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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
Inequality, Education and Skills 2 TD Economics, August 2014
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
Inequality, Education and Skills 3 TD Economics, August 2014
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
Inequality, Education and Skills 4 TD Economics, August 2014
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
Inequality, Education and Skills 5 TD Economics, August 2014
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
Inequality, Education and Skills 6 TD Economics, August 2014
CANADA HAS HIGHEST PARTICIPATION IN POST-SECONDARY EDUCATION IN OECD
BUT WE HAVE LOTS OF GRADUATES THAT LACK ESSENTIAL SKILLS
Inequality, Education and Skills 7 TD Economics, August 2014
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
Source: The Programme for the International Assessment of Adult Competencies, 2012.
Inequality, Education and Skills 8 TD Economics, August 2014
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
Source: The Programme for the International Assessment of Adult Competencies, 2012.
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
Source: The Programme for the International Assessment of Adult Competencies, 2012.
Inequality, Education and Skills 9 TD Economics, August 2014
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
Source: The Programme for the International Assessment of Adult Competencies, 2012.
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
Inequality, Education and Skills 10 TD Economics, August 2014
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
Inequality, Education and Skills 11 TD Economics, August 2014
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, %
Inequality, Education and Skills 12 TD Economics, August 2014
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
Inequality, Education and Skills 13 TD Economics, August 2014
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)
Inequality, Education and Skills 14 TD Economics, August 2014
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
Inequality, Education and Skills 15 TD Economics, August 2014
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
Inequality, Education and Skills 16 TD Economics, August 2014
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