Conference Board of Canada says Canada Needs More Investment to Utilize Skilled Work Force

Posted on August 9, 2012 by CICS Immigration Team

More investment into capital equipment like industrial robots is needed to boost productivity according to an Op-Ed by the Conference Board of Canada (KUKA Roboter GmbH, Bachmann)

A new Op-Ed by the Conference Board of Canada, a non-partisan Canadian economic think tank, makes the case that Canada’s tepid productivity growth over the last three decades is due to an insufficient expansion of physical capital.

The report lauds the quality of Canada’s labour force:

Canada can boast one of the top workforces in the world. Compared with many other developed countries, Canada has a very high proportion of college- and university-educated workers in the labour force. Only Finland surpassed Canada in the Conference Board’s How Canada Performs analysis in Education and Skills– our best showing across six socio-economic categories.

And argues that Canada’s workers, while well-educated and capable, have not been given the “machinery and equipment, technology, and infrastructure” needed to maximize their productivity.

It notes that the ratio of physical capital to human capital decreased dramatically from the mid 1980s onward, and this corresponded with a slow down in productivity growth -from 2.8 percent per year in the 1962 to 1984 period, to just 1.2 percent per year in the 1984 to 2010 period.

The report gives several reasons for the decrease in investment in physical capital:

A weakening Canadian dollar in the 1990s and early 2000s, which made foreign-made capital equipment more expensive for Canadian companies
The introduction of the capital tax, a tax on the value of a company’s taxable capital, in 1985
Trade barriers like tariffs between Canada and other countries
Insufficient investment in Canada’s public infrastructure
A weak venture capital market which has prevented a greater number of successful firms from being launched in Canada

The authors note that there have been improvements in all of these areas in recent years, with a stronger Canadian dollar since 2003, the elimination of the capital tax in 2006, large investments by the federal government into infrastructure projects since 1999, the elimination of tariffs on machinery and equipment in 2009, and recent inter-provincial agreements to reduce domestic trade barriers, like the TILMA between BC and Alberta.

They say these improvements have resulted in strong growth in capital investment since 2005, including a 25 percent increase in the last two years.

The report recommends more work to develop the venture capital market, improve advanced education, and reduce trade barriers, as well as increasing infrastructure investment, to enhance future productivity.

Canada’s Real Wage Growth Stagnant For Last 30 Years -Report

Posted on July 27, 2012 by CICS Immigration Team

Average hourly wages increased by only three dollars from 1981 to 2011 after adjusting for inflation

A report published last month as part of Statistics Canada’s Economic Insights series finds that average real wage rates increased by only 14 percent in Canada from 1981 to 2011.

According to the report, real hourly wages, meaning hourly wages after adjusting for inflation, increased from approximately $20.70 in 1981, to $23.70 in 2011, a $3 wage gain in 30 years. Median real hourly wage growth was even more meager, increasing by approximately $2, to $20.90, between 1981 and 2011 -a 10.6 percent increase over three decades.

Different rates of wage growth were observed in the earlier and latter halves of the last 30 years, with average real hourly wages rising by only 4 percent in the 17 year period from 1981 to 1998.

After deep spending cuts by the federal government in the mid-1990s, which brought total government spending levels down from 53 percent of GDP in 1992, to 43 percent of GDP in 1998, the rate accelerated, with wages increasing 10 percent in the 13 year period from 1998 to 2011.

Much of the developed world has experienced wage stagnation over the last four decades. Explanations for the slow down include:

the break-down of the Bretton-Woods system, which pegged the world’s currencies to gold, in 1971, and the subsequent increase in monetary inflation, resulting in nominal wage hikes not keeping up with inflation
globalization and corporate outsourcing to low wage countries
an ‘innovation saturation’ as economies mature
the entrance of women into the work force increasing the supply of labour
an increase in government spending levels diverting economic output from private sector investments

Nominal wages in Canada increased by 1.1 percent in 2011, substantially less than last year’s annual inflation rate of 3.2 percent.

Canadians Now Wealthier Than Americans, Mostly Due to Housing Prices

Posted on July 25, 2012 by CICS Immigration Team

Condo construction in Canada. The crash in the US housing market was the main cause of the average net worth of households in Canada surpassing the net worth of households in the US (Raysonho)

A report that first surfaced on Canada Day stating that Canada now has higher average household net worth than the US set the news media on both sides of the border buzzing. Advocates of robust government intervention in the economy pointed to this development as vindication of their faith in their economic ideology, while Republicans blamed the news on Obama’s term in office.

