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Articles by Stephen Gordon

Movements in income inequality in Canada, 1944-2010

June 25, 2021

Here are the estimates for the Gini coefficients for Canada, taken from individual tax files (see here for more about where the data came from):

As was the case for median incomes, I am encouraged by the fact that the benchmark Statistics Canada series and the tax file data say basically the same thing about the evolution of income inequality over the period in which they overlap: the Gini coefficient starts to increase from the late 70s/early 80s until about 2000 and then levels off.

The tax file data suggest that there was a significant increase in inequality srting in the late 1950s, peaking around 1970 and then falling again; you can even persuade yourself that the Statistics Canada series picks up the final part of that decline before the trough around 1980.
We’re not

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What happened to real incomes in the 1970s?

June 22, 2021

Here are the estimates for average and median total incomes based on tax file data (see this post for details):

I was comforted to see that the estimates for median incomes after 1976 have the same U-shape as those in the Statistics Canada tables :

The fact that the two data sources say basically the same thing about what happened after 1976 gives me some hope that the tax file data before 1976 shouldn’t be dismissed out of hand. And if you take them seriously, then it the fact that the Statistics Canada tables only start in 1976 is extremely unfortunate. If you start in 1976, you start with a story of declining real median incomes, and that’s the story we’ve all become accustomed to hearing. But the tax data offer a much more nuanced story.
The narrative suggest by the tax

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Project Link update: The evolution of the distribution of income in Canada, 1944-2010

June 8, 2021

Project Link has been updated; the Excel file with the data updated through to June 2021 is available here.
I skipped the 2020 update for Project Link for a couple of reasons. There was obviously the distraction of the pandemic, but mainly because I hadn’t yet finished the next extension. Every year, I try to extend the data base, and the latest extension took more time than I had originally expected.
This year’s extension is the data set behind this animation I posted on twitter a while ago; the details are below the fold. 

The Statistics Canada data tables for the Canadian income distribution start in 1976 (see, for example, here and here). That starting date is problematic. The more I look at postwar data, the more prominently the 1970s stands out as a pivotal decade. How

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More Thoughts on a Better Income Support System for the Next Crisis

April 30, 2020

This post was written by Mike Veall of the Department of Economics at McMaster University.
I appreciated the comments on my earlier post, where I suggested that a small monthly Basic Income system would have the advantage of being able to be scaled-up in a crisis.
Incenting participation in the tax/transfer system is responsive to the work of Anna Cameron, Lindsay Tedds, Jennifer Robson and Saul Schwartz pointed out by Frances even though those authors seek a different, automatic-enrolment approach.
(Advertising: More on nonfiling by Robson and Schwartz is coming out in September’s Canadian Public Policy/Analyse de politiques; CPP/Adp is also currently working on expedited publishing/special issues for pandemic-related articles.)
The skepticism in the comments on my post is well-taken,

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A Small Basic Income as a Solution to the Magic List Problem

April 24, 2020

This post was written by Mike Veall of the Department of Economics at McMaster University.
What if in a future crisis there is again a need to distribute money? As Jennifer Robson put it, “government doesn’t have a magic list with everybody’s name and addresses and bank accounts.”
I was reminded of this when thinking about transmitting money to someone in a less developed economy. How can I be sure it will work? I could send a small amount, confirm receipt, and then send more.
The same approach could create a magic list for Canada. Every month the government could send a taxable $20 or $30 to everyone (except children and seniors, already in the system with monthly benefits). It would be enough money that most people would check receipt, at least occasionally, and hence continually

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Choosing the right target: Real options for the Bank of Canada’s mandate renewal

February 17, 2020

That’s the title of a Max Bell School of Public Policy conference to be held in Montreal on April 30/May 1. I’m quite excited about it. 
A couple of years ago, I wrote a column scolding the Bank of Canada for the lack of transparency in the mandate renewal process. But after thinking about it some more, I realized that are limits to what the Bank can say in public.
The Bank’s famed independence has strict bounds. The Governor has operational freedom to achieve Bank’s objectives, but the Bank does not have the authority to decide what those objectives should be. The responsibility for choosing the goals lies with elected officials, and with the Minister of Finance in particular. This responsibility is discharged by setting out the mandate. The Bank’s job is to carry it out.
Where should

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What killed real wage growth?

