The article is part of a series running in the NY Times’ Business Section, aptly named the New Poor, which explores the distributional impacts of the recovery and asks who are the ones left behind as the US economy recovers from the Great Recession.

It got me thinking about recessions as times of more fundamental, structural change in the economy and the job market and not just periods of temporary slow-down after which things go right back to how they were before.

The economy and the job market are dynamic systems. Some industries decline while others grow in prominence. Certain skills become less useful while others are now sought in greater numbers. This process, known to economist as “creative destruction,” makes production more efficient and is undoubtedly beneficial for the economy as a whole, but it creates very clear winners and losers, leaving displaced workers with redundant skills almost entirely out of the benefits of economic growth.

Recessions speed up the process of creative destruction because lean times force firms to closely examine their business processes and lay off less efficient workers immediately while they may have waited for worker attrition to eliminate these jobs during a boom.

As a result, we end up with two different groups of unemployed workers: those who would be able to find a job using their skills relatively quickly, and those who will be unemployed for long time. Economists use the terms cyclical and structural unemployment to describe the causes of joblessness in these two cases – the economic cycles with their temporary slow-down of production cause cyclical unemployment, while changes in industry structure and valued skill sets cause structural unemployment.

The pace of technological change and international trade over the last 30 years have likely sped up the “creative destruction” processes as well. This may be why the recoveries after the 1980s and the 1990s recession were jobless. In fact, Armine Yalnizyan’s CCPA report on the Canadian recessions since the Great Depression shows that the labour market took considerably longer to return to pre-recession levels of full-time employment after the 1990s recession than from the 1980s recession (seven years vs four years, respectively). This does not bode well for the current recovery.

Why does it matter what’s happening in the labour market if the economy is growing? Because jobs are the major source of household income for the vast majority and they only get to enjoy the benefits of economic growth if growth translates to higher wages and more jobs. An economic recovery with slow job growth and stagnant wages is an economic recovery whose benefits are concentrated in the hands of the few. It’s not surprising that we’ve seen income inequality grow considerably in both the US and Canada over the past 30 years.

Data from the US cited in the New York Times article confirms that the long-term unemployed ranks are growing faster than during previous recessions.

the unemployment numbers show a notable split in the labor pool, with most unemployed workers finding jobs after a relatively short period of time, but a sizable chunk of the labor force unable to find new work even after months or years of searching. This group — comprising generally older workers — has pulled up the average length of time that a current worker has been unemployed to a record high of 33 weeks as of April. The percentage of unemployed people who have been looking for jobs for more than six months is at 45.9 percent, the highest in at least six decades.

I haven’t been able to find comparable figures for Canada yet, but it seems likely to see a similar trend here. As Erin Weir reports on the Progressive Economics Blog, there has been significant structural change in the labour market with manufacturing and other higher-paid industries shedding workers over the recession, while lower paid service industries accounting for the bulk of job gains.

If the purpose of economic growth is to improve quality of life for all people, then jobless recoveries call for an active policy response to deal with high levels of structural unemployment.

The problem is that our system of employment insurance is designed as a short-term income replacement for those who are expected to find new jobs relatively quickly and does not serve the needs of older, displaced workers very well. EI has some provisions for retraining, but these are not nearly comprehensive enough.

The need to green our economy provides a great opportunity for a large-scale training and re-skilling effort. We’ll need more workers to retrofit buildings to become energy-efficient, to build greener infrastructure, to design greener technologies. Why not take the opportunity to invest in training and education, creating opportunities for displaced workers in particular?

It’s hard for me to see friends struggle financially, so I’ve tried to encourage Emily to get a better job. Though she doesn’t have a degree, Emily is bright and a hard worker — she should be able to do better.

But Emily doesn’t want to get a better paying job. There is no point, she tells me, because she’s close to the cut off point of many of the government subsidies she relies on and if she made even $1,000 more per year, she’d lose so much in government benefits that her net income would end up lower.

She’s calculated that she needs to earn thousands of dollars more per year to compensate for the value of the lost benefits and she figures that she can’t get such a job without finishing her degree. Which she can’t afford because her low income doesn’t allow her to save up for school. But she can’t get a higher-paying job to help finance her education because if her income went up she’d lose her childcare subsidy, her housing subsidy and will have to start making payments on her student loans.

