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

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

Canada in the mid-1990s Still recovering from severe recession of (“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

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

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

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

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)

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)

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

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

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

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

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

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

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

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

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

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 period

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