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November 13, 2017

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The immorally low pay of slaves, sharecroppers, prisoners, and members of a dead-end underclass can make people very "productive." People whiling away in school or staying home to raise children have no "productivity" at all. Preventive health care is also anti-productive, as it lets people save their money or work less rather than scrambling for low-wage jobs and burning their income on medicine.

Of course these cases give the lie to the whole idea of productivity, because raising healthy children, learning things and letting people develop a bit of personal wealth are the whole point of having an advanced civilization in the first place.

Is there any way to control for these three factors? (Lack of slavery/underclass in Canada, failure to measure domestic labor/education, better health care.) Because having gone back and forth between the two countries all my life, I assert that for an average non-rich person, life in Canada feels more privileged, relaxed, and successful than it does in the States.

The easiest thing to do is compare Canada with the Northeast or Upper Midwest. (The authors of the paper about 1871 are compare Ontario and Michigan; Vincent Goloso explicitly makes regional comparisons for his 18th-century analysis.) People forget that the Northeast scores at Scandinavian levels on most measures of well-being or educational attainment, despite being not-at-all-Scandinavian.

Note that productivity is measured by input of work-time, so the numbers are not dependent on leisure. For example, the U.S. only regained its TFP lead over Belgium and France around 2004; that's not because French workers put in more hours. The same applies to Canada. U.S. health care, meanwhile, is a productivity sink; it drags down the American number rather than push it up.

Canadian median incomes only recently caught up with American ones. (And there is still a little wiggle room in the numbers, so the lead is not -- yet? -- clear.) I'll have a little more to say about this when I get around to polishing up the next post. But at the risk of giving away one of the punchlines, individual wages in Canada show disappointing trends not terribly unlike the United States: see http://www.csls.ca/reports/csls2016-15.pdf.

I suspect that some portion of the US regression to Canadian median wages is due to anti-trust action. From 1950-1976, monopolies were less common in most US sectors than in Canada. Over the last couple generations the US has caught up to Canada in terms of uncompetitive sectors. Canada had the excuse of protectionism and small market size but non-competitive markets was a policy choice in the US.

If Canadian median wages are equivalent to US median wages while TFP is significantly lower that suggests capital gets less of a return in Canada than in the US. Is that the case currently? It certainly wasn't the case historically.

Canada has a higher female labor force participation rate than the US. There are several ways that could statistically influence median incomes if it is collated by household (more dual income families, fewer unemployed single mothers).

Hmmm...could linguistic barriers (French/English) be a factor in addition to the fact that historically inter-provincial barriers to trade in Canada were greater than inter-state barriers to trade in the US?

They wouldn't explain income differences before the American Revolution, when there were no Anglophones in the Great Lakes basin and settlement in the Maritimes was a patchwork linked to New England.

It might explain some divergences now, Québec being poorer on per capita measures than Ontario and most provinces west and a less significant source of migrants to richer provinces than income disparities would suggest. But then, it's not that much poorer, and by at least some metrics that has been convergence as productivity has increased, in keeping with post-Quiet Revolution urbanization and investment in human capital.

My understanding, as a non-economist, is that the big internal division in Canada is not between the two major linguistic communities, but rather between an oil-rich Alberta that has American levels of income and the rest of Canada.

Dear Noel (if I may),

I would disagree with many elements of your post while also being in agreement. I say this because the argument is axiomatically true. As such, its probably true. I would question its "amplitude". I say this because Ontario and Western Canada are actually equal or richer than the United States (historically closer - see Altman 2003 in AEHR). The laggards are the Atlantic Provinces and Quebec. There I think free trade matters, but it woudnt explain why provinces like Quebec were 75% as rich as Ontario while Prince Edward Island was 40% as rich (1920s). Without them, Canada looks much richer. Given free trade within Canada, I doubt that free trade is sufficient to explain te gap driven by five provinces account for less than 30% of Canada's population. I think protectionism fits well to the Atlantic provinces being poor. But Quebec is the big chunk. Why? I think this is where language acts as a barrier on mobility and thus, with limited mobility, fewer constraints on politicians (i.e. More captive taxpayers). As such, I think the history is largely institutional outside of protectionism. I would point to the historic role of seigneurial tenure in Quebec as a deterrent to industrialization.

Best

Vincent Geloso

Forgive me for asking a silly and obvious question, but has anyone considered the effect of longer Canadian winters and worse weather? Supply chain interruptions, etc., etc.

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