It seems like the system is stacked against her.

And she’s not the only one. Many low-income people find themselves in a similar position as the majority of government benefits are targeted to the lowest income categories and phased out quickly as soon as the family’s income gets above the bare minimum. A recently released CCPA brief addresses the problem of benefit “stacking” and presents some possible solutions. You can read more about it here.

It’s a classic case of unintended consequences: policy-makers start with the laudable goal of helping the most needy first and they try to avoid spending scarce resources on those who are able to pay for themselves, but in targeting benefits narrowly to the lowest income families they make it very difficult for people like Emily to break out of the low-wage cycle of economic insecurity. For those who need to obtain further post-secondary education or training to be able to move up, the system becomes a catch-22 when BC’s high tuition fees are taken into account.

Benefit stacking is a real problem in BC and it needs to be considered carefully in the design of all new low-income tax credits and other benefits. I haven’t run the numbers, but my guess is that the new low-income credits the government just introduced in the last budget (the HST credit and the new premium assistance) are only compounding the problem.

A recent report released by the OECD devotes an entire chapter to the question “Is Work the Best Antidote to Poverty?” OECD Employment Outlook: Tackling the Jobs Crisis looks at the impact of the global recession on labour markets and presents some very interesting observations on the problem of working poverty in industrialized countries. In the end, the researchers find that we need more than just job creation to deal with poverty:

Employment reduces considerably the poverty risk, but does not solve all problems. On average in the OECD area, 7% of individuals living in households with at least one worker are poor.

According to the same report, in Canada this number was 9%. Moreover, the data show that working poor account for close to 70% of all poor people in Canada, which is roughly the same as the OECD average.

Yes, in all countries people who do not work experience higher poverty rates than those who do (no surprises here), but it’s sobering to realize just how common working poverty is. This leads the researchers to conclude that

the working poor constitute an important target population for anti-poverty policy in most OECD countries.

What kind of anti-poverty policies may be necessary? Poverty is a complex social problem and country-specific factors need to be taken into account, but the report notes 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’s not doing very well. Previous OECD reports (such as last fall’s Growing Unequal? Income Distribution and Poverty in OECD Countries) have noted that social transfers in Canada have become less generous between the mid-1990s and the mid-2000s, so it should not surprise us that our poverty rates (including working poverty) have grown.

Another very interesting point made in the report is the call for increased training opportunities for those who have lost their jobs.

At the same time, OECD research suggests that it would be advisable to shift somewhat 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.

All in all, this report adds to the evidence that even a strong economy will not eliminate poverty on its own without a comprehensive, government-led poverty reduction plan.

Perhaps someone should send Gordon Campbell a copy.

In today’s Vancouver Sun, David Collyer of the Canadian Association of Petroleum Producers makes the case for expanding the industry based on some dubious facts. First there is this gem:

The industry has invested almost $30 billion dollars in British Columbia over the last eight years, resulting in 34,000 direct and indirect jobs.

According to BC Stats, the oil and gas industry contributed only 2,200 direct jobs to the provincial economy in 2008. In addition, there are perhaps the same amount of jobs in the various support services for oil and gas (it is hard to tell because there are 9,300 jobs listed but they are lumped in with support services for mining; the latter had 14,300 direct jobs, so if we take the same proportions for the support services as for direct jobs, we are looking at 1,000 to 2,000 jobs). Sum it up and you get maybe 4,000 jobs in oil and gas, or about 0.2% of total employment in the province.

Indirect jobs are trickier to assess as they include retail and service jobs unrelated to the industry but that would not be there if the income from oil and gas workers did not exist. But in general, input-output models put indirect jobs at one-for-one with direct jobs. So doubling the 4,000 above to 8,000 to account for indirect jobs, we have a generous estimate of the employment impact of the industry that is nowhere close to what is claimed by CAPP. At most, about half of one percent of BC employment has some roots in oil and gas exploration.

