7 Posts from December 2010Season's Greetings from Northern Economist
Dec 22, 2010 Posted By: Livio Di Matteo Tags: christmas, economics
Economics may be considered the dismal science but it can also provide fascinating insights during the season of joy. There are a number of interesting sites on the web linking Christmas and economics in a number of surprising ways. One of my favorites is the London School of Economics Choir's performance of Handel's Hallelujah Chorus. For the more literary minded, there are a number of discussions on Charles Dicken's A Christmas Carol as a comment on Victorian markets and economics. For a positive and uplifting discussion on how Scrooge responded to incentives, visit MV=PQ: A Resource for Economics Educators. For a discussion defending Scrooge's miserliness as a positive virtue, read Steve Landsberg's opinion piece In Praise of Misers. You might also find the actions of the Grinch Who Stole Christmas likened to a Pigovian Tax designed to correct an externality an amusing read in Art Carden's How Economics Saved Christmas. Finally, for those of you who are more materially minded, there is always the economic impact of Christmas. The U.S. Census Bureau has a number of numbers and facts on the holiday season (in 2004) in its Facts for Features section. These include the number of Christmas cards sent - 1.9 billion - and the value of retail sales by U.S. department stores in December - 31.9 billion dollars. I hope you find some of these links useful as you celebrate Christmas and the holiday season. Remember, economic analysis is the gift that keeps on giving. All the best for a Merry Christmas and Happy New Year from Northern Economist.
When Will They Bury Us?
Dec 20, 2010 Posted By: Livio Di Matteo Tags: china, economy, growth comparisons, india, north america, per capita gdp
Another View of Economic Growth Statistics
The robust economic growth of India and China combined with the sovereign debt crisis and the aftermath of the recent financial crisis and Great Recession has inevitably sparked fears that Western economies are about to be surpassed. However, recent economic growth needs to be placed in some statistical perspective. There is an International Macroeconomic Data set on the web for the period 1969-2010 put together by Dr. Mathew Shane at the United States Department of Agriculture Economic Research Service that calculates per capita GDP in inflation-adjusted U.S. dollars for regions and countries of the world. While this data is not adjusted for purchasing power parity to reflect cost differences, it nonetheless can be used to provide some interesting comparisons.
Figure 1 takes the year 1969 as the base year for each of the world’s major economic regions and then constructs an index for each region. What this does is show the growth of real per capita GDP. For example, based on a value in 1969 of 100, by 2010, North America’s real per capita index value is 203, which means that per capita output has doubled over the 40-year period. North America is outperformed by both Europe and Asia. From a starting value of 100 in 1969, Europe in 2010 reaches an index value of 214 while Asia reaches a value of 315. South America is also a fairly robust performer reaching an index value of 198 in 2010. The former Soviet Union, the Middle East, and the Carribean and Central American regions are definitely in the bottom half of performers. The poorest performer is Africa, which between 1969 and 2010 sees the index for real per capita output rise from 100 to 127 – a 27 percent increase in real per capita output over 40 years.
Figure 1
The results in Figure 1 are certainly in keeping with the recent views of the Asia-Pacific region as the place to watch. For Canadians, whose export sector has been dominated by the United States, the rapid income growth of China and India provides substantial opportunities for future export growth given the slow recovery of the U.S. economy, as does the European market. Canada’s international trade patterns are not set in stone and can change. In 1920, about 80 percent of Canada’s exports went to the UK whereas today about 80 percent goes to the United States. In another 100 years, it is not inconceivable that 80 percent of our trade could be with the economies of China and India.
However, we should not be so quick to write off our current trade partner. While our per capita income growth and that of the United States has paled in comparison to the Asia-Pacific region, the fact remains that the levels of per capita income in much of the world are still substantially below that of North America. For example, in 1969, the real per capita GDP of North America in 2005 U.S. dollars was $20,770 compared to $12,799 in Europe, $1,117 in Asia and Oceania and $944 in Africa. By 2010, real per capita GDP in North America had only doubled but was now $42,099 while real per capita GDP in the Asia-Pacific area which had tripled was still only $3,514 dollars – still a fraction of North American output.
This can be presented visually in another graph, which takes North American real per capita output in 1969 as the base value for all regions of the world. In Figure 2, both growth in per capita income as well as the levels of income can be compared and they show a somewhat different picture. As robust as the growth rates of per capita income are in other parts of the world relative to North America, North American output is still by far much higher. Over the period 1969 to 2010, real per capita output in North America grew at 1.7 percent annually while that of the Asia-Oceania region grew at 2.8 percent. If those growth rates are maintained, the real per capita income of Asia-Oceania will surpass that of North America somewhere around the year 2200. Of course, given the population differences and the growth rate difference, the total size of the Asia-Oceanic economy will surpass North America and Europe combined much sooner than that, but it is output per person that is the more decisive welfare measure. Moreover, over the course of decades, growth rates will not necessarily stay constant and changes in policies, technology shocks and a myriad of other unforeseen effects can also be expected to affect growth.
