ECON2001

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Concordia University *

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Economics

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Jan 9, 2024

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#1 MINIMUM WAGE Sources: https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=1810000402#timeframe and https://www150.statcan.gc.ca/n1/pub/75-004-m/75-004-m2019003-eng.htm - The min wage values for 2015-2020 are nominal, i.e., measured in C$, not adjusted for inflation. AB, BC and ONT had highest min wages. - The percentage change in the general price levels is the inflation rate. The total inflation between Feb 2015 and Feb 2020 was around 10%. - The approximate “real” min wage increase can be expressed as the percentage change in the nominal min wage minus the inflation rate. This “real” min wage increase reflects increase in purchasing power. For example, AB had a 47% increase in nominal wage, but inflation was 10%, hence workers had an approximately 37% increase in buying power between 2015 and 2020. - Studies have found that in the last 20 years, average nominal wage grew by about 2.7% annually while average min wage grew by 3.5%. - Average wages in the provinces were approximately double their min wages (data from 2018) – this is important info… later on page 5. - Sources: https://canadiandimension.com/articles/view/who-earns-minimum-wage and https://www150.statcan.gc.ca/n1/pub/75-004-m/75-004 -m2019003-eng.htm - Determination of min wage: By legislation, politicians, economic cycles, special committees, etc. The guiding principle is that workers earning min wage should be able to “survive” and min wage increases are often indexed to inflation. For example, in QC, if min wage is $13.1 and average work week is 40 hours, then annual pre-tax income is $27,000. What is this $27,000 in economic context? What is “poverty”? - Rule of thumb – Half of median or average income: In 2020, QC’s median income was $39,300 and average was $48,400 . - More specific – Low-income cut-off (LICO) : Suppose the average Canadian spends 43% of after-tax income on necessities (food, shelter and transportation). LICO is the income of those who spend 63% of such income on necessities, i.e., 20 percentage points higher than average. LICO is adjusted by the size of households and population density. In 2020, LICO was $14,430

for one-person households in areas with a population below 1,000, $22,060 for one person- households in areas with a population of at least 500,000, and so on - contrast with $27,000. - Since 2020: Min wages have increased but inflation has jumped from 2% to 7% in 2022. This is likely to be temporary. The Bank of Canada will raise interest rates to cut inflation… subject for Intro to Macro Econ 203… why do you think inflation has risen recently? - Reasons: #1 #2 #3 Interest rates to counter inflation oil price (Russia oil) borrowing costs for Makes demand go down Food export ukraine house buys (ii) Data 2: Who are these workers? Source: https://www150.statcan.gc.ca/n1/pub/75-006-x/2018001/article/54974-eng.htm - The total employment in 2017 was 16.83 million and 1.0181 million earned min wage, so about 6% were min wage workers. - The unemployment rate for youth aged 15 to 24 was around 10.3%; around 7% for overall Canada.

- What percentage of min wage earners rely on min wage as their main source of income? ______________15%________________ - What percentage of the total is lone/single parent families with child or children under the age of 18? ______2%____________ - Between 2017 and 2018, the number of min wage workers in Canada increased by 61%, pushing the share of min wage workers from 6% to 10% of all Canadian workers. ONT topped at 15%, which coincided with the 21% increase in min wage ($11.6 to $14). Two reasons for ONT’s sharp increase in min wage workers: _______________________________________________________________ - Sources: https://www.fraserinstitute.org/article/raising-the-minimum-wage-is-not-the-right- policy-to-help-struggling-families, https://www150.statcan.gc.ca/n1/pub/75-004-m/75-004- m2019003-eng.htm, https://www.bankofcanada.ca/wp-content/uploads/2017/12/san2017-26.pdf and https://www.savvynewcanadians.com/minimum-wage-canada/#:~:text=Ontario %20Minimum%20Wage%20History,-Ontario's%20minimum%20wage&text=October%201%2C %202020%3A%20%2414.25,October%201%2C%202016%3A%20%2411.40 (iii) Data 3: What are some of their characteristics? Source: https://www150.statcan.gc.ca/n1/pub/75-006-x/2018001/article/54974-eng.htm

