Quebec model balances greater equality with economic progress

Posted on March 20, 2015 in Debates – ROB/Commentary/ROB Insight
Mar. 19 2015.   Andrew Jackson

Glance at just about any publication from the Fraser Institute and other conservative think tanks, and you will be told that too much government social spending and too much regulation of the job market damage growth and job creation. There is, we are told, an ineluctable trade-off between social equity and economic efficiency.

Yet this does not readily show up in international comparisons. Germany and some Northern European countries have built highly productive economies and enjoy low unemployment despite being much more equal societies than the United States or Canada.

There is also little evidence of an equity-efficiency trade-off within Canada. Consider the case of Quebec’s social and economic performance compared to other provinces.

As is well known, Quebec tilts more to the social democratic side of the policy spectrum. It has much higher income and sales taxes than the provincial average, with the sales tax being almost two percentage points higher than in Ontario, and the basic rate of personal income tax being 16 per cent compared to just over 5 per cent in Ontario.

A higher tax level pays for much more generous social programs and public services in Quebec, including heavily subsidized, high-quality child care and early learning, significant cash benefits for children in low-income families, higher maternity and parental leave benefits, a provincial drug plan, and much more affordable tuition fees for postsecondary education than in other provinces.

Quebec has a unionization rate of 37 per cent compared to 30 per cent for all of Canada and just 27 per cent in Ontario. Employment standards are stricter and better enforced than in most provinces.

Quebec is more equal than other provinces, in large part because of its distinctive social and labour market policies. The top 20 per cent of households have after-tax incomes 8.2 times greater than the bottom 20 per cent in Quebec compared to a ratio of 9.6 in Ontario. The poverty rate (defined as the percentage of persons with incomes below one half of the provincial median income) is 10 per cent in Quebec compared to 13.9 per cent outside Quebec.

While Quebec has and continues to face some significant economic problems, it has done quite well compared to other provinces. Data recently released by Statistics Canada show that household after-tax income per person adjusted for inflation grew by 19.5 per cent in Quebec between 2000 and 2013, more than twice as much as the 8.9-per-cent increase in Ontario.

The Quebec increase was slightly below the national average of 21.3 per cent, but the latter includes very large increases of income over the past decade in the energy-producing provinces of Alberta, Saskatchewan, and Newfoundland and Labrador.

The employment rate of core-age workers between age 25 and 54 in 2014 was 81.2 per cent in Quebec, the same as the national average, and the employment rate of women in this age group was 85.1 per cent compared to just 77.4 per cent for all of Canada.

The highly respected Quebec economist Pierre Fortin calculates that there has been a convergence of living standards between Quebec and Ontario to near equality since the early 1980s, if one takes into account a relatively low cost of living in Quebec and the fact that Quebec has a much higher-than-average proportion of older persons.

Mr. Fortin reckons that Quebec’s distinctive family policies have had positive effects on the economy, increasing the labour force participation rate of women and thus lowering poverty. And educational attainment boosted by provincial policies is rapidly converging with the rest of Canada.

The big difference in the recent economic performance of Quebec and Ontario probably owes something to differences in the structure of the two economies as well as the nature of Quebec Inc., a core of globally successful companies that have deep roots in the province and close ties to the provincial government.

But social and labour market policies have probably had significant positive economic effects as well.

Equity and efficiency need not be opposed, but can go hand in hand.

Andrew Jackson is an adjunct research professor in the Institute of Political Economy at Carleton University and senior policy adviser to the Broadbent Institute.

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