The real cause of the switch in household net worth standings is much more mundane: a drop in housing prices in the US. As the National Post’s Andrew Coyne notes, home prices declined by nearly one-third in the US from 2006, when the US was ahead in household net worth, to 2011, when the wealth comparison used in the report was done, while they remained steady in Canada, and this accounts for almost all of the drop in the average household net worth in the US relative to that in Canada. A commodity boom driving up the value of the Canadian dollar also helped Canada’s relative position.

The key policy decision in the US that caused the divergence in the wealth of American and Canadian households was the goal the American political establishment set in the early 2000s to purposefully encourage a boom in the housing market using the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and low interest rates from the Federal Reserve as the tools.

As far back as 2001, popular American pundit Paul Krugman, in classic Keynesian economic fashion, trumpeted the benefits a housing bubble could provide for the US economy and proposed the means of creating it:

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

The Federal Reserve obliged and sharply lowered interest rates and kept them there for the next three years.

The GSEs did their part and expanded their volume of purchases of privately issued mortgage backed securities from $20 billion in 2000 to over $150 billion at the height of the housing bubble, in 2006.

In contrast, the Canada Mortgage and Housing Corporation (CMHC), a crown corporation which has a role somewhat similar to that of the GSEs in the US, remained conservative in the type of mortgages it insured, while the Bank of Canada kept its overnight lending rate a full two percentage points higher than the Fed’s, and consequently, no bubble formed in Canada’s housing market.

Whether the US economy would have been spared a housing bubble in the absence of the expansion of GSE subsidies and lowering of the Fed’s lending rate is a matter of much scholarly debate. At the very least, the decision by the American political establishment and Federal Reserve authorities to expand government mortgage subsidies and keep interest rates low for three years, respectively, did nothing to prevent a bubble from forming, and made the one that did form worse than it otherwise would have been.

The real story that emerges in Canada overtaking the US in average household net worth is the superiority of a more prudent approach to economic intervention that emphasizes sustainable economic development over one that focuses on boosting GDP in the short term at any price.

Financial Post Addresses Growing Income Disparity Between Recent Immigrants and Other Canadians

Posted on July 24, 2012 by CICS Immigration Team

1880 poster inviting people to immigrate to Canada. The income gap between recent immigrants and native born Canadians has grown from 20 percent in 1970 to 39 percent today.

The growing income gap between recent immigrants and longer-established Canadians received special news coverage today with a report in the Financial Post by the deputy chief economist of CIBC, Benjamin Tal.

The article describes the deteriorating position of newly arrived immigrants relative to native-born Canadians by comparing what it was in the 1970s to what it is today:

A male immigrant who arrived in Canada in the 1970s made about 80¢ on the dollar relative to a Canadian-born worker, and he was able to narrow the gap at a rate of roughly 1¢ per year. Today, despite the fact two-thirds of newcomers have post-secondary education, their earnings have dropped to close to 60¢ on the dollar and the gap is narrowing at a much slower pace. Nearly half of the individuals who immigrated to Canada between 2001 and 2006 are overqualified for the jobs they occupy.

Tal places a large economic price on the growing income gap, estimating it deprives Canada of $20 billion in earnings a year, and argues that the Canadian economy will need to do better at harnessing the economic potential of its immigrants if it is to make up for the decreasing ratio of Canadian workers to retirees as Canada’s population ages.

The editorial counsels against expanding immigration programs designed to meet Canada’s short term labour market needs by allowing lower skilled workers to become permanent residents, arguing that lower-skilled workers are less able to adapt to changing labour market conditions. It points out that even in the comparatively long-term-focused Federal Skilled Worker Program, one third of the preferred occupations are construction-industry related, and that a slowdown in the housing market could leave immigrants in these vocations lacking the qualifications to work in Canada.

Tal recommends that to address the income gap, the Canadian government should borrow from Australian immigration policy, which manages to keep income disparity between its immigrant and native-born workers at 50 percent the level seen in Canada, and raise language proficiency requirements for immigration.

This is not the first time an economist for a large Canadian bank has recommended increasing the language bar for immigrants. A report by TD chief economist Craig Alexander in February proposed increasing official language proficiency requirements for immigration applicants along with expanding the role of provincial nominee programs in selecting immigrants in order to reduce the income and employment gap between immigrants and native-born Canadians.

