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Op-ed: The report is bad, not the economy

April 12, 2016 — 

The following is an op-ed written by Fletcher Baragar, an associate professor and associate head in the department of economics at the U of M. It was originally published in the Winnipeg Free Press on April 12, 2016.

 

The Manitoba Employers Council (MEC) recently released a damning report on the Manitoba economy. Fortunately for the province, it is the report — not the economy — that deserves the failing grade.

Deploying a selective set of economic indicators, the report compares Manitoba’s economic performance not to that of the other nine provinces, nor even to the national average, but to a select group of four — a group that not coincidentally contains the four wealthiest provinces and four of the six largest.

With this realignment, Manitoba moves from its accustomed mid-level placing in the national rankings to the bottom of this handpicked group. A Free Press editorial (Can Manitoba do better?, April 5) then claimed the report “shows Manitoba failing in almost every key economic indicator.” A strong claim but not an accurate one. And certainly not a sufficient foundation to support the MEC’s call for smaller government and lower taxes.

Assessing economic performance, admittedly, is not straightforward. Different indicators highlight different aspects and different outcomes. Statistics require interpretation and attention to context. The MEC report has 25 indicators but not all warrant equal weight. GDP growth rates, GDP per capita, and unemployment rates are widely used, conventional macroeconomic indicators. They would certainly be considered “key.”

Manitoba does well by these measures. As noted in the report, GDP growth in Manitoba over the last decade (2005-14) was 26.6 per cent, second only to Alberta.

For GDP per capita, Manitoba was ranked fifth out of five (behind Alberta, Saskatchewan, B.C. and Ontario). However, Manitoba ranked first in the growth of GDP per capita over the last decade, thereby significantly reducing the disparity between it and the other provinces. It is not clear why MEC chairman William Gardner (Manitoba prosperity: We’re not there yet, April 5) characterized this growth as “lacklustre.”

The MEC report uses economic statistics up to 2014. Macroeconomic forecasters have GDP growth figures for 2015 and 2016. Their consensus has Manitoba GDP growth second among the provinces in 2015, and third-best for 2016.

Overall, these GDP numbers indicate economic success — past, present, and future — not a failure.

The employment numbers are equally encouraging. Unemployment rates are not explicitly mentioned in either the editorial or by Gardner but the MEC report acknowledges Manitoba’s unemployment rate has consistently been “respectable.” Since 2005, it has been either the second- or third-lowest in Canada.

Relative to the MEC comparison group, Manitoba is a low-wage, low-salary province. Weekly earnings for Manitoba, however, are on the rise.

Over the last decade, the rate of increase has exceeded that in B.C. and Ontario. In Saskatchewan and Alberta, earnings have grown even more quickly but those provinces have experienced resource-based boom economies for much of that decade, so surging earnings in those two provinces are hardly grounds for assigning Manitoba a failing grade. Furthermore, it is surprising a report from the MEC fails to consider whether or not the earnings differential actually offers a competitive advantage to Manitoba employers.

The emphasis given in the report to low earnings and selective tax rates presents Manitoba in a relatively unfavourable light. These indicators are marshalled to imply the presence of strong economic forces inducing out-migration of labour and capital, positive evidence on employment and GDP growth notwithstanding. The report neglects other components of the cost-of-living, such as housing, where Manitoba might have a real advantage.

The report’s comparison of various provincial tax rates fails to adjust for the role resource revenues play in the budgets of resource-rich provinces, especially Alberta and Saskatchewan. Manitoba must tap other revenue sources but that is an economic necessity, not a failing. The implications of tax cuts and reduced public expenditures for services and infrastructure, as well as for employment and growth, are not addressed. Calling for tax cuts and fiscal tightening while ignoring these factors constitutes a very partial, one-dimensional analysis.

Other economic indicators not considered in the report could easily reverse the rankings. An example could be carbon emissions, an item of growing importance and global significance. Another could be the economic costs associated with managing a roller-coaster, resource-driven economy, relative to the stability offered by a more diverse industrial structure. A third could be the after-tax distribution of income, as measured, for example, by provincial GINI coefficients.

For Manitoba, there are plenty of challenges ahead. Undoubtedly, there is room for improvement but a poor or failing grade constitutes a misdiagnosis.

 

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