Monday, June 09, 2014

Liberals need to get in Touch with their inner Elizabeth Warren

Trudeau likes to point out that Medium wages have been stagnant for over 30 years now. This is just as true of Canada as it is of the US. However, Trudeau has failed to gain much traction for two reasons. One, the issue of fairness aside (productivity has gone up by nearly 47% since then), Trudeau never identifies why this is a pressing issue rather than an annoyance. After all, it would appear that the kids are alright. Your average worker is doing just as well as his 1980 counterpart. As a result, Trudeau’s remedies seem unconvincing and somewhat half baked. Local Liberals have fared no better. I recently attended a Liberal event in which the evening’s speaker, Kevin Evans, channeled Mr. Kijiji Jason Kenny and outlined the skills gap that he contended currently plagues Canada. The only problem is there is no evidence whatsoever that a skills gap exists. This was pointed out recently by Don Drummond and by the Parliamentary Budget Officer. You can read the later’s report here. As for the government's job vacancy numbers,

"the growth in job postings was almost entirely due to a rise in postings on the classified site Kijiji. The site allows the same job to be posted in numerous sections, which inflated the job numbers." 

The second problem is that the vacancy rate is not the only bad numbers the government has been flaunting. By scrapping the mandatory long form census and replacing it with the voluntary National Household Survey, the Conservatives have effectively cooked the books. According to census data, between 1980 and 2005 median income jumped a mere $53. However according to the most recent census in mere 5 years it jumped an impressive $6464 -- in midst of the Great Recession no less. To say this is a wildly improbable finding would be an understatement. Canada was not the one Western nation to see massive increases in the median wage when most nations were at best holding steady. Something else was afoot.

 “Brian Murphy, special advisor with Statistics Canada’s income division, cautioned not to read too much into the large jump in income from 2005. “It’s a brand new survey,” he said. “I’d be looking for these long-term trends in other data sources. It’s really important for income statistics to hold the methodology constant.” 

A note attached to the new survey warns people of the change.

 “When comparing income indicators from one source to another, users should be aware that the methodology of how the information was collected, the concepts used and response patterns can affect the comparability of income information. Given the sensitivity of most income indicators to such methodological differences, users should use caution when comparing income estimates from the NHS to other household income surveys, administrative data or 2006 or earlier censuses." 

 Still people will naturally enough want to compare the new data with the odd thinking they are making an apples to apples comparison. The Liberals need to do a far better job explaining that they are actually making an apples to oranges comparison. They could start by pointing out the huge uptake in the non response rate between 2006 and 2011. The non-response rate for the 2006 long form census was 6%. This compares to a 20% non response rate in Vancouver and Montreal and a 25% non response rate in Toronto for the NHS.

To add insult to injury, the Conservatives almost always talk about family median income instead of about median income. This matters a lot. For one, the number of women entering the workforce has risen steadily over the last couple of decades and with that household income has also risen even has median income has remained the same. There are more two income households than ever before. For another, Canadians are getting married ever later in life and as a result many more Canadian couples are into their peak earning years by the time they decide to tie the knot. This has impacted the numbers. For these and other reasons the Liberals bring the discussion back to median income.

That said, in order to really make hay, the Liberals at both a local level (nominations are coming up) and federal level need to switch from talking about the need to increase wages per say to talking about the need to reduce fixed costs for families. For it is fixed costs that are jacking up private debt levels and putting the Canadian economy at risk. Child care is one driver. In Vancouver it is $1200 a month. But most important of all is housing. In Vancouver the average home listing on MLS in 2000 was around $300,000. A decade later it was over $800,000. A modest increase in the median wage and or modest tax cuts are not going to do the trick. As RBC pointed out,

"A typical Vancouver-area home buyers would need to allocate 92% of their income to carry the costs of a two-storey home".

