. Neither position effectively deals with the fundamental structural decline of the labor force/social safety net dictated by our past and current cheap labor policies. If our goal is to provide a comprehensive range of social services and balance the budget (eventually) at the same time, the way we look at things is going to have to change. The size of the economy and its rate of growth are totally irrelevant to the size of our deficits in the long run. Deficits or surpluses are determined by the size and rate of growth in real per capita income vs the demand for social services. The type of jobs and the number of people seeking them are the best indicators of future deficits. If a few people are chasing well-paid jobs, we can look forward to a balanced budget. If a great many people are chasing low-paid jobs, deficits and program cuts are inevitable and will be ongoing. In a huge economy with 100 million minimum wage jobs, either the deficit will be enormous or the social safety net will be minimal. On the other hand, a small economy with five million $20-per- hour jobs could produce consistent surpluses and a very high level of social services. Canada has not invested in its people as our rate of productivity improvement and high-school drop-out rates so graphically display. We have been creating an army of working poor and calling it progress while gazing quizzically at our growing debt. However, we are not alone in creating a great many of the wrong jobs. The other big job-growth countries are Australia and the United States, both of which are in Canada's league when it comes to net external debt. The nations that have adopted a quality approach by creating more stable and more productive employment are, in fact, the ones with balanced budgets. The quality (as opposed to the quantity) method adds more net revenue to the coffers with lower support costs than the Canadian wholesale jobs approach. We will probably be able to reduce our deficit in times of economic expansion but it will never go away as long as the trend to cheap labor continues. We can only sprint a little bit ahead of waves of either shortfalls or program cuts when the times are good. When the economy slows down, we will experience progressively larger fiscal tensions as program costs swamp tax income. The trend to cheap labor is fundamentally undermining the government's attempts to balance costs and revenues. Now that the economy is starting to be examined as a complex working model instead of as a bonfire upon which we merely have to heap economic fuel, the gross mis-assumption and leaps of faith of the 1970s and 1980s are becoming frighteningly obvious. Let's have no more talk of massive job creation as a government target and a cure-all for what ails us. Let's see a clear national goal of highly productive and well paid employment for all Canadians or, in the not too distant future, we can all look forward to picking up our double by-pass kits from the nearest corner store.