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- Which group relies almost solely on min wage as its main source of work income (excluding other incomes)? _________GROUP 2___________ - In which sector are min wage workers most likely to work?______FOOD_______________ - Men or women more likely to work for min wage? ____WOMEN___________________ - Canadian-born or immigrants more likely to work for min wage? _IMM_____________ (immigrants account for around 22% of population). - Education attainment: __MORE LIKELY HS____ (iv) What does economics say? (a) Question #1: Does raising the min wage only affect the min wage workers? - When the min wage rises, such as from $12 to $15, the workers who were previously earning $12.01 to $14.99 will be paid more. This increase in wage may also extend to the workers earning above $15, such as those previously paid $16 and $17. Therefore, the cost to the employers is much higher than the additional $3 for each min wage worker earning $12. (b) Question #2: How long do workers work min wage jobs? - Studies have shown that after one year, more than 60% of min wage workers earn more, with an average raise of about 20%. After two years, the percentage of workers earning more than the min wage increases to over 80%. (c) Question #3: Does raising the min wage cost jobs? - Theory: When the min wage rises, labour costs for the firms will rise and they may pass some of this cost to the consumers. The price of the products that the firms sell will likely rise. The consumers buy less and so the firms produce less, which means some job losses. However, the remaining workers earn a higher income and so their demand for goods and services will rise. Altogether, the firm may not observe a drop in sales and layoffs may not be needed. The net effect on employment is unclear. - Data: Economists do not have a consensus on whether a min wage hike means job losses. However, a review of over 100 studies shows that about two-thirds have found job losses. They found that for every 10% increase, the reduction in overall employment is about 1% to 3% but the job loss for young workers is 3% to 6%. Studies have also found that firms are likely to cut their budget for on-the-job-training. For example, a 10% rise may imply a 28% drop in on-the-job training expenditure. Studies have also found that firms may strategically offer fewer hours to each worker while increasing the total number of workers hired. For example, in the US, workers working more than 20 hours a week are eligible for retirements benefits and those working over 30 hours are also eligible for health benefits. A study has found that for every $1 increase in the min wage, the number of workers working 20 hours or more decreased by 23% and those working 30 hours or more decreased by 15%. (d) Question #4: Does raising the min wage cut poverty rates? - The link between raising min wage and decreasing poverty rates is weak – not too surprising.

- Optional Readings: https://www.brookings.edu/opinions/three-simple-rules-poor-teens-should- follow-to-join-the-middle-class/, https://www.brookings.edu/research/work-and-marriage-the- way-to-end-poverty-and-welfare/ and https://www.brookings.edu/wp- content/uploads/2016/07/CreatinganOpportunitySociety1.pdf (e) Question #5: To what extent can we raise the min wage and still keep job losses to a minimum? - Some studies have also found that the min wage can be raised to around 50% of the economy’s overall average wage with little job loss to the workers who earn the min wage... link to page 1. For example, the average wage in San Francisco is around US$35 and its min wage is around US$17. Min wage workers have experienced little change in their employment. - Sources: https://www.labour.gov.on.ca/english/es/pubs/mwap/section_03.php, https://www.nber.org/papers/w12663.pdf, https://wol.iza.org/articles/employment-effects-of- minimum-wages/long, https://globalnews.ca/news/3943682/minimum-wage-hike-ontario- alberta/, https://www.fraserinstitute.org/article/minimum-wage-increase-job-killer, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/fi le/844350/impacts_of_minimum_wages_review_of_the_international_evidence_Arindrajit_Dube _web.pdf, https://www.jstor.org/stable/2524739, https://hbr.org/2021/06/research-when-a-higher- minimum-wage-leads-to-lower-compensation and https://www.sciencedirect.com/science/article/pii/S0927537116302469 #2 IMMIGRATION

