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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.

Tony: That's a good question. I'd be surprised if the effect was particularly large. The 1871 study, for example, compared manufacturing firms in Ontario and Michigan, which have pretty similar climates in their urbanized parts.

There is a bigger literature on productivity and climate, but its results generally run in the direction of hotter and wetter weather leading to less output per work-hour. I don't think it has much to say about the direct impact of snow, for example.

Things can run in weird directions, however. Consider that winters around D.C. are quite milder than in Boston. But D.C. is also resolutely unprepared for the bad days that do come, leading to more snow days and (I imagine) lost output.

That said, it's worth looking into, and there may be a literature of which I am unaware!

Hi, Vincent! Looking forward to seeing you in Philly.

My discussion above pulled a bit of a fast one. From 1871 onwards, we have productivity data. The 1871 data compare Ontario and Michigan, and are thus unaffected by low productivity in Quebec or the Maritimes. The post-1926 are national, but they're output-weighted.

Quebec produced about 30% of manufacturing value-add and about the same share of GDP in 1926. If low productivity in Quebec had been driving the national results, then you would have expected postwar Canada to converge on the U.S. as postwar Quebec converged on the rest of Canada. But you only see that pattern briefly in the late-1960s.

Provincial productivity data exist, so we could end the debate! But they're harder to find than you'd expect, at least in a form suitable for international comparisons. But let me state that I'll be gobsmacked if the 1926-67 and post-1982 productivity gaps turn out to be driven by Quebec. (And weknow that that the Maritimes are near irrelevant, given that the nat'l figures are output weighted.)

And the fast one? Well, before 1871 we have either GDP per capita estimates or direct measures of income. We don't have productivity. I assumed that income is more-or-less proportional to productivity before then. And that's normally a reasonable assumption, except for the fact ...

... that in the last ten years Canadian median incomes have passed American ones! And that despite a collapse in relative productivity. Me, I take this as a clear indication of the superiority of socialism ... nah, sorry, I'm poking you.

Me, I have no idea what's caused that, which won't stop me from wildly speculating in a post that I've already written but haven't yet pushed "publish" on. Meanwhile, if there's a hole in the above logic, please pile on!

Fun fact: output per worker in Quebec manufacturing fell from 82% of the national level in 1926 to 67% by 1959.

Ah, the period of _la grande noirceur._

https://en.wikipedia.org/wiki/Grande_Noirceur

Going by the metric of GDP (PPP) per capita, meanwhile, Michigan is still a bit less than 10% richer than Ontario. New York State, probably a better comparison in terms of history and climate, is 70% richer, but I think you really need to figure out a way to subtract New York City for like figures to be relevant. (Toronto is so not New York City. Maybe it is Queens? Maybe.)

Alberta is far and away the richest Canadian province, well ahead of not just British Columbia and Ontario but almost on par with New York State. That can be explained substantially, but not entirely, by its very high per capita exports of natural resources, the same thing that helps Western Australia be so rich.

This provides a convenient overview of GDP per capita in Canadian provinces.

http://www.conferenceboard.ca/hcp/provincial/economy/income-per-capita.aspx

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