August 18, 2019

This is the Project Link chart that most startles me:

What killed the growth in real wages in the early 1970s? I’ve been trying to come up with an answer to this question, and I think I have one. I’m not entirely sure that it’s the correct answer, but I think it’s a plausible conjecture.

Of course, an obvious thing for a Canadian economist to do is to check what was going in in the US at the time:

Something happened to real wage growth in the US as well an in Canada in the early 1970s. What, though?
The first candidate I thought of for a negative shock that hit both the US and Canada at around that time is the oil shock that followed the October 1973 Yom Kippur War. The timing doesn’t work though: US real wages peaked in October 1972, and the inflection point in Canadian

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Project Link update

August 9, 2019

It’s past time for my annual update for Project Link, my attempt to piece together the fragments of Statistics Canada’s published data into coherent time series.

Statistics Canada’s Attention Deficit Disorder means that I can never assume that the list of series that were current in one year will still be current in the next. Last year, I had to track down the replacement series for manufacturing and retail sales; this year I had to do the same thing for monthly exports and imports data. The base year for the economic accounts has also been updated from 2007 to 2012. I’m not going to complain too much about that last thing, though: these revisions go with the territory.
I’ve given myself the mission of adding more series each time I update the site. In 2017, I spliced

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Canada’s Gross Domestic Income and trading gains: An update and estimates for the provinces

March 11, 2019

This builds off an earlier post about the terms of trade, trading gains, and Gross Domestic Income and it extends the analysis to the provincial level. It’s probably a good idea to take a look at it before continuing on.

Okay, welcome back. I’m going to reproduce a key bit of that other post:
My guide is Section 7.6 of this Statistics Canada explainer, and equations (7.20) and (7.21) in particular:

Real GDI = Real GDP + Trading Gain
Trading Gain = (X-M)/P – (X/Px – M/Pm) 

where X and M are exports and imports with prices Px and Pm. P is some measure of prices for domestic expenditures, and apparently the choice is ‘debatable’. I can see why, but I don’t want to get into it, so I’m going to go along with Statistics Canada’s choice of using the deflator for Gross Final Domestic

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Carbon taxes and the Marginalists’ difficult idea

January 20, 2019

This Economists’ Statements on Carbon Taxes has been signed by a host of prominent economists:

Global climate change is a serious problem calling for immediate national action. Guided by sound economic principles, we are united in the following policy recommendations.
I. A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.
II. A carbon tax should increase every year until emissions reductions goals are met and be revenue neutral to avoid debates over the size of government. A consistently rising carbon price will encourage

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Tracking the Bank of Canada’s staff projections through the 2008-9 recession

November 4, 2018

The Bank of Canada has released an archive of the staff projections prepared for the Governing Council for the quarterly Monetary Policy Reports. There’s a five year lag, so the most recent set of projections are the ones prepared in 2013Q4. While these projections don’t answer the question "What was the Governing Council thinking?", it does answer the question "What projections were the Governing Council looking at?"

There’s lots of things you can do with this archive; there’s a BoC staff report evaluating the quality of the forecasts for things like GDP and inflation. And they also provide a new real-time database, since the historical data associated with a given projection have not been updated to reflect data revisions made after the projection was made.
But for now, I’m

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Are education attainment levels the root cause of all good earnings news?

November 1, 2018

An earlier post noted that the real earnings gains over the past 20 years were as clean an example of a composition effect as you’re likely to see. Earnings among full-time workers with a given level of education have shown some modest growth over time, but average earnings growth for all full-time workers has been stronger than it has been for each of its components:

 The explanation is that that the composition of educational attainments has changed, to a degree that I find striking in its size and speed:

I sort of left it at that in the earlier post, but I’m revisiting the topic with the question of how much of the good news in earnings over the last 20 years can be explained by the increase in education attainments alone. The counterfactual here is to suppose that the

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Why do we care about the labour share of income?

September 7, 2018

And by ‘we’, I mean ‘Canadians’.
A lot has been said and written about the decline in the labour share of income, usually calculated as total employee compensation divided by nominal GDP. This decline is generally regarded as a negative development: the reduction in the share of income going to workers is interpreted as a symptom of suppressed wage growth and of increased income inequality.
I don’t doubt that this is a useful narrative for understanding what has been happening in many countries, the US in particular. But I can’t see how it fits the Canadian experience. Movements in the Canadian ratio of wages to national income  appear to be a story of the denominator, not the numerator.

