Media get it wrong on Bank of Canada minimum wage study

Over a million workers in Ontario just got a big raise thanks to tireless, bottom-up orgainizing, but if you look to the media it’s a bad news story. The same, tired headlines are back. Yesterday, the CBC ran a story titled, “Minimum wage hikes could cost Canada’s economy 60,000 jobs by 2019”. Today, the Toronto Star’s front page blared, “Wage hike could cost 60,000 jobs, Bank of Canada says”.

Reading either of these headlines or the stories that follow, you could be forgiven for not knowing that the cited Bank of Canada research note had a positive conclusion about the effect of minimum wage increases on workers. A major claim of the Bank’s note is that, for workers, the benefits of increasing the minimum wage outweigh the costs in terms of labour income. First of all, the Bank is not predicting 60,000 pink slips but merely a slowdown in continued job growth. The 60,000 figure is a national, annual one and represents just 0.3% of total employment. Monthly job growth has at times exceeded this number.

More importantly, the Bank found that the costs of projected (remember these are still only projections) lower employment are outweighed by the benefits from higher economy-wide wage income stemming directly from the minimum wage increase. The authors write, “On net, however, real labour income should be higher following the implementation of these measures relative to otherwise. This is because the 0.7 per cent increase in the level of aggregate real wages more than offsets the 0.3 per cent decrease in total hours worked.” (more…)

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Elites debate boosting the economy, but for whom?

Elites and the talking heads in the media are arguing about how to respond to Canada’s soured economic outlook. Who should try to boost the economy, the federal government via fiscal stimulus or the Bank of Canada via monetary policy? But while elites argue amongst themselves, the overriding context is a transfer and concentration of economic power upwards. This, not $10 billion here or 0.25% there, is what hamstrings any policy response going to the benefit of the many.

First, some context. Yesterday’s report from the Bank of Canada describing the state of the economy did not make for happy reading. While there is no crash, no panic and no crisis, the picture isn’t particularly rosy. The kind of generalized malaise and stagnation that has affected much of the globe since the last crisis—and that our resource boom staved off—seems to be hitting home. The Bank revised downwards its projections for both growth and inflation, and has a history of being overoptimistic. (more…)

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Myths of central banking

The Bank of Canada has been in the news lately – or, more precisely, the news has been full of other well-placed people telling our central bankers what to do. In an interview on CTV this past weekend, Jim Flaherty made comments (later retracted) that Canada’s central bank will be pressured to raise interest rates sooner rather than later. On Tuesday, the influential, pro-business Conference Board of Canada also came out with some advice. A Globe and Mail editorial written its chief economist suggested, somewhat surprisingly, that the Bank should target a higher level of inflation, up to 4% from the current 2%.

Predictably, these pronouncements, especially Flaherty’s, spawned a chorus of criticism from conservative commentators. They lambasted the Minister of Finance for potentially undermining the central bank’s independence. Such attacks from the right were to be expected; however, even the NDP chimed in, calling the Minister’s comments “inappropriate”.

One reason for such universal criticism of any perceived meddling in central bank matters is that central banks are some of the most mythologized institutions of contemporary capitalism. They are often the subject of pious reverence on the part of media, politicians and economists. There is broad consensus that central banks should be independent and target low inflation (which, for many economies in the North has meant about 2%). This is why it was particularly odd to hear conservative voices question both of these assumptions: Flaherty, independence, and the Conference Board, low inflation.

In reality, however, both of these assumptions should be open to discussion and questioning. First, take the central bank’s independence. While we have many institutions that should be at arms-length from the government, these are largely bodies that hold government accountable and ensure that it is correctly carrying out its mandate – whether in terms of environmental protection, child welfare or accounting principles. The central bank is, however, not this kind of institution. (more…)

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