Downward economic cycles can be frustrating, generally resulting in layoffs and declines in average wages.
In an effort to stay competitive, companies can eliminate benefits, modify pensions or freeze wages.
However, when economic conditions improve, an upward cycle of hiring and increased salaries usually follows.
Beyond these normal cycles are some considerations for future generations for how the global marketplace will impact their employment and financial opportunities.
It is clear that emerging markets, such as China, India and Brazil, are outpacing developed countries in growth. The labour market is significantly cheaper and most manufacturing facilities have moved abroad. Developed countries have also used technologies and automation to work smarter - not harder.
Perhaps this decade will be classified as the period of equalization between emerging and developed markets. The decade ahead will likely go down as a period of higher unemployment and a stagnant period of growth if we continue on the current path.
We are living in a global market place that is becoming increasingly competitive with what I see as five major obstacles.
1. Organized labour demanding higher wages and benefits
It seems there are daily announcements regarding dissatisfied workers. A common complaint is not having a wage increase that matches the cost of living. Organized labour has become powerful in developed countries, demanding increased salaries and benefits. On the opposite spectrum, we know about poor employment standards and human rights issues in some of the emerging countries and how people are working for a fraction of what developed country workers make. As employees demand more, are they effectively pricing themselves out of the global market? What is the economic incentive for companies to continue their operations in Canada when other overseas markets will allow for lower costs to produce the same goods?
2. Attitudes on doing certain types of work
Some Canadians are choosing not to work because they can't find the job they like. That attitude, as well as salary levels, should be adjusted if we want lower unemployment. In this period of equalization, is it reasonable to force higher minimum wages, or for university graduates to expect six figure salaries immediately? If we want companies in Canada to hire, it has to make sense relative to the global marketplace.
3. Environmental issues
There is always a balance between economic progress and the environment. This is especially the case for Canada, where 45 per cent of the publicly traded companies on the S&P/TSX Composite Index are in the resource sector. It would not surprise me to see this exceed 50 per cent in the coming years. There are economic consequences if we put up too many environmental road blocks for companies. As investors, we also have to see how this impacts the companies we invest in. Other countries are continuing to develop resources with less environmental regulations. We continue to send raw resources to other countries that create pollution en route and in processing. A prime example is shipping coal to Asia.
Investors have to monitor the changing political landscape. Stringent employment and strong environmental standards have an impact on investments. The great country we live in was built during a period where environmental and employment standards were significantly different than today. Most people drive a car to work, take a jet on vacation, enjoy lower energy and power costs to run their home. None of these can occur without an impact to the environment. Shoppers are often looking for the lowest price and those items are often manufactured in a country outside of Canada. The majority of Canadians would buy something made in a country that lacks appropriate human rights and environment standards if they could save money. In many ways, Canadians are being hypocritical when they complain too strongly about projects that may impact the environment. If the product is going to be bought or consumed anyway, one could argue we should focus on getting the most economic benefit ourselves. In controlling growth in our own county, we have better control over the standards that are put in place. If we continue to only consume goods manufactured abroad, we have limited control.
4. Companies hoarding cash, cutting risk
Some say the problem in North America today is not that we are taking too much risk, it's that we are not taking enough. The excitement of corporations expanding in years past with new ideas has largely been replaced by fear and preservation. Companies are hoarding cash and operating in regions that have fewer regulations, less organized labour and litigation and fewer environmental complexities.
5. Continued advancements in technology
Advancements in technology can be both a positive and a negative. The obvious negative is jobs can be lost through automation. There is a cost to automating to replace manual labour. As labour costs rise, companies have a greater long-term incentive to automate. Machines do not go on strike to demand more, and do not require pensions and benefits.
Political announcements and regulations are having an increasingly important role to consider when monitoring the economy and picking investments. As the emerging markets continue to outpace our Canadian marketplace, we should expect the employment challenges to continue on the same path unless our attitudes change, and we become more competitive. Might our current levels of unemployment be closer to the new norm? As one wise person once said, "you can not have your cake and eat it too."
Kevin Greenard CA FMA CFP CIM is an associate portfolio manager with The Greenard Group at ScotiaMcLeod in Victoria. His column appears every second week. Call 250-389-2138.