Data 1: Overview of immigrants 2019 - 5,774,342 travel documents were issued to visitors worker and students - 341,180 permanent residents were admitted to Canada - Permanent and non-permanent immigration accounted for over 80% of Canada's population growth - About 58% of permanent residents were admitted under the economic category - 30,087 refugees resettled (the highest number of any state worldwide) - Around 22% of Canadians are immigrants - Since 1990, over six million immigrants have settled in Canada - In recent years, around of new immigrants settled in Toronto, Vancouver, and ⅔ Montreal Data 2: Origins and types of immigrants - The Federal Economic class includes skilled workers in trades and workers with Canadian experience (students) - Canadian Experience Class - QC has its own grading system, including points allocated to language, education, skills, experience, etc - According to Census 2016, the avg income of the economic class was $42k in 2016, with the Canadian Experience Class topping the group at $63,900. - The avg for the entire Canadian population was $45,400 in 2016. - The avg income for the family class was $18,400 in 2016. - The average income for the refugees and humanitarian class was $12,700 in 2016. Canada's population is shrinking: Canadian women, on average have 1.5 children, which is below the replacement rate of 2.1. This means the Canadian population is likely to shrink in the coming decades if this trend continues Are immigrants more or less educated than the Canadian-born population? - First gen: from the census 2016, immigrants are overall more educated than the Canadian-born population. For the age 25-64, 40% of new immigrants have at least a bachelor's degree compared to 25% of Canadian born population - Second-gen: Children of immigrants have a higher university completion rate. But the Canadian-born cohort earned a higher income. Children of refugees earned the least. (2015) Are immigrants economically mobile? - The intergenerational income elasticity (economic DNA) between parents and children is 0.2 for native-born Canadians, and 0.18 for immigrants.

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#3 EDUCATION - The Organization for Economic Co-operation and Development (OECD) launches a test every three years for students aged 15 to 16 around the world to evaluate their science, math and reading skills. - The set of exams is called the Program for International Students Assessment, or PISA. - The exams consisted of multiple-choice questions, problem-solving questions and collaborative problem solving that requires group work. The complete set of exams require approximately 800 minutes to complete (grade scaled to avg of 500) - Canada top 10 - From Census 2016: Census 2021 component on education to be released on November 30 th , 2022. - - About 54% of Canadians had post-secondary education , college or certificate (25%) and bachelor’s degree (29%), up from 48% in 2006. - - About 40% of women aged 25 to 64 had a bachelor’s degree versus 30% of Smen ; about 8% of men have apprenticeship (90% are male). - - Half of immigrants who landed between 2011 and 2016 had a bachelor’s degree , and 11% of First Nations had a bachelor’s degree. - - Field of studies (overall) : 24% worked in STEM (Science, Technology, Engineering and Math), 23% in business, 30% in arts, humanities and social science, and only about 7% in health. Within STEM, about 70% are male and 30% are female. - - Field of study (male versus female) : In 2019, male focused on fields such as engineering (80% of total enrollment) and mathematics (70%), while female

focused mostly in fields such as social science (79%) and education (78%). - - Salaries (aged 25 to 34) : STEM $68,000, business $59,000, arts, humanities and social science $49,000 and health $73,000. - The cicles vs the diamonds: greater access to education - Canada is red - how do we fare to the other countries? - Table 2 shows that QC has one of the lowest undergraduate tuition fees in Canada. The “graduation rate” in Table 3 is defined as the percentage of the population expected to earn at least a bachelor’s degree in their lifetime . What does the correlation coefficient of positive 0.1840 mean? relationship weak. And the size of the correlation? More fees -- more degrees - Do tuition fees affect people’s decision to pursue higher education? - - Some surveys have found that the cost of education affected their decision in not pursuing higher education (28% of respondents) but wanting to earn money and become independent at an earlier age was also a commonly cited reason (30%). - - A UK study has found that for every 10% rise in tuition fees, admissions can fall by 1.4% to 2.6% - Canada student loans: - - In 2016-2017, about 500,000 post-secondary students received student loans, which

