But critics challenge effectiveness, necessity of such government programs
No doubt, Alberta is facing harsh times. In a bid to lighten the blow, the provincial government is launching a Job Creation Incentive Program in 2016 to support workers and employers during the economic downturn.
The program is meant to encourage hiring by providing grants to employers for creating new positions. Grants will be worth up to $5,000 for each new job and employers will be eligible for up to $500,000 in total support — the equivalent of 100 new full-time jobs. Grants will be made available on a first-come, first-serve basis.
“We really wanted to be actively demonstrating our commitment to business to support them,” said Lori Sigurdson, minister of advanced education and minister of jobs, skills, training and labour.
“We’re in a tough economic time and so we really want to make sure we’re working with entrepreneurs, innovators, job creators in Alberta to help them be able to support their businesses.”
But does this kind of initiative really have an impact? And does it make sense? Not really, according to Jack Mintz, president’s fellow at the School of Public Policy at the University of Calgary.
Studies have shown these kinds of incentives are not that effective, and only about 20 to 30 per cent of the credit creates jobs because employers would have hired people anyway, he said.
“Five-thousand dollars isn’t going to make you hire somebody the way the economy is right now in Alberta,” he said. “You’d have to pay pretty much 100 per cent tax credit of the salary right now.
“People are not going to go out and hire somebody for $50, $80, $100,000 — whatever the price is — for a $5,000 tax credit, so it’ll be particularly ineffective during this downturn in Alberta. And then, of course, if the economy starts picking up own the road, then the question is do you really need a new hire tax credit at that point because people will start hiring workers anyway.”
The biggest fear is the $175 million will go to employers that were going to make that hiring decision already, said Justin Smith, director of policy, research and government relations at the Calgary Chamber, “so it’s incenting behaviour that would otherwise occur naturally.”
“The program is… attempting to do something that the market is already doing on its own, so we’re facing significant economic headwinds in Alberta and most employers will tell you that labour is typically 10 per cent cheaper than it was maybe 16 or 18 months ago, if not more, and so employers are able to pay $5,000 or $10,000 less for the same job than they were able to at the height of the boom in 2012 or 2013. So, it’s a significant government expense that’s addressing a cyclical problem that I think the market’s already addressing, as opposed to some longer term structural issues that are more amenable to government intervention.”
Hiring tax credits were part of U.S. president Barack Obama’s stimulus bill to support economic recovery but, looking back, it was felt these credits did not spur employment, said Smith.
“It has been attempted both at the federal and state level in the U.S., with very little success.”
But the Alberta government is committing $178 million over two years, and employers can hire up to 100 people, which could add up to 27,000 new jobs in a year, said Sigurdson.
“That’s a significant contribution, so I challenge some of the critics out there. I think that this is demonstrating very clearly the government of Alberta is supporting Alberta,” she said.
“Even though we are in an economic downturn — largely due to the price of oil, so some sectors aren’t hiring as much — there’s certainly other sectors (where) this would be a big support to them… I know that employers are still wanting to hire in this economic time, so I think it does give them a boost.”
Obviously, if offered $5,000, employers are going to apply and receive that credit, said Smith, so the government can issue a press release talking about the wonderful uptake of the program and job creation, but it’s questionable how many of those jobs were created on the basis of this policy, he said.
“It’s very easy from a PR standpoint to spin this as a success but when it comes to the overall health of our economy, I don’t think it’s going to have the effect they think.”
Is $5,000 enough?
For employers, there’s an element of risk associated with the hiring decision, said Smith.
“You need to ensure you have a pipeline of business to require that hire in the first place. And there’s financial risks associated with hiring full-time staff, whether it be the actual salary, the benefits or other payroll costs associated with that, investments in training and onboarding. You only do that when it’s critical for your business to add that particular employee to accomplish your business goals or to hit your budget or to move your business forward and grow.
“If all of those factors align, typically businesses will make that hiring decision, or not, on the basis of those factors, not on the basis of a $5,000 hiring credit that they may be able to get through a level of government. It’s just too small of a credit to fundamentally affect a hiring manager’s decision.”
What Alberta needs is more investment, according to Mintz, which is of course difficult during a downturn, as employers are already being challenged by the province’s rising minimum wage (to $15 by 2018), rising corporate taxes and royalty rates and carbon taxes.
“This $5,000 credit doesn’t even offset the minimum wage increase that’s being applied so it’s kind of like giving in one hand and taking away with the other… The government needs a much bigger agenda than simply ineffective new hire tax credits to employ people,” he said, adding infrastructure spending would make more sense.
Alberta is not facing a huge unemployment crisis right now, it’s facing a liquidity crisis and access-to-capital issue, said Smith.
“So when I talk about those longer term structural issues, that’s predominantly what I’m talking about, ensuring that we remain a hospitable environment for investments, because that’s what’s going to drive business creation and that’s what’s going to drive employment growth over the long term.”
If the government was prepared to subsidize, say, 50 per cent of new wages across the province for any new jobs created, that might make sense, he said.
“(This is) a very slippery slope, in our opinion — it’s just a very heavy handed public sector approach or encroachment into a private labour market.”
The big question is how to define a “new hire,” said Mintz.
“If you break up a firm and hire new people, then all of a sudden you’re getting new-hire credit so it’s not particularly a very effective type of tax credit,” he said. “A new hire credit is really very difficult to police and audit properly.”
If the appropriate safeguards aren’t in place, it will be hard to ward off nefarious behaviour, said Smith.
“There has to be some way for the government to take an assessment of existing employment right now or on Jan. 1st and be able to recognize what a legitimate new addition to that employment base is, and therefore be entitled to the credit, versus a company that has gone through a series of layoffs and maybe augments the amount of those layoffs in the tail end of 2015, only to supplement back their workforce in 2016,” he said.
“There needs to be a way to police that and I don’t see that in the details yet.”
The Alberta government has said grants will be calculated using insurable earnings data employers must submit to the federal government. Net new employment is determined from employment in 2016 over 2015 to determine the employer’s grant eligibility for 2016.
“These need to be net new hires so if people are laid off by a company, and then they rehire with this, it has to be a net new job,” said Sigurdson.
“That means we’re using employment insurance data that employers already submit to the federal government, and it has to be above what the 2016 submission would have been. So if they lay people off and then rehire them, there’s nothing net new, so we’ll know how many people they hired in 2015. So that’s a safeguard to make sure that these are actually an increase in working positions.”