Canadian Manufacturing

Canada taking wrong approach to fighting unemployment during recessions: report

"Action plans" must be targeted to benefit only certain regions of country at certain times



CALGARY—National strategies like the recent Economic Action Plan are not the best answer for combating job losses caused by recession, according to a new report from The School of Public Policy at the University of Calgary.

“A nationally applied policy response will be appropriate for some regions of the country but inappropriate for others; it will be too weak a response in some areas while being too strong in others; and it will be applied too late in some regions and too soon in others,” authors Professor Ron Kneebone and Margarita Gres wrote in Trends, Peaks, and Troughs: National and Regional Employment Cycles in Canada.

The authors analyzed monthly data on labour market conditions dating back to 1976 and found that the timing and depth of employment recessions varied widely across provinces.

The authors claim this suggests that in order for “action plans” and tax cuts to be effective, they must be targeted to benefit only certain regions of the country at certain times.

They also question whether the time it takes to formulate such targeted responses, and the obvious political challenges they involve, makes it even possible to design a national strategy that takes into account the varying economic conditions of a country with such a wide variety of industries and economic conditions.

As an example, Kneebone and Gres point to New Brunswick, where the job market was only mildly affected by the most recent recession.

They argue that federal spending there would have been at best, unnecessary or, at worst, harmful, crowding out private investment while having an inflationary effect on the regional economy.

In Alberta, Ontario and British Columbia, on the other hand, job markets were much more seriously affected for a much longer period of time.

Instead of trying to predict how much of a fiscal stimulus is required in each province, the authors recommend reliance on what they call “automatic stabilizers.”

These would include pre-established mechanisms like employment insurance, social assistance and prescribed tax adjustments.

“Before the next recession comes, the federal government—and provincial governments as well—would be wiser to prepare by investing resources in legislating well-designed automatic stabilizers so these processes are in place to naturally kick in precisely where and when they are needed,” they wrote.

“With the right formula of automatic stabilizers responding quickly and precisely to economic contractions, the main job left for politicians would be persuading the public that resorting to action plans and national strategies is something we are better off avoiding.”

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