TD Bank Says it is Looking to Reverse Closure of Some Iranian-Canadians’ Accounts

Posted on July 19, 2012 by CICS Immigration Team

TD Bank is looking to smooth over relations with the Iranian-Canadian community after it closed dozens of Iranian-Canadians' bank accounts. (Matthew G. Bisanz)

After a maelstrom of criticism for closing the bank accounts of dozens of Canadians of Iranian descent, in some cases with little to no explanation, TD Bank announced this week that it is looking to address the complaints and handle its enforcement of financial sanctions against Iran more delicately.

In an interview on Monday, a spokesman for TD Bank, Mohammed Nakhooda, said the bank realizes that the closure of the accounts had been “distressing and disruptive” and that it was looking to improve the way it communicates with its customers about the issue.

The Canadian financial institution said it would try to reach out to those affected and explain the cause of their account closure, and put in place a process whereby it would obtain more information from some affected clients to clarify their personal status and activities, and depending on the information obtained, re-open their accounts.

Letters sent up until recently, seen by media, from TD to customers to inform them of their account closing contained only a statement that the sanctions prohibit the bank from “providing any financial services to, or for the benefit of Iran, or any one in Iran” in the way of an explanation.

Iranian-Canadians Outraged as at least 100 Accounts Closed by TD Bank

Posted on July 13, 2012 by CICS Immigration Team

View of Tehran, Iran at night. Being a party to a financial transaction to or from family in Iran was enough to get the accounts of some TD Bank customers closed. (Babak Farrokh)

After a report last week by the Ottawa Citizen detailing the case of several Iranian-Canadians who had their bank accounts closed by TD Bank with little to no explanation, it has emerged that the scale of the closures is much larger than the initial report indicated.

At least one hundred Canadians of Iranian descent have come forward in the last week reporting that they have had their accounts closed by TD, in an attempt by the financial institution to enforce economic sanctions against Iran put in place by the Harper government last year.

The Canadian government has had targeted sanctions on individuals tied the Iranian government since 2007, but new broad-based sanctions, enacted in November 2011 under the Special Economic Sanctions Act (SEPA), created a prohibition against any financial transaction by a Canadian resident or institution with any account at a financial institution in Iran, subject to a few exceptions, including personal remittances of values less than forty thousand dollars.

It has been left to each Canadian financial institution to interpret and decide how to comply with the new sanctions, and TD Bank has stated in letters to customers whose accounts it has closed that it believes the sanctions prohibit it from “providing any financial services to, or for the benefit of Iran, or any one in Iran”.

Many in the Iranian-Canadian community are furious about the closures. One affected TD customer, Pooya Sadeghi, created a Facebook page, Condemn TD Bank in their Treatment of clients with Iranian Background, after TD closed an account he shared with his wife and her parents.

On the Facebook page, a commenter, Nilofar Shidmehr, expressed her fear that Canadians of Iranian descent could be targeted by ethnic laws like those that affected Japanese-Canadians during World War 2:

We should do everything to stop this asap. Imagine what happens if there will be a war and the Canadian government sends us to an internment, like they sent Japanese-Canadians to. Is anyone knows some human rights organization which can help? I think this case can be considered as human rights abuse.

There was also blame put on the Harper government for the sanctions. “TD Bank is small potatoes. The real problem is Harper and his thugs in government who are behind all this,” commented Poyan Nahrvar.

In an interview with CICS News, Kaveh Shahrooz, a lawyer and vice-president of the Iranian Canadian Congress, and a harsh critic of the Iranian government, denounced the sanctions’ indiscriminate effect. “The Iranian government is a brutal regime that has killed many people in Iran, and to the extent that sanctions can prevent their agents from operating, we have no problem with that, but they need to differentiate between ordinary Iranians and regime agents.”

In regards to TD’s closure of customer accounts, Mr. Shahrooz said: “we believe [the sanctions] are being over-zealously applied.” The ICC is set to meet TD executives in about 10 days, at which point Mr. Shahrooz says they hope that TD will agree to put in place a process whereby the people affected can be told why their accounts were closed.

Canadians 2nd Most Optimistic About Economy After Brazilians in New Poll

Posted on July 6, 2012 by CICS Immigration Team

A view of Rio de Janeiro, Brazil's largest city. Brazilians were on average the most optimistic about their country's economy outlook of the nationalities polled in a recent survey of 13 countries (Ramon)

The results of a new poll commissioned by the International Trade Union Confederation show Canadians behind only Brazilians as the most optimistic citizens of any of the thirteen countries included in the poll.

