Labor Market Trends in North America – Has Economic Well-being improved ? Lars Osberg Department of Economics, Dalhousie University Halifax, Nova Scotia Andrew Sharpe Center for the Study of Living Standards Ottawa, Ontario Conference on “Labour in a Globalising World: The Challenge for Asia” City University of Hong Kong, Hong Kong, China, January 4-6, 2001

Recent Trends l Standard Indicators –GDP per capita up, more so in USA –Hourly wages up, but not much –Employment up, especially in USA l So What ? –What is the connection to Economic Well- being ? GDP excludes leisure, environment & more Wage = price of labour ; potential consumption? Unemployment = unused labour; insecurity ??

Questions l Has economic well being increased or decreased ? l How “productive” is economic growth for economic well-being? l What social policy changes are desirable?

Outline of Paper l Standard Indicator Trends –GDP per capita, Unemployment, Hourly Wages l Index of Economic Well Being –Consumption flows –Stocks of wealth –Distribution: inequality & poverty –Economic Insecurity l Compare trends in the index and its components to GDP per capita trends l What is the role of Social Policy ?

GDP per capita l GDP rigorously standardized across countries (SNA) l Strong Implicit assumptions when used as measure of economic well-being –aggregate share of income devoted to accumulation (including value of unpriced environmental assets) automatically optimal –poverty, inequality & economic insecurity do not matter –changes in leisure time, length of life, family size, costs of commuting, pollution & crime - all irrelevant l poor match to popular perceptions of trends in economic well-being

Unemployment & Employment l Canada & USA diverged in 1980s & 1990s –1980s: greater increase in labour force participation in Canada - employment growth was similar –1990s: anti inflation zealotry in Canada produced collapse in aggregate demand & deeper, longer recession l Decade ended with tightening labour markets in both countries

Trends in Wages l Rising Inequality in earnings l ; little change in real wages for median worker, but rapid rise at top l Canada / USA level comparisons – use PPP or exchange rate ?? –Living standards of production workers higher in Canada

l Presumably Economic & Social Policy aim at improving Economic Well-Being l Consumption & Leisure are enjoyable –But Employment & Unemployment refer to supply of Labour –Leisure is not counted in GDP l To know if policy is successful, should measure target variable But what does this have to do with Economic Well-Being ?

l ECONOMIC WELL-BEING= a 1 [ CONSUMPTION] + a 2 [TOTAL WEALTH] + a 3 [ DISTRIBUTION] + a 4 [INSECURITY] l DIFFERENT VALUES WILL IMPLY DIFFERENT WEIGHTS l Setting weight equal to Zero is a (strong) value choice

Model Consumption flows Stocks of wealth Economic equality Economic security Economic Well-Being

Average Consumption Flows $ l Marketed real consumption per capita –Adjustments underground economy value of increased longevity –health-adjusted life expectancy reduced economies of scale in household consumption regrettables and intermediate goods –increase in costs of commuting, crime, pollution abatement changes in working hours - leisure

Average Consumption Flows $ l Government services –provision of non-marketed or heavily subsidized services includes defense and capital consumption allowances –excludes debt service charges and transfer payments l Unpaid work

Wealth Stocks, Sustainability and Intergenerational Bequest $ l Physical capital stock l Research and development capital stock l Value of natural resource stocks –price + quantity change l Stocks of human capital cost education) l Net foreign indebtedness (-) l State of environment and national heritage (degradation -)

Distribution l Inequality –Gini coefficient After-tax & transfer household income Equivalence scale = l Poverty –Sen-Shorrocks-Thon measure Rate Average poverty gap ratio Intensity = rate x gap

“Economic Security” l Risk income loss due to unemployment –changes in employment rate x UI coverage x UI replacement rate l Risk of illness –medical expenses as share of disposable income l Risk of single parent poverty –poverty rate & gap for single women with children –divorce rate of legally married couples l Risk of poverty in old age –chance x depth of elderly poverty

Economic Security weights for 1997

Policy Implications ? l Much less gain in economic well-being than in real GDP per capita l Major reason has been growth in inequality & insecurity –Reducing Inequality & Insecurity has been the major objective of social programmes –de-emphasized in recent years l Social Policy Design should aim at increasing Well-Being