Here is the labour share from 1947 to 2018; the data are taken from the most recent update

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Why do we care about the labour share of income?

September 7, 2018

And by ‘we’, I mean ‘Canadians’.
A lot has been said and written about the decline in the labour share of income, usually calculated as total employee compensation divided by nominal GDP. This decline is generally regarded as a negative development: the reduction in the share of income going to workers is interpreted as a symptom of suppressed wage growth and of increased income inequality.
I don’t doubt that this is a useful narrative for understanding what has been happening in many countries, the US in particular. But I can’t see how it fits the Canadian experience. Movements in the Canadian ratio of wages to national income  appear to be a story of the denominator, not the numerator.

Here is the labour share from 1947 to 2018; the data are taken from the most recent update

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A well-deserved tribute to Nick Rowe

August 10, 2018

As you may know, Nick has retired from teaching. His career as a teacher and blogger has earned him this very nice tribute in the pages of The Economist:

Learning macro is a source of anxiety for many students. Teaching it can give their professors the jitters, too. The subject is notoriously difficult to explain well. During his 37 years at Carleton Mr Rowe remained, by his own admission, “fairly low down the totem pole” as a researcher. But he became a thunderbird at conveying macroeconomic intuition. In the past decade this served him well in his second intellectual career, contributing to Worthwhile Canadian Initiative, an economics blog. Many a controversy has benefited from one of his ingenious analogies or numerical parables, usually involving some kind of fruit.

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A well-deserved tribute to Nick Rowe

August 10, 2018

As you may know, Nick has retired from teaching. His career as a teacher and blogger has earned him this very nice tribute in the pages of The Economist:

Learning macro is a source of anxiety for many students. Teaching it can give their professors the jitters, too. The subject is notoriously difficult to explain well. During his 37 years at Carleton Mr Rowe remained, by his own admission, “fairly low down the totem pole” as a researcher. But he became a thunderbird at conveying macroeconomic intuition. In the past decade this served him well in his second intellectual career, contributing to Worthwhile Canadian Initiative, an economics blog. Many a controversy has benefited from one of his ingenious analogies or numerical parables, usually involving some kind of fruit.

Read More »

Project Link update

May 29, 2018

I’ve just updated Project Link, my attempt to piece together the bits and pieces of published Statistics Canada data into a coherent history of the post-war Canadian economy. (The introductory post is here, and a post on the first update is here.)
Here are the main elements:
Incorporating Statistics Canada’s long-awaited publication of its expenditure accounts from 1961-1980. As you may recall, when they revised the GDP numbers back in 2012, the new series started in 1981 instead of 1961. (This is what I had in mind when I fumed that "Statistics Canada must be the statistical only agency where the average length of its time series gets shorter from one year to the next.")
Pushing back the starting date for the LFS and SEPH employment numbers to 1946, along with unemployment rates and

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Project Link update

May 29, 2018

I’ve just updated Project Link, my attempt to piece together the bits and pieces of published Statistics Canada data into a coherent history of the post-war Canadian economy. (The introductory post is here, and a post on the first update is here.)
Here are the main elements:
Incorporating Statistics Canada’s long-awaited publication of its expenditure accounts from 1961-1980. As you may recall, when they revised the GDP numbers back in 2012, the new series started in 1981 instead of 1961. (This is what I had in mind when I fumed that "Statistics Canada must be the statistical only agency where the average length of its time series gets shorter from one year to the next.")
Pushing back the starting date for the LFS and SEPH employment numbers to 1946, along with unemployment rates and

Read More »

Gross Domestic Income in Canada, 1947-2018

May 20, 2018

The latest update of Project Link includes estimates for national accounts income measures: Gross National Income (formerly known as Gross National Product), Net National Income, compensation of employees, and disposable income, all going back to 1947Q1.
I’ve also added Gross Domestic Income. GDI is a fairly recent arrival in the national accounts, and it takes into account the income effects of changes in the terms of trade. Looking at GDI has been particularly useful in understanding the Canadian economy over the past fifteen years, since it picked up the incomes gains and losses incurred as the prices of Canadian resource exports rose and fell. Since GDP measures activity – and not necessarily the income it generates, GDP was not as useful as it usually is. (See my beer and pizza

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Gross Domestic Income in Canada, 1947-2018

