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May 6, 2013

Ontario’s youth employment strategy

Amongst the key features of the proposed Ontario government 2013 budget is a substantial investment in a youth jobs strategy that, if implemented, promises $295 million in investment and “about” 30,000 job opportunities. Doing so seeks to address popular fears of a “lost generation” of Canadian youth, increasingly unable to find meaningful employment. It’s certainly fair to say that the employment prospects for Canadian youth have worsened – for example, the youth unemployment rate stood at 14.1 percent in December 2012 versus just 11 percent in the pre-global financial crisis benchmark set in July 2008 (it peaked in July 2009 at 16.4 percent). In Ontario, the youth unemployment rate is worse, hitting 17% in 2012 and currently standing at 16.2%.

Notwithstanding far worse situations abroad (for example, an average youth unemployment rate of 24.4 percent in the European Union), the change in employment prospects is equal to 79,000  Canadians aged 20-24 and 145,000 aged 15-19 now unemployed who, at previous times, might  have been gaining experience somewhere.  Of those, approximately 100,000 of them are located in Ontario.

The proposed approach to getting this population back to work is as follows (directly from the budget):

– $195 million over two years to create employment opportunities for 25,000 youth in Ontario. The Province would provide hiring incentives to employers to offer young people in all regions of the province an entry point to long-term employment.

– $45 million over two years to  promote 6,000 mentorship and youth job opportunities through a combination of mentoring support programs, seed financing and high school entrepreneurship outreach.

– $10 million over two years to provide exceptional postdoctoral fellows with skills and experience to lead and manage industrial research, development and commercialization efforts, resulting in rapid commercialization of research and a boost to economic activity.

– $25 million over two years to support creative new pilot initiatives that bring business, labour and academic together.

– $20 million over two years for on campus Accelerator Centres that would facilitate development of entrepreneurial activity in Ontario’s universities and colleges.

While the focus on getting young Ontarians back to work is certainly laudable, the dollars involved aren’t quite as impressive as they might seem at first glance, and might not be the most effective way of dealing with the aforementioned employment issues.

Regarding the numbers, the $195 million proposed for hiring incentives works out to $4,000 per opportunity (assuming full uptake at the 25,000 level). Given that stagnant demand is the primary inhibitor of increased hiring, it’s difficult to see this relatively small credit influencing long-term hiring patterns in any meaningful way. A more targeted, and better per-opportunity funding approach, say 10,000 jobs, while less politically saleable, could provide a more meaningful long-term stimulus.  In addition, a combination of job credits for employers and tax rebates for lower-income citizens may provide a more effective means of targeting the root cause (low demand) and providing a bridge between hiring and increased revenue. Finally, while details aren’t necessarily to be expected in such budget proposals, it’s integral that these opportunities be limited to fields that provide long-term future job prospects, notably in sectors with ongoing labour shortages such as those across the advanced manufacturing and skilled trades.

Moreover, while the other budget lines related to entrepreneurship are necessary components of a modern skills-development strategy, it’s a pity more attention isn’t paid to the fact that employment growth is primarily driven by a small number of high-growth firms. In fact, just 4.7 percent of firms contribute over 45 percent of total employment growth in Canada. As we write in our recent paper on Employment, Innovation and Growth , policy makers must do a better job targeting firms whose export and research-orientation capture the best growth, and thus employment, prospects. Helping these firms move from low- to high-growth status is the key to unlocking job creation.

In both cases we start from the assumption that job creation is about fulfilling demand. Short-term efforts aimed at subsidizing hiring may provide a quick boost, and evidently it will provide priceless experience, however it doesn’t address the key demand-driven function of ongoing employment growth.  The key is to either help stimulate that demand at home (via more targeted hiring subsidies or more focused demand stimulus efforts) or to more actively and effectively facilitate the transition of low-growth firms into high-growth ones. This is the subject of our next DEEP Centre paper “Driving Canadian Growth and Innovation: Five Challenges Holding Back Small and Medium-Sized Enterprises in Canada” which we’ll release very shortly.

In the interim, you can read the proposed Ontario budget here : http://www.fin.gov.on.ca/en/budget/ontariobudgets/2013/papers_all.pdf

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