Reduce Employment Insurance so people will move where the work is, says C.D. Howe Institute

The slow recovery is here to stay and the solutions won't be popular, says think tank

Canadian policymakers can poke and tweak financial levers all they want, but slow economic growth is here to stay according to the C.D. Howe Institute.

Monetary policy can’t stimulate growth any further, so the country’s economic authorities need to accept the status quo and work to manage the fallout from sluggish economic recovery, according to the think-tank. What Now? Addressing the Burden of Canada’s Slow-Growth Recovery suggests the consequences of slow growth aren’t spread evenly:

Chart showing Canadian GDP Growth and GDP Growth Per Capita

Canada largely avoided the worst of the post-recession fallout, and the federal government believes it has the country on track to create jobs and crater unemployment rates. But using a single metric to gauge our financial fortunes is simplistic, argues Mike Moffat:

But to properly analyze the health of the labour market, we need to control for demographic, population size, nature of work and social changes. Simply citing the unemployment rate or the number of people with a job is not enough. But by controlling for these factors, we see that the Canadian labour market is not particularly strong.

READ: The closer you look, the weaker Canada’s job market appears »

It’s the un- and under-employed that are hit worst by a stagnant economy. The Institute proposes a few ways to manage the problems associated with low growth, including the creation of a supplement to Employment Insurance to tide job-seekers through their unemployment, as well as more focus on training initiatives. The most potentially-controversial call is for the reduction of EI itself, to boost workers’ willingness to move in search of work:

Reducing seasonal workers’ EI access would also improve labour-mobility incentives, although this is obviously a highly charged political issue. However, if the government were to simultaneously introduce some form of temporary unemployment assistance, such EI restrictions might become more feasible politically.

READ: Employment Insurance: who’s getting more for less »

At least one economic heavyweight has wised up already—Bank of Canada governor Stephen Poloz acknowledged recently that slow growth is here to stay. C.D. Howe has called for the Harper government to run a small deficit to create jobs, but federal Finance Minister Joe Oliver appears set on balancing the books.

Of course, for more people to move into the ranks of the employed, companies have to be willing to hire them. And the perception that significant growth is off the table isn’t going to help incentivize investing in hiring and production.

Elected representatives of all stripes will continue to stridently claim that their quick-fix schemes and economic master-plans can jump-start economic growth. But if the C.D. Howe Institute is to be believed, the best we can hope for is a well-managed stagnation.

READ: 2014 will be great—if gun-shy Canadian businesses can conquer their fear »