Here is another claim:

Emissions from [flaring and other fugitive sources associated with oil and gas extraction] accounted for between one and two per cent of B.C.’s GHG emissions, rather than the 13 per cent noted in the platform (according to statistics from the B.C. Oil and Gas Commission).

According to the most recent National Inventory Report on greenhouse gas emissions, fugitive emissions in BC accounted for 8.7% of BC’s emissions in 2007 (this lumps in coal mining, which historically contributes about one-tenth of the total). The estimate of 13% comes from my colleague Ben Parfitt, who drew on data from the BC Ministry of Energy, Mines and Petroleum Resources, and is an average over a decade (see this post). If there is a discrepancy in the data, it is whether the real percentage is 9% or 13%; neither number is close to the 1-2% claimed by CAPP and the Oil and Gas Commission.

That is not the end of the story, either. Fossil fuels burned to extract oil and gas are higher than that, another 11% of BC’s 2007 emissions. And none of this captures the emissions associated with end use by the consumer, whether in BC or in the US (emissions are counted where the fossil fuels are burned).

At the end of the day, the oil and gas industry contributes few jobs but causes a very large share of our total emissions. It is hard to imagine BC meeting its legislated target of a 33% reduction in greenhouse gas emissions by 2020 without some major action that hits oil and gas.

Late last week, the BC Poverty Reduction Committee released its analysis of the three main parties’ platforms with respect to the call. In summary, here’s where they have landed:

The BC Liberal Party does not commit to a poverty reduction plan with clear targets and timelines. The Premier has written, “the Province of British Columbia has made promising steps to address the challenges associated with poverty and we are working on additional measures to put together a comprehensive plan to continue moving forward.” The closest the Liberal platform comes to suggesting a real target is in the area of homelessness, in titling the one-page policy section on housing, “Ending homelessness with new solutions.” The section describes various initiatives to date (outlined below). But this goal of ending homelessness is not linked to clear timelines.

The BC New Democratic Party platform does commit to “Developing a poverty reduction plan with targets and timelines that build on our initiatives that will raise the minimum wage, support jobs and skills training, increase affordable housing, improve child protection and change income assistance.” This is good news. However, the NDP plan does not specify what the poverty reduction targets and timelines should be (presumably this would be determined after the election), nor does it say if such targets and timelines would be legislated (which is key to accountability). The NDP commitment with respect to homelessness is more concrete. Their plan commits to “Ending the crisis in homelessness in 5 years.”

The Green Party has included poverty reduction as a priority in their platform, British Columbia’s Green Book: “The Green Party understands that immediate action is needed to ensure every British Columbian has a meaningful opportunity to share in the wealth of this province.” The key goals of their plan include ensuring British Columbians can all meet their basic needs, and “reversing the trend towards greater disparity between rich and poor.” Additionally, in the area of housing and homelessness, the Green Party has committed to “safe and affordable homes” for everyone living in BC. As the Green Party is not contesting government, they have not costed out their policies.

A more detailed analysis of the party platforms/positions with respect to the poverty reduction call can be found here.

Premier Campbell’s stubborn refusal to commit to poverty reduction targets has been particularly disappointing. During the election campaign, Premier Campbell has repeatedly been asked by reporters and citizens if a re-elected Liberal government would bring in a comprehensive poverty reduction plan with targets and timelines. On each occasion, he has refused to say yes. Instead, the premier has replied that his goal is “to have the lowest unemployment rate that we can,” because “a job is the best social program.” It is correct that job creation is important to poverty reduction. But most poor British Columbians are already employed in the low wage workforce (where they face a minimum wage that hasn’t moved since 2001), and record low unemployment over the past few years has not changed the fact that BC has the highest poverty rate in Canada. So clearly, a focus on employment is insufficient.

During last Sunday’s TV leaders debate, Steve Kerstetter asked (in a recorded question) what new initiatives the leaders would take to reduce child poverty. Notably, in his response, the premier did not mention any new initiatives, but rather, simply talked about things the province has already done.

Once again, the premier selectively noted that BC’s child poverty rate has declined by 15% since 2003. Why 2003? Because that’s when BC’s child poverty rate peaked at 19%. What the premier neglects to mention is that the latest BC child poverty rate of 16% remains 2 percentage points higher than it was in 2001 (when it stood at 14%).

