Reassessing the OECD Jobs Strategy: Policy Lessons for Canada

1. Reassessing the OECD Jobs Strategy: Policy Lessons for Canada W. Craig Riddell University of British Columbia

2. My role • Critically examine “lesssons learned” from re-assessment • Assess recommended policy directions • Provide a Canadian perspective

3. Canada in the mid-1990s • Still recovering from severe recession of 1990-92 (“The great Canadian slump”) • Unemployment high and persistent • High rates of UI and SA receipt by historical standards • Appetite for major policy changes • macro: deficit reduction, infltation targeting • micro: income security reform (UI, SA) • OECD Jobs Strategy seemed very relevant

4. Canada in 2006 • Strong economic growth in late 1990s and since 2002 • Favourable macro environment: low inflation, budget surpluses • Unemployment lowest in 30 years • Employment and participation at record levels • Growing concern about labour shortages • OECD Jobs Strategy seems less relevant

5. Canada in 2006 • However, important challenges remain • Structural imbalances in world economy a concern to open economies like Canada • Resource boom and “Dutch disease” • significant rise in exchange rate • declining manufacturing sector • shift in regional location of economic activity • Thus regional labour market adjustment becoming a more prominent issue

6. Evolution of Canadian Policy • Several features of policy over past decade consistent with 1994 Jobs Strategy • Pursuit of macro stability: • adoption of inflation targeting • maintenance of low inflation environment • sound public finances, especially at federal level

7. Evolution of Canadian policy • Income Security reforms • greater emphasis on active policies, less on passive with 1996 UI/EI reforms (EI Part II) • however overall expenditure on ALMPs not increased • SA reforms in various provinces • more emphasis on policies to “make work pay” • Earnings supplementation for “working poor” (National Child Benefit)

8. Evolution of Canadian policy • Major gains in measured educational attainment • Substantial decline in high school dropout rate (though still relatively high ) • Strong growth in post-secondary education (but concern that quality of PSE has fallen)

9. Revised Jobs Strategy • Set appropriate macroeconomic policy • Remove impediments to labour market participation and job search • Tackle labour- and product-market impediments to labour demand • Facilitate development of labour force skills and competencies

10. Revised Jobs Strategy as a Blueprint • Arguably more difficult to provide blueprint today than in 1994 • Main reason is diversity of economic experience across OECD in past decade • Challenges facing countries like Canada very different than France or Germany • Thus individual countries likely to be selective in policy response

11. ALMPs and Revised Jobs Strategy: Some Issues • Addressing regional imbalances • Preventative vs “Repair shop” strategies • What is margin of impact? Margin between E and U, or between U and OLF? • Equity-efficiency tradeoffs • Building competencies: the importance of educational quality • Decentralised delivery by third-party providers

12. Addressing regional imbalances • Increasingly important issue in Canada • As indicated in OECD policy lessons document, not much progress in this area since 1994 • Regional extended benefits in EI program interferes with regional adjustment • Subsidies to seasonal employment also have this effect

13. Addressing regional imbalances • Long term effects can be substantial -- e.g. Maine vs New Brunswick (Kuhn & Riddell) • These features not altered by 1996 reforms • Devolution of responsibility for many ALMPs to provinces may also impede regional adjustment

14. When to Intervene : Preventative vs “Repair shop” Strategies • Traditional ALMPs based on “repair shop” model, but preventative strategies may be more effective • Argues for early intervention, identification of those likely to be at risk • Also relevant to investments in education: narrow vocational skills versus broader generic skills

15. Margin of Impact of ALMPs • Key lesson of rise in unemployment in Canada relative to US in 1980s & 1990s: due to change on margin between U and OLF, not between U and E • OECD reassessment largely focused on margin between E and U • However, evidence that 1994 Jobs Strategy influenced E less compelling than U • Success in reducing U without raising E can be due to “relabeling” of U

16. Equity - Efficiency Tradeoffs • Key lesson of recent research on returns to education: past interventions to raise schooling have often yielded above-average returns • Suggests that those who stop education relatively early do so because of high costs rather than low potential returns

17. Equity-Efficiency Tradeoffs • Consequence is that interventions to raise education (e.g. compulsory schooling laws) can serve both equity and efficiency goals • Past research on ALMPs suggest the reverse: impacts of interventions tend to be smallest among the most disadvantaged • Can equity-efficieny tradeoff be improved for ALMPs? • If not, choice of where to invest is difficult

18. Building Competencies: Role of Educational Quality • Arguably insufficient attention paid to quality of education in policy documents • Evident in Canadian debate over immigrant educational credentials • Importance of educational quality illustrated by Canadian experience of lack of progress in literacy skills over 1994-2003 period

19. Decentralised Delivery of ALMPs by Third-Party Providers • ALMPs through EBSMs delivered mainly by sub-contracting to third-party providers • Delivery may have benefits, but raises several issues • “Treatment” likely very heterogeneous • Alters LMI needs and strategies • Evaluation more difficult, results may not be generalizable