Liberals also needs to bring the soaring costs of post secondary education into the equation. In Ontario, for example, average fees, in current dollars, have increased from $1,464 in 1990-91 to $6,348 in 2012-13. They can do this by pointing out how the ever increasing student debt levels, coupled with sky high cost of housing will ultimately worsen the coming demographic crush. Couples, especially those living in the Lowermainland, can not afford to have too many kids full stop. However, for those that can afford them, the point at which they can afford them is getting later and later in life. Indeed, more babies in Canada are born to women over 30 than under. Incidentally, the two provinces where women wait the longest to have kids, viz., Ontario and BC, also have the most expensive real estate. In 2010, 56.2% of Ontario babies were born to women over 30 and 55.7% of BC babies were born to women over 30. The Canadian average is 51.2. The longer couples wait to have kids the smaller their window for having kids


Anonymous said...

What's happening with the federal Liberal Party in North Vancouver? Any contacts? Meetings?

Anonymous said...

Great post Koby. It is rare to see actual analysis.

Koby said...

Thanks. I have been out of the loop since 2006 really. Dion and Ignatieff were not exactly inspiring candidates. The 2008 and 2011 campaigns were unmediated disasters. I can not think of single thing the Liberals did right. Justin is by no means perfect, but he is better than the aforementioned. I am curious to see what the Liberals will bring to the table in 2015.

Anonymous said...

Who the heck is Elizabeth Warren?

Anonymous said...

What, you don't follow the politics of other countries? Particularly our neighbour to the South? Here's a hint, she's a Senator from Massachusetts.

Anonymous said...

Oh, the Liberals are slaves to the US and the Democratic Party?

Anonymous said...

Is there or is there not a federal Liberal Party headquarters on the North Shore? Where are they and when is the next meeting?

We do have a Liberal Senator, Mobina Jaffer.

Don't hear too much from her.

Anonymous said...

The BC headquarters is downtown on Hornby. Contact them and I'm sure they can tell you everything you want to know. A quick Google search for Federal Liberal Party BC will take you to the site.

Koby said...

Before Warren was a Senator she was Law professor at Harvard, specializing in bankruptcy. In 2004 she coauthored a book called The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke. Warren argues that while income levels for all but the very rich have stagnated, fixed costs (e.g., housing, health care) are rising at rapid pace. As a result, for most American couples two incomes is a must and even then increasing numbers are just scraping by. This reliance on two incomes means that should one spouse seize to be in gainfully employed, then the whole family unit faces economic hardship or worse. It is no wonder then that the bankruptcy rate has skyrocketed. Since the late 1990s an American married couple with children is more likely to declare bankruptcy than to file for divorce. 90% of those filing for bankruptcy do so for 1 of 3 reasons, viz., an illness in the family, family breakup or job loss.

What is particularly interesting Warren’s book from a macroeconomic viewpoint is that she dispels the notion that Americans are spending ever more on discretionary items. Indeed, when compared to a 1970 family of 4 a the 2003 family of 4 spent

32% less on clothes

18% less on food and eating out

52% less on appliances

24% less on a car

Recently Atif Mian and Amir Sufi in House of Debt, analyzed US data on a county-by-county basis. Mian and Sufi show that the recession was caused by a collapse of household consumption, and that consumption fell most in those counties where pre-crisis borrowing and post-crisis real-estate prices left households facing the largest relative losses in net wealth.

Koby said...

“Oh, the Liberals are slaves to the US and the Democratic Party?”

The Liberals have started to borrow more from the Democrats than they did before. However, they have not slavishly borrowed, talking points say, the way the Conservatives have borrowed from the Republicans. For instance, if you read the 2000 Republican platform you come across the following. “Budget surpluses are the result of over-taxation of the American people.” Sure enough the Conservatives rolled out the same talking point during the 2005 2006 election. To wit:

Conservative candidate Cindy Silver: December 8 North Shore Outlook "Continuous federal surpluses are a sign, not of economic health, but of over-taxation.”

Chuck Strahl “Canadians know that the surplus comes from over taxation.”

Jay Hill “For Conservatives, a surplus is an error known as over-taxation”

Conservative candidate Mike Wallace. “Paul Martin has no credibility in fiscal matters - by overtaxing Canadians he has run massive budget surpluses year after year”

Conservative candidate Jim Flaherty: “The total federal surplus (over-taxation) was 63 billion during the last eight years.”

Anonymous said...

Two income families are driving up inflation, particularly in housing and education.

Anonymous said...

Budget surplus, unless applied to paying down debt (prior expenditure surplus) is over-taxation.