Figure 2
Police Numbers and Crime
Dec 17, 2010 Posted By: Livio Di Matteo Tags: crime, policing, statistics
Statistics Canada has just released its annual compilation of numbers for police personnel and expenditures (Police Resources in Canada, 2010) and reports that in 2010 there were 69,300 police officers in Canada, about a 3 percent increase from the year before. Police strength as measured by the rate of police officers per capita increased two percent to an average of 203 officers for every 100,000 population. As always, the numbers when examined by region and census metropolitan area show some interesting features which are enhanced this year by the inclusion of a Crime Severity Index alongside the police numbers. According to Statistics Canada, the police-reported Crime Severity Index measures changes in the severity of crime from year to year. Each type of offence is assigned a weight derived from actual sentences handed down by courts.
These numbers allow for a ranking of thirty-three Canadian Census Metropolitan areas by the numbers of police officers per capita, the severity of crime (a larger index means more crime) as well as a comparison of whether areas with more crime have more police officers. In other words, is the number of police officers per capita being demand driven?
In terms of police officers per 100,000 population, the numbers for 2010 range from a low of 107 for Kelowna to a high of 202 in Saint John (See Figure 1). At 190 officers per capita, Thunder Bay ranks third highest (just after Regina) while the other northern Ontario metropolis – Greater Sudbury – ranks 19th at 155 officers per capita.
Figure 1
In terms of the Crime Severity Index, the lowest value is for Guelph at a score of 59 while the highest is for Regina at a value of 144 (See Figure 2). The Thunder Bay CMA ranks 7th highest with a Crime Severity Index value of 110, while Greater Sudbury ranks 16th with a score of 81. It would appear that the proverbial Sudbury Saturday night is probably much tamer than in Thunder Bay.
Figure 2
Do CMAs with more crime have more police officers? The answer seems to be yes. The top ten cities in terms of Crime Severity have an average of 173 police officers per capita while those in the bottom 10 have an average of 153 officers per capita – a fairly substantial difference. Moreover, there is a pretty strong correlation - a positive linear trend - between crime severity and police officers per capita that suggests for every one point increase in crime severity, the number of officers per capita go up by about 0.39. (See Figure 3).
Figure 3
However, this relationship omits other factors that may be influencing the number of police officers per capita. For example, do cities with larger populations and more compact areas – that is, higher population densities - generate economies of scale in policing that lower costs and the number of officers per capita? Or, could there also be supply side factors at work? Does having more police officers mean that more crime is reported and apprehended thus resulting in higher crime severity statistics? What about the types of crimes being reported as well as the age distribution of population given that younger populations are generally associated with more crime. A more thorough analysis would need to control for population density and age distribution as well as other socio-economic factors such as income before more specific conclusions could be drawn.
Ontario's Employment Performance
Dec 12, 2010 Posted By: Livio Di Matteo Tags: economy, employment, ontario
The Regional Dimensions of Employment Growth in Ontario
Ontario’s economy has been in a rough patch given the recent recession and the associated job losses but overall Ontario’s economy over the last decade has nevertheless created about 890 thousand jobs – an increase in employment over the period 1999 to 2009 of nearly 16 percent. The period from 1999 to 2003 saw an increase of just over 10 percent while 2003 to 2009 saw an increase of just over 5 percent. However, as information from the Ontario government’s recent fall economic and fiscal statement reveals, this overall growth masks some interesting regional variations in performance. When one ranks Ontario’s employment growth across its eleven economic regions, as shown in the accompanying chart, one finds a definite set of winners and losers. The worst performers have been the Northwest region and the Stratford-Bruce Peninsula which saw employment declines over the period of -9.1 and -0.7 percent respectively. The Windsor-Sarnia and Northeastern regions are the next worst managing to eke out positive but anemic growth rates of 0.7 and 0.8 percent. The London area saw an increase of 6 percent in its employment level while Kingston-Pembroke witnessed a 6.6 percent increase. Muskoka-Kawartha comes next at 11.5 percent and then the Hamilton-Niagara Peninsula region at 13 percent. The Kitchener-Waterloo-Barrie region is the third best employment growth performer in the province at an 18.9 percent increase and then Ottawa at 19.7 percent. The winner? The GTA saw its employment grow by 22.4 percent and presently accounts for 47 percent of Ontario’s employment. Indeed, the top three regional employment performers together account for nearly 70 percent of jobs in Ontario.
When one looks at the variations in regional performance, it would appear that the closer you are to the Ottawa and Toronto urban areas, the better your employment performance has been over the last decade. The opportunities present in the larger and denser urban agglomerations appear to have large spillover benefits to geographically adjacent regions. This would appear to fly against the conventional wisdom that in the new economy it does not matter where you are as long as you can plug into the information highway. These numbers suggest that geography and proximity may still matter a lot.