Here’s some background from the release:

Between February 2008 and February 2009, the increase in the number of beneficiaries in British Columbia was widespread. At the same time, the decrease in employment affected a large number of sectors, including manufacturing; construction; transportation and warehousing; retail trade; and forestry and logging.

In British Columbia, the number of beneficiaries almost tripled in Williams Lake, and it doubled further north in Quesnel. The number also roughly doubled in Kelowna, Cranbrook, Chilliwack, Powell River and Penticton. In Victoria the number of beneficiaries increased 88.8%, while in Vancouver, the 12,300 additional beneficiaries represented an increase of 75.3% in one year.

Premier Campbell spent much of the interview disputing the use of StatsCan’s low income cut-off as a legitimate measure of poverty. This is curious, given that the premier’s own BC Progress Board uses the LICO after-tax as one of its key social indicators.

He claimed the LICO fails to capture the government’s tax cuts, but the child poverty stat used by Mi-Jung Lee (16%) is the LICO after-tax. He claimed the LICO failed to capture the government’s elimination of MSP premiums for low-income people, yet BC is in fact the only province that charges individuals MSP premiums.

The fact is, BC has the highest overall poverty rate and child poverty rate in Canada regardless of what measure one chooses to use – the LICO pre-tax, the LICO after-tax, or the federal government’s Market Basket Measure (MBM). Indeed, the MBM (unlike the LICO) captures the actual costs of basic goods and services in a given community, and by this measure, BC has an even higher poverty rate.

Our premier’s reaction is in striking contrast to Premier Danny Williams. Not long ago, Newfoundland shared with BC the ignominious distinction of having the highest poverty rate in the country. But when presented with this reality, Premier Williams chose not to dispute the data, and instead embarked on an ambitious poverty reduction plan that is getting results. Despite the lower cost of living in Newfoundland, they now have a higher minimum wage than BC, higher welfare rates, and two years ago become the first province to index welfare rates to inflation (Nova Scotia has just announced it will do the same). And Newfoundland no longer shares top spot with BC in the poverty rankings.

Premier Campbell selectively notes that BC’s child poverty rate has declined by 15% since 2003. Why 2003? Because that’s when BC’s child poverty rate peaked at 19%. What the premier neglects to mention in that in 2001 the child poverty rate was 14%, two percentage points lower than it is today.

When Mi-Jung Lee asked the premier directly if BC should follow other provinces and bring in a poverty reduction plan with legislated targets and timelines (as BC has done for climate change), the premier replied that, “Our goal is to have the lowest unemployment rate that we can, which reduces poverty.” Unfortunately, while job growth is important, if we’ve learned one thing, it is that employment is no guarantee that a person escapes poverty (especially when the minimum wage has been frozen for eight years). Despite BC’s comparatively low unemployment rate, we have the highest rate of poverty in the country. Consider this: about 3.5% of British Columbians rely on social assistance, while the overall poverty rate is 13%. Similarly, a majority of poor children have at least one parent working full time in the paid labour force. The breadth of poverty in BC is a low-wage story.

The premier was right on one point: income is not the only thing that matters to the well-being of low-income families. Public services and programs also matter. Key among these would be universal child care (if we had it). And if BC followed the lead of Newfoundland and Quebec and made dental care part of the public health care system for all children, that would be a big boost too.

This publication basically asks where the income in various BC communities comes from. In many communities the resource sector is the number one employer, and this usually means forestry, though in a few it means extraction of minerals or oil and gas. No surprise there.

But what is really interesting is how much the public sector is a player (and here we are talking only about federal and provincial jobs as money that comes from outside the community). In almost every community the public sector employs a major share of the local population, typically accounting for between 20 and 30% of local income (with a low of 14% in Fort St John and a high of 50% in the central coast of Vancouver Island). This includes civil servants in federal and provincial ministries, but also teachers, doctors, nurses, social workers and so on. All totaled, the public sector is the number one source of income in many communities in BC, and in the major resource communities it is a close number two.