May 20, 2018

The latest update of Project Link includes estimates for national accounts income measures: Gross National Income (formerly known as Gross National Product), Net National Income, compensation of employees, and disposable income, all going back to 1947Q1.
I’ve also added Gross Domestic Income. GDI is a fairly recent arrival in the national accounts, and it takes into account the income effects of changes in the terms of trade. Looking at GDI has been particularly useful in understanding the Canadian economy over the past fifteen years, since it picked up the incomes gains and losses incurred as the prices of Canadian resource exports rose and fell. Since GDP measures activity – and not necessarily the income it generates, GDP was not as useful as it usually is. (See my beer and pizza

Read More »

The macroeconomics of Stanley Cup dynasties

May 17, 2018

This post was written by Davin Raiha at the Ivey Business School.
As the NHL playoffs inch closer to the Stanley Cup, it is an appropriate time to reflect on how economic conditions and forces have impacted competition within the NHL over the past few season. A few seasons ago – specifically during the 2015 Stanley Cup final series between the Chicago Blackhawks and Tampa Bay Lightning – I noticed how an interesting circumstance was emerging that might impact the competitive landscape of the league. The powerhouse Blackhawks appeared to be headed for an especially challenging off-season due to reasons that were macroeconomic in origin, and coming from across the globe from Saudi Arabia’s oil production policies and its resultant impact on oil prices. I thought the situation could make

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The macroeconomics of Stanley Cup dynasties

May 17, 2018

This post was written by Davin Raiha at the Ivey Business School.
As the NHL playoffs inch closer to the Stanley Cup, it is an appropriate time to reflect on how economic conditions and forces have impacted competition within the NHL over the past few season. A few seasons ago – specifically during the 2015 Stanley Cup final series between the Chicago Blackhawks and Tampa Bay Lightning – I noticed how an interesting circumstance was emerging that might impact the competitive landscape of the league. The powerhouse Blackhawks appeared to be headed for an especially challenging off-season due to reasons that were macroeconomic in origin, and coming from across the globe from Saudi Arabia’s oil production policies and its resultant impact on oil prices. I thought the situation could make

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How much more can governments spend by switching to a debt ratio target?

October 30, 2017

In my recent National Post column, I make reference to some back-of-envelope calculations to the effect that replacing the fiscal anchor of balanced budgets to one of a fixed debt-GDP ratio allows the federal government to increase spending by 1.2 percentage points of GDP, or by about $25 billion.
I’m going to work through the math here, and I’m going to take it very slowly – partly for the benefit of people who are seeing these sorts of manipulations for the first time, but mostly so I don’t screw it up. 

Some notation first:
G is government spending
T is tax revenue
B (for bonds) is government debt
i is the interest rate
Balanced budget case
If the budget is balanced, then government spending must be equal to the revenues left over after serving the debt. Debt service

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Regional disparities in Canadian economic growth: Theory and evidence

October 9, 2017

In its recent release of income data from the 2015 census, Statistics Canada helpfully provided data tables for median incomes in 2005 and 2015 for various regions in Canada. The headline number was the 12.7% increase in median Canadian incomes, and there’s been some commentary about how the gains during the last decade were not uniformly shared. But there but there was something missing in those discussions of regional gains, namely, the initial level. When you start thinking about both starting points and the changes, it’s not clear why you would expect – or want – the gains to be evenly distributed.

One of the main predictions of the standard Solow-Swan or Ramsey-Cass-Koopmans neoclassical growth models is that economies will eventually converge to the same steady state or

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Project Link update: Labour Force Survey, 1953-2017

July 10, 2017

I've updated and expanded the data archived on Project Link, my attempt to take the fragments of data published by Statistics Canada and piece them together into a coherent whole.  
In my post introducing Project Link, I made note of a chart I came across while putting together the headline data from the Labour Force Survey going back to 1953. I had always more-or-less assumed – admittedly without looking at the data or even thinking very much about it – that the surge in female labour force participation rates started sometime in the 1960s or 1970s. But it turns out that the trend goes back to at least to 1953, when the LFS started being conducted on a monthly basis.
I've linked series for the following variables

Labour force
Employment
Unemployment rates
Employment rates

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A composition effect in earnings growth and education attainment levels in Canada

June 26, 2017

I came across this post by Mickey Kaus a while ago, on trends in US earnings broken down by education attainment levels. From about the mid-70s to the mid-90s, earnings growth diverged sharply: increasing strongly for those with high levels of education, and falling for people with lower levels of education. Earnings growth has been more balanced since then, but the gaps carved out by this divergence have not been filled in.
This isn't an exercise we can repeat for Canada; this kind of earnings data only start in 1997. But I was curious to see what it would look like, and I found as neat an example of composition effects as you'll ever see.