THE 176 MILLION DOLLAR QUESTION
Dec 6, 2010 Posted By: Livio Di Matteo Tags: compensation, first nations, land settlement, resource rents
What Should Fort William First Nation Do With 176 Million Dollars?
The news that long-standing land claims relating to Fort William First Nation dating back to the 1850s are about to be resolved with an offer to settle the boundary claim from the Federal and Provincial governments is an important economic development. The proposal includes about 154 million dollars in financial compensation to be paid to the Fort William First Nation, along with the transfer to Canada of provincial Crown lands on two islands in Lake Superior — Flatland Island and Pie Island — to be set apart as a reserve. In addition, there is another 22 million dollar settlement with the Federal government – the Neebing claim – involving the sale of farmland in the mid-nineteenth century. All together, this entails financial compensation of 176 million dollars as well as the transfer of a substantial amount of land. The question is how can these new resources best be used for the benefit of Fort William First Nation (FWFN)?
No doubt there will be many proposals and suggestions for investments in infrastructure, community services and business proposals. For what its worth, here is a suggestion rooted in international experience with windfall oil profits. This financial compensation represents a lump sum financial transfer not much different from a chunk of royalties from natural resource rents. After all, this money is compensation for land – the natural resource base of Fort William First Nation. Quite a few jurisdictions around the worlds have established oil and resource funds that have invested these government revenues. These funds are designed to save a large share of energy wealth to create a permanent wealth increase that generates the income to sustain future government expenditures to plan for the day when the nonrenewable resource runs dry. Countries with such funds include the United Arab Emirates and Norway while Alberta in Canada has its own Heritage Fund.
My advice to FWFN would be to set up a trust for the 176 million dollars and invest it in good quality secure bonds and other fixed income securities and set up an investment board to spend only the income from the fund on economic development and infrastructure projects. In addition, not all of the income should be spent - a percentage should be ploughed back into the trust so that it can grow over time. In essence, you would be creating a permanent endowment that would provide economic security, funds for social investment and resources for economic development for FWFN in perpetuity. Even at 4 percent a year, such a fund could yield 7-8 million dollars a year for social investment, business development and infrastructure projects - an amount that is probably substantially more than the current resource envelope available for such matters.
Such a solution may not seem as exciting as spending the money on immediate projects or as entrepreneurial as setting up dynamic new businesses but it is probably a sounder and less risky stewardship approach. Given the plethora of competing proposals and information that will undoubtedly inundate FWFN, creating a trust at least for the short term would provide an opportunity to get the best possible advice and evaluate proposals with an eye towards the long term. Taking 5-10 years to develop a longer-term development and investment strategy while earnings millions of dollars a year that can be spent or invested would be a wise approach. It took well over a century to get the money. What not take a few more years to decide what to do with it?
Canadian Health Care Spending
Dec 2, 2010 Posted By: Livio Di Matteo Tags: canada, health spending, medicare, sustainability
Winnipeg Free Press - PRINT EDITION
All over map on medicare
By: Livio Di Matteo
Republished from the Winnipeg Free Press print edition December 2, 2010 A13
Total health-care spending in Canada between 1975 and 2010 rose from $12 to $192 billion and as a share of GDP went from seven to nearly 12 per cent.
More crucial is that the proportion of provincial government budgets devoted to health care rose dramatically, fuelling fears that health spending will overwhelm provincial budgets.
Whereas in 1975, the average provincial government's program spending budget devoted 26 per cent to health, today it is nearly 40 per cent.
To date, most public discussion of sustainability neglects the complexity of public health spending across expenditure categories and provinces.
First, the sustainability issue has no simple answer or resolution. Whether public health spending is sustainable or not depends on what health expenditure category you are discussing and in which province.
Second, spending more on health care per se does not mean there is a sustainability issue if, as a society, we have decided that is what we want to do. This means that there needs to be a debate over whether or not we want more public health-care spending and how we want to spend it.
Since 1975, the adjusted average annual growth rate for inflation has outstripped per capita GDP growth, provincial revenue growth and federal transfer growth.
Yet, when broken down by health expenditure categories, it turns out that growth in inflation, adjusted in terms of per-capita provincial government spending on hospitals and physicians, has matched GDP and provincial revenue growth. Other categories such as drugs, other institutions, capital and the all other health expenditure category (e.g. home care) have been growing at much faster rates.
Put another way, provincial government health spending on hospital and physician services -- the core of public medicare -- is quite sustainable. It is the expansion of provincial government spending in these other categories that is not.
Growth rates in per-capita provincial government health expenditures vary by province and expenditure category and over time have generated some substantial differences in spending across provinces.