accounted for about half of the post-secondary student population. Their total loans amounted to $2.6 billion. The average loan amount was $5,300 and the average grant amount (no need to repay) was $2,700. Over 90% of the grants were given to low-income households. The average loan balance was $13,500 by the time of graduation. The average age of the loan recipient was 23. Their default rate was 9%. Question #1: What are the economic costs of education? - What taxpayers pay: In 2019/2020, the total revenue of Canadian universities was $40 billion, of which 48% came from the federal and provincial governments. Student fees accounted for around 32%, with Ontario and Nova Scotia topping at 42% and 35%, respectively. In contrast, student fees accounted for 12% and 17% for NFL and Labrador and Quebec, respectively. Other revenues included grants and donations from industries and private donors. - Tuition and other fees: Tuition ranges from $2,550 (Memorial University of NFL) to $9,440 (Mount Allison University). - What else? Food? _______no?________; Rent? _____no?__________; Foregone income from a full-time job? ____yes (opportunity cost)____________. Sources: https://open.canada.ca/data/en/dataset/aab05b99-0100-4d83-9179-0b70551b16b8/resource/25a47cb2-727c-467b-be1b- 947f3205e743, https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3710002601 and https://www.univcan.ca/universities/facts- and-stats/tuition-fees-by-university/ (b) Question #2: What are the economic benefits of education? - Private benefits: - Higher salary – Stats Can has found that the median earnings of Canadians aged 25 to 64 in 2016 with high school diploma was $56,000, for apprenticeships was $73,000, for college diploma graduates was $68,000 and for bachelor’s was $82,000. - On average, every $1 spent by students on higher education, they earn $3.8 in return over their lifetime. - Job security – During the pandemic in May 2020, the US unemployment rate for workers with only a high school diploma was 15.3%. For college graduates, it was 7.4%. Less than half of high school graduates were working but two-thirds of college graduates were working (on site or at home). - Happiness – Polls show that college degree holders are happier than those with less education. Sources: https://www12.statcan.gc.ca/census-recensement/2016/as-sa/98-200-x/2016024/98-200-x2016024-eng.cfm, http://www.gallup-international.com/surveys/happiness-hope-economic-optimism/, https://apnews.com/50273b1dca214e11a94e2f298f651c53 and https://www.collegesinstitutes.ca/policyfocus/impact/ - Public benefits (positive externalities):

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- Employment: For adults aged 25-34 in OECD countries, 7% of those who have post-secondary education are unemployed, contrast with 15% for those with high school education or below; 12% of those who have post-secondary education are not in the labour market(unemployed and do not want to work), contrast with 35% of those with high school education or below. - Crime: Studies have found that a one-year increase in average years of schooling reduces murder and assault by almost 30%, motor vehicle theft by 20%, arson by 13%, and burglary and larceny by about 6%. This saves taxpayers’ money. - Health: Studies have found that a one-year increase in average years of schooling reduces the risk of having bad health by 18.5%, increases life expectancy by 1.7 years and increases income (in terms of health effects) by US$18,000. Sources: https://read.oecd-ilibrary.org/education/education-at-a-glance-2018/indicator-a3-how-does-educational-attainment- affect-participation-in-the-labour-market_eag-2018-9-en#page8, https://economics.handels.gu.se/digitalAssets/1439/1439011_49- 55_research_lochner.pdf and http://www1.oecd.org/education/innovation-education/37425753.pdf (c) Question #3: Should the government subsidize education? - Yes: Studies have found that, on average, every $1 spent on education yields $3 in private and public benefits. - Which levels of education should government focus on subsidizing? - Studies show that globally, the social returns to primary education are the highest, followed by high school and then tertiary education. Social returns from educating women are also higher than educating men . - Studies have also found that social returns depend on the stage of economic development of the economy. For low-income economies, it is best to invest in primary education. For middle- income and high-income economies, it is best to invest in secondary and tertiary education, respectively. Sources: http://documents.worldbank.org/curated/en/949711468740209672/pdf/multi-page.pdf, https://www.collegesinstitutes.ca/policyfocus/impact/ and https://www.tandfonline.com/doi/pdf/10.1080/09645292.2018.1484426?needAccess=true (d) Question #4: What skills are most valued in the job market?

Sources: https://scholar.harvard.edu/files/ddeming/files/deming_socialskills_aug16.pdf and https://www.economist.com/sites/default/files/learning_and_earning.pdf - Studies have found that employers increasingly value the social skills of their employees. Social skills include communication amongst co-workers, leadership skills, conflict resolution, organization skills, public speaking, group work, etc. Figure 3 shows the employment changes over time based on their hard (math) and soft (social) skills and such trends also mirror the trends in the remuneration for such workers. (e) Question #5: How would economists, and you, investigate the validity of the statements below? - Statement #1: “Since the 1990’s, women have been accounting for more than 50% of undergraduates and yet women consistently earn 8% to 31% less income than men. This is proof that women are just as educated as men and the pay gap is the result of bias or discrimination against women.” - Agree or disagree or maybe? How would you investigate whether this statement is correct? - Statement #2: "Computer programming, such as creating websites for companies, was mainly performed by female in the 1990s. In 2020, such jobs were held mainly by male. Pay in this profession has also increased substantially, after adjusting for inflation. This is evidence of bias or discrimination against women.” - Agree or disagree or maybe? How would you investigate whether this statement is correct?

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