In addition to employment in the public sector, another major source of income for all BC communities is income transfer payments (federally this includes the GST credit, the Canada Child Tax Benefit, Old Age Security, Canada Pension Plan and Employment Insurance; provincially, Income Assistance). These range from 5 to 26% of income in BC communities, with an average in the high teens.

If you add both public sector jobs and income transfers together, the broader public sector is the number one source of income in all but three of the 63 communities listed in Table 2.1 (pages 8-9). Which is why the budget cuts delivered by the Liberals in their first mandate (between 2002 and 2004) hurt so much. True, all of those communities also pay taxes that flow out of the local economy, but as we pointed out in a CCPA study a few years ago, this dynamic was a net loss for the vast majority of BC communities outside Vancouver and Victoria because the “hinterland” gets back more public sector income than they pay in taxes.

The impact of those cuts has been masked by a boom in resource extraction and exports due to high commodity prices and due to accelerated cuts in response to the mountain pine beetle. It will be interesting to see an update of the economic dependency numbers after the next census, as this BC snapshot was taken at the top of a commodities boom that has now gone bust.

The lesson is that the public sector provides a major bulwark against bad economic times. Without all of those public sector jobs and transfer payments, the closure of a mill would lead many a community to turn into a ghost town. Some are now arguing that in the current economic crisis, the public sector needs to tighten its belt by downsizing operations, and jobs. But that would only worsen the pain, and lead to a longer and deeper slump. If anything we need more public sector income to be a stronger counterweight that sustains BC communities.

“I want you to think about one thing. Think about the opening ceremonies of the Games next Feb. 12th. There will be lots of government officials. I expect the prime minister will be there. I expect the mayor of Vancouver will be there. I expect the premier of British Columbia will be there. Visualize those opening ceremonies with Premier Carole James.”

This riff only makes sense in the context of a long-running refrain that NDP government can only play the economic blues. In the weeks to come, we will be reminded about the bad old days when the NDP were last in power. But now that we can roughly compare two terms of the NDP with two terms of the Liberals, we find that there is little truth to the smear that the NDP have the cooties.

The average rate of economic (real GDP) growth under the Liberals has been 3.1%, whereas the so-called “lost decade” under the NDP saw average growth that was only slightly lower, at 2.8 %. But if we add in estimates for 2008 and 2009 (using latest projections from the private sector, which are too rosy in my opinion, and better than what the government itself is projecting in the budget), the average growth rate under Liberal rule falls to 2.6%, LESS than under the NDP.

In terms of family incomes, average after-tax income in BC (constant dollars) was $46,340 in 1991. By 2001 it rose to $50,248, an increase of 8.4%. And by 2006 (last year for which we have data) it grew to $55,583, an increase of 10.6%. This masks some important differences in distribution, with average incomes further down the income distribution lower than they were in the early 1990s, while incomes up higher soared much more than average.

How about employment? During the “lost decade” of 1991 and 2001, BC employment grew by 344,100, an increase of 22%. Between 2001 and 2008, BC employment grew by 392,700, an increase of 20%. However, BC also just lost 35,000 jobs in January, and the prospects for rising unemployment in 2009 are severe. By the time the election occurs, it could well be the case that more jobs were created under the watch of the NDP than under the Liberals.

In terms of the unemployment rate, it was about 10% when the NDP came to power, and fell to 6.9% in May 2001. In the following boom years, the unemployment rate fell to record lows of around 4%, but at last glance (January) it was 6.1% and rising. By the time of the election I would not be surprised if the unemployment rate was higher than when the Liberals first came to power.

My point here is not a partisan one – the NDP were far from perfect in office; they benefited from immigration to BC in record numbers; but also got sideswiped by the Asian crisis of 1998-99. Rather, it is to remind people that BC’s economic fortunes generally swing on decisions made outside our borders. Politicians will inevitably try to take claim credit when times are good, and just as quickly will shift blame onto others when times get bad. The BC Liberals have rode as astonishing wave of luck by coming to power in 2001, just as BC’s real estate boom got underway in the cities, and just as exports surged and commodity prices soared, taking with them the rest of the province.

