Academic journal article Federal Reserve Bank of New York Economic Policy Review

Are Good Jobs Disappearing in Canada?

Academic journal article Federal Reserve Bank of New York Economic Policy Review

Are Good Jobs Disappearing in Canada?

Article excerpt

1. INTRODUCTION

Concerns that international competition is driving jobs offshore are not new. In the early 1980s, it was argued that many manufacturing jobs in advanced economies were being lost to developing countries, leaving behind a service sector polarized among a set of high-wage "knowledge" jobs on the one hand and low-wage personal service jobs on the other (Bluestone and Harrison 1982). This phenomenon was referred to as deindustrialization.

Recently, a new version of the deindustrialization hypothesis has emerged. Some observers are suggesting that employers now use outsourcing abroad not only for manufacturing, but also for jobs in the service sector that have high-skill requirements (BusinessWeek 2003, 2004). The rise of information and communication technologies combined with the availability of relatively skilled workers in fast-growing countries would now allow firms to contract out "intelligent" jobs in sectors such as engineering and informatics. Countries such as China, India, and some in Eastern Europe would provide the skilled workforce required for these jobs, which generally pay high wages in countries in the Organisation for Economic Co-operation and Development.

These changes in the behaviour of firms have potentially important implications for the types of jobs available to Canadian workers. One may argue that unless jobs affected by the new (and old) forms of outsourcing are replaced elsewhere in the Canadian economy by others providing similar wages, the fraction of well-paid jobs in Canada should decline over time.

An alternative view is that the new forms of outsourcing outlined above are fairly recent and thus are unlikely to affect a substantial fraction of Canadian jobs. If so, one would expect to see little change in the fraction of well-paid jobs during the past few years.

Other factors may have altered the proportion of well-paid jobs in Canada. Growing competition may have induced some firms to cut their labour costs by reducing wages. The decline in union density observed over the past two decades (Akyeampong 2004) and the drop in the proportion of jobs coming from large firms (Statistics Canada forthcoming) may also have affected pay rates.1 Each of the three factors above may have tended to reduce the proportion of well-paid jobs. In contrast, skill-biased technological changes may have tended to increase the proportion of well-paid jobs.

This study assesses what actually happened-that is, whether well-paid jobs have been disappearing in Canada in recent years.

Apart from the obvious implications it has for Canadians' living standards and for the ability of governments to collect personal income taxes and to finance social transfers, the analysis of trends in the relative importance of well-paid jobs is important for several reasons. Lack of well-paid jobs may restrict upward earnings mobility, increase families' difficulty moving out of poverty, alter young individuals' decisions regarding schooling, and restrict households' ability to accumulate savings for precautionary motives.

Until recently, lack of comparable data on hourly wages precluded such analysis in Canada. As is well known, the Canadian census and the Survey of Consumer Finances (SCF) asked individuals how many hours per week they had worked during the month of the survey (usually in April or May) while collecting information about the total earnings they had received in the previous year from one or several jobs. As a result, the census and SCF could not be used to measure the hourly wage rates received by individuals in a given job. With the redesign of the Labour Force Survey (LFS), consistent data on hourly wages at the job level are now available going back to 1997.

In this paper, we take advantage of this fact and examine how the fraction of jobs falling into certain wage categories has evolved during the 1997-2004 period. Furthermore, we assemble data from several household surveys that contain hourly wage data at the job level and that have been conducted since 1981. …

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