inequality, education & skills...inequality, education and skills 2 td economics, august 2014...

Inequality, Education and Skills 1 TD Economics, August 2014

Craig Alexander

Senior Vice President and Chief Economist

August 2014

INEQUALITY, EDUCATION &

SKILLS

INEQUALITY ON THE RISE


MIDDLE SKILL JOBS HAVE BEEN UNDER PRESSURE

-15

-10

-5

0

5

10

15

20

High Skill Medium Skill Low Skill

Canada United States

* Canada's data encompasses 1999-2012, whereas U.S. data cover 1999-2009.

Source: TD Economics, Statistics Canada, BLS, David Autor (MIT)

% Change in Occupation Share Since 1999

LESS PRESSURE ON CDN MIDDLE CLASS DUE TO CONSTRUCTION AND RESOURCE BOOM


THE INFLUENCE OF EDUCATION AND SKILLS

"The main force in favor of greater equality has been the diffusion of knowledge and skills"

"Knowledge and skill diffusion is the key to overall productivity growth as well as the reduction of inequality both within and between countries"

Thomas Piketty

WHERE TO INVEST? START WITH CHILDREN


THE FIRST 5 YEARS OF LIFE CAN IMPACT ECONOMIC AND SOCIAL SUCCESS

Research has challenged prior misconceptions. Human abilities driven more by environment (80%) than genetics (20%)

Basic abilities can be altered early in life as genes respond to life experiences

It is more difficult to improve a child’s learning abilities later in life

Pre-primary education leads to cognitive and language development

Increases labour participation of parents

Reduces stress on parents

MANY STUDIES SHOW THE BENEFITS OUTWEIGH THE COSTS

Study Benefit / Cost ($)

Economic Consequences of Quebec's Educational Child Care Policy,

by Fortin, Godbout & St-Cerny, 20111.49

Better Beginnings, Better Futures

by Peters et al., 20102.00

Worforce Shortages Socio-Economic Effects,

by Fairholm, 20092.42

Child Care as Economic and Social Development,

by Prentice, 20072.78

The Benefits and Costs of Good Child Care,

by Cleveland & Krashinsky, 19982.00

STUDIES OF COST-BENEFIT ANALYSIS OF ECE PROGRAMS

Source: Early Years Study


SO HOW IS CANADA DOING? IT DEEPLY UNDERINVESTS IN ECE

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Can

ada

Aust

ralia

Italy

Ger

man

y

Net

herla

ndsUS

UK

Aust

ria

Hungar

y

France

Finla

nd

Norw

ay

Swed

en

Den

mar

k

Source: OECD

Public Expenditure on ECE services as % of GDP

CANADA IS LEAVING IT UP TO PARENTS, AND ENROLLMENT IS LOW


CANADA HAS HIGHEST PARTICIPATION IN POST-SECONDARY EDUCATION IN OECD

BUT WE HAVE LOTS OF GRADUATES THAT LACK ESSENTIAL SKILLS


MANY CANADIANS HAVE INADEQUATE LITERACY

SHARE OF POPULATION WITH BELOW DESIRED

LITERACY AND NUMERACY

48.5

54.7

0

10

20

30

40

50

60

70

Literacy Numeracy

Per cent of population

Source: The Programme for the International Assessment of Adult Competencies, 2012.

PROVINCIAL SCORES ON LITERACY

AVERAGE LITERACY SCORES BY PROVINCE

250

260

270

280

NL NB QC SK OECD CAN MB NS BC ON PEI AB

Average score



PROVINCIAL SCORES ON NUMERACY

AVERAGE NUMERACY SCORES BY PROVINCE

250

260

270

280

NL NB NS SK MB QC PEI CAN ON BC AB OECD

Average score


NO SIGNS OF IMPROVEMENT

CANADIAN LITERACY SCORES RELATIVE TO

OTHER INDUSTRIAL COUNTRIES

279280

273275

271273

250

255

260

265

270

275

280

285

290

1994 2003 2012

Canada OECD

Average score - all persons



DECLINING NUMERACY

NUMERACY PROFICIENCY

0

5

10

15

20

25

30

35

40

45

50

Level 1 or below Level 2 Level 3 Level 4/5

2012 2003

Per cent of population


HIGHER LITERACY RAISES INCOME

PERSONAL INCOME BY PROSE LITERACY

PROFICIENCY

$20,692

$29,001

$36,688

$42,239

0

10,000

20,000

30,000

40,000

50,000

Poor (Level 1) Weak (Level 2) Acceptable (Level 3) Strong (Level 4/5)

