Apr 29, 2010

Job creation alone will not solve BC’s poverty problem


Whenever he’s confronted with questions about BC’s record high child poverty rates or by the growing income inequality in the province, our Premier maintains that the best social policy is a job. In fact, reducing the costs of doing business in BC seems to be this government’s chief economic strategy.

Consider the HST, for example, which the government famously described as “the most important thing we can do for the economy” because it lowers the costs of business investment by $1.9 billion per year. The government chose to tax consumers more in order to keep the shift revenue neutral instead of raising the lost revenue from other business taxes.

While corporate and small business tax rates are getting smaller by the year, the minimum wage has not budged since 2001 and is now the lowest in Canada.

The intuition behind this economic strategy is that lower business taxes and relaxed workers’ rights would make it easier for firms to reap higher profits, thus encouraging them to set up locally. This in turn should create jobs for the local population and bring about economic growth. Jobs and economic growth are expected to, well… lift all boats as the saying goes.

Unfortunately, the type of jobs created by business friendly measures are often not the stable, well-paying jobs that people need to be able to support themselves and their families. As a result, the economic growth that is generated tends to benefit a small minority. In BC, we’ve seen this clearly over the last 25 years, when economic growth was strong yet poverty remained largely unchanged and income inequality increased substantially.

A recent OECD report confirms that job creation is not the be all and end all of social and economic policy. The report, entitled OECD Employment Outlook: Tackling the Jobs Crisis, devotes an entire 45-page chapter to the question “Is work the best antidote to poverty?”

The OECD researchers show that while employment considerably reduces the risk of poverty, simply having a job is not a guaranteed path out of poverty. On average in the OECD, 7% of people living in households with at least one worker were poor. In Canada, this number was higher, 9%.

Working poverty is so widespread that it accounted for close to 70% of all poor people in Canada even during the economic boom of the mid-2000s (roughly the same as the OECD average).

This OECD report is just the latest confirmation of something that social policy researchers have known for a long time: even a robust economic recovery will not eliminate poverty and social exclusion without a comprehensive, government-led poverty reduction plan.

What kind of poverty reduction policies does the OECD recommend? The report acknowledges that poverty is a complex social problem and country-specific factors need to be taken into account, but it argues that “social transfers play a key role, precisely because they can be targeted towards the most vulnerable households: on average in the OECD area, they reduce by almost half the rate of in-work poverty.”

On this front, Canada can and should be doing a lot better. Other OECD reports, such as the 2007 Growing Unequal? Income Distribution and Poverty in OECD Countries, have documented that social transfers in Canada became less generous between the mid-1990s and the mid-2000s, so it should not come as a surprise that our poverty rates (including working poverty) have grown since. BC has been among the worst performers in the country on these measures.

It’s clear that job creation is an important goal, especially at the tail-end of a deep recession, but it should not be pursued single-mindedly, without concern for the workers’ economic security or their ability to earn enough to afford the basics like housing, child care, education and training upgrades.

The type of jobs created matters a lot, which is why the OECD calls for increased training opportunities for those who have lost their jobs as a result of the recession. They suggest shifting “the focus and resources behind activation from the “work-first” approach which tended to dominate prior to the crisis to a “train-first” approach for those at high risk of long-term unemployment.”

Indeed, access to education and training opportunities throughout the lifecycle can greatly improve a person’s employment options and ultimately boosts the productivity of the economy as a whole. Investments in training and education partially pay for themselves with the extra tax revenue collected from higher paid workers. Yet such investments are largely missing from BC government’s one-sided labour market approach.

Topics: , , ,