Income Assistance Programs and the Labour Market - Relevant Canadian Experiences & Worker Well Being Lars Osberg Economics Department, Dalhousie University Halifax, Nova Scotia

What’s “relevant” ? Why ? Income Assistance Programs intersection between social & labour market policy What is the objective ? Worker well-being ? What are the constraints ? Small, peripheral, seasonal labour market ? How do we conceptualize the process ? Voluntary unemployment or risk exposure ?

What defines “success” ? unemployment rate ? utilization rate of an input in the production process economists typically argue individuals derive utility from time spent not working hourly wages ? a price from which individuals derive no direct utility indirect indicators of something else potential consumption or insecurity ? Index of Labour Market Well-being

Dimensions of Worker Well Being ConceptPresent Representative Agent / “Typical Worker” Average Flow of Current Earnings Hourly Wage or “Constraint Adjusted” Average Earnings ? Issues: Market returns only, heterogeneity, stocks

Dimensions of Worker Well Being ConceptPresent Representative Agent / “Typical Worker” Average Flow of Current Earnings Diversity of Population Experiences Distribution of Earnings Social Welfare Function literature SWF = f ( ,  )

Dimensions of Worker Well Being ConceptPresentFuture Representative Agent / “Typical Worker” Average Flow of Effective Current Earnings Aggregate Accumulation of Human Capital Issues:Average Current Earnings does not reveal Human Capital acquisition in on-the-job training or schooling

Dimensions of Worker Well Being ConceptPresentFuture Representative Agent Average Flow of Effective Current Earnings Aggregate Accumulation of Human Capital Diversity of Population Experiences Distribution of Earnings Insecurity of Earnings

Dimensions of Economic Well Being ConceptPresentFuture Representative Agent Average Flow of Effective Current Consumption Aggregate Accumulation of Productive Stocks Diversity of Population Experiences Distribution of Current Income: - Poverty and Inequality Insecurity of Future Income

Well-Being ECONOMIC WELL-BEING=  1 [ CONSUMPTION ] +  2 [ TOTAL WEALTH ] +  3 [ DISTRIBUTION ] +  4 [ SECURITY ] DIFFERENT VALUES WILL IMPLY DIFFERENT WEIGHTS Useful to know whether (& how much) aggregate trend depends on weighting  = 0 is a (strong) value choice

Worker Well-being & Unemployment Insurance cuts What are the constraints ? Large urban labour market with chance of unemployment ? OR Small peripheral market with seasonal certainty? Compared to what ? Actual alternative was Social Assistance GAI offers greater work incentives

D C B E F 0 $ weeks non-labour time b 42 A 52

Compared to What ? Policy defects / advantages are always relative to some alternative Social Assistance or Guaranteed Annual Income – neither require work effort SA has high tax back rates GAI – work incentives via lower implicit tax rate But irrelevant if weeks work unavailable UI  private sector workfare in seasonal markets

B' 0 $ weeks non-labour time A' 52 C'

C B F 0 $ weeks non-labour time b 42 A 52 B' g G GG work weeks available

Canadian Experiences Undervalued currency will generate jobs Unemployment Insurance cuts have very different implications in Urban labour markets – increased insecurity Small seasonal markets – reduced work incentives but less insecurity Objectives need clear specification + Caution required – before importation