Dollars

Source: Statistics Canada


WEAK LITERACY IS CONTRIBUTING TO INCOME INEQUALITY

Australia

Austria

Canada

Czech RepublicDenmark

Estonia

Finland

GermanyIreland

ItalyJapanKorea

Netherlands

Norway

Poland

Slovak Republic

Spain

Sweden

United States

Flanders (Belgium)

England/N. Ireland

(UK)

0.2

0.22

0.24

0.26

0.28

0.3

0.32

0.34

0.36

0.38

0.4

1.4 1.45 1.5 1.55 1.6 1.65 1.7

High income inequal i ty

High ski l l s inequal i ty

Literacy skills inequality (9th/1st decile)

Income inequality (Gini coefficient)

Low income inequal i ty

Low ski l l s inequal i tyLow income inequal i ty

High ski l l s inequal i ty

High income inequal i ty

Low ski l l s inequal i ty

Ave

rage

Average

Source: Survey of Adult Skills (PIAAC) (2012), Table A6.16 (L) and OECD.Stat "Country statistical profiles"

EDUCATION HAS A HIGH RETURN ON INVESTMENT


LITTLE EVIDENCE OF BROAD-BASED LABOUR SHORTAGES…FOR NOW

0

1

2

3

4

5

6

Q2 2009 Q4 2009 Q2 2010 Q4 2010 Q2 2011 Q4 2011 Q2 2012 Q4 2012 Q2 2013

Skilled Trades (Weighted Average)

All Other Occupations (Weighted Average)

WV

Source: Statistics Canada, WANTED Analytics; Calculations by TD Economics.

Vacancy Rate, %

CONCERNS ABOUT SKILL MISMATCHES, LEADING TO POOR OUTCOMES FOR YOUTH

73% 74% 75% 76% 77% 78% 79% 80% 81% 82% 83% 84%

Humanities

Personal, protective & transportation

Education

Visual/performing arts & comm.

Health & related fields

Physical & life sciences & technologies

Social & behavioural sciences & law

Business, mgt and public admin.

Math, computer & info sciences

Architecture & engineering

Agriculture & natural resources

Note: Field of study based on highest level of education attainment.

Source: Statistics Canada.

Employment rate in 2011, %


HUMANITIES & EDUCATION HIGH IN TERMS OF GRADUATES, LOW IN TERMS OF EMPLOYMENT

0% 5% 10% 15% 20%

Mathematics & Statistics

Other/not known

Computing

Journalism & Information

Architecture & Building

Law

Services

Engineering & Engineering Trades

Veterinary & Health

Life & Physical Sciences

Education

Arts & Humanities

Social & Behavioural science

Business & Administration

Canada

% of graduates

Source: OECD Education Database, 2011.

200

400

600

800

1,000

1,200

1,400

1990 1993 1996 1999 2002 2005 2008

1993: $1,116 (Peak)

2010: $688

-38%

Source: Conference Board of Canada.

Training Cost per Employee, Constant 2010 $

EMPLOYERS WANT WORK READY EMPLOYEES, BUT THEY ARE NOT DOING THEIR PART


CANADA MORE RELIANT ON LABOUR

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11E 12E

U.S. Canada

Capital Investment per Worker, Canadian Dollars

Source: C.D. Howe Institute, 2007 and 2012

CANADA NEEDS TO UPSKILL ITS WORKFORCE TO ADDRESS WEAK PRODUCTIVITY PROBLEM

0

1

2

3

4

5

6

1950-59 1960-69 1970-79 1980-89 1990-99 2000-09 2010-12

Average Business Sector Productivity Growth Rate by Decade, %

Source: Statistics Canada (1981-2012), Centre for the Study of Living Standards (Pre-1981)


GLOBALIZATION AND TECH CHANGE WILL PERSIST, REQUIRING MORE SKILLED WORKERS

62

64

66

68

70

72

74

1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

6

8

10

12

14

16

18

Services (lhs)

Manufacturing (rhs)

Services Share of Canadian Real GDP, % Manufacturing Share of Canadian Real GDP, %

Source: Conference Board of Canada

DEMOGRAPHICS POINTS TO FUTURE LABOUR MARKET SHORTAGES

4

5

6

7

8

9

10

11

12

13

14

1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Unemployment Rate, %

Source: Statistics Canada/Haver Analytics; Long-Term Forecast by TD Economics

Long-Term Forecast


ECONOMIC ASSUMPTION HIGHER PRODUCTIVITY

LIFTS LABOUR INCOME HAS FAILED IN U.S.

…BUT IN CANADA MORE EVEN SPLIT BETWEEN CAPITAL AND LABOUR, SO WE NEED TO UPSKILL


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@CraigA_TD

inequality, education & skills...inequality, education and skills 2 td economics, august 2014...

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