The poll covered the adult populations of Canada, Brazil, United States, Mexico, France, Germany, Greece, Indonesia, South Africa, Bulgaria, Japan, Belgium, and the United Kingdom, and interviewed 1,000 respondents in each country.

It found Greeks and Japanese the most pessimistic and second most pessimistic. The last place showing for Greece and Japan is unsurprising given Greece’s recent economic crisis, and Japan’s two decade long economic stagnation, mounting national debt, and the widespread destruction caused by the 2011 earthquake, including continuing problems with radiation leakage from the Fukushima Dai-ichi nuclear plant.

The majority of people in all but two of the countries said they believe their country is headed in the wrong direction. In the US, only 35 percent were optimistic about the direction their country was headed, far lower than the 61 percent of Canadians who said the same. Among Brazilians, 69 percent of respondents said they were optimistic about the direction their country is headed.

Canadian Monthly Economic Growth Accelerates to 0.3% on Oil Output Increase

Posted on June 29, 2012 by CICS Immigration Team

Canadian economic growth accelerated in April on the back of an increase in oil and gas extraction

Canadian economic growth rose to 0.3 percent in April, from 0.1 percent in March, due mostly to an increase in oil and gas output and support activities for the industry, according to a report released by Statistics Canada today.

The gross value of mining, oil and gas extraction increased 2.7 percent in April after maintenance-linked slowdowns in production in February and March.

The Canadian dollar rose 1.3 percent against the US dollar on the economic growth data and news of an agreement reached by EU leaders to provide more bailout money to the troubled banks and governments of Spain and Italy and to create a euro-wide supervisory body for European banks.

Commodity-export reliant countries in particular, like Australia and Canada, are expected to benefit in the short term from the easing of concerns of an EU meltdown.

Inflation Drops to 1.2% in May, Reducing Likelihood of Rate Hike

Posted on June 22, 2012 by CICS Immigration Team

The decline in inflation in May is bullish for short-term housing prices. Housing prices in Canada's major cities have increased significantly over the last five years, which anecdotal evidence suggests is partly due to greater investment in the market by foreign and immigrant investors.

Prices increased 1.2 percent in the 12 months leading up to May, a drop of 0.8 percent from the annual inflation rate in April, according to a report released by Statistics Canada today, a development that could keep interest rates low and help shore up housing prices in the near term.

The slowdown in inflation was due primarily to declines in natural gas and oil prices, smaller price increases for passenger vehicles, and a small decline in women’s clothing prices.

The inflation news could help boost short term housing prices, or forestall what some see as a coming correction in housing prices that are at bubble levels, as it reduces the likelihood that the Bank of Canada will increase interest rates.

The likely repercussions for the housing market are tempered by Finance Minister Jim Flaherty’s announcement yesterday that the federal government would tighten mortgage rules to reduce what his department sees as housing demand driven by speculation and funded by too much borrowing.

He said that the Canada Mortgage and Housing Corporation (CMHC), a government owned home mortgage guaranteer that insures 49 percent of Canadian home mortgages, would reduce the maximum term of mortgages it will insure from 30 years to 25 years and no longer insure mortgages for homes worth more than $1 million.

Vancouver Trails Toronto as Canada’s Most Expensive City, but Canada still Cheap on International Stage

Posted on June 21, 2012 by CICS Immigration Team

Tokyo overtook Luanda, Angola as the world's most expensive city this year

The latest annual Worldwide Cost of Living Survey by human resource firm Mercer places Toronto as Canada’s most expensive city, ahead of Vancouver, for the second year in a row. Both cities are relatively cheap by international standards though, placing 61st and 63rd most expensive in the world, respectively. Ottawa has the lowest cost of living of Canadian cities included in the survey, ranking 115th globally.

The world’s three most expensive cities, in descending order, are Tokyo Japan, Luanda Angola, and Osaka Japan. Brazilian cities saw a drop in their place in the rankings due to depreciation of the Brazilian currency, the real, while New Zealand’s Auckland and Wellington, and Australian cities like Sydney, climbed in the rankings as the New Zealand and Australian dollars appreciated.

Mercer says that Canada’s cost of living has been relatively stable over the past several years, with little change in the price of items like rent and food, which is an attractive national quality for multinational corporations looking to place employees abroad.