Here are average weekly earnings of full-time workers with varying levels of education, scaled so that 1997=100. All groups saw increases, and

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Job tenures and the gig economy

May 13, 2017

A few weeks ago, Alex Usher drew my attention to this post by the Pew Research Center, on job tenure patterns of 18-35 year-olds in the United States. The takeaway point was that, contrary to an oft-repeated narrative about the "new gig economy", job tenure patterns among millennials resemble those of the generation previous.
Of course, Canada is not the United States: what do job tenure data look like for younger cohorts up here? It turns out that this may be one of those rare cases where Canadian data are richer than American data: the Labour Force Survey has been asking about job tenure since 1976, and we can focus on more tightly-defined age groups.
I've calculated three job-tenure measures:

Median job tenure
Proportion with job tenure of one year or less
Proportion with job

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L’affaire Potter

March 28, 2017

You are all, I think, familiar with the details of L'Affaire Potter, so I need not enumerate them here. If you aren't already familiar with this story, you probably don't care what I have to say about it, so you can skip the rest of this post. But as a Quebec-based academic with a weekly column in a national newspaper, I feel obliged to say something.
I suppose I should start where everyone else does, with their connection to Andrew Potter. I've never met Andrew, but I'd like to: he recruited me long ago for my first forays into journalism at Canadian Business. This invitation was doubly flattering, since I was a great admirer of his work in The Rebel Sell and The Authenticity Hoax.  Since then, we've exchanged the occasional e-mail, and he provided my kids with a genuine belly-laugh by name-checking me as a "public intellectual" here. I was pleased for everyone concerned when he took that post at McGill and (not to put too fine a point on it) up until a week ago, I was wondering how I could plausibly leverage my thin acquaintance into an invitation to speak at one of the conferences his job it was to organise.
Which brings us to his Maclean's piece. Quite frankly, I didn't see a heck of a lot to be excited about, one way or the other. Certainly the bit about restaurant bills felt wrong to me.

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Internal migration flows in Canada

February 26, 2017

Discussions about demographics are typically focused on trends in fertility/morbidity and immigration/emigration, and these are what matter at the national level. But at the local level, trends on internal migration are also important. Statistics Canada has been publishing data on inter-provincial migration for years, but there's only so much you can get out of them. Migration trends within large provinces such as Ontario and Quebec may be more important for local service providers than inter-provincial trends.
Happily, Statistics Canada started publishing data on migration flows between Census Metropolitan Areas (CMAs) and between non-CMA regions in its Cansim Table 051-0065. It's still not as good as the county-to-county migration flows data published by the US Census Bureau, but it's a start. Moreover, the series begin in 2011, so there's a limit to the information you can extract from them.
That said, my first pass at what we can learn from these internal migration data is below the fold.

This table shows the average annual internal migration flows for the three years that are available. These exclude immigration and emigration flows to and from Canada, so net internal migration for Canada as a whole is zero. There are 47 regions, one for each CMA, and for non-CMA regions in each province.

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Project Link: Piecing together recent Canadian economic history

October 14, 2016

I've already ranted a couple of times – here and here – about Statistics Canada's 'Attention Deficit Disorder': its habit of starting new time series using new methodologies without updating the historical data. As I put it in my first rant,

Statistics Canada must be the only statistical agency in the world where the average length of a data series gets shorter with the passage of time. Its habit of killing off time series, replacing them with new, 'improved' definitions and not revising the old numbers is a continual source of frustration to Canadian macroeconomists.

But of course ranting about the problem isn't the same thing as solving it. I kept thinking of this old Peanuts cartoon:

So I decided to light a candle.

I've started Project Link, whose goal is to take the fragments of data published by Statistics Canada and piece them together into a coherent whole. I've started with monthly data, focusing on the main concurrent indicators: GDP, employment (LFS and SEPH), unemployment rates, weekly earnings (SEPH), the CPI, manufacturing sales, exports, imports and retail trade. SEPH data go back to 1950 and 1951, and the LFS goes back to when the monthly survey started in 1953.
I've put together a few charts, and I might as well show them to you.

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