Federal Finance Minister Jim FlahertyPawel Dwulit
Stephen Gordon is a professor of economics at Laval University in Quebec City and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE). He also maintains the economics blog Worthwhile Canadian Initiative.
"Jobs, jobs, jobs" was Brian Mulroney's winning slogan in the 1988 free trade election, and this theme continues to echo through our political discourse: recent examples include Ontario Premier Dalton McGuinty's claim that introducing the HST will create 600,000 jobs and Finance Minister Jim Flaherty's warning that reversing cuts to corporate taxes and the GST will cost 400,000 jobs. This emphasis is understandable: involuntary unemployment is one of the things people worry most about, so politicians find it useful to frame policy debates in terms of employment gains or losses. But as Nick Rowe notes, most economic policies - including all those mentioned above - are not about jobs, and looking at them through the prism of employment can give a distorted view of what is really at stake.
There are many important policy issues where jobs are of primary interest. Business cycle policy is one: how should monetary and fiscal policy levers be used to prevent or to exit recessions? Another is the array of programs that regulate the functioning of the labour market: employment insurance, collective bargaining, minimum wage laws, etc.
But outside of these areas, it is generally understood that most policies do not materially affect total employment. Wages and the type of work that is done may change, but the labour market will eventually adjust to the new policy environment so that total employment remains approximately the same as before.
Economic theory does predict that policies such as freer trade, lower corporate taxes and switching from sales taxes to value-added taxes such as the GST/HST will all increase the demand for labour. But in order to express this in terms of jobs, you have to assume that there is a pool of unemployed workers waiting to be hired, so that the increase manifests itself as higher employment and not higher wages. But these measures are for the long term: even if there were slack in the labour market, the recession would be long over by the time they took effect. Moreover, the evidence suggests that the change in the quantity of labour supplied would be small, and may even be negative. The best way to describe the increase in labour demand is in terms of the resulting long-term wage gains.
Similarly, policies aimed at protecting the environment will induce adjustments in the labour market: some sectors will expand and others will shrink, leaving total employment unaffected. Environmental policies shouldn't be judged by their ability to 'create green jobs': they should be evaluated by their ability to protect the environment.
Employment is an important thing to worry about. It may even be the most important thing. But it's not the only thing to consider when we discuss economic policy.