Notes for Cross Country Checkup

by Kevin Milligan

Background Notes for Cross Country Checkup
Kevin Milligan
UBC Vancouver School of Economics

March 2, 2014

I’m scheduled to be a guest on Cross Country Checkup with Rex Murphy at 2:30PST/5:30EST on Sunday March 2, 2014. The topic is “Does the middle-class need a better deal?”.

[Update: you can hear me with Rex at 1 hour 32 minutes, here.]

Here are my background notes, with references.

My basic argument summarizing most of this is laid out in an accessible way in this Maclean’s article.

Last week, there was an IRPP/CLSRN conference on this topic featuring a great depth of research. The slides and audio from that conference is here.

Q: What’s going on with middle class jobs?

* 30 year trend across industrialized countries: Hollowing out of job market; middle skill jobs have been shrinking. Technology is changing the job market irreversibly.
[Source:  See it in one graph hereGoos Manning Salomons AERPP 2009 or David Autor 2010 or Autor’s keynote to IRPP/CLSRN conference: slides video. Evidence on Canadian job polarization from Green and Sand.]

* Canada has been fortunate to have some factors pushing against those trends: increased participation of women and the oil boom.
[Source: for resource boom, see Fortin-Lemieux 2014. For women, see CANSIM 202-0101 graphed here on slide 4. ]

Q: What about middle class incomes?

* Median family incomes fell from 1980 to 1995, but grew from 1995 to 2011. The uptick is great news, but we have to understand what’s driving these trends.
[Source: See my Maclean’s article here, or see CANSIM numbers graphed here on slide 4.  Stephen Gordon provides an alternative view on Maclean’s here and here.]

* Male earnings on their own have been stagnating nationally. The national family income boost has been driven by women.

* Also, middle earners in oil boom provinces like Alberta and Newfoundland and Labrador have been doing very well. Ontario and BC have seen downright declines.
[Source CANSIM 202-0101, graphed here]

* Top incomes (those in the top 1% or top 0.1%) grew tremendously since the mid 1980s. They’ve given up some of those gains since 2008–time will tell if trend recovers after recession.
[Source: see CANSIM 204-0002 numbers graphed here on slide 6. 1982-2010 trends graphed here. Long-run Canadian trends are in Veall 2012. Global trends are in Atkinson, Piketty Saez 2010. Graph the global trends yourself using the Paris School of Economics Top Incomes Database.]

Q: Are the upward middle family income trends sustainable?

* Need to think about the next 25 years.

* Should we rely on Canadian women working more to drive us higher?

* Short of finding oil in Oshawa, we need to find solutions that work for all Canadians including the non-oil provinces.

* Need to think about ways to build an economy where prosperity is felt across the income distribution and across the country.

Q: What does the Statistics Canada wealth survey have to say about the middle class?
Statistics Canada release on 2012 wealth survey here.

* Overall net worth has grown–by 44.5% at the median from 2005 to 2012. This is not a bad thing. But not entirely a good thing either.

* Need to look underneath the headline–it is driven by real estate wealth.
[See my Maclean’s article here for expansion and sources for these arguments.]

* If people don’t cash out their real estate gains, this is just a paper gain for current homeowners.

* Not a sustainable source of societal wealth accumulation–next generation faces sky-high house prices. Great for today’s middle class, but how does this help tomorrow’s middle class?

Q: What are the policy solutions?

* This is driven by deep global trends; not going to reverse with a finger-snap.

* Must resist temptation to try to turn back the trade/technology clock to 1980. We still need growth; just would be better with growth that’s more broadly felt both across the income distribution and across the country.

* We know that over last 30 years the best protection has been education: vastly different trends for different education groups. On its own may not be enough, but this must be part of conversation.
[source: See Bourdarbat, Lemieux, Riddell 2010 for long-run returns to education, or Frenette 2014. Startling trends in US education returns from David Autor: graph, full slides. Some slides for a forthcoming paper by Foley and Green are here; they challenge notion that education alone will solve the problems. Beaudry Green and Sand 2013 suggest a ‘reversal’ in 2000, as higher skill workers moved down job ladder and crowded out lower skill workers. But Lindley and Machin 2013 find that in 2000s all the reversal did was slow the growth of the skill wage gap.]

* On the ‘top 1%’, best solutions are to ensure we have strong corporate governance so executive pay reflects performance. Also work hard to tighten tax loopholes so everyone pays their share.
[Source: I expand on these arguments in this presentation here. I make some tax system suggestions in Maclean’s here,]