The Thone Speech may claim that all new jobs in BC have arisen due to tax cuts implemented in 2001 and 2002, but the reality is that BC benefited from: low interest rates as determined by the Bank of Canada that launched a housing boom; an extra $3 billion per year in transfers from the federal government; huge growth in export demand from the US and Asia. At best the government can claim that the downturn of 2001 and 2002 was softened by its deficit-financed tax cuts, although even there so much of the gains went to the top earners in the province that it was a weak stimulus.

That the housing and commodity booms are now over, and BC is in a recession that is getting worse each week, points to structural weaknesses in BC’s economy that were not cured with a tax cut. Alas, the Premier is once again getting bit in the backside by his own penchant for populism, as BC’s fixed election date guarantees two and a half more months of bad economic news in the press in the lead-up to the next election. Given the choice, most politicians would have held a snap election last fall when plausible denial about the state of the economy was still possible (our Prime Minister even broke with his own fixed election date for this very reason).

But since that was not the call, expect a rugged and ugly election season, with a lot of finger-pointing and name-calling. That is a shame because now more than ever British Columbians need a real democratic debate about where the province is headed.

BC’s Credit Union Central has published its take titled “The Bandage Budget” (read here) and it is raising some questions about assumptions being presented.

On the size of the possible deficit:

• The projected deficit in 2009/10 is small in absolute ($495 million) and relative (0.25% of GDP) terms, however, there is a higher than usual risk associated with revenue projections during a recession.
• Based on our own economic forecasts, a deficit of $1 to $1.5 billion or 0.6% of GDP in 2009/10 is the more likely outcome due to revenue shortfalls.

On employment and housing projections:

• January 2009 employment is estimated at 2,267.6 thousand persons…compared to 2009 annual average of 2,303 forecast in the budget. The latest housing starts are equally well below the budget forecast.

On financial contingencies in the budget:

• The buffer in Budget 2009 is among the smallest in recent years and is especially small when situated in the weakest economy in many years.

On future revenues:

• Revenues in 2009/10 is not likely to be realized, particularly in the personal income, social services and property transfer taxes.

If the Credit Union economists are right in their forecasts, can we expect to see a second, more realistic budget within a few months of the May election? And should we start looking for words to rhyme with budget?

Investments will be made in new and refurbished housing. We will expand supportive housing to combat homelessness and to shelter those with mental illness.

That new housing will be supported by a new integrated, personalized homelessness intervention strategy and a new community safety strategy.

Could it be that now, one year prior to hosting the Winter Olympics, the government had finally come up with a meaningful strategy to address homelessness?

I wasn’t the only one to notice. This promise made the headline of today’s article reporting on BC’s Throne Speech in the Globe: Homelessness takes centre stage in Throne Speech.

Imagine my disappointment, then, when I opened my paper copy of the 2009 Budget and Fiscal Update and found out that there was no new money to match the Throne Speech rhetoric. The only dollars attached to homelessness in particular are $30 million in 2008/09 “to acquire and renovate rental properties including 4 single room occupancy (SRO) hotels in Vancouver and 4 hotels/motels throughout British Columbia.” (p. 26).

That’s it? This amount would be woefully inadequate to meet current needs, let alone any potential increases in homelessness that may result from the economic crisis. Not to mention that these money were already announced late last year!

Instead, we are told that “Budget 2009 maintains previous funding commitments to implement new and expanded measures to help break the cycle of homelessness and support low income seniors and families.” Last I checked, previous funding commitments do not count as new investments.

To be fair, there is a line item called “Other spending” in Table 1.16 (Capital Spending) which, we are told, includes BC Housing Management Commission, Provincial Rental Housing Corporation and other service delivery agencies. It amounts to $125 million in 2008/09 and another $110 million over the next three years. Even if this all went to new social housing, and it likely does not, it would hardly solve the problem.

At the same time, the Budget doesn’t seem to include increased operating spending on housing or homelessness and the Ministry of Housing and Social Development is projected to shed 128 FTE positions in each of the next three years.

Without a funding commitment, the Throne Speech’s promise of tackling homelessness amounts to mere pre-election rhetoric. Don’t be fooled!