Some provinces are spending considerably less per person than others. In 2010, per-capita provincial government health spending ranged from a high of $4,678 in Newfoundland to a low of $3,359 in Quebec with Manitoba third-highest at $4,216.
For hospitals, the highest is Newfoundland at $2,211 per person and the lowest Quebec at $1,265 with Manitoba fourth-highest at $1,749. For physicians, Ontario spends the most at $867 per person while British Columbia spends the least at $568 per person and Manitoba fourth at $768.
For drugs, the biggest spender per person is Quebec at $350, with British Columbia at $205 and Manitoba the next lowest at $236.
Why does Newfoundland spend 39 per cent per person more on health in general and 75 per cent more on hospitals than Quebec? Why does Ontario spend 68 per cent more per person on drugs and 53 per cent more on physicians than British Columbia? Why does Prince Edward Island spend $184 per person on administration for provincial government health spending while Saskatchewan is able to spend only $26 dollars -- 86 per cent less?
If there is a "public" health-care system, why is there such a divergence in per capita provincial government spending and why does the divergence appear to be growing, particularly in categories such as public health and all other health, drugs and hospitals?
If, as our constitution implies, being a Canadian citizen entitles you to reasonably comparable levels of public services at reasonably comparable levels of taxation, how do we account for these differences in health spending based on where one lives?
While there are demographic and environmental factors across the provinces that can account for some of these differences, it is obvious that the provinces also have some very different approaches to their health-care systems when it comes to providing and managing health care.
To say the entire public health system is unsustainable is clearly inaccurate, given that hospital and physician services -- about 56 per cent of provincial government health spending -- are sustainable by any reasonable definition and are more sustainable in some provinces than others.
Given the expansion of public health spending in areas outside the traditional core and the sustainability issues generated, we need to have an explicit debate regarding whether or not this is what we want.
Finally, before embarking on another traditional Canadian health-care reform debate and the inevitable provincial clamour for more federal funding, we need to have a serious discussion as to why some governments are able to spend substantially less on health than others and what we can learn from that.
Livio Di Matteo is a professor of economics at Lakehead University, Thunder Bay.
New Regional Graduate Retention Report Out
Dec 2, 2010 Posted By: Livio Di Matteo Tags: economy, graduate retention, northern ontario
GRADUATE RETENTION AND THE ECONOMY OF NORTHWESTERN ONTARIO
By Livio Di Matteo, Report Prepared for the North Superior Workforce Planning Board 2010
For a Full copy of this report, please visit the North Superior Workforce Planning Board at: http://www.nswpb.ca/. See the YouTube Video of the release.
Executive Summary
Knowing what we can do to foster post-secondary graduate retention and recruitment by determining the factors influencing decisions to stay within the region versus leaving after graduation is important for the economic future of Northwestern Ontario. The retention of graduates and their knowledge is crucial to fostering knowledge creation and knowledge economy jobs. The empirical evidence suggests that while there has been an increase in the output of post-secondary graduates in Thunder Bay and Northwestern Ontario, the labour force still has lower shares of these graduates than Ontario as a whole. This implies that there has not been as much retention of post-secondary graduates relative to the rest of Ontario.
The issue of graduate retention is complex as there are both demand and supply side factors involved. There is an absence of detailed information on the specific amount of graduate retention in the region as well as the way graduates and employers make their decisions. While the availability of jobs is a factor in the choice of graduates to remain within a region, the number of graduates produced by the region is also a factor. However, while employment availability is a necessary condition, it is not enough as attitudes of graduates, availability of information about opportunities, and owner-manager perceptions of graduates and their education are also factors. Indeed, along with the attitudes of recent graduates towards the region and its opportunities, there is also the attitude and perception of employers towards what they believe graduates can do for them. As well, experience in other parts of Canada suggests that incentive programs are invariably part of the picture when it comes to graduate retention. As part of a long-term effort to develop a graduate retention strategy, a number of recommendations are made. First, that alumni surveys currently in place at the region’s post-secondary institutions be further developed and expanded in order to obtain additional information on career paths and regional graduate retention. Second, in order to facilitate longer term tracking of graduates, a longitudinal graduate tracking database should be established for the region’s graduates. Third, surveys of employers need to be expanded in order to better determine their needs with respect to graduates from all post-secondary programs in the region. Fourth, given the rapid growth in First Nations population and its importance as a source of future graduates, attention should be given to additional data collection on First Nations graduate supply and career paths as well as strategies to boost post-secondary education in this demographic group. Fifth, the establishment of regional graduate retention incentive programs akin to those that have been established in other parts of Canada should be explored. Finally, given that there are some specific employment needs, effort in sector-specific graduate recruitment programs should be continued. Moreover, consideration should also be given to increasing the regional supply of graduates in any fields deemed deficient given the rapidly changing nature of the economy.
