Stephen Poloz: Clear policy needed for tight labor and weak lunatic

Former governor of the Bank of Canada points to a lack of clear policy

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The tenure of former Bank of Canada governor Stephen Poloz coincided with the emergence of two economic challenges that at first seemed like anomalies, but now appear to be permanent features.

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Poloz took over from the central bank in June 2013, just in time to see the loonie plummet from 97 cents against the greenback to 71 cents at the start of 2016 as the country struggled with the ripple effects of a severe recession in Alberta amid an oil slump.

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As the country began to shake off the effects of the oil price collapse, the labor market began to become unusually tight, while the unemployment rate fell to an all-time low and the job vacancy rate rose steadily.

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Both trends accelerated in the wake of the COVID recession, as job openings rose to record levels and the dollar continued to enter the water despite an increase in commodity prices. This matters because continued high vacancy rates and a weak dollar will complicate Ottawa’s efforts to curb inflation, as an insufficient supply of labor will put upward pressure on wages, while an unfavorable exchange rate will make imports more expensive.

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Poloz, who left public service when his term expired in 2020 and now serves as a special counsel at law firm Osler, Hoskin & Harcourt LLP, sees a connection between these two issues. He pointed to a lack of clear policy as a common feature, arguing that more transparent language could solve some of the problems policymakers struggle with.

‘Processes must be improved’

Think about immigration first.

Poloz said if high immigration targets provide a reliable solution to a tight labor market, the federal government will need to make the immigration process clearer and more streamlined to attract more business investment.

“We still need to get our act together and make sure it’s welcoming, it’s easy instead of painful, the processes need to be better,” Poloz said in an interview after a fireside chat at an event hosted by the Portfolio Management Association of Canada in Toronto on Nov. 16. “How does a company grow if they can’t get employees?”

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We still need to get our act together

Stephen Poloz

Poloz is not the only one who thinks the immigration system needs to be overhauled. Victor Dodig, chief executive officer of the Canadian Imperial Bank of Commerce, signaled the problem in an October op-ed for the Financial Post, urging a number of changes, including faster professional accreditations and recognition that housing affordability is likely to drive many talented immigrants away from it. to choose Canada as a destination.

And Tiff Macklem, Poloz’s successor, used a recent speech to point to ambitious immigration targets as a way to address structural labor shortages due to Canadians’ retirement. More specifically, he pointed to the Liberal government’s recently announced targets of welcoming 1.4 million immigrants over the next three years, as well as “selection tools” to more easily target sectors in need of labour.

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Bank of Canada Governor Tiff Macklem attends a press conference in Ottawa.
Bank of Canada Governor Tiff Macklem attends a press conference in Ottawa. Photo by Patrick Doyle/Reuters/File Photo

Poloz said the problem is bigger than that. “Sounds good on paper,” he said. “But what could go wrong with it? Canada is quickly developing a reputation as a very expensive country to land in, so I think that is a concern.”

While home prices have fallen from their pandemic highs, cities like Toronto and Vancouver are among the least affordable cities in the world. In addition, rents have skyrocketed, with the average price of a one-bedroom apartment in Toronto rising 20.4 percent to $2,481 compared to a year ago.

Poloz also pointed to a lack of funding for post-secondary educational institutions, which have often served as a key immigration tool to turn foreign students into citizens, and the lack of cooperation between universities and the federal government, as additional shortcomings. Poloz added that he expects other countries to struggle with labor shortages and that the stakes are high in becoming more competitive with immigration policies.

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If companies cannot get employees, they will not invest

Stephen Poloz

It’s a problem Canada cannot afford to make mistakes if it wants to maintain its current standard of living. Poloz drew a parallel between Canada and Japan in his book The Next Age of Uncertainty in the early 1990s. He wrote that Japan had moved from an economic powerhouse in the late 1980s to a laggard in the 1990s, in part because an aging population and low immigration rates put economic growth on the backburner.

Canada is not Japan when it comes to immigration aversion, but there are obstacles to overcome. Poloz said companies have sometimes been criticized for hiring temporary foreign workers and not giving the job to a Canadian, even though employers couldn’t find Canadians to take the jobs.

“If companies can’t get employees, they’re not going to make investments,” Poloz said.

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How the madman lost his wings

Earlier this year, Macklem said the Canadian dollar’s lost link to oil is linked to faltering investment in the energy sector as international investors no longer line up to exploit the oil slick, in part because the shift to greener energy boosts demand. to Canadian oil will decrease. .

Poloz agreed with the assessment, adding that the federal government’s push for a net-zero policy has added uncertainty to investors who might otherwise have poured their money into the spill. Limiting emissions from the oil and gas sector and achieving net-zero emissions by 2050 was a pledge in the Liberal government’s electoral platform.

It’s an ambitious goal that has left the energy industry less certain about the future of energy infrastructure projects in Canada. Poloz said policymakers providing more clarity on how the federal government plans to pursue its climate goals and working with the energy industry could mitigate some of the petrocurrency decoupling issues. That, in turn, could boost the exchange rate, easing some of the pressure on Macklem to raise interest rates as the stronger currency would do some of the job of fighting inflation.

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“I just think that by putting some daylight on that, that normal relationship between the madman and the energy sector can be restored,” Poloz said. “Right now there’s too much uncertainty to have that (relationship).”

Poloz added that the issue of energy security could re-enter the conversation and set a course for 2050 with the plan to have fossil fuels available as a backup source of energy for renewables, giving the oil industry more leeway to play a role in the transition.

“That’s not like saying, ‘Just leave them in the ground,'” Poloz added. “It’s a really big difference.”

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