Drummond Misdiagnoses Ontario’s Economy

The Harvard International Review has posted an interview with Don Drummond. I have posted the following response:

It is good Drummond confesses that his free-market policy prescriptions failed to improve productivity, but old habits apparently die hard: “We have an Employment Insurance scheme that basically dissuades people from going where the jobs are. We still have interprovincial trade barriers.”

The University of Toronto’s recent Mowat Centre EI Task Force concluded: “There is no evidence that regional variation in the unemployment insurance system has altered internal migration patterns in Canada in a substantial manner.” Drummond is presumably familiar with the Task Force’s research since he served on its advisory committee and endorsed its recommendations.

The only possible “interprovincial trade barrier” Drummond identifies throughout the interview is securities regulation. Towards the end, he acknowledges that “most of them have been eliminated by the provinces themselves. Even the security regulators in the provinces have more or less worked out a way to recognize each others’ requirements.”

Drummond also misdiagnoses Ontario’s economy, denying that it has a large stock of unemployed labour: “if that were true, you would be seeing declines in wages. Yet wages have been increasing fairly firmly.”

Over the past year, Ontario’s average hourly wage rose 1%, compared to provincial inflation of 2.4%. So, wages are indeed declining in real terms. A more obvious measure – the provincial unemployment rate – also indicates a large stock of unemployed labour.

By boosting employment, Ontario could certainly grow faster than 2% in real terms. However, Drummond’s prescription of extreme austerity will not help achieve that goal.

Erin Weir is an economist with the United Steelworkers union and a CCPA research associate.

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