C HAPTER 1: T HE P ROSPERITY C HALLENGE
outside of an urban area. And Ontario is considerably more rural than its peer states – 72 per cent versus 82 per cent. As a result, we would expect Ontario’s productivity to be $3,000 per capita less than the median of our peer states. That leaves a gap of over $4,000 per capita per person – for a worker in the same part of the same industry in the same type of environment. What accounts for the remainder? We don’t fully know yet, but there are pieces of the puzzle that we do know and others that we are in the process of exploring.
In total, we posit four pieces:
• The clearest piece of the puzzle is investment . In two critical ways, we invest significantly less in enabling our workers than our peer states. The first is investing in machinery and equipment (M&E) that makes workers more productive. Over the past 20 years (and probably more, but that is as far back with the data that we have gone), Ontario enterprises have invested 14 per cent less in M&E annually than the enterprises of our peer states. Suffice it to say, 14 per cent per year, decade after decade, adds up. The second is in higher education. While Ontario invests as much in K-12 and colleges as its U.S. peers, the U.S. peers invest just less than double, per capita and per student, in university education. And by U.S. peers, we don’t mean governments. We mean the entire jurisdiction, from all sources, including government funding, tuition and donations. In total, we graduate 92 per cent of the university students annually and spend 55 per cent per student compared to our peer states. This is a major problem for productivity. The data is extremely clear: higher levels of education are tightly correlated with higher wages, and higher wages are tightly correlated with higher productivity.
So more education produces more productive workers.
On this front, we invest considerably less to produce considerably less productive workers on average. So investment is the first explanation and the data is quite clear: We invest less and we get less. • The second issue, related to the first, is motivation – motivation as individuals to work and invest, and motivation as firms to invest. Motivations are influenced by the marginal tax rates faced by labour and capital. Ontario’s marginal tax rates on labour and capital are considerably above those of our representative peer states, suggesting that our motivations to work and invest are lower – which may partially explain the investment numbers I touched on earlier.
11
Powered by FlippingBook